Schedule 14a
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
POLICY MANAGEMENT SYSTEMS CORPORATION
(Name of Registrant as Specified in its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
__________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
__________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: ________________
(5) Total fee paid: ______________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ________________________________________
(2) Form, Schedule or Registration Statement No.: __________________
(3) Filing Party: __________________________________________________
(4) Date Filed: ____________________________________________________
<PAGE>
NOTICE OF 1999 ANNUAL STOCKHOLDERS MEETING
and PROXY STATEMENT
POLICY MANAGEMENT SYSTEM CORPORATION
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Notice of 1999 Annual Meeting . . . . . . . . . . . . . . . . . 1
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . 2
General Information About Voting. . . . . . . . . . . . . . 2
Proposals to be Voted on at the Meeting . . . . . . . . . . . . 5
The Board of Directors. . . . . . . . . . . . . . . . . . . . . 10
Board and Committee Meetings. . . . . . . . . . . . . . . . . . 12
Compensation Plans and Arrangements . . . . . . . . . . . . . . 14
Report of the Compensation Committee. . . . . . . . . . . . 14
Compensation committee Interlocks and Insider Participation 19
Compensation of Directors . . . . . . . . . . . . . . . . . 19
Compensation of Executive Officers. . . . . . . . . . . . . 19
Principal Stockholders. . . . . . . . . . . . . . . . . . . . . 25
Stock Ownership of Directors and Executive Officers . . . . . . 26
Stock Performance . . . . . . . . . . . . . . . . . . . . . . . 27
Section 16(a) Beneficial Ownership Reporting Compliance . . . . 27
Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . 28
Appendix A: Policy Management Systems
Corporation 1999 Stock Option Plan. . . . . . . . . . . . . 29
</TABLE>
<PAGE>
NOTICE OF 1999 ANNUAL MEETING
The 1999 Annual Meeting of Stockholders will be held on May 11, 1999, at 11:00
a.m. at the Company's offices in Blythewood, South Carolina.
Dear Stockholders:
We are pleased to invite you to attend the 1999 annual meeting of stockholders
of Policy Management Systems Corporation, which will be held at the Company's
offices at One PMSC Center, Blythewood, South Carolina, 29016, at 11:00 a.m.,
on May 11, 1999, for the following purposes:
(1) to elect two directors;
(2) to approve the 1999 Stock Option Plan;
(3) to ratify the selection of independent auditors for 1999; and
(4) to transact other business as may properly come before the meeting.
Stockholders owning shares of the Company as of the close of business on
March 10, 1999, the record date, are entitled to vote at the meeting. A
complete list of all stockholders entitled to vote at the meeting is available
for examination at the Company's offices and will continue to be available
through the meeting.
We plan to conduct a short meeting focused on business items, including the
voting on the above matters. After that, we will provide time for your
questions and comments.
WE HOPE THAT YOU WILL ATTEND THE MEETING, BUT EVEN IF YOU ARE GOING TO
ATTEND, YOU ARE URGED TO COMPLETE AND SIGN THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED WHEN MAILED IN THE
UNITED STATES. SHOULD 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, APPROVAL OF THE 1999 STOCK
OPTION PLAN, AND RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT
AUDITORS FOR 1999.
The Securities and Exchange Commission is encouraging companies to write
documents for investors in plain English. We believe this is a good idea.
Accordingly, we have formatted and written this year's Proxy Statement to make
it easier to understand. We hope you like this format and we welcome your
comments. Please read the attached Proxy Statement carefully for information
on the items that will be considered and voted on at the meeting.
By Order of the Board of Directors
Stephen G. Morrison
Secretary
April 16, 1999
<PAGE>
PROXY STATEMENT
This Proxy Statement and card have been sent to all of holders of common stock
of Policy Management Systems Corporation in connection with PMSC's Board of
Directors soliciting proxies to be voted at the annual stockholders meeting on
May 11, 1999. Because your vote is important, the Board of Directors is
requesting that you allow your shares to be represented at the annual meeting
by Messrs. Richard G. Trub and G. Larry Wilson (the proxies named in the
enclosed proxy card).
This Proxy Statement describes those matters that will be voted on at the
annual meeting and also contains additional information about our executive
officers and directors and principal stockholders. In this Proxy Statement,
"we," "us," "our," "PMSC," and the "Company" refer to Policy Management
Systems Corporation. This Proxy Statement is first being sent to our
stockholders on or about April 16, 1999.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE. Only stockholders as of the close of business on March 10, 1999
(the "Record Date") may vote at the meeting. On the Record Date, there were
35,886,073 shares of common stock outstanding. Each share of common stock is
entitled to one vote. The enclosed proxy card(s) show the number of shares
that you are entitled to vote.
VOTING IN PERSON. Written ballots will be available for those stockholders
wishing to vote at the meeting. If your shares are held in an account at a
brokerage firm ("held in street name"), you must request a legal proxy form
from your stockbroker in order to vote at the meeting.
VOTING BY PROXY. To vote by proxy, simply sign and date your proxy card and
return it in the enclosed, pre-paid envelope. By signing and dating the
enclosed proxy card, you appoint Messrs. Trub and Wilson as your
representatives at the meeting. If you mark your selections, they will vote
your shares in accordance with your instructions. If you do not mark any
selections, your shares will be voted in favor of the three proposals.
The Board currently is not aware of any other matters that will come
before the meeting. If, however, matters other than those set forth on the
proxy card come up for a vote at the meeting, Messrs. Trub and Wilson will
vote your shares as they deem proper.
REVOKING YOUR PROXY INSTRUCTIONS. You may revoke your proxy at any time before
the meeting by: (i) returning a later dated proxy; (ii) delivering written
notice of revocation to Stephen G. Morrison, Secretary, Policy Management
Systems Corporation, Post Office Box Ten, Columbia, South Carolina 29202; or
(iii) voting in person at the meeting.
<PAGE>
RECEIVING SEVERAL PROXY CARDS. If you receive more than one proxy card, it
means that you have multiple accounts at the transfer agent and/or with
stockbrokers and/or are a participant in the PMSC Restricted Stock Ownership
Plan, the PMSC Employee Stock Purchase Plan and/or the PMSC Stock Fund in the
PMSC 401(k) Retirement Savings Plan. To ensure that all your shares are voted,
please sign, date, mark your instructions, and return all proxy cards.
VOTING YOUR PMSC 401(K) RETIREMENT SAVINGS PLAN PMSC STOCK FUND SHARES. Shares
owned by the PMSC 401(k) Retirement Savings Plan PMSC Stock Fund are actually
voted at the meeting by the Plan trustee. However, if you are a PMSC 401(k)
Retirement Savings Plan participant and hold shares in the PMSC Stock Fund,
you will receive a proxy card for those shares, whether or not the shares are
vested. By completing this proxy card, you provide voting instructions to the
Plan trustee who will vote the shares in the PMSC Stock Fund. Your shares will
not be voted unless you sign, date, and return the proxy card. For
administrative reasons, your completed proxy card must be received by May 5,
1999, in order for your shares to be voted at the meeting.
HOW VOTES ARE COUNTED. The Annual Meeting will be held if a majority of the
outstanding shares of common stock entitled to vote is present at the meeting.
Shares are counted as present if the stockholder is present and votes in
person at the meeting or has properly submitted a proxy card. If you have
returned a valid proxy card but wish to abstain from voting on some or all of
the matters to be voted on at the meeting, your shares will be counted for the
purpose of determining whether there is a quorum. If you abstain from voting
on any matter, your shares will be included in the total number of shares
having voting power and will have the same effect as "no" votes on the matter.
If you hold your shares through a broker, bank, or other nominee, generally
the nominee may only vote the shares it holds for you in accordance with your
instructions. However, if it has not received your instructions within ten
days of the meeting, the nominee may vote the shares on matters that the New
York Stock Exchange ("NYSE") considers to be routine and cannot vote the
shares on matters that are not routine. If a nominee cannot vote on a
particular matter because it is not routine, it is considered to be a "broker
non-vote" on that matter. In determining whether or not a quorum is present
for the purpose of the meeting, broker non-votes are counted as shares being
present. They are not considered as shares having voting power and therefore
are not counted as votes cast on non-routine matters. Because the matters to
be voted on at the meeting are all considered to be routine by the NYSE, we do
not expect that there will be any broker non-votes at the meeting.
<PAGE>
In the election of directors, you have the right to cumulate your votes and
cast as many votes as the number of shares held by you multiplied by the
number of directors to be elected for the specified term. You may cast such
cumulated votes for any one nominee or distribute the votes among the nominees
for election. To exercise the right of cumulative voting, you must declare
your intent to do so prior to the beginning of voting. If any stockholder
declares the intent to cumulatively vote, all stockholders shall automatically
have the right to cumulate their votes without any further notice. In the
event of cumulative voting, Messrs. Trub and Wilson shall have authority to
vote shares represented by proxy for one Board nominee or distribute such
votes among the Board's nominees to maximize the number of the Board's
nominees elected.
