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FORM
STOCK OPTION/NON-COMPETE AGREEMENT
THIS EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement")
is made effective as of October 13, 1994, by and between
("EMPLOYEE") and Policy Management Systems Corporation
("PMSC").
W I T N E S S E T H:
WHEREAS, EMPLOYEE has been employed by PMSC in a position of
significant responsibility and PMSC desires to recognize EMPLOYEE'S
contribution to PMSC by making EMPLOYEE a "Key EMPLOYEE" as defined
in the Policy Management Systems Corporation 1989 Stock Option Plan
("Plan") and therefore eligible to be granted Options as defined
therein; and
WHEREAS, EMPLOYEE has developed and will continue to develop
intimate knowledge of PMSC's business practices, which, if
exploited by EMPLOYEE in contravention of this Agreement, could
seriously, adversely and irreparably affect the business of PMSC;
and
WHEREAS, EMPLOYEE and PMSC each desire to induce the other to enter
into this Agreement; and
WHEREAS, PMSC would not make EMPLOYEE a Key EMPLOYEE in the event
that EMPLOYEE refused to agree to the terms and conditions of this
Agreement and thus EMPLOYEE would not be eligible to receive
Options under the Plan;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants of the parties hereto, EMPLOYEE and PMSC
agree as follows:
1. Grant. Effective October 13, 1994, PMSC grants EMPLOYEE
"non-qualified" Options to purchase up to
( ) shares of PMSC
common stock pursuant to the Plan. Non-qualified options are
subject to tax upon exercise as set forth in paragraph 5
below.
A. THESE OPTIONS AND THIS AGREEMENT MAY BE REVOKED BY THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS IN THEIR
ABSOLUTE DISCRETION, PRIOR TO THE TIME THEY BECOME
EXERCISABLE IN ACCORDANCE WITH THIS AGREEMENT, IF THEY
DEEM IT APPROPRIATE TO DO SO BASED UPON SUCH FACTS OR
CIRCUMSTANCES AS THEY DEEM RELEVANT, INCLUDING, WITHOUT
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LIMITATION, THE RESULTS OR FINDINGS, WHETHER PRELIMINARY OR
FINAL, OF THE VARIOUS INVESTIGATIONS INTO PMSC'S PREVIOUSLY
ISSUED FINANCIAL STATEMENTS.
B. THE OPTIONS HEREBY GRANTED ARE ALSO SUBJECT TO THE
SHAREHOLDERS OF PMSC APPROVING AN AMENDMENT TO THE PLAN
TO AUTHORIZE THE ISSUANCE OF ADDITIONAL SHARES UNDER THE
PLAN. IF SUCH SHAREHOLDER APPROVAL IS NOT OBTAINED, THE
NUMBER OF OPTIONS GRANTED HEREBY SHALL BE REDUCED BY A
PRO RATA AMOUNT AMONG THE OTHER OPTIONS GRANTED WITH THE
SAME EFFECTIVE DATE.
2. Price and Expiration. The option price of the shares subject
to these Options is the closing price of the stock on the New
York Stock Exchange on the date of grant, i.e., forty-four
dollars ($44.00). These Options may not be exercised after
the termination of employment or term as director of EMPLOYEE
with PMSC, except that in the event of retirement with the
consent of PMSC, EMPLOYEE may exercise these Options for a
period of three (3) months after retirement, and in the event
of the death of EMPLOYEE during his or her employment or term
as a director or death within three (3) months after
retirement, these Options may be exercised during a period of
one (1) year from the date of death, as described in the Plan.
In no event shall any Options be exercisable to any greater
extent than they may have been at the date of said retirement
or death. These Options must be exercised within ten (10)
years of the effective date of this Agreement (the "Expiration
Date") or they will expire.
