AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
POLICY MANAGEMENT SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
SOUTH CAROLINA 6411 57-0723125
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
----------------
ONE PMSC CENTER (PO BOX TEN)
BLYTHEWOOD, SC (COLUMBIA, SC) 29016 (29202)
(803) 333-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN G. MORRISON, ESQ., SECRETARY
POLICY MANAGEMENT SYSTEMS CORPORATION
ONE PMSC CENTER
BLYTHEWOOD, SOUTH CAROLINA 29016
(803) 333-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
----------------
WITH A COPY TO:
MORTON A. PIERCE, ESQ. ROBERT A. SCHWED, ESQ.
RICHARD D. PRITZ, ESQ. REBOUL, MACMURRAY,
DEWEY BALLANTINE LLP HEWITT, MAYNARD & KRISTOL
1301 AVENUE OF THE AMERICAS 45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10019-6092 NEW YORK, NEW YORK 10111
(212) 259-8000 (212) 841-5700
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AND UPON
COMPLETION OF THE MERGER DESCRIBED HEREIN.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEES (3)
<S> <C> <C> <C> <C>
Common stock, par value $.01 per share. 10,862,015 $ 14.00 $152,068,210 $40,146
</TABLE>
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(1) Relates to the maximum number of shares of common stock of the Registrant
to be retained by existing security holders after the proposed merger,
based on 25% of the number of shares of common stock and 25% of the number
of options to purchase shares of common stock, in each case outstanding as
of April 28, 2000.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act, based on the proposed
cash consideration of $14.00 per share offered to existing security
holders in the merger.
(3) Calculated pursuant to rule 457(f) under the Securities Act, as follows:
.000264 multiplied by the proposed maximum aggregate offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[PMSC GRAPHIC OMITTED]
ONE PMSC CENTER
BLYTHEWOOD, SOUTH CAROLINA 29016
(803) 333-4000
___________ , 2000
Dear Stockholder:
We are pleased to inform you that PMSC has signed a merger agreement with
an affiliate of Welsh, Carson, Andersen & Stowe, a leading private investment
firm. In the proposed merger, you will have the right to elect either to retain
your shares or to receive $14 per share in cash, subject to between 75% to 93%
of the existing shares being converted to cash. If stockholders elect to retain
more than 25% or fewer than 7% of their shares, they will be subject to
proration to bring the amount of cash and stock within these limits. The
election and proration procedures are described in the attached proxy
statement/prospectus.
We have scheduled a special meeting of stockholders to consider and vote
on the merger agreement. We cannot complete the merger without the approval of
holders of two-thirds of the outstanding shares of PMSC common stock.
After careful consideration, your board of directors has approved the
merger agreement and determined that the merger is fair to and in the best
interests of PMSC and its stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT. In arriving at its
determination and recommendation, the board of directors took into account the
factors described in the attached proxy statement/prospectus, including the
opinion of Credit Suisse First Boston to the effect that the aggregate merger
consideration is fair from a financial point of view to PMSC stockholders.
PMSC shares are listed on the NYSE under the symbol "PMS", and the closing
price was $ per share on , 2000. After the merger, the new name of PMSC would
be "Mynd Corporation." PMSC has applied to use "YND" as its NYSE trading symbol
after the merger.
Your vote is very important. Please promptly complete, date, sign and
return the enclosed proxy card in the enclosed prepaid return envelope to
ensure that your shares will be represented at the special meeting. If you do
not vote at all, it will, in effect, count as a vote against the merger.
If you wish to retain some or all of your shares in the merger, complete,
date, sign and return the enclosed form of retention election. Certificates for
the shares you wish to retain or an acceptable form of guaranteed delivery must
accompany your form of retention election. Your retention election must be
received by the exchange agent by 5:00 p.m., New York City time, on
, 2000 or you will be deemed to have elected to receive only cash in
the merger.
You should consider the matters discussed under "Risk Factors" on page 11
of the attached proxy statement/prospectus before voting on the merger
agreement. Please review carefully the entire proxy statement/prospectus.
After the special meeting and the completion of the merger, you will
receive proxy information concerning the 2000 annual meeting of PMSC (then to
be known as Mynd Corporation) stockholders.
Very truly yours,
G. Larry Wilson
Chairman, President and
Chief Executive Officer
----------------
Your vote is very important.
Please promptly complete, date, sign and return your proxy.
----------------
<PAGE>
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in this proxy
statement/prospectus or the PMSC shares to be retained by stockholders in the
merger, or determined if the proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated , 2000, and is first
being mailed to stockholders on or about , 2000.
<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To the Stockholders of PMSC:
PMSC will hold a special meeting of stockholders at , at a.m., local
time, on , 2000, for the following purposes:
o To consider and vote upon a proposal to approve the Amended and Restated
Agreement and Plan of Merger dated April 27, 2000 between PMSC and Politic
Acquisition Corp., an affiliate of Welsh, Carson, Anderson & Stowe VIII,
L.P., under which Welsh, Carson, Anderson & Stowe VIII and its
co-investors will acquire between 75% and 93% of the shares of PMSC common
stock and PMSC will change its name to Mynd Corporation,
o If the merger agreement is not approved by stockholders, to consider a
separate proposal to amend the articles of incorporation of PMSC to change
its name to Mynd Corporation, and
o To transact such other business as may properly come before the special
meeting or any adjournments or postponements of the special meeting.
We hope that you will attend the special meeting, but even if you are
going to attend, you are urged to complete, date and sign the enclosed proxy
and mail it promptly in the enclosed prepaid return envelope.
If your shares are held in "street name" by your broker or other nominee, only
that broker or nominee can vote your shares. You should follow the directions
provided by your broker or nominee regarding how to instruct them to vote your
shares.
Stockholders owning PMSC common stock as of the close of business on
, 2000, are entitled to vote at the special meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
MERGER, AND, IF A SEPARATE VOTE IS TAKEN, THE PROPOSED NAME CHANGE. The
affirmative vote of holders of two-thirds of the shares of PMSC common stock is
required to approve the proposed merger, and, if a separate vote is taken, the
proposed name change.
By Order of the Board of Directors
Stephen G. Morrison, Esq.
Secretary
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
-----
<S> <C>
Questions and Answers About the Merger and the Name Change .................1
Summary ....................................................................4
The Companies .............................................................4
Share Ownership of PMSC After the Merger ..................................4
What You Will Receive in the Merger .......................................4
The Special Meeting .......................................................5
The Record Date ...........................................................5
Vote Required .............................................................5
Recommendation of the Board ...............................................5
Opinion of PMSC's Financial Advisor .......................................5
Terms of the Merger Agreement .............................................5
Accounting Treatment ......................................................7
Interests That Differ from Your Interests .................................7
Material Federal Income Tax Consequences ..................................7
Financing of the Merger ...................................................7
No Dissenters' Appraisal Rights ...........................................8
Governmental Approvals ....................................................8
Stock Exchange Listing ....................................................8
Selected Historical Consolidated Financial Data ...........................9
Summary Unaudited Pro Forma Financial Data ...............................10
Risk Factors ..............................................................11
Risks Factors Relating to the Merger .....................................11
Risks Factors Relating to Our Business ...................................12
A Warning About Forward-Looking Information ...............................14
Certain Supplemental Financial Analysis ...................................15
The Special Meeting .......................................................17
General ..................................................................17
Matters to be Considered .................................................17
Proxies ..................................................................17
Solicitation of Proxies ..................................................17
Form of Retention Election ...............................................17
Record Date and Voting Rights ............................................18
Recommendation of the PMSC Board of Directors ............................18
The Companies .............................................................20
PMSC .....................................................................20
Politic Acquisition and Welsh, Carson, Anderson & Stowe ..................20
The Merger ................................................................22
Background of the Merger .................................................22
PMSC's Reasons for the Merger ............................................25
Opinion of PMSC's Financial Adviser ......................................27
Merger Consideration .....................................................31
Election Procedures ......................................................35
Surrender and Exchange of Stock Certificates .............................36
No Fractional Shares .....................................................36
Interests That Differ from Your Interests ................................36
Material Federal Income Tax Consequences .................................38
Accounting Treatment .....................................................43
Stock Exchange Listing ...................................................43
</TABLE>
i
<PAGE>
<TABLE>
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PAGE
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<S> <C>
Resale of PMSC Common Stock After the Merger .............................44
No Dissenters' Appraisal Rights ..........................................44
Governmental Approvals ...................................................44
Financing ................................................................44
Comparison of the Rights of Holders of Common Stock of PMSC Before and
After the Merger .........................................................47
Pro Forma Consolidated Financial Statements (Unaudited) ...................49
Terms of the Merger Agreement .............................................55
Effective Time of the Merger .............................................55
Effects of the Merger ....................................................55
Representations and Warranties ...........................................55
Pre-Closing Covenants ....................................................55
Conditions Precedent .....................................................57
Termination ..............................................................59
Termination Fees and Expenses ............................................60
Employee Benefit Matters .................................................61
PMSC Stock Compensation Plans ............................................61
Indemnification of Directors and Officers ................................61
Directors and Officers Liability Insurance Coverage ......................61
Amendment ................................................................61
Certain Stockholder Arrangements...........................................62
Management of PMSC After the Merger .......................................63
Market Price and Dividends on PMSC Common Stock ...........................65
Security Ownership of Certain Beneficial Owners ...........................66
Security Ownership of Directors and Management ............................67
Other Matters Being Submitted to a Vote of PMSC Stockholders ..............68
Experts ...................................................................69
Legal Counsel .............................................................69
Stockholder Proposals .....................................................69
Other Matters .............................................................69
Where You Can Find More Information .......................................69
Incorporation of Certain Documents by Reference ...........................70
Appendix A ...............................................................A-1
Appendix B ...............................................................B-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE NAME CHANGE
Q: WHAT WILL HAPPEN IN THE MERGER?
A: If the merger becomes effective, Politic Acquisition Corp., an
affiliate of Welsh, Carson, Anderson & Stowe VIII, L.P. will be
merged into PMSC with PMSC surviving the merger. After the merger,
Welsh, Carson, Anderson & Stowe VIII, WCAS Capital Partners III
and their co-investors would own between approximately 75% and 93%
of the outstanding shares of common stock of PMSC with the
remainder being owned by the stockholders of PMSC immediately
prior to the merger. After the merger PMSC would continue under
the name "Mynd Corporation." It is expected that PMSC common stock
will continue to be listed on the New York Stock Exchange after
the merger. PMSC has applied to use "YND" as its NYSE trading
symbol after the merger.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Subject to a requirement that between 75% and 93% of the
outstanding shares of PMSC common stock be converted to cash in
the merger, you may either receive $14.00 per share in cash or
elect to retain your shares of PMSC common stock. You may receive
cash for a portion of your shares and elect to retain a portion of
your shares.
Q: WILL I RECEIVE THE TYPE OF CONSIDERATION THAT I ELECT TO RECEIVE?
A: You might not receive the type of consideration that you elect to
receive with respect to all of your shares. This is because the
merger agreement requires that between 75% and 93% of the
outstanding shares of PMSC common stock be converted to cash in
the merger. The allocation of retained shares among PMSC
stockholders depends on the elections made by you and the other
stockholders of PMSC. Under the proration procedures contained in
the merger agreement:
o if the stockholders of PMSC elect to retain less than 7% of
their shares in the aggregate, each stockholder will be
required to retain some shares in addition to any shares it
had elected to retain, or
o if the stockholders of PMSC elect to retain more than 25%
of their shares in the aggregate, each stockholder will be
required to receive cash for some of the shares it had
elected to retain.
Q: WHY IS THE PMSC BOARD OF DIRECTORS RECOMMENDING THE MERGER?
A: PMSC's board of directors believes that the merger and the
consideration you will receive in the merger are fair to you and
in PMSC's and your best interests. The board made its
determination after careful consideration of the factors described
in this document, including the opinion of Credit Suisse First
Boston to the effect that the aggregate merger consideration is
fair from a financial point of view to PMSC stockholders.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working to complete the merger as quickly as possible. We
hope to complete the merger on , 2000, the date of the
special meeting, and if not, as quickly as possible thereafter.
Q: WHY IS PMSC CHANGING ITS NAME TO MYND CORPORATION?
A: Our business is more diverse than it was when we first chose the
name "Policy Management Systems Corporation." At that time, we
were primarily a provider of computerized insurance policy
management systems. Since then we have established ourselves as a
provider of systems for the life insurance, annuities, risk
management and mortgage origination industries, as well as a
provider of professional, consulting and outsourcing services.
Consequently, our name no longer adequately
1
<PAGE>
represents our extensive products and services capabilities. We
believe that the name Mynd reflects our worldwide reputation for
visionary leadership and experience in technology and the
insurance and related financial service industries. The PMSC
board has therefore determined that the proposed name change is
an important step to provide a more accurate perception of PMSC,
its business and its role in the marketplace.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained
in this document, please complete, date and sign your proxy card.
Then mail your completed, dated and signed proxy card in the
enclosed prepaid return envelope as soon as possible so that your
shares can be voted at the special meeting. In addition, if you
wish to retain some or all of your shares, please complete, date
and sign the enclosed form of retention election and return it to
the exchange agent as soon as possible.
Q: WHAT HAPPENS IF I DON'T RETURN A PROXY CARD OR A FORM OF RETENTION
ELECTION?
A: The failure to return a proxy card will have the same effect as
voting against the merger and, if a separate vote is taken, the
name change. If you do not timely return a properly completed form
of retention election, you will be treated as if you had elected
to receive cash for all your PMSC common stock.
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting and vote your shares in
person.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote by sending a written notice stating
that you would like to revoke your proxy or by completing and
submitting a new, later dated proxy card to the Secretary of PMSC.
If your shares are held in "street name," you must follow the
directions provided by your broker to change your vote. You also
can attend the special meeting and vote in person. See "The
Special Meeting - Proxies."
Q: MAY I CHANGE MY RETENTION ELECTION AFTER I HAVE MAILED MY
RETENTION ELECTION CARD?
A: Yes. You may revoke or change your retention election by sending a
written notice stating that you would like to revoke your
retention election or by completing and submitting a new, later
dated form of retention election to the exchange agent. However,
your final retention election form is due by 5:00 p.m., New York
City time, on , 2000. If your shares are held in
"street name," you must follow the directions provided by your
broker to change your election.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without
instructions from you. You should follow the directions provided
by your broker to vote your shares.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: If you wish to elect to retain some or all of your shares of PMSC
common stock, you must send in either your PMSC stock certificates
for such shares or an acceptable form of guaranteed delivery with
your form of retention election. If you do not wish to elect to
retain shares of PMSC common stock, you should not send in your
stock certificates now. After the merger is completed, you will
receive written instructions for exchanging your PMSC stock
certificates for cash or, if applicable due to proration, both
cash and stock certificates representing shares that you will
retain. See The Merger -- Election Procedures."
Q: MAY I EXERCISE DISSENTERS' APPRAISAL RIGHTS IN THE MERGER?
A: No. In accordance with South Carolina law, stockholders of PMSC
are not entitled to exercise dissenters' appraisal rights in
connection with the merger.
2
<PAGE>
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or would like
additional copies of this proxy statement/prospectus, you should
contact:
Policy Management Systems Corporation
One PMSC Center
Blythewood, South Carolina 29016
Telephone Number: (803) 333-4000
Attention: Stephen G. Morrison, Secretary
or
D.F. King & Company, Inc.,
the proxy solicitor who may be
called toll-free at (888) 242-8151.
3
<PAGE>
SUMMARY
This summary, together with the questions and answers on the preceding
pages, highlights important selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. For a complete understanding of the merger and the legal
terms of the merger agreement, you should read carefully this entire document
and the merger agreement attached as Appendix B. For more information on PMSC,
see "Where You Can Find More Information" on page . To the extent applicable,
we have included page references parenthetically to direct you to more complete
descriptions of the topics presented in this summary.
THE COMPANIES (see page 20)
POLICY MANAGEMENT SYSTEMS CORPORATION
One PMSC Center
Blythewood, South Carolina 29016
(803) 333-4000
We are a leading provider of enterprise software and electronic commerce
systems, related professional services and business process outsourcing
designed to meet the needs of the global insurance and related financial
services industries.
POLITIC ACQUISITION CORP.
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, New York 10022
(212) 893-9500
Politic Acquisition is a new South Carolina corporation created solely to
effect the merger and related transactions. Politic Acquisition is currently
100% owned by WCAS VIII. Prior to the merger, WCAS Capital Partners III, L.P.,
and other affiliates of WCAS, will also become stockholders of Politic
Acquisition. In addition, four executive officers of PMSC will have the
opportunity to purchase shares of PMSC common stock after the merger. See "The
Merger--Interests That Differ From Your Interests." Politic Acquisition has not
otherwise conducted any business or operations and will not otherwise conduct
any business or operations.
SHARE OWNERSHIP OF PMSC AFTER THE MERGER (see page 46)
In the merger each share of Politic Acquisition common stock will be
converted into one share of PMSC common stock. As a result, WCAS VIII and its
co-investors would own between approximately 75% and 93% of the outstanding
shares of PMSC common stock with the remainder being owned by the stockholders
of PMSC immediately prior to the merger.
WHAT YOU WILL RECEIVE IN THE MERGER (see page 31)
Subject to the requirement that between 75% and 93% of PMSC's common stock
be converted to cash in the merger, you may elect to either retain your shares
of PMSC common stock or receive $14.00 per share in cash. You may elect to
receive cash for a portion of your shares and retain a portion of your shares.
If you wish to retain some or all of your PMSC shares, you should make
your retention election on the form of retention election which is enclosed
with this proxy statement/prospectus. Your completed form of retention election
must be received by American Stock Transfer & Trust Company, our exchange
agent, before 5:00 p m., New York City time, on , 2000, or you will
be deemed to have elected to receive only cash in the merger. If you elect
4
<PAGE>
to retain shares you must send the PMSC stock certificates representing the
shares you wish to retain or an acceptable form of guaranteed delivery to the
exchange agent with your form of retention election. See "The Merger - Election
Procedures."
THE SPECIAL MEETING (see page 17)
The special meeting will be held on , 2000, at a.m.,
local time, at . At the special meeting, you will be asked to
consider and vote upon a proposal to approve the merger agreement. If the merger
agreement is not approved at the special meeting, you will be asked to consider
and vote upon a separate proposal to approve an amendment to PMSC's articles of
incorporation to change its name to Mynd Corporation.
RECORD DATE (see page 18)
Holders of record of PMSC common stock at the close of business on
, 2000 are entitled to notice of and to vote at the special meeting.
As of that date, there were shares of PMSC common stock outstanding held by
approximately holders of record. If you held PMSC common stock at the close of
business on the record date, you are entitled to one vote per share on any
matter that may properly come before the special meeting.
VOTE REQUIRED (see page 18)
The affirmative vote of holders of two-thirds of the shares of PMSC common
stock is required to approve the proposed merger agreement. If a separate vote
is taken, the affirmative vote of holders of two-thirds of the shares of PMSC
common stock is required to approve the proposed name change.
RECOMMENDATION OF THE BOARD (see page 18)
After careful consideration, PMSC's board of directors approved the merger
agreement and determined that the merger is fair to and in the best interest of
PMSC and its stockholders. THE PMSC BOARD RECOMMENDS THAT YOU VOTE "FOR" THE
MERGER AGREEMENT.
In arriving at its determination and recommendation, the board of
directors took into account the factors described on pages 25 and 26.
If the merger agreement is not approved by PMSC stockholders at the
special meeting and a separate vote is taken to amend PMSC's articles of
incorporation to change its name to Mynd Corporation, THE PMSC BOARD RECOMMENDS
THAT YOU VOTE "FOR" THE NAME CHANGE.
OPINION OF PMSC'S FINANCIAL ADVISOR (see page 27)
The PMSC board of directors has received the opinion of PMSC's financial
advisor, Credit Suisse First Boston, that, as of the date of that opinion, the
aggregate consideration to be received by the holders of PMSC's common stock in
the merger was fair from a financial point of view to those holders. The full
text of the written opinion of CSFB dated March 30, 2000 is attached to this
proxy statement/prospectus as Appendix A, and you should read it carefully and
in its entirety. THE OPINION OF CSFB IS DIRECTED TO PMSC'S BOARD OF DIRECTORS
AND IS NOT A RECOMMENDATION TO YOU AS TO HOW YOU SHOULD VOTE WITH RESPECT TO
MATTERS RELATING TO THE PROPOSED MERGER OR WHETHER TO ELECT CASH OR TO RETAIN
SHARES IN THE MERGER.
TERMS OF THE MERGER AGREEMENT (see page 54)
The merger agreement is attached to this proxy statement/prospectus as
Appendix B. You should read the merger agreement in its entirety. It is the
legal document that governs the merger.
CONDITIONS TO THE MERGER. The completion of the merger depends upon the
satisfaction of a number of conditions, including:
5
<PAGE>
o the approval of the merger agreement by the affirmative vote of
holders of two-thirds of the outstanding shares of PMSC common stock,
o the continued accuracy of each party's representations and warranties
and the fulfillment of each party's promises contained in the merger
agreement,
o the absence of legal prohibitions and the receipt of governmental and
third party consents and approvals,
o the receipt of the financing needed to consummate the merger,
o delivery of a customary solvency letter to the PMSC board, and
o PMSC not having suffered a change that could reasonably be expected to
have a material adverse effect on PMSC and its subsidiaries.
Each party may, at its option, waive the satisfaction of any condition to that
party's obligations under the merger agreement. EVEN IF THE STOCKHOLDERS
APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE
CONSUMMATED.
TERMINATION. The merger agreement may be terminated under the following
specified circumstances:
o either PMSC or Politic Acquisition may terminate the merger agreement
if the merger has not been completed by September 30, 2000, unless the
failure to complete the merger is the result of a material breach of
any obligation under the merger agreement by the party seeking to
terminate,
o either PMSC or Politic Acquisition may terminate the merger agreement
if PMSC fails to obtain the required two-thirds stockholder approval
at the special meeting,
o PMSC may terminate the merger agreement prior to stockholder approval
of the merger agreement in connection with an alternative third party
acquisition transaction that its board believes in good faith to be
more favorable to PMSC stockholders than the merger, and
o Politic Acquisition may terminate the merger agreement in connection
with a decision by the PMSC board not to recommend the merger or the
PMSC board's recommendation of an alternative third party acquisition
transaction.
The merger agreement can be terminated under other circumstances which are
described on pages and .
NO SOLICITATION. PMSC has agreed that it will not solicit or initiate any
discussions, submissions of proposals or offers or negotiations with or,
subject to the fiduciary duties of the PMSC board, negotiate or provide
information to, any third party regarding an acquisition of PMSC by a third
party.
FEES AND EXPENSES. PMSC will be required to pay Politic Acquisition a
termination fee of $19 million and up to $5 million as reimbursement for
out-of-pocket expenses if:
o the merger agreement is terminated by Politic Acquisition after the
PMSC board withdraws, modifies or amends in a manner adverse to
Politic Acquisition its approval or recommendation of the merger or
approves, recommends or endorses any proposal for, or authorizes PMSC
to enter into, an alternative third party acquisition transaction,
o PMSC enters into a written agreement with respect to an alternative
third party acquisition transaction or terminates the merger agreement
in connection with the commencement of a tender offer by a third
party, or
6
<PAGE>
o the merger agreement is terminated other than by reason of Politic
Acquisition's breach of the merger agreement and within 12 months of
the termination PMSC enters into or consummates a transaction that was
the subject of an third party inquiry, proposal or offer that was
publicly announced or submitted to PMSC prior to the termination of
the merger agreement.
ACCOUNTING TREATMENT (see page 43)
The merger will be accounted for as a recapitalization. Accordingly, the
historical basis of PMSC's assets and liabilities will not be affected by the
merger.
INTERESTS THAT DIFFER FROM YOUR INTERESTS (see page 36)
The executive officers and directors of PMSC may have interests in the
merger that are different from, or in addition to, the interests of
stockholders generally. Five executive officers of PMSC, including G. Larry
Wilson, who is also a director, have employment agreements with PMSC. Four of
these executive officers, including Mr. Wilson, have entered into letter
agreements with Politic Acquisition outlining terms of their continued
employment after the merger. PMSC's executive officers, as well as PMSC's
nonemployee directors, would become entitled to additional benefits under
PMSC's benefit plans as a result of the merger. In addition, arrangements have
been made in the merger agreement to continue directors' and officers'
liability insurance for the benefit of the current executive officers and
directors of PMSC.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (see page 38)
For a summary of the material U.S. federal income tax consequences of the
merger, see "The Merger -- Material Federal Income Tax Consequences."
BECAUSE SOME TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON YOUR
PARTICULAR CIRCUMSTANCES, IT IS RECOMMENDED THAT YOU CONSULT YOUR TAX ADVISER
CONCERNING THE FEDERAL, AS WELL AS ANY STATE, LOCAL OR FOREIGN, TAX
CONSEQUENCES OF THE MERGER TO YOU.
FINANCING OF THE MERGER (see page 44)
In order to pay the cash merger consideration, repay indebtedness of PMSC
being accelerated because of the merger and pay the fees and expenses incurred
in connection with the merger and its financing and provide approximately $75
million of additional cash and $50 million of additional unfunded revolving
loan availability for the future working capital and general corporate purposes
of PMSC and its subsidiaries, the following financing is expected and has been
committed subject to various customary conditions:
o prior to the merger, WCAS VIII, together with its co-investors, would
provide between $339.7 million and $429.4 million of common equity to
Politic Acquisition, depending on the number of PMSC shares to be
converted to cash in the merger,
o prior to the merger, WCAS Capital Partners III, L.P. would provide $25
million of common equity to Politic Acquisition,
o upon the merger, WCAS Capital Partners III would purchase, for $150
million, $175 million in face amount of 10% cash-pay senior
subordinated notes of PMSC that would be due upon the earlier of eight
years after the merger or six months after the repayment of the senior
credit facilities described below, and
o upon the merger, a syndicate of lending institutions would provide
$250 million in senior secured credit facilities to PMSC of which $200
million would be funded and $50 million would be unfunded and
available for future working capital and general corporate purposes.
7
<PAGE>
See "The Merger -- Financing."
NO DISSENTERS' APPRAISAL RIGHTS (see page 44)
In accordance with South Carolina law, stockholders of PMSC are not
entitled to dissenters' appraisal rights in connection with the merger.
GOVERNMENTAL APPROVALS (see page 44)
The consummation of the merger is subject to the expiration of the 30-day
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
unless such period is terminated earlier or extended. WCAS VIII and WCAS
Capital Partners III each filed an HSR notification report, together with a
request for early termination of this 30-day waiting period on April 18, 2000.
STOCK EXCHANGE LISTING (see page 43)
PMSC expects that its common stock will be listed on the New York Stock
Exchange following the merger. However, neither PMSC nor Politic Acquisition is
committed by the merger agreement or law to maintain a listing of PMSC common
stock on the New York Stock Exchange or any other securities exchange or have
shares of PMSC common stock quoted on Nasdaq. PMSC has applied to use "YND" as
its NYSE trading symbol after the merger. See "The Merger--Stock Exchange
Listing."
8
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of PMSC for
the years ended December 31, 1995 to 1999, are derived from the consolidated
financial statements of PMSC for such years and should be read in conjunction
with those consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in PMSC's Annual Report on Form 10-K/A for the year ended
December 31, 1999 which is incorporated by reference in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- -----------
RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ 644,019 $607,458 $518,171 $423,310 $365,485
Operating (loss) income .................. (104,272) 87,432 79,193 69,565 16,285
Other (expenses) and income, net ......... (10,693) (2,136) (3,583) (2,677) (543)
(Loss) income from continuing
operations before income taxes .......... (113,119) 86,355 76,799 66,888 15,742
Discontinued operations, net ............. -- (465) 1,994 3,035 (4,959)
Net (loss) income ........................ $ (71,971) $ 53,271 $ 50,257 $ 45,997 $ 3,139
Basic (loss) earnings per share .......... $ (2.02) $ 1.46 $ 1.38 $ 1.24 $ 0.08
Diluted (loss) earnings per share ........ $ (2.02) $ 1.36 $ 1.33 $ 1.22 $ 0.08
========== ======== ======== ======== ========
FINANCIAL CONDITION
Cash and equivalents and marketable
securitis .............................. $ 17,833 $ 26,013 $ 35,459 $ 24,355 $ 39,709
Current assets ........................... 211,999 217,123 185,809 160,342 165,593
Current liabilities ...................... 75,995 98,935 86,213 112,636 94,461
Working capital .......................... 136,004 118,188 99,596 47,706 71,132
Total assets ............................. 706,288 718,698 618,406 581,386 532,736
Long-term debt (excludes current
portion) ................................ 227,000 85,000 37,714 34,268 14,873
Total liabilities ........................ 384,103 285,688 207,910 218,134 150,064
Stockholders' equity ..................... 321,561 432,484 410,496 363,252 382,672
</TABLE>
- ----------
PMSC considers the special charges described below to be unusual events or
unusual transactions related to continuing business activities.
The results of operations for 1999 include approximately $153.6 million of
pre-tax special charges. These charges include approximately $118.4 million of
non-cash charges related to acceleration of amortization of software, and the
write-off of goodwill and other intangibles. The charges paid or to be paid in
cash include approximately $12.0 million related to disputes with customers,
approximately $12.9 million related to restructuring operations, approximately
$9.6 million related to the settlement of litigation, and other similar charges
of $0.7 million.
The results of operations in 1998 include $13.3 million of special
charges. These pre-tax charges include $3.7 million related to the acquisition
of The Leverage Group, Inc. and $9.6 million for the impairment of capitalized
software development costs which resulted from certain technology related
issues and changes in PMSC's strategy.
The results of operations in 1996 include a net special credit of $3.4
million. This credit resulted from a pre-tax gain of $9.4 million related to
the recovery of previously incurred litigation costs and a pre-tax charge of
$6.0 million related to other litigation.
The results of operations in 1995 include special charges of $56.4 million
(after taxes $39.9 million, or $2.06 per share). These charges principally
related to the restructuring of PMSC's data processing facilities and
information services business, litigation costs, acquisition-related charges,
impairment of certain intangible assets and software associated with acquired
businesses and the gain on the sale of PMSC's health services business.
9
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary unaudited pro forma operating and
other data of PMSC for the fiscal year ended December 31, 1999. The pro forma
data gives effect to the merger and related transactions as if those
transactions had occurred on January 1, 1999 for Results of Operations data and
December 31, 1999 for Financial Condition data. The information presented below
should be read in conjunction with the unaudited pro forma financial statements
included in this proxy statement/prospectus and PMSC's historical financial
statements and the notes thereto. The unaudited pro forma financial data set
forth below are not necessarily indicative of actual results that would have
been achieved had the merger and related transactions been consummated on the
date or for the periods indicated and do not purport to indicate financial data
as of any future date or for any future period.