VOTES REQUIRED. For Proposal 1, the election of directors, the two nominees
for director receiving the largest number of votes shall be elected to a
three-year term. For all other proposals in this Proxy Statement, each
proposal will be approved if it receives a majority of the votes present,
either in person or by proxy, at the meeting.
PROXY SOLICITATION EXPENSES. We will pay for the cost of soliciting proxies
and have engaged D.F. King & Company, Inc. to assist with solicitation of
proxies for the meeting for a fee estimated at $6,000.00, plus expenses. In
addition, our officers, directors and employees may solicit proxies by
telephone, facsimile or personal interview.
<PAGE>
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
The election of two directors, each to serve a three-year term. The Board's
nominees are Dr. John M. Palms and John P. Seibels. Both nominees are
currently members of the Board.
The Board recommends that the stockholders vote FOR these nominees.
PROPOSAL 2: APPROVAL OF 1999 STOCK OPTION PLAN
The approval of the Policy Management Systems Corporation 1999 Stock Option
Plan (the "1999 Plan"). Stock option grants to employees and directors are an
integral part of our incentive compensation program. We believe that the
stockholders have benefited from employee and director stock options over the
years as the options have enabled the Company to align the interests of
employees and directors with your interests as a stockholder. Therefore, the
Board has adopted, subject to stockholder approval, the 1999 Plan. The Board
adopted the 1999 Plan at this time because all prior stock option plans
expired last year and options no longer may be granted under the prior plans.
The following is a general description of the 1999 Plan. The Plan's full text
is attached as Appendix A. If there is a difference between the general
description and the full text, the Plan's text will control.
PLAN DESCRIPTION. The Plan's purposes are: (i) to attract and to retain
employees, officers and directors; (ii) to provide an additional incentive to
each such person to work to increase the value of common stock; and (iii) to
provide each such person with a stake in the future of the Company which
corresponds to your stake as a stockholder. The 1999 Plan allows for the grant
of nonqualified stock options as well as "incentive stock options" qualified
under section 422 of the Internal Revenue Code (the "Code").
A total of 1,750,000 shares of common stock are to be reserved under the 1999
Plan and such shares of common stock shall be reserved to the extent that the
Company deems appropriate from the Company's authorized but unissued shares of
common stock. If an option terminates for any reason without being wholly
exercised, the number of shares to which the option termination relates will
again be made available for an option grant under the 1999 Plan. In the event
of certain corporate reorganizations, recapitalizations or other specified
corporate transactions affecting the Company or the common stock, the 1999
Plan permits proportionate adjustments to the shares reserved for issuance
under the 1999 Plan and to the number and kind of shares subject to options
and the exercise price of options.
<PAGE>
The 1999 Plan will be administered by the Board's Compensation Committee,
which shall be comprised of no fewer than two non-employee outside directors.
However, with respect to awards to directors, all rights, powers and
authorities vested in the Committee under the 1999 Plan will be exercised by
the Board.
All employees (approximately 5,840) and directors (currently 6 non-employees)
of the Company or any subsidiary are eligible to be granted options under the
1999 Plan. Only employees are eligible to be granted "incentive stock options"
under the Code.
The exercise price of an option will be determined by the Committee, provided
that the exercise price per share may not be less than 100% of the fair market
value of a share of common stock on the effective date of grant. The aggregate
value of common stock that may be subject to incentive stock options that
become exercisable by any one employee in any one year is limited to $100,000
by Code section 422. For purposes of the tax deduction requirements of Code
section 162(m), the Company has established a maximum number of 500,000 shares
of common stock that may be subject to all stock options granted under the
1999 Plan to any optionee during any one calendar year, subject to adjustment
in the event of certain corporate reorganizations, recapitalizations or other
specified corporate transactions.
Options will become vested and exercisable in the manner and subject to the
conditions approved by the Committee for individual grants. However, in no
event will an option become exercisable earlier than in three equal
installments on the first, second and third anniversaries of the effective
date of the option's grant. The maximum term of options granted under the 1999
Plan is ten years from the effective date of grant. Unless otherwise provided
by the Committee and subject to the maximum term of the option, outstanding
options that have previously become vested will remain exercisable for a
period of ninety days after retirement or termination, or in the event of an
optionee's death, one year from the date of death. Upon the retirement,
termination of service or death of an optionee, the Committee may, in its
discretion, permit the exercise of outstanding options sooner or later than
would otherwise be permitted under the 1999 Plan or an option agreement.
Unless otherwise provided by the Committee and set forth in an option
agreement, upon a "Change in Control" of the Company (as defined in the 1999
Plan), each outstanding option shall automatically become vested and
exercisable to the extent that it is not already vested and -exercisable.
<PAGE>
An option may be exercised in whole or in part at any time following vesting
during the term of the option by written notice to the Company, together with
payment of the aggregate exercise price of the option and any required
withholding tax. Such payment shall be made in cash or, at the Committee's
discretion, in common stock or in another form of payment permitted under the
1999 Plan. All options are nontransferable and may be exercised only by the
optionee, except a transfer is permitted upon death by the optionee's will or
the laws of descent and distribution.
The 1999 Plan has a term of ten years, subject to earlier termination by the
Board. The Board may at any time amend or modify the 1999 Plan. To the extent
deemed necessary or advisable by the Board, for purposes of complying with
Code sections 422 or 162(m), or rules of any securities exchange or for any
other reason, the Board may seek the approval of any such amendment by the
stockholders. The Board may not increase the number of shares issuable
pursuant to the 1999 Plan without obtaining the approval of the Company's
stockholders, except for adjustments in the event of certain corporate
reorganizations, recapitalizations or other specified corporate transactions.
FEDERAL INCOME TAX CONSEQUENCES. The following is a general description of
federal income tax consequences to optionees and the Company relating to stock
options granted under the 1999 Plan. This discussion does not purport to cover
all tax consequences relating to the optionees or the Company.
An optionee will not generally recognize income upon the grant of a
nonqualified stock option to purchase shares of common stock. Upon exercise of
the option, the optionee will generally recognize ordinary compensation income
equal to the excess of the fair market value of such shares over the exercise
price paid. The tax basis of the shares of common stock in the hands of the
optionee will equal the exercise price paid for the shares plus the amount of
ordinary compensation income the optionee recognizes upon exercise of the
option, and the holding period for the shares for capital gains purposes will
commence on the day the option is exercised. An optionee who sells any of such
shares of common stock will recognize capital gain or loss measured by the
difference between the tax basis of the shares and the amount realized on the
sale. The Company will be entitled to a deduction equal to the amount of
ordinary compensation income recognized by the optionee. The deduction will be
allowed at the same time the optionee recognizes the income.
An optionee will not generally recognize income upon the grant of an
incentive stock option to purchase shares of common stock and will not
generally recognize income upon exercise of the
<PAGE>
option, provided the optionee is an employee of the Company or a subsidiary at
all times from the date of grant until three months prior to exercise.
However, the amount by which the fair market value of the shares of common
stock on the date of exercise exceeds the exercise price will be includable
for purposes of determining any alternative minimum taxable income of an
optionee. Where an optionee who has exercised an incentive stock option sells
the shares of common stock acquired upon exercise more than two years after
the grant date and more than one year after exercise, capital gain or loss
will be recognized equal to the difference between the sales price and the
exercise price. An optionee who sells such shares of common stock within two
years after the grant date or within one year after exercise will recognize
ordinary compensation income in an amount equal to the lessor of the
difference between (a) the exercise price and the fair market value of such
shares on the date of exercise, or (b) the exercise price and the sales
proceeds. Any remaining gain or loss will be treated as a capital gain or
loss. The Company will be entitled to a deduction equal to the amount of
ordinary compensation income recognized by the optionee in this case. The
deduction will be allowable at the same time the optionee recognizes the
income.
The compensation of persons who are Named Executive Officers (under the
Securities Exchange Act of 1934 regulations) is subject to the tax deduction
limits of Code section 162(m). Stock option compensation that qualifies as
"performance-based compensation" is exempt from section 162(m), thus allowing
the Company the full tax deduction otherwise permitted for such compensation.
If approved by the Company's stockholders, the 1999 Plan will enable the
Committee to grant stock options that will be exempt from the deduction limits
of Code section 162(m).
NEW PLAN BENEFITS. During 1998, 450,694 stock options with an average weighted
exercise price of $34.86 per share were granted to the Named Executive
Officers under the 1989 Stock Option Plan ("the 1989 Plan") and the 1993
Long-Term Incentive Plan for Executives (the "1993 LTIP") as set forth in the
table on page 21 entitled "Options Granted in 1998." (The Named Executive
Officers are the executive officers of the Company.) Also during 1998, the
Committee granted stock options under the 1989 Plan and 1993 LTIP for 587,238
shares to all employees and officers who are not executive officers, as a
group at an average weighted exercise price of $34.4265 per share. No stock
options were granted to our non-employee directors during 1998. The Committee
has not yet made any determinations as to any grants of stock options under
the 1999 Plan. (Please note that all numbers relating to stock options granted
in 1998 have been adjusted to reflect the two-for-one stock split on June 1,
1998.)
<PAGE>
The closing price of the common stock on the NYSE on April 8, 1999 was
$27.1875 per share.