3. Availability for Exercise. 33 1/3% of the shares subject to
the Options granted will become available for exercise on the
third (3rd) anniversary of the effective date of this grant,
an additional one-third will become exercisable beginning on
the fourth (4th) anniversary of the effective date of this
grant and the remainder will become exercisable beginning on
the fifth (5th) anniversary of the effective date of this
grant. For example... 33 1/3% of the total number of Options
granted will be available for exercise beginning October 13,
1997, 66 2/3% will be available for exercise beginning October
13, 1998; and 100% will be available for exercise beginning
October 13, 1999. Once Options become available for exercise,
they will remain available for exercise unless they expire.
3A. Change in Control. If there is a Change in Control (as
hereinafter defined) of PMSC prior to the Expiration Date,
then, notwithstanding any other provision of the Plan or this
Agreement to the contrary other than Section 1.B above and 3B
below, to the extent the Option otherwise would have been
exercisable according to the "One-third Schedule" as defined
below, each Option granted hereby then outstanding shall
become immediately exercisable in full and shall become
nonforfeitable regardless of whether there is a change in
office or employment status subsequent to such Change in
Control.
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For purposes of this Section, a "Change in Control" shall be
deemed to have occurred in the event: (1) that substantially
all of PMSC's assets are sold to another person, corporation,
partnership, or other entity other than one owned or
controlled by PMSC; or (2) any person, corporation,
partnership or other entity, either alone or in conjunction
with its "affiliates" as that term is defined in Rule 405 of
the General Rules and Regulations under the Securities Act of
1933, as amended, or other group of persons, corporations,
partnerships or other entities who are not affiliates, but who
are acting in concert, becomes the owner of record or
beneficially of securities of PMSC which represent thirty-
three and one-third percent (33 1/3%) or more of the combined
voting power of PMSC's then outstanding securities entitled to
elect directors; or (3) the Board or a committee thereof makes
a determination in its reasonable judgment that a Change in
Control of PMSC has taken place.
For purposes of this Section, the "One-third Schedule" shall
mean that one-third of the total number of Options granted
hereunder would be exercisable beginning on the first
anniversary date of the grant; an additional one-third would
be exercisable beginning on the second anniversary date of the
grant; and all would be exercisable beginning on the third
anniversary date of the grant. Provided, however, if the
shareholders approve an amendment to the Plan to allow for the
immediate exercisability of all Options granted hereunder in
the event of a Change in Control, if there is a Change in
Control of PMSC prior to the Expiration Date, then
notwithstanding any other provision of the Plan or this
Agreement except Sections 1B above and 3B below: (i) each
Option granted hereby then outstanding shall become
immediately exercisable in full regardless of whether there is
a change in office or employment status subsequent to such
Change in Control; (ii) EMPLOYEE shall have a period of ninety
(90) days after termination of employment to exercise the
Options granted hereby; and (iii) and in the event of the
death of EMPLOYEE during the aforementioned ninety (90) day
period, said Options may be exercised during a period of one
(1) year from the date of death, as described in Section 10 of
the Plan, but in no event shall these Options be exercised
after the tenth anniversary date these Options were granted.
3B. Sale or merger. In the event of dissolution or liquidation of
PMSC or any merger or combination in which PMSC is not a
surviving corporation ("Sale or Merger"), each outstanding
Option granted hereunder shall terminate, but the Optionee
shall have the right, immediately prior to such dissolution,
liquidation, merger or combination, to exercise his or her
Option, in whole or in part, to the extent that it shall not
have been exercised, without regard to any installment
exercise provisions.
3C. Additional Compensation. In the event a Change in Control or
Sale or Merger, as described in Sections 3A and 3B above,
occurs while EMPLOYEE is employed by PMSC and occurs prior to
the Expiration Date, then in addition to the exercise rights
granted, EMPLOYEE also shall be compensated based on the
following formula, subject to the following conditions,
EMPLOYEE may elect by written notice to PMSC's General Counsel
the following in lieu of all other compensation from PMSC:
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(a) EMPLOYEE shall be paid an annual salary for two (2) years
following a Change in Control or Sale or Merger
consisting of one hundred percent (100%) of the average
amount of total cash compensation of EMPLOYEE for the two
(2) calendar years prior to the time of such Change in
Control or Sale or Merger. For purposes of the
foregoing, "average amount of total cash compensation"
shall include salary and bonuses, but shall specifically
exclude income attributable to the granting or exercising
of stock options.
