POLICY MANAGEMENT SYSTEMS CORPORATION
POST OFFICE BOX TEN
COLUMBIA, SOUTH CAROLINA 29202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
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 12, 1998, for the
following purposes:
(1) To elect two 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 1998; 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 9, 1998, 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 1998.
By Order of the Board of Directors
Stephen G. Morrison
Secretary
April 10, 1998
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 12, 1998
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 12, 1998 at 11:00 a.m. It is anticipated that this Proxy
Statement will be mailed to Stockholders on or about April 13, 1998.
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 two
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 9, 1998, (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 18,384,035 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 for 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 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 authority 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 two 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
Common Stock Percentage
Name and Address Beneficially Owned of Class(1)
- ---------------- ------------------- ------------
FMR Corp 2,722,150 (2) 14.81%
("Fidelity")
82 Devonshire Street
Boston, Massachusetts 02109
Wellington Management Company 2,064,813 (3) 11.23%
("Wellington")
75 State Street
Boston, Massachusetts 02109
The Capital Group Companies, Inc. 1,507,800 (4) 8.20%
("Capital")
333 South Hope Street
Los Angeles, California 90071
The Regents of the University 1,353,200 (5) 7.36%
of California ("Regents")
300 Lakeside Drive
17th Floor
Oakland, California 94612
<FN>
(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 35,500 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 1,027,830 of the shares and shared
dispositive power for all of the shares.
(4) Of the shares reported, Capital has sole voting power for 911,300 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, 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 two 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. Both nominees are currently members of the 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 either 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 Corporate Governance 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 two nominees for
Director to be elected at the Meeting:
Principal Occupation for Past Five Years
Name and Age and Certain Other Directorships
- ------------ -------------------------------
Joseph D. Sargent (68) Director of the Company since 1986; Chairman of the
Board of Bradley, Foster, & Sargent, Inc., Hartford, Connecticut; Vice
Chairman and Treasurer of Connecticut Surety Corporation; 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, Director of Command Systems, Inc.,
Farmington, Connecticut.
Principal Occupation for Past Five Years
Name and Age and Certain Other Directorships
- ------------ -------------------------------
G. Larry Wilson (51) 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
NOMINEES NAMED ABOVE.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 1999:
Dr. John M. Palms (62) Director of the Company since 1992; President of
the University of South Carolina; Director of Peco Energy, Inc., Philadelphia,
Pennsylvania; Director of Fortis Incorporated, New York, New York; Chairman of
the Institute of Defense Analyses, Alexandria, Virginia.
John P. Seibels (56) Director of the Company since 1981; Investor,
Columbia, South Carolina; Director of The Seibels Bruce Group, Inc. and
certain subsidiaries.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000:
Alfred R. Berkeley, III (53) Director of the Company since 1997; 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 (63) Director of the Company since 1997; Served as
Director of the Company from January 1983 to October 1994; General Partner of
Charles River Ventures, Waltham, Massachusetts, since 1984; Director of a
number of privately-owned high technology companies.
Richard G. Trub (67) 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.
On July 22, 1997, the Securities and Exchange Commission ("SEC") commenced a
civil proceeding against the Company and certain current and former officers
and employees of the Company, including Mr. Wilson and David T. Bailey, an
executive officer of the Company. In its complaint, the SEC alleged that the
Company and the named individuals had violated certain provisions of the
Securities Exchange Act of 1934 relating to reporting, books and records and
internal controls in connection with the Company's 1990-1993 financial
statements and reports. Simultaneously with the filing of the complaint, all
defendants filed consents in which they neither admitted nor denied the
allegations made, agreed to the entry of an injunction requiring future
compliance with those provisions of the federal securities laws, and agreed to
pay certain civil penalties. The Company agreed to pay a civil penalty of one
million dollars and each individual agreed to pay a civil penalty of twenty
thousand dollars.