The Board of Directors recommends a vote for the approval of the Policy
Management Systems Corporation 1999 Stock Option Plan.
PROPOSAL 3: RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT AUDITORS
The Board has selected PricewaterhouseCoopers LLP as the Company's independent
auditors for the 1999 fiscal year. PricewaterhouseCoopers (formerly known as
Coopers & Lybrand) have been our independent auditors since 1994.
Representatives from PricewaterhouseCoopers are expected to be present at the
meeting and will have the opportunity to make a statement and will be
available to answer any stockholder questions.
The Board recommends that the stockholders vote for the ratification of
PricewaterhouseCoopers LLP as the Company's independent auditors.
OTHER BUSINESS
The Board is not aware of any other business at this time. If any other
business should be properly presented at the meeting, Messrs. Trub and Wilson
will vote in accordance with their best judgment.
<PAGE>
THE BOARD OF DIRECTORS
We currently have seven directors. Two directors are nominees for re-election
this year. The remaining five directors will continue to serve the terms
described below. Our directors serve staggered terms. This is accomplished as
follows:
- - the directors are divided into three classes as nearly equal as possible;
- - each director serves a three-year term; and
- - the terms of each of the three classes are staggered.
NOMINEES FOR RE-ELECTION THIS YEAR:
DR. JOHN M. PALMS, Ph.D., age 63, has been a director since 1992. Dr. Palms is
the President of the University of South Carolina. He also serves as a
director of Peco Energy Company and Fortis, Inc., and serves as Chairman of
the Board of the Institute of Defense Analyses.
JOHN P. SEIBELS, age 57, has been a director since 1981. Mr. Seibels is
currently a private investor. He also serves as a director of The Seibels
Bruce Group, Inc. and certain of its subsidiaries.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000:
ALFRED R. BERKELEY, III, age 54, has been a director since 1997. Mr. Berkeley
has served as President of The Nasdaq Stock Market, Inc. since May 1996.
Before that, he served as Managing Director and Senior Banker of Alex. Brown &
Sons Incorporated. He is currently also a director of Princeton Capital
Management, Inc.
DONALD W. FEDDERSEN, age 64, has been a director since 1997 and previously
served as a director from January 1983 to October 1994. Mr. Feddersen is
currently a private investor. Before that, he was General Partner of Charles
River Ventures. He serves as a director of a number of privately-owned high
technology companies.
RICHARD G. TRUB, age 68, has been a director since 1981. Mr. Trub is the
Chairman and Treasurer of Trubco, Inc. He previously held the position of
Senior Vice President with the Connecticut National Bank.
<PAGE>
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001:
JOSEPH D. SARGENT, age 69, has been a director since 1986. Mr. Sargent is the
Chairman of Bradley, Foster, & Sargent, Inc. He serves as Vice-Chairman for
Connecticut Surety Corporation and until February, 1998, he served as
Treasurer. He also serves as director for each of Trenwick Group, Inc., Mutual
Risk Management Ltd., EW Blanch Holdings, Inc., Executive Risk Inc., MMI
Companies, Inc., and Command Systems, Inc.
G. LARRY WILSON, age 52, has been a director since 1981.Mr. Wilson is the
Chairman of the Board, President and Chief Executive Officer of the Company.
He has been employed by the Company since its inception.
On July 22, 1997, the Securities and Exchange Commission ("SEC")
commenced a civil proceeding against the Company and certain current and
former officers and employees of the Company, including Mr. Wilson and David
T. Bailey, an executive officer of the Company. In its complaint, the SEC
alleged that the Company and the named individuals had violated certain
provisions of the Securities Exchange Act of 1934 relating to reporting, books
and records and internal controls in connection with the Company's 1990-1993
financial statements and reports. Simultaneously with the filing of the
complaint, all defendants filed consents in which they neither admitted nor
denied the allegations made, agreed to the entry of an injunction requiring
future compliance with those provisions of the federal securities laws, and
agreed to pay certain civil penalties. The Company agreed to pay a civil
penalty of one million dollars and each individual agreed to pay a civil
penalty of twenty thousand dollars.
<PAGE>
BOARD AND COMMITTEE MEETINGS
During 1998, the Board met five times. All of the directors attended at least
75% of the aggregate of all meetings of the Board and all committees of which
they were members. The following table describes the Board's committees.
Committee Functions of the Committee Times Met in 1998
AUDIT COMMITTEE recommends selection of our
Trub (Chairman) independent auditors 6
Feddersen reviews with the independent and internal
Seibels auditors their planned activities, audits
and findings, and reports to the Board;
reviews financial reports; and
reviews the Company's financial and
accounting policies and disclosures
COMPENSATION COMMITTEE establishes compensation
Sargent (Chairman) for senior officers and directors; 4
Berkeley adopts compensation plans in which
Palms employees, officers and directors are
eligible to participate; and
approves compensation guidelines for
employees
CORPORATE GOVERNANCE recommends nominees for election as
COMMITTEE directors and officers to the full Board; and
Seibels (Chairman) reviews the performance of current 2
Berkeley directors and officers
Palms
Wilson
EXECUTIVE COMMITTEE acts on behalf of the Full Board between
Wilson (Chairman) Board meetings or appropriate 0*
Feddersen
Sargent
Trub
* The Executive Committee took one action by unanimous written consent without
meeting during 1998.
<PAGE>
AUDIT COMMITTEE REPORT ON THE BLUE RIBBON COMMITTEE RECOMMENDATIONS FOR
CORPORATE AUDIT COMMITTEES. On February 8, 1999, the Blue Ribbon Committee on
Improving the Effectiveness of Corporate Audit Committees, established by the
NYSE and the National Association of Securities Dealers ("NASD"), released its
report announcing ten recommendations to strengthen the role of audit
committees in overseeing the corporate financial reporting process. These
recommendations call for the adoption of certain rules and procedures by the
SEC and/or the NYSE and NASD. We support their efforts and recommendations to
enhance the financial reporting and oversight process and believe that many of
the procedures which we already follow are consistent with the rules being
recommended, such as:
- - all of the members of the Audit Committee are independent directors;
- - the Audit Committee meets the minimum recommended committee size;
- - each member of the Audit Committee is financially literate as suggested
in the report;
- - the Committee has members with financial-related degrees and financial
expertise;
- - at each meeting for a number of years, the Audit Committee has engaged
in discussions with our outside auditors regarding the quality of
our financial reports;
- - the outside auditors are ultimately accountable to the Board and Audit
Committee as the Committee recommends the retention of the auditors
and the recommendation is submitted to the full Board for approval; and
- - our outside auditors currently review our quarterly financial
information under the current provisions of Statements on Auditing
Standards No. 71 "Interim-Financial Information" ("SAS 71").
There are several other recommendations in the Blue Ribbon Committee
report that require action by certain regulatory bodies such as the SEC, NYSE
and NASD. These recommendations include mandating the establishment of a
written audit committee charter specifying the scope of the committee's
responsibilities, annual public disclosure of audit committee's activities,
discussion with outside auditors regarding independence, annual audit
committee letter to shareholders, and amendments to SAS 71 concerning interim
review of quarterly financial information and communications to the audit
committee by the outside auditors. The Board intends to address these
recommendations further either upon clarification and action by the
appropriate regulatory bodies or, in the absence of such regulatory action,
during the latter part of this year.
<PAGE>
COMPENSATION PLANS AND ARRANGEMENTS
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION PHILOSOPHY.
PMSC's executive compensation program is based on the beliefs that: (i) to
ensure the continued growth and performance of PMSC it is necessary to
attract, retain and motivate qualified executives through competitive
compensation, and (ii) the interests of executives should be closely aligned
with those of PMSC's stockholders. Under this philosophy:
- - To motivate executive personnel to perform at their full potential, a
significant portion of compensation is incentive-based and is linked to
accomplishing specific, financial objectives (both individual and corporate)
which are intended to create both long- and short-term value for our
stockholders.
- - Each executive's individual performance and contribution should be
reflected through salary adjustments and the amount of incentive awards paid,
if any.
- - A significant portion of executive officers' total compensation should
be in the form of stock and stock-based incentives.
- - In years of strong performance, executives can earn a highly competitive
level of compensation. As a result, we will be able to attract, retain and
motivate the leadership talent needed to maintain and grow our business
successfully. Conversely, in years of below average performance, an executive
will receive compensation that is less competitive.
- - It is essential that the Committee retain the flexibility to evaluate
not only the overall performance of the individual executive officers, and the
Company as a whole, but also all other circumstances and challenges facing the
Company and the respective executive officer. Consequently, the Committee uses
its subjectivity rather than objective formulas in setting and adjusting the
base salary of the CEO and other executive officers.
ELEMENTS OF COMPENSATION.
Executive compensation consists primarily of three parts:
- - Base Salary;
- - Annual Incentives; and
- - Stock-Based Incentives.
Each of these elements is described in more detail below. (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.)
<PAGE>
BASE SALARY. For 1998, we used a subjective assessment of the overall
performance of the Company and the executive officers, including their
achievements, responsibilities, experience and breadth of knowledge, in
setting the amount of salary increase for 1998 for all executive officers,
including the CEO. No specific weight was assigned to these factors.
