<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
POST OFFICE BOX TEN
COLUMBIA, SOUTH CAROLINA 29202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 1995
TO THE STOCKHOLDERS OF
POLICY MANAGEMENT SYSTEMS CORPORATION:
NOTICE IS HEREBY GIVEN to the stockholders that the Annual Meeting
of Stockholders ("Meeting") of Policy Management Systems
Corporation ("Company") will be held at the offices of the Company
at One PMS Center, Blythewood, South Carolina, at 11:00 a.m., on
Wednesday, May 10, 1995, for the following purposes:
(1) To elect three Directors of the Company to hold office for a
term of three years and one director for a term of one year 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
independent auditors for 1995;
(3) To consider and act upon the approval of the (a) proposed
amendments to the Policy Management Systems Corporation 1989 Stock
Option Plan to increase the number of shares of $0.01 par value
Common Stock reserved for issuance under said plan by 2,250,000
shares, to permit optionees to exercise options not otherwise
exercisable in the event there is a change in control of the
Company, and to authorize the Board of Directors of the Company to
permit certain optionees to exercise options not otherwise
exercisable in the event the person resigns or retires from the
Company and (b) performance goal components within the Plan;
(4) To consider and act upon the approval of the Policy Management
Systems Corporation Employee Stock Purchase Plan; and
(5) 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 16, 1995, 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 ALL OTHER PROPOSALS
DESCRIBED HEREIN TO BE CONSIDERED AT THE MEETING.
By Order of the Board of Directors
Stephen G. Morrison
April 6, 1995 Secretary
<PAGE> 2
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 10, 1995
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 ("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 ("Meeting") to be held at the offices of the Company,
One PMS Center, Blythewood, South Carolina, on Wednesday, May 10,
1995 at 11:00 a.m. It is anticipated that this Proxy Statement
will be mailed to Stockholders on or about April 6, 1995.
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, in favor of the one nominee for election to
the Board of Directors for a term of one year, in favor of the
ratification of the selection of Coopers & Lybrand as independent
auditors, in favor of approval of the amendments to the Policy
Management Systems Corporation 1989 Stock Option Plan ("Amendments
to the 1989 Stock Option Plan") together with the performance goal
components within that Plan and approval of the Policy Management
Systems Corporation Employee Stock Purchase Plan ("Stock Purchase
Plan"). 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 16, 1995, ("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
19,362,984 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
("Articles") provide that the vote of the holders of a majority of
the shares having voting power, present in person or represented by
<PAGE> 3
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. As such, abstaining
shares are included in the determination of the total number of
shares having voting power, and therefore, 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.
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 any two or more 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 any two or more nominees of the Board
of Directors to maximize the number of Board of Directors' nominees
elected. The three nominees for the three-year term receiving the
largest number of votes shall be elected to the three-year term and
the one nominee for the one-year term receiving the largest number
of votes shall be elected to the one-year term.
The ratification of the selection of independent auditors 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.
With respect to the approval of the Amendments to the 1989 Stock
Option Plan and the performance goal components therein and
approval of the Stock Purchase Plan, the affirmative votes of a
majority of the shares represented, in person or by proxy, at the
Meeting is required. Abstaining shares are included in the
determination of the total number of shares having voting power,
and therefore, have the same effect as no votes on Proxy Items
Number 3 and 4. Broker non-votes, for the reason mentioned above,
are not counted as votes cast on these two items and are not
counted as votes for or against such items.
Principal Stockholders: The following table sets forth certain
information based on Schedules 13D and 13G filed with the
Securities and Exchange Commission as of March 16, 1995, 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
The Capital Group
Companies, Inc. 1,858,200 (1) 9.6%
("Capital")
333 South Hope Street
Los Angeles, California 90071
Wellington Management
Company 1,680,535 (2) 8.7%
("Wellington")
75 State Street
Boston, Massachusetts 02109
GAP Coinvestment Partners 1,519,024 (3) 7.8%
("GAP Coinvestment")
General Atlantic Partners 14 L.P.
("General Atlantic")
125 East 56th Street
New York, New York 10022
<PAGE> 4
Name Common Stock Percentage
and Address Beneficially Owned of Class
Government of Singapore
Investment Corporation 1,422,800 (4) 7.4%
Pte Ltd. ("Singapore")
250 North Bridge Road
#33-00 Raffles City Tower
Singapore 0617
The Regents of the University 1,353,200 (5) 7.0%
of California ("Regents")
300 Lakeside Drive
Office of the Treasurer
Oakland, California 94612
Clover Capital Management,
Inc. ("Clover") 972,737 (6) 5.0%
11 Tobey Village Office Park
Pittsford, New York 14534
Nicholas Applegate Capital Management 964,603 (7) 5.0%
("Nicholas Applegate")
600 West Broadway
29th Floor
San Diego, California 92101
(1) Of the shares reported, Capital has sole voting power for
809,900 of the shares, shared voting power for none of the shares,
and sole dispositive power for all of the shares.
(2) Of the shares reported, Wellington has sole voting power for
none of the shares, shared voting power for 853,330 of the shares
and shared dispositive power for all of the shares.
(3) GAP Coinvestment and General Atlantic (collectively "General
Atlantic Investors") are members of a group, as defined in Rule
13d-5 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended. Each of GAP Coinvestment and
General Atlantic has shared voting and shared dispositive power for
all of the shares.
(4) Of the shares reported, Singapore has shared voting and
dispositive power for all of the shares.
(5) Of the shares reported, Regents has sole voting and
dispositive power for all of the shares.
(6) Of the shares reported, Clover has sole voting and dispositive
power for 963,437 of the shares and shared voting and dispositive
power for 9,300 of the shares.
(7) Of the shares reported, Nicholas Applegate has sole voting
power for 262,077 of the shares, shared voting power for none of
the shares and sole dispositive power for all of the shares.
ELECTION OF DIRECTORS
(Proxy Item No. 1): Stockholders will vote on the election of
three Directors to serve a term of three years and one Director to
serve a term of one year and until their successors have been
elected and qualified or until their earlier resignation, removal
from office, or death. Joe M. Henson was elected to the Board of
Directors on November 4, 1994 to fill a vacancy on the Board in the
class of Directors whose term expires in 1996 and is nominated for
a term of one year in order to preserve the evenly-staggered terms
of the Directors. All of the 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
<PAGE> 5
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 other than General Atlantic Investors' right to cause
the Nominating Committee to recommend a nominee for Director
pursuant to the Shareholder's Agreement dated April 26, 1994 (see
"Certain Transactions").
The following information is set forth with respect to the four
nominees for Director to be elected at the Meeting:
Principal Occupation for Past Five Years and
Name and Age Certain Other Directorships
Nominees to be elected for three-year term:
Dr. John M. Palms (59) Director of the Company since 1992;
President of the University of South
Carolina since March, 1991; prior
thereto President of Georgia State
University; Director of Peco Energy,
Inc., Philadelphia, Pennsylvania;
Director of Fortis Holding, Inc.,
New York, New York; Director of
NationsBank, N.A. (Carolinas),
Columbia, South Carolina; Trustee,
Institute of Defense Analysis,
Alexandria, Virginia.
Joseph D. Sargent (65) Director of the Company since 1986;
Chairman, Treasurer and Chief Financial
Officer of Connecticut Surety
Corporation and Director and Vice
Chairman of Conning & Company,
Hartford, Connecticut; 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 (48) Director of the Company since 1981;
Chairman of the Board, President and
Chief Executive Officer of the Company;
Director of Legent Corporation
("Legent"), Herndon, Virginia.
Employed by the Company since its
inception.
Nominee to be elected for one-year term:
Joe M. Henson (61) Director of the Company since November
4, 1994; Director and, since February
1995, Chairman of Executive Committee
of Legent; prior thereto Chairman and
Chief Executive Officer of Legent;
Director of Promus Companies, Inc.,
Memphis, Tennessee.
Directors whose terms will expire in 1996:
John P. Seibels (53) Director of the Company since 1981;
Investor, Columbia, South Carolina;
Director of The Seibels Bruce Group,
Inc. ("Seibels") and certain
subsidiaries.
<PAGE> 6
Principal Occupation for Past Five Years and
Name and Age Certain Other Directorships
Steven A. Denning (46) Director of the Company since June 20,
1994; Managing General Partner of
General Atlantic Partners, a New York
based private investment firm, and
President of General Atlantic Service
Corporation, Greenwich, Connecticut;
Director of Legent, Herndon, Virginia;
Director of Davidson Associates,
Torrance, California; Director of
United Meridian Corporation, Houston,
Texas; Director of Echoing Green
Foundation, New York, New York;
Director of Compuware Corporation,
Farmington Hills, Michigan.
Directors whose terms will expire in 1997:
Roy L. Faulks (69) Vice Chairman of the Board of the
Company since 1981; prior to retirement
in April, 1986, Executive Vice
President and Treasurer of Seibels
and certain subsidiaries; Director of
Seibels and certain subsidiaries.
Frederick B. Karl (70) Director of the Company since
1981; President and Chief Executive
Officer of Tampa General Healthcare
since October, 1994, prior thereto,
Chief Executive Officer of Hillsborough
County, Florida since 1990; prior
thereto, Senior Partner of Karl,
McConnaughhay, Roland and Maida, P.A.,
a law firm in Tallahassee, Florida from
1978 through 1990; Justice of the
Florida Supreme Court from 1977 to 1978.
Richard G. Trub (64) 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.
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,
Seibels and Sargent. 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 eighteen times
during 1994.
The Compensation Committee is composed of Messrs. Denning
(Chairman), Henson, Karl and Sargent. 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 four
times during 1994.
The Nominating Committee is composed of Messrs. Seibels (Chairman),
Henson, Palms and Wilson. 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.
<PAGE> 7
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 once during 1994.
The Board of Directors met thirteen times during 1994 and all of
the Directors, other than Messrs. Denning and Henson, attended at
least 75% of the aggregate of all meetings of the Board and all
Committees of which they were members during 1994.
Stock ownership of directors and officers: The following table
sets forth as of February 14, 1995 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 Beneficial Shares Subject Percentage
Of Beneficial Owner Ownership (1) To Option (2) Of Class (3)
Steven A. Denning 1,523,024 (4) -0- 7.9%
Roy L. Faulks 5,666 5,166 *
Joe M. Henson -0- (5) -0- *
Frederick B. Karl 4,667 4,167 *
Dr. John M. Palms 1,666 1,666 *
Joseph D. Sargent 4,167 4,167 *
John P. Seibels 15,166 10,000 *
Richard G. Trub 4,367 4,167 *
G. Larry Wilson 249,821 (6) 208,333 1.3%
David T. Bailey 80,017 (7) 79,166 *
Donald A. Coggiola 119,515 (8) 114,166 *
Robert L. Gresham 86,305 (9) 79,166 *
Stephen G. Morrison 14,302 (10) 14,287 *
Directors and all executive
officers as a group 2,205,538 (11) 620,633 11.4%
(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 10, 1995, pursuant to the Company's various stock option plans.
(3) Less than one percent where indicated by asterisk.
<PAGE> 8
(4) Mr. Denning personally owns 4,000 of these shares and is
deemed to beneficially own 125,571 of these shares by virtue of his
status as a general partner in GAP Coinvestment which beneficially
owns these shares. Mr. Denning is also deemed to own 1,393,453 of
these shares by virtue of his status in the general partner of
General Atlantic which beneficially owns these shares (see
"Principal Stockholders"). Mr. Denning disclaims beneficial
ownership of the shares of Common Stock held by GAP Coinvestment
and General Atlantic, except to the extent of his pecuniary
interest in GAP Coinvestment and General Atlantic.
