<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994 Commission file number 0-10175
POLICY MANAGEMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0723125
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One PMS Center (P.O. Box Ten)
Blythewood, S.C. (Columbia, S.C.) 29016 (29202)
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (803) 735-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes No X
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
22,637,021 Common shares, $.01 par value, as of April 29, 1994
The information furnished herein reflects all adjustments which are,
in the opinion of management, necessary for the fair presentation of
the results for the periods reported. Such information should be
read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
<PAGE> 2
POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Income for
the three months ended March 31, 1994 and 1993.... 3
Consolidated Balance Sheets as of
March 31, 1994 and December 31, 1993.............. 4
Consolidated Statements of Cash Flows for
the three months ended March 31, 1994 and 1993.... 5
Notes to Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................. 17
Item 6. Exhibits and Reports on Form 8-K................... 17
Signatures................................................... 18
Exhibit Index................................................ 19
<PAGE> 3
PART I
FINANCIAL INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1994 1993
(Restated-
Note 1)
(In Thousands,
Except Per Share Data)
Revenues:
Licensing............................ $ 16,470 $ 19,855
Services............................. 99,472 99,360
115,942 119,215
Costs and Expenses:
Employee compensation and
benefits........................... 44,970 39,597
Computer and communications
expense............................ 11,197 10,877
Information services and data
acquisition costs.................. 34,456 26,928
Other operating costs and expenses... 17,502 26,496
108,125 103,898
Operating income....................... 7,817 15,317
Other Income and Expenses:
Investment income.................... 1,823 3,329
Gain/(loss) on sale of
marketable securities.............. (17) 2,936
Interest expense and other charges... (895) (339)
911 5,926
Income before income taxes............. 8,728 21,243
Income taxes........................... 3,160 7,618
Net income............................. $ 5,568 $ 13,625
Net income per share................... $ .25 $ .58
Weighted average number of shares...... 22,637 23,534
See accompanying notes.
<PAGE> 4
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
March 31, December 31,
1994 1993
(In Thousands,
Except Share Data)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents................................... $ 15,805 $ 24,122
Marketable securities.................................. 130,312 132,650
Receivables, net of allowance for uncollectible
amounts of $1,822 ($1,817 at 1993).................. 97,220 92,975
Income tax receivable.................................. 19,422 18,764
Deferred income taxes.................................. 7,649 9,491
Other.................................................. 10,507 9,735
Total current assets................................ 280,915 287,737
Property and equipment, at cost less accumulated
depreciation and amortization of $109,161
($102,623 at 1993).................................. 136,959 139,029
Receivables.............................................. 954 4,716
Goodwill and other intangible assets..................... 83,224 85,969
Capitalized software costs............................... 121,465 117,513
Deferred income taxes.................................... 15,037 21,585
Investments.............................................. 5,710 -
Other.................................................... 3,905 3,254
Total assets..................................... $648,169 $659,803
Liabilities
Current liabilities:
Accounts payable and accrued expenses.................. $ 39,510 $ 42,256
Accrued restructuring and lease termination costs...... 1,329 9,521
Accrued contract termination costs..................... 1,941 2,714
Current portion of long-term debt...................... 6,505 6,986
Unearned revenues...................................... 21,808 19,121
Other.................................................. 192 383
Total current liabilities........................... 71,285 80,981
Long-term debt........................................... 4,278 5,655
Deferred income taxes.................................... 68,881 74,151
Accrued restructuring and lease termination costs........ 20,026 19,735
Other.................................................... 2,284 2,309
Total liabilities................................... 166,754 182,831
Commitments and contingencies (Note 3)
Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares
authorized............................................ - -
Common stock, $.01 par value, 75,000,000 shares
authorized, 22,637,021 shares issued and
outstanding (22,637,021 at 1993)...................... 226 226
Additional paid-in capital............................... 262,167 262,167
Retained earnings........................................ 222,200 216,632
Unrealized holding loss on marketable securities......... (1,474) -
Foreign currency translation adjustment.................. (1,704) (2,053)
Total stockholders' equity.......................... 481,415 476,972
Total liabilities and stockholders' equity....... $648,169 $659,803
<FN>
See accompanying notes.
</TABLE>
<PAGE> 5
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1994 1993
(Restated-
Note 1)
Operating Activities (In Thousands)
Net income.................................. $ 5,568 $ 13,625
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 14,246 15,892
Deferred income taxes..................... 2,902 211
Loss/(Gain) on sale of marketable
securities.............................. 17 (2,936)
Changes in assets and liabilities:
Accrued restructuring and lease
termintion costs........................ (7,901) -
Receivables............................... (413) (5,911)
Income taxes receivable................... (658) -
Accounts payable and accrued expenses..... (2,792) 5,863
Income taxes payable...................... - 510
Other, net.................................. (119) (5,552)
Cash provided by operations............ 10,850 21,702
Investing Activities
Proceeds from sales/maturities of marketable
securities, net............................ 25,487 187,465
Purchases of marketable securities, net..... (30,302) (99,219)
Acquisition of property and equipment....... (4,976) (25,028)
Capitalized internal software development
costs..................................... (8,230) (5,532)
Purchased software.......................... (32) (1,235)
Proceeds from disposal of property &
equipment................................. 276 6,950
Business acquisitions....................... - (2,840)
Cash (used for) provided by investing
activities........................... (17,777) 60,561
Financing Activities
Payments on long-term debt.................. (1,525) (3,673)
Issuance of common stock under stock
option plans.............................. - 663
Cash used for financing activities..... (1,525) (3,010)
Effect of exchange rate changes on cash....... 135 (155)
Net (decrease) increase in cash & equivalents. (8,317) 79,098
Cash and equivalents at beginning of period... 24,122 31,959
Cash and equivalents at end of period......... $ 15,805 $111,057
Noncash Activities
Long-term debt arising from and assumed in
connection with business acquisition....... $ - $ 2,987
Supplemental Information
Interest paid............................... 853 278
Income taxes paid........................... 937 6,535
See accompanying notes.
<PAGE> 6
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
NOTE 1. RESTATEMENT OF PRIOR YEAR RESULTS OF OPERATIONS
In August 1993, the Company engaged independent accountants to
conduct a special audit of the Company's balance sheet as of
December 31, 1992 and its consolidated financial statements as of
and for the six months ended June 30, 1993. As a result of this
audit, the Company determined that retained earnings previously
reported as of December 31, 1992 required adjustment. These
adjustments were due to errors in the application of accounting
principles and subsequent discovery of facts existing at February
26, 1993, the date of the predecessor auditor's report (See Note 2
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
The Company is in the process of determining the specific periods
affected by the adjustments prior to December 31, 1992. Once
determined, the Company intends to restate the financial statements
for such periods. The consolidated statements of income and cash
flows for the three months ended March 31, 1993 are restated to
reflect adjustments, related to deferral of revenues due to changes
in timing of revenue recognition, reserve for losses on certain
contracts and a reduction of expenses due to capitalization of
certain software costs, that the Company determined were necessary
as a result of the special audit.