COMMITTEES OF THE BOARD OF DIRECTORS: Among the standing committees of the
Board of Directors are the Audit, Compensation and Corporate Governance
Committees.
The AUDIT COMMITTEE during 1997 was composed of Messrs. Trub (Chairman),
Feddersen and Seibels, and until May 1997, Mr. Sargent and Frederick B. Karl.
Mr. Feddersen joined the Committee after his election to the Board of
Directors in May 1997. The Committee's functions include recommending
independent auditors to be employed by 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
seven times during 1997.
The COMPENSATION COMMITTEE during 1997 was composed of Messrs. Sargent
(Chairman), Berkeley and Palms, and until May 1997, Mr. Karl. Mr. Berkeley
joined the Committee after his election to the Board of Directors in May 1997.
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 1997.
The CORPORATE GOVERNANCE COMMITTEE during 1997 was composed of Messrs. Seibels
(Chairman), Berkeley, Palms and Wilson. Mr. Berkeley joined the Committee
after his election to the Board of Directors in May 1997. 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 Corporate Governance 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
Corporate Governance Committee met two times during 1997.
During 1997, the Board of Directors met nine 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 the Record Date, beneficial ownership of
Common Stock by each Director, each of the executive officers named in the
Summary Compensation Table below, and by all Directors and all executive
officers as a group.
Amount and Nature
Name of of Beneficial Shares Subject Percentage
Beneficial Owner Ownership (1) to Option (2) of Class (3)
- ---------------- ------------- ------------- ------------
Alfred R. Berkeley, III. . . -0- -0- *
Donald W. Feddersen. . . . . -0- -0- *
Dr. John M. Palms. . . . . . 2,500 2,500 *
Joseph D. Sargent. . . . . . 25,001 25,001 *
John P. Seibels. . . . . . . 31,750 28,750 *
Richard G. Trub. . . . . . . 25,201 25,001 *
G. Larry Wilson. . . . . . . 568,723(4) 453,750 3.1%
David T. Bailey. . . . . . . 156,370(5) 155,083 *
Paul R. Butare . . . . . . . 60,133(6) 59,062 *
Donald A. Coggiola . . . . . 202,001(7) 196,416 1.1%
Stephen G. Morrison. . . . . 88,043 86,608 *
Timothy V. Williams. . . . . 81,030 81,030 *
Directors and all executive
officers as a group
(12 in number) . . . . . . . 1,240,752(8) 1,113,201 6.7%
<FN>
(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 12, 1998,
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) 36,553 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) 621 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) 650 of these shares are held in the Company's 401(k) Retirement
Savings Plan for which Mr. Butare has sole dispositive power but no voting
power.
(7) 296 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.
(8) An aggregate of 38,120 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 $18,000, 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 May 13, 1997, Directors participating in
any meeting by telephone receive a $500 fee, plus $250 per hour for each hour
or part thereof by which the duration of the meeting attended exceeds one
hour, subject to a maximum of $1,000 for such meeting. 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, 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 1997,
1996, and 1995 by the Chief Executive Officer and the five other most highly
compensated executive officers of the Company ("Executive Group").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------
Number of
Name and Annual Compensation Securities All Other
Principal ------------------- Underlying Compen-
Position Year Salary Bonus (1) Options Granted sation (2)
- -------- ----- ------ --------- --------------- -----------
G. Larry Wilson . . . . 1997 $712,500 $429,000 75,000 $10,635
President and Chief . . 1996 646,545 30,000 75,000 10,260
Executive Officer . . . 1995 592,310 192,000 75,000 8,505
David T. Bailey . . . . 1997 $368,660 $155,400 35,000 $ 7,125
Executive Vice. . . . . 1996 333,470 20,000 35,000 6,750
President . . . . . . . 1995 312,455 -0- 35,000 6,750
Paul R. Butare. . . . . 1997 $367,313 $222,000 35,000 $ 4,275
Executive Vice. . . . . 1996 299,988 35,000 85,000 4,275
President . . . . . . . 1995 226,945 73,160 143,750 4,158
Donald A. Coggiola. . . 1997 $368,660 $166,722 35,000 $ 7,125
Executive Vice. . . . . 1996 334,073 20,000 35,000 6,750
President . . . . . . . 1995 307,768 49,600 85,000 6,750
Stephen G. Morrison . . 1997 $448,469 $270,000 35,000 $10,635
Executive Vice. . . . . 1996 407,686 20,000 50,000 10,260
President, General. . . 1995 520,700 -0- 25,000 8,505
Counsel, Secretary and
Chief Administrative
Officer (3)
Timothy V. Williams . . 1997 $343,994 $207,000 35,000 $ 7,125
Executive Vice. . . . . 1996 317,148 20,000 25,000 6,750
President and Chief . . 1995 293,458 94,400 25,000 6,750
Financial Officer
<FN>
(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 1995. Therefore, the annual bonus earned in 1995 is contained in the
"Salary" column.