The merger agreement provides that between 75% and 93% of the shares of
PMSC common stock outstanding at the time of the merger would be converted to
cash in the merger. The pro forma financial statements are prepared assuming
that 93% of the PMSC shares are converted to cash in the merger. Under this
assumption, the entire WCAS VIII equity commitment of $429.4 million will be
funded. If less than 93% of the shares of PMSC common stock outstanding at the
time of the merger are converted to cash, the merger agreement allows for a
proportionate decrease in the WCAS VIII equity funding. As the equity funding
by WCAS VIII is only used to purchase shares from existing stockholders, a
decrease in both the WCAS VIII equity funding and the number of the shares
purchased will have no effect on the summary unaudited pro forma financial
data.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
(IN THOUSANDS EXCEPT PER SHARE
DATA)
-----------------------------
HISTORICAL PRO FORMA
-------------- --------------
RESULTS OF OPERATIONS
<S> <C> <C>
Revenues .................................................... $ 644,019 $ 644,019
Operating loss .............................................. (104,272) (104,272)
Other (expenses) and income, net ............................ (10,693) (41,160)
Loss from continuing operations before income taxes ......... (113,119) (143,586)
Net loss .................................................... $ (71,971) $ (91,156)
Basic loss per share ........................................ $ (2.02) $ (2.61)
Diluted loss per share ...................................... $ (2.02) $ (2.61)
Ratio of earnings to fixed charges (1) ...................... -- --
FINANCIAL CONDITION:
Cash and equivalents and marketable securities .............. $ 17,833 $ 92,400
Restricted Cash ............................................. -- 2,732
Current assets .............................................. 211,999 288,806
Current liabilities ......................................... 75,995 70,129
Working capital ............................................. 136,004 218,677
Total assets ................................................ 706,288 801,105
Long term debt (2) .......................................... 227,000 200,000
Senior subordinated notes (2) ............................... -- 150,000
Total liabilities ........................................... 384,103 498,724
Stockholders' equity ........................................ 321,561 301,757
Book value per share ........................................ $ 9.04 $ 8.63
</TABLE>
- ----------
(1) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes, minority
interest and extraordinary items, plus fixed charges. Fixed charges
include interest expense on all indebtedness, amortization of deferred
debt issuance costs, and one-third of rental expense on operating leases
representing that portion of rental expense deemed to be attributable to
interest. Earnings were insufficient to cover fixed charges on both an
historical and a pro forma basis by $104.3 million for the year ended
December 31, 1999.
(2) At the effective time of the merger, PMSC's existing long-term borrowing
facilities will be replaced with $200 million of senior debt with projected
annual interest rate of 9% and WCAS Capital Partners III will purchase, for
$150 million, $175 million in face amount of 10% cash-pay senior
subordinated notes of PMSC.
10
<PAGE>
RISK FACTORS
You should carefully consider the following factors before making a
decision to vote for the merger or receive $14.00 per share in cash or elect to
retain shares in the merger.
RISK FACTORS RELATING TO THE MERGER
WCAS WILL CONTROL A VAST MAJORITY OF OUR COMMON STOCK AFTER THE MERGER AND, AS
A RESULT, WILL BE ABLE TO ASSERT CONTROL OVER ALL MATTERS REQUIRING STOCKHOLDER
APPROVAL.
After the merger, between approximately 75% and 93% of the outstanding
common stock of PMSC will be held by WCAS VIII, WCAS Capital Partners III and
their co-investors. As a result these stockholders will be able to assert
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. In addition,
this may have the effect of delaying or preventing a third party from acquiring
control over PMSC. Transactions that could be prevented may include those that
other stockholders would deem to be in their best interests and those in which
stockholders would receive a premium for their shares over market price.
AFTER THE MERGER, THERE WILL BE SIGNIFICANTLY FEWER SHARES FOR SALE IN THE
PUBLIC MARKET AND, AS A RESULT, THERE MAY BE LESS OPPORTUNITY FOR YOU TO SELL
YOUR SHARES AND MORE VOLATILITY IN THE MARKET PRICE.
Following the merger, there will be a substantial decrease in the number
of shares of PMSC common stock which are held publicly because WCAS VIII, WCAS
Capital Partners III and their co-investors will own between approximately 75%
and 93% of the outstanding shares. This is expected to result in a substantial
decrease in liquidity of PMSC common stock, which may make it more difficult
for holders of common stock to sell their shares. Although PMSC common stock is
expected to continue to be listed on the New York Stock Exchange following the
merger, the volume of shares traded may be substantially smaller than the
trading volume of PMSC common stock prior to the merger. In addition, while
PMSC expects that its common stock will be listed on the New York Stock
Exchange following the merger neither PMSC nor Politic Acquisition is committed
by the merger agreement or law to maintain a listing of PMSC common stock on
the New York Stock Exchange or any other securities exchange or have shares of
PMSC common stock quoted on Nasdaq. See "The Merger--Stock Exchange Listing."
The market price of PMSC common stock has fluctuated widely in the past
and the reduction in the number of publicly held shares after the merger could,
if PMSC common stock continues to be listed on the New York Stock Exchange,
contribute to continued or increased fluctuations in the market price of PMSC
common stock in the future.
WE WILL BE SUBSTANTIALLY LEVERAGED WHICH MAY RESTRICT OUR OPERATIONS AND ABILITY
TO OBTAIN ADDITIONAL FINANCING -- PAYMENTS ON INDEBTEDNESS WILL REQUIRE A
SUBSTANTIAL PORTION OF OUR CASH FLOW AND WILL HAVE A NEGATIVE EFFECT ON OUR NET
INCOME.
As of December 31, 1999, after giving pro forma effect to the merger and
the merger financing, PMSC would have had approximately $498.7 million of total
liabilities, including $200 million of senior debt and $175 million in face
amount of senior subordinated debt held by WCAS Capital Partners III, and
stockholders' equity of approximately $301.8 million. This substantial leverage
may have important consequences for PMSC, including the following:
o our ability to obtain additional financing for working capital,
capital expenditures or other purposes may be impaired or that kind of
financing may not be available on terms favorable to us,
o a substantial portion of our cash flow available from operations would
be dedicated to the payment of principal and interest expense, which
would reduce the funds that would otherwise be available to us for
operations and future business opportunities,
11
<PAGE>
o a substantial decrease in net operating income and cash flows or an
increase in expenses would make it difficult for us to meet our debt
service requirements or force us to modify our operations, and
o our substantial leverage may make us more vulnerable to economic
downturns and competitive pressure.
The definitive terms of the senior debt portion of the merger financing
will be based on market conditions existing at the time of the merger. We
expect that the terms of the new senior secured credit facilities and those of
the senior subordinated notes that WCAS Capital Partners III has committed to
purchase will include significant operating and financial restrictions, such as
limits on our ability to incur indebtedness, create liens, sell assets, engage
in mergers or consolidations, make investments and pay dividends.
ISSUANCE OF STOCK OPTIONS TO MANAGEMENT MAY DILUTE YOUR PMSC STOCKHOLDING.
Following the merger, PMSC will grant to senior management options to
purchase 750,000 shares of PMSC common stock. These new options will vest 20%
per year on the first through fifth anniversaries of the grant date. In
addition, PMSC may from time to time issue additional options with similar
vesting schedules. In addition to these 750,000 options, an additional 925,000
options will be reserved for issuances that the PMSC board, in its discretion,
approves after the merger. Options to purchase an additional approximately 7.67
million shares are presently outstanding. As these options vest and are
exercised, the number of shares of PMSC common stock outstanding will increase
and the interest of the stockholders receiving PMSC common stock from the
merger will be diluted.
In addition, upon the merger, four of the executive officers of PMSC will
have an opportunity to purchase up to a total of approximately 5% of the shares
of PMSC after the merger at a price of $14 per share.
THE RIGHT OF PMSC STOCKHOLDERS TO EITHER RECEIVE CASH OR ELECT TO RETAIN SHARES
MAY BE SUBJECT TO PRORATION.
The right of holders of PMSC common stock to receive $14.00 in cash or
elect to retain shares is subject to the proration procedures described in the
merger agreement. If the merger is completed, you will not necessarily receive
the type of consideration that you elect for all your shares and, depending on
your particular circumstances, a portion of the cash payments received by you
could be treated as dividends rather than capital gains (or recovery of basis)
or vice versa. See "The Merger - Material Federal Income Tax Consequences" for a
more detailed discussion of the tax consequences of receiving cash.
RISKS RELATED TO OUR BUSINESS
IF THE MARKET OR REGULATORY ENVIRONMENT OF OUR BUSINESS CHANGES, DEMAND FOR OUR
PRODUCTS AND SERVICES MAY DECLINE.
Currently, our business is focused principally within the global property
and casualty and life and financial solutions industries. Significant changes
in the regulatory or market environment of these industries could impact demand
for our software products and services.
IF COMPETITION INCREASES, WE MAY LOSE OUR MARKET SHARE.
The computer software and services industry is highly competitive and
there is increasing competition for our products and services. We cannot
guarantee that our current products and services will remain competitive, or
that our development efforts will produce products with the cost and
performance characteristics necessary to remain competitive.
12
<PAGE>
IF OUR TECHNOLOGY IS NOT ACCEPTED BY THE MARKET, OUR GROWTH WILL SLOW DOWN AND
OUR BUSINESS WILL BE HARMED.
The market for our products and services is characterized by rapid changes
in technology and the emergence of the Internet as a viable insurance
distribution channel. Our success will depend on the level of market acceptance
of our products, technologies and enhancements, and our ability to introduce
such products, technologies and enhancements to the market on a timely and cost
effective basis, and maintain a labor force sufficiently skilled to compete in
the current environment.
We believe that system evaluations and decision processes are being
affected by uncertainties related to the Internet and its emergence as a viable
insurance distribution channel is causing a re-evaluation of the traditional
methods of distribution for insurance products. We also believe that in order
for insurance companies to capitalize on this new distribution method they will
be required to redesign their business models and related support systems. The
issues raised by the emergence of the Internet and related technology
requirements will be distracting and confusing for many insurance companies and
complicate the process of transitioning the insurance industry to modern
architecture. Therefore, customer uncertainty as to their Internet and
enterprise business strategies may extend sales cycles for large enterprise
systems.
THE STRUCTURE OF OUR BUSINESS ARRANGEMENTS MAKES OUR REVENUES DIFFICULT TO
ESTIMATE.
The timing and amount of our revenues are subject to a number of factors,
such as the timing of customers' decisions to enter into large license
agreements with us, which make estimation of operating results prior to the end
of a quarter or year extremely uncertain.
Additionally, a significant portion of both our revenue and operating
income is derived from initial licensing charges received as part of our
software licensing activities. Because a substantial portion of these revenues
is recorded at the time new systems are licensed, there can be significant
fluctuations from period to period in the revenues and operating income derived
from licensing activities. This is attributable principally to the timing of
customers' decisions to enter into license agreements with us, which we are
unable to control.
THE RECENT SURGE IN INVESTMENT IN SYSTEMS AND REMEDIATION SERVICES MAY RESULT
IN A DECREASED NEED FOR OUR SYSTEMS AND SERVICES IN THE NEAR FUTURE.
The upgrading and replacement of systems in response to the year 2000
issue caused an unprecedented level of investment in systems and remediation
services that may adversely affect a customer's or prospect's decision to
invest in new application software such as our own.
WE MAY HAVE LIABILITIES RELATED TO LITIGATION.
We are involved in several lawsuits, as described in our Form 10-K/A and
in "The Merger-- Background of the Merger," which seek damages in amounts that
could have a materially adverse effect on our results of operations, if decided
adversely to us. Although we believe we have meritorious defenses to these
matters and are vigorously defending them, we are unable to predict the
ultimate outcome or the potential financial impact of these matters.
WE HAVE AMENDED OUR CREDIT AGREEMENTS DUE TO RECENT FINANCIAL RESULTS AND MAY
BE REQUIRED TO DO SO AGAIN.
Due to PMSC's financial performance in the third and fourth quarters of
1999, and a preliminary analysis of results for the first quarter of 2000, PMSC
amended its existing credit agreements so as not to be in violation of
covenants in those credit agreements. See "The Merger--Background of the
Merger" and our Form 10-K/A. Future credit availability under PMSC's existing
credit agreements is dependent upon PMSC achieving improvements in its
operating performance. There can be no assurance that PMSC will be able to
achieve these improvements.
13
<PAGE>
A WARNING ABOUT
FORWARD-LOOKING INFORMATION
This proxy statement/prospectus, the information incorporated in this
proxy statement/prospectus by reference and other statements we have made from
time to time, contain statements that may be "forward-looking statements."
Those statements including the supplemental financial analysis of future
operating performance below, include statements regarding our intent, belief or
current expectations, as well as the assumptions on which those statements are
based. Forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and actual results may differ materially from
those contemplated by forward-looking statements. Important factors currently
known to PMSC's management that could cause actual results to differ materially
from those in forward-looking statements include, but are not limited to, those
factors set forth from time to time in reports PMSC files with the Securities
and Exchange Commission and in "Risk Factors." We undertake no obligation to
update or revise forward-looking statements to reflect changes in assumptions,
the occurrence of unanticipated events or changes to future operating results
over time. You are cautioned not to rely on such statements.
14
<PAGE>
CERTAIN SUPPLEMENTAL FINANCIAL ANALYSIS
In connection with WCAS's review of PMSC, after WCAS signed a customary
confidentiality/standstill agreement with PMSC, PMSC provided WCAS with
non-public business and financial information. The non-public information PMSC
provided included an internally-developed financial analysis of PMSC's future
operating performance. This financial analysis does not give effect to the
merger or the financing of the merger.
PMSC does not, as a matter of course, publicly disclose its
internally-developed financial analysis of future revenues or earnings. This
financial analysis was not prepared with a view to public disclosure and is
included in this proxy statement/prospectus only because such information was
made available to WCAS in connection with their due diligence investigation of
PMSC. This financial analysis was not prepared with a view to compliance with
the published guidelines of the Securities and Exchange Commission regarding
projections, nor was it prepared in accordance with the guidelines established
by the American Institute of Certified Public Accountants for preparation and
presentation of financial projections. While presented with numerical
specificity, this financial analysis reflects numerous assumptions made by
PMSC's management. In addition, factors such as industry performance and
general business, economic, regulatory, market and financial conditions, all of
which are difficult to predict and beyond the control of PMSC's management, may
cause this financial analysis or the underlying assumptions to be inaccurate.
Accordingly, there can be no assurance that the revenues or earnings contained
in this financial analysis will be realized, and actual results may be
materially greater or less than those contained in this financial analysis.
None of PMSC, Politic Acquisition, WCAS, their independent accountants,
financial advisors or any other person assumes any responsibility regarding
this financial analysis and the inclusion of this financial analysis should not
be regarded as an indication that any such person regards them as an accurate
prediction of future events. Neither PMSC's independent accountants nor any
other independent accountants have compiled, examined or performed any
procedures with respect to this financial analysis, nor have they expressed any
opinion or any other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim any association
with, this financial analysis.
PMSC does not intend to update or otherwise revise this financial analysis
to reflect circumstances existing after the date when made or to reflect the
occurrence of future events even in the event that any or all of the
assumptions underlying this financial analysis are shown to be in error.
15
<PAGE>
The supplemental financial analysis included three cases, a Base Case, Case
2 and Case 3. The Base Case, incorporates a status quo business model with
revenues including large, one-time initial licensing fees. Case 2 incorporates a
hypothetical transition towards an increased recurring revenue-based application
service provider type business model, which includes a significant reduction in
initial licensing fee revenue beginning in the third quarter of 2000. Case 3
incorporates certain hypothetical sensitivities to Case 2 that assume, among
other things, sales growth and operating income margins lower than those which
were used in Case 2. This financial analysis was delivered on March 15, 2000 and
has not been updated for subsequent events. Net income in this supplemental
financial analysis does not include the effect of the February and March 2000
amendments to the credit and term loan agreements. Operating and net income for
2000 include special charges relating to severance costs from the reduction in
workforce which occurred in the first quarter of 2000, litigation and branding
estimated to be approximately $18.1 million ($11.4 million after tax). Dollars
are in millions.
<TABLE>
<CAPTION>
ACTUAL SUPPLEMENTAL FINANCIAL ANALYSIS
---------- --------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
BASE CASE: ---------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................ $ 644.0 $734.4 $868.0 $1,011.6 $1,154.4 $1,313.3
Operating income/(loss) ........ (104.3) 67.8 114.6 128.8 144.7 162.5
Net income/(loss) .............. ( 72.0) 33.1 62.0 73.9 87.0 101.6
</TABLE>
<TABLE>
<CAPTION>
ACTUAL SUPPLEMENTAL FINANCIAL ANALYSIS
---------- --------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
CASE 2: ---------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................ $ 644.0 $708.3 $841.4 $1,037.5 $1,241.0 $1,461.2
Operating income/(loss) ........ (104.3) 33.4 52.4 108.2 171.0 231.8
Net income/(loss) .............. ( 72.0) 11.4 21.9 58.5 101.0 145.4
</TABLE>
<TABLE>
<CAPTION>
ACTUAL SUPPLEMENTAL FINANCIAL ANALYSIS
---------- --------------------------------------------------------------
1999 2000 2001 2002 2003 2004
CASE 3: ---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ......................... $ 644.0 $692.9 $767.1 $929.9 $1,099.3 $1,275.5
Operating income/(loss) ......... (104.3) 29.5 25.1 72.5 125.6 179.0
Net income/(loss) ............... ( 72.0) 9.0 5.1 35.8 71.4 108.7
</TABLE>
- ----------
A significant portion of both PMSC's revenue and its operating income is
derived from initial license charges received as a part of PMSC's software
licensing activities. The emergence of the Internet as a viable insurance
distribution channel is causing a re-evaluation of the traditional methods of
distribution for insurance products. PMSC also believes that in order for
insurance companies to capitalize on this new distribution method, they will be
required to redesign their business models and related support systems. These
changes in the market will have an effect on PMSC's software licensing
activity.
16
<PAGE>
THE SPECIAL MEETING
GENERAL
The special meeting will be held at , at a.m., on
, 2000.
MATTERS TO BE CONSIDERED
At the special meeting, PMSC stockholders will be asked to consider and
vote upon a proposal to approve the merger agreement. If the merger agreement
is approved by stockholders, we anticipate that the merger will occur as
promptly as practicable after the special meeting.
If the merger agreement is not approved by stockholders, you will be asked
to vote upon a separate proposal to amend our articles of incorporation to
change our name to Mynd Corporation.
PROXIES
If you are a PMSC stockholder of record, you may use the accompanying
proxy if you are unable to attend the special meeting in person or wish to have
your shares voted by proxy even if you do attend the special meeting. You may
revoke any proxy given by you in accordance with this solicitation by
delivering to the Secretary of PMSC, prior to or at the special meeting, a
written notice revoking the proxy or a duly executed proxy relating to the same
shares bearing a later date or by attending the special meeting and voting in
person. However, your attendance at the special meeting will not in and of
itself constitute a revocation of a proxy; rather you must vote in person at
the meeting to effect a revocation. You should address any written notice of
revocation and other communications regarding the revocation of PMSC proxies to
the Secretary of PMSC at One PMSC Center, Blythewood, South Carolina 29016. In
all cases, a later dated proxy revokes an earlier dated proxy, regardless of
which method is used to give or revoke a proxy, or if different methods are
used to give and revoke a proxy. For a notice of revocation or later proxy to
be valid, however, it must actually be received by PMSC prior to the vote of
the PMSC stockholders at the special meeting. If your broker has been
instructed to vote your shares, you must follow directions received from your
broker in order to change your vote.
All shares represented by valid proxies received in accordance with this
solicitation and not revoked before they are exercised will be voted in the
manner specified in the proxy. If you return an executed proxy card and do not
specify how your proxy is to be voted, it will be voted in favor of the
approval of the merger agreement, and if a separate vote is taken on the
matter, the amendment of PMSC's articles of incorporation to change its name to
Mynd Corporation. The PMSC board of directors is currently unaware of any other
matters that may be presented for action at the special meeting. If other
matters do properly come before the special meeting, however, it is intended
that shares represented by proxies in the accompanying form will be voted or
not voted by the persons named in the proxies, in their discretion.
SOLICITATION OF PROXIES
The cost of soliciting the proxies from the PMSC stockholders will be
borne by PMSC. In addition to the solicitation of proxies by mail, PMSC will
request banks, brokers and other record holders to send proxies and proxy
material to the beneficial owners of shares of PMSC and secure their voting
instructions, if necessary. PMSC will reimburse such record holders for their
reasonable out-of-pocket expenses in doing so. PMSC has retained D.F. King &
Company, Inc. to assist in soliciting proxies for a fee of $7,500 plus
expenses.
FORM OF RETENTION ELECTION
PMSC has mailed a form for making a retention election with this proxy
statement/prospectus to stockholders of record of PMSC common stock. If you
wish to retain shares in the merger, you should submit the form of retention
election, although this will not guarantee that you will retain all of the
shares that you wish to retain.
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For a form of retention election to be effective, you must properly
complete the form of retention election, and send it, together with share
certificates for the shares of PMSC common stock that you have elected to
retain, duly endorsed in blank or otherwise in a form which is acceptable for
transfer on the books of PMSC or by appropriate guarantee of delivery as
described in the form of retention election, to American Stock Transfer & Trust
Company, our exchange agent, at . If your shares are held
through a broker, only the broker can make an election on your behalf. An
instruction form to be sent to your broker is enclosed. The exchange agent must
receive the completed form of retention election and share certificates or
appropriate guarantee of delivery by 5:00 p.m., New York City time, on
, 2000 or you will be deemed to have elected to receive only cash in
the merger. See "The Merger -- Election Procedures."
RECORD DATE AND VOTING RIGHTS
Record Date. The PMSC board of directors has fixed , 2000 as
the record date for the determination of the PMSC stockholders entitled to
receive notice of and to vote at the special meeting. Accordingly, only PMSC
stockholders of record at the close of business on that date will be entitled to
notice of and to vote at the special meeting.
Quorum Requirement. The presence, in person or by proxy, of shares of PMSC
common stock representing a majority in total voting power of the outstanding
shares of PMSC common stock as of the record date is necessary to constitute a
quorum at the special meeting.
Votes Per Share. Each share of PMSC common stock outstanding on the record
date entitles its holder to one vote at the special meeting.
Vote Required and Voting Rights. Under South Carolina law, the approval of
the merger agreement requires the affirmative vote of holders of two-thirds in
voting power of the outstanding shares of PMSC common stock entitled to vote on
the approval of the merger agreement. Holders of PMSC common stock will vote as
a single class. Under the PMSC articles of incorporation, the name change
requires the affirmative vote of holders of two-thirds in voting power of the
outstanding shares of PMSC common stock entitled to vote on that amendment to
the PMSC articles of incorporation. Holders of PMSC common stock will vote as a
single class on the proposal to approve the merger agreement, and, if
necessary, the separate vote on the proposal to change our name.
Abstentions and Broker Non-Votes. PMSC intends to count shares of PMSC
common stock present in person at the special meeting but not voting, and
shares of PMSC common stock for which it has received proxies but for which
holders of such shares have abstained, as present at the PMSC special meeting
for purposes of determining the presence or absence of a quorum for the
transaction of business.
If your shares held in "street name" through a broker, your broker may not
vote the shares without instructions from you. A broker non-vote occurs on a
proposal when a broker is not permitted to vote on that proposal without
instruction from the beneficial owner of the shares and no instruction is
given. Shares of PMSC common stock represented by proxies returned by a broker
holding shares in nominee or "street name" will be counted for purposes of
determining whether a quorum exists, even if the shares are broker non-votes.
Because adoption of the merger agreement requires the affirmative vote of
two-thirds in voting power of the outstanding shares of PMSC common stock,
abstentions and broker non-votes will have the same effect as negative votes.
Accordingly, the PMSC board of directors urges PMSC stockholders to complete,
date and sign the accompanying proxy and return it promptly in the enclosed,
postage-paid return envelope.
RECOMMENDATION OF THE PMSC BOARD OF DIRECTORS
The PMSC board of directors has approved the merger agreement and
determined that the merger is fair to and in the best interest of PMSC and its
stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE MERGER
AGREEMENT.
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If the merger agreement is not approved by PMSC stockholders at the
special meeting and a separate vote is taken to amend PMSC's articles of
incorporation to change its name to Mynd Corporation, THE PMSC BOARD RECOMMENDS
THAT YOU VOTE "FOR" THE NAME CHANGE.
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THE COMPANIES
PMSC
PMSC is a leading provider of enterprise software and electronic commerce
systems, related professional services and business process outsourcing
designed to meet the needs of the global insurance and related financial
services industries.
PMSC initially operated as a provider of insurance software systems and
related automation support services to the property and casualty insurance
market in the United States and Canada. Over time, PMSC has expanded
geographically into Europe, Asia, Australia, Africa and Latin America as well
as into the life insurance and related financial services markets. Through
internal development, acquisitions and strategic alliances, PMSC has expanded
its software products and services offerings, which include advanced computing
technologies and outsourcing solutions, thereby strengthening its ability to
serve the global insurance marketplace.
PMSC's business strategy is to structure long-term relationships and
agreements with its customers. These relationships and agreements provide the
customer with continuously updated solutions and PMSC with a high degree of
recurring revenues. During the early stages of PMSC's development, a major
portion of its revenues was derived from systems licensing activities. PMSC has
continued to expand as a provider of a full range of business solutions to the
global insurance and financial services industries and now the majority of its
revenues are derived from outsourcing and professional services activities.
PMSC is a South Carolina corporation incorporated in 1980. From 1974 until
1980, PMSC operated as a division of Seibels, Bruce & Company. The principal
executive offices of PMSC are located at One PMSC Center, Blythewood, South
Carolina 29016. Its telephone number is (803) 333-4000.
More detailed descriptions of the business and properties of PMSC are
contained in its Amended Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999. See "Where You Can Find More Information"
POLITIC ACQUISITION AND WELSH, CARSON, ANDERSON & STOWE
Politic Acquisition is a newly formed South Carolina corporation organized
solely for the purpose of effecting the merger. Politic Acquisition is
currently 100% owned by Welsh, Carson, Anderson & Stowe VIII. Prior to the
merger, WCAS Capital Partners III and other affiliates of WCAS, will also
become stockholders of Politic Acquisition. In addition, four executive
officers of PMSC will have the opportunity to purchase shares of PMSC after the
merger. See "The Merger-- Interests That Differ from Your Interests." Politic
Acquisition's principal executive offices are c/o Welsh, Carson, Anderson &
Stowe, 320 Park Avenue, Suite 2500, New York, New York 10022. The telephone
number of Politic Acquisition is (212) 893-9500.
WCAS VIII, a Delaware limited partnership, is a private equity investment
partnership with over $3.0 billion in committed capital. WCAS and its
affiliates have organized and managed eleven investment partnerships with total
capital of approximately $7.6 billion. Since 1979, WCAS and its affiliated
investment partnerships have completed over eighty buyouts concentrated in the
information services, telecommunications and healthcare industries. WCAS has
made investments in numerous information services companies, including Alliance
Data Systems, Inc., Amdocs Limited, BancTec, Inc., BISYS Group, Inc., Fiserv,
Inc. and SunGard Data Systems, Inc. WCAS VIII's principal executive offices are
located at 320 Park Avenue, Suite 2500, New York, New York 10022. The telephone
number is (212) 893-9500. The sole general partner of WCAS VIII is WCAS VIII
Associates LLC, a Delaware limited liability company. None of WCAS VIII or any
of its affiliates is an affiliate of PMSC.
In addition to signing the merger agreement, Politic Acquisition has
received a commitment letter from WCAS VIII to provide between $339.7 million
and $429.4 million in common equity capital to Politic Acquisition before the
merger. The exact amount of equity financing to be provided
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<PAGE>
by WCAS VIII will depend on the number of PMSC common shares retained by
existing PMSC stockholders. Politic Acquisition also received a commitment
letter from WCAS Capital Partners III, an investment partnership affiliated
with WCAS VIII, to provide an additional $25 million in common equity financing
to Politic Acquisition before the merger and purchase, for $150 million, $175
million in face amount of senior subordinated notes of PMSC after the merger.
Additionally, Politic Acquisition has entered into letter agreements with G.
Larry Wilson, David T. Bailey, Michael W. Risley and Timothy V. Williams, each
an executive officer of PMSC, outlining the terms under which the executive
officer has agreed to continue as an employee of PMSC after the merger. Politic
Acquisition has not otherwise conducted any business or operations.
Set forth below is a balance sheet of Politic Acquisition dated as of the
date of this proxy statement/prospectus. There is no related income statement
for Politic Acquisition because it has not conducted any business since its
inception.
<TABLE>
<CAPTION>
AS OF THE
BALANCE SHEET DATA: DATE HEREOF
- ------------------------------------------- ------------
<S> <C>
Cash ........................... $100
Total Assets ....................... $100
====
Total Stockholders' Equity ......... $100
====
</TABLE>
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THE MERGER
The following summary of the material terms of the merger is qualified in
its entirety by reference to the merger agreement, which is incorporated by
reference in this proxy statement/prospectus and, with the exception of certain
schedules and exhibits, is attached as Appendix B to this proxy
statement/prospectus.
BACKGROUND OF THE MERGER
From time to time over the past few years, PMSC has received indications
of interest in a business combination or acquisition. One company expressing an
interest is a large information technology company which, in 1997, contacted
PMSC, executed a confidentiality/standstill agreement and conducted preliminary
due diligence, but did not propose a price. That company is referred to as
Company A in this Background. In August, 1999, Company A delivered a letter to
PMSC in which it indicated its interest in pursuing the acquisition of PMSC.
Company A stated that it would be willing to merge with PMSC in a
stock-for-stock merger and indicated an exchange ratio which would have
represented a substantial premium to the then current market price of PMSC's
shares based on the then current market price of Company A's shares. The
proposed acquisition would have been tax-free to PMSC stockholders and
accounted for as a pooling of interests. The letter stated that the proposed
transaction would be subject to a reasonable level of due diligence and the
appropriate stockholder and regulatory approvals. In early September, the board
met with Credit Suisse First Boston, PMSC's financial advisor, Dewey Ballantine
LLP, PMSC's legal counsel, and management to consider the proposal. The PMSC
board determined that it was not in the best interests of PMSC and its
stockholders to proceed with the proposal. PMSC communicated its determination
not to proceed with the proposal to Company A.
Later in 1999, PMSC suffered unexpected substantial declines in revenues
and earnings. On January 7, 2000, PMSC announced that fourth quarter 1999
licensing and services revenues would be down significantly from the same
quarter last year and that it did not expect to report earnings per share in
excess of the low teens cents per share. PMSC announced that final results
would be reported on February 10. PMSC stated that, although it had not
experienced any significant Y2K issues with its systems or products, its
results were adversely impacted by its clients and prospects preoccupation with
their own Y2K preparations and concerns. PMSC also noted that its strategy was
to transition to a new business model to focus on increasing recurring
transaction-based revenues, particularly in claims, eBusiness products and
business process outsourcing for the financial services and property and
casualty industries. Later that day, a purported class action lawsuit was filed
in the United States District Court for the District of South Carolina on
behalf of all persons who purchased PMSC's common stock between October 22,
1998 and January 6, 2000. The complaint alleged that defendants issued a series
of materially false and misleading statements concerning PMSC's financial
condition, products, technologies and financial statements.
On February 10, 2000, PMSC announced that it would not be releasing final
1999 fourth quarter and full year results as previously announced on January 7
since neither its financial closing nor annual audit were yet complete. PMSC
also announced that, in contrast to its January 7 press release, it now
expected to report an operating loss for the fourth quarter. PMSC further
announced that this loss would cause PMSC to be out of compliance with a
financial covenant in its credit agreement, but that PMSC had obtained an
amendment that returned it to full compliance. Additional class action
complaints were filed following the February 10 announcement, expanding the
class definition to include all persons who purchased PMSC stock between
October 22, 1998 and February 10, 2000.