In determining Mr. Wilson's base salary increase, we also considered how
well he performed in the following areas in addition to those set forth above:
- - development and implementation of a strategic vision for the Company,
integrating insurance industry knowledge, technology trends,
product directions, and customers' needs;
- - management of the Company's financial affairs;
- - recruitment and retention of qualified executives;
- - delegation of responsibility and authority to qualified managers;
- - capitalization on business opportunities; and
- - exhibition of leadership in achieving the Company's goals.
No specific weight was assigned to these factors.
In addition, in determining the amount of increase in compensation in
1998, we considered the Company's actual results for 1997 in the areas of:
- - product development;
- - new business acquisitions;
- - overall financial strength;
- - perceived customer satisfaction; and
- - the Company's prospects for long-term growth.
Based upon our evaluations of the above factors and Mr. Wilson's
significant contribution to the Company's 1997 performance, we increased his
base salary for 1998 by approximately 10%.
ANNUAL INCENTIVES AND RESTRICTED STOCK OWNERSHIP PLAN. The annual bonus
program for executive officers, including the CEO, is intended to meet two
primary objectives. First, it is designed to provide short-term incentives and
rewards based on the Company's short-term goals that are consistent with its
long-term goals. Second, the annual bonus program is designed to promote the
Company's philosophy of having a substantial portion of executive compensation
at risk. We
<PAGE>
believe that for the executive officers, a bonus amount equal to 60% of base
salary is an appropriate percentage to have at risk on an annual basis.
We also believe that one of the best ways to align the interests of our
executive officers with your interests as a stockholder is by promoting
executive officers' ownership of Company stock. To promote this goal, the
Company established the Restricted Stock Ownership Plan during 1998. The Plan
establishes stock ownership guidelines for officers and directors and enables
the Company to further the long-term goal of increasing the level of stock
ownership while continuing to provide significant short-term rewards.
Participation in the Plan is mandatory for directors and United States-based
officers until they have satisfied the applicable stock ownership guidelines.
Under the guidelines, officers are required to hold Company stock in multiples
of their base salary ranging from 1 times salary for vice presidents to 5
times salary for the Chief Executive Officer. Directors who are not employees
are required to hold 5 times the annual retainer for directors. Directors and
officers have annual targeted percentages of ownership to achieve each year
and are to achieve 100% of the guideline for their office within 6 years of
the Plan's adoption or their first election to the office to which this
guideline is applicable. They may elect not to participate in the Plan after
having achieved 100% of the stock ownership guidelines applicable to their
position.
Under the Plan, annual retainers for directors and bonuses for officers
are paid partially in cash and partially in restricted stock. The Company
engaged Hewitt Associates LLC to assist in developing the Plan and in
determining the appropriate level of stock premium to compensate plan
participants for risks associated with the forfeiture of restricted stock,
market fluctuations, and deferral of current economic benefits of current cash
compensation. Our 50% increase in the value of the portion of the bonus paid
in restricted stock ("50% premium") is within the recommended premium range.
Generally, for those directors and officers who have achieved their
annual targeted percentages of ownership, annual retainers and any bonuses
will be paid 50% in cash and 50% in restricted stock (with a 50% premium). For
directors and officers who have not achieved their stock ownership guidelines,
annual retainers and any bonuses will be paid 100% in restricted stock (with a
25% premium).
The restricted shares vest in 20% increments on January 1 of each of the
five calendar years following the year in which the restricted shares are
awarded. Unvested restricted shares are forfeited upon termination for cause,
upon the voluntary termination of a directorship, or upon the voluntary
termination of employment of an officer. Upon death, retirement or disability
of a participant or upon a change in control, all unvested restricted shares
shall fully vest.
<PAGE>
The annual bonus for executive officers with profit and loss responsibility
reporting to the CEO (a "P&L Executive Officer") was generally comprised of
two parts. One part was based on the Company's performance, as measured by
targeted earnings-per-share. If actual 1998 earnings-per-share were less than
the target, the bonus would be reduced for 1998 by stated percentages. The
other part was based on the performance of the group for which the executive
is responsible, as measured against the business plan established for 1998 and
group earnings growth over the prior year. If the actual 1998 group
performance or growth was less than the target, the bonus would be reduced for
1998 by a stated percentage.
For Mr. Wilson and those executive officers other than the P&L Executive
Officers, the annual bonus was based on the Company's performance, as measured
by targeted earnings-per-share for 1998. Messrs. Morrison and Williams are the
only named executive officers who are not P&L Executive Officers. As with the
P&L Executive Officers, if the actual 1998 performance was less than the
target, the bonus would be reduced for 1998 by a stated percentage. In
addition, for Messrs. Morrison and Williams, part of such a bonus was measured
against the percentage growth in expenses for their groups as measured against
the percentage growth in the Company's revenues and budgeted growth. If the
percentage in expense growth exceeded a targeted percentage below the growth
in the Company's revenues and budgeted growth, the bonus would be reduced by a
stated percentage.
We retained the discretion to use our subjective assessment to award or
withhold bonuses under the plan for any or all of the executive officers. In
early 1999, we reviewed the level of bonuses that would have been awarded to
each executive officer under the plan described above. We exercised our
discretion and awarded bonuses in amounts we believed to be fair and equitable
and as set forth in the Summary Compensation Table for 1998. With respect to
Mr. Wilson, specifically, we determined that his bonus should equal 60% of the
amount of the target bonus. For the other executive officers, the bonuses
ranged from 0% to 60% of the target bonuses. Each of Messrs. Wilson, Morrison,
Risley and Williams received 50% of their 1998 annual bonus in restricted
stock.
STOCK-BASED INCENTIVES. Options were granted under the 1989 Stock Option Plan.
The Plan, by way of the option vesting schedule for grants, is intended to
provide incentives and rewards for a mid-term (3 years) to long-term (5 years)
and to provide a further means for aligning employees' and your interests in
the enhancement of stockholder value. Stock options are granted at 100% of the
closing price of the stock on the date of grant. In this way, executives are
rewarded only if the stock price goes up, which benefits both you and the
executive.
<PAGE>
In determining the number and terms of exercise of options to be granted in
1998, including the number for Mr. Wilson, we 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 our
subjective assessment, the number and exercise price for options historically
granted annually to the executive officers has provided the appropriate
incentive and rewards. Consequently, for the options granted in 1998, we
determined that granting, in most cases, approximately the same number of
options as had previously been granted would provide the appropriate level of
incentive and reward for the executive officers.
DEDUCTIBILITY CAP ON EXECUTIVE COMPENSATION.
Beginning in 1994, the federal tax laws disallow corporate deductibility for
certain compensation paid in excess of $1 million to the chief executive
officer and the other four most highly paid executive officers of
publicly-held companies. "Performance-based compensation" as defined in the
tax law, is not subject to the deductibility limitation, provided certain
stockholder approval and other requirements are met. During 1998, the
deductibility cap had an immaterial impact on the Company. At the present
time, it is not known whether the deductibility cap will have an impact on the
Company in 1999, although it is possible. The Company believes that the 1993
Long-Term Incentive Plan for Executives and the Company's 1989 Stock Option
Plan satisfy the requirements as performance-based compensation under the
exception. Therefore, the Company expects that any stock option compensation
realized upon the exercise of stock options granted under these plans will not
be subject to the compensation deduction limitation. The Company also believes
that approval by the stockholders of the 1999 Stock Option Plan will qualify
future option grants for this exception.
Compensation Committee
Joseph D. Sargent (Chairman)
Alfred R. Berkeley, III
Dr. John M. Palms
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee of the Board of Directors consisted of
Messrs. Sargent, Berkeley, and Palms. None of the Committee members are or
were previously employees or officers of PMSC or any of its subsidiaries.
COMPENSATION OF DIRECTORS
In 1998, non-employee directors received the following compensation:
- - an annual fee of $18,000 (payable in cash and restricted stock pursuant
to the Restricted Stock Ownership Plan as discussed above);
- - $2,000 for each Board meeting attended;
- - $1,000 for each committee meeting attended in person (if not on a
regular Board meeting date);
- - a $500 fee, plus $250 per hour for each additional hour or part thereof for
participation in meetings by telephone (not to exceed $1,000 per meeting);
- - travel expenses of attending Board and committee meetings; and
- - $1,000 per day for attending to Company business in person at non-Board
or committee meetings.
Directors who are also full-time employees of the Company do not receive
additional compensation for their services as directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table gives the compensation earned, including stock options
granted, by the Chief Executive Officer and the next five most highly
compensated executive officers for the years 1998, 1997 and 1996. We refer to
all of these officers as the "Executive Group."