(b) Notwithstanding any of the provisions of this Agreement,
the amount of all payments to be made pursuant to this
Agreement after a Change of Control or a Sale or Merger
shall not exceed one dollar ($1.00) less than that amount
which would cause any such payment to be deemed a
"parachute payment" as defined in Section 280G of the
Internal Revenue Code of 1986 (the "Code"), as amended,
and as said statute is then in effect at the time of such
payment.
(c) Any payments made to EMPLOYEE following a Change of
Control or a Sale or Merger that shall be disallowed, in
whole or in part, as a deductible expense to PMSC for
Federal income tax purposes by the Internal Revenue
Service on the basis that Section 280G of the Code
prohibits such deduction shall be reimbursed by EMPLOYEE
to the full extent of said disallowance within six (6)
months after the date on which the amount of said
disallowance has been finally determined and PMSC has
paid the deficiency with respect to said disallowance.
PMSC shall legally defend any proposed disallowance by
the Internal Revenue Service and the amount required to
be reimbursed by EMPLOYEE shall be the amount determined
by an appropriate court in a final, nonappealable
decision that is actually disallowed as a deduction. In
lieu of payment to PMSC by EMPLOYEE, PMSC may, in its
discretion, withhold amounts from EMPLOYEE's future
compensation payments until the amount owed to PMSC has
been fully recovered. No such withholding shall occur
prior to the date on which EMPLOYEE would be required to
make reimbursement as provided herein.
(d) If the limitation set forth in (b) may at any time become
applicable to the amounts otherwise due pursuant to
paragraph (a) then PMSC shall continue to pay EMPLOYEE
all amounts as provided under paragraph (a) until such
time as cumulative payments equal the aggregate amount as
limited by paragraph (b) and EMPLOYEE may terminate his
employment on three (3) months notice at any time within
the last twelve (12) months of the time period during
which the payments described in this Section 3C will be
paid without affecting his rights to receive said
payments.
(e) PMSC shall have no obligation to pay the amounts set
forth in (a) as limited by (b) if there is reasonable
proof that the non-competition or non-hire provisions of
Sections 7 and 8 of this Agreement are being violated.
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(f) In the event of termination of employment of EMPLOYEE for
Cause, as hereinafter defined, following a Change of
Control or Sale or Merger, PMSC shall not be obligated to
make any further payments of the compensation amounts
provided for in this Section. Notwithstanding any other
provision of this Agreement, except for (d) and (i)
hereinafter which shall control in the event EMPLOYEE
terminates employment as provided in (d) and (i), in the
event EMPLOYEE voluntarily terminates employment
following a Change of Control or Sale or Merger for other
than Good Reason, as defined hereinafter, compensation
amounts set forth in (a) and (b) shall be payable only
for a one (1) year period following termination of
employment.
"Cause" for the purposes of this Section is defined to
mean: (1) willful failure to substantially perform
prescribed duties other than as a result of disability;
or (2) willful engagement in misconduct significantly
detrimental to PMSC.
"Good Reason" to terminate employment with PMSC occurs
if: (1) duties are assigned that are materially
inconsistent with previous duties; (2) duties and
responsibilities are substantially reduced; (3) base
compensation is reduced not as part of an across the
board reduction for all senior officers or executives;
(4) participation under compensation plans or
arrangements generally made available to persons at
EMPLOYEE's level of responsibility at PMSC is denied; (5)
a successor fails to assume this Agreement; or (6)
termination is made without compliance with prescribed
procedures.