In February, 2000, PMSC was contacted by a few information technology
companies, each of which indicated a possible interest in acquiring PMSC. None
of these companies, however, proposed a price or made a firm offer to acquire
PMSC. PMSC did not proceed with any of these indications of interest, and none
of those companies pursued further contact with PMSC.
Commencing in February, 2000, the PMSC board and its audit committee held
a number of meetings to discuss PMSC's financial condition and prospects,
including the recent deterioration in its
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financial condition, the results of the audit of PMSC's financial statements,
the fact that, because of its large net loss in the fourth quarter of 1999,
PMSC again was in violation of one of the covenants of its loan agreements and
the fact that PMSC would be required to repay $70 million of term debt on July
15, 2000.
On February 9, a representative of PMSC contacted a representative of WCAS
regarding a possible equity investment by WCAS in PMSC. This contact was
motivated by:
(1) PMSC's need to reduce debt and to raise additional capital,
(2) the belief that, in order to change its business model, PMSC would
suffer reduced earnings over the short-term,
(3) the belief that PMSC needed a business partner with a strong capital
base, long- term investment horizon and experience in the information
services industry to provide the necessary capital, and
(4) the belief that WCAS, based on its prior experience with investments
in the information services industry, would be an appropriate
long-term partner for PMSC.
On February 15, 2000, PMSC and WCAS signed a confidentiality/standstill
agreement. Thereafter, WCAS began a due diligence investigation of PMSC.
Meetings between PMSC and WCAS regarding the possible investment were held
during the period from February 19 to February 25. During these meetings, WCAS
raised the possibility of making a proposal to acquire PMSC, as well as making
an equity investment.
On February 26, 2000, the PMSC board held a meeting at which it was
informed that WCAS was considering either making a proposal to acquire PMSC or
making an investment in PMSC in the form of $200 million of equity securities
and $150 million of debt securities both from funds under its sole investment
discretion. Due to the expectation that G. Larry Wilson, PMSC's Chairman of the
Board, President and Chief Executive Officer, would continue with PMSC in
either case, Mr. Wilson did not participate in any board deliberations
regarding a possible transaction with WCAS.
In early March, 2000, WCAS informed PMSC that any proposal it made would
expire if PMSC (1) discussed a business combination with any other person or
(2) made an announcement regarding a possible business combination with WCAS or
anyone else prior to execution of a definitive agreement with WCAS. In
addition, WCAS expressed concern about the possible negative effects of the
announcement of PMSC's fourth quarter and 1999 financial results on PMSC's
business and financial condition. Accordingly, WCAS stated that any proposal it
made would expire once PMSC announced its financial results for 1999, so that
WCAS could re-evaluate the situation.
On March 20, 2000, the PMSC board held a meeting at which it considered
the financial issues listed above and PMSC's strategic alternatives. CSFB,
PMSC's financial advisor, and Dewey Ballantine LLP, PMSC's legal counsel,
participated in this meeting and the other board meetings described below. The
board discussed the likely adverse effect of the announcement of PMSC's 1999
results on PMSC's business and prospects if PMSC did not make a simultaneous
announcement of a merger agreement or significant financing transaction. PMSC
was required to announce its 1999 results by March 30, 2000. After careful
deliberations, the board concluded that it would be in the best interests of
PMSC and its stockholders to pursue negotiations with WCAS on the possible
terms of a transaction. The board believed that it was not likely that a third
party other than WCAS would be able to complete due diligence and negotiate a
merger agreement with PMSC by March 30. Accordingly, the board determined that
it was not feasible or desirable under the circumstances to pursue alternative
transactions at that time. The board also concluded that any transaction with
WCAS would have to be at a price which was fair to PMSC's stockholders and not
contain any features which would significantly deter a more attractive offer to
acquire PMSC. The board directed management to continue negotiations with
PMSC's lending banks and to resolve the loan covenant defaults and to extend
the term of the term loan agreement. The board also directed management to
explore various alternatives to achieve efficiencies and obtain equity or other
financing.
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<PAGE>
From March 20 to March 30, 2000, the board of directors of PMSC met on a
frequent basis regarding the possible transaction with WCAS and PMSC's
financial condition and loan agreements.
On March 24, 2000, WCAS proposed a recapitalization transaction with the
key terms described below:
(1) PMSC's stockholders would receive $13.50 per share in cash for 75% to
93% of their shares, thereby allowing stockholders interested in the
potential long-term value of PMSC to remain as investors,
(2) all of PMSC's existing indebtedness would be repaid; new senior credit
facilities of $200 million would be funded at the closing of the
merger; and an unfunded working capital facility of $50 million would
be put in place for future corporate needs,
(3) PMSC would receive a cash infusion of approximately $75 million to be
used for investment in strategic initiatives and other general
corporate purposes. This approximately $75 million would be in
addition to the monies referred to in (2) to repay all of PMSC's
existing indebtedness as part of the transaction. WCAS provided copies
of customary commitment letters from its own investment funds, WCAS
VIII and WCAS Capital Partners III, and DLJ Capital Funding, its
prospective senior lender, and
(4) WCAS stated that its proposal was conditioned on, among other things,
o PMSC agreeing to adopt a stockholders rights plan (commonly known
as a poison pill) which would not be redeemable for some amount
of time following the termination of the merger agreement,
o PMSC granting WCAS an option to buy a substantial amount of PMSC
stock (which would have the effect of preventing a third party
from acquiring PMSC in a transaction to be accounted for as a
pooling of interests), and
o PMSC agreeing to pay WCAS a termination fee of approximately $30
million and expense reimbursement of up to $10 million, if the
merger agreement was terminated under specified circumstances.
After considering this proposal, the PMSC board instructed its advisors to
inform WCAS that proposed terms (1) and (4) above were unacceptable.
The parties continued to negotiate the terms of the proposed merger. As a
result of these negotiations, which continued until the execution of the merger
agreement on March 30, 2000, WCAS increased the price it was proposing to $14
per share in cash for 75% to 93% of the shares, dropped its insistence that
PMSC adopt a stockholder rights plan and grant WCAS a stock option, decreased
the termination fee to $19 million, and decreased the maximum expense
reimbursement to $5 million.
On March 28, 2000, representatives of CSFB received a telephone call from
a large information technology company in which the company expressed an
interest in acquiring PMSC, but did not specify a price or other material
transaction terms. This company is referred to as Company B. PMSC's board
determined not to pursue this contact in light of
(1) the fact that WCAS had essentially completed its due diligence
investigation of PMSC and the terms of the merger agreement were
substantially negotiated, whereas Company B had not conducted due
diligence or begun negotiation of a merger agreement,
(2) WCAS's statement that its proposal would expire if PMSC discussed a
business combination transaction with a third party or announced its
1999 results, and
(3) the board's business judgment that the break-up fee and other features
of the merger agreement with WCAS would not act as a deterrent to a
bona fide bidder willing to make a superior offer to acquire PMSC.
Earlier in March, Company B had contacted PMSC on a very preliminary
basis.
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On March 29, 2000, PMSC reached agreement with its lending banks to amend
the terms of PMSC's loan agreements. The amendments included an increase in the
fees and interest rate charged, a decrease in the amounts available under the
loan agreements, a change in maturity dates, a change in covenant ratios and a
security interest in PMSC's assets. Future credit availability under the
amended loan agreements is dependent upon PMSC achieving improvements in its
operating performance.
Late in the afternoon on March 30, 2000, the board met to consider the
proposed merger agreement with WCAS. Following a discussion of the merger
agreement and presentations by its financial and legal advisors, the board
voted unanimously, with one member, Mr. Wilson, recusing himself, to approve
the merger agreement. Later that evening, PMSC and WCAS signed the merger
agreement and PMSC issued a press release announcing its terms. At the same
time, PMSC issued a press release announcing fourth quarter and full year 1999
results.
On March 31, 2000, PMSC sent a letter to Company A releasing it from the
confidentiality/standstill agreement solely to the extent of any provision that
would prevent or otherwise restrict the ability of Company A to make a proposal
to PMSC's Board of Directors.
On March 31, 2000, three purported class action lawsuits were filed
against PMSC and its directors in the Court of Common Pleas in Richland County,
South Carolina on behalf of all stockholders of PMSC. The complaints allege
that the consideration to be paid in the merger is unfair and grossly
inadequate because defendants failed to conduct a "market check" and because
PMSC stock has consistently traded above $14 per share and its market price is
only temporarily depressed due to recent disappointing financial results. The
complaints also allege that defendants have a substantial conflict of interest,
to the extent they will continue their employment with PMSC after the merger.
The complaints seek an injunction directing that defendants ensure that no
conflicts exist that would prevent defendants from exercising their fiduciary
obligation to maximize stockholder value, and an injunction preventing
consummation of the merger unless PMSC implements a process, such as an
auction, to obtain the highest price for PMSC , together with an award of costs
and attorneys' fees.
On April 27, 2000, the merger agreement was amended and restated to, among
other things, provide that the name of the surviving corporation in the merger
would be Mynd Corporation and change the nature of the financing to be provided
by WCAS Capital Partners III.
In April, 2000, a representative of Company A and a representative of a
company which had contacted PMSC in February, 2000, each contacted a
representative of PMSC indicating a possible interest in making a proposal to
acquire PMSC. Neither of these companies made a proposal or requested any due
diligence information.
Based upon an analysis of the preliminary results for the quarter ended
March 31, 2000, PMSC believed its final results for the quarter would result in
a violation of the Leverage Ratio financial covenant of its amended credit and
term loan agreements. However, on April 24, 2000, PMSC entered into an
amendment waiving this covenant through December 30, 2000. The Leverage Ratio
financial covenant required that the ratio of debt to consolidated adjusted
cash flow be less than 5.5x through September 29, 2000, less than 3.5x from
September 30, 2000 to December 31, 2000 and less than 2.5X thereafter. The
amendment requires that quarterly consolidated adjusted cash flow less capital
expenditures at least equal -$2 million for the quarter ended March 31, 2000,
$15 million for the quarter ended June 30, 2000 and $30 million for the quarter
ended September 30, 2000.
PMSC'S REASONS FOR THE MERGER
THE PMSC BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
MERGER AGREEMENT. In reaching its conclusion to approve the merger agreement
and recommend that stockholders vote in favor of the merger agreement, the PMSC
board considered a number of factors, including the following material factors:
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o Information regarding PMSC's business, financial condition, results of
operations, business strategy and prospects, as well as the
uncertainties associated with those prospects, particularly in light
of :
(1) the deterioration in PMSC's financial condition that occurred in
the latter part of 1999,
(2) the board's belief that PMSC's financial condition would likely
deteriorate further if PMSC announced its 1999 results without
the contemporaneous announcement of a merger agreement or
significant financing transaction, and
(3) the amended terms of PMSC's loan agreements, including an
increasing interest rate, decreasing principle amount, the
requirement that the banks be granted a security interest in
PMSC's assets and that future credit availability is dependent
upon PMSC achieving improvements in its operating performance.
o The short-term adverse effects of the repositioning of PMSC's business
model, the need for additional capital, the belief that PMSC needed a
business partner with a strong capital base, long-term investment
horizon and experience in the information services industry to provide
the necessary capital and the belief that WCAS would be an appropriate
long-term partner for PMSC. See "The Merger--Financing" for a
description of the capital WCAS would provide, including additional
capital for corporate purposes.
o Presentations by CSFB to the board and the opinion of CSFB to the
effect that, as of its date and based on and subject to the matters
set forth therein, the aggregate consideration to be received in the
merger by the holders of PMSC's common stock was fair, from a
financial point of view, to such holders. CSFB's written opinion is
attached as Appendix A and should be read carefully and in its
entirety. See "Opinion of PMSC's Financial Advisor."
o The election process contemplated by the merger agreement which will
allow stockholders to retain between 7% to 25% of their PMSC shares
and therefore afford them the opportunity to participate in any future
growth and profits of PMSC. See "Terms of the Merger Agreement -
Election Procedures."
o The risks that the merger may not be completed, including the fact
that the closing is conditioned on the receipt of financing and the
absence of a material adverse change in PMSC's business, condition or
prospects. See "Terms of the Merger Agreement - Conditions Precedent."
The board noted that the financing for the merger was fully committed,
but was subject to conditions typical of transactions of this type.
See "The Merger--Financing."
o The terms of the merger agreement, including PMSC's ability, subject
to the board's fiduciary duties, to provide information to and
negotiate with third parties and to terminate the merger agreement to
accept a superior proposal upon the payment of a $19 million
termination fee and up to $5 million of expense reimbursement, and the
board's business judgment that these provisions would not
significantly deter a more attractive offer from a bona fide bidder
for PMSC. See "Terms of the Merger Agreement - No Solicitation;
Notification of Proposals and Offers; Communications and Negotiations
with Third Parties" and "Terms of the Merger Agreement - Termination
Fees and Expenses."
o Current industry, economic and market conditions.
o The interests of members of PMSC's management in the merger. See "The
Merger -- Interests That Differ From Your Interests."
In view of the variety of factors considered in connection with the
evaluation of the proposed merger and the terms of the merger agreement, the
PMSC board of directors did not deem it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its conclusion. Individual directors may have given different weights
to different factors.
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OPINION OF PMSC'S FINANCIAL ADVISOR
Credit Suisse First Boston acted as exclusive financial advisor to PMSC in
connection with the merger. PMSC selected CSFB based on CSFB's experience,
expertise and familiarity with PMSC and its business. CSFB is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes.
In connection with CSFB's engagement, PMSC requested that CSFB evaluate
the fairness, from a financial point of view, to the holders of PMSC common
stock, of the right to receive either $14.00 per share in cash or retain shares
of PMSC common stock, subject to certain limitations and proration procedures
as to which CSFB did not opine (this consideration, in the aggregate, is
referred to as the "consideration"). On March 30, 2000, the date on which the
merger agreement was executed, CSFB rendered to the PMSC board of directors a
written opinion to the effect that, as of that date and based on and subject to
the matters described in the opinion, the consideration was fair to the holders
of PMSC common stock from a financial point of view.
THE FULL TEXT OF CSFB'S WRITTEN OPINION TO THE PMSC BOARD OF DIRECTORS,
WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX A AND IS
INCORPORATED BY REFERENCE IN ITS ENTIRETY INTO THIS PROXY STATEMENT/PROSPECTUS.
HOLDERS OF PMSC COMMON STOCK ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. CSFB'S OPINION IS ADDRESSED TO THE PMSC BOARD OF DIRECTORS AND
RELATES ONLY TO THE FAIRNESS OF THE CONSIDERATION FROM A FINANCIAL POINT OF
VIEW AS OF THE DATE OF THE OPINION. IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE
PROPOSED MERGER OR ANY RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW THAT STOCKHOLDER SHOULD VOTE ON ANY
MATTER RELATING TO THE MERGER OR A RECOMMENDATION AS TO WHETHER ANY STOCKHOLDER
SHOULD ELECT TO RECEIVE CASH OR RETAIN THEIR SHARES. THE FOLLOWING IS A SUMMARY
OF THE MATERIAL FINANCIAL ANALYSES PERFORMED BY CSFB IN CONNECTION WITH
RENDERING ITS WRITTEN OPINION AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION
OF SUCH OPINION.
In arriving at its opinion, CSFB:
o reviewed the merger agreement,
o reviewed certain publicly available business and financial information
relating to PMSC,
o reviewed certain other information, including financial forecasts and
earnings estimates, that PMSC provided to or discussed with CSFB,
o met with the management of PMSC to discuss the business and prospects
of PMSC,
o considered certain financial and stock market data of PMSC, and
compared those data with similar data for other publicly held
companies in businesses similar to PMSC,
o considered the financial terms of other business combinations and
other transactions that have recently been effected, and
o considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that CSFB
deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by it and relied on that information being complete and accurate in
all material respects. With respect to the financial forecasts and earnings
estimates, including PMSC's capital structure following the merger, CSFB was
advised, and assumed, that such forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgements of the
management of PMSC as to the future financial performance of PMSC.
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<PAGE>
CSFB was not requested to, and did not, make an independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of PMSC, and
was not furnished with any evaluations or appraisals. CSFB's opinion was
necessarily based on information available to it, and financial, economic,
market and other conditions as they existed and could be evaluated, on the date
of its opinion. CSFB did not express any opinion as to the prices at which the
PMSC common stock will trade after the merger. In connection with its
engagement, CSFB was not requested to, and did not, solicit indications of
interest from other parties in acquiring all or any part of, or pursuing
another business combination with, PMSC. Although CSFB evaluated the fairness
of the consideration from a financial point of view, CSFB was not requested to,
and did not, recommend the specific consideration payable in the merger, which
consideration was determined in negotiations between PMSC and WCAS.
In preparing its opinion to the PMSC board of directors, CSFB performed a
variety of financial and comparative analyses, including those described below.
The summary of CSFB's analyses described below is not a complete description of
the analyses underlying its opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, a fairness
opinion is not readily susceptible to summary description. In arriving at its
opinion, CSFB made qualitative judgements as to the significance and relevance
of each analysis and factor considered by it. Accordingly, CSFB believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in tabular format,
without considering all analyses and factors or the narrative description of
the analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion. In addition, CSFB may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions so that the range of
the valuation resulting from any particular analyses described below should not
be taken to be CSFB's view of the actual value of PMSC.
In its analyses, CSFB considered industry performance, regulatory, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of PMSC. No company, transaction or business used
in CSFB's analyses as a comparison is identical to PMSC or the proposed merger,
nor is an evaluation of the results of those analyses entirely mathematical;
rather the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions being analyzed.
The estimates contained in CSFB's analyses and the ranges of valuations
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by the analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, CSFB's analyses and estimates are inherently subject
to substantial uncertainty.
CSFB's opinion and financial analyses were among many factors considered
by the PMSC board of directors in its evaluation of the proposed merger and
should not be viewed as determinative of the views of the PMSC board of
directors or management of PMSC with respect to the consideration or the
proposed merger.
FINANCIAL ANALYSES PERFORMED BY CSFB
The following is a summary of the material analyses underlying CSFB's
opinion dated March 30, 2000 delivered to the PMSC board of directors in
connection with the merger. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE
INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO UNDERSTAND FULLY CSFB'S
FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH IN THE TABLES BELOW WITHOUT
CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING
METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A
MISLEADING OR INCOMPLETE VIEW OF CSFB'S FINANCIAL ANALYSES.
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<PAGE>
Discounted Cash Flow Analyses. CSFB performed four separate discounted
cash flow analyses on PMSC's business in order to estimate the present value of
the unlevered after-tax free cash flows that the business could produce on a
stand-alone basis from 2000 through 2004. The first, referred to as the Base
Case, incorporates a status quo business model with revenues including large,
one-time licensing fees. The second, referred to as Case 2, incorporates a
transition towards an increased recurring revenue-based application service
provider type business model. The third, referred to as Case 3, incorporates
certain sensitivities to Case 2 that assume, among other things, sales growth
and operating income margins lower than those which were used in Case 2. These
three cases are based on projections provided by and discussions with the
management of PMSC for 2000 to 2004. The fourth case, referred to as the
Sensitivity Case incorporates certain sensitivities to Case 3 based on
discussions with PMSC management that assumes sales growth and operating income
margins lower than those which are used in Case 3. Case 2 and Case 3 are
identical to Case 2 and Case 3 as described under the caption "Certain
Supplemental Financial Analysis." The Base Case incorporates operating
assumptions which differ slightly from those used to prepare the Base Case
described in that section, but which do not result in material differences in
projected operating performance over the relevant projection period. Each case
described is only a portion of the overall analysis performed by CSFB, and CSFB
expresses no judgment on the appropriateness or accuracy of the assumptions
underlying each case.
Ranges of terminal values for the discounted cash flow analyses were
estimated using multiples of terminal year 2004 net income of 14.0x to 18.0x.
CSFB then discounted the free cash flow streams and terminal values using
discount rates ranging from 15.0% to 20.0% based on a weighted average cost of
capital analysis and taking into account the incremental business execution
risk based on discussions with PMSC management. In addition, for purposes of
calculating per share values, the analysis assumes an issuance by PMSC of $75
million of common stock at $9.00 per share resulting in an increase in the
number of shares outstanding by 8.3 million. The issuance of common stock was
assumed necessary to provide funds to execute each of the business plans
underlying Base Case, Case 2, Case 3 and the Sensitivity Case. The following
chart shows the range of implied price per share of PMSC common stock.
<TABLE>
<CAPTION>
IMPLIED PRICE PER SHARE
--------------------------------
<S> <C> <C> <C>
Base Case ................. $ 12.25 -- $ 20.50
Case 2 .................... 16.75 -- 28.50
Case 3 .................... 12.00 -- 21.00
Sensitivity Case .......... 9.25 -- 17.00
</TABLE>
Comparable Companies Analysis. CSFB compared financial and operating data
of PMSC with corresponding data of the following selected companies in the
information technologies industry:
DST Systems, Inc.
Fiserv, Inc.
BISYS Group, Inc.
Transaction Systems Architects Inc.
HNC Software, Inc.
Advent Software, Inc.
Inspire Insurance Solutions, Inc.
Equifax, Inc.
SunGard Data Systems, Inc.
Affiliated Computer Services, Inc.
Electronic Data Systems Corp.
Computer Sciences Corporation
Automatic Data Processing, Inc.
Ceridian Corporation
First Data Corporation
TenFold Corporation
Concord EFS, Inc.
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<PAGE>
CSFB reviewed the ratio of the current stock price to 2001 earnings per
share as a multiple of the projected 5-year earnings per share growth rate of
the selected companies. Additionally, CSFB reviewed enterprise values,
calculated as fully diluted equity market value, plus total debt, preferred
stock and minority interests, less cash, unconsolidated equity investments and
cash equivalents, of the selected companies as multiples of estimated 2000 and
2001 revenues. CSFB also reviewed equity market values of the selected
companies as multiples of estimated 2000 and 2001 net incomes. All multiples
were based on closing prices on March 28, 2000. CSFB then applied a range of
selected multiples derived from the selected companies to corresponding
financial and operating data of PMSC. Estimated financial data for the selected
companies were based on publicly available research analysts' estimates and
estimated financial data for PMSC were based on the Base Case and an Adjusted
Case, which incorporates certain sensitivities to the Base Case based upon
discussions with PMSC management that assume, among other things, net income
margins lower than those in the Base Case. This analysis indicated an implied
share price of PMSC common stock ranging from $12.50 to $17.00 per share.
Comparable Acquisitions Analysis. Using publicly available information,
CSFB analyzed the purchase prices and implied transaction multiples paid or
proposed to be paid in the following selected merger and acquisition
transactions in the information technology industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- ------------------------------------------- -------------------------------------
<S> <C>
EMC Corporation -- Softworks, Inc.
Sterling Software, Inc. -- Information Advantage, Inc.
Compuware Corporation -- Viasoft, Inc.
Logica plc -- Team 121
Cap Gemini S.A. -- Beechwood
Sterling Software, Inc. -- Interlink Computer Sciences, Inc.
First Data Corporation -- Paymentech, Inc.
SunGard Data Systems, Inc. -- FDP Corp.
Metamor Worldwide, Inc. -- SPR, Inc.
Concord EFS, Inc. -- Electronic Payment Services
Affiliated Computer Services, Inc. -- BRC Holdings, Inc.
Epicor Software Corporation -- DataWorks Corporation
CIBER, Inc. -- The Summit Group, Inc.
Complete Business Solutions, Inc. -- Claremont Technology Group, Inc.
Computer Sciences Corporation -- The Continuum Company, Inc.
</TABLE>
CSFB reviewed the premiums of the purchase price over the stock price both
one day and thirty days prior to announcement of each of the selected
transactions. CSFB then applied a range of selected premium derived from the
selected transactions to the share price of PMSC both one day and thirty days
prior to effecting the merger. In addition, CSFB reviewed transaction values,
calculated as the amount paid in the transaction for the equity of the target
company, plus total debt, preferred stock and minority interests, less cash,
unconsolidated equity investments and cash equivalents, of the selected
transactions as multiples of the latest twelve-month revenues and earnings
before interest and taxes, commonly known as EBIT. CSFB also reviewed the
amount paid for the equity of the target company of the selected transactions
as multiples of the latest twelve-month net income. CSFB then applied a range
of selected multiples derived from the selected transactions to the estimated
1999 revenues, EBIT and net income of PMSC. All multiples for the selected
transactions were based on financial information available at the time of the
announcement of the relevant transaction, and financial data for PMSC were
based on PMSC management's estimates of the fiscal year 1999 results excluding
the impact of initial license charges which did not arise from new business,
such as those that arose from right to use licenses or contract termination
fees.
This analysis indicated an implied share price of PMSC common stock
ranging from $12.00 to $18.00 per share.
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<PAGE>
Discounted Cash Flow Analysis of the Remaining Public Equity. CSFB
performed four separate discounted cash flow analyses on PMSC's business in
order to imply a valuation of the publicly outstanding shares after the merger
taking into account the assumed capitalization of PMSC following consummation
of the merger. The operating projections for the four analyses performed were
the same as the Base Case, Case 2, Case 3 and the Sensitivity Case discussed
above under "Discounted Cash Flow Analyses."
Ranges of terminal values for the discounted cash flow analyses were
estimated using multiples of terminal year net income of 14.0x to 18.0x. CSFB
then discounted to present value the free cash flow streams and terminal values
using a discount rate of 20.0% based on an estimate of the approximate cost of
capital for the company following consummation of the merger and taking into
account the incremental business execution risk based on discussions with PMSC
management. The following chart shows the range of implied share prices for the
publicly outstanding PMSC common stock after the effects of the merger.
<TABLE>
<CAPTION>
IMPLIED PRICE PER SHARE
-----------------------------
<S> <C> <C> <C>
Base Case ................. $ 9.75 -- $ 13.50
Case 2 .................... 14.75 -- 20.50
Case 3 .................... 9.25 -- 13.75
Sensitivity Case .......... 6.50 -- 10.25
Reference Range ........... 10.00 -- 17.00
</TABLE>
Based on the foregoing, CSFB determined that an implied share price for
the publicly outstanding PMSC common stock after the effects of the merger
ranged from $10.00 to $17.00 per share.
MISCELLANEOUS
PMSC has agreed to pay CSFB a fee for its financial advisory services in
connection with the merger equal to 1.25% of the aggregate consideration,
defined as the product of the consideration received per share of PMSC's common
stock and the number of PMSC's common shares outstanding on a fully diluted
basis, plus the value of any debt and preferred stock remaining on PMSC's
financial statements at closing and any other form of consideration (including
the value of obligations assumed) directly or indirectly received by PMSC or the
holders of PMSC's common stock in the merger. A significant portion of these
fees is contingent upon consummation of the merger. PMSC has also agreed to
reimburse CSFB for all out-of-pocket expenses incurred by CSFB in performing its
services, including the fees and expenses for legal counsel and any other
advisor retained by CSFB, and to indemnify CSFB and related persons and entities
against liabilities, including liabilities under the federal securities laws,
arising out of CSFB's engagement.
CSFB and its affiliates have in the past performed investment banking
services for PMSC and have received customary fees for these services. CSFB has
also performed investment banking services for WCAS and certain of its
affiliates, and has received customary fees for these services. CSFB and its
affiliates own a minority interest of less than one half of one percent in WCAS
VIII. In the ordinary course of business, CSFB and its affiliates may actively
trade the debt and equity securities of PMSC for their own accounts and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in those securities.
MERGER CONSIDERATION
CONVERSION OF SHARES INTO CASH/RETENTION OF SHARES
Subject to the requirement that between 75% and 93% of the outstanding
shares of PMSC common stock are converted to cash in the merger, your shares of
PMSC common stock will, at your election, either be converted in the merger
into the right to receive $14.00 per share in cash, without
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<PAGE>
interest, or be retained by you. After the merger, the stockholders of PMSC
immediately prior to the merger will own between approximately 7% and 25% of
the outstanding shares PMSC common stock depending on the election decisions of
PMSC stockholders.
At the effective time of the merger, all outstanding shares of Politic
Acquisition common stock will be converted on a one-for-one basis into shares
of PMSC common stock. After the merger, WCAS and its co-investors will own
between approximately 75% and 93% of the outstanding shares of PMSC common
stock depending on the number of shares that existing PMSC stockholders elect
to retain.
ELECTION TO RETAIN SHARES
Subject to the requirement that between 75% and 93% of outstanding shares
of PMSC common stock are converted into cash in the merger:
o you have the right to make an unconditional election on or prior to
, 2000 to either retain your PMSC common shares, in which
case your shares will remain outstanding, or, receive $14.00 per share
in cash,
o you may elect to retain only some of your shares of PMSC common stock,
in which case, the remainder of your shares of PMSC common stock will
be converted into the right to receive $14.00 per share in cash, and
o if you do not make a timely and proper election to retain shares, you
will be deemed to have elected to receive cash for all of your shares.
PRORATION
The aggregate number of shares of PMSC common stock to be retained cannot
exceed 25% and cannot be less than 7% of the outstanding shares of PMSC common
stock immediately prior to the merger. As a result, even if you do not elect to
retain any of your shares, you may, depending on the election decisions of
other PMSC stockholders, retain some shares of PMSC common stock after the
merger. Conversely, if you elect to retain shares, you may, depending on the
election decisions of other PMSC stockholders, retain fewer shares and receive
more cash than you elected.
If PMSC stockholders elect to retain an aggregate number of shares of PMSC
common stock in excess of 25% of the number of outstanding shares of PMSC
common stock immediately prior to the merger, then:
o a non-cash proration factor will be determined by dividing the maximum
number of shares that may be retained by all stockholders by the total
number of shares that stockholders elected to retain,
o subject to a requirement that cash be paid instead of issuing
fractional shares, the number of shares that may be retained by each
stockholder seeking to retain shares will be determined by multiplying
the non-cash proration factor by the total number of shares that the
stockholder had elected to retain, and
o once the non-cash proration factor is applied to reduce the number of
shares of PMSC common stock to be retained by stockholders making a
retention election, all remaining shares held by the electing
stockholders will be converted into cash.
If PMSC stockholders elect to retain an aggregate number of shares of PMSC
common stock that is less than 7% of the number of outstanding shares of PMSC
common stock immediately prior to the effective time of the merger, then:
o all shares that PMSC stockholders elect to retain shall remain
outstanding, and
o additional shares of PMSC common stock that stockholders did not elect
to retain shall also remain outstanding in the following manner:
(1) a cash proration factor will be determined by dividing
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<PAGE>
(x) the difference between the minimum number of shares that
must be retained by all stockholders and the total number of
shares that stockholders actually elected to retain by
(y) the total number of outstanding shares of PMSC common stock
other than:
o shares held by PMSC, any subsidiary of PMSC, Politic
Acquisition or any subsidiary or affiliate of Politic
Acquisition, and
o shares that stockholders have elected to retain,
(2) with respect to each outstanding share of PMSC common stock other
than:
(x) shares held by PMSC, any subsidiary of PMSC, Politic
Acquisition or any subsidiary or affiliate of Politic
Acquisition, and
(y) shares that stockholders have elected to retain, each share
will be converted into the right to retain a fraction of one
share equal to the cash proration factor and receive an
amount of cash equal to the product of (A) $14.00 and (B)
1.0 less the cash proration factor.