NOTE 2. MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," ("FAS
115"). In accordance with the provisions of FAS 115, the Company
has classified debt securities (primarily municipal bonds) either
as available-for-sale, which are carried at fair market value and
shown as Marketable Securities, or as held-to-maturity, which are
carried at amortized costs and shown as Investments. Unrealized
gains and losses on securities classified as available-for-sale are
reported net and are included in Stockholders' Equity.
NOTE 3. CONTINGENCIES
In April 1993, litigation was commenced against the Company and
certain of its present and former officers and directors in the
United States District Court for the District of South Carolina,
Columbia Division. In the litigation, which purports to be a class
<PAGE> 7
action on behalf of purchasers of the Company's common stock
between March 18, 1992 and July 8, 1993, the plaintiffs allege that
the Company failed to prepare its financial statements in
accordance with generally accepted accounting principles and
omitted to disclose certain information regarding, among other
things, its business and prospects in violation of the Federal
securities laws, the South Carolina Code and common law. The
Company believes it has meritorious defenses to the claims and is
vigorously defending the litigation. The plaintiffs seek
unspecified compensatory damages, legal fees and litigation costs.
The Company is unable to predict the outcome or the potential
financial impact of this litigation.
In June 1993, the Securities and Exchange Commission ("SEC")
commenced a formal investigation into possible violations of the
Federal securities laws in connection with the Company's public
reports and financial statements, as well as trading in the
Company's securities. The SEC has issued a formal order of
investigation which provides the SEC staff with the power to
subpoena documents and to compel testimony in connection with their
investigation. The Company is cooperating with the SEC in
connection with the investigation.
NOTE 4. INCOME TAXES
In 1992, the Internal Revenue Service completed an examination
of the Company's consolidated federal income tax returns for the
years 1985 through 1988 and has proposed certain adjustments to
income and credits that result in proposed tax deficiencies in the
amount of $17,785,000 for those years. The Company believes that
its judgment in the areas for which adjustments have been proposed
has been appropriate and is contesting the proposed adjustments.
The Company believes that adequate amounts of federal income taxes
are provided in the consolidated financial statements.
NOTE 5. SUBSEQUENT EVENT
On April 27, 1994, the Company announced that it had agreed with
IBM to repurchase 2,278,537 of the 3,797,561 shares of the
Company's common stock held by IBM and that the remainder of the
Company's shares owned by IBM will be purchased by the General
Atlantic Partners group, a New York-based private investment firm.
All of these shares will be purchased at a price of $24.77 per
share. The shares being repurchased by the Company represent
approximately 10% of its total shares outstanding prior to the
repurchase. After these transactions, General Atlantic Partners
will own approximately 7.5% of the Company's outstanding shares.
<PAGE> 8
POLICY MANAGEMENT SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's consolidated results of operations and financial
condition. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained in
Part I of this report on Form 10-Q and with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
RESULTS OF OPERATIONS
Set forth below are certain operating items expressed as a
percentage of revenues and the percent increase (decrease) for
those items between the periods presented:
Percent
Percentage Increase
of Revenues (Decrease)
Three Months Three Months
Ended March 31, Ended March 31,
1994 1993 1994 VS 1993
Revenues:
Licensing................. 14.2 16.7 (17.0)
Services.................. 85.8 83.3 .1
100.0 100.0 (2.7)
Costs and Expenses:
Employee compensation
and benefits............ 38.8 33.2 13.6
Computer & communication
expense................. 9.7 9.2 2.9
Information services &
data acquisition costs.. 29.7 22.6 28.0
Other operating costs
and expenses............ 15.1 22.2 (33.9)
93.3 87.2 4.1
Operating income............ 6.7 12.8 (49.0)
Other Income and Expenses... .8 5.0 (84.6)
Income before income
taxes..................... 7.5 17.8 (58.9)
Income taxes................ 2.7 6.4 (58.5)
Net income................. 4.8 11.4 (59.1)
<PAGE> 9
A comparison of revenues and operating income for each line of
business and geographic market for the periods presented is as
follows:
Operating
Operating Income as a
Revenues Income % of Revenue
Three Months Three Months Three Months
Ended March 31, Ended March 31, Ended March 31,
1994 1993 1994 1993 1994 1993
(Dollars in Millions)
Line of Business
Property & Casualty $81.1 $90.1 $ 9.6 $18.3 11.8 20.3
Life 25.6 16.1 (.8) (.8) (3.1) (5.0)
Health 9.2 9.2 2.4 (2.9) 26.1 (31.5)
Geographic Market
United States $ 99.2 $100.9 $ 9.6 $12.4 9.7 12.3
Europe 8.4 6.4 - .2 - 3.1
Canada 4.3 4.0 1.0 1.4 23.3 35.0
Asia/Pacific 4.0 4.1 .6 .6 15.0 14.6
The above table does not include an allocation of revenues and
costs associated with corporate activities such as equipment sales,
financial services, legal and other general corporate activities.
Revenues related to equipment sales amounted to $3.8 million for
the first quarter of 1993. There were no equipment sales during
the first quarter of 1994. Costs associated with these corporate
activities amounted to $3.4 million and $3.1 million for the three
months ended March 31, 1994 and 1993, respectively. The results of
operations for the three months ended March 31, 1993 have been
restated (See Note 1 of Notes to Consolidated Financial
Statements).
REVENUES
Total licensing revenues for the three months ended March 31,
1994 decreased $3.4 million (17.0%) compared to the corresponding
period in 1993, due primarily to a decrease of $4.6 million (55.9%)
in initial license revenues attributable to a reduction in the
number of systems licensed. The reduction in systems licensed was
primarily related to the property and casualty business in the
United States ($5.8 million), partially offset by systems licensed
for life products in Europe ($1.5 million). Revenues from
continuing monthly license charges for maintenance, enhancements
and services availability ("MESA") and for continuing right-to-use
licenses increased $1.2 million (10.3%) to $12.8 million for the
first quarter in 1994 from $11.6 million for the corresponding
quarter in 1993.
<PAGE> 10
Total services revenues for the three months ended March 31, 1994
increased $.1 million (.1%) compared to the corresponding period in
1993. The total services revenue increase was affected by
activities in professional, outsourcing and information services,
as described more fully below.
Revenues from professional services increased $4.3 million
(25.4%) to $21.4 million for the first quarter in 1994 from $17.1
million for the corresponding quarter in 1993, due primarily to
additional services of $3.1 million from CYBERTEK Corporation, a
life software and services business acquired in August 1993, and
$2.4 million from new services relating to life insurance services
business in Europe.