(5) Although Mr. Henson is not considered the "beneficial owner"
of Common Stock of the Company for purposes of the Securities and
Exchange Commission's rules governing the solicitation of proxies,
he is a limited partner in a limited partnership which has invested
in Common Stock of the Company and in which Mr. Henson has an
indirect interest of approximately 15,000 shares of Common Stock.
Mr. Henson, however, does not have any voting or dispositive power
for any of the shares held by the limited partnership.
(6) 1,488 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.
(7) 185 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.
(8) Mr. Coggiola is deemed to beneficially own 100 of these shares
by virtue of his deceased father's estate owning these shares in
which Mr. Coggiola has an interest. Mr. Coggiola disclaims
beneficial ownership of the 100 shares.
(9) 375 of these shares are held in the Company's 401(k)
Retirement Savings Plan for which Mr. Gresham has sole dispositive
power but no voting power.
(10) On February 13, 1994, Mr. Morrison filed a Form 5 with the SEC
reporting, among other transactions and holdings, direct ownership
of 15 shares of Common Stock which were inadvertently not reported
on his Form 3 which was filed with the SEC in January 1994.
(11) An aggregate of 2,541 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 $15,000.00, plus
$2,000.00 for each Board meeting attended and $750.00 for each
committee meeting attended on other than a regular Board meeting
date. Directors participating in any meeting by telephone receive
a $250 fee for such meeting. Directors who do not reside in
Columbia, South Carolina, are reimbursed for travel expenses. In
addition, Mr. Trub, Chairman of the Audit Committee, was paid
$200,000 in 1994 for his extensive oversight of the Company's
progress through the restatement of its financial statements and
implementation of certain internal control procedures.
On October 13, 1994, each of the current Directors who was not a
full-time employee of the Company, except Mr. Henson, was granted
options to purchase 15,000 shares of Common Stock under the 1989
Stock Option Plan having an exercise price of $44.00 per share. On
November 4, 1994, the date of his election to the Board, Mr. Henson
was granted options to purchase 15,000 shares of Common Stock under
the 1989 Stock Option Plan having an exercise price of $47.00 per
share. These options are, for all such Directors granted options
on October 13, 1994 in part and for Mr. Henson entirely, subject to
Stockholders' approval of the
<PAGE> 9
Amendments to the 1989 Stock Option Plan (see "Proxy Item No. 3").
During 1994, none of the Directors exercised options.
Compensation of Executive Officers: The following table sets forth
information regarding compensation earned, including stock options
granted, during 1992, 1993 and 1994 by the Chief Executive Officer
and the four other most highly compensated executive officers of
the Company ("Executive Group").
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Number of
Name Securities Long-Term All
and Underlying Incentive Other
Principal Annual Compensation Options Plan Compen-
Position Year Salary Bonuses (1) Granted (2) Payouts sation (3)
<S> <C> <C> <C> <C>
G. Larry Wilson 1994 $500,776 $138,000 275,000 $ -0- $4,500
President and Chief 1993 496,930 50,000 100,000 -0- 7,284
Executive Officer 1992 456,940 234,000 50,000 1,196,000 6,198
David T. Bailey 1994 282,573 49,632 135,000 -0- 4,500
Executive Vice 1993 280,482 -0- 50,000 -0- 7,075
President 1992 260,540 98,250 25,000 777,400 8,700
Donald A. Coggiola 1994 281,120 49,456 75,000 -0- 648
Executive Vice 1993 279,546 -0- 50,000 -0- 7,075
President 1992 260,540 86,329 25,000 777,400 8,700
Robert L. Gresham 1994 267,020 46,992 15,000 -0- 4,500
Executive Vice 1993 265,326 -0- 50,000 -0- 6,805
President and 1992 243,308 98,000 25,000 777,400 6,198
Treasurer
Stephen G. Morrison 1994 345,146 -0- 96,667 -0- -0-
Executive Vice
President, General
Counsel and
Secretary (4)
</TABLE>
(1) Reflects amount earned in year indicated even though actually
paid in following year and for Mr. Wilson includes $50,000 earned
under his Executive Compensation Agreement (see "Executive
Compensation Agreement").
(2) A portion of the options granted during 1994 are subject to
the Stockholders approving the Amendments to the 1989 Stock Option
Plan (see "Proxy Item No. 3").
(3) Amounts shown are matching contributions from the Company
under its 401(k) Retirement Savings Plan.
(4) Mr. Morrison joined the Company during 1994 and for this
reason compensation data for 1992 and 1993 is not included. Under
the terms of Mr. Morrison's employment agreement with the Company,
Mr. Morrison is eligible for an annual bonus of up to 40% of his
base salary. In his employment agreement, the 40% annual bonus for
the first two years of Mr. Morrison's employment is guaranteed and
therefore not contingent. For this reason, the annual bonus earned
in 1994 is contained in the "salary" column.
The following table sets forth certain information regarding
options for Common Stock granted to the Executive Group during
1994. The table includes the potential realizable value
<PAGE> 10
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.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN 1994
Individual Grants
Percent Potential Realizable Value at
Number of Total Assumed Annual Rates of
of Securities Options Exercise Stock Price Appreciation
Underlying Granted to Price Expiration for Option Term
Options Employees Per Date Of
Granted in 1994 Share Options 5% 10%
<S> <C> <C> <C> <C> <C> <C>
All Stockholders - - - - $430,644,933(1) $1,091,345,157(1)
537,362,416(2) 1,361,789,783(2)
G. Larry Wilson 50,000(3) 20% $30.25 May 12, 2004 951,196 2,410,532
225,000(4) 44.00 October 13, 2004 6,226,011 15,778,026
David T. Bailey 35,000(3) 10% 30.25 May 12, 2004 665,837 1,687,372
100,000(4) 44.00 October 13, 2004 2,767,116 7,012,456
Donald A. Coggiola 25,000(3) 6% 30.25 May 12,2004 475,598 1,205,266
50,000(4) 44.00 October 13, 2004 1,383,558 3,506,228
Robert L. Gresham 15,000(3) 1% 30.25 May 12, 2004 285,359 723,160
Stephen G. Morrison 25,000(5) 7% 30.00 January 10, 2004 471,668 1,195,305
41,667(6) 31.20 January 10, 2004 441,668 1,165,305
30,000(4) 44.00 October 13, 2004 830,135 2,103,737
</TABLE>
(1) The potential realizable value for all Stockholders is based
on the number of shares of Common Stock outstanding on May 12, 1994
(the date the options described in note 3 below were granted) and
assumes the Stockholders purchased the Common Stock for $30.25
(which was the fair market value of the Common Stock on May 12,
1994) and held the Common Stock until May 12, 2004. 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.
(2) The potential realizable value of all Stockholders is based on
the number of shares of Common Stock outstanding on October 13,
1994 (the date the options described in note 4 below were granted)
and assumes the Stockholders purchased the Common Stock for $44.00
(which was the fair market value of the Common Stock on October 13,
1994) and held the Common Stock until October 13, 2004. 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 pursuant to the Company's 1989
Stock Option Plan. The exercise price is the fair market value of
the Common Stock on May 12, 1994, which was the date of grant.
These options become exercisable in one-third increments on each of
the first, second and third anniversary dates of the grant date.
In the event of dissolution or liquidation of the Company or any
merger or combination in which the Company is not the surviving
entity, then each option granted shall terminate, but not before
each participant is permitted to exercise his options to the extent
they are exercisable, without regard to any installment exercise
provision in the Plan.
(4) These options were also granted pursuant to the Company's 1989
Stock Option Plan and
<PAGE> 11
the number of options is contingent in part on the Stockholders
approving the Amendments to the 1989 Stock Option Plan. If the
Stockholders approve the Amendments, these options would become
immediately exercisable in the event of a change in control of the
Company (see "Proxy Item No. 3"). The exercise price is the fair
market value of the Common Stock on October 13, 1994, which was the
date of grant. These options become exercisable in one-third
increments on each of the third, fourth and fifth anniversary dates
of the grant date. See note 3 above for a description of other
material terms of this Plan.
(5) These options were granted pursuant to the Company's 1989
Stock Option Plan. The exercise price is the fair market value of
the Common Stock on the date of grant, which was also the date Mr.
Morrison was hired by the Company. These options become
exercisable in one-third increments on each of the first, second
and third anniversary dates of the grant date. See note 3 above
for a description of other material terms of this Plan.
(6) These options were granted pursuant to the Policy Management
Systems Corporation 1993 Long-Term Incentive Plan for Executives
("1993 LTIP"). The exercise price for grants under the Plan in
1994 is 104% of the fair market value of the Common Stock on the
date of grant. These options become exercisable as follows:
January 1, 1995 - 5,954; January 1, 1997 - 11,904; January 1, 1999
- - 23,809. If there is a change in control of the Company, as
defined in this Plan, then each option granted under the Plan shall
become immediately exercisable in full regardless of whether there
is a change in office or employment of the participant. In
addition, in the event of dissolution or liquidation of the Company
or any merger or combination in which the Company is not the
surviving entity, then each option granted shall terminate, but not
before each participant is permitted to exercise his options to the
extent they are exercisable, without regard to any installment
exercise provisions in the Plan.
The following table sets forth information regarding the value of
"in-the-money" options, which are options having a positive
difference between the exercise price of such stock option and the
1994 year-end market price of Common Stock. None of the officers
in the Executive Group exercised options during 1994.
<TABLE>
AGGREGATED YEAR-END OPTION VALUES
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1994 at December 31, 1994 *
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
G. Larry Wilson 208,333 366,667 $443,500 $587,500
David T. Bailey 79,166 180,834 -0- 411,250
Donald A. Coggiola 114,166 120,834 406,750 293,750
Robert L. Gresham 79,166 60,834 -0- 176,250
Stephen G. Morrison 14,287 52,380 164,299 585,704
<FN>
* Value represents the aggregate excess of the market price of
the Common Stock on December 31, 1994, which was $44.00, 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.
</TABLE>
Executive Compensation Agreement: The Company had an Executive
Compensation Agreement with Mr. Wilson whereby the Company was
obligated to pay, subject primarily to
<PAGE> 12
his continued employment, certain specified amounts over a
five-year period. The specified amounts to be paid over a five-
year period consisted of five annual installments of $10,000 each
for a given year's bonus. Thus, a bonus of $50,000 was earned for
a given year but was paid over a five-year period such that after
the fifth year, assuming the Agreement was renewed during each of
the five years, Mr. Wilson would be entitled to a payment of
$50,000, i.e., first $10,000 installment from the prior year, plus
the second $10,000 installment from two years prior plus the third
$10,000 installment from three years prior, etc. This Agreement
was renewable annually at the option of the Company. A payment of
$50,000 was paid in early 1995. As a result of other changes and
increases in the compensation package for Mr. Wilson which were
made in early 1995, the Compensation Committee of the Board of
Directors elected at that time to not renew the Agreement and
therefore no further amounts will be paid or earned under this
Agreement.
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 Stock Option/Non-Compete Agreements for
the Chief Executive Officer and for the Executive Vice Presidents
who were granted stock options on October 13, 1994 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 payments under each of the Stock Option/Non-Compete Agreements
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.
The Stock Option/Non-Compete Agreements, for the Chief Executive
Officer and for the Executive Vice Presidents who were granted
options on October 13, 1994, also provide that if there is a change
in control of the Company the options granted on October 13, 1994
will become exercisable in one-third increments on the first,
second and third anniversary dates of the date the options were
granted, rather than on the third, fourth and fifth anniversary
dates as is the case in the absence of a change in control,
regardless of whether there is a change in position with the
Company of the executive following the change in control. The
Agreements also provide that if the Stockholders approve the
Amendments to the 1989 Stock Option Plan, then all of the options
granted on October 13, 1994 would become immediately exercisable in
the event of a change in control 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.