(g) In the event EMPLOYEE is involuntarily terminated by PMSC
without Cause or EMPLOYEE voluntarily terminates
employment for Good Reason, PMSC's obligation to pay the
compensation amounts provided in this Section shall
survive termination of employment.
(h) Further, in the event of termination of employment during
the pendency of a "Potential Change of Control", as
hereinafter defined, the provisions of (f) and (g) shall
apply as if an actual Change of Control or Sale or Merger
had taken place. A Potential Change of Control shall be
deemed to have occurred if: (1) PMSC has entered into an
agreement or letter of intent the consummation of which
would result in a Change of Control or Sale or Merger;
(2) any person publicly announces an intention to take or
to consider taking actions which if consummated would
constitute a Change of Control or Sale or Merger; or (3)
the Board of Directors of PMSC or a Committee thereof in
its reasonable judgment makes a determination that a
Potential Change of Control for purposes of this
Agreement has occurred. A Potential Change of Control
remains pending for purposes of receiving payments under
this Section until the earlier of the occurrence of a
Change of Control or Sale or Merger or a determination by
the Board of Directors or a committee thereof (at
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any time) that a Change of Control or Sale or Merger is no
longer reasonably expected to occur.
(i) Notwithstanding anything contained in this Agreement to
the contrary, EMPLOYEE and PMSC or the person,
corporation, partnership or other entity acquiring
control of PMSC, with the concurrence of the Chief
Executive Officer and Compensation Committee of the Board
of Directors of PMSC, may mutually agree that EMPLOYEE,
with three (3) months' notice, may terminate his
employment and receive a lump sum payment equal to the
present value of remaining payments under this Agreement
discounted by the then current Treasury Bill rate for the
remaining term of this Section.
4. Order of Exercise. The Options may be exercised without
regard to the order in which these and any other Options were
granted and without regard to any unexpired and unexercised
qualified, Incentive Stock Options ("ISO's") or other
non-qualified options.
5. Tax Liability. The tax liability which EMPLOYEE may incur
relating to these Options is described below based upon
present law and regulations which are subject to change.
Taxes incurred are:
+ when options are granted - none
+ when options are exercised - the difference between the
fair market value of the stock at the date of exercise of
an Option and the option price is a capital gain but
generally will be treated as ordinary income during the
year the Option is exercised. Such tax liability is
created at the time EMPLOYEE exercises an Option and PMSC
is required to collect withholding taxes from EMPLOYEE.
Federal income taxes (computed at a rate of 28% of the
above described difference) and FICA and state income
taxes (computed at the applicable rate of the above
described difference) are withheld. For example...if the
option price is $33.00 and the fair market value at the
date of the exercise is $38.00, the difference is $5.00,
and assuming an applicable FICA rate of 7.65% and state
income tax rate of 7%, along with the 28% federal income
tax, the PMSC would collect a tax of $2.13 per share from
EMPLOYEE.
+ when shares are sold - the difference between the fair
market value at the date of exercise (the $38.00 in the
above example) and the price at which EMPLOYEE sells the
stock is treated the same as above described during the
year in which EMPLOYEE sells the stock purchased by
exercise of his or her Options.
6. Exercise and Payment. Exercises of Options shall only be
handled pursuant to the Instructions set forth on the last
page of this Agreement. To exercise these Options, EMPLOYEE
shall make payment in full to PMSC for the option price of the
shares to be purchased...plus the combined (federal, FICA and
state) tax liability EMPLOYEE incurs.
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Such taxes paid to PMSC will be forwarded to the Internal
Revenue Service and appropriate state tax commission and
credited to EMPLOYEE in the same manner as the withholding tax
on EMPLOYEE's salary. EMPLOYEE's actual tax will depend upon
the overall tax rate calculated when EMPLOYEE prepares his or
her tax returns. EMPLOYEE should consult a tax professional
regarding questions about EMPLOYEE's actual tax liability.