Revenues from outsourcing services amounted to $29.0 million for
the first quarter in 1994 and reflect a decrease of $6.4 million
(18.2%) compared to the corresponding quarter in 1993. The
decrease was primarily attributable to the wind-down of the New
Jersey Market Transition Facility (MTF) project, where revenues
from this property and casualty business decreased from $9.6
million for the first quarter in 1993 to $.9 million for the first
quarter in 1994, and to the termination of a facilities management
and processing contract in September 1993, representing $3.5
million of life insurance services business in Europe for the three
months ended March 31, 1993. Revenues from outsourcing services,
excluding revenues from the MTF project and the terminated European
facilities management and processing contract for the 1993 first
quarter, would have resulted in an increase of $6.7 million for the
first quarter of 1994, as compared to the corresponding quarter in
1993. This increase is primarily attributable to an increase of
$2.7 million in new outsourcing services relating to life insurance
services in Europe and an increase of $3.5 million in servicing
existing and new contracts with property and casualty insurance
companies and residual markets.
Revenues from information services were $49.0 million for the
first quarter in 1994 as compared with $42.9 million for the
corresponding quarter in 1993. This $6.1 million increase (14.2%)
is primarily attributable to an increase in business associated
with property and casualty information services of $6.9 million
(motor vehicle driving records, undisclosed driver information and
driver mileage verification) and life and health information
services of $.8 million (physician statements and medical history
reports). These increases, however, were partially offset by a
reduction in property and casualty information services revenue of
$1.8 million associated with risk services (inspections, premium
audits and personnel investigations).
<PAGE> 11
COSTS AND EXPENSES
Employee compensation and benefits increased $5.4 million for the
first quarter in 1994 compared to the corresponding quarter in
1993, primarily as a result of increased costs ($4.8 million)
associated with the acquisition of CYBERTEK Corporation in August
1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway.
Information services and data acquisition costs increased $7.5
million for the first quarter in 1994 compared to the corresponding
quarter in 1993, due primarily to an increase in the volume of
state fees ($6.8 million) for motor vehicle reports, resulting from
new business in the property and casualty information services
business.
Other operating costs and expenses for the first quarter in 1994
decreased $9.0 million when compared to the corresponding quarter
in 1993. The decrease is primarily attributable to a reduction in
the cost of equipment sold of $3.5 million, a decrease in costs
associated with the wind-down of the MTF project amounting to $4.3
million, and increased credits of $2.7 million associated with the
capitalization of costs for the internal development of the
Company's software systems.
OPERATING INCOME
Operating income was $7.8 million for the three months ended
March 31, 1994, as compared with $15.3 million for the
corresponding period in 1993. Operating income as a percentage of
revenues declined to 6.7% for the first quarter of 1994 from 12.8%
for the comparable quarter in 1993, primarily as a result of
decreased outsourcing services revenues ($6.4 million), a decrease
in initial license revenues ($4.6 million), principally in the
property and casualty business, and to increased operating costs
associated with the acquisition of CYBERTEK Corporation in August
1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway.
These factors were partially offset by the improvement in the
Company's health insurance services business operating margin. The
improvement in this business results from a reduction in current
operating costs associated with amortization charges for certain
identifiable intangible assets and goodwill, which were written-off
at June 30, 1993, a reduction in rental expense ($.3 million)
related to a lease termination and compensation and other benefits
costs ($1.7 million) through the downsizing of staff. The Company
recorded, at June 30, 1993, special impairment and restructuring
charges to reduce the carrying value of certain identifiable
intangible assets and goodwill and to recognize as a loss the
planned future abandonment of certain facilities and employee
severance and outplacement costs related to its health insurance
services business. The reduction in annual amortization related to
these intangibles is approximately $6.3 million.
<PAGE> 12
The property and casualty insurance software and services
business experienced a lower level of revenue and operating income
primarily from decreased licensing activities and outsourcing
services during the three months ended March 31, 1994 than in the
first quarter of 1993. Outsourcing services for property and
casualty insurers did not meet expectations due to several
contracts not closing or ramping up as fast as anticipated. The
Company believes that this and the slow down in licensing was
largely due to the Company's efforts to complete a special audit of
the operating results for the first half of 1993; the delay in
releasing the results of that audit; and having available audited
financial statements.
The Company has not been able to reduce its operating expenses,
associated with the wind-down of the MTF project, as quickly as the
reduction in revenue from the MTF occurred because of ongoing
contractual obligations. However, as a result of an increased role
in servicing additional new contracts with insurance companies and
residual markets, the Company is replacing revenues lost from the
MTF project, during the first half of 1994. Margins, however, will
be reduced during the early phases of these contracts due to start-
up costs.
The information services business for both the property and
casualty and the life and health businesses produced lower
operating profits for the three months ended March 31, 1994
compared to the corresponding quarter in 1993. Margins in the
property and casualty information services business were lower
primarily as a result of an overall decline in inspection usage,
while margins in the life and health information services business
were adversely affected by higher costs associated with providing
attending physician statements. The Company is attempting to
direct more of its information services business into database
products and life and health information services where margins are
generally higher. The Company typically realizes a lower gross
margin from property and casualty information services than from
software products and related services.
The Company's decision to develop new releases of certain of its
life systems based on the business functions of CYBERTEK software
and the process of integrating CYBERTEK functionality into certain
existing Series III applications continues to significantly reduce
the operating margin from the life insurance services business.
However, total revenues for the Company's life business were 59%
higher ($9.5 million) for the three months ended March 31, 1994,
compared to the corresponding period in 1993, due primarily to the
acquisition of CYBERTEK Corporation in August 1993 and the addition
of a new outsourcing contract in Europe during December 1993.
Investment income, decreased $1.5 million as a result of a lower
level of investable funds, resulting from large cash expenditures
for the acquisition of CYBERTEK Corporation ($59.7 million) in
<PAGE> 13
August 1993 and the repurchase in April 1993 of 970,668 shares of
the Company's common stock ($48.7 million) and to a decrease in
interest income related to a reduction in long-term accounts
receivable.
Interest expense and other charges increased $.5 million for the
first quarter in 1994 when compared to the corresponding quarter in
1993, primarily as a result of the amortization of discounts ($.4
million) associated with long-term restructuring liabilities
recorded at June 30, 1993. These liabilities are part of
restructuring charges established to recognize as a loss the
planned future abandonment of certain facilities and employee
severance and outplacement costs relating to the restructuring of
the Company's health insurance services business (see Note 13 of
Notes to Consolidated Financial Statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993).
As part of the Company's plan to repurchase 2,278,537 of the
3,797,561 shares of its common stock held by IBM, at a price of
$24.77 per share, the Company will liquidate a portion of its
marketable securities. The Company estimates that it will incur a
loss on the sale of securities of approximately $800,000 to
$900,000 during the second quarter of 1994 (see Note 5 of Notes to
Consolidated Financial Statements).
The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 36.2% and 35.9% for the three
months ended March 31, 1994 and 1993, respectively. The increase
in the effective rate between the periods is due primarily to the
impact of the increase (1%) in the highest marginal corporate tax
rate resulting from the enactment of the Omnibus Budget
Reconciliation Act of 1993, which was partially offset by
nontaxable investment income representing a greater portion of
pretax income in the first quarter in 1994.