<PAGE> 13
The Company has an Employment Agreement with a term through
December 31, 1998 with Mr. Morrison pursuant to which he serves as
the Company's General Counsel, Secretary and Executive Vice
President. There was a transition period during which Mr. Morrison
continued to devote significant time to the practice of law as a
partner with the firm of Nelson, Mullins, Riley & Scarborough as
well as to the Company. During this transition period, Mr.
Morrison's compensation was adjusted to approximate the portion of
time he was devoting to the Company and is reflected in the Summary
Compensation Table. Even after the transition period, Mr. Morrison
will continue his affiliation with Nelson, Mullins, Riley &
Scarborough. The Agreement also states that Mr. Morrison will be
eligible to participate in the annual bonus program, pursuant to
which he may earn up to 40% of his base salary. For the first two
years, however, the bonus is guaranteed for the full 40%. Under
the Agreement, Mr. Morrison is also entitled to receive annually
options to purchase at least 25,000 shares of Common Stock under a
Company-sponsored stock option plan.
The Employment Agreement for Mr. Morrison contains a provision that
if there is a change in control of the Company, he shall be paid,
for the remaining term of his Employment Agreement plus one year,
an annual salary equal to 150% of his average cash compensation for
the two calendar years preceding such change in control. He shall
be paid during the same period, as compensation for his
non-competition agreement, 50% of such average amount. 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 payments under Mr. Morrison's Employment Agreement would cease
in the event of reasonable proof of any violation of the
non-competition or confidentiality provisions of the Employment
Agreement or in the event his employment is terminated for cause.
Also, if during a potential change in control or following a change
in control he were to voluntarily terminate employment for other
than good cause, his annual salary is payable for only one year
following such termination of employment. The change in control
provisions in Mr. Morrison's Employment Agreement supersede those
in his Stock Option/Non-Compete Agreement during the term of his
Employment Agreement to the extent there is a conflict.
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. Donald W. Feddersen served as
Chairman of the Committee until October 3, 1994, and resigned from
the Board on October 31, 1994. Messrs. Denning and Henson became
members of the Committee on October 3, 1994 and November 4, 1994,
respectively. Set forth below is a report of the Board's
Compensation Committee addressing the Company's compensation
policies for 1994 for its executive officers. Each Committee member
named below approves the report with respect to the determinations
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 performances 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.
<PAGE> 14
Consequently, the Committee uses its subjectivity rather than
objective formulas in setting and adjusting the base salary of the
executive officers.
Elements of Compensation. Compensation earned during 1994, 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 1994, the base salaries
for all executive officers, including the Chief Executive
Officer's, were left at the 1993 levels, pending completion of the
restatement of the Company's financial statements (see
"Ratification of the Selection of Independent Auditors" for further
background).
Annual Bonus Program. The 1994 annual bonus program for executive
officers 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
named executive officers, an amount equal to 40% 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 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 1994 and the target established for 1995 for
earnings-per-share. If actual 1994 earnings-per-share were less
than the target or the target for 1995 was reduced, the bonus was
to be reduced for 1994 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 in
the prior year for the executive's group and the target performance
for the group established for 1995. If the actual 1994 performance
was less than the target or if the established target for 1995 was
reduced, the bonus was to be reduced for 1994 by a stated
percentage.
For Mr. Wilson and those executive officers other than P&L
Executive Officers, the annual bonus was to be based on the
Company's performance, as measured by targeted earnings-per-share
for 1994 and the target established for 1995 earnings-per-share.
Messrs. Gresham and Morrison are the only named executive officers
who are not P&L Executive Officers.
The above 1994 annual bonus program was a significant deviation
from the approach taken in prior years and for that reason, 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 1995, the Committee reviewed the
level of bonuses which would have been awarded to each executive
officer under the plan described above and decided that, despite
significant contributions by each P&L Executive Officer, they would
have been entitled to an annual bonus under such formula less than
the amount which the Committee believed to be fair and equitable.
Consequently, the Committee exercised its discretion with respect
to the P&L Executive Officers and awarded each a bonus equal to
17.6% of base salary. With respect to Mr. Wilson and the other
executive officers other than the P&L Executive Officers, but
excluding Mr. Morrison, they were awarded a bonus under the formula
in the annual bonus program, which equaled 17.6% of base salary.
Under the terms of his Employment Agreement, Mr. Morrison is
guaranteed an annual bonus of a certain amount for his first two
years of employment (see "Employment Agreements"). The Committee
believed
<PAGE> 15
that the amount of the bonuses reflects the executives'
contribution to the Company for 1994 and the Company's performance
for 1994, relative to the Committee's expectations.
Pursuant to his Executive Compensation Agreement (see "Executive
Compensation Agreement"), Mr. Wilson was also paid a bonus of
$50,000 for 1994. As a result of other changes and increases in
the compensation package for Mr. Wilson which were made in early
1995, the Committee elected at that time to not renew the Executive
Compensation Agreement for years beyond 1994.
Stock Option Plans. The 1989 Stock Option Plan was designed for
option grants to key employees, including the executive officers.
The Plan is intended to provide incentives and rewards for a
relatively short-term (3 years) to mid-term (6 years) and to
provide a further means for aligning employees' and Stockholders'
interests in the enhancement of Stockholder value. In May 1994,
the Committee determined that options should be granted to certain
of the executive officers as well as to other key employees. In
addition, in October 1994, the Committee determined that additional
options, having a longer exercisability schedule than that of the
May 1994 grants, should be granted to certain of the executive
officers as well as to other key employees (see "Options Granted in
1994 Table" for the terms of these grants).
In determining the number of options to be granted in 1994,
including the number for the Chief Executive Officer, 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 short-term incentive and rewards.
Consequently, for the options granted in May 1994, 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 near-term incentive and reward for the
executive officers. In addition, the Committee determined that
with respect to the October 1994 grant, increasing the number of
options and lengthening the exercisability schedule provided the
appropriate level of mid-term to long-term incentive and reward for
the executive officers receiving the options. 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 LTIP satisfies the requirements for qualifying stock
options as performance-based compensation under the exception. In
addition, the Company believes that the 1989 Stock Option Plan has
also satisfied such requirements under transition rules applicable
to Section 162(m). Upon approval of the Amendments to the 1989
Stock Option Plan and the performance goal components in the 1989
Stock Option Plan, the Company believes that the 1989 Stock Option
Plan will continue to satisfy such requirements (see "Proxy Item
No. 3"). 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
<PAGE> 16
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 1995 under the new law for compensation paid to its executive
officers.
Compensation Committee
Steven A. Denning, Chairman
Donald W. Feddersen (Chairman
through October 3, 1994)
Joe M. Henson
Frederick B. Karl
Joseph D. Sargent
Compensation Committee Interlocks and Insider Participation:
During 1994, the Compensation Committee of the Board of Directors
of the Company consisted of Messrs. Denning, Henson, Karl, Sargent
and, until his resignation in October 1994, Donald W. Feddersen,
none of whom are or were previously employees or officers of the
Company or any of the Company's subsidiaries. Mr. Sargent is a
director and executive officer of Connecticut Surety Corporation,
which received software licenses and data processing services from
the Company for which it paid the Company approximately $125,000
during 1994. The Company considers such transactions with
Connecticut Surety Corporation to have been on substantially
similar terms as those prevailing at the time for comparable
transactions with unrelated third parties.
Stock Performance: The following graph compares the cumulative
total Stockholder return on the Company's Common Stock during the
five years ended December 31, 1994 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 1989 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.
<TABLE>
STOCK PERFORMANCE
<CAPTION>
Policy Standard & Computer
Management Poor Software and
Measurement Period Systems 500 Services
(Fiscal Year Covered) Corporation Index Index
Measurement Point - December 31, 1989
<S> <C> <C> <C>
December 31, 1989 $100.00 $100.00 $100.00
December 31, 1990 122.06 96.89 78.06
December 31, 1991 194.85 126.42 118.99
December 31, 1992 241.54 136.05 140.92
December 31, 1993 91.18 149.76 179.86
December 31, 1994 123.53 151.74 212.60
</TABLE>
<PAGE> 17
CERTAIN TRANSACTIONS
On April 26, 1994, International Business Machines Corporation
("IBM") entered into a Stock Purchase Agreement with the Company
pursuant to which IBM agreed to sell to the Company 2,278,537
shares of the Company's Common Stock which IBM purchased in 1989.
The purchase price for the Company's repurchase of this Common
Stock was approximately $56.6 million. On the same date, IBM
entered into a Stock Purchase Agreement with the General Atlantic
Investors pursuant to which IBM agreed to sell to the General
Atlantic Investors the remaining 1,519,024 shares of Common Stock
owned by IBM for a purchase price of approximately $37.6 million.
IBM's sale to the Company closed on May 16, 1994. IBM's sale to
the General Atlantic Investors closed on June 20, 1994 and upon
such closing the General Atlantic Investors owned approximately
7.5% of the Company's Common Stock outstanding at that time.
The General Atlantic Investors and the Company entered into a
Shareholders' Agreement ("Shareholders' Agreement") and a
Registration Rights Agreement ("Registration Rights Agreement" ),
each dated April 26, 1994. Pursuant to the Shareholders'
Agreement, the General Atlantic Investors are entitled to cause the
Nominating Committee of the Company's Board of Directors to
recommend a nominee to the Company's Board of Directors. The
General Atlantic Investors' initial designee was Mr. Denning. The
Shareholders' Agreement imposes restrictions on the ability of the
General Atlantic Investors and certain of their affiliates to
increase their ownership interest in the Company beyond 14.99% (or,
in certain circumstances, 19.99%), 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, and to influence the
management and affairs of the Company. Pursuant to the
Registration Rights Agreement, the General Atlantic Investors and
certain of their 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.
During calendar year 1994, the Company and its subsidiaries paid to
IBM and its subsidiaries approximately $9.2 million for computer
hardware, programs and services and received approximately $14.6
million from IBM and its subsidiaries for computer software and
services. In addition, during 1994, Connecticut Surety
Corporation, of which Mr. Sargent is a director and an executive
officer, received software licenses and data processing services
from the Company for which it paid the Company approximately
$125,000 during 1994. The Company considers such transactions with
IBM and Connecticut Surety Corporation to have been on
substantially similar terms as those prevailing at the time for
comparable transactions with unrelated third parties.
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,
1995. At the 1994 annual meeting of Stockholders of the Company
held on October 13, 1994, the Stockholders ratified the selection
of Coopers & Lybrand as independent auditors for the years ending
December 31, 1992 through 1994. Coopers & Lybrand was retained in
August 1993 by the Company to conduct a special audit of the
Company's financial statements for the six-month period ended June
30, 1993 and to audit the Company's financial statements as of and
for the fiscal years ended December 31, 1992 and December 31, 1993.
The restated financial statements for the year ended December 31,
1992 and the financial
<PAGE> 18
statements for the year ended December 31, 1993 have been
completed. The report of Coopers & Lybrand is unqualified but does
include Emphasis Paragraphs discussing errors in previously-issued
financial statements and certain legal matters and is contained in
the 1993 Annual Report previously provided to Stockholders. 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 circumstances relating to the withdrawal by the Company's
previous independent auditors of their respective audit report for
the years ended December 31, 1990, 1991 and 1992 are as follows.