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation Awards
-----------------------------
Number of
Annual Compensation Securities
------------------------- Restricted Underlying
Name and Stock Options All Other
Principal Position Year Salary Bonus (1) Awards(2) Granted (3) Compensation (4)
- ------------------ ---- ------ --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
G. LARRY WILSON 1998 $783,750 $235,950 $353,925 150,000 $10,710
President and Chief 1997 712,500 429,000 0 150,000 10,635
Executive Officer 1996 646,545 30,000 0 150,000 10,260
DAVID T. BAILEY 1998 $412,307 $ 0 $ 0 70,000 $ 7,200
Executive 1997 368,660 155,400 0 70,000 7,125
Vice President 1996 333,470 20,000 0 70,000 6,750
PAUL R. BUTARE 1998 $390,077 $100,733 $ 0 70,000 $ 4,500
Executive 1997 367,313 222,000 0 70,000 4,275
Vice President 1996 299,988 35,000 0 170,000 4,275
STEPHEN G. MORRISON 1998 $493,260 $148,500 $222,750 70,000 $10,710
Executive Vice 1997 448,469 270,000 0 70,000 10,635
President, General 1996 407,686 20,000 0 100,000 10,260
Counsel, Secretary and
Chief Administrative Officer
MICHAEL W. RISLEY 1998 $271,371 $ 67,931 $101,897 20,694 $ 7,200
Executive 1997 224,795 43,775 0 20,000 6,432
Vice President 1996 183,163 49,011 0 35,112 4,275
TIMOTHY V. WILLIAMS 1998 $371,118 $111,600 $167,400 70,000 $ 7,200
Executive Vice 1997 343,994 207,000 0 70,000 7,125
President and Chief 1996 317,148 20,000 0 50,000 6,750
Financial Officer
<FN>
___________
(1) Reflects amount earned in year indicated even though actually paid in
following year.
(2) No shares of restricted stock were awarded to the Executive Group in 1998. The
values set forth in this column represent the portion of each executive officers'
annual bonus payable in restricted stock, which awards were made on February 8,
1999 at $52.5813 per share. The restricted shares vest in 20% increments on
January 1 of each of the five calendar years following the year in which the
restricted shares are awarded. Restricted shares will participate in dividends the
same as other shares of common stock; however, the Company has never declared cash
dividends. (See Annual Incentives and Restricted Stock Ownership Plan under
Compensation of Executive Officers above.)
(3) Adjusted for the two-for-one stock split on June 1, 1998.
(4) Amounts shown are matching contributions from the Company under its 401(k)
Retirement Savings Plan and the Company's Employee Stock Purchase Plan.
</TABLE>
<PAGE>
The following table sets forth certain information regarding options for
common stock granted to the Executive Group during 1998. The table includes
the potential realizable value which would exist based on assumed annual
compounded rates of common stock price appreciation of five and ten percent
over the full ten-year term of the options.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN 1998*
Individual Grants
-----------------------------------------------
Percent
Number of Total Potential Realizable Value
Of Securities Options Exercise at Assumed Annual Rates
Underlying Granted to Price Expiration of Stock Price Appreciation
Options Employees Per Date of for Option Term (1)
Name Granted in 1998 Share Options 5% 10%
- ---------------- ------------- -------- ------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
All Stockholders $804,576,722(2) $2,038,953,584(2)
G. Larry Wilson 150,000 (3)(5) 14.5% $ 34.88 January 2, 2008 $ 3,290,379 $ 8,338,458
David T. Bailey 70,000 (3)(5) 6.7% $ 34.88 January 2, 2008 $ 1,535,510 $ 3,891,280
Paul R. Butare 70,000 (3)(5) 6.7% $ 34.88 January 2, 2008 $ 0(7) $ 0(7)
Stephen G. Morrison 70,000 (3)(5) 6.7% $ 34.88 January 2, 2008 $ 1,535,510 $ 3,891,280
Michael W. Risley 20,000 (4)(5) 1.9% $ 34.06 February 9, 2008 $ 428,403 $ 1,085,657
694 (6) 0.1% $45.5625 January 19, 2003 $ 19,886 $ 50,395
Timothy V. Williams 70,000 (3)(5) 6.7% $ 34.88 January 2, 2008 $ 1,535,510 $ 3,891,280
<FN>
_____________
*All amounts shown in this table have been adjusted for the two-for-one stock split on June 1, 1998.
(1) We have included this information to illustrate how the stockholders will have fared compared to each
of the named executives if the assumed appreciation is achieved based upon the option grant date of
January 2, 1998.
(2) The potential realizable value for all stockholders is based on the number of shares of common stock
outstanding on January 2, 1998 (the date the options described in note 3 below were granted), and assumes
the stockholders purchased the common stock for $34.88 (which was the fair market value of the common
stock on January 2, 1998) and held the common stock until January 2, 2008.
<PAGE>
(3) These options were granted pursuant to the 1989 Plan. The exercise price is the fair market value of
the common stock on January 2, 1998, which was the date of grant.
(4) These options were also granted pursuant to the 1989 Plan. The exercise price is the fair market value
of the common stock on February 9, 1998, which was the date of grant.
(5) The options become exercisable in one-fourth increments on each of the first four anniversary dates of
the grant date. All such options would become immediately exercisable in the event of a change in control
of the Company and the optionee would have the right to exercise such options for a period of ninety days
after termination of employment. In the event of a dissolution or liquidation of the Company or any merger
or combination in which the Company is not the surviving entity, each option granted shall terminate, but
not before each optionee is permitted to exercise his or her options to the extent they are exercisable,
without regard to any installment exercise provision in the 1989 Plan.
(6) These options were granted on November 10, 1998, upon Mr. Risley's promotion, pursuant to the formula
contained in the 1993 LTIP. They became exercisable on January 1, 1999. In the event of dissolution or
liquidation of the Company or any merger or combination in which the Company is not the surviving entity,
each option granted shall terminate, but not before Mr. Risley is permitted to exercise his options to the
extent they are exercisable, without regard to any installment exercise provisions in the Plan.
(7) These options were forfeited upon Mr. Butare's resignation from his position as Executive Vice
President on January 13, 1999.
</TABLE>
<PAGE>
The following table sets forth information for the Executive Group regarding
stock options exercised during 1998 and the value of "in-the-money" options.
"In-the-money" options have a positive difference between the exercise price
of such stock option and $50.50, the closing price of the Company's common
stock on December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED IN 1998
AND 1998 YEAR-END OPTION VALUES
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at December 31, 1998* at December 31, 1998**
On Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. Larry Wilson 100,000 $2,981,000 987,500 662,500 $24,929,075 $ 14,495,425
David T. Bailey 286,833 $6,659,010 118,000 309,167 $ 1,702,160 $ 6,701,374
Paul R. Butare 244,222 $5,561,007 0 79,584 $ 0(1)$1,749,227(1)
Stephen G. Morrison 25,000 $ 860,963 183,216 270,118 $ 5,479,843 $ 6,995,013
Michael W. Risley 0 $ 0 38,832 81,558 $ 1,091,363 $ 2,005,083
Timothy V. Williams 42,280 $2,088,024 107,500 239,884 $ 2,898,875 $ 5,945,407
<FN>
_____________
* All shares adjusted for the two-for-one stock split on June 1, 1998.
** Value represents the aggregate excess of the market price of the common stock on
December 31, 1998, which was $50.50, 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.
(1) All unexercised options were forfeited upon Mr. Butare's resignation from his
position as Executive Vice President on January 13, 1999.
</TABLE>
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.
<PAGE>
EMPLOYMENT AGREEMENTS. The Company has an Employment Agreement with each of
Messrs. Wilson, Bailey, Morrison, Risley, and Williams, which set initial
annual salaries at their then current annual salary, subject to future
increases in accordance with the Company's practices. In the event of a change
in control of the Company (as defined in the Agreement), the executive's then
base salary will increase to 150% of the base salary in effect immediately
prior to the change in control.
The term of each executive officer's Employment Agreement continues until
December 31, 2003. The term is subject to annual twelve month extensions,
unless six months notice of non-extension is given. In the event of a change
in control, the term is extended automatically twelve months.
The Employment Agreements may be terminated by the Company for cause. If
the executive is terminated for reasons other than for cause or if the
executive terminates for good reason, the executive will receive annual
severance payments for the remaining term of the Employment Agreement equal to
base salary plus an amount equal to either the highest annual bonus received
in the two years preceding termination or, if after a change in control, 150%
of the highest annual bonus during the two years preceding termination. Should
such payments be subject to an excise tax pursuant to Section 4999 of the
Internal Revenue Code, or similar law, additional compensation as is necessary
to offset such tax effects also will be paid to the executives. The severance
payments under the Employment Agreements would cease in the event of
reasonable proof of any violation of the non-competition, non-solicitation of
employees, or confidentiality provisions of the Employment Agreement.
The stock options of the executive officers named in the Summary Compensation
Table above would become immediately exercisable in the event of a change in
control. In no event, however, may an optionee exercise such options after the
tenth anniversary date of the date of grant of such options.
On January 13, 1999, Mr. Butare resigned from his position as Executive Vice
President.
<PAGE>
This table sets forth certain information based on Schedules 13G filed with
the SEC, as of March 10, 1999, regarding beneficial owners of more than five
percent of the Company's common stock.