The following table sets forth certain information regarding options for
Common Stock granted to the Executive Group during 1997. 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.
OPTIONS GRANTED IN 1997
Individual Grants
-----------------
Number Percent Potential Realizable Value
of of Total at Assumed Annual Rates of
Securities Options Exercise Stock Price Appreciation
Underlying Granted to Price Expiration for Option Term
Options Employees Per Date of ---------------------
Granted (1) in 1997 Share Options 5% 10%
------------ ------- ----- ------- --- ---
All Stockholders $505,905,955(2) $1,282,063,889(2)
G. Larry Wilson . . 75,000(3) 12.3% $44.25 Jan. 8, 2007 2,087,145 5,289,231
David T. Bailey . . 35,000(3) 5.7% 44.25 Jan. 8, 2007 974,001 2,468,308
Paul R. Butare. . . 35,000(3) 5.7% 44.25 Jan. 8, 2007 974,001 2,468,308
Donald A. Coggiola. 35,000(3) 5.7% 44.25 Jan. 8, 2007 974,001 2,468,308
Stephen G. Morrison 35,000(3) 5.7% 44.25 Jan. 8, 2007 974,001 2,468,308
Timothy V. Williams 35,000(3) 5.7% 44.25 Jan. 8, 2007 974,001 2,468,308
<FN>
(1) The options granted in 1997 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-fourth increments on
each of the first four 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 January 8, 1997 (the date the options described in note 3 below
were granted), and assumes the Stockholders purchased the Common Stock for
$44.25 (which was the fair market value of the Common Stock on January 8, 1997) and held the
Common Stock until January 8, 2007. The Company has included this information to illustrate how
the Stockholders will have fared compared to each of the named executives if the assumed
appreciation is achieved.
(3) These options were granted on January 8, 1997.
The following table sets forth information for the Executive Group regarding
stock options exercised during 1997 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 1997 year-end market price of Common Stock.
AGGREGATED OPTIONS EXERCISED IN 1997
AND 1997 YEAR-END OPTION VALUES
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at December 31, 1997 at December 31, 1997*
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
G. Larry Wilson . . -0- -- 420,000 380,000 $8,894,875 $7,666,875
David T. Bailey . . 25,000 $861,209 154,333 175,667 2,418,324 3,492,675
Paul R. Butare. . . 29,548 568,803 78,312 217,390 1,666,349 5,287,253
Donald A. Coggiola. 5,000 210,600 212,666 172,334 4,603,462 3,371,475
Stephen G. Morrison -0- -- 72,858 133,809 2,374,515 3,575,497
Timothy V. Williams -0- -- 67,280 113,692 2,014,651 2,846,040
<FN>
* Value represents the aggregate excess of the market price of the Common
Stock on December 31, 1997, which was $69.5625, 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 Employment Agreement with each of
Messrs. Wilson, Bailey, Butare, Morrison, and Williams, which set initial
annual salaries at their then current annual salary, subject to future
increases in accordance with the Company's practices. In the event of a change
in control of the Company, as that term is defined in the Agreement, 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, (except for Messrs. Wilson and Bailey, whose terms continue through
December 31, 2002), 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 twelve
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 executive
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.