By letter dated August 10, 1993, Arthur Andersen & Co. ("Arthur
Andersen") informed the Company of its withdrawal of its auditors'
report on the Company's financial statements for the year ended
December 31, 1992 due to significant uncertainty related to the
outcome of the internal investigation then being conducted by the
Company concerning certain of the Company's business and accounting
practices and the effect of those practices on the financial
statements. Arthur Andersen indicated that the outcome of the
internal investigation was likely to require a restatement of the
Company's 1992 financial statements. At a meeting on August 10,
1993, in connection with the withdrawal of its auditors' report,
Arthur Andersen advised the Board of Directors of the Company that
subsequent to the issuance of Arthur Andersen's report and after
the first quarter of 1993, certain information had come to its
attention relating to the following matters. Arthur Andersen
advised the Board that it believed that there were material
weaknesses in the internal controls of the Company, that
information had come to its attention that led it to question
certain of the Company's business practices and whether it would
have been able any longer to rely on management's representations
and that information had come to its attention that, if further
investigated, might have materially impacted the fairness and
reliability of the Company's financial statements for prior
periods. In its comments to the Board of Directors, Arthur
Andersen raised questions regarding the Company's accounting
practices related to revenue recognition and certain other matters
which had not been resolved at the time of its termination. The
Company, through its representatives, has discussed each of these
matters with Arthur Andersen.
By letter dated August 13, 1993, Ernst & Young, the independent
auditors of the Company prior to Arthur Andersen, informed the
Company that its February 20, 1992 auditors' report should no
longer be associated with the Company's financial statements for
the years ended December 31, 1991 and 1990 after the Company
confirmed to Ernst & Young on August 13, 1993 that the outcome of
an internal investigation then being conducted by the Company and
its legal counsel into certain of the Company's business and
accounting practices was likely to result in revision of its
financial statements for periods prior to 1992. Ernst & Young took
its actions because of the significant uncertainty which thus
existed as to the effect on the Company's 1991 and 1990 financial
statements. By letter dated August 16, 1993, Ernst & Young further
advised the Company that its review reports on interim financial
statements during the years ended December 31, 1992, 1991 and 1990
should no longer be associated with those financial statements.
The Company and certain of its officers and directors have been
named as defendants in a lawsuit alleging violation of the federal
securities laws and purporting to be a class action. Among the
allegations are that the Company's financial statements for the
year ended December 31, 1992 are materially false and misleading.
(In December 1994, the Company reached an agreement in principle,
subject to court approval, to settle this lawsuit.) Because Arthur
Andersen audited those financial statements, the Company believed
that there existed the potential for conflicts between the Company
and Arthur Andersen. As a result, the Company concluded that a
change in its outside auditors was appropriate. On August 17,
1993, the Board of Directors, acting on the Audit Committee's
recommendation, engaged the
<PAGE> 19
firm of Coopers & Lybrand as its independent accountants to audit
the Company's financial statements for the six months ended June
30, 1993, including a review of the Company's internal control
structure, replacing Arthur Andersen. The Company authorized
Arthur Andersen to respond fully to inquiries of Coopers & Lybrand
concerning these matters, based upon information that had come to
Arthur Andersen in its capacity as principal accountant to audit
the Company's financial statements.
Neither the previously issued auditors' report of Arthur Andersen
on the Company's financial statements for the year ended December
31, 1992 nor the previously issued auditors' report of Ernst &
Young on the Company's financial statements for the year ended
December 31, 1991 contained any adverse opinion or disclaimer, nor
was either report qualified as to uncertainty, audit scope, or
accounting principles.
There have been no disagreements within the meaning of Item 304(a)
of Regulation S-K between the Company and either Arthur Andersen or
Ernst & Young in connection with the audits for the fiscal years
ended December 31, 1992 and 1991, respectively, or subsequently, on
any matter of accounting principles or practices, financial
statements disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of such former
principal accountants, would have caused either firm to make
reference to the subject matter of the disagreements in connection
with its report.
The Company has furnished each of Arthur Andersen and Ernst & Young
a copy of this disclosure regarding independent auditors and
requested that they each furnish a letter addressed to the
Securities and Exchange Commission stating whether it agrees with
the statements made herein.
The Board of Directors recommends that the Stockholders vote FOR
the ratification of the selection of Coopers & Lybrand as
independent auditors for the Company.
APPROVAL OF THE AMENDMENT TO THE 1989 STOCK OPTION PLAN
(Proxy Item No. 3): Stockholders will vote on the approval of the
Amendments to the 1989 Stock Option Plan to: provide for an
additional 2,250,000 shares of Common Stock available for issuance
under the Plan; permit options granted under the Plan to be
immediately exercisable in the event of a change in control of the
Company; and to authorize the Board of Directors of the Company, in
its sole discretion, to allow optionees who resign or retire from
the Company, to exercise outstanding options earlier than would
otherwise be permitted by the exercisability schedule contained in
the Plan. In addition, the Company seeks approval of the
performance goal components of the Plan to satisfy the requirements
of Section 162(m) of the Internal Revenue Code.
The Board of Directors believes that the Amendments are in the best
interest of the Company because they will provide a further means
for aligning employees' and Stockholders' interests in the
enhancement of Stockholder value and for attracting and retaining
qualified key employees. In addition, the Board of Directors
believes satisfying the requirements of Section 162(m) of the
Internal Revenue Code is in the best interest of the Company
because it will allow the Company to provide the incentives and
rewards necessary to attract and retain qualified executives
without losing the deductibility of such performance based
compensation. Approval of the Amendments and of the performance
goal components requires the approval of a majority of the shares
represented at the Meeting and are more fully described below.
Disregarding options to purchase 815,146 shares which were granted
in October 1994 and subject in part to Stockholders' approval of
the Amendments to the 1989 Stock Option
<PAGE> 20
Plan, as of December 31, 1994 only 788,422 of the 2,500,000 shares
reserved remained available for issuance under the Plan. The Plan
is designed for the benefit of full-time, salaried employees or
directors of the Company or a subsidiary of the Company who, in the
judgment of the Compensation Committee of the Board, are key to the
success of the Company or such subsidiary and who are not ten
percent shareholders (collectively, " Key Employees"). The Company
estimates that approximately 150 to 200 employees are presently
eligible to receive option grants under the Plan. The 1989 Stock
Option Plan contains a provision that the maximum number of options
which may be granted under the Plan during any calendar year to any
individual shall not exceed 500,000. Of the options granted during
1994 under the Plan, options to purchase 555,000 shares were
granted to the executive officers named in the "Options Granted in
1994 Table" at the exercise prices listed in that Table, options to
purchase 767,000 shares were granted to all current executive
officers as a group, options to purchase 120,000 shares were
granted to all current Directors who are not executive officers as
a group, and options to purchase 373,796 shares were granted to all
other eligible Key Employees, including all current officers who
are not executive officers as a group. Options granted to
individuals other than the executive officers named in the "Options
Granted in 1994 Table" and the Directors have exercise prices equal
to the fair market value on the dates of grant, which were: $34.25
for options granted on February 1, 1994; $30.25 for options granted
on May 12, 1994; $33.00 for options granted on July 19, 1994; and
$44.00 for options granted on October 13, 1994.
The Compensation Committee designates the optionees, the date of
grant, the number of option shares, the terms of exercise and the
time period in which the options may be exercised. The Plan does
not, however, currently permit the Compensation Committee to grant
options which may be exercised earlier than in one-third increments
on each of the first, second and third anniversary dates of the
date of grant.
The Plan permits options granted to be either qualified Incentive
Stock Options pursuant to the Internal Revenue Code or
non-qualified stock options, as the Compensation Committee may
elect. Upon exercise of a non-qualified option, the optionee will
realize ordinary income in an amount equal to the excess of the
fair market value of the shares of Common Stock received over the
exercise price of such shares. That amount increases the
optionee's basis in the stock acquired pursuant to the exercise of
the non-qualified option. Upon a subsequent sale of the stock, the
optionee will generally recognize additional capital gain. The
Company generally will be allowed a federal income tax deduction
for the amount recognized as ordinary income by the optionee upon
the exercise of the option.
The option price of the Common Stock may not be less than 100% of
the fair market value of the Common Stock on the date of grant. At
March 31, 1995, the fair market value of the stock was $43.86 per
share. Options may be exercised only by payment in full of the
option price. Options are non-transferable, except by will or
according to state laws of descent and distribution in the event of
death. The options shall expire no later than ten years after the
date granted or earlier upon the occurrence of certain specified
events.
The Amendments to the 1989 Stock Option Plan also provide the
Compensation Committee discretion to include in the terms and
conditions of such option grants that if there is a change in
control of the Company, as defined in the Amendments, then each
option granted under the Plan shall become immediately exercisable
in full regardless of whether there is a change in office or
employment of the participants. In the event of such a change in
control, the optionee would be permitted for a period of ninety
(90) days after termination of employment to exercise the options.
In no event, however, would an optionee be permitted to exercise
options after the tenth anniversary date of the grant of such
options. The Plan cur-
<PAGE> 21
rently states that in the event of dissolution or liquidation of
the Company or any merger or combination in which the Company is
not the surviving entity, then each option granted shall terminate,
but not before each optionee is permitted to exercise his options
to the extent they are exercisable, without regard to any
installment exercise provisions in the Plan. The Company believes
that the Amendments, when added to the 1989 Stock Option Plan,
would improve the Company's position in attracting and retaining
qualified Key Employees since such provisions would treat optionees
more fairly by: allowing optionees to participate in the change-
in-control transaction similar to other Stockholders; providing the
optionees reassurance and enhance retention during a potential
change in control; and providing a right similar to that offered by
many other computer software and services companies.
The Amendments to the 1989 Stock Option Plan also would authorize
the Board of Directors to accelerate the exercisability of options
if an optionee retired or resigned from the Company. The Company
believes that this flexibility is a way for the Board to provide
additional incentives to retire or resign to individuals who were
previously Key Employees and therefore granted options but who are
no longer contributing to the success of the Company in the way
they did at the time they were granted the options.
Section 162(m) of the Internal Revenue Code generally requires
public companies to receive shareholder approval of the performance
goal components of plans like the 1989 Stock Option Plan in which
its top executives participate and which may result in or
contribute to the top executives receiving compensation in excess
of $1.0 million in any year, in order for such companies to deduct
compensation in excess of $1.0 million. Included within the
compensation to be counted towards the $1.0 million would be gains
realized by the executives on the exercise of nonqualified stock
options. Although the Board of Directors does not believe that
compensation levels of the Company's executive officers will reach
the Section 162(m) deductibility limits in 1995, the Board does
believe that it is important for the Company to take all reasonable
steps to ensure that the Company will be able to take all available
tax deductions with respect to compensation resulting from the
exercises of stock options in the future.
The performance goal components of the 1989 Stock Option Plan for
purposes of Section 162(m) of the Internal Revenue Code are: (i)
the individuals eligible to receive options under the Plan are Key
Employees; (ii) the maximum number of options which may be granted
during any calendar year to any employee is 500,000; and (iii) the
fact that under the terms of the Plan, the exercise price of
options granted may not be less than the fair market value of the
Common Stock on the date of grant and, therefore, the amount of
compensation an optionee can receive under the Plan is based solely
on an increase in the value of the Common Stock after the date of
the grant of the option.
The Board of Directors recommends that the Stockholders vote FOR
the approval of the Amendments to the 1989 Stock Option Plan and of
the performance goal components within the Plan.
APPROVAL OF THE POLICY MANAGEMENT SYSTEMS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(Proxy Item No. 4): Stockholders will vote on the approval of the
Stock Purchase Plan. The Board of Directors believes it is in the
best interest of the Company to adopt the Stock Purchase Plan. By
simplifying and providing an additional financial incentive for the
purchase of shares of the Common Stock of the Company by its
employees, the Company will obtain the benefit of the added
incentive inherent in the ownership of Common Stock by
<PAGE> 22
such employees. The Stock Purchase Plan requires the approval of
a majority of the shares represented at the Meeting and is more
fully described below.
