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POLICY MANAGEMENT SYSTEMS CORPORATION
POST OFFICE BOX TEN
COLUMBIA, SOUTH CAROLINA 29202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
TO THE STOCKHOLDERS OF
POLICY MANAGEMENT SYSTEMS CORPORATION:
NOTICE IS HEREBY GIVEN to the stockholders that the Annual Meeting of
Stockholders (the "Meeting") of Policy Management Systems Corporation (the
"Company") will be held at the offices of the Company at One PMSC Center,
Blythewood, South Carolina, 29016, at 11:00 a.m., on May 13, 1997, for the
following purposes:
(1) To elect three Directors of the Company to hold office for a term of
three years and until their successors shall be duly elected and
qualified or until their earlier resignation, removal from office, or
death;
(2) To consider and act upon the ratification of the selection of Coopers &
Lybrand L.L.P., as independent auditors for 1997; and
(3) To take such other action and transact such other business which may
properly and lawfully come before the Meeting or any adjournment
thereof;
all as set forth in the Proxy Statement accompanying this Notice.
The transfer books of the Company were closed as of the end of business
on March 5, 1997, the record date, for purposes of determining stockholders
entitled to notice of and to vote at the Meeting, but were not closed for any
other purpose.
STOCKHOLDERS ARE URGED TO COMPLETE AND EXECUTE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED WHEN MAILED
IN THE UNITED STATES. YOUR ATTENDANCE AT THE MEETING IS URGED. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND EXECUTE THE ENCLOSED
PROXY. IF YOU ATTEND THE MEETING AND DECIDE THAT YOU WANT TO VOTE IN PERSON,
YOU MAY REVOKE YOUR PROXY. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
IN FAVOR OF THE NOMINEES FOR DIRECTORS AND RATIFICATION OF THE SELECTION OF
COOPERS & LYBRAND, L.L.P. AS INDEPENDENT AUDITORS FOR 1997.
By Order of the Board of Directors
Stephen G. Morrison
Secretary
April 10, 1997
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POLICY MANAGEMENT SYSTEMS CORPORATION
POST OFFICE BOX TEN
COLUMBIA, SOUTH CAROLINA 29202
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1997
GENERAL: This Proxy Statement is furnished to the holders of the $.01
par value common stock ("Stockholders" and "Common Stock", respectively) of
Policy Management Systems Corporation (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company to be voted
at its Annual Meeting of Stockholders (the "Meeting") to be held at the
offices of the Company, One PMSC Center, Blythewood, South Carolina, 29016, on
Tuesday, May 13, 1997 at 11:00 a.m. It is anticipated that this Proxy
Statement will be mailed to Stockholders on or about April 15, 1997.
A proxy card is enclosed. Any Stockholder sending the enclosed proxy to
the Company has the power to revoke it at any time before it is exercised by:
(1) executing and delivering a valid proxy bearing a later date; (2)
delivering written notice of revocation to Stephen G. Morrison, Secretary,
Policy Management Systems Corporation, Post Office Box Ten, Columbia, South
Carolina 29202; or (3) appearing at the Meeting and voting in person. When
proxies in the accompanying form are returned properly executed, the shares
represented by proxies which have not been revoked will be voted according to
the instructions noted thereon.
Unless otherwise specified, the proxies will be voted in favor of the
three nominees for election to the Board of Directors for a term of three
years and in favor of the ratification of the selection of Coopers & Lybrand
L.L.P. ("Coopers & Lybrand") as independent auditors. The Board of Directors
is not aware at this date of any other matters that will come before the
Meeting. If, however, any other matters should properly come before the
Meeting, it is the intention of the persons named in the proxy to vote thereon
in accordance with their judgment.
EXPENSES OF SOLICITATION: The cost of soliciting proxies will be borne
by the Company. Officers, Directors and employees of the Company may solicit
proxies by telephone, telegram or personal interview. The Company has entered
into an agreement with D.F. King & Company, Inc. to assist with solicitation
of proxies for the Meeting for a fee estimated at $6,000 plus expenses.
VOTING: Only holders of record of outstanding shares of Common Stock as of
the close of business on March 5, 1997, (the "Record Date") will be entitled
to notice of and to vote at the Meeting. Each share is entitled to one vote.
On the Record Date, there were 18,179,401 shares of Common Stock outstanding.
A majority of the outstanding shares of Common Stock present in person or
represented by proxy will constitute a quorum of the Meeting. Abstentions and
broker non-votes are counted as being present for purposes of attaining a
quorum. The Company's Articles of Incorporation (the "Articles") provide that
the vote of the holders of a majority of the shares having voting power,
present in person or represented by proxy, shall decide questions before the
Meeting, unless the question is one which by express provision of applicable
law, the Articles or the Bylaws of the Company, a higher vote is required in
which case the express provision shall govern. Therefore, abstaining shares
are included in the determination of the total number of shares having voting
power and have
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the same effect as no votes on proposals. Broker non-votes are not
considered as shares having voting power and are therefore not counted as
votes cast on such proposals nor are they counted as votes for or against such
proposals. Broker non-votes occur when a nominee holding shares for a
beneficial owner votes on at least one proposal but does not have author-
ity to vote on certain other proposals. Because the matters to be voted on at
the Meeting are "routine" items as defined by applicable rules, it is expected
that there will not be any broker non-votes at the Meeting.
