PAGE <1>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1992 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
One PMS Center (P.O. Box Ten)
Blythewood, S.C. (Columbia, S.C.) 29016 (29202)
(Address of principal executive offices) (Zip Code)
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 X No_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
23,355,187 Common shares, $.01 par value, as of October 31, 1992
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, 1991.
PAGE <2>
<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1992 and December 31, 1991............ 3
Consolidated Statements of Income for the nine and
three months ended September 30, 1992 and 1991...... 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1992 and 1991....... 5
Notes to Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................. 13
Signatures................................................... 14
INTRODUCTORY NOTE
THE INFORMATION CONTAINED HEREIN HAS BEEN RESTATED IN NOVEMBER
1994 TO REFLECT ADJUSTMENTS RESULTING FROM SPECIAL AUDITS OF THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS (SEE NOTE 2 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS). UNLESS OTHERWISE STATED,
HOWEVER, INFORMATION CONTAINED HEREIN IS AS OF SEPTEMBER 30, 1992.
PAGE <3>
PART I
FINANCIAL INFORMATION
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31,
1992 1991
(As Restated) (As Restated)
(In Thousands, Except
Share Data)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................................... $ 36,909 $ 39,609
Marketable securities........................................ 193,324 157,805
Receivables, net of provisions for uncollectible amounts of
$1,320 ($1,198 at 1991).................................... 83,785 87,398
Income tax receivable........................................ 6,565 1,117
Deferred income taxes........................................ 6,503 6,981
Other........................................................ 7,658 6,840
Total current assets...................................... 334,744 299,750
Property and equipment, at cost less accumulated depreciation
and amortization of $83,336 ($276,352 at 1991)............... 125,589 117,908
Receivables.................................................... 19,287 11,568
Note receivable................................................ 9,500 9,500
Intangibles, less accumulated amortization of
$27,299 ($20,979 at 1991).................................... 101,638 105,874
Capitalized software costs, less accumulated
amortization of $85,211 ($69,866 at 1991).................... 84,226 77,669
Deferred income taxes.......................................... 1,555 -
Other.......................................................... 8,298 10,423
Total assets........................................... $684,837 $632,692
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses........................ $ 41,518 $ 51,523
Accrued contract termination costs........................... 1,811 1,095
Current portion of capital lease obligations................. 70 -
Current portion of long-term debt............................ 5,599 3,689
Unearned revenues............................................ 8,787 9,204
Other........................................................ 976 1,994
Total current liabilities................................. 58,761 67,505
Capital lease obligations...................................... 28 -
Long-term debt................................................. 5,793 5,976
Deferred income taxes.......................................... 56,489 50,897
Other.......................................................... 7,828 8,435
Total liabilities...................................... 128,899 132,813
STOCKHOLDERS' EQUITY
Special stock, $.01 par value, 5,000,000 shares authorized..... - -
Common stock, $.01 par value, 75,000,000 shares authorized,
23,338,504 shares issued and outstanding (23,054,713 at 1991).. 233 231
Additional paid-in capital..................................... 300,503 289,314
Retained earnings.............................................. 256,712 211,244
Unrealized loss on marketable equity securities................ (1,510) (910)
Total stockholders' equity................................ 555,938 499,879
Total liabilities and stockholders' equity............. $684,837 $632,692
<FN>
See accompanying notes.
</TABLE>
PAGE <4>
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1992 1991 1992 1991
(Restated) (Restated) (Restated) (Restated)
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
REVENUES
Licensing................................. $ 52,009 $ 53,117 $ 16,317 $ 17,667
Services.................................. 310,764 245,572 107,769 84,760
362,773 $298,689 $124,086 $102,427
COSTS AND EXPENSES
Employee compensation and benefits........ 126,486 117,162 42,883 39,018
Computer and communications expenses...... 29,662 21,788 9,917 6,864
Information services and data
acquisition costs........................ 70,204 58,714 24,746 20,548
Other operating costs and expenses........ 77,637 55,380 25,691 19,961
303,989 253,044 103,237 86,391
OPERATING INCOME............................ 58,784 45,645 20,849 16,036
INVESTMENT INCOME, NET OF INTEREST EXPENSE.. 8,845 6,082 3,212 2,879
INCOME BEFORE INCOME TAXES.................. 67,629 51,727 24,061 18,915
INCOME TAXES................................ 22,161 17,852 7,918 6,571
NET INCOME.................................. $ 45,468 $ 33,875 $ 16,143 $ 12,344
NET INCOME PER SHARE........................ $ 1.96 $ 1.61 $ .69 $ .54
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.. 23,174 21,103 23,245 22,804
FULLY DILUTED NET INCOME PER SHARE.......... - $ 1.54 - -
See accompanying notes.