If the merger is completed, you will not necessarily receive the type of
consideration that you elect for all your shares and, depending on your
particular circumstances, a portion of the cash payments received by you could
be treated as dividends rather than capital gains (or recovery of basis) or vice
versa. See "The Merger -- Material Federal Income Tax Consequences" for a more
detailed discussion of the tax consequences of receiving cash.
EXAMPLES OF PRORATION
As illustrated by the following examples, with respect to the type of
merger consideration to be received by them, the holders of shares of PMSC
common stock may experience a range of possible outcomes based upon the actions
taken by the other PMSC stockholders. This is true whether or not such holders
elect to retain any shares of PMSC common stock.
The following examples assume that the number of outstanding shares of
PMSC common stock at the effective time of the merger is the same as the number
of outstanding shares on March 30, 2000, the date that the merger agreement was
signed. On that day there were 35,586,100 shares of PMSC common stock
outstanding. The following examples also assume that none of PMSC, the
subsidiaries of PMSC, Politic Acquisition nor any subsidiaries or affiliates of
Politic Acquisition hold any shares of PMSC common stock at the effective time
of the merger. None of such entities owned any shares of PMSC common stock on
the date of this proxy statement/prospectus.
Based on these assumptions, a stockholder owning 1,000 shares of PMSC
common stock and electing to retain all 1,000 shares will retain between 250
and 1,000 shares, depending on the actions of the other PMSC stockholders and
receive $14.00 per share in cash for each other share. A stockholder holding
1,000 shares of PMSC common stock who elects to have all of its shares to be
converted into cash will receive $14.00 per share for between 930 and 1,000
shares and will retain each other share, depending on the actions of other
stockholders.
Example One. Holder A owns 1,000 shares of PMSC common stock and does not
elect to retain any of its shares.
1. If holders of shares of PMSC common stock, including Holder A,
elect to retain an aggregate number of shares that is equal to or greater
than 2,491,027 shares (7% of 35,586,100 shares), then all 1,000 shares
owned by Holder A will be converted into the right to receive an aggregate
$14,000 in cash (1,000 shares at $14.00 per share). In this situation,
Holder A will receive all cash merger consideration because other holders
of PMSC common stock will have satisfied the 7% minimum retention
requirement.
2. If holders of shares of PMSC common stock, including Holder A,
elect to retain an aggregate number of shares that is less than 2,491,027
shares, then Holder A will not receive cash for all of its 1,000 shares and
will be required to retain some shares. In order to satisfy the 7%
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<PAGE>
minimum retention requirement, each holder of PMSC common shares who did
not elect to retain all of its shares will in fact retain a small number of
its non-electing shares. For example, if the holders of PMSC common stock
elect to retain only 1,000,000 shares, Holder A will receive an aggregate
$13,398 (957 shares at $14.00 per share) in cash and retain 43 shares of
PMSC common stock. In the case of maximum proration, in which no holder of
PMSC common shares elects to retain shares, Holder A will receive an
aggregate $13,020 (930 shares at $14.00 per share) in cash and retain 70
shares of PMSC common stock.
Example Two. Holder B owns 1,000 shares of PMSC common stock and elects to
retain all 1,000 shares.
1. If holders of shares of PMSC common stock, including Holder B,
elect to retain an aggregate number of shares that is less than or equal to
8,896,525 shares (25% of 35,586,100 shares), then Holder B will retain all
1,000 shares. In this situation all shares of PMSC common stock that
holders elect to retain will be retained by such holders. In this
situation, Holder B will retain all 1,000 shares because its 1,000 shares,
together with all other shares subject to retention elections by other
holders of PMSC common stock, will not exceed the 25% retention limitation.
2. If holders of shares of PMSC common stock, including Holder B,
elect to retain more than 8,896,525 shares in the aggregate, then Holder B
will not retain all 1,000 shares that it elected to retain and will receive
some cash in the merger in order to satisfy the 25% retention limitation.
For example, if holders of PMSC common stock elect to retain, in the
aggregate, shares equal to 30% of the PMSC common stock outstanding
immediately prior to the merger (10,675,830 shares), then each electing
holder of PMSC common shares, including Holder B, would be able to retain
only 83.3% of the shares it had sought to retain in order to reduce the
number of retain shares to 25% of the number of outstanding shares
immediately prior to the merger (8,896,525 shares). Therefore, Holder B
would retain 833 shares and would receive an aggregate $2,338 in cash (167
shares at $14.00 per share). If holders of PMSC common shares elect to
retain an aggregate number of shares equal to more than 30% of the number
of shares of PMSC common stock outstanding immediately prior to the merger,
Holder B and each other holder electing to retain shares would retain
proportionately fewer shares then in this example but would receive a
commensurately greater amount of cash. The minimum number of shares that
Holder B would retain is 750, assuming all holders elect to retain 100% of
their shares.
Example Three. Holder C owns 1,000 shares of PMSC common stock and elects
to retain some but not all of its shares (This example
assumes an election to retain 500 shares and to convert
500 shares into the right to receive cash).
1. If holders of shares of PMSC common stock, including Holder C,
elect to retain an aggregate number of shares that is equal to or greater
than 2,491,027 (7% of 35,586,100 shares) or equal to or less than 8,896,525
(25% of 35,586,100 shares) shares, then Holder C will retain 500 shares and
receive $7,000 (500 shares at $14.00 per share) as both the 7% retention
minimum requirement and 25% retention limitation will have been satisfied.
2. If holders of shares of PMSC common stock, including Holder C
elect to retain an aggregate number of shares that is less than 2,491,027
shares, then Holder C will not receive cash for all 500 of its non-electing
shares and will be required to retain some shares of common stock in
addition to the 500 it elected to retain. In order to satisfy the 7%
minimum retention requirement, each holder of PMSC common shares who did
not elect to retain all of its shares will in fact retain a small number of
its non-electing shares. For example, if the holders of PMSC common stock,
including Holder C, elect to retain only 1,000,000 shares, Holder C will
receive an aggregate $6,706 (479 shares at $14.00 per share) in cash and
retain 521 shares of PMSC common stock. In the case of maximum proration,
in which no holder of PMSC common shares elects to retain shares, Holder C
will receive an aggregate $6,510 (465 shares at $14.00 per share) in cash
and retain 535 shares of PMSC common stock.
3. If holders of shares of PMSC common stock, including Holder C,
elect to retain more than 8,896,525 shares in the aggregate, then Holder C
will not retain all 500 shares that it elected to retain and will receive
some cash in the merger with respect to the shares it elected to retain
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<PAGE>
in order to satisfy the 25% retention limitation. For example, if holders
of PMSC common stock elect to retain, in the aggregate, shares equal to 30%
of the PMSC common stock outstanding immediately prior to the merger
(10,675,830 shares), then each electing holder of PMSC common shares,
including Holder C, would be able to retain only 83.3% of the shares it had
sought to retain in order to reduce the number of retained shares to 25% of
the number of outstanding shares immediately prior to the merger (8,896,525
shares). Therefore, Holder C would retain 416 shares and receive an
aggregate $8,176 in cash (584 shares at $14.00 per share). If holders of
PMSC common shares elect to retain an aggregate number of shares equal to
more than 30% of the number of shares of PMSC common stock outstanding
immediately prior to the merger, Holder C and each other holder electing to
retain some or all of its shares would retain proportionately fewer shares
then in this example but would receive a commensurately greater amount of
cash. The minimum number of shares that Holder C would retain is 125,
assuming all other holders elect to retain 100% of their shares.
ELECTION PROCEDURES
If you wish to retain some or all of your shares of PMSC common stock
after the merger:
o properly complete, date and sign the form of retention election
accompanying this proxy statement/prospectus,
o return the completed, dated and signed form of retention election to
American Stock Transfer & Trust Company, the exchange agent for the
merger at one of the addresses listed on the form of retention
election, and
o include with the completed and signed form of retention election
either:
(1) all certificates representing PMSC common stock that you wish to
retain, each duly endorsed in blank, or
(2) an appropriate form of guaranteed delivery, as described in the
form of retention election. Guaranteed delivery will only be
accepted 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 and only so long as
such certificates are in fact delivered to the exchange agent by
the third business day after the deadline for making a retention
election.
The exchange agent must receive your completed, dated and signed form of
retention election and all such share certificates or appropriate guaranteed
delivery on or prior to 5:00 p.m., New York City time, on , 2000. This
deadline for electing to retain shares will be extended to the business day
prior to the likely closing date of the merger if PMSC and Politic Acquisition
reasonably determine that the closing of the merger is not likely to occur on
, 2000. If your form of retention election is not timely received, you
will be deemed to have elected to receive only cash in the merger.
In the merger agreement, PMSC has agreed to use commercially reasonable
efforts to make a copy of this proxy statement/prospectus and the accompanying
form of retention election available to all persons who become holders of
shares of PMSC common stock during the period between , 2000, the
record date for the special meeting, and the deadline for making an election to
retain shares.
Once submitted, you may revoke a form of retention election by submitting
a written notice of revocation to the exchange agent but only so long as the
notice of revocation is received by the exchange agent prior to the deadline
for making an election to retain shares. If your shares are held through a
broker, only the broker can revoke or change an election on your behalf. A
retention election may be changed by completing a later-dated form of retention
election, indicating that the later-dated form supercedes all earlier retention
election forms, and submitting the later-dated form to the exchange agent prior
to the deadline for submitting a retention election.
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The determination of the exchange agent of whether or not an election to
retain shares has been properly made or revoked and an election or revocation
was received by it shall be binding on all holders of shares of PMSC common
stock. If the exchange agent determines that any election was not properly made
with respect to shares of PMSC common stock, such shares shall be treated by
the exchange agent as shares as to which no election was made, and, subject to
the effects of proration, such shares shall be exchanged in the merger for
cash. The exchange agent shall also make all computations required by the
proration provisions of the merger agreement, and any such computation shall be
conclusive and binding on the holders of shares of PMSC common stock. The
exchange agent may, with the mutual agreement of Politic Acquisition and PMSC,
make additional rules for the implementation of the elections provided by the
merger agreement to the extent the additional rules are necessary or desirable
fully to effect such elections and consistent with the merger agreement.
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES
When the merger is consummated, PMSC will deposit with the exchange agent
an amount of cash equal to the total amount of cash to be paid to all PMSC
stockholders in connection with the merger. Such amount will include the full
amount of equity financing provided to Politic Acquisition.
Promptly after the merger, the exchange agent will send to each PMSC
stockholder a letter of transmittal containing instructions for exchanging PMSC
stock certificates for cash and, if applicable, certificates representing
retained shares. After the merger, each PMSC stockholder receiving cash will,
upon surrender to the exchange agent of its PMSC stock certificates and
acceptance of the certificates by the exchange agent, be entitled to the amount
of cash into which its PMSC common stock has been converted in the merger or
which is payable for fractional shares and stock certificates representing the
number of full shares of PMSC common stock, if any, to be retained by the
stockholder. No interest will be paid or accrue on any cash payable to any PMSC
stockholder. The exchange agent will send all cash payments and stock
certificates representing retained shares as promptly as practicable.
Any cash that is payable to PMSC stockholders in the merger which remains
undistributed for more than 183 days after the merger will be delivered to
PMSC. After that time, any stockholder who has failed to exchange its PMSC
certificates for cash only can look to PMSC, and only as one of its general
creditors, for payment of that cash.
If you do not have your PMSC common stock certificate, you may make an
affidavit of that fact. In addition, PMSC may require that you post a bond in a
reasonable amount determined by PMSC with respect to the missing stock
certificate. Upon receipt of the affidavit and any required bond, the exchange
agent will issue to you stock certificates representing shares that you will
retain after the merger as well as any cash merger consideration payable to
you.
NO FRACTIONAL SHARES
PMSC will not issue stock certificates representing fractional shares of
common stock. If, as a result of the merger, you would otherwise be entitled to
retain a fraction of a share, after taking into account all shares retained by
you in the merger, you will instead receive a cash payment equal to the
corresponding fraction of $14.00. Such payment will be made as soon as
practicable after the merger is completed.
INTERESTS THAT DIFFER FROM YOUR INTERESTS
The executive officers of PMSC and the members of the PMSC board of
directors may have interests in the merger that are different from, or in
addition to, the interests of stockholders generally. Five executive officers,
including G. Larry Wilson, who is also a director, have employment agreements
and they, as well as the nonemployee directors, would become entitled to
increased benefits under PMSC's benefit plans as a result of the merger. All of
these additional interests, to the extent material, are described below.
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Employment Agreements. Five executive officers, David Bailey, Michael W.
Risley, G. Larry Wilson, Timothy V. Williams and Stephen G. Morrison, have
employment agreements with PMSC. Mr. Wilson is also a director of PMSC. The
employment agreements provide that after a change in control of PMSC (including
the merger):
o the term of each employment agreement will be extended one year,
o each officer's base salary will be 150% of the base salary in effect
prior to the change in control,
o the amount of the annual incentive cash bonus the officer will be
eligible to receive will be increased to 150% of the amount he was
eligible to receive prior to the change in control,
o if an officer is terminated by PMSC without cause or the officer
resigns for good reason (including removal of the officer from his
position, a substantive reduction of his duties, responsibilities or
authority or his annual bonus not equaling at least the percent of
base salary as the average of the bonus paid in the three most recent
calendar years) following a change in control, he will receive his
base salary for the remaining term of the agreement plus 150% of the
highest annual bonus paid to him during the previous two years, and
o the officers will be eligible for a parachute tax gross-up payment to
make them whole against any excise tax imposed by section 4999 of the
Internal Revenue Code.
Politic Acquisition has entered into letter agreements with four of these
executive officers, David T. Bailey, Michael W. Risley, G. Larry Wilson and
Timothy V. Williams, which amend their employment agreements, effective as of
the merger, as follows:
o the merger will not constitute a change in control under their
employment agreements, unless they are terminated by PMSC other than
for cause in the twelve months following the merger, and accordingly,
base salaries will not be increased to 150% as a result of the merger,
o fiscal 2000 incentives will remain the same and incentives for later
years will be as determined by the board of directors and the
management of PMSC,
o PMSC will use commercially good faith to negotiate with the officers
for mutually satisfactory employment agreements prior to the
expiration of their present agreements,
o upon the merger, the officers will be granted stock options (100,000
for Mr. Williams, 150,000 for Mr. Bailey, 300,000 for Mr. Wilson and
200,000 for Mr. Risley) at an exercise price of $14 that will vest
over 5 years, and
o upon the merger, the officers will be offered an opportunity to
purchase up to a total of approximately 5% of the shares of PMSC after
the merger at a price of $14 per share.
Severance Plan. Two executive officers, Michael Gantt and Harald Karlsen,
are covered under the PMSC Change in Control Severance Pay Plan for Select
Employees which provides that if a covered officer is terminated by PMSC
without cause or resigns for good reason within two years following a change in
control of PMSC, the officer will be eligible to receive a payment equal to
three times the sum of:
o his base salary for one year, and
o the greater of his target bonus for the year of termination or the
year immediately prior to the change in control.
In addition, the covered employee will continue to be covered under PMSC's
welfare benefit plans for three years following termination, all stock option
and other equity rights held by the covered employee will vest upon such
termination, and the covered employee will be eligible for a parachute tax
gross-up to make him whole against any excise tax imposed by Section 4999 of
the Internal Revenue Code.
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Equity Rights. In accordance with the terms of PMSC's 1999 stock option
plan and some of the option agreements under PMSC's 1989 stock option plan,
outstanding options for some of PMSC's executive officers and directors shall
become fully vested and exercisable upon the merger. A total of 700,875 of
these options, with an average exercise price of in excess of $17.50, will vest
upon the merger, and 365,000 of these options, with an average exercise price
of $11.19, granted on April 3, 2000 (pursuant to a February 8, 2000 board
resolution), will vest upon the merger. In addition, restricted stock granted
to executive officers and directors under the PMSC Restricted Stock Ownership
Plan will become vested upon the merger. A total of 23,798 shares of restricted
stock held by directors and executive officers will vest upon the merger.
16,350 stock appreciation rights held by Harald Karlson, each with an exercise
price in excess of $17.50 per share, shall become fully vested and exercisable
upon the merger.
Indemnification; Directors and Officers Insurance. The merger agreement
provides that the articles of incorporation and by-laws of PMSC following the
merger shall contain the provisions with respect to indemnification set forth
in PMSC's articles of incorporation and by-laws as in effect on March 30, 2000,
which provisions shall not be amended for a period of six years in any manner
that would adversely affect the rights of the indemnified parties. The merger
agreement also provides that for six years after the merger, PMSC will maintain
its liability insurance for officers and directors who are covered under such
insurance as of March 30, 2000, on terms no less favorable than the terms of
such coverage on March 30, 2000. However, PMSC shall not be required to expend
more than 200% of the current annual premiums for such insurance and, in the
event such premium exceeds 200% of the current premium, PMSC shall obtain the
policy with the greatest coverage available for a cost not exceeding such
amount. All the directors of PMSC are parties to an indemnification agreement
with PMSC which obligates PMSC to indemnify them to the full extent allowed by
law.
Directors and Officers of PMSC After the Merger. The merger agreement
provides that the officers of PMSC before the merger will continue as the
officers of PMSC after the merger. The merger agreement provides that the
directors of Politic Acquisition will become the directors of PMSC at the time
of the merger. G. Larry Wilson, Alfred R. Berkeley III, Donald W. Feddersen and
John M. Palms, each a current director of PMSC, have agreed to join the Politic
Acquisition board immediately prior to the merger, and therefore, continue as
PMSC directors after the merger. See "Management of PMSC After the Merger." The
other members of the PMSC board will become directors of Policy Management
Corporation, a subsidiary of PMSC, after the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following are the material United States federal income tax
consequences applicable to stockholders of PMSC who retain PMSC common stock
and/or receive cash in exchange for all or a portion of their shares of PMSC
common stock in the merger. The following discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial decisions and current administrative pronouncements, all as in effect
on the date of this proxy statement/prospectus and which are subject to change
at any time, potentially with retroactive effect. This discussion deals only
with stockholders who hold shares of PMSC common stock as capital assets. In
addition, this discussion does not address all aspects of U.S. federal income
taxation that may be relevant to particular stockholders in light of their
personal circumstances, to stockholders subject to special treatment under the
U.S. federal income tax laws (including financial institutions, broker-dealers,
insurance companies, tax-exempt organizations, foreign persons, persons
acquiring or holding or selling PMSC common stock as part of a hedge or straddle
or similar strategy, persons subject to the "wash sale" rules of the Code and
persons acquiring shares of PMSC common stock pursuant to the exercise of
employee stock options or otherwise as compensation) or to stockholders that
invest in Politic Acquisition. No ruling from the IRS has been or will be
applied for with respect to any U.S. federal income tax consequences of the
merger and, accordingly, there can be no assurance that the IRS will agree with
the conclusions stated herein. In addition, the discussion does not address any
state, local or foreign tax consequences of any aspect of the merger.
Although the discussion sets forth the material U.S. federal income tax
considerations generally applicable to stockholders of PMSC as a consequence of
their receipt of cash and/or retention of
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PMSC common stock in the merger, this discussion does not address every U.S.
federal income tax concern that may be applicable to a particular holder of
PMSC common stock in light of the holder's particular circumstances. All
holders are urged to consult their tax advisers as to the particular tax
consequences, including tax reporting requirements, to them of the merger.
U.S. Federal Income Tax Treatment of Stockholders Receiving Cash
For U.S. federal income tax purposes, Politic Acquisition should be
disregarded as a transitory entity and the merger of Politic Acquisition with
and into PMSC and the receipt by stockholders of cash in the merger for all or
a portion of their PMSC common stock should be treated as consisting of two
transactions:
(1) a sale for cash of a portion of each stockholder's PMSC common
stock to WCAS VIII, WCAS Capital Partners III and their
co-investors (the "deemed sale"), and
(2) a sale for cash of a portion of each stockholder's PMSC common
stock to PMSC (the "company exchange").
It is unclear how the total cash proceeds received by each stockholder should be
allocated between the deemed sale and the company exchange. It is also unclear
how each stockholder's basis in its PMSC common stock prior to the merger should
be allocated among shares, if any, retained, shares sold in the deemed sale and
shares sold in the company exchange. PMSC intends to take the position that the
portion of the cash consideration received by a stockholder in the deemed sale
will be a percentage of total cash consideration received in the merger equal
to:
o the amount contributed to Politic Acquisition by WCAS VIII, WCAS
Capital Partners III and their co-investors in exchange for Politic
Acquisition stock (or otherwise) divided by
o the aggregate amount of cash paid to all stockholders in the merger.
PMSC intends to take the position that the remainder of the cash consideration
received by the stockholder will be treated as received from PMSC in the
company exchange.
If PMSC's position is sustained, the vast majority (approximately 98%) of
cash consideration received by each stockholder will be treated as being
received in the deemed sale rather than in the company exchange. As described
below, to the extent cash proceeds are treated as being received in the deemed
sale, realized losses will be recognized and realized gains will be capital
gains (rather than dividends).
The IRS could, however, take a different approach with respect to
determining the allocation of proceeds between the deemed sale and the company
exchange which approach, if sustained, could result in a stockholder being
treated as receiving a lesser amount of cash (or no cash) in the deemed sale
and, correspondingly, a greater amount of cash (or all of the cash) in the
company exchange.
U.S. Federal Income Tax Consequences to Stockholders on the Deemed Sale
To the extent that a stockholder is considered to have sold PMSC common
stock to WCAS VIII, WCAS Capital Partners III and their co-investors in the
deemed sale, the stockholder will recognize either capital gain or loss equal
to the difference between the cash proceeds received by the stockholder that
are allocable to the deemed sale and the stockholder's adjusted tax basis in
the PMSC common stock deemed to be sold to WCAS VIII, WCAS Capital Partners III
and their co-investors. The gain or loss will be long-term capital gain or loss
if the PMSC common stock was held by the stockholder for more than one year.
U.S. Federal Income Tax Consequences to Stockholders in the Company
Exchange
A stockholder that does not own any PMSC common stock after the merger
will be treated as having received the cash allocable to the company exchange
in a redemption by PMSC of the stockholder's PMSC common stock. For a
discussion of the U.S. federal income tax consequences of redemption treatment,
see "-- Redemption" below.
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It is unclear whether the cash paid by PMSC to stockholders who also
retain PMSC common stock will be treated, to the extent allocable to the
company exchange, as part of a transaction treated as a recapitalization for
tax purposes or as paid in redemption of a portion of their PMSC common stock.
PMSC intends to take the position that the cash received in the company
exchange should be treated as part of a recapitalization for tax purposes. It
is possible, however, that all or a portion of the cash received could be
treated as having been received in a redemption. The difference between
redemption and recapitalization treatment is described below.
Recapitalization
If the cash allocable to the company exchange is treated as received in a
recapitalization for U.S. federal income tax purposes, a stockholder that
retains PMSC common stock and receives cash in the company exchange will be
treated for U.S. federal income tax purposes as having transferred the
stockholder's shares of PMSC common stock not treated as being sold in the
deemed sale to PMSC in exchange for new shares of PMSC common stock and cash.
The stockholder will realize gain or loss in the exchange equal to the
difference between the stockholder's adjusted tax basis in his or her PMSC
common stock that is treated as being exchanged and the sum of the fair market
value of the PMSC common stock retained and the cash treated as received from
PMSC. If the stockholder realizes a loss, the stockholder will not be permitted
to recognize, or deduct, the loss. If the stockholder realizes gain, the
stockholder will recognize such gain to the extent of the lesser of the gain
realized and the cash treated as received from PMSC. The determination of gain
recognized, or loss not recognized, is made on a block by block basis. That is,
each share of PMSC common stock or block of shares acquired at the same price
and at the same time (and which is not treated as having been sold in the deemed
sale) will be treated as exchanged for a pro rata portion of the retained shares
and the cash treated as being received from PMSC.
Any gain recognized will be capital gain provided that the receipt of cash:
o is "substantially disproportionate" for the stockholder,
o results in a "complete termination" of the stockholder's equity
interest in PMSC, or
o is "not essentially equivalent to a dividend" for the stockholder.
In determining whether any of these tests (the "sale tests") is satisfied,
a stockholder must take into account not only the PMSC common stock the
stockholder actually owns, but also any PMSC common stock the stockholder is
deemed to own under applicable constructive ownership rules. Pursuant to these
constructive ownership rules, a stockholder is generally deemed to
constructively own any PMSC common stock that is owned (actually or, in certain
cases, constructively) by related individuals or entities and any PMSC common
stock that the stockholder has the right to acquire by exercise of an option or
by conversion or exchange of a security. Stockholders who are holders of PMSC
stock options and whose PMSC stock options are treated as converted into
equivalent options to purchase new shares of PMSC common stock in lieu of
receiving option cancellation payments, or stockholders who are otherwise
issued options to purchase shares of PMSC common stock, generally will be
treated as constructively owning the shares of PMSC common stock that are
issuable upon the exercise of such options.
The "substantially disproportionate" test generally will be satisfied with
respect to a stockholder if the percentage of the outstanding PMSC common stock
actually and constructively owned by such stockholder immediately following the
merger is less than 80% of the percentage of the outstanding PMSC common stock
actually and constructively owned by the stockholder immediately prior to the
merger.
The "complete termination" test generally will be satisfied with respect
to a stockholder if, after the merger, the stockholder does not (actually or
constructively) own any PMSC common stock. For purposes of determining whether
a stockholder's interest in PMSC has been completely terminated, a stockholder
may be eligible to waive the application of specified constructive ownership
rules.
Whether the receipt of cash by a stockholder will be considered "not
essentially equivalent to a dividend" with respect to a stockholder will depend
upon such stockholder's facts and circumstances. The "not essentially
equivalent to a dividend" test generally will be satisfied with respect to a
stockholder if there is a "meaningful reduction" in such stockholder's
proportionate interest in PMSC. In some circumstances, even a small reduction
in a stockholder's proportionate equity interest
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may satisfy this test. For example, the IRS has indicated in a published ruling
in the context of a publicly held corporation that a 3.3% reduction in the
proportionate equity interest of a small (substantially less than 1%)
stockholder who exercises no control over corporate affairs constitutes such a
"meaningful reduction."
A stockholder may not be able to satisfy any of the sale tests because of,
among other things, contemporaneous acquisitions of PMSC common stock by such
stockholder or by a related party whose PMSC common stock would be attributed
to such stockholder under the Code, because of the deemed conversion of PMSC
stock options into equivalent options to purchase new shares of PMSC common
stock, or because of the issuance to such stockholder or a related party of
options to purchase PMSC common stock. Also, in assessing whether any of the
sale tests described above is satisfied, stockholders should consider the fact
that after the merger the aggregate number of outstanding shares of PMSC common
stock will be less than the aggregate number of outstanding shares prior to the
merger. As a result, if a stockholder elects to retain (or as a result of
proration retains) a portion of its PMSC common stock, the stockholders'
percentage interest in the stock of PMSC may not be reduced even if the
stockholder receives cash for a portion of its PMSC common stock and therefore
owns fewer shares after the merger than before the merger. If no reduction in a
stockholder's percentage interest occurs then none of the sale tests will be
satisfied.
Given the fact-specific nature of the sale tests, stockholders are urged
to consult their tax advisers as to the application of these tests in their
particular circumstances, including the impact, if any, of proration,
contemporaneous acquisitions of PMSC common stock, deemed conversion of PMSC
stock options or issuance of options to purchase shares of PMSC common stock.
If any of the sale tests is met, any gain generally will be long-term
capital gain if the PMSC common stock has been held by the stockholder for more
than one year. If none of the tests is satisfied, the gain would be treated as
the distribution of a dividend, and generally subject to tax as ordinary
income, to the extent of the stockholder's ratable share of PMSC's
undistributed earnings and profits and then as capital gain.
In the case of a stockholder that is a corporation, the amount of any
recognized gain treated as a dividend may be eligible for the 70%
dividends-received deduction. The dividends-received deduction is subject to
specified limitations, may not be available if, for example, the corporate
stockholder does not satisfy specified holding period requirements with respect
to the PMSC common stock, and may be reduced or eliminated if the PMSC common
stock is treated as "debt-financed portfolio stock." Additionally, if a
dividends-received deduction is available, a dividend may be treated as an
"extraordinary dividend," in which case a corporate stockholder's adjusted tax
basis in the PMSC common stock would be reduced, but not below zero, by the
amount of the non-taxed portion of such dividend. In such case, any amount of
the non-taxed portion of the dividend in excess of the corporate stockholder's
adjusted tax basis in the PMSC common stock generally will be treated as gain
from the sale or exchange of the PMSC common stock for the taxable year in
which the extraordinary dividend is received. Corporate stockholders are urged
to consult their own tax advisers as to the availability of the
dividends-received deduction, the application of the debt-financed portfolio
stock rules and the effect of the "extraordinary dividend" rules on the
adjusted tax basis of their PMSC common stock.
Subject to the discussion of the "extraordinary dividend" rules in the
preceding paragraph, each stockholder's aggregate adjusted tax basis in the
PMSC common stock retained will be equal to the stockholder's aggregate
adjusted tax basis in all of its PMSC common stock immediately prior to the
merger (less the aggregate adjusted tax basis in shares treated as being sold in
the deemed sale), less cash received in the company exchange plus gain
recognized in the company exchange.
Redemption
If the cash allocable to the company exchange is treated as received in a
redemption, a stockholder will recognize capital gain or loss equal to the
difference between the cash treated as received from PMSC in the company
exchange and the adjusted tax basis of the shares treated as
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redeemed in the company exchange, provided that the stockholder satisfies any
of the sale tests described under "-- Recapitalization" above. If any of those
sale tests is met by a PMSC stockholder, the gain generally will be long-term
capital gain if the PMSC common stock treated as redeemed in the company
exchange has been held by the stockholder for more than one year.
If none of the sale tests is satisfied by a particular stockholder, no loss
would be recognized, or would be deductible, by that stockholder, and the entire
amount of cash received by the stockholder from PMSC allocable to the company
exchange would be treated as the distribution of a dividend, generally subject
to tax as ordinary income, to the extent of PMSC's current and accumulated
earnings and profits, then as a tax-free return of capital to the extent of the
stockholder's adjusted tax basis and then as capital gain. In such case, in
general, the basis of the shares treated as redeemed in the company exchange
will be allocated to the adjusted tax basis of the retained shares.
In the case of a stockholder that is a corporation, if the cash paid is
treated as a dividend, such dividend income may be eligible for the 70%
dividends-received deduction. See the discussion of the dividends-received
deduction under "--Recapitalization" above.
No gain or loss will be recognized on the shares of PMSC common stock
retained in the company exchange.
Impact of Allocation, Electivity and Proration
The ability to elect the type of consideration received pursuant to the
merger affords each stockholder some flexibility in selecting the type of
consideration that will best serve the stockholder's particular tax and
financial planning needs. However, each stockholder should be aware that the
stockholder's ability to satisfy (or, alternatively, to fail to satisfy) any of
the sale tests discussed under "--Recapitalization" above and cross-referenced
under "--Redemption" above and thereby avoid (or, alternatively, obtain)
dividend treatment may be affected by, among other things, prorations and
allocations of the merger consideration. As a result of proration, stockholders
may receive more or less cash than may be anticipated at the time an election
to retain shares or receive cash is made.