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
March 31, December 31,
1994 1993
(In Millions)
Cash and equivalents, marketable
securities, and investments $151.8 $156.8
Current assets 280.9 287.7
Current liabilities 71.3 81.0
Working capital 209.6 206.7
March 31, March 31,
1994 1993
(In Millions)
Cash provided by operations $ 10.9 $ 21.7
Cash (used for) provided by
investing activities (17.8) 60.6
Cash used for financing activities ( 1.5) (3.0)
The Company's financial condition remained strong at March 31,
1994. Working capital was $209.6 million, including cash, cash
equivalents and marketable securities of $146.1 million, and
excluding $5.7 million of long-term investments. Cash, cash
equivalents, marketable securities and investments were $151.8
million at March 31, 1994 as compared to $156.8 million at December
31, 1993, a net decrease of $5.0 million, resulting primarily from
a decrease in cash generated by operations and to a lesser extent
unrealized holding losses on marketable securities.
The decrease in net cash generated by operations of $10.9 million
for the first quarter in 1994 compared with the corresponding
quarter in 1993 was primarily attributable to lower net income
($8.1 million), a reduction in accrued restructuring costs ($7.9
million) and a reduction in accounts payable and accrued expenses
($2.8 million).
The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible assets
and goodwill related to its health insurance services business of
$54.9 million. Due to this impairment and write-down, the Company
decided to restructure this business and take a restructuring
charge of $25.2 million as of June 30, 1993. Costs to restructure
the health business are composed of $5.2 million associated with
employee severance and outplacement, and $20.0 million related to
an ongoing lease obligation and/or termination for the planned
future abandonment of certain leased office facilities (see Note 13
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
Cash outlays with respect to the restructuring charges were $7.9
million for the first quarter of 1994. Cash outlays are expected
to be approximately $8.3 million for the remainder of 1994.
<PAGE> 15
Excluding short-term investments, net cash used for investing
activities declined in the first quarter in 1994, compared with the
corresponding quarter in 1993. During the first quarter in 1994,
net cash used for investments included $3.8 million compared to
$23.4 million for the first quarter of 1993 that was invested in
data processing, communications equipment and office furniture and
equipment. Approximately $21.4 million of the amount expended in
1993 was for upgrading data processing and communications
equipment. Amounts capitalized for internal software development
increased $2.7 million (48.8%) to $8.2 million for the first
quarter in 1994 compared to $5.5 million for the corresponding
period in 1993, due primarily to the development of life systems
based on the business functions of CYBERTEK software and the
process of integrating CYBERTEK functionality into certain existing
Series III applications.
Significant expenditures anticipated for the remainder of 1994,
excluding any possible business acquisitions, are as follows:
acquisition of data processing, communications equipment and office
furniture, fixtures and equipment ($9,600,000); costs relating to
the internal development of software systems ($24,700,000) and;
debt payments relating to past business acquisitions ($3,044,000)
and; payments for the repurchase of 2,278,537 shares of the
Company's stock held by IBM at a price of $24.77 per share ($56.4
million) (see Note 5 of Notes to Consolidated Financial
Statements).
The Company has historically used the cash generated from
operations for the following: development and acquisition of new
products, acquisition of businesses and repurchase of the Company's
stock. The Company anticipates that it will continue to use its
cash for all of these purposes in the future and that projected
cash from operations and cash and investment reserves will be able
to meet presently anticipated needs; however, the Company may also
consider incurring debt as needed to accomplish specific objectives
in these areas and for other general corporate purposes.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a
number of factors, including uncertainties relative to economic
conditions; industry factors; the Company's ability to develop and
sell its products profitably; the Company's ability to successfully
increase market share in its core business while expanding its
product base into other markets; and the Company's ability to
effectively manage expense growth relative to revenue growth in
anticipation of continued pressure on gross margins. The Company's
operating results could be adversely affected should the Company be
unable to anticipate customer demand accurately, to introduce new
products on a timely basis, or to effectively manage the impact on
the Company of changes in the insurance marketplace.
<PAGE> 16
Contracts with governmental agencies involve a variety of special
risks, including the risk of early contract termination by the
governmental agency and changes associated with newly elected state
administrations or newly appointed regulators.
A significant portion of both the Company's revenue and its
operating income is derived from initial licensing charges received
as part of the Company's software licensing activities. Because a
substantial portion of these revenues are 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 based upon the timing of the licensing of new
systems.
Because of the foregoing factors, as well as other factors
affecting the Company's operating results, past financial
performance should not be considered to be a reliable indicator of
future performance, and investors should not use historical trends
to anticipate results or trends in future periods.
<PAGE> 17
PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
Items 2, 3, 4, and 5 are not applicable
Item 1. Legal Proceedings
See Note 3, "Contingencies" of Notes to the Consolidated
Financial Statements.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
Exhibits required to be filed with this Quarterly Report on Form
10-Q are listed in the following Exhibit Index.
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1994.
<PAGE> 18
POLICY MANAGEMENT SYSTEMS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
POLICY MANAGEMENT SYSTEMS CORPORATION
(Registrant)
Date: May 9, 1994 By: Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
10. Material Contracts
A. Employment Agreement
B. Stock Option/Non-Compete Agreement
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 10th day of January, 1994, by and
between POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina corporation
(hereinafter referred to as "Employer"), and Stephen G. Morrison, a resident
of South Carolina (hereinafter referred to as Morrison).
WITNESSETH:
WHEREAS, the Employer is a corporation engaged in business in the State of
South Carolina and throughout the United States; and
WHEREAS, the Employer desires to employ Morrison in the capacity of Executive
Vice President, General Counsel, and Corporate Secretary upon the terms and
conditions hereinafter set forth; and
WHEREAS, Morrison is willing to (i) enter into this Agreement with respect to
his employment and services upon the terms and conditions hereinafter set
forth;
WHEREAS, the Employer acknowledges that Morrison has been and is an important
element in the success of the law firm of Nelson Mullins Riley and Scarborough
(hereinafter the "Firm") and respects the importance of the Firm's continued
affiliation with Morrison;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
contained herein, the Employer hereby employs Morrison and Morrison hereby
accepts such employment upon the terms and conditions hereinafter set forth:
1. Term of Employment. The term of employment under this Agreement shall be
for a period commencing on the date first set forth above, and terminating
on December 31, 1998, unless such employment is terminated or extended
prior to the expiration of said period as hereinafter provided.