7. Non-competition. In consideration of the Options hereby
granted, EMPLOYEE covenants and agrees that EMPLOYEE shall
devote his or her best efforts to furthering the best
interests of PMSC and that during the period of his or her
employment with PMSC and for the periods set forth below
following the date of separation from employment, EMPLOYEE
shall not "Compete" with PMSC. The region within which
EMPLOYEE agrees not to Compete with PMSC is the United States,
Canada, and those countries in which PMSC has customers or
clients as of the date of EMPLOYEE's separation from
employment. For the purpose of this Agreement, the term
"Compete" shall have its commonly understood meaning which
shall include, but not be limited by, the following items with
respect to PMSC's insurance application software licensing,
data processing, consulting and information services
businesses and any other businesses carried on by PMSC at the
time of EMPLOYEE's separation from employment:
(i) for a period of two (2) years, soliciting or
accepting as a client or customer any individual,
partnership, corporation, trust or association that
was a client, customer or actively sought after
prospective client or customer of PMSC during the
twelve (12) calendar month period immediately
preceding the date of EMPLOYEE's separation from
employment;
(ii) for a period of one (1) year, acting as an
EMPLOYEE, independent contractor, agent,
representative, consultant, officer, director, or
otherwise affiliated party of any entity or
enterprise which is competing with PMSC in offering
similar application software or services to parties
described in (i) above; or
(iii) for a period of one (1) year, participating in any
such competing entity or enterprise as an owner,
partner, limited partner, joint venturer, creditor
or stockholder (except as an equity holder holding
less than a one percent (1%) interest).
8. Non-Hiring. During EMPLOYEE'S employment with PMSC and for a
period of three (3) years after separation from such
employment, EMPLOYEE agrees that EMPLOYEE shall under no
circumstances hire, attempt to hire or assist or be involved
in the hiring of any employee of PMSC either on EMPLOYEE'S
behalf or on behalf of any other person, entity or enterprise.
Also, for the same period of time, EMPLOYEE agrees to not
communicate to any such person, entity or enterprise the
names, addresses or any other information concerning any
employee of PMSC or any past, present or actively sought after
prospective client or customer of PMSC.
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9. Equitable Relief. EMPLOYEE acknowledges (i) that EMPLOYEE'S
skill, knowledge, ability and expertise in the business
described herein is of a special, unique, unusual,
extraordinary, and/or intellectual character which gives said
skill, etc. a peculiar value; (ii) that PMSC could not
reasonably or adequately be compensated in damages in an
action at law for breach of this Agreement; and (iii) that a
breach of any of the provisions contained in this Agreement
could be extremely detrimental to PMSC and could cause PMSC
irreparable injury and damage. Therefore, EMPLOYEE agrees
that PMSC shall be entitled, in addition to any other remedies
it may have under this Agreement or otherwise, to preliminary
and permanent injunctive and other equitable relief to prevent
or curtail any breach of this Agreement; provided, however,
that no specification in this Agreement of a specific legal or
equitable remedy shall be construed as a waiver of or
prohibition against the pursuing of other legal or equitable
remedies in the event of such a breach.
10. Breach of Agreement. EMPLOYEE agrees that in the event
EMPLOYEE breaches any provision of this Agreement, PMSC shall
be entitled, in addition to any other remedies it may have
under this Agreement, to offset, to the extent of any
liability, loss, damage or injury from such breach, any
payments due to EMPLOYEE pursuant to his or her employment
with PMSC.
11. Employment Understanding. This Agreement constitutes the
entire agreement between the parties with regard to the
subject matter hereof, and there are no agreements,
understandings, restrictions, warranties or representations
between the parties relating to said subject matter other
than those set forth or provided for herein or in any
Agreement Not To Divulge or employment agreement between PMSC
and EMPLOYEE. It is understood that PMSC's and EMPLOYEE's
relationship is one of "at will" employment unless EMPLOYEE
and PMSC have entered into a written employment agreement
which provides otherwise. This Agreement shall not affect, or
be affected by, any employment agreement, if any, between PMSC
and EMPLOYEE.