U.S. Federal Income Tax Treatment of Stockholders Not Receiving Any Cash
No gain or loss should be recognized for U.S. federal income tax purposes
by stockholders that retain all of their shares of PMSC common stock and
receive no cash -- by virtue of proration or otherwise -- in the merger.
Foreign Stockholders --Withholding.
The following is a general discussion of U.S. federal withholding tax
requirements that may be applicable to cash consideration payable to foreign
stockholders in the merger. For this purpose, a foreign stockholder is any
person who is, for U.S. federal income tax purposes, a foreign corporation, a
non-resident alien individual, a foreign partnership or a foreign estate or
trust.
In the case of any foreign stockholder, the exchange agent will withhold
30% of the amount paid by PMSC for the PMSC common stock of the stockholder in
order to satisfy specified U.S. withholding requirements, unless the foreign
stockholder proves in a manner satisfactory to PMSC and the exchange agent
that:
o the disposition of his or her PMSC common stock will qualify for
capital gain treatment, rather than dividend treatment, in which case
no withholding will be required;
o the foreign stockholder is eligible for a reduced tax treaty rate for
dividend income, in which case the exchange agent will withhold at the
reduced treaty rate; or
o no U.S. withholding is otherwise required.
Foreign stockholders should consult their own tax advisers regarding the
application of these withholding rules.
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Information Reporting and Backup Withholding
PMSC must report annually to the IRS and to each stockholder the amount of
dividends and other amounts paid to such stockholder. Unless an exemption
applies under the applicable law and regulations, the exchange agent may be
required to withhold, and, if required, will withhold 31% of any cash payments
to a stockholder in the merger unless such stockholder provides the appropriate
form. A stockholder who is a U.S. person under the Code should complete and
sign the Substitute Form W-9 enclosed with the letter of transmittal sent by
the exchange agent, so as to claim any applicable exemption or provide the
information (including the stockholder's taxpayer identification number) and
certification necessary to avoid backup withholding. Any amounts withheld under
the backup withholding rules may be allowed as a refund or a credit against the
holder's U.S. federal income tax liability provided the required information is
furnished to the IRS.
ACCOUNTING TREATMENT
The merger will be accounted for as a recapitalization for accounting and
financial reporting purposes. Accordingly, the historical basis of PMSC's
assets and liabilities will not be affected by the merger.
STOCK EXCHANGE LISTING
PMSC expects that its common stock will be listed on the New York Stock
Exchange following the merger. The listing would be under a new trading symbol
reflecting the change of PMSC's name to "Mynd Corporation". PMSC has applied to
use "YND" as its NYSE trading symbol after the merger. Neither PMSC nor Politic
Acquisition is committed by the merger agreement or law to maintain a listing
of the PMSC common stock on the New York Stock Exchange or any other securities
exchange or quoted on a Nasdaq stock market. In addition, we cannot guarantee
you that the shares of PMSC common stock will continue to be eligible for
listing on the New York Stock Exchange. PMSC stockholders who retain shares
after the merger may experience reduced liquidity as to their shares of PMSC
common stock.
Depending on the number of shares of PMSC common stock outstanding after
the merger or the number of holders of PMSC common stock after the merger,
PMSC's common stock may no longer meet the guidelines of the New York Stock
Exchange for continued listing. According to the NYSE's published guidelines,
the NYSE would consider delisting PMSC's common stock if, among other things:
(1) the number of recordholders of at least 100 shares each should
fall below 1,200,
(2) the number of publicly held shares (exclusive of holdings of
officers, directors and their families and other concentrated
holdings of 10% or more) should fall below 600,000 or
(3) the average market value over a consecutive 30 trading-day period
is less than $15,000,000 (exclusive of the above described
excluded holdings).
If PMSC's common stock no longer meets the requirements of the NYSE for
continued listing and the listing of the shares is discontinued, the market for
shares of PMSC common stock could be adversely affected.
If the NYSE were to delist PMSC's common stock, it is possible that the
shares would continue to trade on another securities exchange or in the
over-the-counter market and that price or other quotations would be reported by
such exchange or through a Nasdaq stock market or other source. However, the
extent of the public market for PMSC's common stock and availability of
quotations would depend upon such factors as the stockholders and/or the
aggregate market value of these securities remaining at such time, the interest
in maintaining a market in PMSC common stock on the part of securities firms,
and the possible termination of registration under the Securities Exchange Act
of 1934. PMSC cannot predict whether the reduction in the number of shares of
PMSC common stock that might otherwise trade publicly would have an adverse or
beneficial effect on the market price for or marketability of the shares or
whether it would cause future market prices to be greater or less than the
offer price.
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<PAGE>
According to PMSC's Amended Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1999, as of March 27, 2000, there were approximately
1,188 holders of record of PMSC common stock.
RESALE OF PMSC COMMON STOCK AFTER THE MERGER
The PMSC common stock to be retained by PMSC stockholders will be freely
transferable, except that
o shares retained by stockholders who may be considered "affiliates", as
that term is defined in the Securities Act of 1933, of PMSC before the
merger but not after the merger, may be resold only in transactions
permitted by the resale provisions of Rule 145 under the Securities
Act or as otherwise permitted by the Securities Act, and
o shares retained by stockholders who may be considered "affiliates", as
that term is defined in the Securities Act of 1933, of PMSC after the
merger, may be resold only in transactions permitted by the resale
provisions of Rule 144 under the Securities Act or as otherwise
permitted by the Securities Act.
PMSC has agreed to use its best efforts to cause each of its affiliates to
deliver to Politic Acquisition an agreement not to transfer any retained shares
except in compliance with the federal securities laws. The federal securities
laws generally consider directors, certain executive officers and beneficial
owners of 10% or more of a class of capital stock of a company to be
"affiliates" of that company. This proxy statement/prospectus does not cover
sales of PMSC common stock received by any person in the merger who may be
deemed to be an affiliate of PMSC after the merger.
NO DISSENTERS' APPRAISAL RIGHTS
In accordance with South Carolina law, stockholders of PMSC are not
entitled to dissenters' appraisal rights in connection with the merger.
GOVERNMENTAL APPROVALS
Transactions such as the merger are subject to review by the Department of
Justice and the Federal Trade Commission to determine whether they comply with
applicable antitrust laws. Under the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, the merger may not be consummated until a
30-day waiting period has been satisfied unless the Department of Justice or
the Federal Trade Commission formally requests additional information or grants
early termination of the waiting period. WCAS VIII filed notification reports,
together with a request for early termination of the waiting period, with the
Department of Justice and the Federal Trade Commission under the HSR Act on
April 18, 2000. At any time before or, in limited circumstances, after
completion of the merger, the DOJ Antitrust Division, the FTC or state
attorneys' general could take such action under the antitrust laws as they
consider to be necessary or desirable in the public interest, including seeking
to enjoin the completion of the merger. Private parties may also seek to take
legal action under the antitrust laws in limited circumstances.
FINANCING
WCAS VIII has received a written commitment from DLJ Capital Funding, Inc.
to provide $250 million of financing under senior secured credit facilities. Of
this senior debt financing, $200 million would be in the form of a term loan
that would be funded at the time of the merger and $50 million would be in the
form of a revolving credit facility which would be undrawn at closing. The
senior debt commitment of DLJ Capital Funding is subject to numerous conditions
including the negotiation and execution of definitive agreements, DLJ Capital
Funding's satisfaction with its due diligence and there being no material
adverse change in the financial or capital markets generally or in the markets
for syndicated loans or high yield debt securities.
Politic Acquisition has received written commitments from
44
<PAGE>
o WCAS VIII to provide, at a per share purchase price of $14, between
$339.7 million and $429.4 million in common equity financing to
Politic Acquisition before the merger,
o WCAS Capital Partners III to provide, at a per share purchase price of
$14, $25 million of common equity financing to Politic Acquisition
before the merger, and
o WCAS Capital Partners III to purchase, for $150 million, $175 million
of 10% cash-pay senior subordinated notes from PMSC after the merger
that would be due upon the earlier of eight years after the merger or
six months after the repayment of new senior credit facilities.
The equity commitment of WCAS VIII will increase above $339.7 million to up to
a maximum of $429.4 million to the extent that the existing stockholders of
PMSC elect to retain more than 7% of the shares of PMSC common stock
outstanding immediately prior to the merger.
WCAS VIII has delivered to PMSC and Politic Acquisition a "keep-well"
letter stating its agreement to make equity investments in Politic Acquisition
in an aggregate amount not to exceed $429.4 million to the extent funds are
needed to satisfy any obligations or liabilities of Politic Acquisition that
arise between March 30, 2000 and the effective time of the merger.
The merger financing includes a net cash infusion of approximately $75
million that, along with borrowings under $50 million senior revolving credit
facility, would be available to PMSC after the merger to fund:
o working capital,
o strategic acquisitions,
o strategic initiatives in eBusiness and business process outsourcing,
and
o other general corporate needs.
As stated in the WCAS VIII equity commitment letter, an affiliate of WCAS
will receive a financing fee equal to 1.25% of the total equity and debt
financing to be provided by WCAS VIII and WCAS Capital Partners III and their
co-investors in connection with the merger.
The sources and uses of these financings are set forth below:
Sources and Uses of Financing(1)
(Dollars in millions)
<TABLE>
<CAPTION>
SOURCES USES
- ------------------------------------- ---------------------------------
<S> <C> <C> <C>
WCAS VIII equity (2) $ 429.4 Cash merger consideration $ 463.4
WCAS Capital Partners III equity(2) 25.0 Refinancing of existing debt(5) 231.4
WCAS Capital Partners III senior
subordinated notes(3) 150.0 Estimated transaction expenses 35.0
Senior debt(4) 200.0 Additional available cash 74.6
--------- ---------
Total $ 804.4 Total $ 804.4
--------- ---------
</TABLE>
- ------------------
(1) This sources and uses table has been prepared assuming that 93% of the
shares of PMSC common stock outstanding at the time of the merger are
converted to cash in the merger. If less that 93% of the shares are
converted to cash, the WCAS VIII equity financing would be proportionately
reduced. If 75% of the shares are converted to cash, the minimum allowed
under the merger agreement, the WCAS VIII equity commitment would be
reduced to $339.7 million.
(2) Prior to the merger, WCAS VIII, WCAS Capital Partners III and their
co-investors will purchase common shares of Politic Acquisition. All of
the proceeds from such purchases will be used to fund payment of the cash
merger consideration.
(3) At the effective time of the merger, WCAS Capital Partners III will
purchase, for $150 million, $175 million in face value of 10% cash-pay
senior subordinated notes of PMSC.
(4) Does not include a $50 million revolving credit facility that would be
undrawn at closing.
(5) Includes an estimated $.4 million of accrued interest.
45
<PAGE>
The following table illustrates the share ownership of PMSC after giving
effect to the merger:
Pro Forma Share Ownership
(share numbers in thousands)
<TABLE>
<CAPTION>
| WCAS VIII WCAS CAPITAL PUBLIC SHAREHOLDERS
| AND ITS CO-INVESTORS PARTNERS III OF PMSC
|----------------------- ----------------------- ----------------------
| SHARES PERCENTAGE SHARES PERCENTAGE SHARES PERCENTAGE
|-------- ------------ -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
EXISTING PMSC |
SHAREHOLDERS RETAIN 7% |
OF THEIR PMSC SHARES |
AFTER THE MERGER |30,671 87.8% 1,786 5.1% 2,491 7.1%
</TABLE>
<TABLE>
<CAPTION>
| WCAS VIII WCAS CAPITAL PUBLIC SHAREHOLDERS
| AND ITS CO-INVESTORS PARTNERS III OF PMSC
|----------------------- ----------------------- ----------------------
| SHARES PERCENTAGE SHARES PERCENTAGE SHARES PERCENTAGE
|-------- ------------ -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
EXISTING PMSC |
SHAREHOLDERS RETAIN 25% |
OF THEIR PMSC SHARES |
AFTER THE MERGER |24,261 69.4% 1,786 5.1% 8,897 25.5%
</TABLE>
46
<PAGE>
COMPARISON OF THE RIGHTS OF HOLDERS OF COMMON
STOCK OF PMSC BEFORE AND AFTER THE MERGER
As a stockholder of PMSC, your rights are now governed by the PMSC
articles of incorporation, the PMSC bylaws and South Carolina law. In the
merger, the articles of incorporation and bylaws of PMSC will be replaced with
the articles of incorporation and bylaws of Politic Acquisition. The following
discussion summarizes the material differences between the rights of holders of
PMSC common stock before and after the merger. The following discussion is
qualified in its entirety by reference to the articles of incorporation and
bylaws of PMSC and Politic Acquisition. The articles of incorporation and
bylaws of PMSC have been filed as exhibits to various public documents
incorporated by reference to this proxy statement/prospectus. The articles of
incorporation and bylaws of Politic Acquisition were filed as exhibits to the
Registration Statement on Form S-4 of which the proxy statement/prospectus
forms a part. See "`Where You Can Find More Information."
CUMULATIVE VOTING
Before the merger, stockholders can cast all their votes for one director
out of the several nominees then standing for election, thereby improving their
odds of naming representatives to the PMSC board.
After the merger, the holders of a majority of the shares voted can elect
all of the directors then standing for election.
CLASSIFIED BOARD OF DIRECTORS
Before the merger, the board is divided into three classes. Only the
directors of a single class are elected at each annual meeting and once
elected, such directors will serve terms of three years, unless earlier
removed.
After the merger, each member of the board would be elected at each annual
meeting of stockholders and once elected, such directors will serve a term of
at least one year, unless earlier removed.
REMOVAL OF DIRECTORS
Before the merger, directors may be removed with or without cause by a
majority vote of the shares then entitled to vote at an election of directors.
However, the removal of directors without cause only can occur if the vote is
taken at a meeting in which a quorum, consisting of 80% of the shares entitled
to vote, is present in person or by proxy. The elimination of this
"super-quorum" requirement only can occur if authorized by the holders of 80%
of each class of shares of PMSC entitled to vote.
47
<PAGE>
As a result, in accordance with the PMSC bylaws, this "super-quorum"
provision will survive the merger unless the holders of less than 80% of the
PMSC shares vote for the merger. Otherwise, after the merger, the PMSC bylaws
will provide that any director may be removed by the holders of a majority of
the shares then entitled to vote at a meeting for the election of directors.
POWER OF STOCKHOLDERS TO CALL SPECIAL MEETING OF STOCKHOLDERS
Before the merger, stockholders are not entitled to call special meetings.
After the merger, holders of a majority of the shares will have the right
to call special meetings.
RESTRICTIONS ON BUSINESS COMBINATIONS
Before the merger, business combinations between PMSC and holders of 10%
of the shares are restricted.
After the merger, such business combinations will not be restricted.
POWER TO AMEND BYLAWS
Before the merger, amendments to the bylaws require the approval of
two-thirds of the directors or holders of two-thirds of each class of shares.
After the merger, such amendments require the approval of a majority of
the board or holders of a majority of the shares.
POWER TO AMEND ARTICLES OF INCORPORATION
Before the merger, amendments to the articles of incorporation require the
approval of two-thirds of the directors and holders of two-thirds of each class
of shares.
After the merger, such amendments require approval of a majority of the
directors and holders of a majority of each class of shares.
48
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements have
been derived by the application of pro forma adjustments to PMSC's historical
consolidated financial statements included herein. The pro forma consolidated
statement of operations for the period presented gives effect to the merger and
related transactions as if those transactions were consummated on January 1,
1999 for the fiscal year ended December 31, 1999. The pro forma consolidated
balance sheet gives effect to the merger and related transactions as if those
transactions had occurred on December 31, 1999. The adjustments are described
in the accompanying notes. The pro forma consolidated financial statements
should not be considered indicative of actual results that would have been
achieved had the merger been consummated on the date or for the periods
indicated and do not purport to indicate balance sheet data or results of
operations as of any future date or for any future period. The pro forma
consolidated financial statements should be read in conjunction with PMSC's
historical financial statements and the notes thereto included herein.
The merger agreement provides that between 75% and 93% of the PMSC common
stock outstanding at the time of the merger will be converted to cash in the
merger. The pro forma financial statements are prepared assuming that 93% of
the PMSC shares are converted to cash. Under this assumption the entire WCAS
VIII equity commitment of $429.4 million will be funded. If less than 93% of
the shares of common stock outstanding at the time of the merger are converted
to cash, the merger agreement allows for a proportionate decrease in the WCAS
VIII equity funding. As the equity funding by WCAS VIII is only used to
purchase shares from existing shareholders, a decrease in both the WCAS VIII
equity funding and the number of shares purchased will have no effect on the
pro forma consolidated financial statements.
The pro forma adjustments were applied to PMSC's historical consolidated
financial statements to reflect and account for the merger as a
recapitalization. Accordingly, the historical basis of PMSC's assets and
liabilities has not been impacted by the merger.
49
<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS NOTE PRO FORMA
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Licensing ............................................... $ 141,939 $ 141,939
Services ................................................ 502,080 502,080
---------- ----------
Revenue .................................................. 644,019 -- 644,019
---------- -- ----------
OPERATING EXPENSES
Cost of revenues:
Employee compensation and benefits ...................... 309,089 - 309,089
Computer and communications expenses .................... 51,021 -- 51,021
Depreciation and amortization of property,
equipment and capitalized software costs .............. 174,146 -- 174,146
Other costs and expenses ................................ 55,375 -- 55,375
Selling, general and administrative expenses ............ 115,714 -- 115,714
Amortization of goodwill and other intangibles .......... 20,468 -- 20,468
Restructuring and other charges ......................... 22,478 -- 22,478
---------- -- ----------
748,291 748,291
---------- ----------
OPERATING LOSS (104,272) -- (104,272)
Equity in earnings of unconsolidated affiliates ......... 1,908 -- 1,908
Minority interest ....................................... (62) -- (62)
OTHER INCOME AND EXPENSES:
Investment Income ....................................... 1,313 -- 1,313
Interest expense and other charges ...................... (12,006) (30,467) (a) (42,473)
---------- ------- ----------
(10,693) (30,467) (41,160)
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (113,119) (30,467) (143,586)
Income tax benefit ...................................... (41,148) (11,282) (b) (52,430)
---------- ------- ----------
NET LOSS $ (71,971) $ (19,185) $ (91,156)
========== ========== ==========
LOSS PER SHARE:
Basic ................................................... (2.02) (2.61)
========== ==========
Diluted ................................................. (2.02) (2.61)
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING ........................................... 35,549 (601) (c) 34,948
========== ========== ==========
Pro Forma Ratio of Earnings to Fixed Charges (d)
</TABLE>
50
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma financial data have been derived by the application of pro
forma adjustments to the PMSC's historical financial statements for the periods
noted. The merger has been accounted for as a recapitalization which will have
no impact on the historical basis of the PMSC's assets and liabilities.
The pro forma adjustments to the statement of operations exclude the
write-off of (1) approximately $429,000 ($266,000 after related tax effect) of
deferred loan costs included with the existing indebtedness and
(2) approximately $2.1 million ($1.3 million after related tax effect) of
additional compensation expense relating to accelerated vesting of restricted
stock; such amounts represent non-recurring expenses which PMSC anticipates will
be recorded in the consolidated statement of operations for the period including
the merger.
(a) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<S> <C>
Term loan (1) $18,000
Senior subordinated debt (2) 17,500
Amortization of discount on subordinated notes (3) 3,125
Amortization of debt issuance costs (4) 2,500
-------
Pro forma interest expense 41,125
Less: historical interest expense on debt repaid (5) 10,658
-------
Total adjustment 30,467
=======
</TABLE>
- ------------------
(1) Represents interest on $200.0 million of the term loan using an assumed
rate of 9.00%.
(2) Represents cash interest portion on the $175.0 million (face amount) of the
subordinated notes.
(3) Represents the amortization of the discount ($25.0 million) on the
subordinated notes over the term of the related debt (eight years).
(4) Represents amortization of deferred financing costs of $20.0 million over
the term of the related debt (eight years).
(5) Represents the elimination of historical interest expense.
(a) 0.125% increase or decrease in the assumed weighted average interest
rate applicable to the term loan would change the pro forma interest
expense and income before taxes by approximately $250,000.
(b) Represents the tax effect of the recapitalization adjustments.
(c) During the merger more shares will be purchased from the existing
shareholders than will be issued to WCAS VIII and WCAS Capital
Partners III. See "The Merger--Financing" for details of the pro forma
share ownership after giving effect to the merger.
(d) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes,
minority interest and extraordinary items, plus fixed charges. Fixed
charges include interest expense on all indebtedness, amortization of
deferred debt issuance costs, and one-third of rental expense on
operating leases representing that portion of rental expense deemed to
be attributable to interest. Earnings were insufficient to cover fixed
charges on an historical and a pro forma basis by $104.3 million for
the year ended December 31, 1999.
51
<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(A) PRO FORMA
------------ --------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 17,744 $ 74,567 $ 92,311
Restricted Cash ...................................... 2,732 2,732
Marketable securities ................................ 89 89
Receivables, net of allowance $13,000 ................ 99,669 99,669
Accrued revenues ..................................... 36,393 36,393
Deferred income taxes ................................ 15,979 15,979
Income tax receivable ................................ 9,728 9,728
Other receivable ..................................... 7,788 7,788
Prepaids ............................................. 12,050 12,050
Other ................................................ 12,559 (492) 12,067
--------- ---------- ---------
Total current assets ............................... 211,999 76,807 288,806
Property and equipment, net ........................... 142,867 142,867
Accrued revenues ...................................... 16,130 16,130
Income tax receivable ................................. 4,041 4,041
Goodwill and other intangibles, net ................... 111,024 111,024
Capitalized software costs, net ....................... 155,896 155,896
Deferred income taxes ................................. 29,850 29,850
Investments ........................................... 13,332 13,332
Other ................................................. 21,149 18,010 39,159
--------- ---------- ---------
Total assets ...................................... $ 706,288 $ 94,817 $ 801,105
========= ========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses ................ $ 41,236 $ (433) $ 40,803
Current portion of long-term debt .................... 4,000 (4,000) --
Income taxes payable ................................. 4,616 (941) 3,675
Unearned revenues .................................... 20,290 20,290
Accrued restructuring and other charges .............. 3,630 3,630
Other ................................................ 2,223 (492) 1,731
--------- ---------- ---------
Total current liabilities .......................... 75,995 (5,866) 70,129
Long-term debt ........................................ 227,000 (227,000) --
Term loan ............................................. -- 200,000 200,000
Senior subordinated debt .............................. -- 150,000 150,000
Deferred income taxes ................................. 68,514 68,514
Accrued restructuring and other charges ............... 2,659 2,659
Other ................................................. 9,935 (2,513) 7,422
--------- ---------- ---------
Total Liabilities .................................. 384,103 114,621 498,724
Minority interest ..................................... 624 624
Stockholders' equity: ................................. 321,561 (19,804) 301,757
--------- ---------- ---------
Total liabilities and stockholders' equity ............ $ 706,288 $ 94,817 $ 801,105
========= ========== =========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
52
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro
forma adjustments to PMSC's historical financial statements as of the date
noted. The merger has been accounted for as a recapitalization which will have
no impact on historical basis of the PMSC's assets and liabilities.
(a) Pro forma adjustments to the pro forma consolidated balance sheet are
summarized in the following table and are described in the notes that follow
(dollars in thousands).
<TABLE>
<CAPTION>
PURCHASE REPAYMENT
PRICE OF EXISTING
FINANCING (1) OF EQUITY (2) DEBT (3)
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash and Cash Equivalents $ 804,400 $ (463,400) $ (231,433)
Restricted Cash .................
Other Short Term Assets .........
Other Long Term Assets .......... (429)
Accounts Payable and
Accrued Expenses ............... (433)
Income Tax Payable .............. (163)
Long Term Debt -- Current
Portion ........................ (4,000)
Other Current Liabilities .......
Long Term Debt .................. (227,000)
Term Loan ....................... 200,000
Senior Subordinated Debt ........ 150,000
Other Long-term Liabilities .....
Stockholders' Equity ............ 454,400 (463,400) (266)
<CAPTION>
TRANSACTION
FEES AND COMPENSATION CONVERSION OF TOTAL NET
EXPENSES (4) EXPENSE (5) SECT STOCK (6) ADJUSTMENT
-------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ (35,000) $ 74,567
Restricted Cash ................. $2,732 2,732
Other Short Term Assets ......... $ (492) (492)
Other Long Term Assets .......... 20,000 (1,561) 18,010
Accounts Payable and
Accrued Expenses ............... (433)
Income Tax Payable .............. (778) (941)
Long Term Debt -- Current
Portion ........................ (4,000)
Other Current Liabilities ....... (492) (492)
Long Term Debt .................. (227,000)
Term Loan ....................... 200,000
Senior Subordinated Debt ........ 150,000
Other Long-term Liabilities ..... (2,513) (2,513)
Stockholders' Equity ............ (15,000) 1,730 2,732 (19,804)
</TABLE>
- ------------------
(1) Sources and uses of cash for the merger are as follows:
<TABLE>
<S> <C>
SOURCES:
Term Loan ................................ $200,000
Senior Subordinated Notes (i) ............ 150,000
Cash Equity Investment (ii) .............. 454,400
--------
Total .................................... $804,400
========
USES:
Purchase of Common Shares (ii) ........... $463,400
Refinancing of Existing Debt ............. 231,000
Payment of Accrued Interest .............. 433
Estimated Transaction Expenses ........... 35,000
Net Cash Infusion ........................ 74,567
--------
Total .................................... $804,400
========
</TABLE>
- ------------------
(i) The $175.0 million face amount of subordinated notes are being
purchased for $150.0 million. Accordingly, the principal amount of the
subordinated notes has been discounted by $25.0 million.
(ii) The cash equity investment includes $25.0 million from WCAS Capital
Partners III and $429.4 million from WCAS VIII. All of the cash equity
investments will be used to fund the purchase of common shares. The
pro forma financial statements are prepared assuming that 93% of the
current shareholders make a cash election. If less than 93% of the
current shareholders make a cash election, the merger agreement allows
for a similar decrease in equity funding by WCAS VIII.
(2) The adjustments represent the repurchase of common stock from existing
stockholders. Subsequent to the merger, existing shareholders will own
approximately 2,486,000 shares, or 7% of the outstanding PMSC common stock.
53
<PAGE>
(3) The adjustments represent the repayment of existing indebtedness of $231
million and related accrued interest of approximately $433,000, as well as
the write off of unamortized debt issuance costs of approximately $429,000
($266,000 after related tax effect) related to such existing indebtedness
(included in other assets).
(4) The adjustment represents the estimated transaction fees and expenses of
approximately $35.0 million. The portion of estimated transaction fees and
expenses attributable to the term loan and the senior subordinated notes
which totals $20.0 million will be recorded as debt issuance costs and will
be amortized over the expected life of the debt to be issued. Such
estimated debt issuance costs include estimated fees and expenses payable
to banks and related advisors. The remaining estimated transaction fees and
expenses of $15.0 million represent costs associated with the equity
transactions.
(5) The adjustment represents additional compensation expense of approximately
$2.1 million ($1.3 after related tax effect) previously recorded as
deferred compensation, related to the immediate vesting, at a change of
control, of restricted stock issued under the Company's Restricted Stock
Ownership Plan. The corresponding liability for deferred compensation is
applied to stockholders' equity. For further details of this plan, see Note
10 of Notes to the Consolidated Financial Statements of PMSC's 1999 Annual
Report on Form 10K.
(6) The adjustment represents the conversion to cash of 93% of the shares owned
by the Stock Employee Compensation Trust. For further details of this plan,
see Note 10 of Notes to the Consolidated Financial Statements of PMSC's
1999 Annual Report on Form 10K.
54
<PAGE>
TERMS OF THE MERGER AGREEMENT
The following description of the merger agreement describes the material
terms of the merger agreement. The full text of the merger agreement is
attached to this proxy statement/prospectus as Appendix B and is incorporated
herein by reference. PMSC encourages you to read the entire merger agreement.
EFFECTIVE TIME OF THE MERGER
The merger agreement provides that the closing of the merger will take
place no later than the second business day after the satisfaction or waiver of
the conditions to the merger. At the closing, PMSC will file the necessary
documents with South Carolina public officials to make the merger effective.
PMSC expects that, if all conditions to the merger have been satisfied or
waived, the merger will become effective on the date of the special meeting or
as soon thereafter as practicable.
EFFECTS OF THE MERGER
At the effective time of the merger, Politic Acquisition will be merged
into PMSC. Following the merger, the separate existence of Politic Acquisition
will cease and PMSC will continue as the surviving corporation. After the
merger, PMSC, as the surviving corporation, will succeed to and assume all of
the pre-merger rights and obligations of both PMSC and Politic Acquisition.
After the merger, the articles of incorporation and bylaws of Politic
Acquisition will be the articles of incorporation and bylaws of PMSC. After the
merger the officers of PMSC will be the same as officers of PMSC before the
merger and the directors of Politic Acquisition will become the directors of
PMSC.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
PMSC relating to various aspects of our businesses and financial statements and
other matters. The merger agreement also contains customary representations and
warranties of Politic Acquisition, including among other things, its financing
arrangements. The representations and warranties contained in the merger
agreement expire at the effective time of the merger.
PRE-CLOSING COVENANTS
CONDUCT OF BUSINESS
PMSC and Politic Acquisition have each agreed not to, and in the case of
PMSC, not to allow any of its subsidiaries to:
o take any action that would make any of its representations or
warranties under the merger agreement inaccurate in any respect at, or
as of any time before, the effective time of the merger, or
o omit to take any action necessary to prevent any of its
representations and warranties from being inaccurate in any respect
at, or as of any time before, the effective time of the merger.
PMSC has agreed that prior to the completion of the merger, unless Politic
Acquisition consents in writing, which consent may not to be unreasonably
withheld or delayed, and except for specified exceptions:
o the business of PMSC and its subsidiaries will be conducted only in,
and PMSC and its subsidiaries will not take any action except in, the
ordinary course of business and consistent with past practice,
o PMSC and its subsidiaries will use their best efforts to maintain
their relationships with suppliers and customers,
o neither PMSC nor any of its subsidiaries will do any of the following,
or in most cases, commit to do any of the following:
55
<PAGE>
- dispose of or pledge any assets,
- amend its charter or by-laws or similar organizational documents,
- split, combine or reclassify any outstanding shares of its
capital stock,
- declare, set aside or pay any dividend,
- acquire or offer to acquire any capital stock,
- issue equity securities,
- acquire any business,
- incur indebtedness for borrowed money or issued debt securities,
- enter into or modify any material contract,
- amend or relinquish any rights,
- settle or compromise claims,
- grant any non-ordinary course increase in compensation or
material bonus to non-executive employees,
- grant any increase in compensation or bonus to executive officer,
- enter into or modify any employment or collective bargaining
agreement,
- make loans to or enter into material transactions with employees,
or
- adopt or amend any employee benefit plan, trust, fund or
arrangement.
COOPERATION
PMSC and Politic Acquisition have agreed to use their 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 practicable the transactions contemplated by the merger agreement.