In the election of Directors, each Stockholder has the right to cumulate
its votes and cast as many votes as the number of shares held multiplied by
the number of Directors to be elected for the specified term, the same to be
cast for any one nominee or distributed among the nominees for election for
the specified term. To exercise the right of cumulative voting a Stockholder
must declare the intent to do so prior to the beginning of voting and, once
having done so, all Stockholders shall automatically have the right to
cumulate their votes without any further notice. In the event of cumulative
voting, the persons appointed proxies shall have authority to cast the votes
represented thereby for one nominee of the Board of Directors or distribute
such votes among the nominees of the Board of Directors to maximize the number
of Board of Directors' nominees elected.
With respect to matters to be acted upon at the Meeting, the three
nominees for Director receiving the largest number of votes shall be elected
to a three-year term. As to the ratification of the selection of independent
auditors, such ratification shall be decided by the vote of the holders of a
majority of the shares having voting power, present in person or represented
by proxy.
PRINCIPAL STOCKHOLDERS: The following table sets forth certain
information based on Schedules 13D and 13G filed with the Securities and
Exchange Commission, as of the Record Date, regarding beneficial owners of
more than five percent of the Company's Common Stock.
PRINCIPAL STOCKHOLDERS
Name Common Stock Percentage
and Address Beneficially Owned of Class (1)
FMR Corp. 2,713,800 (2) 14.9%
("Fidelity")
82 Devonshire Street
Boston, Massachusetts 02109
Wellington Management Company 2,395,833 (3) 13.2%
("Wellington")
75 State Street
Boston, Massachusetts 02109
The Capital Group Companies, Inc. 2,200,200 (4) 12.1%
("Capital")
333 South Hope Street
Los Angeles, California 90071
Government of Singapore Investment 1,541,710 (5) 8.5%
Corporation Pte Ltd. ("Singapore")
250 North Bridge Road
#33-00 Raffles City Tower
Singapore 0617
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Name Common Stock Percentage
and Address Beneficially Owned of Class (1)
The Regents of the University 1,353,200 (6) 7.4%
of California ("Regents")
300 Lakeside Drive
Office of the Treasurer
Oakland, California 94612
(1) Determined using the number of shares of Common Stock outstanding on the
Record Date.
(2) Of the shares reported, Fidelity has sole voting power for 48,500 of the
shares, shared voting power for none of the shares and sole dispositive
power for all of the shares.
(3) Of the shares reported, Wellington has sole voting power for none of the
shares, shared voting power for 1,073,210 of the shares and shared
dispositive power for all of the shares.
(4) Of the shares reported, Capital has sole voting power for 1,419,900 of
the shares, shared voting power for none of the shares and sole
dispositive power for all of the shares.
(5) Of the shares reported, Singapore has shared voting and dispositive
power for all of the shares.
(6) Of the shares reported, Regents has sole voting and dispositive power
for all of the shares.
ELECTION OF DIRECTORS
(PROXY ITEM NO. 1): Stockholders will vote on the election of three
Directors each to serve a term of three years and until their successors have
been elected and qualified or until their earlier resignation, removal from
office, or death. Of the three nominees, only Mr. Trub is currently a member
of the Board of Directors. Messrs. Berkeley and Feddersen are nominated to
replace Roy L. Faulks and Frederick B. Karl who are retiring from the Board of
Directors as of the date of the Meeting. The Company wishes to thank Messrs.
Faulks and Karl for their dedication and support during their fifteen years of
service as members of the Company's Board of Directors.
The shares represented by the proxies solicited hereby will be voted in
favor of the election of the persons named below unless authorization to do so
is withheld by proxy. In the event any of the nominees should be unable to
serve as Director, it is the intention of the persons named in the proxies to
cast the votes represented by the proxies for the election of such other
person or persons as the Board of Directors may nominate.
Nominees for election to the Board of Directors are considered and
recommended by the Nominating Committee of the Board of Directors (see
"Committees of the Board of Directors"). The Board of Directors considers the
recommendations of the Committee and recommends the nominees to the
Stockholders. The Company has no formal procedure whereby nominations are
solicited from Stockholders.
The following information is set forth with respect to the three
nominees for Director to be elected at the Meeting:
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Principal Occupation for Past Five Years and
Name and Age Certain Other Directorships
Alfred R. Berkeley, III (52) President of The Nasdaq Stock Market, Inc.,
Washington, D.C., since May 1996; prior
thereto, Managing Director and Senior Banker
of Alex. Brown & Sons Incorporated,
Baltimore, Maryland; Director of
Princeton Capital Management, Inc.,
Princeton, New Jersey.