Under the Stock Purchase Plan, eligible employees of the Company
and certain of its affiliates are given the opportunity to
purchase, through installment payments to be deducted from their
salary, shares of Common Stock. Generally, all full-time employees
of the Company and certain of its affiliates who have been employed
by the Company or the respective affiliate for one year are
eligible to participate in the Stock Purchase Plan and elect to do
so by authorizing the Company to deduct specified amounts from
their paychecks. Each participant may elect to have between $10.00
and the lesser of $900.00 per payroll period or 10% of base salary
deducted from his or her biweekly paycheck to be used to purchase
Common Stock of the Company. The Company or the respective
affiliate adds a matching contribution of 15% of each participant's
contributions for the purchase of Common Stock. In addition, the
Company pays brokerage fees and related administrative expenses
associated with the purchases of the Common Stock.
Except for participating executive officers of the Company, a
participant may increase, decrease or suspend altogether his
purchases under the Stock Purchase Plan at any time by notifying
the Company. A participant may request and receive a distribution
under the Plan, in cash or stock, at any time. Participants
receiving a distribution of stock, or cash in lieu thereof, within
two years of the date of purchase, shall be ineligible to
participate in the Plan for a period of one year. With respect to
the executive officers of the Company, the Stock Purchase Plan sets
forth certain restrictions, consistent with applicable Securities
and Exchange Commission rules and regulations, regarding such
changes in participation.
After every payroll period, the Company forwards the aggregate
amount deducted from the participants' paychecks together with the
15% matching contribution to the plan administrator who then
purchases Common Stock of the Company in open market transactions,
in accordance with guidelines issued by the Securities and Exchange
Commission. (The plan administrator is not, and under the terms of
the Stock Purchase Plan cannot be, an affiliate of the Company.)
Upon completion of the purchases, the plan administrator allocates
on a monthly basis to each participant's account the number of
shares, whole and partial, purchased based on the average purchase
price per share. The Company has the right to amend or terminate
the Plan at any time.
Participants realize taxable fringe benefit income at the time the
15% matching contribution is made. Because the Plan is not a tax-
qualified plan and the participants make their contributions on an
after-tax basis, there is no special tax treatment for the
participants' contributions. Participants will be taxed on the
gains if and when they realize them from the subsequent sale of the
Common Stock purchased under the Plan. The Company will be
entitled to deduct as an expense the amount of the 15% matching
contribution and its costs incurred in administering the Plan.
The Board of Directors recommends that the Stockholders vote FOR
the approval of the Stock Purchase Plan.
OTHER 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.
<PAGE> 23
For a Stockholder proposal to be presented at the next annual
meeting, it must be received by the Company not later than November
21, 1995, in order to be included in the Proxy Statement and proxy
for the 1996 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
<PAGE> 1
PROXY
THIS PROXY SOLICITED BY THE BOARD OF DIRECTORS
May 10, 1995
POLICY MANAGEMENT SYSTEMS CORPORATION
ONE PMS CENTER
BLYTHEWOOD, SOUTH CAROLINA 29016
The undersigned hereby appoints Roy L. Faulks and John P. Seibels
proxies with full power of substitution and revocation to vote on
the undersigned's behalf at the Annual Meeting of the
Stockholders of Policy Management Systems Corporation, to be held
at 11:00 a.m., May 10, 1995, in the offices of the Company, One
PMS Center, Blythewood, South Carolina, and at all adjournments
thereof, upon all business as may properly come before the
Meeting, including the following as more fully described in the
Notice of Annual Meeting and Proxy Statement, receipt of which is
hereby acknowledged. PROXIES WILL BE VOTED IN ACCORDANCE WITH
ANY INSTRUCTIONS INDICATED BELOW. IF NO SPECIFICATION IS MADE,
PROXIES WILL BE VOTED FOR THE NOMINEES FOR DIRECTORS,
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS, IN FAVOR
OF THE PROPOSED AMENDMENTS TO THE POLICY MANAGEMENT SYSTEMS
CORPORATION 1989 STOCK OPTION PLAN AND OF THE PERFORMANCE GOAL
COMPONENTS THEREIN, AND IN FAVOR OF THE POLICY MANAGEMENT SYSTEMS
CORPORATION EMPLOYEE STOCK PURCHASE PLAN. THIS PROXY IS REVOCABLE
ANY TIME PRIOR TO ITS USE.
1. ELECTION OF DIRECTORS
FOR all nominees named below (except WITHHOLD AUTHORITY to
vote for as marked to the contrary below) all nominees named
below
NOMINEES: (1) Dr. John M. Palms; (2) Joseph D. Sargent; (3)
G. Larry Wilson; (4) Joe M. Henson
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee write that nominee's name in the space provided below.)
<PAGE> 2
2. RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND
as independent auditors FOR THE COMPANY
FOR AGAINST ABSTAIN
3. APPROVAL OF THE AMENDMENTS TO POLICY MANAGEMENT SYSTEMS
CORPORATION 1989 STOCK OPTION PLAN AND OF THE
PERFORMANCE GOAL COMPONENTS
FOR AGAINST ABSTAIN
4. APPROVAL OF THE POLICY MANAGEMENT
SYSTEMS CORPORATION EMPLOYEE STOCK PURCHASE PLAN
FOR AGAINST ABSTAIN
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting.
Date
X
(Signature should agree with name on stock, as shown hereon.
Officers, fiduciaries, etc., so indicate. When shares are held
in the names of more than one person, each person should sign the
proxy.)
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
1.
PURPOSE
The purpose of this Plan is to promote the interest of PMSC
and its Subsidiaries by granting Options to purchase Common Stock
to certain Key Employees in order (1) to attract and retain said
Key Employees, (2) to provide an additional incentive to each
such Key Employee to work to increase the value of Common Stock
and (3) to provide each such Key Employee with a stake in the
future of PMSC which corresponds to the stake of each of PMSC's
shareholders.
2.
DEFINITIONS
Each term set forth in this Section 2 shall have the meaning
set forth opposite such term for purposes of this Plan and, for
purposes of such definitions, the singular shall include the
plural and the plural shall include the singular.
2.1. Board -- means the Board of Directors of PMSC.
2.2. Code -- means the Internal Revenue Code of 1986, as
amended.
2.3. Committee -- means the Compensation Committee of the
Board.
2.4. Common Stock -- means the common stock of PMSC.
2.5. Fair Market Value -- means the closing price on any
date for a share of Common Stock on the national securities
exchange on which the Common Stock is listed. In the event the
Common Stock is listed on NASDAQ, "Fair Market Value" shall mean
the average of the closing bid and asked prices of the Common
Stock on such date or, in the absence of bid and asked prices on
such day on NASDAQ, such average on the first preceding day the
Common Stock was traded. If no such price quotation is
available,
"Fair Market Value" shall mean the price which the Committee
acting in good faith determines through
<PAGE> 2
any reasonable valuation method that a share of Common Stock
would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both
having reasonable knowledge of the relevant facts.
2.6. ISO -- means an option granted under this Plan to
purchase Common Stock which satisfies the requirements of Section
422A of the Code.
2.7. Key Employee -- means a full time, salaried employee
or a director of PMSC or any Subsidiary who, in the judgment of
the Committee acting in its absolute discretion, is a key to the
success of PMSC or such Subsidiary and who is not a Ten Percent
Shareholder. With respect to grants of ISO's Key Employee shall
not include any director who is not otherwise also an employee of
PMSC or a Subsidiary.
2.8. Non-ISO -- means an option granted under this Plan to
purchase stock which is not intended to qualify as an ISO
pursuant to Section 422A of the Code.
2.9. Option -- means an ISO or a Non-ISO.
2.10. Option Agreement -- means the written agreement or
instrument which sets forth the terms of an Option granted to a
Key Employee under this Plan.
2.11. Option Price -- means the price which shall be paid
to purchase one share of stock upon the exercise of an Option
granted under this Plan.
2.12. Parent Corporation -- means any corporation which is
a parent of PMSC within the meaning of Section 425(e) of the
Code.
2.13. Plan -- means this PMSC 1989 Stock Option Plan, as
amended from time to time.
2.14. PMSC -- means Policy Management Systems Corporation,
a South Carolina corporation, and any successor to such
corporation.
2.15. Predecessor Corporation -- means any corporation
which is a predecessor corporation (within the meaning of Section
422(b)(7) of the Code) of PMSC, any Subsidiary or Parent
Corporation.
2.16. Subsidiary -- means any corporation which is a
subsidiary corporation (within the meaning of Section 425(f) of
the Code) of PMSC.
2.17. Ten Percent Shareholder -- means a person who owns
(after taking into account the attribution rules of Section
425(d) of the Code) more than ten percent (10%) of the total
combined voting power of all classes of stock of either PMSC, a
subsidiary or a parent corporation.
3.
SHARES SUBJECT TO OPTIONS
There shall be 1,200,000 shares of Common Stock reserved for
use under this Plan, and such shares of Common Stock shall be
reserved to the extent that PMSC deems appropriate from
authorized but
<PAGE> 3
unissued shares of Common Stock or from shares of Common Stock
which have been reacquired by PMSC.
Furthermore, any shares of Common Stock subject to an Option
which remain after the cancellation, expiration or exchange of
such Option thereafter shall again become available for use under
this Plan.
4.
EFFECTIVE DATE
The effective date of this Plan shall be the date it is
adopted by the Board, provided that the shareholders representing
a majority of the shares of PMSC voting at a duly called meeting
of such
shareholders approve this Plan within twelve (12) months after
such effective date. If such effective date comes before such
shareholder approval, any Options granted under this Plan before
the date of such approval automatically shall be granted subject
to such approval.
5.
COMMITTEE
This Plan shall be administered by the Committee. The
Committee acting in its absolute discretion shall exercise such
powers and take
such action as expressly called for under this Plan and, further,
the Committee shall have the power to interpret this Plan and
(subject to Section 13, Section 14 and Section 15) to take such
other action in the administration and operation of this Plan as
the Committee deems equitable under the circumstances, which
action shall be binding on PMSC, on each affected Key Employee
and on each other person directly or indirectly affected by such
action.
6.
ELIGIBILITY
Only Key Employees shall be eligible for the grant of
Options under this Plan.
7.
<PAGE> 4
GRANT OF OPTIONS
(a) Committee Action. The Committee acting in its absolute
discretion shall grant Options to certain Key Employees under
this Plan from time to time to purchase shares of Common Stock
and, further, shall have the right to grant new Options in
exchange for outstanding Options. Each grant of an Option shall
be evidenced by an Option Agreement, and each Option Agreement
shall incorporate such terms and conditions as the Committee
acting in its absolute discretion deems consistent with the terms
of this Plan; provided, however, if the Committee grants an ISO
and a Non-ISO to a Key Employee on the same date, the right of
the Key Employee to exercise
or surrender one such Option shall not be conditioned on his or
her surrender of or failure to exercise the other such Option.
(b) Directors. The Committee shall not grant Options for
more than fifteen percent (15%) of the number of shares reserved
hereunder to the members of the Board who are not also employees
of PMSC or its subsidiaries. The Committee shall not grant
Options for more than twenty-five percent (25%) of the number of
shares reserved hereunder to members of the Board who are also
employees of PMSC or its subsidiaries.
(c) Limitation on Grant. The aggregate fair market value
(determined at the time of Option grant) of stock with respect to
which ISOs are exercisable for the first time by a Key Employee
during any calendar year (under all stock option plans of PMSC
and any parent or subsidiary corporation of such Key Employee's
employer
corporation) shall not exceed One Hundred Thousand Dollars
($100,000.00). In the event of an acceleration of an Option
pursuant to the terms of Section 14, only such portion of such
Option as may be accelerated, consistent with the provisions of
the preceding sentence, shall be accelerated and treated as an
ISO and any remaining portion of such Option shall be accelerated
but shall be redesignated a non-ISO.