12. General. In the event that any provision of this Agreement or
any word, phrase, clause, sentence or other portion thereof
(including, without limitation, the geographical and temporal
restrictions contained herein) should be held to be
unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner
so as to make this Agreement enforceable to the fullest extent
permitted under applicable laws. All references to PMSC shall
include its subsidiaries as applicable. This Agreement shall
inure to the benefit of and be enforceable by PMSC and its
successors and assigns. No provision of this Agreement may be
changed, modified, waived or terminated, except by an
instrument in writing signed by the party against whom the
enforcement of such is sought. No waiver of any provision or
provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver.
Headings in this Agreement are inserted solely as a matter of
convenience and reference and are not a part of this Agreement
in any substantive sense.
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This Agreement may be executed in two counterparts, each of
which will take effect as an original and shall evidence one
and the same Agreement.
13. Plan Controls. In the event of any discrepancy between this
Agreement and the Plan as to the terms and conditions of the
Options, the Plan shall control.
14. Governing Law. The terms of this Agreement shall be governed
by and construed in accordance with the laws of the State of
South Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
"PMSC"
BY: _________________________________
Steven A. Denning
TITLE: Director and Chairman of the
Compensation Committee
EMPLOYEE
_____________________________________
(Signature)
(Type or Print Name)
_____________________________________
(Date Signed by EMPLOYEE)
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INSTRUCTIONS FOR EXERCISE OF PMSC STOCK OPTIONS
Contact Person: Lynn W. Dillard, Ext. 4303
1A4
Post Office Box Ten, Columbia, SC 29202
An exercise form must be obtained and properly filled out. The
form and EMPLOYEE's check for the appropriate exercise price and
withholding taxes (federal and state income taxes and FICA) must be
delivered to the Contact Person. PMSC does not deal with third
parties concerning EMPLOYEE's exercise of his or her stock options.
If an EMPLOYEE deals with a brokerage firm, a bank or any other
third party, the EMPLOYEE shall be responsible to keep such party
from impacting on the two-party transaction between PMSC and the
EMPLOYEE. This transaction solely consists of EMPLOYEE bringing
PMSC the exercise form and his or her own check and after several
days PMSC giving EMPLOYEE a certificate for his or her shares of
stock. PMSC's stock transfer agent is located in New York. If
desired, an EMPLOYEE may request and pay the charges for the
certificate to be sent to PMSC via Federal Express. The
certificate will only be issued in the EMPLOYEE's name. EMPLOYEEs
may only exercise a whole number of options as PMSC shall not
direct the transfer agent to issue fractional shares.
As an optionholder, an EMPLOYEE is entitled to request copies of
PMSC's Annual and Quarterly Reports. An EMPLOYEE will not receive
such reports automatically as an optionholder. Additionally,
reports are available upon request showing a complete list of
EMPLOYEE's options outstanding, options available for exercise,
cost per share, total costs, and expiration dates of options. An
EMPLOYEE may wish to request these materials or information before
exercising options by calling or writing the Contact Person.
THESE INSTRUCTIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE.
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SCHEDULE OF PARTICULARS
FOR NAMED EXECUTIVE OFFICERS
RE: EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
NAMED EXECUTIVE DATE OF NUMBER OPTION
OFFICER GRANT GRANTED PRICE
G. Larry Wilson October 13, 1994 225,000 $44.00
David T. Bailey October 13, 1994 100,000 $44.00
Charles E. Callahan October 13, 1994 100,000 $44.00
Donald A. Coggiola October 13, 1994 50,000 $44.00
Stephen G. Morrison October 13, 1994 30,000 $44.00
Timothy V. Williams October 13, 1994 30,000 $44.00