Donald W. Feddersen (62) Served as Director of the Company from January
1983 to October 1994; General Partner of
Charles Rivers Ventures, Waltham,
Massachusetts since 1984; Director of a
number of privately-owned high technology
companies.
Richard G. Trub (66) Director of the Company since 1981; Chairman
and Treasurer of Trubco, Inc., West Simsbury,
Connecticut, since June, 1992; prior thereto,
Senior Vice President of Connecticut National
Bank, Hartford, Connecticut.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
NOMINEES NAMED ABOVE.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 1998:
Joseph D. Sargent (67) Director of the Company since 1986; Chairman,
Treasurer and Chief Financial Officer of
Connecticut Surety Corporation; Chairman of
the Board of S-K-I Limited, Killington,
Vermont; Director of Trenwick Group, Inc.,
Stamford, Connecticut; Director of Mutual Risk
Management Ltd., Hamilton, Bermuda; Director
of EW Blanch Holdings, Inc., Minneapolis,
Minnesota; Director of Executive Risk Inc.,
Simsbury, Connecticut; Director of MMI
Companies, Inc., Deerfield, Illinois.
G. Larry Wilson (50) Director of the Company since 1981; Chairman of
the Board, President and Chief Executive
Officer of the Company.Employed by the Company
since its inception.
directors whose terms will expire in 1999:
Dr. John M. Palms (61) Director of the Company since 1992; President
of the University of South Carolina; Director
of Peco Energy, Inc., Philadelphia,
Pennsylvania; Director of Fortis Holding, Inc.,
New York, New York; Vice Chairman, Institute of
Defense Analysis, Alexandria, Virginia.
John P. Seibels (55) Director of the Company since 1981; Investor,
Columbia, South Carolina; Director of The
Seibels Bruce Group, Inc. and certain
subsidiaries.
COMMITTEES OF THE BOARD OF DIRECTORS: Among the standing committees of
the Board of Directors are the Audit, Compensation and Nominating Committees.
The AUDIT COMMITTEE is composed of Messrs. Trub (Chairman), Karl,
Sargent and Seibels. The Committee's functions include recommending
independent auditors to be employed by
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the Company. The Committee also reviews with the independent and internal
auditors their planned activities, audits and findings and reports to the
Board of Directors. The Audit Committee met eight times during 1996.
The COMPENSATION COMMITTEE during 1996 was composed of Messrs. Sargent
(Chairman), Karl, and Palms and until their resignations from the board in
April 1996, Steven A. Denning and Joe M. Henson. The Committee's functions
include reviewing and recommending remuneration arrangements for senior officers
and members of the Board of Directors, adopting compensation plans in which
employees, officers and Directors are eligible to participate and approving
compensation guidelines for employees of the Company. The Compensation
Committee met five times during 1996 and took action on one occasion by
unanimous written consent.
The NOMINATING COMMITTEE during 1996 was composed of Messrs. Seibels
(Chairman), Henson, Palms and Wilson. (Mr. Henson resigned from the Board in
April 1996.) The Committee's functions include selecting and recommending
nominees for election as new, additional and replacement Directors and
officers and reviewing the performance of incumbent Directors and officers as
to whether to nominate them for re-election. The Nominating Committee will
consider candidates for the Board recommended by Stockholders if such
recommendations are delivered to the Company no later than: (a) with respect
to an election to be held at an annual meeting of Stockholders, ninety days in
advance of such meeting; and (b) with respect to an election to be held at a
special meeting of Stockholders for the election of Directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given. Each such recommendation shall set forth: (a) the name and
address of the Stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the Stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the recommendation; (c) a description of all
arrangements or understandings between the Stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the Stockholder; (d) such
other information regarding each nominee proposed by such Stockholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the Board of Directors; and (e) the
consent of each nominee to serve as a Director of the Company, if so elected.
The Nominating Committee met twice during 1996.
During 1996, the Board of Directors met eleven times and all of the
Directors attended at least 75% of the aggregate of all meetings of the Board
and all Committees of which they were members.
STOCK OWNERSHIP OF DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS:
The following table sets forth as of February 14, 1997 beneficial ownership of
Common Stock by each Director, each Director Nominee, each of the executive
officers named in the Summary Compensation Table below, and by all Directors
and all executive officers as a group.