8.
OPTION PRICE
The Option Price for each share of Common Stock subject to
an Option shall be no less than the Fair Market Value of a share
of
Common Stock on the date the Option is granted. The Option Price
shall be payable in cash in full upon the exercise of any Option,
or the Key Employee may pay all or part of the Option Price upon
exercise of the Option in shares of Common Stock already held by
the Key Employee. In the event that all or part of the Option
Price is paid in shares of Common Stock, the value of such shares
shall be equal to the Fair Market Value of such shares on the
date of exercise of the Option.
<PAGE> 5
9.
EXERCISE PERIOD
Each Option granted under this Plan may be exercised in
whole or in part only during a term (the "Term") commencing on
the date one (1) year after the date such Option is granted and
ending on the earlier of:
(1) the date such Option is exercised in full,
(2) the date which is the tenth anniversary of the date such
Option is granted, if such Option is an ISO, or
(3) the date which is one day after the tenth anniversary of the
date such Option is granted, if such Option is a Non-ISO.
An Option Agreement shall provide that Options may only be
exercised in annual installments as follows:
(1) During the first year of the Term, the Option shall be
exercisable as to one-third (1/3) of the number of shares subject
to the Option;
(2) During the second year of the Term, the Option shall be
exercisable as to two-thirds (2/3) of the number of shares
subject to the Option, minus the number of shares, if any, as to
which the Option was exercised during the first year of the Term;
and
(3) During the third and following years of the Term, the Option
shall be exercisable as to all of the shares subject to the
Option, minus the number of shares, if any, as to which the
Option was exercised during the first and second years of the
Term.
An Option Agreement shall provide that an Option may not be
exercised after the termination of employment or term as director
of a Key Employee with the Company or its Subsidiaries, except
that in the event of retirement with the consent of the Company
or any of its Subsidiaries such a Key Employee may exercise their
Option for a period of three (3) months from said retirement, and
in the event of the death of a Key Employee, during their
employment or term as director or within three (3) months after
retirement, said Option may be exercised during a period of one
(1) year from the date of death, as described in Section 10
below. In no event shall any such extended period result in the
exercise of an Option later than the date which is the tenth
anniversary of the date such Option is granted, however, nor
shall any Options be exercisable to any greater extent than they
may have been at the date of said retirement or death.
<PAGE> 6
10.
NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by a
Key Employee other than by will or by the laws of descent and
distribution, and such Option shall be exercisable during a Key
Employee's lifetime only by the Key Employee. The estate of a
deceased Key Employee or the person or persons to whom an Option
is transferred by will or by the laws of descent and distribution
thereafter shall be treated as the Key Employee.
11.
SECURITIES REGISTRATION
Each Option Agreement shall provide that, upon the receipt
of shares of Common Stock as a result of the surrender or
exercise of an Option, the Key Employee shall, if so requested by
PMSC, hold such shares of Common Stock for investment and not
with a view of resale or distribution to the public and, if so
requested by PMSC, shall deliver to PMSC a written statement
satisfactory to PMSC to that effect. As for Common Stock issued
pursuant to this Plan, PMSC at its expense shall take such action
as it deems necessary or appropriate to register the original
issuance of such Common Stock to a Key Employee under the
Securities Act of 1933 and under any other applicable securities
laws or to qualify such Common Stock for an exemption under any
such laws prior to the issuance of such Common
Stock to a Key Employee; however, PMSC shall have no obligation
whatsoever to take any such action in connection with the
transfer, resale or other disposition of such Common Stock by a
Key Employee.
12.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the
earlier of:
(1) the tenth anniversary of the effective date of this
Plan (as determined under Section 4 of this Plan),
<PAGE> 7
in which event this Plan otherwise thereafter shall continue in
effect until all outstanding Options have
been surrendered or exercised in full or no longer are
exercisable, or
(2) the date on which all of the Common Stock reserved under
Section 3 of this Plan has (as a result of the surrender or
exercise of Options granted under this Plan) been issued or no
longer is available for use under this Plan, in which event this
Plan also shall terminate on such date.
13.
ADJUSTMENT
The number of shares of Common Stock reserved under Section
3 of this Plan, the number of shares of Common Stock subject to
Options granted under this Plan, and the Option Price, as defined
in Section 8 hereof, in each Option Agreement outstanding at said
time, shall
all be adjusted by the Board in an equitable manner to reflect
any change in the capitalization of PMSC including, but not
limited to, such changes as stock dividends or stock splits.
Furthermore, the Board shall have the right to adjust (in a
manner which satisfies the requirements of Section 425(a) of the
Code) the number of shares of Common Stock reserved under Section
3 of this Plan, the number of shares subject to Options granted
under this Plan and the Option Price, as defined in Section 8
hereof, in each Option Agreement outstanding at said time, in the
event of any corporate transaction described in Section 425(a) of
the Code which provides for the substitution or assumption of
such Options. If any adjustment under this Section 13 would
create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock reserved
under this Plan and the number subject to any Options granted
under this Plan shall be the next lower number of shares of
Common Stock, rounding all fractions downward. An adjustment
made under this Section 13 by the Board shall be conclusive and
binding on all affected persons and, further, shall not
constitute an increase in "the number of shares reserved under
Section 3" within the meaning of Section 15(1) of this Plan.
14.
SALE OR MERGER OF PMSC
In the event of dissolution or liquidation of PMSC or any
merger or combination in which PMSC is not a surviving
corporation, each
<PAGE> 8
outstanding Option granted hereunder shall terminate, but the
Optionee shall have the right, immediately
prior to such dissolution, liquidation, merger or combination, to
exercise his or her Option, in whole or in part, to the extent
that it shall not have been exercised, without regard to any
installment exercise provisions.
15.
AMENDMENT TO PLAN
This Plan may be amended by the Board from time to time to
the extent that the Board deems necessary or appropriate;
provided, however, no such amendment shall be made absent the
approval of the shareholders of PMSC (1) to increase the number
of shares reserved under Section 3, (2) to extend the maximum
life of the Plan under Section 12 or the maximum exercise period
under Section 9, (3) to decrease the minimum Option Price under
Section 8, (4) to change the class of persons eligible for
Options as Key Employees under Section 6 or to otherwise
materially modify (within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended) the requirements as
to eligibility for participation in this Plan or (5) to otherwise
materially increase (within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended) the benefits
accruing under this Plan. The Board also may suspend the
granting of Options under this Plan at any time and may terminate
this Plan at any time; provided, however, PMSC shall not have the
right to modify, amend or cancel any Option granted before such
suspension or termination
unless (1) the Key Employee consents in writing to such
modification, amendment or cancellation or (2) there is a
dissolution or liquidation of PMSC or a transaction described in
Section 13 or Section 14 of this Plan.
16.
MISCELLANEOUS
16.1 No Shareholder Rights. No Key Employee shall have any
right as a shareholder of PMSC as a result of the grant of an
Option under this Plan or the exercise of such Option, pending
the actual delivery of the Common Stock subject to such Option to
such Key Employee.
16.2 No Contract of Employment. The grant of an Option to
a Key Employee under this Plan shall not constitute a contract of
employment and shall not confer on a Key Employee any rights upon
his or her termination of employment in addition to those rights,
if any, expressly set forth in the Option Agreement which
evidences his or her Option.
<PAGE> 9
16.3 Withholding. The exercise of any Option granted under
this Plan shall constitute a Key Employee's full and complete
consent to whatever action the Committee directs to satisfy the
federal and state tax withholding requirements, if any, which the
Committee in its discretion deems applicable to such exercise.
16.4 Construction. This Plan shall be construed under the
laws of the State of South Carolina.
IN WITNESS WHEREOF, PMSC has caused its duly authorized
officer to execute this Plan effective as of October 18, 1988 to
evidence its adoption of this Plan.
POLICY MANAGEMENT SYSTEMS CORPORATION
By: ________________________________
G. Larry Wilson
President
<PAGE> 10
FIRST AMENDMENT
TO THE
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
THIS AMENDMENT to the Policy Management Systems Corporation 1989
Stock Option Plan (the "Plan") is made by POLICY MANAGEMENT
SYSTEMS CORPORATION (the "Company") and entered into as of this
21st day of July, 1992, to be effective as of the date this
amendment is approved by a majority of the stockholders of the
Company at a meeting duly called and held.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan and,
pursuant to Section 15 thereof, the Company has the right to
amend the Plan subject to stockholders approving certain
amendments; and
WHEREAS, the Company desires to amend the Plan to authorize
additional shares of the Company's stock to be reserved for use
under the Plan;
NOW, THEREFORE, the Plan is hereby amended, effective as set
forth above, as follows:
I. The first sentence of Section 3 is amended to read as
follows:
There shall be 2,500,000 shares of Common Stock reserved
for use under this Plan, and such shares of Common Stock shall be
reserved to the extent that PMSC deems appropriate from
authorized but unissued shares of Common Stock.
<PAGE> 11
IN WITNESS WHEREOF, this First Amendment has been executed on the
day and year first above written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: __________________________
G. Larry Wilson
President
<PAGE> 12
SECOND AMENDMENT
TO THE
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
THIS AMENDMENT to Policy Management Systems Corporation 1989
Stock Option Plan (the "Plan) is made by POLICY MANAGEMENT
SYSTEMS CORPORATION (the "Company") and entered into as of this
____ day of ____________, 1994, to be effective as of the date
this amendment is approved by the stockholders of the Company at
a meeting duly called and held.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan and,
pursuant to Section 15 thereof, the Company has the right to
amend the Plan subject to stockholders approving certain
amendments; and
WHEREAS, the Company desires to amend the Plan to authorize
additional shares of the Company's stock to be reserved for use
under the Plan;
NOW THEREFORE, the Plan is hereby amended, effective as set forth
above, as follows:
1. The first sentence of Section 3 is amended to read as
follows:
There shall be 2,750,000 shares of Common Stock
reserved for use under this Plan, and such shares of
Common Stock shall be reserved to the extent that PMSC
deems appropriate from authorized but unissued shares
of Common Stock.
2. The first sentence in the second paragraph of Section 3 is
amended to read as follows:
An Option Agreement shall provide when the Option shall
become exercisable, but in no event shall an Option
become exercisable earlier than in installments as
follows:
(1) During the first year of the Term, the Option shall be
exercisable as to one-third (1/3) of the number of
shares subject to the Option;
(2) During the second year of the Term, the Option shall be
exercisable as to two-thirds (2/3) of the number of
shares subject to the Option, minus the number of
shares, if any, as
<PAGE> 13
to which the Option was exercised during the first year of the
Term; and
(3) During the third and following years of the Term, the
Option shall be exercisable as to all of the shares
subject to the Option, minus and number of shares, if
any, as to which the Option was exercised during the
first and second years of the Term.
IN WITNESS WHEREOF, this Amendment has been executed on the day
and year first above written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: __________________________
G. Larry Wilson
President and Chairman
<PAGE> 14
THIRD AMENDMENT
TO THE
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
THIS AMENDMENT to Policy Management Systems Corporation 1989
Stock Option Plan (the "Plan) is made by POLICY MANAGEMENT
SYSTEMS CORPORATION (the "Company") and entered into as of this
____ day of _____, 1995, to be effective as of the date this
amendment is approved by the stockholders of the Company at a
meeting duly called and held.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan and,
pursuant to Section 15 thereof, the Company has the right to
amend the Plan subject to stockholders approving certain
amendments; and
WHEREAS, the Company desires to amend the Plan to authorize
additional shares of the Company's stock to be reserved for use
under the Plan;
NOW THEREFORE, the Plan is hereby amended, effective as set forth
above, as follows:
1. There shall be an additional 2,250,000 shares of Common
Stock reserved for use under this Plan, and such shares of
Common Stock shall be reserved to the extent that PMSC deems
appropriate from authorized but unissued shares of Common
Stock.