NO SOLICITATION; NOTIFICATION OF PROPOSALS AND OFFERS; COMMUNICATIONS AND
NEGOTIATIONS WITH THIRD PARTIES
In the merger agreement, PMSC has agreed that from March 30, 2000, the
date of the merger agreement, until the termination of the merger agreement,
PMSC, its subsidiaries and their officers, directors, employees,
representatives and other agents will not, directly or indirectly:
o solicit or initiate any discussions, submissions of proposals or
offers or negotiations with, or
o subject to the fiduciary duties of PMSC's board of directors as
determined in good faith by the board of directors after consultation
with counsel, participate in any negotiations or discussions with, or
provide any information to, or otherwise cooperate with, or assist or
participate in, facilitate or encourage any effort or attempt by, a
third party in connection with any "alternative transaction."
The merger agreement defines an "alternative transaction" as
o any merger, consolidation, recapitalization, tender or exchange offer,
debt restructuring or similar transaction involving PMSC, or
o the sale of more than 25% of the common stock or other capital stock
of PMSC, or the sale of assets, including stock of subsidiaries,
representing more than 25% of the combined assets of PMSC and its
subsidiaries.
56
<PAGE>
PMSC has also agreed to immediately notify Politic Acquisition if any
proposal, offer, inquiry or other contact is received by, any information is
requested from, or any discussions or negotiations are sought to be initiated
or continued with, PMSC in respect of an alternative transaction. The
notification must 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. After delivering such notice, PMSC must keep Politic 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. PMSC has also agreed to provide Politic Acquisition with not
less then two business days' notice prior to the execution by PMSC of any
definitive agreement with respect to any alternative transaction or any public
announcement relating to the approval of any alternative transaction.
Prior to furnishing any non-public information to, or entering into
negotiations or discussions with, any third party, PMSC must obtain an executed
confidentiality agreement from the third party on terms substantially the same
as, or no less favorable to PMSC in any material respect than, those contained
in the confidentiality agreement executed by WCAS VIII, except that the
agreement need not contain a "standstill" provision or otherwise restrict the
ability of the third party to make a proposal to PMSC's board of directors.
PMSC may not release any third party from, or waive any provision of, any
confidentiality or standstill agreement with the third party, other than a
provision that would prevent or otherwise restrict the ability of a third party
to make a proposal to PMSC's Board of Directors.
As of March 30, 2000, PMSC agreed to cease, and cause its subsidiaries and
their officers, directors, employees, representatives and other agents 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.
CONDITIONS PRECEDENT
CONDITIONS TO THE OBLIGATIONS OF EACH PARTY
The obligations of PMSC and Politic Acquisition to complete the merger are
subject to the satisfaction or waiver of the following conditions:
o the merger agreement having been duly approved by the holders of
two-thirds of the outstanding shares of PMSC common stock,
o the registration statement of which this proxy statement/prospectus is
a part having become effective,
o the absence of a stop order suspending the effectiveness of the
registration statement and the absence of any proceeding or threatened
proceeding for the purpose of suspending the effectiveness of the
registration statement,
o PMSC having received all state securities laws or "blue sky"
authorizations necessary to allow stockholders to retain shares.
o the absence of an effective 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
merger but only if the party invoking the closing condition has used
all commercially reasonable efforts to have the injunction or order
vacated,
o the absence of any pending or threatened suit, action or proceeding by
any governmental or regulatory agency seeking to prohibit or limit the
ownership or operations by Politic Acquisition, PMSC or any subsidiary
of PMSC, or to compel Politic Acquisition, PMSC or any subsidiary of
PMSC, in the aggregate, to dispose of or hold separate, any of the
material assets or business segments of PMSC, in each case, as a
result of the merger,
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<PAGE>
o the absence of any pending or threatened action by a government or
regulatory agency that could have the effect of restraining, enjoining
or otherwise prohibiting, or imposing material and adverse conditions
upon consummation of the merger,
o all filings required to be made prior to the merger by PMSC with, and
all consents required to be obtained prior to the merger by PMSC or
Politic Acquisition from, governmental and regulatory authorities in
connection with the merger having 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 PMSC,
o expiration or early termination of the 30 day waiting period under the
HSR Act,
o all contractual and other third party consents required to be obtained
prior to the merger by PMSC in connection with the merger shall have
been obtained, except where the failure to obtain such consent would
not reasonably be expected to result in a material adverse effect on
PMSC, and
o the receipt of:
(1) the financing contemplated by the DLJ senior debt commitment
letter, the WCAS VIII equity commitment letter and the WCAS
Capital Partners III subordinated debt commitment letter, or
(2) in lieu of the financing contemplated by some or all of the DLJ
senior debt commitment letter, the WCAS VIII equity commitment
letter and the WCAS Capital Partners III commitment letter,
alternative financing on terms no more burdensome in any material
respect than those set forth in the applicable commitment letter
or letters, or
(3) in lieu of the financing contemplated by the DLJ senior debt
commitment letter, PMSC having obtained all consents and waivers
necessary under its existing senior credit facility in order that
the merger would not cause an event of default under that
agreement and the terms and conditions of that agreement, as so
modified, are reasonably acceptable to Politic Acquisition.
CONDITIONS TO OBLIGATIONS OF POLITIC ACQUISITION
The obligation of Politic Acquisition to effect the merger is subject to
the satisfaction of the following conditions:
o the representations and warranties of PMSC in the merger agreement
being true and correct in all respects that are material to PMSC and
its subsidiaries, as a whole, on and as of the closing date of the
merger with the same force and effect as if made on and as of the
closing date,
o PMSC having performed in all material respects all of its obligations
under the merger agreement that are required to be performed prior to
the merger,
o Politic Acquisition having received a certificate as to the accuracy
of PMSC's representations and warranties and PMSC's compliance with
its obligations under the merger agreement that is dated the closing
date of the merger and signed by the chief executive officer or chief
financial officer of PMSC,
o PMSC's accountants having delivered one or more customary letters that
are in form and substance reasonably acceptable to Politic Acquisition
with respect to the financial information contained in the this proxy
statement/prospectus and the registration statement of which this
proxy statement/prospectus forms a part, and
o PMSC having not suffered after March 30, 2000 any change, excluding
changes that merely reflect changes in the general economy or in the
public securities markets, having, or that could reasonably be
expected to have, individually or in the aggregate, a material adverse
effect on either
58
<PAGE>
(1) the business, assets, liabilities, condition, financial or other,
prospects or operating results of PMSC and its subsidiaries,
taken as a whole, or
(2) the ability of PMSC to perform its obligations under the merger
agreement.
CONDITIONS TO OBLIGATION OF PMSC
The obligation of PMSC to effect the merger is subject to the satisfaction
of the following conditions:
o the representations and warranties of Politic Acquisition in the
merger agreement being true and correct in all respects that are
material to Politic Acquisition on and as of the closing date of the
merger with the same force and effect as if made on and as of the
closing date,
o Politic Acquisition having performed in all material respects all of
its obligations under the merger agreement that are required to be
performed prior to the merger,
o PMSC having received a certificate as to the accuracy of Politic
Acquisition's representations and warranties and Politic Acquisition's
compliance with its obligations under the merger agreement that is
dated the closing date of the merger and signed by the chief executive
officer or chief financial officer of Politic Acquisition,
o Politic Acquisition having caused the valuation firm delivering a
solvency letter to the financial institutions providing the debt
financing for the merger, or, if no such letter is being provided, a
valuation firm reasonably acceptable to PMSC, having delivered to PMSC
a letter addressed to PMSC's board of directors in form and substance
reasonably satisfactory to the board of directors as to the solvency
of PMSC and its subsidiaries after giving effect to the merger, the
financing arrangements contemplated by Politic Acquisition with
respect to the merger and the other transactions contemplated by the
merger agreement, and
o Politic Acquisition having not suffered after March 30, 2000 any
change, excluding changes that merely reflect changes in the general
economy or in the public securities markets, having or that could
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on either
(1) the business, assets, liabilities, condition, financial or other,
prospects or operating results of Politic Acquisition, or
(2) the ability of Politic Acquisition to perform its obligations
under the merger agreement.
TERMINATION
The merger agreement may be terminated and the merger abandoned at any
time prior to the effective time as follows:
o by mutual actions of the boards of directors of PMSC and Politic
Acquisition,
o by either PMSC or Politic Acquisition, if
(1) the conditions to its obligations have not have been complied
with or performed in any material respect and such noncompliance
or nonperformance has not been cured or eliminated, or by its
nature cannot be cured or eliminated by the other party on or
before September 30, 2000,
(2) the merger shall not have been effected on or prior to the close
of business on September 30, 2000 unless, in any case, the
failure of the merger to occur was caused by the breach of the
merger agreement by the party seeking such termination,
59
<PAGE>
o by PMSC if
(1) prior to stockholder approval of the merger agreement, PMSC
enters 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 PMSC believes in good faith is more favorable to
PMSC's stockholders than the transactions contemplated by the
merger agreement
(2) and all termination fees and expenses payable under the merger
agreement have been paid prior to such termination,
o by Politic Acquisition, if the board of directors of PMSC shall have
withdrawn, modified or amended in a manner adverse to Politic
Acquisition its approval or recommendation of the merger or approved,
recommended or endorsed any proposal for, or authorized PMSC to enter
into, an alternative transaction, or
o by either PMSC or Politic Acquisition if PMSC's stockholders fail to
approve the merger at the special meeting.
See "Terms of the Merger Agreement--Pre-Closing Covenants--No Solicitation;
Notification of Proposals and Offers; Communications and Negotiations with Third
Parties" on page for a definition of `alternative transaction." In addition, see
"Terms of the Merger Agreement--Termination Fees and Expenses" immediately
below.
TERMINATION FEES AND EXPENSES
The merger agreement provides that all costs and expenses incurred in
connection with the merger and the merger agreement will be paid by the party
incurring the expenses except that:
o if the merger agreement is terminated as a result of the willful and
material misrepresentations by a party or the willful and material
breach by a party of any of its covenants in the merger agreement, the
breaching party must pay the expenses of the other party,
o if the merger is consummated, PMSC will pay all of the fees and
expenses of Politic Acquisition incident to the merger,
o under the same circumstances that would require PMSC to pay the
termination fee described below, and at the same time as such
termination fee is paid, PMSC must pay or reimburse all of the
documented out-of-pocket costs and expenses of Politic Acquisition and
WCAS VIII up to a maximum of $5 million, and
o if the merger agreement is terminated under circumstance that do not
require PMSC to pay the termination fee described below and PMSC, but
not Politic Acquisition, has failed to comply with or perform, or
shall have breached, in any material respect, any of its covenants or
agreements contained in the merger agreement, PMSC must, within two
business days, pay or reimburse all of the documented out-of-pocket
costs and expenses of Politic Acquisition and WCAS VIII.
PMSC will pay Politic Acquisition a termination fee equal to $19 million,
if:
o the termination of the merger agreement by Politic Acquisition as a
result of the board of directors of PMSC having withdrawn, modified or
amended in a manner adverse to Politic Acquisition its approval or
recommendation of the merger or approved, recommended or endorsed any
proposal for, or authorized PMSC to enter into, an alternative
transaction.
o PMSC's entering into a written agreement with respect to an
alternative transaction,
o the termination of the merger agreement by PMSC in connection with the
commencement of a tender offer by a third party, or
o within 12 months of the date of termination of the merger agreement
other than by reason of Politic Acquisition's failure to comply with
or perform, or its breach of, in any material respect any of its
agreements or covenants contained in the merger agreement, PMSC agrees
to enter into or consummates a transaction that is the subject of an
inquiry, proposal or offer that is an alternative transaction that was
publicly announced or submitted to PMSC prior to the termination of
the merger agreement.
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<PAGE>
See "Terms of the Merger Agreement--Pre-Closing Covenants--No Solicitation;
Notification of Proposals and Offers; Communications and Negotiations with
Third Parties" for a definition of "alternative transaction."
PMSC has agreed to pay any termination fee owed by it to Politic
Acquisition and any fees and expenses payable in connection with the merger
within two business days following the occurrence of one of the events
described above.
EMPLOYEE BENEFIT MATTERS
Politic Acquisition has agreed that PMSC, for a period of one year after
the merger, will not materially alter the employee benefits, other than
equity-based compensation plans and programs, that are available to employees
of PMSC and its subsidiaries as of March 30, 2000.
PMSC STOCK COMPENSATION PLANS
Politic Acquisition has agreed that, after the merger, PMSC will adopt a
stock option plan providing for the grant of options for up to 1,675,000 shares
of PMSC common stock. Of such options, options for up to 750,000 shares will be
granted at the effective time of the merger to current officers of PMSC who
enter into satisfactory continuing employment arrangements with PMSC. The
balance of such options shall be available for future grants in the discretion
of the board of directors of PMSC.
After the merger, PMSC will not grant rights or other benefits under
PMSC's current stock option, restricted stock, stock appreciation and other
equity employee plans and, except for any rights with respect to outstanding
awards granted under those plans before the merger, officers and employees of
PMSC shall not have any rights under those plans.
AMENDMENT
The merger agreement can be amended by any written agreement signed by
PMSC and Politic Acquisition at any time before or after the PMSC stockholders
approve the merger agreement. However, after the PMSC stockholders approve the
merger agreement, no amendment to the merger agreement can, without consent of
the PMSC stockholders, reduce the amount or alter the form of the consideration
that the PMSC stockholders are entitled to receive in the merger.
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<PAGE>
CERTAIN STOCKHOLDER ARRANGEMENTS
As stated in the WCAS VIII equity commitment letter, an affiliate of WCAS
VIII will receive a financing fee equal to 1.25% of the total equity and debt
financing to be provided by WCAS VIII, WCAS Capital Partners III and their
co-investors in the merger.
It is contemplated that WCAS VIII, WCAS Capital Partners III and their
affiliated co-investors will be granted customary registration rights under
which WCAS VIII, WCAS Capital Partners III and the other WCAS co-investors
could require PMSC after the merger to register their shares of PMSC common
stock under the Securities Act and to include, upon request, their shares in
any registration of common stock made by PMSC.
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<PAGE>
MANAGEMENT OF PMSC AFTER THE MERGER
Under the merger agreement, at the effective time of merger, the board of
directors of Politic Acquisition will become the board of directors of PMSC.
Under the merger agreement, the officers of PMSC will continue after the
merger. After the merger, the board of directors of PMSC and officers will be
subject to change from time to time. The total number of members of the board
of directors is expected to be eight.
The current directors of Politic Acquisition are Patrick J. Welsh and
Robert A. Minicucci. In addition, it is expected that the following individuals
will be added to the Politic Acquisition board prior to the effective time of
the merger: Bruce K. Anderson, Alfred R. Berkeley III, Donald W. Feddersen,
John M. Palms, Sanjay Swani and G. Larry Wilson.
The following table sets forth the name, age and position of each person
who is expected to serve as a director or executive officer of PMSC after
completion of the merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- ----- -----------------------------------------
<S> <C> <C>
G. Larry Wilson ................. 53 Chairman of the Board, President and
Chief Executive Officer
David T. Bailey ................. 53 Executive Vice President
Stephen G. Morrison ............. 50 Executive Vice President, Secretary,
General Counsel and Chief Administrative
Officer
Michael W. Risley ............... 43 Executive Vice President
Timothy V. Williams ............. 51 Executive Vice President and Chief
Financial Officer
Michael D. Gantt ................ 48 Senior Vice President
Harald J. Karlsen ............... 53 Senior Vice President
Bruce K. Anderson ............... 60 Director
Alfred R. Berkeley III .......... 55 Director
Donald W. Feddersen ............. 65 Director
Robert A. Minicucci ............. 47 Director
John M. Palms ................... 64 Director
Sanjay Swani .................... 33 Director
Patrick J. Welsh ................ 56 Director
</TABLE>
- ------------------
G. Larry Wilson has been chairman of the PMSC board since 1985 and
President and Chief Executive Officer of PMSC since 1980. Mr. Wilson has been
employed by PMSC since its inception.
David T. Bailey has been Executive Vice President of PMSC since 1986. Mr.
Bailey is responsible for the Property and Casualty Group. He has been employed
by PMSC since 1981.
Stephen G. Morrison has been Executive Vice President, Secretary and
General Counsel of PMSC since January 1994 and Chief Administrative Officer
since 1997. Mr. Morrison is responsible for the administration of the legal
affairs of PMSC and the Legal and Business Services Group which includes legal,
human resources, quality and corporate marketing. He has been employed by PMSC
since January 1994.
Michael W. Risley has been Executive Vice President of PMSC since November
1998. Mr. Risley is responsible for the Financial Solutions Group. He has been
employed by PMSC since 1980.
Timothy V. Williams has been Executive Vice President and Chief Financial
Officer of PMSC since February 1994. Mr. Williams is responsible for the
Financial and Operational Services Group. He has been employed by PMSC since
February 1994.
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<PAGE>
Michael D. Gantt has been Senior Vice President of PMSC since 1998. Mr.
Gantt is responsible for the Claims and Risk Management Group. He has been
employed by PMSC since 1995.
Harald J. Karlsen has been Senior Vice President of PMSC since 1998. Mr.
Karlsen is responsible for international operations in Europe, Africa and the
Middle East. He has been employed by PMSC since 1993.
Bruce K. Anderson will be a Director of PMSC upon the effective time of
the merger. Mr. Anderson was a co-founder of WCAS in 1979 and is a general
partner of the firm. Prior to 1979, Mr. Anderson served as executive vice
president and a director of Automatic Data Processing, Inc. Mr. Anderson also
is chairman of Amdocs Limited and a director of several privately held
companies.
Alfred R. Berkeley, III has been a Director of PMSC since 1997. Mr.
Berkeley has served as President of The Nasdaq Stock Market, Inc. since May
1996. Before that, he served as Managing Director and Senior Banker of Alex.
Brown & Sons Incorporated. He is currently also a director of Princeton Capital
Management, Inc. He also serves as a director of two privately owned companies
Donald W. Feddersen has a Director of PMSC since 1997 and previously
served as a director from January 1983 to October 1994. Mr. Feddersen is
currently a private investor. Before that, he was General Partner of Charles
River Ventures. He serves as a director of a number of privately-owned high
technology companies.
Robert A. Minicucci will a Director of PMSC upon the effective time of the
merger. Mr. Minicucci is a partner with WCAS, joining the firm as a general
partner in August 1993. Before joining WCAS, he served as senior vice president
and chief financial officer of FirstData Corporation from December 1991 to
August 1993. In addition, he previously served as a treasurer of American
Express and a managing director of Shearson Lehman Brothers. Mr. Minicucci is
currently a director of Amdocs Limited and several privately held companies.
Dr. John M. Palms, Ph.D., has been a Director of PMSC since 1992. Dr.
Palms is the President of the University of South Carolina. He also serves as a
director of Peco Energy Company and Fortis, Inc., and serves as Chairman of the
Board of the Institute of Defense Analyses.
Sanjay Swani will be a Director of PMSC upon the effective time of the
merger. Mr. Swani is currently a principal with WCAS, and he joined the firm in
1999. Prior to joining WCAS, he was employed by Fox Paine & Company and Morgan
Stanley Dean Witter & Co. Mr. Swani also is a director of several privately
held companies.
Patrick J. Welsh will be a Director of PMSC upon the effective time of the
merger. Mr. Welsh was a co-founder of WCAS in 1979 and is a general partner
with the firm. Prior to 1979, Mr. Welsh was president and a Director of
Citicorp VentureCapital, Ltd., an affiliate of Citicorp engaged in venture
capital investing. Mr. Welsh also is a director of SAVVIS Communications and
several privately held companies.
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<PAGE>
MARKET PRICE AND DIVIDENDS ON PMSC COMMON STOCK
PMSC's common stock is traded on the New York Stock Exchange under the
symbol "PMS." The following table sets forth, for the periods indicated, the
high and low sales prices per share as reported on the New York Stock Exchange.
All numbers are adjusted for a 2-for-1 split of PMSC's common stock which
occurred on June 16, 1998.
<TABLE>
<CAPTION>
HIGH LOW
------------ -----------
<S> <C> <C>
1998
First Quarter ........................... $40 11/32 $ 32
Second Quarter .......................... 42 13/16 36 3/8
Third Quarter ........................... 48 3/8 36 3/4
Fourth Quarter .......................... 57 3/4 28 11/16
1999
First Quarter ........................... 54 15/16 30 1/4
Second Quarter .......................... 41 3/4 26
Third Quarter ........................... 36 26 5/8
Fourth Quarter .......................... 31 11/16 16 5/8
2000
First Quarter ........................... 25 11/16 8
Second Quarter (through April 26) ....... 12 1/2 9 5/8
</TABLE>
On March 30, 2000, the last trading day prior to announcement of the
execution of the merger agreement, the high sale price per share of PMSC common
stock was $9 3/16, and the low sale price per share was $8 3/4, as reported on
the New York Stock Exchange. On April 26, 2000, PMSC common stock closed at
$10 15/16 per share.
Since its inception, PMSC has not paid any cash dividends on its common
stock. Under its current credit facility, PMSC is prohibited from paying any
dividends on its common stock. Further, under the merger agreement, PMSC has
agreed not to pay any dividends on PMSC common stock prior to the closing of
the merger.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the beneficial
ownership of our capital stock as of April 14, 2000 by each person known to us
to own beneficially more than 5% of our outstanding common stock. Holders of
common stock are entitled to one vote per share.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED BEFORE MERGER
--------------------------------
NAME AND ADDRESS SHARES PERCENT(1)
- ---------------------------------------------- ------------------ -----------
<S> <C> <C>
Capital Group International, Inc. 4,032,950(2) 11.33%
11100 Santa Monica Boulevard
Los Angeles, California 90025
The Regents of the University of 2,706,400(3) 7.60%
California
1111 Broadway, 14th Floor
Oakland, California 94607
Westport Asset Management, Inc. 2,472,150 (4) 6.95%
253 Riverside Avenue
Westport, Connecticut 06880
</TABLE>
- ------------------
(1) Determined using the number of shares of common stock outstanding on April
14, 2000 which was 35,586,038.
(2) Of the shares reported, CGI has sole voting power for none of the shares,
shared voting power for 3,278,450 of the shares, shared dispositive power
for none of the shares and sole dispositive power for all of the shares.
This information is based on information contained in the Schedule 13G
filed by CGI with the SEC on February 11, 2000.
(3) Of the shares reported, Regents has sole voting and dispositive power for
all of the shares. This information is based on information contained in
the Schedule 13G filed by Regents with the SEC on February 11, 2000.
(4) Of the shares reported, Westport has sole voting power for 372,650 of the
shares, shared voting power for 1,769,500 of the shares, sole dispositive
power for 372,650 of the shares and shared dispositive power for 2,099,500
of the shares. This information is based on information contained in the
Schedule 13G filed by Westport with the SEC on February 16, 2000.
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<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of PMSC's outstanding capital stock as of April 14, 2000 by each
executive officer and director of our company individually and in the
aggregate.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED BEFORE MERGER
-------------------------------------------
NAME AND ADDRESS SHARES (1) OPTIONS (2) PERCENT (3)
- ----------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Alfred R. Berkeley, III ......... 32,148 30,000 *
Donald W. Feddersen ............. 32,106 30,000 *
Dr. John M. Palms ............... 28,598 25,000 *
Joseph D. Sargent ............... 80,650 70,002 *
John P. Seibels ................. 81,657 75,000 *
Richard G. Trub ................. 28,148 25,000 *
G. Larry Wilson ................. 1,813,363 1,526,250 4.89%
David T. Bailey ................. 375,337 369,417 1.04%
Stephen G. Morrison ............. 394,671 381,584 1.09%
Michael W. Risley ............... 163,635 138,790 *
Timothy V. Williams ............. 250,736 246,250 *
Directors and all executive
officers as a group (13 in
number) ......................... 3,357,075 2,986,502 8.70%
</TABLE>
- ------------------
(1) Each individual has sole voting power and sole dispositive power, except
that for the following unvested shares awarded under the Restricted Stock
Ownership Plan, the respective individual does not have dispositive power
for the number of shares indicated: Berkeley - 1,956; Feddersen - 1,956;
Palms - 1,956; Sargent - 1,956; Seibels - 465; Trub - 1,956; Wilson -
5,385; Morrison - 3,389; Risley - 1,551; Williams - 2,548; and all other
executive officers -- 680.
(2) These shares, which are included in the "Shares" column, are subject to
option on or before June 13, 2000, pursuant to our various stock option
plans. Does not include any options to purchase up to an aggregate 750,000
shares of PMSC common stock to be granted to these individuals upon
consummation of the merger. See "The Merger--Interests That Differ From
Your Interests."
(3) Where indicated by asterisk, beneficial ownership represents less than one
percent of the sum of the total number of shares of common stock
outstanding on April 14, 2000, plus the total shares subject to option.
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<PAGE>
OTHER MATTERS BEING SUBMITTED TO A
VOTE OF PMSC STOCKHOLDERS
ALTERNATIVE PROPOSAL: IF THE MERGER AGREEMENT IS NOT APPROVED BY THE PMSC
STOCKHOLDERS, APPROVAL OF AN AMENDMENT TO THE PMSC ARTICLES OF INCORPORATION TO
CHANGE OUR NAME TO MYND CORPORATION.
On February 8, 2000 our Board approved an amendment to our articles of
incorporation to change our name to Mynd Corporation.
Due to diversification by internal growth and acquisitions, the name
Policy Management Systems Corporation no longer adequately represents our
extensive products and services capabilities. Currently, in addition to our
historical business as a provider of computerized insurance policy management
systems, we have established ourselves as a provider of systems for life
insurance, annuities, risk management, mortgage origination and as a provider
of professional and outsourcing services. Additionally, as data systems and
insurance products are evolving from network-based models to Internet-based
programs, we are transitioning to eBusiness. We teamed with Duffy Design, an
award-winning creative branding firm, to help restate and formulate an identity
that accurately reflects our collective experience. We believe the new name
reflects our worldwide reputation for visionary leadership and experience in
technology and the insurance and related financial service industries. Our
board of directors has determined that the proposed name change is an important
step to provide a more accurate perception of our company, its business and its
role in the marketplace.
Our board of directors has considered the fact that there may be some
negative effects of a name change. For example, if the name change is approved,
we will incur some costs to change the corporate logo, marketing materials and
other corporate signage. We may also experience higher marketing costs as we
seek to familiarize existing customers with the new corporate name and product
focus. However, our board of directors determined that the benefits of the name
change likely outweighed any short-term costs.
Approval of the proposed amendment to the articles of incorporation
requires the affirmative vote of at least two-thirds of the stockholders
entitled to vote thereon.
If the merger is not approved but the name change is approved, you will
not be required to surrender your stock certificate in exchange for a
certificate containing our new name. However, stock certificates containing the
name Mynd Corporation will be issued to a stockholder upon any purchase, sale
or other disposition of our capital stock by such stockholder after the
effective date of the name change. We have also applied to the NYSE intend to
change our common stock trading symbol to "YND".
THE PMSC BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF
PMSC'S NAME CHANGE.
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EXPERTS
The financial statements incorporated in this proxy statement/prospectus
by reference to the Annual Report on Form 10-K/A for year ended December 31,
1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
LEGAL COUNSEL
The validity of the shares of PMSC common stock to be retained by PMSC
stockholders after the merger will be passed on by Nelson Mullins Riley &
Scarborough, L.L.P., Columbia, South Carolina.
STOCKHOLDER PROPOSALS
The deadline has passed with respect to the submission of shareholders
proposals for the 2000 PMSC annual meeting. Any proposals of holders of PMSC
common stock intended to be presented at the annual meeting of stockholders of
PMSC to be held in 2001 must be received by PMSC no later than December 17,
2000 to be included in PMSC's proxy statement and form of proxy relating to
that meeting.
OTHER MATTERS
As of the date of this proxy statement/prospectus, our board knows of no
other business to be presented at the special meeting. If other matters do
properly come before the meeting, or any adjournments or postponements thereof,
it is the intention of the persons named in the proxy to vote on such matters
in their sole discretion.
WHERE YOU CAN FIND MORE INFORMATION
PMSC is subject to the reporting requirements of the Securities Exchange
Act of 1934 and consequently files reports, proxy and information statements
and other information with the SEC. Reports, proxy and information statements
and other information filed by PMSC with the SEC can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the web site
(http://www.sec.gov) maintained by the SEC, or at its regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of this material can
be obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. For further information,
please call the SEC at 1-800-SEC-0330. Shares of PMSC common stock are listed
on the New York Stock Exchange and are traded under the symbol "PMS." Reports
and other information concerning PMS can also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows PMSC to "incorporate by reference" information into this
document, which means that PMSC can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be a part of this document,
except for any information superseded by information contained directly in this
document. This document incorporates by reference certain documents that PMSC
has previously filed with the SEC. These documents contain important business
information about PMSC and its financial condition.
You can obtain any of the documents incorporated by reference into this
proxy statement/prospectus through PMSC, the SEC or the SEC's Internet World
Wide Web site described above. Documents incorporated by reference are
available from PMSC without charge, excluding exhibits unless specifically
incorporated by reference as an exhibit to this document. Stockholders may
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone at the following address and telephone number:
Policy Management Systems Corporation
One PMSC Center
Blythewood, South Carolina 29016
(803) 333-4000
Attention: Stephen G. Morrison, Esq.
Corporate Secretary
Statements contained in this proxy statement/prospectus or in any document
incorporated in this proxy statement/prospectus by reference as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to that contract
or other document filed as an exhibit to that other document, and each such
statement shall be deemed qualified in its entirety by such reference.
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IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM PMSC, PLEASE DO SO AT LEAST FIVE
BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN ORDER TO RECEIVE TIMELY
DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the special meeting. PMSC has
not authorized anyone to provide you with information that is different from
what is contained in this document. This document is dated April , 2000. You
should not assume that the information contained in this document is accurate
as of any date other than that date, and the mailing of this document to
stockholders does not create any implication to the contrary. This proxy
statement/prospectus does not constitute a solicitation of a proxy in any
jurisdiction where, or to or from any person to whom, it is unlawful to make
such proxy solicitation in such jurisdiction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by PMSC are
incorporated by reference in this proxy statement/prospectus:
(1) PMSC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 filed on March 30, 2000; as amended by PMSC's
Amended Annual Report on Form 10-K/A filed on April 26, 2000; and
(2) PMSC's Current Report on Form 8-K filed on March 31, 2000.
Documents filed by PMSC with the SEC after the date of this proxy
statement/prospectus and prior to the date of the special meeting shall be
deemed to be incorporated into this proxy statement/prospectus by reference and
shall be a part of this proxy statement/prospectus from the date of filing of
such other documents. Any statements contained in a document incorporated by
reference into this proxy statement/prospectus or contained in this proxy
statement/prospectus shall be deemed to be modified or superseded to the extent
that a statement contained in this proxy statement/prospectus (or in any other
subsequently filed document which is incorporated by reference into this proxy
statement/prospectus) modifies or supersedes such earlier statement. Any
statement so modified or superseded shall not be deemed to be a part of this
proxy statement/prospectus except as so modified or superseded.