Common Stock Percentage
Name and Address Beneficially Owned of Class (1)
- ------------------------------- ------------------- ------------
WELLINGTON MANAGEMENT COMPANY 4,307,508 (2) 12.00%
("Wellington")
75 State Street
Boston, Massachusetts 02109
FMR CORP. ("FIDELITY") 4,132,400 (3) 11.52%
82 Devonshire Street
Boston, Massachusetts 02109
THE REGENTS OF THE UNIVERSITY 2,706,400 (4) 7.54%
OF CALIFORNIA ("REGENTS")
1111 Broadway, 14th Floor
Oakland, California 94607
AXA ASSURANCES I.A.R.D. MUTUELLE ("AXA") 1,918,955 (5) 5.35%
21, rue de Chateaudun
75009 Paris, France
(1) Determined using the number of shares of common stock outstanding on
March 10, 1999.
(2) Of the shares reported, Wellington has sole voting power for none of
the shares, shared voting power for 2,729,542 of the shares and shared
dispositive power for all of the shares. This information is based on
information contained in the Schedule 13G filed by Wellington with the SEC on
February 10, 1999.
(3) Of the shares reported, Fidelity has sole voting power for 21,400 of
the shares, shared voting power for none of the shares and sole dispositive
power for all of the shares. This information is based on information
contained in the Schedule 13G filed by Fidelity with the SEC on March 10,
1999.
(4) Of the shares reported, Regents has sole voting and dispositive power
for all of the shares. This information is based on information contained in
the Schedule 13G filed by Regents with the SEC on February 11, 1999.
(5) Of the shares reported, AXA has sole voting power for 1,180,595 of the
shares, shared voting power for 577,885 of the shares, sole dispositive power
for 1,918,040 of the shares and shared dispositive power for 915 of the
shares. This information is based on information contained in the Schedule 13G
filed by AXA with the SEC on February 16, 1999.
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 10, 1999, beneficial ownership of
common stock by each director and executive officer named in the Summary
Compensation Table above, and by all directors and all executive officers as a
group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Shares Subject Percentage
Name of Beneficial Owner Ownership (1) To Option (2) Of Class (3)
- ------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Alfred R. Berkeley, III 10,657 10,000 *
Donald W. Feddersen 10,657 10,000 *
Dr. John M. Palms 16,147 15,000 *
Joseph D. Sargent 60,659 60,002 *
John P. Seibels 74,157 67,500 *
Richard G. Trub 16,657 15,000 *
G. Larry Wilson 1,425,579 1,192,500 3.7%
David T. Bailey 219,773 217,000 *
Paul R. Butare 2,254 0 *
Stephen G. Morrison 286,251 275,834 *
Michael W. Risley 73,749 66,656 *
Timothy V. Williams 204,013 199,884 *
Directors and all executive officers
as a group (12 in number) 2,400,553 2,129,376 6.3%
<FN>
- ------------
(1) Each individual has sole voting power and sole dispositive power,
except that for the following unvested shares awarded under the Restricted
Stock Ownership Plan, the respective individual does not have dispositive
power for the number of shares indicated: Berkeley - 596; Feddersen - 596;
Palms - 596; Sargent - 596; Seibels - 596; Trub - 596; Wilson - 6,731;
Morrison - 4,236; Risley - 1,938; and Williams - 3,184. The amounts in this
column include shares owned by the respective individuals in the PMSC Stock
Fund in the PMSC 401(k) Retirement Savings Plan over which such individual has
sole dispositive power and, beginning with this year, sole voting power.
(2) These shares, which are included in the "Amount and Nature of
Beneficial Ownership" column, are subject to option on or before May 11, 1999,
pursuant to the Company's various stock option plans.
(3) Where indicated by asterisk, beneficial ownership represents less than
one percent of the sum of the total number of shares of common stock
outstanding on March 10, 1999, plus the total shares subject to option.
</TABLE>
<PAGE>
STOCK PERFORMANCE
This graph compares the cumulative total stockholder return on the common
stock during the five years ended December 31, 1998, 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 1993 in our common stock and also in each of the indices
and assumes reinvestment of all dividends that may have been paid. The
performance shown in the graph is not necessarily indicative of future
performance.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PMSC 100 135.48 153.63 148.79 224.39 325.81
S&P 500 Index 100 101.32 139.40 171.40 228.59 293.91
Computer (Software & Svc)-500 100 118.21 166.12 258.25 359.75 651.84
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believe, during 1998, that all required filings with the SEC of reports of
stock ownership (and changes thereto) by our directors, officers and 10%
stockholders were timely made, except that for David T. Bailey, one monthly
report was inadvertently filed three days after the due date.
<PAGE>
STOCKHOLDER PROPOSALS
While we do not believe that any other business will be presented at the
meeting, should other business properly and lawfully come before the meeting,
Messrs. Trub and Wilson will vote in accordance with their best judgment.
If you would like to present a stockholder proposal at the annual
stockholders meeting in 2000 and have it included in the proxy statement and
proxy card for such meeting, it must be received by us not later than December
18, 1999. You should mail any such proposal to the attention of the Company's
Secretary at the following address: PMSC, Post Office Box Ten, Columbia, South
Carolina 29202.
Pursuant to SEC Rule 14a-4c(1) and the 90 days advance notice requirement in
our Bylaws, unless we receive notice by February 10, 2000, of any stockholder
proposal, management's proxies shall be permitted to use their discretionary
authority at the 2000 annual stockholders meeting if such proposal is raised
at the meeting.
STOCKHOLDER NOMINEES FOR DIRECTORS. Although we have no formal procedure
whereby nominations for directors are solicited from stockholders, the Board's
Corporate Governance Committee will consider candidates for directors
recommended by stockholders if such recommendations are delivered to us no
later than: (a) with respect to an election to be held at an annual
stockholders meeting, ninety days prior to such meeting; and (b) with respect
to an election to be held at a special stockholders meeting 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 recommendation shall
include: (a) the names and addresses of the stockholder intending to make the
nomination and the person(s) to be nominated; (b) a representation that the
stockholder is a holder of record of our common stock entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person(s) specified in the recommendation; (c) a description of all
arrangements or understandings between the stockholder and each nominee and
any other person(s) (naming them) pursuant to which the nomination(s) 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, had the nominee been or intended to be nominated by the Board of
Directors; and (e) the consent of each nominee to serve as a director, if
elected.
Stephen G. Morrison
Secretary
<PAGE>
APPENDIX A
POLICY MANAGEMENT SYSTEMS CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSE
----------
The purpose of this Plan is to enhance the profitability and value of PMSC and
to promote the interest of PMSC and its Subsidiaries by granting options to
purchase Common Stock to certain Eligible Persons in order: (1) to attract and
to retain such persons; (2) to provide an additional incentive to each such
person to work to increase the value of Common Stock; and (3) to provide each
such person with a stake in the future of PMSC which corresponds to the stake
of each of PMSC's shareholders.
2. DEFINITIONS
--------------
Unless the context requires otherwise, capitalized terms used in this Plan
shall have the meaning set forth in the Glossary attached to this Plan.
3. SHARES SUBJECT TO OPTIONS
----------------------------
Subject to adjustment pursuant to the provisions of Article 15 hereof, there
shall be 1,750,000 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. Shares
of Common Stock covered by an Option that shall have been exercised shall not
again be available for an Option grant. If an Option shall terminate or expire
for any reason without being wholly exercised, the number of shares to which
such Option termination relates shall again be available for grant hereunder.
4. EFFECTIVE DATE
-----------------
The effective date of this Plan shall be the date it is approved by the
shareholders of PMSC voting at a duly called meeting of such shareholders.
5. COMMITTEE
------------
5.1 COMMITTEE MEMBERS. The Plan shall be administered by a Committee comprised
- ---------------------
of no fewer than two persons selected by the Board. Solely to the extent
deemed necessary or advisable by the Board, each Committee member shall meet
the definition of a "non-employee director" for purposes of such Rule 16b-3
under the Exchange Act and of an "outside director" under section 162(m) of
the Code. The Board shall also have the authority to exercise the powers and
duties of the Committee under this Plan.
<PAGE>
5.2 ADMINISTRATION BY THE 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. The
Committee shall have the power to interpret this Plan and (subject to the
terms of this Plan) to take such other action in the administration and
operation of this Plan as the Committee deems equitable under the
circumstances. All actions of the Committee shall be binding on PMSC, on each
affected Optionee, and on each other person directly or indirectly affected by
such action.
5.3 GRANTS TO NON-EMPLOYEE DIRECTORS. Awards of Options to non-employee
- ----------------------------------------
directors shall be approved by the Board. With respect to awards to
non-employee directors, all rights, powers and authorities vested in the
Committee under this Plan shall instead be exercised by the Board, and all
provisions of this Plan relating to the Committee shall be interpreted in a
manner consistent with the foregoing by treating any such reference as a
reference to the Board for such purpose.
6. ELIGIBILITY
--------------
Only Eligible Persons shall be eligible for the grant of Options under this
Plan.
