1
EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
THIS EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement") is made
effective as of , 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 , 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.
THESE OPTIONS 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 SECTION 9 OF THE PLAN IF THEY DEEM IT
APPROPRIATE TO DO SO BASED UPON SUCH FACTS OR CIRCUMSTANCES AS THEY DEEM
RELEVANT, INCLUDING, WITHOUT LIMITATION, THE RESULTS OR FINDINGS, WHETHER
PRELIMINARY OR FINAL, OF THE VARIOUS INVESTIGATIONS INTO THE COMPANY'S
PREVIOUSLY ISSUED FINANCIAL STATEMENTS.
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., November 8, 1995 ($45.25). These Options must be
exercised within ten (10) years of the effective date of this Agreement or
they expire.
2
3. Availability for Exercise. 20% of the shares subject to the Options granted
will become available for exercise at the end of each of the five (5) years
following the effective date of this Agreement. For example . . . 20% of
the total number of Options granted will be available for exercise beginning
November 8, 1996; 40% will be available for exercise beginning November 8,
1997; 60% will be available for exercise beginning November 8, 1998; 80%
will be available for exercise beginning November 8, 1999; and 100% will be
available for exercise beginning November 8, 2000. Once Options become
available for exercise, they will remain available for exercise for so long
as EMPLOYEE is employed by the Company unless they expire. Notwithstanding
the foregoing, the Options hereby granted shall not be exercisable until
such time as the common stock to be issued on exercise of the Options has
been registered under the Securities Act of 1933 or PMSC has otherwise
qualified such issuance of shares under an exemption from registration under
said Act.
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
3B 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.
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.
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
Section 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.
3
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.
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- or the applicable rate
for the applicable tax jurisdictions) and FICA (or the equivalent type
of payroll/social security tax in the applicable jurisdiction) 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
Company 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. Such taxes paid to PMSC will
be forwarded to the Internal Revenue Service and appropriate state tax
commission (or other applicable tax authorities) 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
4
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 a similar
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 prospective client
or customer of PMSC.
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
5
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. 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.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
"PMSC"
BY: _________________________________
Stephen G. Morrison
TITLE: Executive Vice President
EMPLOYEE
_____________________________________
(Signature)
_____________________________________
(Type or Print Name)
_____________________________________
(Date Signed by Employee)
7
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. The Company 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 the Company and
the employee. This transaction solely consists of employee bringing Company the
exercise form and his or her own check and after several days the Company giving
employee a certificate for his or her shares of stock. The Company'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 the Company 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 the Company'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.
8
SCHEDULE OF PARTICULARS
FOR NAMED EXECUTIVE OFFICERS
RE: EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
NAMED EXECUTIVE DATE OF NUMBER OPTION
OFFICER GRANT GRANTED PRICE
Donald A. Coggiola November 8, 1995 50,000 $45.25
Paul R. Butare November 8, 1995 100,000 $45.25