2. Duties of Morrison. Morrison agrees that during the term of this
Agreement, he will devote his professional and business-related time,
skills and best efforts to the businesses of the Employer in the capacity
of Executive Vice President, General Counsel, and Corporate Secretary or
such other capacity as the Employer and Morrison may agree upon. If there
are major significant changes in the duties or responsibilities of
Morrison from these listed as Prohibited Activities on Exhibit A hereto,
that are not mutually agreed upon, Morrison may terminate his employment
within sixty (60) days of any such change. In addition, Morrison shall
devote all necessary time and his best efforts in the performance of any
other duties as may be assigned to him from time to time by the Board of
Directors of the Employer including, but not limited to, serving on the
<PAGE> 2
Employer's Board of Directors if elected. Morrison shall devote his
professional and business skills to the Employer as his primary
responsibility. Morrison may engage in personal, passive investment
activities provided such activities do not interfere with the performance
of his duties hereunder and violate the non-competition and nondisclosure
provisions set forth herein. It is further understood and agreed that
during a period of transition, Morrison shall continue to meet current
commitments to existing clients, including representation in court and
trials and that after a period of transition, Morrison shall remain a
partner in the law firm of Nelson Mullins Riley and Scarborough
(hereinafter the "Firm"). It is agreed and understood that Morrison will
(1) participate in the future strategic planning and management for the
Firm, (2) consult and advise on client matters to assist the Firm in
maintaining and building its client base, and (3) will maintain an office
and attendant support at the Firm (at the Firm's sole expense). Morrison
shall in no way participate in any net income derived by the Firm as a
result of services provided by the Firm to Policy Management Systems
Corporation. Morrison shall not directly, or indirectly, approve, review
or handle in any way the Firm's bills at Policy Management Systems
Corporation, nor will he generate, review or handle the Firm's billings to
Policy Management Systems Corporation.
3. Compensation. For all the services rendered by Morrison under this
Agreement, the Employer shall pay Morrison a base salary of not less than
three hundred sixty thousand dollars ($360,000) per annum (or fraction for
portions of a year). Said base salary will be adjusted from time to time
in accordance with then current standard salary administration guidelines
of the Employer. Said payments shall be made in installments consistent
with the Employer's payroll practices.
In addition to the base salary, Morrison shall participate in a bonus
program as determined from time to time by the Employer which shall
provide an opportunity for Morrison to earn additional annual compensation
equal to not less than forty percent (40%) of his base salary under a
program of defined goals, including personal and/or unit and/or group,
and/or corporate. Notwithstanding the foregoing, Morrison shall be
guaranteed payment of additional compensation of forty percent (40%) of
his base salary of three hundred sixty thousand dollars ($360,000) for
each of the two (2) years following the date of this Agreement. It is
further understood and agreed that during a period of transition,
Morrison's base salary and bonus will be paid at a reduced rate.
During the first quarter of 1994, Morrison will be compensated at only
twenty-five percent (25%) of his base salary and during the second quarter
of 1994, he shall be compensated at fifty (50%) of his base salary and his
bonus will be calculated utilizing these amounts. As of July 1, 1994, the
transition progress shall be evaluated. However, it is upon that date
Morrison shall begin receiving compensation at a rate of one hundred
percent (100%) of his base salary unless otherwise agreed by Morrison and
the Employer.
Morrison shall also receive at least 25,000 PMSC stock options annually
under the PMSC Stock Option Plan.
<PAGE> 3
Morrison shall also be elected to the Employer's Executive Council and
shall be entitled to participate in the Long-Term Incentive Pay Plan of
Executives in accordance with the terms of such Plan in effect during his
employment.
4. Fringe Benefits. The terms of this Agreement shall not foreclose Morrison
from participating with other employees of the Employer in such fringe
benefit or incentive compensation plans as may be authorized and adopted
from time to time by the Employer; provided, however, that Morrison must
meet any and all eligibility provisions required under said fringe benefit
or incentive compensation plans. Morrison shall also be entitled to
perquisites substantially similar to those other Executive Vice Presidents
are receiving as of the effective date of this Agreement, including the
use of an automobile selected by the Employer.
5. Vacation. Morrison shall be entitled during each calendar year to
vacation with pay at such times and for such periods as are consistent
with the policies of the Employer.
6. Professional Activities. Morrison shall be entitled to continue to
participate in professional activities, meetings and conventions
including, but not limited to, the International Association of Defense
Counsel, Defense Research Institute, South Carolina Bar, Product Liability
Advisory Council, South Carolina Defense Trial Attorneys' Association and
as an Adjunct Professor at the University of South Carolina School of
Law. Such activities are expected to include time commitments attendant
to some leadership role(s).
7. Working Facilities. Morrison shall be furnished an office, personal
secretary and such other facilities and services suitable to his position
and adequate for the performance of his duties, which shall be
substantially similar to those of other Executive Vice Presidents
and consistent with the policies of the Employer.
8. Sick Leave and Disability. (a) As determined by the Employer, Morrison
shall be entitled to a number of days sick leave with full pay as is
consistent with the uniform employment policies of the Employer.
(b) Should Morrison become totally and permanently disabled as a result
of sickness or accident and be unable to adequately perform his
regular duties prescribed under this Agreement, his employment
hereunder shall be deemed terminated, but Morrison shall be entitled
to the continuation of his base salary for a period of six (6)
months thereafter, as well as any bonus to which he may be entitled
under his bonus program. In addition, Morrison shall be entitled to
such benefits as are provided under any long-term disability plan
instituted or maintained by the Employer on behalf of Morrison.
For the purpose of this Agreement, the term "totally and permanently
disabled" shall mean total and permanent disability for purposes of
<PAGE> 4
receiving benefits under the Employer's long-term disability plan or
insurance policy. If the Employer does not have such a plan or
policy in existence at the time, the term "totally and permanently
disabled" shall mean Morrison's inability, mentally or physically,
on account of sickness or accident to regularly engage in or
adequately perform his duties hereunder. It is understood that
Morrison's occasional sickness or other incapacity of short duration
may not result in his being or becoming "totally and permanently
disabled"; however, an illness or incapacity may lead to the
Employee being or becoming totally and permanently disabled if the
illness or incapacity is prolonged or recurring. For purposes of
this Agreement, in the event the Employer and Morrison cannot agree
at any time as to whether Morrison is totally and permanently
disabled, a final decision shall be made by a committee composed of
three (3) physicians licensed by the State of South Carolina, one of
whom shall be appointed by the Employer, one of whom shall be
appointed by Morrison and the third shall be appointed by the
physicians appointed by the Employer and Morrison. The finding of
such committee of physicians shall be conclusive upon all parties
and they shall be bound by any statement signed by two (2) or more
members of such committee.
9. Death During Employment. If Morrison dies during the term of his
employment, or if Morrison was employed by the Employer at the beginning
of his last illness, the Employer shall continue to pay Morrison's base
salary to the estate of Morrison for a period of six (6) months
thereafter. Also, Employer shall pay to the estate of Morrison any
bonuses to which Morrison may be entitled under his bonus program.
10. Termination of Employment. Morrison and the Employer shall have the right
to terminate the employment relationship described herein at any time by
mutual agreement in writing.