PAGE <5>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
1992 1991
(Restated) (Restated)
Operating Activities (In Thousands)
Net income.................................. $ 45,468 $ 33,875
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............ 40,110 32,068
Deferred income taxes.................... 4,515 9,556
Changes in assets and liabilities:
Receivables.............................. (3,760) (7,989)
Income tax receivable.................... (5,448) (1,215)
Accounts payable and accrued expenses.... 5,503 3,212
Income taxes payable..................... 2,143 -
Other, net.................................. (1,440) (8,455)
Cash provided by operations............ 87,091 61,052
Investing Activities
Increase in marketable securities........... (35,519) (38,490)
Acquisition of property and equipment ...... (40,199) (11,345)
Capitalized internal software
development costs......................... (18,400) (21,769)
Purchased software.......................... (2,242) (383)
Proceeds from disposal of property and
equipment................................ 212 1,650
Business acquisitions....................... (2,194) (9,215)
Cash used for investing activities..... (98,342) (79,552)
Financing Activities
Payments on capital lease obligations....... (433) (1,451)
Payments on long-term debt.................. (64) (3,162)
Issuance of common stock under stock
option plans.............................. 9,048 14,835
Cash provided by financing activities.. 8,551 10,222
Net decrease in cash and equivalents.......... (2,700) (8,278)
Cash and equivalents at beginning of period... 39,609 27,911
Cash and equivalents at end of period......... $ 36,909 $ 19,633
Noncash Activities
Long-term debt arising from and assumed in
connection with business acquisitions..... $ 2,187 $ 9,918
Reduction in long-term debt resulting from
conversion of convertible debentures
into common stock......................... - (99,983)
Supplemental Information
Interest paid............................... 313 5,214
Income taxes paid........................... 21,091 9,530
See accompanying notes.
PAGE <6>
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1992
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are prepared on the
basis of generally accepted accounting principles and include the
accounts of the Company and its subsidiaries, all of which are
wholly-owned. All material intercompany balances and transactions
have been eliminated. Certain amounts previously presented in the
consolidated financial statements for prior periods have been
reclassified to conform to current classifications.
The consolidated balance sheet as of December 31, 1991, and
the consolidated statements of operations and cash flows for the
three and nine months ended September 30, 1992 and 1991 have been
restated by the Company, without audit, to conform to the
adjustments to the Company's retained earnings as of December 31,
1992 and 1991, as discussed in Note 2 of Notes to Consolidated
Financial Statements. These adjustments include all adjustments
which are, in the opinion of management, necessary to state fairly
the results for the periods presented.
NOTE 2. RESTATEMENT OF 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, 1992).
In February 1994, the Company engaged independent accountants
to audit the Company's consolidated financial statements as of and
for the twelve months ended December 31, 1993 and 1992.
As a result of the audit of the Company's consolidated
financial statements as of and for the twelve months ended December
31, 1992, the Company determined the specific prior period or
periods affected by the adjustments. The components (net of related
tax effects) of the adjustment to previously reported net income
for the three and nine months ended September 30, 1992, are as
follows:
PAGE <7>
Increase (Decrease)to Net Income
Three Months Nine Months
Ended September 30, 1992
Elimination of revenue related to a (In Thousands)
contingent contract that was cancelled........... $ (606) $ (606)
Deferral of revenues due to changes in
timing of revenue recognition.................... 940 155
Reduction of expenses due to capitalization
of certain software costs........................ 759 1,304
Recognition of expenses due to changes in
timing of expense accrual........................ (445) 386
Reserve for losses on certain services contracts... (215) (605)
Reduction of current income tax liability due
to previously unrecorded tax credits............. 542 1,556
Net income adjustment.............................. $ 975 $ 2,190
After giving effect to these adjustments, the principle
elements of the Company's consolidated statements of income for the
three and nine months ended September 30, 1992 were restated as
follows:
Three Months Ended Nine Months Ended
September 30, 1992 September 30, 1992
(As Previously (As Previously
Reported) (Restated) Reported) (Restated)
(In Thousands)
Revenues.....................$126,371 $124,086 $365,568 $362,773
Operating income............. 20,147 20,849 57,797 58,784
Other income and
expenses, net.............. 3,215 3,212 8,808 8,845
Income before income taxes... 23,362 24,061 66,605 67,629
Net income................... 15,168 16,143 43,278 45,468
Net income per share......... .65 .69 1.87 1.96
The components (net of related tax effects) of the adjustment
to previously reported net income for the three and nine months