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APPENDIX A
LETTERHEAD OF CREDIT SUISSE
FIRST BOSTON CORPORATION
March 30, 2000
Board of Directors
Policy Management Systems Corporation
One PMSC Center
Blythewood, SC 29016
Members of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to the shareholders of Policy Management Systems Corporation
(the "Company") of the Consideration (as defined below) to be received by such
shareholders pursuant to the terms of the Agreement and Plan of Merger dated as
of March 30, 2000 (the "Merger Agreement"), by and between the Company and
Politic Acquisition Corp. (the "Acquiror"). The Merger Agreement provides for
the merger of the Acquiror with and into the Company (the "Merger") with the
Company being the surviving corporation (the "Surviving Corporation"). Pursuant
to the Merger, each share of common stock of the Company, par value of $0.01
per share (the "Shares"), issued and outstanding immediately prior to the
effective time of the Merger, other than Shares held by the Acquiror or any of
its affiliates or subsidiaries or held in the treasury of the Company, will be
converted, at the option of the holder of such Share, into (a) the right to
receive $14.00 in cash (the "Cash Consideration") or (b) the right to retain
one share of common stock of the Surviving Corporation, provided that such
elections will be subject to certain limitations and proration procedures set
forth in the Merger Agreement, as to which we express no view (such
consideration, in the aggregate, the "Consideration").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the
Merger Agreement. We have also reviewed certain other information, including
financial forecasts and earnings estimates, provided to or discussed with us by
the Company.
We have also considered certain financial and stock market data of the Company,
and we have compared those data with similar data for other publicly held
companies in businesses similar to those of the Company, and we have considered
the financial terms of certain business combinations and other transactions
that have recently been effected. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria that we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects, With respect to the
financial forecasts and earnings estimates (including, without limitation, the
Company's capital structure following the Merger), we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the Company's management as to the future financial
performance of the Company. In addition, we have not been requested to make,
and have not made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as they exist and
can be evaluated on the date hereof. We are not expressing any opinion as to
the prices at which the Shares will trade following the Merger, which may vary
depending upon, among other factors, changes in business, market or general
economic conditions,
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liquidity and other factors that generally influence the price of securities.
In connection with our engagement, we were not requested to solicit, and did
not solicit, interest from other parties with respect to an acquisition of or
other business combination with the Company.
We have acted as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. We will also receive a fee for
rendering this opinion.
In the past, we have performed certain investment banking services for the
Company and have received customary fees for such services. We have also
performed certain investment banking services for Welsh, Carson, Anderson &
Stowe ("WCAS"), an affiliate of which owns Acquiror (such affiliate, the
"Fund"), and certain of its affiliates, and have received customary fees for
such services. As we have previously advised you, we and our affiliates
collectively own a minority interest in the Fund.
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of the Company for our and such
affiliates' own accounts and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Merger and
does not constitute a recommendation with respect to how any shareholder of the
Company should vote on any matter relating to the Merger or a recommendation as
to whether any Shareholder should elect to receive the Cash Consideration or to
retain their Shares.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be received by the shareholders of the Company in
connection with the Merger pursuant to the Merger Agreement is fair to such
shareholders from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
BY: /s/ Lawrence A. Hamdan
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APPENDIX B
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
By and Between
POLITIC ACQUISITION CORP.
and
POLICY MANAGEMENT SYSTEMS CORPORATION
Dated as of April 27, 2000
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I THE MERGER .......................................................... 1
SECTION 1.01 The Merger .......................................................... 1
SECTION 1.02 Effect of the Merger ................................................ 2
SECTION 1.03 Closing ............................................................. 2
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 3
THE CONSTITUENT CORPORATIONS ........................................
SECTION 2.01 Effect on Capital Stock ............................................. 3
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 9
COMPANY .............................................................
SECTION 3.01 Organization and Qualification ...................................... 9
SECTION 3.02 Subsidiaries ........................................................ 10
SECTION 3.03 Authority Relative to Agreements .................................... 10
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 .......................................................... 14
SECTION 3.13 Intellectual Property; Computer Software ............................ 15
SECTION 3.14 Trade Secrets ....................................................... 16
SECTION 3.15 Severance Arrangements .............................................. 16
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 ................................................ 19
SECTION 3.21 Title to Properties; Absence of Liens and Encumbrances .............. 19
SECTION 3.22 Insurance ........................................................... 20
SECTION 3.23 State Takeover Statutes; Certain Charter Provisions ................. 20
</TABLE>
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<TABLE>
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SECTION 3.24 Opinion of Financial Advisor ................................ 20
<S> <C> <C>
SECTION 3.25 Brokers ..................................................... 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF 21
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 ..................................................... 22
SECTION 4.08 Financing ................................................... 23
ARTICLE V CERTAIN AGREEMENTS .......................................... 24
SECTION 5.01 Conduct of the Company's Business ........................... 24
SECTION 5.02 Stockholder Approval ........................................ 26
SECTION 5.03 Access to Information ....................................... 26
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 .................................... 31
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 ................................. 34
SECTION 7.01 Termination and Abandonment ................................. 34
SECTION 7.02 Effect of Termination ....................................... 35
ARTICLE VIII MISCELLANEOUS ............................................... 35
SECTION 8.01 Nonsurvival of Representations and Warranties ............... 35
SECTION 8.02 Expenses, Etc ............................................... 35
SECTION 8.03 Publicity ................................................... 36
SECTION 8.04 Execution in Counterparts ................................... 36
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 8.05 Notices ........................... 36
SECTION 8.06 Waivers ........................... 37
SECTION 8.07 Entire Agreement .................. 37
SECTION 8.08 Applicable Law .................... 37
SECTION 8.09 Binding Effect, Benefits .......... 37
SECTION 8.10 Assignability ..................... 38
SECTION 8.11 Amendments ........................ 38
SECTION 8.12 Interpretation .................... 38
SECTION 8.13. Reference; No Waiver .............. 38
</TABLE>
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-
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- --------------- --------------------------------------------------------------
<S> <C>
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
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of April 27,
2000 (this "Agreement"), by and between POLITIC ACQUISITION CORP., a South
Carolina corporation ("Acquisition"), and POLICY MANAGEMENT SYSTEMS CORPORATION,
a South Carolina corporation (the "Company"). Acquisition and the Company are
hereinafter sometimes referred to as the "Constituent Corporations" and the
Company as the "Surviving Corporation".
WHEREAS, the Company and Acquisition have entered into an Agreement and
Plan of Merger dated as of March 30, 2000 (the "Original Merger Agreement");
WHEREAS, subsequent to the date of the Original Merger Agreement, the
Company and Acquisition have each determined that it is in their best interests
and the best interests of their respective stockholders to enter into this
Agreement, which amends and restates the Original Merger Agreement in its
entirety;
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 representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions 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 this
Agreement, at the Effective Time (as hereinafter defined), in accordance with
this Agreement and the SCBCA, Acquisition 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
name "Mynd Corporation."
SECTION 1.02 EFFECT OF THE MERGER. Upon the effectiveness of the 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 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 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 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 "Effective Time").
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SECTION 1.05 ARTICLES OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS.
(a) The Articles of Incorporation of Acquisition in effect at the Effective
Time shall be the Articles of Incorporation of the Surviving Corporation
(except that such Articles of Incorporation shall be amended to provide that
the name of the Surviving Corporation shall be Mynd Corporation) until
thereafter amended in accordance with the provisions 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 Incorporation 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 qualified, 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 Corporation.
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 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 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").
(b) Cancellation of Excluded Shares. Each share of Company Common 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 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) 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) Cancellation and Retirement of Company Common Stock. As of the
Effective Time, all shares of Company Common Stock (other than Excluded Shares
and Retained 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
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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, 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).
(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
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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 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
(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
and Electing Shares; and
(2) with respect to each outstanding share of Company Common Stock other
than the Excluded 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.
(a) Exchange Agent. At or prior to the Effective Time, the Surviving
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
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.
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(b) Exchange Procedures. As soon as practicable (and in no event 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 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
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
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.
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(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.
(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.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquisition that, except as set
forth in the Schedules hereto or the Company SEC Filings:
SECTION 3.01 ORGANIZATION AND QUALIFICATION. The Company 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. 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 qualification 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, condition (financial or other), prospects or operating
results of such party and its subsidiaries, 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 beneficially, directly or indirectly, (i) any shares of
outstanding capital stock or securities convertible into or exchangeable or
exercisable for capital stock of any other corporation or (ii) any
participating interest in any partnership, joint venture or other similar
non-corporate business enterprise. Each Subsidiary is a corporation,
partnership or limited liability company duly organized, 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 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 the Company. 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 outstanding shares of capital stock of, or other ownership
interests in, each Subsidiary are validly issued, fully paid and nonassessable
(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 Subsidiary of the
Company, free and clear of any liens, claims, charges, encumbrances or adverse
claims ("Liens"), and there are no proxies outstanding or restrictions on
voting with respect to any such shares.
(c) For purposes of this Agreement, the term "Subsidiary" shall mean any
corporation or other business 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 Subsidiaries.
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 execution, delivery and performance of this Agreement by the
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby,
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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 approval, constitutes
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 consummation by the Company of the
transactions contemplated hereby will not (i) conflict with any provision of
the Articles of Incorporation 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,
indenture, lease, agreement or other instrument, permit, concession, grant,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation 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 Material Adverse Effect on
the Company.
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 outstanding,
all of which were duly and validly issued, are fully paid and nonassessable 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 outstanding. 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 purchase an aggregate 7,134,633 shares of Company Common Stock
granted pursuant to the Company Stock Plans, and except as set forth on
Schedule 3.05, no subscription, warrant, option, convertible security, stock
appreciation or other right (contingent 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 outstanding and there is not any commitment of the
Company or any Subsidiary to issue, or register under the Securities Act, any
shares, warrants, options or other such rights or to distribute to holders of
any class of its capital stock any evidences of indebtedness or assets. Neither
the Company nor any Subsidiary has any obligation (contingent or other) to
purchase, 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, report, schedule, definitive proxy
statement and registration 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 (collectively, the "Company SEC Filings"), 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 limitation, any financial statements or
schedules included therein) (i) were prepared in compliance with the
requirements of the Securities 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, supplemented or
superseded by a filing prior to the date hereof, on the date of that filing)
contain any untrue statement of a material
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fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances 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 accounting principles consistently applied and consistent with prior
periods, subject, in the case of unaudited interim consolidated financial
statements, to year-end adjustments (which consist of normal recurring
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 respective dates, and the related consolidated statements of
operations, cash flows and stockholders' 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, 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 Subsidiary has (i) issued any stock, bonds or
other corporate securities, (ii) borrowed any amount or incurred any material
liabilities (absolute or contingent), except in the ordinary course of
business, (iii) discharged or satisfied any lien or incurred or paid any
obligation or liability (absolute or contingent) other than current liabilities
shown on the consolidated balance sheet of the Company as of December 31, 1999
and current liabilities incurred since the date of such balance sheet in the
ordinary course of business, (iv) declared or made any payment or distribution
to stockholders or purchased or redeemed any shares of its capital stock or
other securities, (v) mortgaged, pledged or subjected to Lien any of its
assets, tangible or intangible, other than Liens for current real property
taxes not yet due and payable, (vi) sold, assigned or transferred any of its
tangible assets, or canceled any debts or claims, except in the ordinary course
of business or as otherwise contemplated hereby, (vii) sold, assigned or
transferred any patents, trademarks, trade names, copyrights, trade secrets or
other intangible assets, (viii) made any changes in officer or executive
compensation, (ix) waived any rights of substantial value, whether or not in
the ordinary course of business, (x) entered into any transaction, except in
the ordinary course of business or as otherwise contemplated 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
authorization 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 transactions contemplated hereby, except for (i)
compliance by the Company with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), (ii) the filing of articles of merger with
the Secretary of State of the State of South Carolina in accordance 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
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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 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 consents,
approvals, orders or authorizations which if not obtained, or registrations,
declarations or filings which if not made, would not materially adversely
affect the ability of the Company to consummate the transactions contemplated
hereby or the ability of the Surviving Corporation or any Subsidiary to conduct
its business after the Effective 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 arbitration board or tribunal to which the Company or
such Subsidiary is or was subject or in violation of any laws, ordinances,
governmental rules or regulations (including, but not limited to, those
relating to export controls, labor and employment 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, franchises or other governmental
authorizations necessary 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 transactions contemplated hereby, all
such licenses, permits, franchises and other governmental authorizations 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
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, proceeding or claim pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any
Subsidiary, or their respective properties or rights, before
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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.
(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
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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.
SECTION 3.14 TRADE SECRETS. Since December 31, 1998, no third party has
claimed or notified 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 activities to date, violated any of the terms or conditions of his
or her employment contract with any third party, or disclosed or utilized any
trade secrets or proprietary information or documentation of any third party,
or interfered in the employment relationship between any third party and any of
its employees, and to the knowledge of the Company, no person employed by or
otherwise affiliated with the Company or any Subsidiary has employed any trade
secrets or any information or documentation proprietary to any former employer,
or violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any products of
the Company or any Subsidiary.
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
Company's severance policies as in effect on the date hereof (which are
described on Schedule 3.15), or which are conditioned upon a change of control,
after the termination of employment of such employees regardless of the reason
for such termination of employment. Except as set forth on Schedule 3.15,
neither the Company nor any Subsidiary is a party to any employment agreement
or compensation guarantee extending for a period longer than one year from the
date hereof.
SECTION 3.16 TAXES. (a) Except as set forth on Schedule 3.16, each of the
Company and its Subsidiaries has (i) timely filed all material Tax Returns (as
hereinafter defined) required 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) established
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
regulations relating to the payment and withholding of Taxes and has timely
withheld from employee wages and paid over to the proper governmental
authorities all material amounts required to be so withheld and paid over.
(b) Except as set forth on Schedule 3.16, (i) there is no deficiency,
claim, audit, action, suit, proceeding or investigation 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
determinations in respect of any Taxes pending between the Company or any
Subsidiary and any taxing authority.
(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
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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 agreement or other document extending or having the effect of
extending 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 agreement 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 additional 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 Company and the Subsidiaries has complied and currently is in
compliance in all material respects, both as to form and operation, with the
applicable provisions 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 Section 3(3) of ERISA (a "Plan") which the Company or any
Subsidiary (i) has ever adopted, maintained, established or to which any of the
same has been required to contribute to or has ever contributed or (ii)
currently maintains or to which any of the same currently contributes or is
required to contribute or (iii) currently participates in or is required to
participate in.
(b) Except as set forth on Schedule 3.17, neither the Company nor any
Subsidiary has ever maintained, adopted or established, contributed or been
required to contribute to, or otherwise participated in or been required to
participate in, a "multiemployer plan" (as defined in Section 3(37) of ERISA).
No amount is due or owing from the Company or any of the Subsidiaries on
account of a "multiemployer plan" (as defined in Section 3(37) of ERISA) or on
account of any withdrawal therefrom.
(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 incurred any material liability with respect to a Plan that is
currently due and owing and has not yet been satisfied, including, without
limitation, under ERISA (including, without limitation, Title I or Title IV
thereof), the Code or other applicable law, and no event has occurred, and, to
the best knowledge of the Company, there exists no condition or set of
circumstances (other than the accrual of benefits under the normal terms of the
Plans), that could result in the imposition of any material liability on the
Company or any Subsidiary with respect to a Plan, including, without
limitation, under ERISA (including, without limitation, Title I or Title IV of
ERISA), the Code or other applicable 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 committed itself, orally or in
writing, (x) to provide or cause to be provided to any person any payments or
provision of any "welfare" or "pension" benefits (as defined in Sections 3(1)
and 3(2) of ERISA) in addition to, or in lieu of, those payments or benefits
set forth under any Plan, (y) to continue the payment of, or accelerate the
payment of, benefits under any Plan, except as expressly set forth thereunder,
or (z) to provide or cause to be provided any severance or other
post-employment benefit, salary continuation, termination, disability, death,
retirement, health or medical benefit to any person (including, without
limitation, any former or current employee), except as set forth under any
Plan.
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SECTION 3.18 ENVIRONMENTAL MATTERS. Each of the Company and the
Subsidiaries conducts its business and operations in material 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,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, or hazardous or toxic material or
waste (collectively, an "Environmental 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 foregoing, 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 violation 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 diminution in its relationship with
any material customer, and, to the best knowledge of the Company, no
representative of any customer has notified the Company or any Subsidiary that,
in the event of a change of ownership of the Company such as contemplated by
this Agreement, the Company or any Subsidiary would, lose or suffer diminution
in its relationship with any material customer.
SECTION 3.20 CERTAIN TRANSACTIONS. Except as disclosed in the Company SEC
Filings or as set forth on Schedule 3.20, there are no material transactions or
arrangements between the Company or any Subsidiary 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.
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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.
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 brokerage or 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 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 follows:
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 (i) 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 co-investors and
(ii) 1,785,714 shares of Acquisition Common Stock will be validly issued, fully
paid and nonassessable and owned of record and beneficially by WCAS Capital
Partners III, L.P. ("WCAS CP III").
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
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
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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 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 CP III,
pursuant to which WCAS CP III has committed, subject to the terms and
conditions set forth therein, to purchase from (x) the Surviving Corporation,
for a purchase price of $150 million, $175 million in aggregate principal
amount of subordinated notes of the Surviving Corporation and (y) Acquisition,
for a purchase price of $24,999,996, 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
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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 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 Subsidiaries shall be
conducted only in, and the Company and the Subsidiaries shall not take any
action except in, the ordinary course of business and consistent with past
practice;
(b) neither the Company nor any Subsidiary shall, directly or
indirectly, do any of the following: (i) sell, pledge, dispose of or
encumber (or permit any Subsidiary to sell, pledge, dispose of or encumber)
any assets of the Company or any Subsidiary, 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 Incorporation or By-Laws (or similar
organizational documents); (iii) split, combine or reclassify any
outstanding shares of its capital stock, or declare, set aside or pay any
dividend payable in cash, stock, property or otherwise with respect to such
shares (except for any dividends paid in the ordinary course to the Company
or to any wholly-owned Subsidiary); (iv) redeem, purchase, acquire or offer
to acquire (or permit any Subsidiary to redeem, purchase, acquire or offer
to acquire) any shares of its capital stock; or (v) enter into any
contract, agreement, commitment or arrangement 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 securities convertible or exchangeable for, or any
options, 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 otherwise; provided that the Company may issue
shares of Company Common Stock upon the exercise of currently outstanding
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
merger, consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof (except an
existing
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wholly-owned Subsidiary); (iii) incur any indebtedness for borrowed money
or issue any debt securities 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 commitment, except in the ordinary course of business and consistent
with past practice; (v) terminate, modify, assign, waive, release or
relinquish any contract rights or amend any material rights or claims not
in the ordinary course of business or (vi) settle or compromise any claim,
action, suit or proceeding pending or threatened against the Company, or,
if the Company may be liable or obligated to provide indemnification,
against the Company's directors or officers, before any court, governmental
agency or arbitrator, except in the ordinary course of business; provided
that nothing herein shall require any action that might impair or otherwise
affect the obligation of any insurance carrier under any insurance policy
maintained by the Company;
(d) neither the Company nor any Subsidiary shall grant any increase in
the salary or other compensation of its employees except (i) pursuant to
the terms of employment 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 consistent 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 employee of the Company or any Subsidiary;
(e) neither the Company nor any Subsidiary 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 applicable law or regulation, any collective 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 (including, without limitation, any
such plan or arrangement relating to severance or termination pay);
(f) neither the Company nor any Subsidiary shall take any action that
would make any representation or warranty 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 prohibited 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 arrangements for representatives of
Acquisition to meet with customers and suppliers of the Company or any
Subsidiary and (ii) the Company shall schedule, and the management of the
Company shall participate in, meetings of representatives of Acquisition
with employees of the Company or any Subsidiary.
SECTION 5.02 STOCKHOLDER APPROVAL. (a) As soon as reasonably practicable,
the Company shall take all action necessary in accordance with the SCBCA and
its Articles of Incorporation 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 Directors of the
Company has determined that the Merger is advisable and in the best interests
of the stockholders of the Company and shall, subject to its fiduciary duties
as determined in good faith by the Board of Directors after consultation with
counsel, recommend that the stockholders of the Company vote to approve and
adopt this Agreement and the Merger and any other matters to be submitted to
stockholders in connection 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
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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 Statement or the Registration Statement, or for
additional information, and shall promptly supply Acquisition with copies of
all correspondence 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 respective 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.
SECTION 5.03 ACCESS TO INFORMATION. (a) The Company shall, and shall cause
the Subsidiaries and its and their respective officers, directors, employees,
representatives and agents to, afford, from the date hereof to the Effective
Time, the officers, employees, representatives and agents of Acquisition
reasonable access during regular business hours to its officers, employees,
agents, properties, books, records and workpapers, and shall promptly furnish
Acquisition all financial, operating and other information and data as
Acquisition, through its officers, employees or agents, may reasonably request.
(b) Except as required by law, Acquisition shall hold, and will cause its
respective officers, employees, representatives 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 obligations 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 practicable the transactions contemplated 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, representatives and other agents
will not, directly or indirectly, 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 Directors as determined in good
faith by the Board of Directors after consultation with counsel, take any of
the following actions: participate in any negotiations or discussions with, or
provide any information or data of any nature whatsoever to, or otherwise
cooperate in any other way with, or assist or participate 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 affiliates, representatives and agents (each, a "Third Party") in
connection with any Alternative Transaction (as hereinafter defined). The
Company shall immediately
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notify Acquisition if any proposal, offer, inquiry or other contact is received
by, any information is requested from, or any discussions or negotiations are
sought to be initiated or continued with, the Company in respect of an
Alternative Transaction, 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 definitive
agreement with respect to any Alternative Transaction or any public
announcement relating to the approval of any Alternative Transaction. Prior to
furnishing any non-public information to, or entering into negotiations or
discussions with, any Third Party, the Company shall obtain an executed
confidentiality agreement from such Third Party on terms substantially 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
confidentiality agreement 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, directors, 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 perform, or shall have breached, in any material respect, any of
its covenants or agreements 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 perform, or shall
have breached, in any material respect, any of its covenants or agreements
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 Company's entering into a written agreement with respect to an
Alternative Transaction, as contemplated 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 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 agreements, Acquisition would not enter into this
Agreement; accordingly, if the Company fails to promptly pay
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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
connection 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 representations 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 officer, 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, 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
directors, 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 officers' liability insurance policy, a copy of which has
heretofore been delivered to Acquisition, on terms no less favorable than the
terms of such current insurance coverage; provided, however, that in no event
shall the Surviving Corporation be required to expend in any one year an amount
in excess of 200% of the annual premiums 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 consummation of the Merger, is
intended to benefit the Company, the Surviving Corporation and the Indemnified
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.
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(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.
(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:
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(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, 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
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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:
(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
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September 30, 2000, or (ii) the Merger shall not have been effected on or
prior to the close of business on September 30, 2000; unless, in any case,
such event has been caused by the breach of this Agreement by the party
seeking such termination;
(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 transactions 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 provided in Sections 5.05
and 8.02, in the event of the termination of this Agreement and the abandonment
of the Merger pursuant to Section 7.01, this Agreement shall thereafter 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 consummated, 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 negotiation,
preparation and execution of this Agreement, including the fees and expenses of
counsel, accountants, investment bankers and other experts; provided, however,
that if this Agreement shall have been terminated as a result of the willful
and material misrepresentations by a party or the willful and material breach
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 contemplated by this Agreement are
consummated, the Company shall pay all of the fees and expenses of Acquisition
incident to the negotiation, preparation and execution of this Agreement,
including the fees and expenses of counsel, accountants, investment 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 announcement 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).
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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 prepaid, 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.
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 representations or
warranties of the other contained in this Agreement 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 obligations of the other under this Agreement. Except as provided
in the preceding sentence, no action taken pursuant to this Agreement,
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 representations, 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.
B-26
<PAGE>
SECTION 8.07 ENTIRE AGREEMENT. This Agreement, its Exhibits and Schedules
and the other documents executed at the Effective Time in connection herewith
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral and written, between the parties hereto with respect to the subject matter
hereof. No representation, warranty, 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 statement of
intention not embodied herein or therein.
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 Agreement 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, obligations
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 enforceable 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 stockholders 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 variance, amendment or supplement shall,
without consent of such stockholders, reduce the amount or alter the form of
the consideration 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 supplemented 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."
SECTION 8.13. REFERENCE; NO WAIVER. Any reference in this Agreement to the
"date hereof" or the "date of this Agreement" or similar formulations shall be
deemed to refer to March 30, 2000, the date of the Original Merger Agreement.
The parties' execution and delivery of this Agreement shall not constitute a
waiver of any rights that either of the parties hereto may have by reason of
any event, misrepresentation or breach of covenant of the Original Merger
Agreement having occurred prior to the date of execution and delivery of this
Agreement whether or not known to any or all of the parties hereto.
B-27
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Amended
and Restated Agreement and Plan of Merger as of the day and year first above
written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By /s/ G. LARRY WILSON
-------------------
Name: G. Larry Wilson
Title: CEO, President
POLITIC ACQUISITION CORP.
By /s/ PATRICK J. WELSH
--------------------
Name: Patrick J. Welsh
Title: President
B-28
<PAGE>
INDEX TO DEFINED TERMS
THIS INDEX IS INCLUDED FOR CONVENIENCE ONLY AND
DOES NOT CONSTITUTE A PART OF THE AGREEMENT
<TABLE>
<CAPTION>
TERM (section) 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)
"Certificates" 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
"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
"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)
"Original Merger Agreement" Recitals
"Payment Event" 5.05(c)
"Plan" 3.17(a)
</TABLE>
B-29
<PAGE>
<TABLE>
<S> <C>
"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>
B-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The articles of incorporation and bylaws of the Registrant provide that
the Registrant shall indemnify, to the fullest extent permitted by South
Carolina law, any person who is or was a director, officer, employee or agent
of the Registrant and any person who is or was serving at the request of PMSC
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. In addition, prior to the signing of
the merger agreement, the Registrant entered into indemnification agreements
with each of its directors and executive officers.
Under South Carolina law, a corporation may indemnify a past or present
director against liability incurred in a proceeding if (i) the director
conducted himself in good faith, (ii) the director reasonably believed (a) in
the case of conduct in his or her official capacity with the corporation, that
his or her conduct was in its best interest, and (b) in all other cases, that
his or her conduct was at least not opposed to its best interest, and (iii) in
the case of any criminal proceedings, the director had no reasonable cause to
believe his or her conduct was unlawful; provided, however, that a corporation
may not indemnify a director (a) in connection with a proceeding by or in the
right of the corporation in which the director is adjudged liable to the
corporation, or (b) in connection with any other proceeding charging improper
personal benefit to him or her in which he or she is adjudged liable on the
basis that personal benefit was improperly received by him or her. Under South
Carolina law, unless limited by the articles of incorporation, a corporation
shall indemnify a director who is wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he or she is party because
he or she is or was a director against reasonable expenses incurred by him or
her in connection with the proceeding. Under South Carolina law, a corporation
may pay in advance for the reasonable litigation expenses of a director if (i)
the director furnishes the corporation a written affirmation of his good faith
belief that he or she has met the applicable standard of conduct, (ii) the
director furnishes the corporation a written undertaking to repay the advance
if it is ultimately determined that he or she did not meet the standard of
conduct, and (iii) a determination is made that the facts then known to those
making the determination would not preclude indemnification. Such
determination, as well as any determination that indemnification shall be paid,
must be made in one of the following ways: (i) by a majority vote of a quorum
of the board of directors consisting of directors not at the time parties to
the proceeding, (ii) if a quorum cannot be obtained, by majority vote of a
committee designated by the board of directors, consisting solely of two or
more directors not at the time parties to the proceeding, (iii) by special
legal counsel (a) selected by the board of directors or its committee in the
manner prescribed above, or (b) if a quorum of the board of directors cannot be
obtained and a committee cannot be designated, selected by majority vote of the
full board of directors, or (iv) by the stockholders, but shares owned by or
voted under the control of directors who are at the time parties to the
proceeding may not be voted on the determination. Under South Carolina law, an
officer is entitled to the benefit of the same indemnification provisions as
apply to directors, but in addition a corporation may indemnify and advance
expenses to an officer who is not a director to the extent, consistent with
public policy, provided by the corporation's articles of incorporation, the
corporation's bylaws, general or specific action of the board of directors, or
contract. Unless the corporation's articles of incorporation provide otherwise,
South Carolina law permits a court in certain circumstances to order the
payment of indemnification to a director, whether or not he met the applicable
standard of conduct, if the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ ----------------------------------------------------------------------------------------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of April 27, 2000,
between Policy Management Systems Corporation and Politic Acquisition Corp.
(included as Appendix A to the Proxy Statement/Prospectus which forms a part of this
Registration Statement)
3.1 Restated Articles of Incorporation of PMSC to be effective upon consummation of the
merger
3.2 Bylaws of PMSC to be effective upon consummation of the merger
5.1 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
regarding the validity of the securities being registered
8.1* Opinion of Dewey Ballantine LLP regarding certain tax matters
23.1 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (contained in Exhibit 5.1
hereto)
23.2* Consent of Dewey Ballantine LLP (contained in Exhibit 8.1 hereto)
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney of the officers and directors of Registrant signing this Registration
Statement (contained on page II-4)
99.1* Form of Proxy
99.2* Form of Retention Election
99.3* Consent of Credit Suisse First Boston Corporation
</TABLE>
- ----------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof;
II-2
<PAGE>
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering;
(4) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(5) (a) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form;
(b) that every prospectus: (A) that is filed pursuant to paragraph
(5)(a) immediately preceding, or (B) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(6) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Blythewood, State of
South Carolina, on April 28, 2000.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By: /s/ G. LARRY WILSON
-------------------
Name: G. Larry Wilson
Title: Chairman, Chief Executive
Officer and President
POWER OF ATTORNEY
Know all men by these presents, that each of the persons whose signature
appears below appoints and constitutes G. Larry Wilson and Timothy V. Williams,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to execute any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully and to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent or any of them, or
their substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ------------------------------------ ---------------
<S> <C> <C>
/s/ G. LARRY WILSON Chairman, Chief Executive Officer, April 28, 2000
- --------------------------- President and Director (Principal
G. Larry Wilson executive officer)
/s/ TIMOTHY V. WILLIAMS Executive Vice President and Chief April 28, 2000
- --------------------------- Financial Officer
Timothy V. Williams (Principal financial and
accounting officer)
/s/ ALFRED R. BERKELEY, III Director April 28, 2000
- ---------------------------
Alfred R. Berkeley, III
/s/ DONALD W. FEDDERSEN Director April 28, 2000
- ---------------------------
Donald W. Feddersen
/s/ JOHN M. PALMS Director April 28, 2000
- ---------------------------
John M. Palms
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ JOSEPH D. SARGENT Director April 28, 2000
- ---------------------------
Joseph D. Sargent
/s/ JOHN P. SEIBELS Director April 28, 2000
- ---------------------------
John P. Seibels
/s/ RICHARD G. TRUB Director April 28, 2000
- ---------------------------
Richard G. Trub
</TABLE>
II-5
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Amended and Restated Agreement and Plan of Merger,
dated as of April 27, 2000, between Policy Management
Systems Corporation and Politic Acquisition Corp.