7. GRANT OF OPTIONS
-------------------
7.1 COMMITTEE ACTION. The Committee, in its absolute discretion, may, from
- ----------------------
time to time, grant Options to those Eligible Persons selected by the
Committee, pursuant to the terms of this Plan. The grant of an Option shall be
effective upon the date the grant is approved by the Committee, except to the
extent the Committee shall specify a later date, then that later date shall be
the effective date of the grant. At the election of the Committee, each grant
of an Option shall be evidenced by an Option Agreement incorporating such
terms and conditions as the Committee acting in its absolute discretion deems
consistent with the terms of this Plan. The Option Agreement may include
additional provisions and restrictions which are not inconsistent with this
Plan. Each Option shall be designated, at the discretion of the Committee, as
an ISO or a Non-ISO; provided, however, that ISO's may only be granted to
Eligible Persons who are employees of PMSC.
7.2 ANNUAL INDIVIDUAL LIMIT. 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 this Plan for
changes in capital structure and other corporate transactions.
<PAGE>
8. OPTION PRICE
---------------
The Option Price for each share of Common Stock subject to an Option shall be
no less than Fair Market Value of a share of Common Stock on the effective
date of the grant of the Option
9. EXERCISE PERIOD
------------------
9.1 TERM OF OPTION. Subject to the terms of this Plan and any further
- ---------------------
restrictions which may be contained in an Option Agreement, an Option may be
exercised in whole or in part, with respect to whole shares only, during the
Term commencing on the date one (1) year after the effective date such Option
is granted and ending on the earlier of:
(1) the date such Option is exercised in full; or
(2) the date which is one day prior to the tenth anniversary of the date
such Option is granted.
9.2 EXERCISABILITY SCHEDULE. At the time of grant, the Committee shall
- -----------------------------
establish a schedule for the Options to become exercisable, but in no event
shall an Option be scheduled at the effective date of grant to become
exercisable earlier than in three (3) equal installments on the first, second,
and third anniversary dates of the effective date of the grant of the Option.
9.3 OPTION EXERCISE; WITHHOLDING. Subject to such terms and conditions as
- -----------------------------------
shall be specified in an Option Agreement, an otherwise exercisable Option may
be exercised in whole or in part at any time, with respect to whole shares
only, within the period permitted for the exercise thereof, and shall be
exercised by written notice of intent to exercise the Option with respect to a
specified number of shares delivered to PMSC at its principal office, and
payment in full to PMSC at said office of the amount of the Option Price for
the number of shares of the Common Stock with respect to which the Option is
then being exercised. Payment of the Option Price shall be made: (i) in cash
or by cash equivalent; (ii) at the discretion of the Committee, in Common
Stock that has been held by the Optionee for at least six (6) months (or such
other period as the Committee may deem appropriate for purposes of applicable
accounting rules), valued at the Fair Market Value of such shares determined
on the date of exercise; (iii) at the discretion of the Committee, by a
delivery of a notice that the Optionee has placed a market sell order (or
similar instruction) with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed to
pay a sufficient portion of the net proceeds of the sale to PMSC in
satisfaction of the Option Price (conditioned upon the payment of such net
proceeds);
<PAGE>
(iv) at the discretion of the Committee, by a combination of the methods
described above; or (v) by such other method as may be approved by the
Committee and set forth in the Option Agreement. In addition to and at the
time of payment of the Option Price, the Optionee shall pay to PMSC the full
amount of all federal and state withholding and other employment taxes
required to be withheld in connection with such exercise, in any manner
consistent with the foregoing that is approved by the Committee and set forth
in the Option Agreement.
10. NONTRANSFERABILITY
----------------------
All Options shall be nontransferable except upon the Optionee's death, by the
Optionee's will or the laws of descent and distribution.
11. ADDITIONAL RULES FOR ISOS
-----------------------------
11.1 ANNUAL LIMITS. No ISO shall be granted to an Optionee as a result of
- --------------------
which the aggregate Fair Market Value (determined as of the date of grant) of
the Common Stock with respect to which ISO's are exercisable for the first
time in any calendar year under this Plan and any other stock option plans of
PMSC, any Subsidiary, or any Parent Corporation, would exceed the maximum
amount permitted under section 422(d) of the Code. This limitation shall be
applied by taking options into account in the order in which granted.
11.2 TERMINATION OF EMPLOYMENT. An ISO may provide that such Option may be
- ---------------------------------
exercised not later than three (3) months following termination of employment
of the Optionee with PMSC and all Subsidiaries, subject to special rules
relating to death, as and to the extent determined by the Committee to be
consistent with the requirements of section 422 of the Code and Treasury
Regulations thereunder.
11.3 OTHER TERMS AND CONDITIONS. Any ISO granted hereunder shall contain such
- --------------------------------
additional terms and conditions, not inconsistent with the terms of this Plan,
as are deemed necessary or desirable by the Committee, which terms, together
with the terms of this Plan, shall be intended and interpreted to cause such
ISO to qualify as an "incentive stock option" under section 422 of the Code.
An Option Agreement for an ISO may provide that such Option shall be treated
as a Non-ISO to the extent that certain requirements applicable to "incentive
stock options" under the Code shall not be satisfied.
<PAGE>
11.4 DISQUALIFYING DISPOSITIONS. If shares of Common Stock acquired by
- ---------------------------------
exercise of an ISO are disposed of within two (2) years following the date of
grant or one (1) year following the transfer of such shares to the Optionee
upon exercise, the Optionee shall, promptly following such disposition, notify
PMSC in writing of the date and terms of such disposition and provide such
other information regarding the disposition as the Committee may reasonably
require.
12. TERMINATION OF SERVICE
--------------------------
12.1 DEATH. Unless otherwise provided by the Committee and set forth in an
- -----------
Option Agreement, if an Optionee shall die at any time after the date of grant
and while an Eligible Person or prior to expiration of the times set forth in
Sections 11.2 or 12.2, the executor or administrator of the estate of the
decedent, or the person or persons to whom an Option shall have been validly
transferred in accordance with this Plan pursuant to will or the laws of
descent and distribution, shall have the right, during the period ending one
(1) year after the date of the Optionee's death (subject to the term of the
Option), to exercise the Optionee's Option to the extent that it was
exercisable at the date of the Optionee's death and shall not have been
previously exercised.
12.2 OTHER TERMINATION OF SERVICE. Unless otherwise provided by the Committee
- ----------------------------------
and set forth in an Option Agreement or as set forth herein, if an Optionee's
employment or other service with PMSC or any Subsidiary shall be terminated
for any reason other than death (including by reason of retirement), the
Optionee shall have the right, during the period ending ninety (90) days after
such termination (subject to the term of the Option), to exercise an Option to
the extent that it was exercisable at the date of such termination and shall
not have been exercised.
12.3 OTHER CIRCUMSTANCES. Notwithstanding any other provision of this Plan and
- ------------------------
upon death or a termination of employment or service, the Committee may, but
shall not be required to do so, in its sole and absolute discretion, permit an
Optionee to exercise outstanding Options including Options that have not yet
become exercisable sooner or later than would otherwise be permitted by this
Plan and/or an Option Agreement.
13. 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 Optionee
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
<PAGE>
shall take such action as it deems necessary or appropriate to register the
original issuance of such Common Stock to an Optionee under the Securities Act
of 1933, as amended, 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 an Optionee; provided, 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 an Optionee.
14. LIFE OF PLAN
----------------
No Option shall be granted under this Plan on or after the date which is one
day prior to the tenth anniversary of the effective date of this Plan, 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.
15. ADJUSTMENT
--------------
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger or consolidation, or the sale,
conveyance, or other transfer by PMSC of all or substantially all of its
property, or any other change in the corporate structure or shares of PMSC,
pursuant to any of which events the then outstanding shares of Common Stock
are split up or combined, or are changed into, become exchangeable at the
holder's election for, or entitle the holder thereof to cash, other shares of
stock or any other consideration, or in the case of any other transaction
described in section 424(a) of the Code, the Committee may change in the
manner that it shall deem to be equitable and appropriate the number and kind
of shares (including by substitution of shares of another corporation) subject
to the Options and/or the Option Price of such shares. An adjustment made
under this Section by the Committee shall be conclusive and binding on all
affected persons and, further, shall not constitute an increase in the number
of shares reserved under Article 3 within the meaning of Article 17 of this
Plan.
16. CHANGE IN CONTROL
---------------------
Unless otherwise provided by the Committee and set forth in an Option
Agreement, upon a Change in Control of PMSC, each outstanding Option, to the
extent that it shall not otherwise have become vested and exercisable, shall
automatically become fully and immediately vested and exercisable, without
regard to any otherwise applicable exercisability schedule or vesting
requirement.
<PAGE>
17. AMENDMENT TO PLAN
---------------------
The Board may at any time and from time to time and in any respect, amend or
modify this Plan. Solely to the extent deemed necessary or advisable by the
Board, for purposes of complying with sections 422 or 162(m) of the Code or
rules of any securities exchange or for any other reason, the Board may seek
the approval of any such amendment by PMSC's shareholders. Notwithstanding the
foregoing, no amendment or modification of this Plan shall in any manner: (i)
affect any Option theretofore granted without the consent of the Optionee or
the permitted transferee of the Option; (ii) increase the number of shares
reserved under Article 3 without the approval of the shareholders of PMSC; or
(iii) reduce the exercise price at which Options may be granted below the fair
market value of the common stock on the effective date of grant.