The Employer shall have the right to terminate the employment relationship
hereunder, for cause, by serving notice on Morrison. For the purposes
hereof, cause for termination shall be deemed to exist upon a good faith
finding of two-thirds of the Board of Directors of the Employer (excluding
Morrison if he is a member of the Board of Directors) of the following:
negligence, intemperance which interferes with the performance of his
duties, dishonesty involving the Employer, willful shortage in accounts
under Morrison's direct supervision and control, refusal or material
failure by Morrison to perform his duties hereunder. Morrison and/or his
representative shall have the right to appear before the Board of
Directors.
In the event that the Employer breaches the terms of this Agreement,
Morrison shall have the right to terminate the employment relationship
hereunder.
11. Other Agreements. This Agreement shall be separate and apart from, and
shall be deemed to alter the terms of, any executive compensation
agreements, deferred compensation agreements, bonus agreements, general
<PAGE> 5
employment benefits plans, stock option plans and any other plans or
agreements entered into between Morrison and Employer pursuant to which
Morrison has been granted specific rights, benefits or options.
12. Non-Competition. Morrison agrees that, during his employment with
Employer and for a period of two (2) years from the date of the
termination of Morrison's employment with the Employer, he will not
directly or indirectly compete with the Employer by engaging in the
activities set forth on Exhibit "A" which is attached hereto and
incorporated herein by reference (the "Prohibit Activities") within the
geographic area which is set forth on Exhibit "B" hereto (the "Restricted
Area"). For purposes of this Section 12, Morrison recognizes and agrees
that the Employer conducts and will conduct business in the entire
Restricted Area and that Morrison will perform his duties for the
Employer within the entire Restricted Area. Morrison shall be deemed to
be engaged in and carrying on said Prohibited Activities if he engages in
said activities in any capacity whatsoever, including, but not limited to,
by or through a partnership of which he is a general or limited partner or
an employee engaged in said activities, or by or through a corporation or
association of which he owns five percent (5%) or more of the stock or of
which he is an officer, director, employee, member, representative, joint
venturer, independent contractor, consultant or agent who is engaged in
said activities. Morrison agrees that during the two (2) year period
described above, he will notify the Employer of the name and address of
each employers with whom he has accepted employment during said period.
Such notification shall be made in writing within five (5) days after
Morrison accepts any employment or new employment by certified mail,
return receipt requested. Notwithstanding anything herein to the contrary
and notwithstanding any other provision of this Agreement, nothing in this
Agreement shall in any way prohibit or limit Morrison's return to the
practice of law at any time or at any place.
13. Confidential Data. Morrison further agrees that, during his employment
with the Employer and upon his termination of employment for any cause, he
will keep confidential and not divulge to any one nor appropriate for his
own benefit any confidential information described in Exhibit "C" which is
attached hereto and incorporated by this reference herein (the
"Confidential Data"). Morrison hereby acknowledges and agrees that the
prohibition against disclosure of confidential data recited herein is in
addition to and, not in lieu of, any rights or remedies which the Employer
may have available pursuant to the laws of any jurisdiction or at common
law to prevent the disclosure of trade secrets, and the enforcement by the
Employer of its rights and remedies pursuant to this agreement shall not
be construed as a waiver or any other rights or available remedies which
it may possess in law or equity absent this agreement.
14. Non-Solicitation of Employees. Morrison covenants that during his
employment and during the one year period immediately following the
termination thereof, either by expiration of the term of this Agreement or
under any of the provisions of Section 10 above, Morrison will neither
<PAGE> 6
directly or indirectly induce or attempt to induce any employee of the
Employer to terminate his or her employment. Nor will Morrison, without
prior written consent of Employer, offer employment either on behalf of
himself or on behalf of any other individual or entity to any employee of
Employer or to any terminated employee of Employer during the term of
Employee's employment and during the one (1) year period following the
termination of his employment.
15. Property of Employer. Morrison acknowledges that from time to time in the
course of providing services pursuant to this Agreement he shall have the
opportunity to inspect and use certain property, both tangible and
intangible, of the Employer and Morrison hereby agrees that said property
shall remain the exclusive property of the Employer, and Morrison shall
have no right or proprietary interest in such property, whether tangible
or intangible, including, without limitation, Morrison's customer and
supplier lists, contact forms, books of account, computer programs and
similar property.
16. Equitable Relief. Morrison acknowledges that the services to be rendered
by him are of a special, unique, unusual, extraordinary, and intellectual
character, which gives them a peculiar value, and the loss of which cannot
reasonably or adequately be compensated in damages in an action at law;
and that a breach by him of any of the provisions contained in this
Agreement will cause the Employer irreparable injury and damage. Morrison
further acknowledges that he possesses unique skills, knowledge and
ability an that competition by him in violation of this Agreement or any
other breach of the provisions of this Agreement would be extremely
detrimental to the Employer. By reason thereof, Morrison agrees that
Employer shall be entitled, in addition to any other remedies it may have
under this Agreement or otherwise, to injunctive and other equitable
relief to prevent or curtail any breach of this Agreement by him.
Notwithstanding the foregoing, however, nothing herein shall prohibit or
limit in any way Morrison's return to the practice of law at any time or
any place. (See Section 12 above.)
17. "Change of Control". In the event (1) the Employer becomes a subsidiary
of another corporation or is merged or consolidated into another
corporation or substantially all of the assets of the Employer are sold to
another corporation 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 the Employer which represent thirty-three and one-third
percent (33 1/3%) or more of the combined voting power of the Employer's
then outstanding securities entitled to elect Directors or (3) the Board
of Directors of the Employer or a Committee thereof makes a determination
in its reasonable judgment that a "Change of Control" of the Employer has
taken place (a "Change of Control"), the term during which this Agreement
shall be effective shall include the term of this Employment Agreement
following the date of the Change of Control plus one (1) year, and
<PAGE> 7
Morrison's compensation for such period shall be based on the following
formula, shall be subject to the following conditions and shall be in lieu
of the compensation provided for under Section 3 of this Agreement:
a. Morrison shall be paid an annual salary for the term of Morrison's
Employment agreement plus one (1) year consisting of one hundred
fifty percent (150%) of the average amount of total cash
compensation, excluding payments made under the Employer's Long-Term
Incentive Plan for Executives and tax benefit bonuses paid upon the
lapse of resale restrictions on common stock for certain officers,
of Morrison for the two (2) calendar years prior to the time such
control was acquired.
b. Morrison shall be paid an annual amount for the term of Morrison's
Employment Agreement plus one (1) year in consideration of the non-
competition covenant of Section 11 of this Agreement consisting of
fifty percent (50%) of the average amount of total cash
compensation, excluding payments made under the Employer's Long-Term
Incentive Plan for Executives and tax benefit bonus paid upon the
lapse of resale restrictions on common stock for certain officers,
of Morrison for the two (2) calendar years prior to the time such
control was acquired. Said annual amounts shall be paid quarterly
in advance.
c. Notwithstanding any of the provisions of this Agreement, the amount
of all payments to be made pursuant to this section after a Change
of Control 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.
d. Any payments made to Morrison following a Change of Control that
shall be disallowed, in whole or in part, as a deductible expense to
the Employer 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 Morrison to the full extent of said
disallowance within six (6) months after the date of which the
amount of said disallowance has been finally determined and the
Employer has paid the deficiency with respect to said disallowance.