2. Section 14 of the Plan is amended to add the following
Subsection 14.2 and the existing paragraph under Section 14
is re-numbered as Section 14.1:
14.2 The Committee may, in its sole and absolute discretion,
include in an Option Agreement a provision stating that
if there is a Change in Control of PMSC (as
hereinafter defined) prior to the expiration date of
the Options, then, notwithstanding any other provision
of this Plan or the Option Agreement to the contrary,
each Option granted under that Option Agreement shall
become immediately exercisable regardless of whether
there is a change in office or employment status
subsequent to such Change in Control. For purposes of
this Section, a "Change in Control" shall be deemed to
have occurred in the event: (1) that substantially all
of the Company's assets are sold to another
corporation; or (2) any person, corporation,
partnership or other entity, either alone or in
conjunction with its "affiliates" as that term is
defined in Rule 405 of the General Rules and
Regulations under the Securities Act of 1933, as
amended, or other group of persons, corporations,
partnerships or other entities who are not affiliates,
but who are acting in concert, becomes the owner of
record or beneficially of securities of PMSC which
represent thirty-three and one-third percent (33 1/3%)
or more of the combined voting power of PMSC's then
outstanding securities entitled to
<PAGE> 15
elect directors; or (3) the Board or a committee
thereof makes a determination in its reasonable
judgment that a Change in Control of PMSC has taken
place. In addition, the Committee may, in its sole
and absolute discretion, include in an Option Agreement
that notwithstanding Section 9 of the Plan or the terms
of the Option Agreement to the contrary, following a
Change in Control of PMSC the Key Employee shall have
a period of ninety (90) days after termination of
employment to exercise the Options granted thereby,
and in the event of the death of the Key Employee
during said ninety (90) day period, said Options may
be exercised during a period of one (1) year from the
date of death, as described in Section 10, but in no
event shall such Options be exercised after the tenth
anniversary date such Options were granted.
3. Section 9 is amended to add to the end of the Section the
following:
Notwithstanding the foregoing, the Committee may, but
shall not be required to do so, in its sole and
absolute discretion, permit a Key Employee to exercise
outstanding options sooner than would otherwise be
permitted by the foregoing and as set forth in the
Option Agreement in the event the Key Employee retires
or otherwise leaves the employ of the PMSC.
IN WITNESS WHEREOF, this Amendment has been executed on the day
and year first above written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: __________________________
G. Larry Wilson
President and Chairman
<PAGE> 16
FOURTH AMENDMENT
TO THE
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
THIS AMENDMENT to Policy Management Systems Corporation 1989
Stock Option Plan (the "Plan) is made by POLICY MANAGEMENT
SYSTEMS CORPORATION ("PMSC") and entered into as of this ____ day
of ______, 1995.
W I T N E S S E T H:
WHEREAS, PMSC sponsors and maintains the Plan and, pursuant to
Section 15 thereof, PMSC has the right to make certain amendments
to the Plan, such as the one set forth herein, without the
stockholders approving such amendments; and
WHEREAS, under Section 162(m) of the Internal Revenue Code, for
PMSC to receive certain tax treatment relating to the Plan, the
Plan must set forth the maximum amount of Options which can be
granted to individuals in a specified period pursuant to the
Plan; and
WHEREAS, PMSC now desires to amend the Plan to satisfy the
requirements of Section 162(m).
NOW THEREFORE, the Plan is hereby amended, effective as set forth
above, as follows:
A new subsection (d) is added to Section 7 of the Plan as
follows:
(d) The maximum number of Options which may be granted
under this Plan during any calendar year to any
individual shall not exceed 500,000, subject to
adjustment in the manner provided in the Plan for
changes in capital structure and other corporate
transactions.
IN WITNESS WHEREOF, this Amendment has been executed on the day
and year first above written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: __________________________
G. Larry Wilson
President and Chairman
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 2
Article I
Definitions
1.01 Affiliate . . . . . . . . . . . . . . . . . . . . . 1
1.02 Base Earnings . . . . . . . . . . . . . . . . . . . 1
1.03 Board . . . . . . . . . . . . . . . . . . . . . . . 1
1.04 Committee . . . . . . . . . . . . . . . . . . . . . 1
1.05 Effective Date. . . . . . . . . . . . . . . . . . . 1
1.06 Employer. . . . . . . . . . . . . . . . . . . . . . 1
1.07 Employee. . . . . . . . . . . . . . . . . . . . . . 2
1.08 Employee Contribution . . . . . . . . . . . . . . . 2
1.09 Employer Matching Contribution. . . . . . . . . . . 2
1.10 Participant . . . . . . . . . . . . . . . . . . . . 2
1.11 Participating Affiliate . . . . . . . . . . . . . . 2
1.12 Pay Period, Payday. . . . . . . . . . . . . . . . . 2
1.13 Payroll Authorization Form. . . . . . . . . . . . . 2
1.14 Plan Administrator. . . . . . . . . . . . . . . . . 2
1.15 Prevailing Market Price . . . . . . . . . . . . . . 2
1.16 Service . . . . . . . . . . . . . . . . . . . . . . 3
1.17 Stock . . . . . . . . . . . . . . . . . . . . . . . 3
1.18 Termination of Service. . . . . . . . . . . . . . . 3
Article II
Participation
2.01 Eligibility . . . . . . . . . . . . . . . . . . . . 3
2.02 Voluntary, Non-Discriminatory Plan. . . . . . . . . 3
2.03 Election to Participate . . . . . . . . . . . . . . 3
2.04 Participation of Executive Officers . . . . . . . . 3
2.05 Termination of Service. . . . . . . . . . . . . . . 4
2.06 Rehire. . . . . . . . . . . . . . . . . . . . . . . 4
Article III
Contributions
3.01 Employee Contributions. . . . . . . . . . . . . . . 4
3.02 Employer Matching Contributions . . . . . . . . . . 5
3.03 Limits on Contributions . . . . . . . . . . . . . . 5
<PAGE> 3
3.04 Change or Suspension of Contribution. . . . . . . . 5
3.05 Tax Withholding . . . . . . . . . . . . . . . . . . 5
Article IV
Purchase of Stock
4.01 Investment in PMSC Stock. . . . . . . . . . . . . . 5
4.02 No Interest to be Paid. . . . . . . . . . . . . . . 5
4.03 Dividends . . . . . . . . . . . . . . . . . . . . . 5
4.04 Shares Not Transferable . . . . . . . . . . . . . . 6
4.05 Voting Rights . . . . . . . . . . . . . . . . . . . 6
Article V
Distributions
5.01 Distributions During Participation. . . . . . . . . 6
5.02 Method of Distribution. . . . . . . . . . . . . . . 6
Article VI
Administration and Modification
6.01 Board of Directors. . . . . . . . . . . . . . . . . 7
6.02 Committee . . . . . . . . . . . . . . . . . . . . . 7
6.03 Plan Administrator. . . . . . . . . . . . . . . . . 8
6.04 Cost of the Plan. . . . . . . . . . . . . . . . . . 8
6.05 Brokerage Costs . . . . . . . . . . . . . . . . . . 8
6.06 Exculpation . . . . . . . . . . . . . . . . . . . . 8
Article VII
Miscellaneous Provisions
7.01 No Contract of Employment . . . . . . . . . . . . . 9
7.02 Plan Year . . . . . . . . . . . . . . . . . . . . . 9
7.03 Rules of Construction . . . . . . . . . . . . . . . 9
7.04 Governing Law . . . . . . . . . . . . . . . . . . . 9
7.05 Stockholder Ratification of Plan. . . . . . . . . . 9
<PAGE> 4
POLICY MANAGEMENT SYSTEMS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Policy Management Systems Corporation
Employee Stock Purchase Plan (the "Plan") is to provide the
eligible employees of Policy Management Systems Corporation
("PMSC") and its Participating Affiliates a convenient and
economical way to acquire shares of PMSC's Common Stock. By
simplifying and providing an additional financial incentive for the
purchase of PMSC Common Stock, the Company will obtain the benefit
of the added incentive inherent in the ownership of Common Stock by
such employees.
ARTICLE I
Definitions
1.01 Affiliate shall include all wholly owned subsidiaries of PMSC
and any other entity which may be designated from time to time as
such by the Board of Directors of PMSC.
1.02 Base Earnings shall mean the amount of regular salary or
wages, and excluding overtime payments, commission payments,
discretionary and non-discretionary bonuses, or other irregular
payments made by an Employer to an Employee. Base Earnings for a
fee-paid employee (as defined by the Company from time to time)
shall be his approved annualized administrative pay rate.
1.03 Board shall mean the PMSC Board of Directors.
1.04 Committee shall mean the persons appointed by the Board of
Directors of PMSC as set forth in the Plan.
1.05 Effective Date of the Plan is the later of:
(i) the date this Plan is executed by an authorized officer of
PMSC; or
(ii) the date PMSC has satisfied all the requirements to offer
the sale of Stock under the Plan, as evidenced by written notice to
the Committee from the Company's legal advisors.
1.06 Employer shall mean PMSC and all Participating Affiliates.
<PAGE> 5
1.07 Employee shall mean any person (including a corporate
officer) who is employed on a full-time basis in the regular
service of PMSC or one of its Participating Affiliates and who is
a permanent United States resident; provided, however, such term
shall not include persons employed for temporary periods or for
temporary jobs. For purposes of this Plan, full-time basis shall
mean regular employment of not less than thirty-five (35) hours per
week.
1.08 Employee Contribution shall mean the amount withheld from a
Participant's biweekly paycheck as directed by his Payroll
Authorization Form.
1.09 Employer Matching Contributions shall have that meaning set
forth in Section 3.02.
1.10 Participant shall mean an eligible Employee who elects to
participate in the Plan.
1.11 Participating Affiliate shall mean an Affiliate which has
adopted the Plan with the consent of the Board of Directors of
PMSC. If an organization which is or has become an Affiliate
ceases to be an Affiliate or a Participating Affiliate, such
organization and its employees shall be deemed to have withdrawn
from participation in the Plan.
1.12 Pay Period, Payday means the interval of time for which an
Employee regularly receives his compensation, and the day on which
the Employee regularly receives his compensation for the applicable
Pay Period respectively.
1.13 Payroll Authorization Form shall be in a form specified by
the Committee which shall authorize the Participant's Employer to
withhold from his paycheck a specified dollar amount to be remitted
to the Plan Administrator for the purchase of Stock under this
Plan. The Company may cancel any or all Payroll Authorization
Forms upon written notice to Participant(s).
1.14 Plan Administrator shall mean the person(s) or entity
appointed as set forth in the Plan to administer the Plan, make
purchases of Stock as agent for the Participants, and act as
custodian of shares purchased under the Plan. The Plan
Administrator shall at all times not be an affiliate (within the
meaning of applicable securities laws and regulations) of PMSC.
1.15 Prevailing Market Price shall mean the actual purchase price
for which shares of the Stock are purchased in the open market.
<PAGE> 6
1.16 Service shall mean that period of continuous uninterrupted
employment with PMSC or any Affiliates, from the Employee's first
day of employment until his date of Termination of Service with
PMSC and all Affiliates. In the case of an Affiliate which has
been acquired by PMSC through the acquisition of substantially all
of the assets or all of the stock of the Affiliate, Service only
shall include employment subsequent to the later of (i) PMSC's
consummation of the acquisition of the Affiliate or (ii) the date
on which such Affiliate is designated as a Participating Affiliate.
Service with two or more Affiliates during consecutive periods
shall be considered continuous service with one Affiliate.