ended September 30, 1991, are as follows:
Increase (Decrease) to Net Income
Three Months Nine Months
Ended September 30, Ended September 30,
1991 1991
(In Thousands)
Deferral of revenues due to changes in
timing of revenue recognition........... $(1,657) $(2,715)
Reduction of expenses due to
capitalization of certain
software costs.......................... 1,010 4,015
Recognition of expenses due to changes
in timing of expense accrual............ 845 12
Reserve for losses on certain services
contracts............................... (304) (1,781)
Net income adjustment..................... $ (106) $ (469)
PAGE <8>
After giving effect to these adjustments, the principle
elements of the Company's consolidated statements of income for the
three and nine months ended September 30, 1991 were restated as
follows:
Three Months Ended Nine Months Ended
September 30, 1991, September 30, 1991,
(As Previously (As Previously
Reported) (Restated) Reported) (Restated)
(In Thousands)
Revenues.....................$105,425 $102,427 $303,419 $298,689
Operating income............. 16,242 16,036 46,513 45,645
Other income and
expenses, net.............. 2,845 2,879 5,971 6,082
Income before income taxes... 19,087 18,915 52,484 51,727
Net income................... 12,450 12,344 34,344 33,875
Net income per share......... .55 .54 1.63 1.61
Fully diluted net income
per share.................. - - 1.56 1.54
Deferral of revenues due to changes in timing of revenue
recognition includes situations where (i) there were errors in
accounting for contracts under the percentage of completion method;
(ii) there were delays in receiving signed contracts; (iii)
customers prepaid or were billed for services performed in
subsequent periods or where refunds or provisions for credit were
contractually required and (iv) the Company had future delivery
obligations under certain contracts.
NOTE 3. NET INCOME PER SHARE
Net income per share is based upon the weighted average number
of common shares outstanding. Outstanding stock options are common
stock equivalents, but are excluded from the computation of net
income per share since their dilutive effect is not material. The
computation of fully diluted net income per share, which is based
upon the weighted average number of common shares plus common stock
equivalents outstanding and the assumed conversion of all
outstanding convertible debt until actually converted in May 1991,
Is as follows:
PAGE <9>
(Restated)
Nine Months
Ended September 30,
1991
(In Thousands, Except
Per Share Data)
Net Income:
Net income as reported................... $33,875
Interest and amortization on
convertible debt (net of
income taxes)......................... 1,334
Adjusted net income.................. $35,209
Shares:
Weighted average number of
common shares outstanding.............. 21,103
Common stock equivalents
(stock options)...................... 323
Convertible debt......................... 1,446
Fully diluted shares................. 22,872
Fully diluted net income
per share................................ $ 1.54
Had conversion of the convertible debt occurred on January 1,
1991, net income per share would have approximated fully diluted
net income per share for the nine months ended September 30, 1991.
NOTE 4. MARKETABLE SECURITIES
Marketable equity securities held for long-term investment are
included in other noncurrent assets at market value of $500,000 at
September 30, 1992 ($1,100,000 at December 31, 1991). A valuation
reserve has been established for the amount by which the cost of
these securities, $2,010,000 at both September 30, 1992 and
December 31, 1991, exceeds market value and is included in
stockholders' equity.
NOTE 5. OTHER MATTERS
The Internal Revenue Service recently completed its normal
examination of the Company's consolidated federal income tax
returns for the years 1985 through 1988 and has proposed certain
adjustments 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.
Additionally, the Company believes that adequate amounts of federal
income tax have been provided in its consolidated financial
statements for these years.
PAGE <10>
POLICY MANAGEMENT SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated balance sheet as of December 31, 1991, and
the consolidated statements of operations and cash flows for the
three and nine months ended September 30, 1992 and 1991 have been
restated by the Company, without audit, to conform to the
adjustments to the Company's retained earnings as of December 31,
1992 and 1991, as discussed in Note 2 of Notes to Consolidated
Financial Statements. These adjustments include all adjustments
which are, in the opinion of management, necessary to state fairly
the results for the periods presented.
Financial Condition
Cash and equivalents and current marketable securities
increased $32.8 million between December 31, 1991 and September
30, 1992. Significant nonrecurring expenditures during the nine
months ended September 30, 1992 include the following: business
acquisitions, including debt and contingent payments relating to
business acquisitions, ($2.3 million); acquisition of data
processing and communications equipment, computer software and
office furniture, fixtures and equipment used in the Company's
operations ($28.7 million); and payments for construction of
additional office facilities at the Company's corporate
headquarters in Columbia, South Carolina, ($8.0 million).