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Amount and Nature
Name Of Beneficial Shares Subject Percentage
Of Beneficial Owner Ownership (1) To Option (2) Of Class (3)
Alfred R. Berkeley, III -0- -0- *
Roy L. Faulks 16,500 16,000 *
Donald W. Feddersen -0- -0- *
Frederick B. Karl 15,501 15,001 *
Dr. John M. Palms 12,500 12,500 *
Joseph D. Sargent 15,001 15,001 *
John P. Seibels 23,834 20,834 *
Richard G. Trub 15,201 15,001 *
G. Larry Wilson 408,880 (4) 330,000 2.2%
David T. Bailey 140,131 (5) 139,000 *
Donald A. Coggiola 187,487 (6) 182,000 1.0%
Stephen G. Morrison 54,415 52,858 *
Timothy V. Williams 52,280 52,280 *
Directors and all executive
officers as a group
(12 in number) 1,001,616 (7) 990,287 5.2%
(1) Except where noted below, each individual has sole voting and sole
dispositive power.
(2) These shares, which are included in the "Amount and Nature of Beneficial
Ownership" column, are subject to option on or before May 13, 1997,
pursuant to the Company's various stock option plans.
(3) Beneficial ownership represents less than one percent of the total
number of shares of Common Stock outstanding on the Record Date where
indicated by asterisk.
(4) 338 of these shares are held in the Company's 401(k) Retirement Savings
Plan for which Mr. Wilson has sole dispositive power but no voting
power.
(5) 465 of these shares are held in the Company's 401(k) Retirement Savings
Plan for which Mr. Bailey has sole dispositive power but no voting
power.
(6) 138 of these shares are held in the Company's 401(k) Retirement Savings
Plan for which Mr. Coggiola has sole dispositive power but no voting
power.
(7) An aggregate of 1,498 of these shares are held in the Company's 401(k)
Retirement Savings Plan for which the respective executive officer has
sole dispositive power but no voting power for the shares allocated to
his account.
COMPENSATION PLANS AND ARRANGEMENTS
COMPENSATION OF DIRECTORS: Directors who are not full-time employees of
the Company receive an annual fee of $15,000, plus $2,000 for each Board
meeting attended and $1,000 for each committee meeting attended on other than
a regular Board meeting date. Effective January 8, 1997, Directors
participating in any meeting by telephone receive a $500 fee for such meeting
(previously they received $250). Directors attending to Company business in
person at a meeting, at the request of the Company or the Board, other than a
meeting of the Board or a Committee, shall receive $1,000 per day for such
attendance. Directors who do not reside in Columbia, South Carolina, are
reimbursed for travel expenses.
COMPENSATION OF EXECUTIVE OFFICERS: The following table sets forth
information regarding compensation earned, including stock options granted,
during 1994, 1995 and 1996 by
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the Chief Executive Officer and the four other most highly compensated
executive officers of the Company ("Executive Group").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Number of
Name Securities All
and Underlying Other
Principal Annual Compensation Options Compen-
Position Year Salary Bonus (1) Granted sation (2)
G. Larry Wilson 1996 $646,545 $ 30,000 75,000 $10,260
President and Chief 1995 592,310 192,000 75,000 8,505
Executive Officer 1994 500,776 138,000 275,000 4,500
David T. Bailey 1996 $333,470 $20,000 35,000 $6,750
Executive Vice 1995 312,455 -0- 35,000 6,750
President 1994 282,573 49,632 135,000 4,500
Donald A. Coggiola 1996 $334,073 $20,000 35,000 $6,750
Executive Vice 1995 307,768 49,600 85,000 6,750
President 1994 281,120 49,456 75,000 648
Stephen G. Morrison 1996 $407,686 $20,000 50,000 $10,260
Executive Vice 1995 520,700 -0- 25,000 8,505
President, 1994 345,146 -0- 96,667 -0-
General Counsel,
Secretary and
Chief Administrative
Officer (3)
Timothy V. Williams 1996 $317,148 $20,000 25,000 $6,750
Executive Vice 1995 293,458 94,400 25,000 6,750
President and Chief 1994 248,560 48,400 95,972 1,904
Financial Officer
(1) Reflects amount earned in year indicated even though actually paid in
following year.
(2) Amounts shown are matching contributions from the Company under its
401(k) Retirement Savings Plan and the Company's Employee Stock Purchase
Plan.
(3) Under the terms of Mr. Morrison's employment agreement with the Company,
Mr. Morrison was guaranteed an annual bonus of 40% of his base
salary in 1994 and 1995. Therefore, the annual bonuses earned in 1994
and 1995 are contained in the "Salary" column.
The following table sets forth certain information regarding options for
Common Stock granted to the Executive Group during 1996. The table includes
the potential realizable value which would exist based on assumed annual
compounded rates of Common Stock price appreciation of five and ten percent
over the full ten-year term of the options.
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OPTIONS GRANTED IN 1996
Individual Grants
Percent Potential Realizable Value
Number of Total at Assumed Annual Rates
of Securities Options Exercise of Stock Price
Appreciation
Underlying Granted to Price Expiration for Option Term
Options Employees Per Date Of
Granted (1) in 1996 Share Options 5% 10%
$1,553,743,566(2)
All Stockholders $613,111,507(2)
G. Larry Wilson 75,000 (3) 13.0% $52.75 May 28, 2006 2,488,066 6,305,242
David T. Bailey 35,000 (3) 6.1% 52.75 May 28, 2006 1,161,097 2,942,446
Donald A.