1.17 Stock shall mean shares of Common Stock of PMSC.
1.18 Termination of Service shall mean any absence from the
employment of PMSC or any Participating Affiliate (including, but
not limited to, absences by reason of discharge or resignation).
ARTICLE II
Participation
2.01 Eligibility. As of the Effective Date, an Employee who is
actively employed shall be eligible to participate in the Plan
commencing on the first Payday of the first calendar quarter
beginning after the Employee has completed twelve (12) months of
continuous Service.
2.02 Voluntary, Non-Discriminatory Plan. Participation in this
Plan shall be voluntary and, except as required by applicable law,
all Employees who participate in the Plan shall have the same
rights and privileges under the Plan.
2.03 Election to Participate. An eligible Employee may elect to
participate in the Plan by timely execution of a Payroll
Authorization Form prior to the Pay Period in which the Employee
will begin participation. By signing a Payroll Authorization Form
an Employee shall be deemed to have accepted, and does hereby and
thereby accept, the terms of this Plan, and any and all amendments
of this Plan.
2.04 Participation by Executive Officers. Participants under the
Plan who are subject to the reporting and liability provisions of
Section 16 of the Securities and Exchange Act of 1934 (the "1934
Act") and the rules and regulations promulgated thereunder shall be
subject to the following provisions:
<PAGE> 7
a. Such Participants making withdrawals must cease further
purchases in the Plan for six months after the withdrawal, or the
securities so distributed must be held by such Participant six
months prior to disposition; provided, however, that extraordinary
distributions of all the Stock held by the Plan and distributions
in connection with death, retirement, disability or termination of
employment are not subject to this requirement.
b. Stock purchased under the Plan for such Participants shall be
held for a minimum of six months following the date of such
purchase under the Plan.
c. Such Participants who suspend payroll deductions under the Plan
may not commence future participation under the Plan for at least
six months from the date of such cessation of participation.
d. Reporting to the SEC, and others as required by law,
transactions in Stock under the Plan shall be the responsibility of
such Participants.
2.05 Termination of Service. Upon a Participant's Termination of
Service, the Participant will be deemed to have suspended
contributions to the Plan as of the date of his Termination of
Service. The Participant may request a distribution of his Stock,
or the cash value thereof, by submitting notice acceptable to the
Plan Administrator. Distributions shall be subject to the other
provisions of this Plan.
2.06 Rehire. An Employee who was eligible to participate in the
Plan at the time of his Termination of Service and who is
subsequently rehired may participate on the date of re-employment.
ARTICLE III
Contributions
3.01 Employee Contributions. Employee Contributions may only be
made through biweekly payroll deduction. The execution of a
Payroll Authorization Form by an Employee authorizes the Employer
to withhold such amounts to be remitted to the Plan Administrator
and is effective until revoked by the Participant as provided in
Section 3.04, Section 5.01, or as otherwise provided herein.
<PAGE> 8
3.02 Employer Matching Contribution. The Employer shall
contribute to the Plan Administrator, on a biweekly basis, an
amount equal to 15% of each Participant's Employee Contribution.
The Employer Matching Contribution will be made in cash and used
for the purchase of Stock.
3.03 Limits on Contribution. All payroll deductions for Employee
Contributions shall be in multiples of $5.00 from a minimum
deduction of $10.00 per Pay Period to a maximum payroll deduction
of the lesser of $900.00 per Pay Period or 10% of Base Earnings.
3.04 Change or Suspension of Contributions. A Participant may
increase, decrease or suspend his contributions under the Plan by
execution of a new Payroll Authorization Form. Such changes will
be effective as soon as administratively feasible and will not
affect the Employee's eligibility to participate.
3.05 Tax Withholding. All withholding taxes payable with respect
to the amount of Employee Contributions and Employer Matching
Contributions under the Plan will be deducted from such
Participant's salary, or other amounts payable to such Participant,
and will not reduce amounts paid to purchase Stock under the Plan
unless such reduction is necessary.
ARTICLE IV
Purchase of Stock
4.01 Investment in PMSC Stock. As soon as practical after receipt
of Employee Contributions and Employer Matching Contributions
remitted biweekly under the Plan, the Plan Administrator, or its
designated representative, shall purchase on behalf of the
Participants shares of Stock in the open market at Prevailing
Market Prices. The maximum amount of Stock will be purchased.
Monthly each Participant's account will be credited with his pro
rata share (computed to four decimal places) of the Stock
purchased.
4.02 No Interest to be Paid. During the interim between the
Employer's deduction of funds from the Participant's pay on a
biweekly basis and purchase of the Stock, no interest or other
earnings will be paid to or accrued for the benefit of
Participants, former Participants or personal representatives of
the foregoing.
4.03 Dividends to be Used to Purchase Additional Shares. Any cash
dividends received with respect to Stock held under the Plan shall
be used to purchase additional Stock for Participants in proportion
to their specified interest in the Stock upon which the dividends
were paid. Provided, however, that the Plan Administrator shall
pay
<PAGE> 9
dividends received which are attributable to Stock allocable to
Participants who have, or who have been deemed to have, withdrawn
from the Plan directly to such Participants on an annual basis.
Stock dividends, warrants and rights of any kind received with
respect to such Stock shall be held and/or distributed in the
manner provided under the Plan.
4.04 Shares Held Not Transferable. A Participant's undivided
interest in the Stock held under the Plan may not be assigned,
sold, pledged or alienated except in the event of death, (i)
pursuant to a Participant's valid last will and testament or by
applicable statutes of descent and distribution or (ii) pursuant to
a valid election of a Joint Account with rights of survivorship
with the Plan Administrator, as the case may be. In addition, such
undivided interest may not be encumbered by a lien, pledge or other
security interest of any kind, shall not be liable for or available
for the satisfaction of the debts of the Participant or any
judgment rendered against the Participant, and shall not be subject
to attachment or to the process of any court in aid or execution of
any judgement. However, a Participant shall be entitled to
withdraw Stock from the Plan in accordance with the applicable
provisions of this Plan.
4.05 Voting Rights. Each Participant shall have the power to
direct the vote of whole shares of Stock held for such
Participant's benefit under the Plan. In connection with any such
vote, the proxy of each such Participant shall be solicited and the
Plan Administrator shall cast its votes only in accordance with
such proxies. No discretion or direction may be exercised by the
Plan Administrator, Committee, PMSC or any Affiliate, with respect
to Stock voting. A Participant shall not be entitled to vote any
fraction of Stock held for such Participant's benefit under the
Plan.
ARTICLE V
Distributions
5.01 Distributions During Participation. A Participant may
withdraw Stock, or the cash value thereof, purchased under the Plan
by submitting notice acceptable to the Plan Administrator. The
Plan Administrator will make distributions as soon as
administratively feasible after receipt of proper notice. The Plan
Administrator will notify the Employer as soon as administratively
feasible when a Participant receives a distribution. A Participant
withdrawing Stock, or the cash value thereof, within two years of
the date of purchase shall be ineligible to make further
contributions to the Plan for twelve months following written
notice from the Employer to the Participant of the cancellation of
his Payroll Authorization Form. Participants may withdraw any whole
shares, or the cash value thereof, after two years of the date of
purchase of that Stock. Such withdrawals will not affect
participation in the Plan.
5.02 Method of Distribution. Distribution of Stock will be made
in whole shares. Fractional shares and any uninvested payroll
deductions shall be distributed in
<PAGE> 10
cash. The Participant will have the option to receive the entire
distribution in cash.
ARTICLE VI
Administration and Modification of the Plan
6.01 Board of Directors.
a. The Board shall have the following powers and duties with
respect to the Plan:
(i) to appoint and remove members of the Committee;
(ii) to amend the Plan; and/or
(iii) to terminate the Plan in whole or in part.
b. The Board shall have no other responsibilities with respect to
the Plan.
6.02 Committee.
a. Committee of not less than three or more than five individuals
may be appointed and serve at the pleasure of the Board to
administer the Plan. Committee members shall serve without
compensation.
b. The Committee shall appoint a Chairman and a Secretary from
among its members. All resolutions, determinations and other
actions shall be by majority vote of all members of the Committee.
Acts of the Committee at which at least a majority of the Committee
members are present, or acts reduced to or approved in writing by
a majority of the members of the Committee, shall be valid acts of
the Committee.
c. The Committee shall have the following specific powers and
responsibilities:
(i) To amend the Plan;
(ii) To appoint and remove the Plan Administrator and/or other
such agents as it deems necessary for the effective performance of
the duties so delegated;
<PAGE> 11
(iii) To construe the Plan and to determine all questions arising
in the administration, interpretation and operation of the Plan;
(iv) To decide all questions relating to the eligibility of
Employees to participate in the benefits of the Plan;
(v) To determine the benefits of the Plan to which any Participant
shall be entitled;
(vi) To delegate, in its sole discretion, all or any portion of
its duties hereunder to other individuals or entities.
d. No member or former member of the Committee shall be liable for
any action or determination made in good faith with respect to the
Plan or any benefits, shares or other awards bought or granted
hereunder.
6.03 Plan Administrator. The Plan Administrator shall keep a
continuous record of each Participant's Stock under the Plan. The
Plan Administrator shall issue to each Participant a statement of
account following each allocation transaction and each sell
transaction. Each inactive Participant will receive a statement of
his account on at least a quarterly basis. The Plan Administrator
shall also hold and act as custodian of Stock purchased or held
under the Plan. Certificates for Stock purchased under the Plan
shall be held by, and in the name of, the Plan Administrator, on
behalf of the Plan, for the benefit of the Participants as their
interests may appear from time to time. The Plan Administrator may
rely on the authority and correctness of information received from
PMSC, the Committee, or the delegate of either of the foregoing, in
performing its duties under the Plan.
6.04 Cost of the Plan. The cost of maintaining records and
executing transfers under the Plan shall be paid by the Employer.
The cost of receiving a distribution from the Plan shall be paid by
the Participant, former Participant, or personal representative of
the foregoing.
6.05 Brokerage Costs. Brokerage expenses incurred in the purchase
of Stock shall be paid by the Employer.
6.06 Exculpation. Neither PMSC, the Committee and its delegates,
any Affiliate, nor any broker through whom purchase orders are
executed pursuant to this Plan or the Plan Administrator shall have
any responsibility or liability for any action, omission or
determination in good faith, including, without limiting the
generality of the foregoing, any action with respect to price,
time, quantity or other conditions and circumstances of the
purchase, disposition or distribution of shares
<PAGE> 12
or funds under the terms of the Plan.
ARTICLE VII
Miscellaneous Provisions
7.01 No Contract of Employment. The granting of any right to an
Employee, pursuant to this Plan, shall not constitute an agreement,
understanding or other arrangement, express or implied, on the part
of PMSC, any Affiliate or any other person or entity to employ or
continue to employ such employee for any period of time.
7.02 Plan Year. The Plan's year and fiscal year shall end on
December 31 of each year.
7.03 Rules of Construction. Throughout this Plan, the masculine
includes the feminine, and the singular and the plural, and vice
versa, where applicable.
7.04 Governing Law. The construction, validity, and operation of
this Plan shall be governed by the laws of the State of South
Carolina, without regard to conflicts of law principles.
7.05 Stockholder Ratification of Plan. It is the intention of
PMSC to submit the Plan for ratification by the stockholders of
PMSC within 12 months of the date of adoption of the Plan. Such
stockholder ratification shall be sought to meet the requirements
of Rule 16b-3 under the 1934 Act. In the event that stockholders
do not ratify the Plan, the Plan will nevertheless remain in
effect.
Adopted this _____ day of _________________, 1995.
By: __________________________________________
Title: __________________________________________
Date: __________________________________________