Significant nonrecurring expenditures anticipated for the
remainder of 1992 are as follows: debt payments relating to past
business acquisitions ($3.6 million); acquisition of data
processing and communications equipment, computer software and
office furniture, fixtures and equipment ($3.0 million); and
completion of construction of additional office facilities at the
Company's corporate headquarters ($1.0 million). The Company
believes that current cash and investment reserves and cash to be
provided by operations will be sufficient to satisfy its existing
and presently anticipated operating and capital resource needs.
Receivables increased as a result of new system licenses, an
increase in services performed for customers and financing of
charges to customers under certain long-term services arrangements.
Other noncurrent assets increased primarily as a result of the
acquisition of computer software for internal use.
Results of Operations
Set forth below are certain operating items expressed as
a percentage of revenues and the percent increase for those items
between the periods presented:
PAGE <11>
Percentage of Revenues
Nine Months Three Months
Ended September 30, Ended September 30,
1992 1991 1992 1991
Operating income....... 16.2 15.3 16.8 15.7
Income before income
taxes................ 18.6 17.3 19.4 18.5
Income taxes........... 6.1 6.0 6.4 6.4
Net income............. 12.5 11.3 13.0 12.1
Percent Increase
Nine Months Three Months
Ended September 30, Ended September 30,
1992 vs. 1991 1992 vs. 1991
Revenues................ 21.5 21.1
Operating income........ 28.8 30.0
Income before income
taxes................. 31.0 27.2
Income taxes............ 24.1 20.5
Net income.............. 34.2 30.8
Revenues
Total licensing revenues were $16.3 and $52.0 million for the
three and nine months ended September 30, 1992, respectively,
representing 13.1% and 14.3% of total revenues. Total licensing
revenues for the three and nine months ended September 30, 1992
decreased $1.4 and $1.1 million, respectively, compared to the
corresponding periods in 1991, due primarily to decreases in
initial license revenues of $2.3 and $3.2 million, respectively.
Revenues from continuing monthly license charges for maintenance,
system enhancements and services availability ("MESA") and for
continuing right-to-use licenses increased $1.3 and $2.1 million,
respectively, for the three and nine months comparison.
Total services revenues were $107.8 and $310.8 million for the
three and nine months ended September 30, 1992, respectively,
representing 86.9% and 85.7% of total revenues, compared to $84.8
and $245.6 million for the three and nine months ended September
30, 1991, respectively, representing 82.8% and 82.2% of total
revenues. Changes in the total services revenue were affected by
activities in professional outsourcing and information services, as
described below.
Total revenues from professional and outsourcing services were
$68.1 and $193.4 million for the three and nine months ended
September 30, 1992 as compared with $60.3 and $161.8 million,
respectively, for the corresponding periods in 1991. These
increases are primarily attributable to policy management and
processing services to the New Jersey Market Transition Facility
(MTF) project, facilities management and outsourcing contracts in
Europe and Australia and several new outsourcing contracts in the
United States.
PAGE <12>
Revenues from information services were $39.5 and $116.9
million for the three and nine months ended September 30, 1992 as
compared with $27.4 and $82.1 million for the corresponding periods
in 1991. These increases are primarily attributable to an increase
in new business associated with automobile property and casualty
information services and life information services.
Costs and Expenses
Employee compensation and benefits expense increased $3.9
million and $9.3 million for the three and nine months ended
September 30, 1992 compared to the corresponding periods in 1991,
primarily as a result of increased costs associated with European
and Australian facilities management and outsourcing contracts.
Computer and communications expenses increased $3.1 million
and $7.9 million for the three and nine months ended September 30,
1992 compared to the corresponding periods in 1991. These
increases were primarily related to increased costs associated with
policy management and processing services, principally the MTF
project and to European and Australian facilities management and
outsourcing contracts.
Information services and data acquisition costs increased $4.2
and $11.5 million for the three and nine months ended September 30,
1992 compared to the corresponding periods in 1991. These
increases are due primarily to an increase in the volume of state
fees for motor vehicle reports, related to new business, which is
part of the Company's property and casualty information services
business.
Other operating costs and expenses for the three and nine
months ended September 30, 1992 increased $5.7 and $22.3 million
compared to the corresponding periods in 1991. These increases
result primarily from increased costs associated with providing
total policy management outsourcing services, principally the New
Jersey MTF, and costs associated with European and Australian
facilities management and outsourcing contracts.
The increase in investment income, net of interest expense,
for the three and nine months ended September 30, 1992 over the
corresponding 1991 periods was primarily attributable to interest
expense of $2.2 million in 1991, relating to $100 million of
convertible debt of the Company which was converted in May 1991,
and a higher level of investable funds throughout 1992.