Coggiola 35,000 (3) 6.1% 52.75 May 28, 2006 1,161,097 2,942,446
Stephen G.
Morrison 30,000 (3) 8.7% 52.75 May 28, 2006 995,226 2,522,097
20,000 (4) 35.00 Oct 22, 2006 440,227 1,115,619
Timothy V.
Williams 25,000 (3) 4.3% 52.75 May 28, 2006 829,355 2,101,747
<FN>
(1) The options granted in 1996 to the named executive officers were
pursuant to the 1989 Stock Option Plan. The exercise price for all such
grants is the fair market value of the Common Stock on the date of
grant. The options become exercisable in one-fifth increments on each
of the first five anniversary dates of the grant date. All such options
would become immediately exercisable in the event of a change in control
of the Company and the optionee would have, notwithstanding other
provisions of the 1989 Stock Option Plan, the right to exercise such
options for a period of ninety days after termination of employment. In
the event of a dissolution or liquidation of the Company or any merger or
combination in which the Company is not the surviving entity, each option
granted shall terminate, but not before each optionee is permitted to
exercise his or her options to the extent they are exercisable, without
regard to any installment exercise provision in the 1989 Stock Option
Plan.
(2) The potential realizable value for all Stockholders is based on the
number of shares of Common Stock outstanding on May 28, 1996 (the date
the options described in note 3 below were granted) and assumes the
Stockholders purchased the Common Stock for $52.75 (which was the fair market
value of the Common Stock on May 28, 1996) and held the Common Stock until May
28, 2006. The Company has included this information to illustrate how the
Stockholders would have fared compared to each of the named executives if the
assumed appreciation is achieved.
(3) These options were granted on May 28, 1996.
(4) These options were granted on October 22, 1996.
The following table sets forth information for the Executive Group
regarding stock options exercised during 1996 and the value of "in-the-money"
options, which are options having a positive difference between the exercise
price of such stock option and the 1996 year-end market price of Common Stock.
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AGGREGATED OPTIONS EXERCISED IN 1996
AND YEAR-END OPTION VALUES
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquire at December 31, 1996 at December 31, 1996 *
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexer.
G. Larry
Wilson -0- -0- 273,333 451,667 $1,321,995 $741,505
David T.
Bailey 10,000 $227,500 107,833 212,167 283,345 397,155
Donald A.
Coggiola -0- -0- 156,166 198,834 895,889 273,061
Stephen G.
Morrison -0- -0- 27,620 144,047 357,490 818,838
Timothy V.
Williams -0- -0- 27,098 118,874 254,861 535,695
* Value represents the aggregate excess of the market price of the Common
Stock on December 31, 1996, which was $46.12, over the exercise price for the
options. All options included in the table have an exercise price equal to or
greater than the fair market value of the Common Stock on the dates of grant.
DEFERRED COMPENSATION AGREEMENT: Mr. Wilson is covered by a Deferred
Compensation Agreement providing annual remuneration of $25,000 upon
retirement, death or total disability. The Agreement, which provides for
monthly payments over a fifteen-year period, is contingent primarily upon his
continued employment until such an event occurs, and the deferred benefits are
not vested until that time. Until or unless such a qualifying event occurs,
Mr. Wilson is not entitled to any payments under the Agreement. The Company
owns life insurance contracts covering Mr. Wilson, of which it is the
beneficiary, in an aggregate amount equal to or in excess of the total
benefit.
EMPLOYMENT AGREEMENTS: The Company has an agreement with each of
Messrs. Wilson, Bailey and Coggiola which provide that if there is a change in
control of the Company, as that term is defined in the Agreement, the
individual shall be paid an annual salary, for a period of two years following
such change in control, equal to 100% of his average annual cash compensation,
based on the two years prior to such change in control. However, the total
amount to be paid shall not exceed the amount which would cause such payment
to be deemed a "parachute payment," as defined in Section 280G of the Internal
Revenue Code. The Agreements also provide that the payments to such executive
officers cease in the event of reasonable proof of any violation of the
non-competition or confidentiality provisions of the Agreement or in the event
employment is terminated for cause. Also, if during a potential change in
control or following a change in control an individual voluntarily terminates
employment for other than good reason, his annual salary is payable for only
one year following such termination of employment.
For stock options granted on or after October 13, 1994 for the executive
officers named in the Summary Compensation Table above, and after July 20,
1995 for Paul R. Butare, also an executive officer, the Stock
Option/Non-Compete Agreements for such executive officers also provide that if
there is a change in control of the Company such options would become
immediately exercisable and the optionee would have, notwithstanding other
provisions of the 1989 Stock Option Plan, the right to exercise such options for
a period of ninety days after termination of employment. In no event, however,
may an optionee exercise such options after the tenth anniversary date of the
date of grant of such options.