18. MISCELLANEOUS
-----------------
18.1 NO SHAREHOLDER RIGHTS. No Optionee shall have any right as a shareholder
- ---------------------------
of PMSC or any Subsidiary 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 Optionee.
18.2 NO CONTRACT OF EMPLOYMENT. The grant of an Option to an Optionee under
- ---------------------------------
this Plan shall not constitute a contract of employment and shall not confer
on an Optionee any rights upon his or her termination of employment in
addition to those rights, if any, expressly set forth in an Option Agreement
which evidences his or her Option.
18.3 WITHHOLDING. The exercise of any Option granted under this Plan shall
- -----------------
constitute an Optionee'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.
18.4 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 _________, 1999 to evidence its adoption of this
Plan.
POLICY MANAGEMENT SYSTEMS CORPORATION
BY:________________________________________
G. Larry Wilson
President
<PAGE>
GLOSSARY
TO THE
1999 STOCK OPTION PLAN
The following definitions apply unless the context requires otherwise.
Board - means the Board of Directors of PMSC.
- -----
Change in Control - means the occurrence of one of the following events:
- -------------------
(a) any "person" (as such term is defined in section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act') and as used
in sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of PMSC representing 33 1/3% or more of the
combined voting power of PMSC's then outstanding securities eligible to vote
for the election of the Board (the "PMSC Voting Securities"); provided,
however, that the event described in this paragraph shall not be deemed to be
a Change in Control by virtue of any of the following situations: (i) an
acquisition by PMSC of any of its Subsidiaries; (ii) an acquisition by any
employee benefit plan or employee stock plan sponsored or maintained by PMSC
or any of its Subsidiaries or any trustee or fiduciary with respect to such
plan; or (iii) an acquisition by any underwriter temporarily holding PMSC
Voting Securities pursuant to an offering of such securities;
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof; provided however, that any person becoming a director subsequent to
the date hereof, whose election, or nomination for election, by PMSC's
shareholders was approved by a vote of at least two-thirds of the directors
comprising the Incumbent Board who are then on the Board (either by a specific
vote or by approval of the proxy statement of PMSC in which such person is
named as a nominee for director, without objection to such nomination) shall
be, for purposes of this paragraph (b), considered as though such person were
a member of the Incumbent Board, but excluding for this purpose any individual
elected or nominated as a director of PMSC as a result of any actual or
threatened solicitation of proxies or consents by or on behalf of any person
other than the Board;
<PAGE>
(c) the consummation of a merger, consolidation, share exchange or similar
form of corporate reorganization of PMSC or any of its Subsidiaries that
requires the approval of PMSC's shareholders, whether for such transactions or
the issuance of securities in connection with the transaction or otherwise (a
"Business Combination"), unless (i) immediately following such Business
Combination: (A) more than 50% of the total voting power of the corporation
resulting from such Business Combination (the "Surviving Corporation") or, if
applicable, the ultimate parent corporation which directly or indirectly has
beneficial ownership of 100% of the voting securities eligible to elect
directors of the Surviving Corporation (the "Parent Corporation"), is
represented by PMSC Voting Securities that were outstanding immediately prior
to the Business Combination (or, if applicable, shares into which such PMSC
Voting Securities were converted pursuant to such Business Combination), and
such voting power among the holders thereof is in substantially the same
proportion as the voting power of such PMSC Voting Securities among the
holders thereof immediately prior to the Business Combination, (B) no person
(other than any employee benefit plan or employee stock plan sponsored or
maintained by the Surviving Corporation or Parent Corporation or any trustee
or fiduciary with respect to any such plan) is or becomes the beneficial
owner, directly or indirectly, of 33 1/3% or more of the total voting power of
the outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation), and (C) at least a majority of the members of the Board of
Directors of the Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation), following the Business Combination, were members
of the Incumbent Board at the time of the Board's approval of the execution of
the initial agreement providing for such Business Combination or (ii) the
Business Combination is effected by means of the acquisition of PMSC Voting
Securities from PMSC, and prior to such acquisition a majority of the
Incumbent Board approves a resolution providing expressly that such Business
Combination does not constitute a Change in Control under this paragraph (c);
or
<PAGE>
(d) the shareholders of PMSC approve a plan of complete liquidation or
dissolution of PMSC or the sale or other disposition of all or substantially
all of the assets of PMSC and its Subsidiaries, other than a sale or
disposition of assets to a Subsidiary of PMSC.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than 33
1/3% of PMSC Voting Securities as a result of the acquisition of PMSC Voting
Securities by PMSC which, by reducing the number of PMSC Voting Securities
outstanding, increases the percentage of shares beneficially owned by such
person; provided, that if a Change in Control would occur as a result of such
an acquisition by PMSC (if not for the operation of this sentence), and after
PMSC's acquisition such person becomes the beneficial owner of additional PMSC
Voting Securities that increases the percentage of outstanding PMSC Voting
Securities beneficially owned by such person, a Change in Control shall then
occur.
Code - means the Internal Revenue Code of 1986, as amended.
- ----
Committee - means the Compensation Committee of the Board.
- ---------
Common Stock - means the common stock of PMSC.
- -------------
Eligible Person - means any person who is a full-time or part-time employee,
- ----------------
an officer, or a director of PMSC or any Subsidiary, or any person who is
determined by the Committee to be a prospective employee, officer or director
of PMSC or any Subsidiary, but shall not include any person who is a Ten
Percent Shareholder.
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 National Market, "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 National Market, 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 any reasonable valuation method that a share of Common
Stock would change hands between a willing buyer and a
<PAGE>
willing seller, neither being under any compulsion to buy or to sell and both
having reasonable knowledge of the relevant facts.
ISO - means an option granted under this Plan to purchase Common Stock which
- ---
satisfies the requirements of section 422 of the Code.
Non-ISO - means an option granted under this Plan to purchase Common Stock
- -------
which is not intended to qualify as an incentive stock option pursuant to
section 422 of the Code.
Option - means an ISO or a Non-ISO.
- ------
Option Agreement - means the written agreement or instrument which sets forth
- -----------------
the terms of the Option granted to an Optionee under this Plan.
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.
Optionee - means an Eligible Person to whom an Option has been granted under
- --------
this Plan, which Option has not expired, under this Plan.
Parent Corporation - (i) for the purposes of ISO's, means any corporation
- -------------------
which is a parent of PMSC within the meaning of section 424(e) of the Code and
(ii) for the purposes of Change in Control, shall have the meaning set forth
in the definition of Change in Control above.
Plan - means this Plan, as amended from time to time.
- ----
PMSC - means Policy Management Systems Corporation, a South Carolina
- ----
corporation, and any successor to such corporation.
Subsidiary - (i) means any corporation which is a subsidiary corporation
- ----------
(within the meaning of section 424(f) of the Code) of PMSC and (ii) for
purposes of Change in Control only, means a corporation of which PMSC owns
directly or indirectly 50% or more of the voting power.
<PAGE>
Ten Percent Shareholder - means a person who owns (after taking into account
- -------------------------
the attribution rules of section 424(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.
Term - means the period during which an Option may be exercised as set forth
- ----
in section 9.1 of this Plan.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
POLICY MANAGEMENT SYSTEMS CORPORATION
ONE PMSC CENTER
BLYTHEWOOD, SOUHTH CAROLINA 29016
The undersigned hereby appoints Richard G. Trub and G. Larry Wilson 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 11, 1999, in the offices of the
Company, One PMSC Center, Blythewood, South Carolina, 29016, 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 ON THE
REVERSE. IF NO SPECIFICATION IS MADE, PROXIES WILL BE VOTED FOR THE NOMINEES
FOR DIRECTORS, FOR APPROVAL OF THE POLICY MANAGEMENT SYSTEMS CORPORATION 1999
SOTCK OPTION PLAN AND FOR RATIFICATION OF THE SELECTION OF INDEPENDENT
AUDITIORS. THIS PROXY IS REVOCABLE ANY TIME PRIOR TO ITS USE.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
POLICY MANAGEMENT SYSTEMS CORPORATION
MAY 11, 1999
Please Detach and Mail in the Envelope Provided
X Please mark your
----- votes as in this
example.
FOR all nominees WITHHOLD AUTHORITY
named at right to vote for all nominees
(except as marked to named at right
the contrary below)
1. ELECTION OF
DIRECTORS _______ _______ Nominees: Dr. John M. Palms
John P. Seibels
(INSTRUCTIONS: To withhold authority to vote for any
individual nominee write that nominee's name in the space
provided below.)
____________________________________________
FOR AGAINST ABSTAIN
2. APPROVAL OF THE POLICY MANAGEMENT
SYSTEMS CORPORATION 1999 STOCK
OPTION PLAN. _____ _____ _____
3. RATIFICATION OF THE SELECTION
OF PRICEWATERHOUSECOOPERS
LLP AS INDEPENDENT AUDITORS
FOR THE COMPANY. _____ _____ _____
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
SIGNATURE ____________________________________________ Date______________1999.
NOTE: (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.)