The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 32.8% and 34.5% for the nine
months ended September 30, 1992 and 1991, respectively. The
decrease in the effective rate between the periods was due
primarily to an increase in nontaxable investment income.
PAGE <13>
PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
Items 1, 2, 3, 4 and 5 are not applicable.
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 September 30, 1992.
PAGE <14>
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: November 17, 1994 By: Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
</TABLE>
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
Number
10. MATERIAL CONTRACTS
A. Stock Option/Non-Compete Form Agreement for named
executive officers together with schedule identifying
particulars for each named executive officer (Filed
herewith).
PAGE <1>
FORM OF
EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
THIS EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement")
is made effective as of July 21, 1992 by and between &NAME&
("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 therefor 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 July 21, 1992, PMSC grants EMPLOYEE
"non-qualified"
Options to purchase up to &SHARES& 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. This grant is
subject to ratification of an amendment to the Plan by the
shareholders at their next meeting, currently scheduled for the
spring of 1993, increasing the number of shares reserved for
issuance under the Plan.
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., sixty-nine and
three-eighths dollars ($69.38). These Options must be exercised
within ten (10) years of the effective date of this Agreement or
they expire.
PAGE <2>
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 July 21, 1993; 66
2/3% will be available for exercise beginning July 21, 1994; and
100% will be available for exercise beginning July 21, 1995. 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.
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 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 EMPLOYEE.
+ 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 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 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.Noncompetition. In consideration of the Options hereby granted,
EMPLOYEE covenants and agrees that EMPLOYEE shall devote his or her
best efforts to furthering the best interests of PMSC and that for
the one (1) year period from the effective date hereof, and if
EMPLOYEE separates
PAGE <3>
from employment with PMSC for any reason within said one (1) year
period, then for a one (1) year period from the date of such
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) 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) 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).
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.
PAGE <4>
10.Breach of Agreement. EMPLOYEE agrees that in the event EMPLOYEE
breaches any provision of this Agreement, PMSC shall be entitled, in
addition to any other remedies it may have under this Agreement, to
offset, to the extent of any liability, loss, damage or injury from
such breach, any payments due to EMPLOYEE pursuant to his or her
employment with PMSC.
11.Employment Understanding. This Agreement constitutes the entire
agreement between the parties with regard to the subject matter
hereof, and there are no agreements, understandings, restrictions,
warranties or representations between the parties relating to said
subject matter other than those set forth or provided for herein or
in any Agreement Not To Divulge or employment agreement between PMSC
and EMPLOYEE. It is understood that PMSC's and EMPLOYEE's
relationship is one of "at will" employment unless EMPLOYEE and PMSC
have entered into a written employment agreement which provides
otherwise. This Agreement shall not affect, or be affected by, any
employment agreement, if any, between PMSC and EMPLOYEE.
12.General. In the event that any provision of this Agreement or
any word, phrase, clause, sentence or other portion thereof
(including, without limitation, the geographical and temporal
restrictions contained herein) should be held to be unenforceable or
invalid for any reason, such provision or portion thereof shall be
modified or deleted in such a manner so as to make this Agreement
enforceable to the fullest extent permitted under applicable laws.
All references to PMSC shall include its subsidiaries as applicable.
This Agreement shall inure to the benefit of and be enforceable by
PMSC and its successors and assigns. No provision of this Agreement
may be changed, modified, waived or terminated, except by an
instrument in writing signed by the party against whom the
enforcement of such is sought. No waiver of any provision or
provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision, whether or not similar, nor shall any
waiver constitute a continuing waiver. Headings in this Agreement
are inserted solely as a matter of convenience and reference and are
not a part of this Agreement in any substantive sense. 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.
PAGE <5>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
"PMSC"
BY: _________________________________
Robert L. Gresham
Executive Vice President
TITLE: _____________________________
EMPLOYEE
_____________________________________
(Signature)
_____________________________________
(Type or Print Name)
_____________________________________
(Date Signed by Employee)
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.
PAGE <7>
SCHEDULE OF PARTICULARS
FOR NAMED EXECUTIVE OFFICERS
RE: EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
DATE: JULY 21, 1992
Named Executive Date of Number Option
Officer Grant Granted Price
G. Larry Wilson 7-21-92 50,000 $69.38
David T. Bailey 7-21-92 25,000 69.38
Charles E. Callahan 7-21-92 25,000 69.38
Donald A. Coggiola 7-21-92 25,000 69.38
Robert L. Gresham 7-21-92 25,000 69.38