The Employer shall legally defend any proposed disallowance by the
Internal Revenue Service and the amount required to be reimbursed by
Morrison 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 the Employer by Morrison, the
Employer may in its discretion withhold amounts from Morrison's
future compensation payments until the amount owed to the Employer
has been fully recovered. No such withholding shall occur prior to
the date on which Morrison would be required to make reimbursement
as provided herein.
<PAGE> 8
e. If the limitation set forth in (c) may at any time become applicable
to the amounts otherwise due pursuant to paragraphs (a) and (b),
then the Employer shall continue to pay Morrison all amounts as
provided under paragraphs (a) and (b) until such time as cumulative
payments equal the aggregate amount as limited by paragraph (c) and
Morrison 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 subparagraph will be
paid without affecting his rights to receive said payments.
f. The Employer shall have no obligation to pay the amounts set forth
in (a) and (b) as limited by (c) if there is reasonable proof that
the non-competition or confidential data provisions of Sections 12
and 13 of this Agreement are being violated.
g. In the event of termination of employment of Morrison for Cause, as
hereinafter defined, following a Change of Control, the Employer
shall not be obligated to make any further payments of the
compensation amounts provided for in this Agreement.
Notwithstanding any other provision of this Agreement, except for
(e) and (j) hereinafter which shall control in the event Morrison
terminates employment as provided in (e) and (j), in the event
Morrison voluntarily terminates employment following a Change of
Control 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 Section 17 is defined to mean (1)
willful failure to substantially perform prescribed duties other
than as a result of disability or the (2) willful engagement in
misconduct significantly detrimental to the Employer.
"Good Reason" to terminate employment with the Employer 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; or (4)
participation under compensation plans or arrangements generally
made available to persons at Morrison's level of responsibility at
the Employer is denied; (5) a successor fails to assume this
Agreement; or (6) termination is made without compliance with
prescribed procedures.
h. In the event Morrison is involuntarily terminated by the Employer
without Cause or Morrison voluntarily terminates employment for Good
Reason, the Employer's obligation to pay the compensation amounts
provided in this Section 17 shall survive termination of employment.
<PAGE> 9
i. Further, in the event of termination of employment during the
pendency of a "Potential Change of Control", as hereinafter defined,
the provisions of (g) and (h) shall apply as if an actual Change of
Control had taken place. A Potential Change of Control shall be
deemed to have occurred if (1) the Employer has entered into an
agreement or letter of intent the consummation of which would
result in a Change of Control; or (2) any person publicly announces
an intention to take or to consider taking actions which if
consummated would constitute a Change of Control; or (3) the Board
of Directors of the Employer 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 Agreement until the earlier of the occurrence of a Change
of Control or a determination by the Board of Directors or a
committee thereof (at any time) that a Change of Control is no
longer reasonably expected to occur.
j. Notwithstanding anything contained in this Agreement to the
contrary, Morrison and Employer or the person, corporation,
partnership or other entity acquiring control of Employer, with the
concurrence of the Chief Executive Officer and Compensation
Committee of the Board of Directors of Employer, may mutually
agree that Morrison, 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
Agreement.
18. Successors Bound. This Agreement shall be binding upon the Employer and
Morrison, their respective heirs, executors, administrators or successors
in interest, including without limitation, any corporation into which the
Employer may be merged or by which it may be acquired.
19. Severability. In the event that any one or more of the provisions of this
Agreement or any word, phrase, clause, sentence or other portion thereof
(including without limitation the geographical and temporal restrictions
contained herein) shall be deemed to be illegal or unenforceable for any
reason, such provision or portion thereof shall be modified or deleted in
such a manner so as to make this Agreement as modified legal and
enforceable to the fullest extent permitted under applicable laws. The
validity and enforceability of the remaining provisions or portions
thereof shall not be construed as a waiver of any subsequent breach of the
same or any other covenants, term or provision. If the geographical or
temporal restrictions contained in Sections 12 and 14 hereof are so
deleted, no such modification or deletion will be made which is less
favorable to Morrison without his consent. Notwithstanding this or any
other provision of this Agreement, nothing herein shall in any way limit
or prohibit Morrison's return to the practice or law at any time or at any
place.
<PAGE> 10
20. Integrated Agreement. This Agreement constitutes the entire Agreement
between the parties hereto with regard to the subject matter hereof, and
there are no agreements, understandings, specific restrictions, warranties
or representations relating to said subject matter between the parties
other than those set forth herein or herein provided for.
21. Counterparts. This Agreement may be executed in two or more counterparts,
each of which will take effect as an original and all of which shall
evidence one and the same Agreement.
22. Governing Law. The terms of this Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina.
23. Assignment. The rights, duties and obligations under this Agreement may
not be assigned by either party, except if there is a change of control as
defined in Section 16, the Employer may assign its rights and obligations
hereunder to the person, corporation, partnership or other entity which
has gained such control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
"EMPLOYER"
[CORPORATE SEAL] POLICY MANAGEMENT SYSTEMS
CORPORATION
Witness:
James J. McGovern By: G. Larry Wilson
President
Van E. Edwards III
"MORRISON"
James J. McGovern Stephen G. Morrison (SEAL)
Stephen G. Morrison
Van E. Edwards III
<PAGE> 11
EXHIBIT A
Acting in any capacity, either individually or with any corporation,
partnership or other entity, directly or indirectly, in providing, or
proposing to provide, data processing software systems, related automation
support services and information services to the insurance industry,
including, but not limited to, application software, processing, consulting
and related services, in the performance of any of the following types of
duties in any part of the insurance industry:
1. The performance of the sales and marketing functions.
2. The responsibility for sales revenue generation.
3. The responsibility for customer satisfaction.
4. The responsibility for research and development of insurance data
base products.
5. The responsibility for the research and development of information
data processing systems and services.
6. The providing of input to pricing of products.
7. The planning and management of data processing services resources.
8. The coordination of the efforts of the various aspects of computer
systems services organizations with other functions.
9. The planning and management of information services resources.
10. The providing and management of an operations staff to support the
above listed activities.
11. Notwithstanding this provision or any other provision of this
Agreement, nothing herein shall prohibit or limit in any way
Morrison's return to the practice of law at any time or any place.