The Company has an Employment Agreement with each of Messrs. Butare,
Morrison, and Williams which set initial annual salaries at their then current
annual salary, subject to future
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increases in accordances with the Company's practices. In the event of a
change in control, the executive's base salary, then in effect, will increase
to 150% of the base salary in effect immediately prior to the change in
control.
The initial term of each Employment Agreement continues through December
31, 2001 and is subject to annual twelve month extensions, unless six months
notice of non-extension is given. In the event of a change in control, the
term of the Employment Agreement is extended automatically 12 months.
The Employment Agreements may be terminated by the Company for cause.
If the executive is terminated for reasons other than for cause or if the
employee terminates for good reason, the executive will receive annual
severance payments for the remaining term of the Employment Agreement equal to
base salary plus an amount equal to either the highest annual bonus received
in the two years preceding termination or, if after a change in control, 150%
of the highest annual bonus during the two years preceding termination. Should
such payments be subject to an excise tax pursuant to Section 4999 of the
Internal Revenue Code, or similar law, additional compensation as is necessary
to offset such tax effects also will be paid to the executives. The severance
payments under the Employment Agreements would cease in the event of reasonable
proof of any violation of the non-competition, non-solicitation of employees,
or confidentiality provisions of the Employment Agreement.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION:
Decisions on compensation of the Company's executive officers generally are
made by the Compensation Committee of the Board and reviewed with the full
Board. Set forth below is a report of the Board's Compensation Committee
addressing the Company's compensation policies for 1996 for its executive
officers. Messrs. Denning and Henson served on the Committee until
April 1996 when they resigned from the Board. Each Committee member named
below approves the report with respect to the decisions made by the Committee
during the time he was a member of the Committee.
COMPENSATION PHILOSOPHY. The Committee believes that the Company must
pay competitively to attract and retain qualified executives. To motivate
executive personnel to perform at their full potential, the Committee believes
a significant portion of compensation should be incentive-based. In addition,
the Committee believes it is important to reward not only individual
performance and achievement, but also to focus on overall corporate results.
This latter objective serves the dual purpose of encouraging teamwork among
executives and also supporting the Company's objective of increasing
Stockholder value.
The Committee also believes it is essential that the Committee retain
the flexibility to evaluate not only the overall performance of the individual
executive officers, and the Company as a whole, but also all other
circumstances and challenges facing the Company and the respective executive
officer. Consequently, the Committee uses its subjectivity rather than
objective formulas in setting and adjusting the base salary of the CEO and
other executive officers.
In reviewing the level of cash compensation for the CEO and other
executive officers for 1996, the Committee engaged William M. Mercer,
Incorporated, to survey the total cash compensation, including base salary and
incentive compensation, based upon available 1995 data, for the CEO and senior
executives at four publicly traded computer services firms and six publicly
traded software and services firms. The Committee selected firms offering
similar types of products and services in their respective markets as those
products and services offered by the Company in its markets as well as firms
competitive in certain of the Company's markets. These firms were viewed by
the Committee as firms with whom the Company competes for senior executives in
recruitment efforts or firms which might seek to
12
recruit the Company's executives. Four of these firms are in the group of
firms comprising the Standard & Poor Software and Services Index in the Stock
Performance Graph set forth below. The Committee believed the group of
companies selected for the survey was more appropriate on the basis of
competition for executive management for the purpose of the compensation
comparison than the firms comprising the above-referenced Index. The purpose
of the survey was to confirm that the total cash compensation levels for the
Company's CEO and other executive officers were at levels to allow the Company
to effectively compete in recruiting and retaining executive management.
ELEMENTS OF COMPENSATION. Compensation earned during 1996, as reflected
in the foregoing tables, consisted primarily of three parts: salary, annual
bonus and award of stock options. (The executive officers were also eligible
for other benefits such as perquisites standard for executives and those
offered under the Company-sponsored broad-based plans.) Each of these
elements is described in more detail below.
BASE SALRIES FOR EXECUTIVE OFFICERS. For 1996, base salaries for all
executive officers, including the CEO, were targeted at the base salaries
which the surveyed firms might offer the executive officers for performing
similar functions in an equally challenging and complex environment. In
addition, the Committee uses its subjective assessment of the overall
performance of the individual executive officer in terms of responsibility,
experience and breadth of knowledge and the Company as a whole. No specific
weights were assigned to these factors. The base salary levels for 1995 for
the CEO and other executive officers were below the average of the computer
services firms surveyed but above the average of the computer software and
services firms surveyed, which the Committee believed to be appropriate in
accordance with its subjective assessments of overall performance and the
goals of establishing base salary compensation levels for the Company's
executives, which are adequate to recruit and retain executive management.
Consequently, the Committee increased the 1996 salaries by a percentage
similar to what the Committee believed to be percentage increases appropriate
to remain in the mid-range for competitive companies, using the Committee's
subjective assessment.