(included as Appendix A to the Proxy
Statement/Prospectus which forms a part of this
Registration Statement)
3.1 Restated Articles of Incorporation of PMSC to be
effective upon consummation of the merger
3.2 Bylaws of PMSC to be effective upon consummation of
the merger
5.1 Form of Opinion of Nelson Mullins Riley &
Scarborough, L.L.P. regarding the validity of the
securities being registered
8.1* Opinion of Dewey Ballantine LLP regarding certain tax
matters
23.1 Consent of Nelson Mullins Riley & Scarborough, L.L.P.
(contained in Exhibit 5.1 hereto)
23.2* Consent of Dewey Ballantine LLP (contained in Exhibit
8.1 hereto)
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney of the officers and directors of
Registrant signing this Registration Statement
(contained on page II-4)
99.1* Form of Proxy
99.2* Form of Retention Election
99.3* Consent of Credit Suisse First Boston Corporation
- ----------
* To be filed by amendment.
EXHIBIT 3.1
ARTICLES OF RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
POLITIC ACQUISITION CORP.
Pursuant to Section 33-10-107 of the South Carolina Business Corporation
Act of 1988, as amended (the "Act"), the undersigned Corporation hereby adopts,
as of the date that these Articles of Restatement are filed with the Secretary
of State of the State of South Carolina, the following Articles of Restatement
of its Articles of Incorporation:
1. The name of the Corporation is Politic Acquisition Corp.
2. The original Articles of Incorporation of the Corporation were filed
with the Secretary of State of the State of South Carolina on March
22, 2000.
3. These Articles of Restatement contain amendments to the original
Articles of Incorporation of the Corporation that require the approval
of the stockholders of the Corporation.
4. The following Restated Articles of Incorporation of the Corporation
were adopted by the sole stockholder of the Corporation on April 18,
2000.
5. On the date of the adoption of the Restated Articles of Incorporation
of the Corporation by its sole stockholder, the total number of
outstanding shares of capital stock of the Corporation was 1,000, all
of which were designated common stock, par value $.01 per share.
6. On the date of the adoption of the Restated Articles of Incorporation
of the Corporation by its sole stockholder, the total number of shares
entitled to vote on its approval and adoption was 1,000, and the total
number of shares voted in favor of such approval and adoption was
1,000, which vote was sufficient for the approval and adoption of the
Restated Articles of Incorporation of the Corporation by its
stockholders.
<PAGE>
7. The text of the Articles of Incorporation of the Corporation is hereby
restated to read in its entirety as follows:
FIRST: Name. The name of the Corporation is Politic Acquisition Corp.
SECOND: Address of Registered Office. The address of the registered office
of the Corporation in the State of South Carolina is 1301 Gervais Street,
Columbia, South Carolina 29201. The name of the Corporation's registered agent
at such address is Corporation Service Company.
THIRD: Number of Shares. The total number of shares of capital stock which
the Corporation shall have authority to issue is 105,000,000 shares of the par
value of $.01 per share. Such shares shall be of two classes as follows:
Authorized Number
Class of Stock of Shares of Each Class
-------------- -----------------------
Common Stock 100,000,000
Preferred Stock 5,000,000
The Board of Directors of the Corporation is hereby expressly authorized,
subject to any limitations prescribed by the laws of the State of South
Carolina, without further approval of the stockholders of the Corporation, by
the filing of one or more Articles of Amendment pursuant to the Act, to provide,
out of the unissued shares of Preferred Stock, for one or more series of
Preferred Stock and, with respect to each such series, to fix the number of
shares constituting such series and the designation of such series, the voting
powers of such series, and the preferences, limitations and relative rights of
such series. The preferences, limitations and relative rights of such series may
differ from those of any and all other series of Preferred Stock at any time
outstanding.
<PAGE>
FOURTH: Purpose. The purposes for which the Corporation is formed are to
engage in any lawful act or activity for which corporations may be organized
under the Act, as amended, and to have, in furtherance of the corporate
purposes, all of the powers conferred upon corporations organized under the Act,
subject to any limitations thereof contained in these Articles of Incorporation
or the laws of the State of South Carolina.
FIFTH: Term. The duration of the corporation shall be perpetual.
SIXTH: Preemptive Rights. The Corporation elects not to have preemptive
rights.
SEVENTH: Cumulative Voting. Stockholders of the Corporation shall not have
a right to cumulate their votes for Directors.
EIGHTH: By-laws. In furtherance and not in limitation of the powers
conferred by the laws of the State of South Carolina, the Board of Directors of
the Corporation is expressly authorized and empowered to make, alter or repeal
the Bylaws of the Corporation, subject to the power of the shareholders of the
Corporation to alter or repeal any Bylaw made by the Board of Directors.
NINTH: Amendments. The Corporation reserves the right at any time and from
time to time to amend, alter, change or repeal any provisions contained in this
Articles of Incorporation; and other provisions authorized by the laws of the
State of South Carolina at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon shareholders, directors or any
other persons whomsoever by and pursuant to these Articles of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article.
<PAGE>
TENTH: Indemnification; Liability. (a) The Corporation shall, to the
fullest extent permitted by the provisions of the Act, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said provisions from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said provisions, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
(b) No person shall be personally liable to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 33-8-300 of the Act or (iv) for any transaction from which the director
derived an improper personal benefit. If the Act is subsequently amended to
further eliminate or limit the liability of a director, then a director of the
Corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be liable to
the fullest extent permitted by the amended Act. For purposes of this Article
TENTH, "fiduciary duty as a director" shall include any fiduciary duty arising
out of serving at the Corporation's request as a director of another
corporation, partnership, joint venture or other enterprise, and "personal
liability to the Corporation or its shareholders" shall include any liability to
such other corporation, partnership, joint venture, trust or other enterprise,
and any liability to the Corporation in its capacity as a security holder, joint
venturer, partner, beneficiary, creditor or investor of or in any such other
corporation, partnership, joint venture, trust or other enterprise.
<PAGE>
ELEVENTH: South Carolina Business Combinations Statute. The Corporation
elects not to be subject to or governed by the South Carolina Business
Combinations Statute contained in Sections 35-2-201 to 35-2-226 of the South
Carolina Code, or any amended or successor provisions thereof.
TWELFTH: Voting Requirements. Whenever any provision of the Act shall
otherwise require for the approval of any specified corporate action the
authorization of at least two-thirds of the votes entitled to be cast thereon,
any such corporate action shall be approved by at least a majority of the votes
entitled to be cast thereon, and whenever the Corporation shall have one or more
voting groups which are denied voting power under the Articles of Incorporation,
but the authorization of at least two-thirds of the votes entitled to be cast
thereon within each such voting group entitled to vote thereon as a separate
voting group is otherwise required for the approval of any specified corporate
action under the Act, any such corporate action shall be approved by each such
voting group by at least a majority of the votes entitled to be cast by that
voting group. The provisions of this Article TWELFTH shall be subject to the
minimum voting requirements prescribed by the provisions of Sections 33-7-250
and 33-7-260 of the Act.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, does hereby execute these Articles of Restatement, hereby
declaring, certifying and acknowledging under penalties of perjury that the
facts herein stated are true, and accordingly has hereunto set his hand, as of
the day of April, 2000.
----------------------------
Patrick J. Welsh
President
EXHIBIT 3.2
================================================================================
AMENDED AND RESTATED BY-LAWS
OF
POLITIC ACQUISITION CORP.
-------------------
Incorporated under the Laws of the
State of South Carolina
-------------------
Adopted as of
, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I OFFICES.......................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS......................................1
Section 1 Place of Meetings.............................................1
Section 2 Annual Meeting................................................1
Section 3 Special Meetings..............................................1
Section 4 Notice of Meetings............................................2
Section 5 List of Stockholders..........................................2
Section 6 Quorum........................................................2
Section 7 Voting........................................................2
Section 8 Proxies.......................................................3
Section 9 Action Without a Meeting......................................3
ARTICLE III BOARD OF DIRECTORS............................................3
Section 1 Powers........................................................3
Section 2 Election and Term.............................................3
Section 3 Number........................................................3
Section 4 Quorum and Manner of Acting...................................3
Section 5 Organization Meeting..........................................4
Section 6 Regular Meetings..............................................4
Section 7 Special Meetings; Notice......................................4
Section 8 Removal of Directors..........................................4
Section 9 Resignations..................................................5
Section 10 Vacancies.....................................................5
Section 11 Compensation of Directors.....................................5
Section 12 Action Without a Meeting......................................5
Section 13 Telephonic Participation in Meetings..........................5
ARTICLE IV COMMITTEES....................................................5
Section 1 Committees Generally..........................................5
Section 2 Audit Committee...............................................6
Section 3 Compensation Committee........................................6
Section 4 Other Committees..............................................6
<PAGE>
Page
ARTICLE V OFFICERS......................................................7
Section 1 Principal Officers............................................7
Section 2 Election and Term of Office...................................7
Section 3 Other Officers................................................7
Section 4 Removal.......................................................7
Section 5 Resignations..................................................7
Section 6 Vacancies.....................................................7
Section 7 Chairman of the Board.........................................7
Section 8 President.....................................................8
Section 9 Vice President................................................8
Section 10 Treasurer.....................................................8
Section 11 Secretary.....................................................8
Section 12 Salaries......................................................8
ARTICLE VI INDEMNIFICATION OF OFFICERS AND DIRECTORS.....................9
Section 1 Right of Indemnification......................................9
Section 2 Expenses......................................................9
Section 3 Other Rights of Indemnification...............................9
ARTICLE VII SHARES AND THEIR TRANSFER.....................................9
Section 1 Certificate for Stock.........................................9
Section 2 Stock Certificate Signature...................................9
Section 3 Stock Ledger.................................................10
Section 4 Cancellation.................................................10
Section 5 Registrations of Transfers of Stock..........................10
Section 6 Regulations..................................................10
Section 7 Lost, Stolen, Destroyed or Mutilated Certificates............10
Section 8 Record Dates.................................................10
ARTICLE VIII MISCELLANEOUS PROVISIONS.....................................11
Section 1 Corporate Seal...............................................11
Section 2 Voting of Stocks Owned by the Corporation....................11
Section 3 Control Share Acquisitions Statute...........................11
Section 4 Dividends....................................................11
ARTICLE IX AMENDMENTS...................................................11
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
POLITIC ACQUISITION CORP.
(a South Carolina corporation)
-------------------
ARTICLE I
OFFICES
The registered office of the Corporation in the State of South Carolina
shall be located in Columbia, South Carolina or Blythewood, South Carolina. The
Corporation may establish or discontinue, from time to time, such other offices
within or without the State of South Carolina as may be deemed proper for the
conduct of the Corporation's business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of stockholders shall be held at
such place or places, within or without the State of South Carolina, as may from
time to time be fixed by the Board of Directors, or as shall be specified in the
respective notices, or waivers of notice, thereof.
Section 2. Annual Meeting. The annual meeting of stockholders for the
election of Directors and the transaction of other business shall be held on
such date and at such place as may be designated by the Board of Directors. At
each annual meeting the stockholders entitled to vote shall elect a Board of
Directors and may transact such other proper business as may come before the
meeting.
Section 3. Special Meetings. A special meeting of the stockholders, or of
any class thereof entitled to vote, for any purpose or purposes, may be called
at any time by the Chairman of the Board, if any, or the President or by order
of the Board of Directors and shall be called by the Secretary upon the written
request of stockholders holding of record at least 50% of the outstanding shares
of stock of the Corporation entitled to vote at such meeting. Such written
request shall state the purpose or purposes for which such meeting is to be
called.
<PAGE>
Section 4. Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, stating the
place, date and hour of the meeting shall be given not less than ten days or
more than 60 days before the date on which the meeting is to be held to each
stockholder of record entitled to vote thereat by delivering a notice thereof to
him personally or by mailing such notice in a postage prepaid envelope directed
to him at his address as it appears on the records of the Corporation, unless he
shall have filed with the Secretary of the Corporation a written request that
notices intended for him be directed to another address, in which case such
notice shall be directed to him at the address designated in such request.
Notice shall not be required to be given to any stockholder who shall waive such
notice in writing, whether prior to or after such meeting, or who shall attend
such meeting in person or by proxy unless such attendance is for the express
purpose of objecting, at the beginning of such meeting, to the transactions of
any business because the meeting is not lawfully called or convened. Every
notice of a special meeting of the stockholders, besides the time and place of
the meeting, shall state briefly the objects or purposes thereof.
Section 5. List of Stockholders. It shall be the duty of the Secretary or
other officer of the Corporation who shall have charge of the stock ledger to
prepare and make, not later than the fifth business day after notice of a
meeting of stockholders is provided pursuant to Section 4 hereof, a complete
list of the stockholders entitled to vote at such meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in his name. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period beginning on the fifth business day after notice of
such meeting is provided, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
be kept and produced at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present. The
original or duplicate ledger shall be the only evidence as to who are the
stockholders entitled to examine such list or the books of the Corporation or to
vote in person or by proxy at such meeting.
Section 6. Quorum. At each meeting of the stockholders, the holders of
record of a majority of the issued and outstanding stock of the Corporation
entitled to vote at such meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business, except where otherwise
provided by law, the Articles of Incorporation or these By-laws. In the absence
of a quorum, any officer entitled to preside at, or act as Secretary of, such
meeting shall have the power to adjourn the meeting from time to time until a
quorum shall be constituted.
Section 7. Voting. Every stockholder of record who is entitled to vote
shall at every meeting of the stockholders be entitled to one vote for each
share of stock held by him on the record date; except, however, that shares of
its own stock belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held by the Corporation, shall neither be entitled to vote
nor counted for
<PAGE>
quorum purposes. Nothing in this Section shall be construed as limiting the
right of the Corporation to vote its own stock held by it in a fiduciary
capacity. At all meetings of the stockholders, a quorum being present, all
matters shall be decided by majority vote of the shares of stock entitled to
vote held by stockholders present in person or by proxy, except as otherwise
required by law or the Articles of Incorporation. Unless demanded by a
stockholder of the Corporation present in person or by proxy at any meeting of
the stockholders and entitled to vote thereat or so directed by the chairman of
the meeting or required by law, the vote thereat on any question need not be by
written ballot. On a vote by written ballot, each ballot shall be signed by the
stockholder voting, or in his name by his proxy, if there be such proxy, and
shall state the number of shares voted by him and the number of votes to which
each share is entitled.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. A proxy
acting for any stockholder shall be duly appointed by an instrument in writing
subscribed by such stockholder. No proxy shall be valid after the expiration of
three years from the date thereof unless the proxy provides for a longer period.
Section 9. Action Without a Meeting. Any action required to be taken at any
annual or special meeting of stockholders or any action which may be taken at
any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing setting forth
the action so taken shall be signed by all stockholders of the Corporation.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors.
Section 2. Election and Term. Except as otherwise provided by law,
Directors shall be elected at the annual meeting of stockholders and shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualify, or until they sooner die, resign or are removed. At
each annual meeting of stockholders, at which a quorum is present, the persons
receiving a plurality of the votes cast shall be the Directors. Acceptance of
the office of Director may be expressed orally or in writing, and attendance at
the organization meeting shall constitute such acceptance.
Section 3. Number. The number of Directors shall be such number as shall be
determined from time to time by the Board of Directors and initially shall be
eight.
<PAGE>
Section 4. Quorum and Manner of Acting. Unless otherwise provided by law,
the presence of 50% of the whole Board of Directors shall be necessary to
constitute a quorum for the transaction of business. In the absence of a quorum,
a majority of the Directors present may adjourn the meeting from time to time
until a quorum shall be present. Notice of any adjourned meeting need not be
given. At all meetings of Directors, a quorum being present, all matters shall
be decided by the affirmative vote of a majority of the Directors present,
except as otherwise required by law. The Board of Directors may hold its
meetings at such place or places within or without the State of South Carolina
as the Board of Directors may from time to time determine or as shall be
specified in the respective notices, or waivers of notice, thereof.
Section 5. Organization Meeting. Immediately after each annual meeting of
stockholders for the election of Directors, the Board of Directors shall meet at
the place of the annual meeting of stockholders for the purpose of organization,
the election of officers and the transaction of other business. Notice of such
meeting need not be given. If such meeting is held at any other time or place,
notice thereof must be given as hereinafter provided for special meetings of the
Board of Directors, subject to the execution of a waiver of the notice thereof
signed by, or the attendance at such meeting of, all Directors who may not have
received such notice.
Section 6. Regular Meetings. Regular meetings of the Board of Directors may
be held at such place, within or without the State of South Carolina, as shall
from time to time be determined by the Board of Directors. After there has been
such determination, and notice thereof has been once given to each member of the
Board of Directors as hereinafter provided for special meetings, regular
meetings may be held without further notice being given.
Section 7. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, if any,
the President or by a majority of the Directors. Notice of each such meeting
shall be mailed to each Director, addressed to him at his residence or usual
place of business, at least one day before the date on which the meeting is to
be held, or shall be sent to him at such place by e-mail or facsimile, or be
delivered personally or by telephone, not later than the day before the day on
which such meeting is to be held. Each such notice shall state the time and
place of the meeting and, as may be required, the purposes thereof. Notice of
any meeting of the Board of Directors need not be given to any Director if he
shall sign a written waiver thereof either before or after the time stated
therein for such meeting, or if he shall be present at the meeting. Unless
limited by law, the Articles of Incorporation, these By-laws or the terms of the
notice thereof, any and all business may be transacted at any meeting without
the notice thereof having specifically identified the matters to be acted upon.
Section 8. Removal of Directors. Any Director or the entire Board of
Directors may be removed, with or without cause, at any time, by action of the
holders of record of the majority of the issued and outstanding stock of the
Corporation (a) present in person or by proxy at a meeting of holders of such
stock and entitled to vote thereon or (b) by a consent in writing in
<PAGE>
the manner contemplated in Section 9 of Article II, and the vacancy or vacancies
in the Board of Directors caused by any such removal may be filled by action of
such a majority at such meeting or at any subsequent meeting or by consent in
the manner contemplated in Section 9 of Article II.
Section 9. Resignations. Any Director of the Corporation may resign at any
time by giving written notice to the Chairman of the Board, if any, the
President, the Vice President or the Secretary of the Corporation. The
resignation of any Director shall take effect upon receipt of notice thereof or
at such later time as shall be specified in such notice; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 10. Vacancies. Any newly created directorships and vacancies
occurring in the Board by reason of death, resignation, retirement,
disqualification or removal, with or without cause, may be filled by the action
of the holders of record of the majority of the issued and outstanding stock of
the Corporation (a) present in person or by proxy at a meeting of holders of
such stock and entitled to vote thereon or (b) by a consent in writing in the
manner contemplated in Section 9 of Article II. The Director so chosen, whether
selected to fill a vacancy or elected to a new directorship, shall hold office
until the next meeting of stockholders at which the election of Directors is in
the regular order of business, and until his successor has been elected and
qualifies, or until he sooner dies, resigns or is removed.
Section 11. Compensation of Directors. Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board, a
specific sum fixed by the Board plus expenses may be allowed for attendance at
each regular or special meeting of the Board; provided, however, that nothing
herein contained shall be construed to preclude any Director from serving the
Corporation or any parent or subsidiary corporation thereof in any other
capacity and receiving compensation therefor.
Section 12. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if a written consent thereto is signed by all members of the Board, and such
written consent is filed with the minutes or proceedings of the Board.
Section 13. Telephonic Participation in Meetings. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
<PAGE>
ARTICLE IV
COMMITTEES
Section 1. Committees Generally. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate an Audit
Committee, a Compensation Committee and any such other committees it deems
necessary. Each committee is to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of such committee. In the absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 2. Audit Committee. The Audit Committee shall consist of three or
more directors elected by the Board, none of whom shall be employed by the
Corporation in any capacity other than as directors, the chairman of which shall
be appointed by the chief executive officer. The Audit Committee shall select
and nominate for consideration of the Board of Directors independent auditors of
the Corporation, shall be responsible for the arrangements for the scope of the
independent examination of the financial records of the Corporation by such
auditors, shall give appropriate consideration of the controls of such audit and
shall perform such other duties and assume such additional responsibility as may
from time to time be placed upon it by the Board of Directors.
Section 3. Compensation Committee. The Compensation Committee shall consist
of two or more directors elected by the Board. The Compensation Committee shall
be responsible for the overall administration of all matters pertaining to
compensation of the officers and employees of the Corporation. The committee
shall give appropriate consideration to any salary administration plan or bonus
plan which may from time to time be proposed or adopted by the Corporation. The
Compensation Committee shall perform such other duties and assume such
additional responsibility as may be placed upon it by the Board of Directors.
Section 4. Other Committee. The Board of Directors may appoint such other
committees as it deems appropriate, each consisting of two or more directors.
Any director may serve on any such other committee. Any committee appointed
under the Section 4 shall perform
<PAGE>
such duties and assume such responsibility as may from time to time be placed
upon it by the Board of Directors.
ARTICLE V
OFFICERS
Section 1. Principal Officers. The Board of Directors shall elect a
President, a Secretary and a Treasurer, and may in addition elect a Chairman of
the Board, one or more Vice Presidents and such other officers as it deems fit;
the President, the Secretary, the Treasurer, the Chairman of the Board (if any)
and the Vice Presidents (if any) being the principal officers of the
Corporation. One person may hold, and perform the duties of, any two or more of
said offices.
Section 2. Election and Term of Office. The principal officers of the
Corporation shall be elected annually by the Board of Directors at the
organization meeting thereof. Each such officer shall hold office until his
successor shall have been elected and shall qualify, or until his earlier death,
resignation or removal.
Section 3. Other Officers. In addition, the Board may elect, or the
Chairman of the Board, if any, or the President may appoint, such other officers
as they deem fit. Any such other officers chosen by the Board of Directors shall
be subordinate officers and shall hold office for such period, have such
authority and perform such duties as the Board of Directors, the Chairman of the
Board, if any, or the President may from time to time determine.
Section 4. Removal. Any officer may be removed, either with or without
cause, at any time, by resolution adopted by the Board of Directors at any
regular meeting of the Board, or at any special meeting of the Board called for
that purpose, at which a quorum is present.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Chairman of the Board, if any, the President, the
Secretary or the Board of Directors. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. A vacancy in any office may be filled for the
unexpired portion of the term in the manner prescribed in these By-laws for
election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board of Directors,
if one be elected, shall preside if present at all meetings of the Board of
Directors, and he shall have and perform such other duties as from time to time
may be assigned to him by the Board of Directors.
<PAGE>
Section 8. President. The President shall be the chief executive officer of
the Corporation and shall have the general powers and duties of supervision and
management usually vested in the office of president of a corporation. He shall
preside at all meetings of the stockholders if present thereat, and in the
absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors, and shall have general supervision,
direction and control of the business of the Corporation. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages, and other contracts on behalf of the Corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer.
Section 9. Vice President. Each Vice President, if such be elected, shall
have such powers and shall perform such duties as shall be assigned to him by
the President or the Board of Directors.
Section 10. Treasurer. The Treasurer shall have charge and custody of, and
be responsible for, all funds and securities of the Corporation. He shall
exhibit at all reasonable times his books of account and records to any of the
Directors of the Corporation upon application during business hours at the
office of the Corporation where such books and records shall be kept; when
requested by the Board of Directors, he shall render a statement of the
condition of the finances of the Corporation at any meeting of the Board or at
the annual meeting of stockholders; he shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; in
general, he shall perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the Chairman of
the Board of Directors, the President or the Board of Directors. The Treasurer
shall give such bond, if any, for the faithful discharge of his duties as the
Board of Directors may require.
Section 11. Secretary. The Secretary, if present, shall act as secretary at
all meetings of the Board of Directors and of the stockholders and keep the
minutes thereof in a book or books to be provided for that purpose; he shall see
that all notices required to be given by the Corporation are duly given and
served; he shall have charge of the stock records of the Corporation; he shall
see that all reports, statements and other documents required by law are
properly kept and filed; and in general he shall perform all the duties incident
to the office of Secretary and such other duties as from time to time may be
assigned to him by the President or the Board of Directors.
Section 12. Salaries. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors, and the salaries of any other
officers may be fixed by the President.
<PAGE>
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. Right of Indemnification. Every person now or hereafter serving
as a Director or officer of the Corporation and every such Director or officer
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation in accordance with and to
the fullest extent permitted by law for the defense of, or in connection with,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
Section 2. Expenses. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of an undertaking by or on behalf
of such Director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation as
authorized in this Article V.
Section 3. Other Rights of Indemnification. The right of indemnification
herein provided shall not be deemed exclusive of any other rights to which any
such Director or officer may now or hereafter be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director or officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE VII
SHARES AND THEIR TRANSFER
Section 1. Certificate for Stock. Every stockholder of the Corporation
shall be entitled to a certificate or certificates, to be in such form as the
Board of Directors shall prescribe, certifying the number of shares of the
capital stock of the Corporation owned by him. No certificate shall be issued
for partly paid shares.
Section 2. Stock Certificate Signature. The certificates for such stock
shall be numbered in the order in which they shall be issued and shall be signed
by the Chairman of the Board, if any, or the President or any Vice President and
by the Secretary or an Assistant Secretary or the Treasurer of the Corporation,
and its seal shall be affixed thereto. If such certificate is countersigned
(1) by a transfer agent other than the Corporation or its employee, or, (2) by a
registrar other than the Corporation or its employee, the signatures of such
officers of the
<PAGE>
Corporation may be facsimiles. In case any officer of the Corporation who has
signed, or whose facsimile signature has been placed upon, any such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of issue.
Section 3. Stock Ledger. A record shall be kept by the Secretary or by any
other officer, employee or agent designated by the Board of Directors of the
name of each person, firm or corporation holding capital stock of the
Corporation, the number of shares represented by, and the respective dates of,
each certificate for such capital stock, and in case of cancellation of any such
certificate, the respective dates of cancellation.
Section 4. Cancellation. Every certificate surrendered to the Corporation
for exchange or registration of transfer shall be canceled, and no new
certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except,
subject to Section 7 of this Article VI, in cases provided for by applicable
law.
Section 5. Registrations of Transfers of Stock. Registrations of transfers
of shares of the capital stock of the Corporation shall be made on the books of
the Corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation or with a transfer clerk or a transfer agent appointed as in
Section 6 of this Article VI provided, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes
thereon. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation; provided, however, that whenever any transfer of shares shall be
made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer if, when the certificates are presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
Section 6. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with the Articles of
Incorporation or these By-Laws, concerning the issue, transfer and registration
of certificates for shares of the stock of the Corporation. It may appoint, or
authorize any principal officer or officers to appoint, one or more transfer
clerks or one or more transfer agents and one or more registrars, and may
require all certificates of stock to bear the signature or signatures of any of
them.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. Before any
certificates for stock of the Corporation shall be issued in exchange for
certificates which shall become mutilated or shall be lost, stolen or destroyed,
proper evidence of such loss, theft, mutilation or destruction shall be procured
for the Board of Directors, if it so requires.
Section 8. Record Dates. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or
<PAGE>
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a date as a record date for any such determination of
stockholders. Such record date shall not be more than sixty or less than ten
days before the date of such meeting, or more than sixty days prior to any other
action.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Corporate Seal. The Board of Directors shall provide a corporate
seal, which shall be in such form as the Board of Directors may decide. The
Secretary shall be the custodian of the seal. The Board of Directors may
authorize a duplicate seal to be kept and used by any other officer.
Section 2. Voting of Stocks Owned by the Corporation. The Board of
Directors may authorize any person on behalf of the Corporation to attend, vote
and grant proxies to be used at any meeting of stockholders of any corporation
(except the Corporation) in which the Corporation may hold stock.
Section 3. Control Share Acquisitions Statute. The Corporation elects not
to be subject to or governed by the South Carolina Control Share Acquisitions
Statute contained in Sections 35-2-101 to 35-2-111 of the South Carolina Code,
or any amended or successor provisions thereof.
Section 4. Dividends. Subject to the provisions of the Articles of
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends such sum or sums as the Directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the Corporation.
ARTICLE IX
AMENDMENTS
These By-Laws of the Corporation may be altered, amended or repealed by the
Board of Directors at any regular or special meeting of the Board of Directors
or by the affirmative vote of the holders of record of a majority of the issued
and outstanding stock of the Corporation (i) present in person or by proxy at a
meeting of holders of such stock and entitled to
<PAGE>
vote thereon or (ii) by a consent in writing in the manner contemplated in
Section 9 of Article II, provided, however, that notice of the proposed
alteration, amendment or repeal is contained in the notice of such meeting.
By-Laws, whether made or altered by the stockholders or by the Board of
Directors, shall be subject to alteration or repeal by the stockholders as in
this Article VIII above provided.
* * * * *
EXHIBIT 5.1
[FORM OF OPINION OF NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.]
April , 2000
Policy Management Systems Corporation
One PMSC Center
Blythewood, SC 29016
Ladies and Gentlemen:
We are counsel to Policy Management Systems Corporation, a South Carolina
corporation ("PMSC"). We are providing you with this opinion in connection with
PMSC's Registration Statement on Form S-4 (the "Registration Statement") filed
under the Securities Act of 1933, as amended (the "Act"), relating to the
proposed merger (the "Merger") of Politic Acquisition Corp., a South Carolina
corporation ("Politic"), with and into PMSC, pursuant to which (i) the
outstanding shares of Politic will be converted into an aggregate of up to
32,457,143 shares of PMSC Common Stock, $.01 par value ("PMSC Common Stock"),
and (ii) each holder of PMSC Common Stock will be entitled to elect, with
respect to each share of PMSC Common Stock so held, and subject to proration as
more specifically set forth in the Agreement and Plan of Merger (the "Merger
Agreement"), (y) to receive either $14.00 in cash or (z) to retain one share of
PMSC Common Stock. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings set forth in the Registration Statement.
We are familiar with the terms of the Merger Agreement and have examined
originals or copies, certified or otherwise identified to our satisfaction, of
such documents as we have deemed necessary for the purposes of this opinion and
have satisfied ourselves as to such questions of law and matters of fact as we
have considered relevant and necessary for purposes of this opinion.
Based on the foregoing, we are of the opinion that the PMSC Common Stock will be
validly issued, fully paid and nonassessable when (i) the Registration Statement
as finally amended shall have become effective under the Act, (ii) the
transactions contemplated by the Merger Agreement, including the Merger, shall
have been consummated, and (iii) certificates representing the PMSC Common Stock
shall have been duly executed, countersigned, registered and delivered in
accordance with the terms of the Merger Agreement.
This opinion is being furnished to you solely in connection with the issuance of
the PMSC Common Stock. The opinions expressed herein are rendered and speak only
as of the date hereof, and we specifically disclaim any undertaking to update
such opinion or to advise you of subsequent developments affecting the same that
hereafter may come to our attention.
<PAGE>
Please note that Stephen G. Morrison, a partner with Nelson Mullins Riley &
Scarborough, L.L.P., is also the Executive Vice President, Secretary, General
Counsel and Chief Administrative Officer of PMSC.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the references to our firm under "Legal Opinions" in the Proxy
Statement/Prospectus constituting part of the Registration Statement.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Policy Management Systems Corporation of our report
dated March 30, 2000 relating to the financial statements and financial
statement schedules, which appears in Policy Management Systems Corporation's
Annual Report on Form 10-K/A for the year ended December 31, 1999. We also
consent to the reference to us under the heading "Experts."
PricewaterhouseCoopers LLP
April 27, 2000