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 Mr. Butare, 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.
On January 1, 1998, Mr. Coggiola retired from his position as Executive Vice
President of the Company and entered into a new Employment Agreement with the
Company pursuant to which he will serve as Special Consultant to the CEO of
the Company. The terms and conditions of his Employment Agreement are
substantially similar to the terms of the Employment Agreements of the
executive officers, as discussed above.
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 1997 for its executive officers. Mr. Karl
served on the Committee until May 1997 when he retired from the Board. Mr.
Berkeley joined the Committee after his election to the Board of Directors in
May 1997. 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.
ELEMENTS OF COMPENSATION. Compensation earned during 1997, 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 SALARIES FOR EXECUTIVE OFFICERS. For 1996, base salaries for all
executive officers, including the CEO, were targeted at the base salaries
which other firms might offer the executive officers for performing similar
functions in an equally challenging and complex environment based upon a
survey conducted by William M. Mercer, Incorporated. For 1997, although no
additional formal studies were conducted, the Committee used 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 in setting the amount of salary increase for 1997 for all executive
officers, including the CEO. No specific weight was assigned to these factors.
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 weight was assigned to these
factors. In addition, in determining the amount of increase in compensation in
1997, the Committee considered the Company's actual results for 1996 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 1996
performance was significant; therefore, the Committee increased his base
salary for 1997 by approximately 10%.
ANNUAL BONUS PROGRAM. The 1997 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 60%
of base salary was an appropriate percentage to have at risk on an annual
basis.
The annual bonus for executive officers with profit and loss responsibility
reporting to the CEO (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 1997 and planned growth in earnings-per-share
for 1997. If actual 1997 earnings-per-share or percentage growth in
earnings-per-share were less than the targets, the bonus would be reduced for
1997 by stated percentages. 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 1997 and group earnings growth over the prior year. If the
actual 1997 group performance or growth was less than the target, the bonus
was to be reduced for 1997 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 and planned growth in
earnings-per-share for 1997. 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 1997 performance was less than the target in
the Company's earnings, the bonus was to be reduced for 1997 by a stated
percentage. In addition, for Messrs. Morrison and Williams, part of such a
bonus was measured against the percentage growth in expenses for their groups
as measured against the percentage growth in the Company's earnings. If the
percentage in expense growth exceeded a targeted percentage below the growth
in the Company's earnings, the bonus was to be reduced 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 1998, the Committee reviewed the level of bonuses which
would have been awarded to each executive officer under the plan described
above. The 1997 plan targets were substantially achieved and 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 1997. With respect to Mr. Wilson, specifically, the Committee determined
that his bonus should equal 100% of the amount of the target bonus. For the
other executive officers, the bonuses ranged from 70% to 100% of the target
bonuses.
STOCK OPTION 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 1997, 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 1997, the
Committee determined that granting, in most cases, approximately the same
number of options as had 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 compensation 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 in 1997 was below the $1,000,000 limit, the
Company does not at this time anticipate any loss of deductibility for 1997
under this law for compensation paid to its executive officers.
Compensation Committee
Joseph D. Sargent, Chairman
Alfred R. Berkeley, III
Dr. John M. Palms
STOCK PERFORMANCE: The following graph compares the cumulative total
Stockholder return on the Company's Common Stock during the five years ended
December 31, 1997 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 1992 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
December 31,
-----------------------------
Company/Index 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
PMSC. . . . . . . 100 38 51 58 58 85
Computer Software
& Services. . . . 100 128 151 212 330 459
S&P 500 . . . . . 100 110 112 153 189 252
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, 1998. Coopers & Lybrand were the
independent auditors of the Company for fiscal year 1997. 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.
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 11, 1998, in order to be included in the Proxy Statement and proxy
for the 1999 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