With respect to Mr. Wilson, in addition to the above factors, the
Committee also considered how well he performed in the following areas in
determining his base salary increase: development and implementation of a
strategic vision for the Company integrating insurance industry knowledge,
technology trends, product directions, and customers' needs; management of the
Company's financial affairs; recruitment and retention of qualified
executives; delegation of responsibility and authority to qualified managers;
capitalization on business opportunities; and exhibition of leadership in
achieving the Company's goals. No specific weights were assigned to these
factors. In addition, in determining the amount of increase in compensation
in 1996, the Committee considered the Company's actual results for 1995 in the
areas of product development, new business acquisitions, overall financial
strength, perceived customer satisfaction and the Company's prospects for
long-term growth.
The Committee believed that Mr. Wilson's contribution to the Company's
1995 performance was significant, and in determining the amount of increase in
compensation in 1996, as with the other executive officers, the Committee
increased his base salary by a percentage similar to what the Committee
believed to be appropriate to remain in the mid-range for competitive
companies, using the Committee's subjective assessment.
ANNUAL BONUS PROGRAM. The 1996 annual bonus program for executive
officers, including the CEO, was intended to provide short-term incentives and
rewards based on the Company's short-term goals that were consistent with its
long-term goals, as well as to promote the Company's philosophy of having a
substantial portion of executive compensation at risk. It was the
Committee's subjective assessment that for the executive officers, an amount
equal to
13
40% of base salary remained an appropriate percentage to have at risk on an
annual basis, even though the survey results referred to above indicate that
40% percent of base salary is less than the average percent received by the
executive officers at these firms.
The annual bonus for executive officers with profit and loss
responsibility reporting to the Chief Executive Officer (a "P&L Executive
Officer") was generally comprised of two parts. One part was based on the
Company's performance, as measured by targeted earnings-per-share for 1996 and
the target established for 1997 for earnings-per-share. If actual 1996
earnings-per-share were less than the target or the target for 1997 was
reduced, the bonus would be reduced for 1996 by a stated percentage. The
other part was based on the performance of the group for which the executive
is responsible, as measured against the business plan established for 1996 in
the prior year for the executive's group and the target performance for the
group established for 1997. If the actual 1996 performance was less than the
target or if the established target for 1997 was reduced, the bonus was to be
reduced for 1996 by a stated percentage.
For Mr. Wilson and those executive officers other than the P&L Executive
Officers, the annual bonus was to be based on the Company's performance, as
measured by targeted earnings-per-share for 1996 and the target established
for 1997 earnings-per-share. Messrs. Morrison and Williams are the only
named executive officers who are not P&L Executive Officers. As with the P&L
Executive Officers, if the actual 1996 performance was less than the target or
if the established target for 1997 was reduced, the bonus was to be reduced
for 1996 by a stated percentage.
The Committee retained the discretion to use its subjective assessment
to award or withhold bonuses under the plan for any or all of the executive
officers. In early 1997, the Committee reviewed the level of bonuses which
would have been awarded to each executive officer under the plan described
above. Although the Company did not attain the 1996 targets, the Committee
exercised its discretion and awarded bonuses in amounts the Committee believed
to be fair and equitable and as set forth in the Summary Compensation Table
for 1996. With respect to Mr. Wilson, specifically, the Committee determined
that his bonus should equal approximately 11.5% of the amount of the target
bonus. For the other executive officers, the bonuses ranged from 12.2% to
15.7% of the target bonuses.
STOCK OPTIONS PLANS. The 1989 Stock Option Plan was designed for option
grants to key employees, including the executive officers. The Plan, by way
of the option vesting schedule for grants, is intended to provide incentives
and rewards for a relatively short-term (3 years) to mid-term (5 years) and to
provide a further means for aligning employees' and Stockholders' interests in
the enhancement of Stockholder value.
In determining the number of options to be granted in 1996, including
the number for Mr. Wilson, the Committee considered the historical pattern of
granting options under the 1989 Stock Option Plan as well as competitive
levels needed to retain the respective executive officer. In the Committee's
subjective assessment, the number and exercise price for options historically
granted annually to the executive officers has provided the appropriate
incentive and rewards. Consequently, for the options granted in 1996, the
Committee determined that granting, in most cases, approximately the same
number of options as has previously been granted would provide the appropriate
level of incentive and reward for the executive officers. In setting the
number and exercise schedule of options, the Committee considered the number
and terms of exercise of options previously granted to the executive officers,
as well as the competitive levels needed to retain the respective executive
officer.