<PAGE> 12
EXHIBIT B
RESTRICTED AREA
Fifty mile radius of the city limits of the following cities:
Toronto, Canada Birmingham, Alabama
Columbus, Ohio Minneapolis, Minnesota
Cincinnati, Ohio San Diego, California
Chicago, Illinois Melbourn, Australia
Dallas/Fort Worth, Texas Indianapolis, Indiana
Los Angeles, California St. Paul, Minnesota
Boston, Massachusetts Denver, Colorado
Philadelphia, Pennsylvania Mobile, Alabama
Hartford, Connecticut Seattle, Washington
San Francisco, California Bloomington, Illinois
New York City, New York Des Moines, Iowa
Columbia, South Carolina San Juan, Puerto Rico
Sydney, Australia El Paso, Texas
Honolulu, Hawaii Detroit, Michigan
Jacksonville, Florida Phoenix, Arizona
Milwaukee, Wisconsin San Antonio, Texas
Montreal, Canada Baltimore, Maryland
Kansas City, Missouri San Jose, California
Stanford, Connecticut Memphis, Tennessee
Oklahoma City, Oklahoma Washington, D.C.
Atlanta, Georgia New Orleans, Louisiana
Houston, Texas London, England
Miami, Florida Paris, France
Princeton, New Jersey St. Louis Missouri
Cleveland, Ohio Nashville, Tennessee
<PAGE> 13
EXHIBIT C
CONFIDENTIAL INFORMATION
1. All software/systems (including all present, planned and future software),
whether licenses or unlicensed, developed by or on behalf of or otherwise
acquired by Policy Management Systems Corporation or any of its
subsidiaries.
"All software/system" shall mean:
* all code in whatever form
* all data pertaining to the architecture and design of such software
systems
* all documentation in whatever form
* all flowcharts
* any reproduction or recreation in whole or in part of any of the
above in whatever form
2. All business plans and strategies including:
* strategic plans
* product plans
* marketing plans
* financial plans
* operating plans
* resource plans
* all research and development plans including all data produced by
such efforts
3. Internal policies, procedures, methods and approaches which are unique to
Policy Management Systems Corporation and are non-public.
4. Any information relating to the employment, job responsibility,
performance, salary and compensation of any present or future officer or
employee of Policy Management Systems Corporation.
<PAGE> 1
STOCK OPTION/NON-COMPETE AGREEMENT
THIS STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement") is made effective as
of January 10, 1994, by and between Stephen G. Morrison ("Morrison") and
Policy Management Systems Corporation ("PMSC").
W I T N E S S E T H:
WHEREAS, Morrison has been employed by PMSC in a position of significant
responsibility and PMSC desires to recognize Morrison's contribution to PMSC
by making Morrison a "Key Employee" as defined in the Policy Management
Systems Corporation 1989 Stock Option Plan ("Plan") and therefor eligible to
be granted Options as defined therein; and
WHEREAS, Morrison has developed and will continue to develop intimate
knowledge of PMSC's business practices, which, if exploited by Morrison in
contravention of this Agreement, could seriously, adversely and irreparably
affect the business of PMSC; and
WHEREAS, Morrison and PMSC each desire to induce the other to enter into this
Agreement; and
WHEREAS, PMSC would not make Morrison a Key Employee in the event that
Morrison refused to agree to the terms and conditions of this Agreement and
thus Morrison 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, Morrison and PMSC agree as follows:
1. Grant. Effective January 10, 1994, PMSC grants Morrison "non-qualified"
Options to purchase up to 25,000 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.
2. Price and Expiration. The option price of the share subject to these
Options is the closing price of the stock on the New York Stock Exchange
on the date of grant, i.e., January 10, 1994. These Options must be
exercised within ten (10) years of the effective date of this Agreement or
they expire.
3. Availability for Exercise. 33 1/3% of the shares subject to the Options
granted will become available for exercise at the end of each of the three
(3) years following the effective date of this Agreement. For example ...
33 1/3% of the total number of Options granted will be available for
exercise beginning January 10, 1995; 66 2/3% will be available for
exercise beginning January 10, 1996; and 100% will be available for
exercise beginning January 10, 1997. Once Options become available for
exercise, they will remain available for exercise unless they expire.
<PAGE> 2
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 Morrison 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 Morrison exercises an Option and
PMSC is required to collect withholding taxes from Morrison.
Federal income taxes (computed at a rate of 20% 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 $69.38 and the fair market
value at the date of the exercise is $74.38, the difference is
$5.00, and assuming an applicable FICA rate of 7.65% and state
income tax rate of 7%, along with the 20% federal income tax, the
Company would collect a tax of $1.73 per share from Morrison
* when shares are sold - the difference between the fair market value
at the date of exercise (the $74.38 in the above example) and the
price at which Morrison sells the stock is treated the same as above
described during the year in which Morrison sells 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, Morrison 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 Morrison incurs. Such taxes paid
to PMSC will be forwarded to the Internal Revenue Service and appropriate
state tax commission and credited to Morrison in the same manner as the
withholding tax on Morrison's salary. Morrison's actual tax will depend
upon the overall tax rate calculated when Morrison prepared his tax
returns. Morrison should consult a tax professional regarding questions
about Morrison's actual tax liability.
7. Non-competition. In consideration of the Options hereby granted, Morrison
covenants and agrees that Morrison shall devote his best efforts to
furthering the best interests of PMSC and that for the one (1) year period
from the effective date hereof, and if Morrison separates from employment
with PMSC for any reason within said one (1) year period, then for one (1)
year period from the date of such separation from employment, Morrison
shall not "Compete" with PMSC. The region within which Morrison agrees
<PAGE> 3
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 Morrison'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 Morrison's separation from employment:
(i) 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 Morrison's separation from
employment;
(ii) 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) 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).
Notwithstanding any other provision of this Agreement, nothing in this provision
or Agreement shall prohibit Morrison from returning to the practice of law at
any time or any place.
8. Non-Hiring. During Morrison's employment with PMSC and for a period of
three (3) years after separation from such employment, Morrison agrees
that Morrison shall under no circumstances hire, attempt to hire or assist
or be involved in the hiring of any employee of PMSC, with the exception
of Carol Collier-Plexico, either on Morrison's behalf or on behalf of any
other person, entity or enterprise unless otherwise agreed to in writing.
Also, for a similar period of time, Morrison 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 unless otherwise agreed to in
writing.
9. Equitable Relief. Morrison acknowledges (i) that Morrison'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, Morrison
<PAGE> 4
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. Notwithstanding any other provision of
this Agreement, nothing in this provision or this Agreement shall prohibit
Morrison from the practice of law at any time or any place.
10. Breach of Agreement. Morrison agrees that in the event Morrison 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 Morrison pursuant to his employment with PMSC.
11. Employment Understanding. This Agreement and the Employment Agreement
between Morrison and PMSC constitute 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 Morrison.
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. Notwithstanding any other provision of this herein, nothing in this
Agreement shall prohibit Morrison from returning to the practice of law at
any time or any place.
14. 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.
<PAGE> 5
15. 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: G. Larry Wilson
G. Larry Wilson
TITLE: President
"MORRISON"
Stephen G. Morrison
Stephen G. Morrison
Effective Date: January 10, 1994
Date Signed: February 3, 1994
<PAGE> 6
INSTRUCTIONS FOR EXERCISE OF PMSC STOCK OPTIONS
Contact Person: Lynn W. Dillard, Ext. 4303
2B1
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.