COMPENSATION DEDUCTION LIMITATION. In 1993, Section 162(m) was added to
the Internal Revenue Code. This section generally disallows the corporate tax
deduction for certain com-
14
pensation paid in excess of $1,000,000 annually to certain executive officers
of publicly-held companies. An exception to the deduction limit is for
"performance-based compensation." The Company believes that the 1993
Long-Term Incentive Plan for Executives and the Company's 1989 Stock Option
Plan satisfy the requirements for qualifying stock options as
performance-based compensation under the exception. Therefore, the Company
expects that any stock option compensation realized upon the exercise of stock
options granted at a fair market value or higher exercise price under these
plans will not be subject to such compensation deduction limit. For this
reason, and because the Company's annual cash compensation to each of its
executive officers is currently below the $1,000,000 limit, the Company does
not at this time anticipate any loss of deductibility for 1996 under this law
for compensation paid to its executive officers.
Compensation Committee
Joseph D. Sargent, Chairman
Frederick B. Karl
Dr. John M. Palms
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION: During 1996,
the Compensation Committee of the Board of Directors of the Company consisted of
Messrs. Karl, Sargent and Plams and Messrs. Denning and Henson, until their
resignations from the Board in April 1996. None of the Committee members are or
were previously employees or officers of the Company or any of the Company's
subsidiaries. While they were members of the Compensation Committee, Mr.
Denning was a general partner and Mr. Henson was a limited partner in General
Atlantic Investors. See "Certain Transactions" for a description of the sale of
certain shares of the Common Stock by General Atlantic Investors to the Company.
STOCK PERFORMANCE: The following graph compares the cumulative total
Stockholder return on the Company's Common Stock during the five years ended
December 31, 1996 with the cumulative total return on the Standard & Poor 500
Index and the Standard & Poor Computer Software and Services Index. The
comparison assumes $100 was invested on the last trading day of 1991 in the
Company's Common Stock and also in each of the indices and assumes
reinvestment of all dividends which may have been paid. The performance shown
in the graph is not necessarily indicative of future performance.
Indexed Returns
Years Ending
Company/Index Dec91 Dec92 Dec93 Dec 94 Dec95 Dec96
The Company 100 124 47 63 72 70
S&P 500 100 108 118 120 165 203
Computer Software
& Services 100 118 151 179 251 390
15
CERTAIN TRANSACTIONS
In March 1996, the Company entered a Stock Purchase Agreement with the
General Atlantic Partners 14, L.P. and GAP Coinvestment Partners, L.P.
(collectively "General Atlantic Investors") pursuant to which they agreed to
sell to the Company 759,512 of the shares of the Company's Common Stock they
purchased in 1994. The purchase price for the Company's repurchase of this
Common Stock was approximately $38 million. General Atlantic Investors and
certain of their affiliates are restricted by the aforementioned Stock Purchase
Agreement from acquiring an ownership interest in the Company beyond 4.99% for a
period of three years. At the same time, General Atlantic Investors entered
into a Stock Purchase Agreement with Continental Casualty Company ("CNA")
pursuant to which they agreed to sell to CNA the remaining 759,512 shares of
Common Stock owned by General Atlantic Investors for a purchase price of
approximately $38 million. General Atlantic Investors' sales of the shares of
Common Stock to the Company and to CNA, respectively, closed on April 8, 1996
and upon such closing, CNA owned approximately four percent of the Company's
Common Stock then outstanding.
The Company and CNA entered into a Shareholder's Agreement ("Shareholder"s
Agreement") and a Registration Rights Agreement ("Registration Rights
Agreement"), each dated March 8, 1996. The Shareholder's Agreement imposes
restrictions on the rights of CNA and certain of its affiliates to dispose of
shares of Common Stock except pursuant to a right of first offer in favor of
the Company or in other specified circumstances. Pursuant to the Registration
Rights Agreement, CNA and certain of its affiliates are entitled to certain
registration rights with respect to the Common Stock owned by them, including
the right to demand that the Company register such Common Stock under the
Securities Act of 1933, as amended, and the right to participate in certain
registrations initiated by the Company.
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
(PROXY ITEM NO. 2): Stockholders will vote on the ratification of the
selection by the Board of Directors of Coopers & Lybrand as independent
auditors to audit the books, records and accounts of the Company and its
subsidiaries for the year ending December 31, 1997. Coopers & Lybrand were
the independent auditors of the Company for fiscal year 1996. A
representative from Coopers & Lybrand is expected to be present at the Meeting
and will have the opportunity to make a statement and will be available to
answer questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND AS INDEPENDENT AUDITORS FOR
THE COMPANY.
16
STOCKHOLDER PROPOSALS
There is no reason to believe that any other business will be presented at
the Meeting; however, if any other business should properly and lawfully come
before the Meeting, the persons named in the proxy will vote in accordance
with their best judgment. For a Stockholder proposal to be presented at the
next annual meeting, it must be received by the Company not later than December
16, 1997, in order to be included in the Proxy Statement and proxy for the 1998
annual meeting. Any such proposal should be addressed to the Company's
Secretary and mailed to Post Office Box Ten, Columbia, South Carolina 29202.
Stephen G. Morrison
Secretary