PRELIMINARY COPY
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
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FAIR, ISAAC AND COMPANY, INCORPORATED
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(Name of Registrant as Specified in Its Charter)
FAIR, ISAAC AND COMPANY, INCORPORATED
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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PRELIMINARY COPY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
February 6, 1996
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Fair,
Isaac and Company, Incorporated (the "Company") will be held at 10 A.M., P.S.T.,
on Tuesday, February 6, 1996, at Fair, Isaac's Conference Center, 111 Smith
Ranch Road, San Rafael, California, for the following purposes:
1. To elect directors to serve until the 1997 Annual Meeting of
Stockholders and thereafter until their successors are elected and
qualified.
2. To amend the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock, par value
$.01 per share, from 15,000,000 to 35,000,000.
3. To approve amendments to the Company's 1992 Long-term Incentive Plan as
described in the accompanying proxy statement.
4. To ratify the appointment of the independent auditors of the Company.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
All of the above matters are more fully described in the accompanying Proxy
Statement. Only stockholders of record at the close of business on Friday,
December 8, 1995, are entitled to notice of and to vote at the meeting or any
postponement or adjournment thereof. A list of stockholders entitled to vote at
the Annual Meeting will be available for inspection at the Company's offices,
111 Smith Ranch Road, San Rafael, California, at least 10 days before the
meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even if he or she returned a proxy.
Sincerely,
Peter L. McCorkell
Senior Vice President and Secretary
San Rafael, California
January 2, 1996
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. In order to assure your representation at the meeting,
you are requested to complete, sign and date the enclosed proxy as promptly as
possible and return it in the enclosed envelope (to which no postage need be
affixed if mailed in the United States).
PRELIMINARY COPY
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of Fair, Isaac and Company, Incorporated
(the "Company") of proxies to be used at the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held on Tuesday, February 6, 1996, and
any postponement or adjournment thereof. A copy of the Company's Annual Report
to Stockholders for the fiscal year ended September 30, 1995, which includes the
Company's financial statements as of September 30, 1995, accompanies this Proxy
Statement. Stockholders may obtain a copy of the Company's Annual Report on Form
10-K and a list of the exhibits thereto without charge by written request to
Peter L. McCorkell, Corporate Secretary, 120 North Redwood Drive, San Rafael, CA
94903. This Proxy Statement and the accompanying form of proxy are being mailed
to stockholders on or about January 2, 1996.
PROXY SOLICITATION
The shares represented by the proxies received pursuant to this
solicitation and not revoked will be voted at the Annual Meeting. A stockholder
who has given a proxy may revoke it by giving written notice of revocation to
the Secretary of the Company or by giving a duly executed proxy bearing a later
date. Attendance in person at the Annual Meeting does not of itself revoke a
proxy; however, any stockholder who does attend the Annual Meeting may revoke a
proxy previously submitted by voting in person. Subject to any such revocation,
all shares represented by properly executed proxies will be voted in accordance
with specifications on the enclosed proxy. If no such specifications are made,
proxies will be voted FOR the election of the nine nominees for director listed
in this Proxy Statement, FOR the approval of the proposal to increase the
authorized number of shares of the Company's Common Stock, FOR the proposed
amendments to the Company's 1992 Long-term Incentive Plan, and FOR the
ratification of the appointment of KPMG Peat Marwick LLP as the Company's
auditors for the current fiscal year.
The Company will bear the expense of preparing, printing and mailing this
Proxy Statement and proxies solicited hereby and will reimburse banks, brokerage
firms and nominees for their reasonable expenses in forwarding solicitation
materials to beneficial owners of shares held of record by such banks, brokerage
firms and nominees. In addition to the solicitation of proxies by mail, officers
and regular employees of the Company may communicate with stockholders either in
person or by telephone for the purpose of soliciting such proxies; no additional
compensation will be paid for such solicitation. The Company has retained
Skinner & Co. to assist in the solicitation of proxies at a cost of $3,500 plus
normal out-of-pocket expenses.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on December 8, 1995
(the "record date") are entitled to notice of and to vote at the Annual Meeting.
At the close of business on the record date, there were 12,311,406 shares of the
Company's Common Stock, $0.01 par value (the "Common Stock"), issued and
outstanding, excluding 52,765 shares of Common Stock held as treasury stock by
the Company.
1
The shares held as treasury stock are not entitled to be voted. Each share of
Common Stock is entitled to one vote with respect to each matter to be voted on
at the meeting subject to the provisions regarding cumulative voting in the
election of directors as described below. A plurality of the votes cast is
required for the election of the nine nominees for director listed in this Proxy
Statement, and a majority of the votes cast is required to approve the proposed
increase in the authorized number of shares of the Company's Common Stock, the
proposed amendments to the Company's 1992 Long-term Incentive Plan and to ratify
the appointment of KPMG Peat Marwick LLP as the company's auditors for the
current fiscal year. Abstentions with respect to any matter are treated as
shares present or represented by proxy and entitled to vote on that matter and
thus have the same effect as negative votes. Broker non-votes and other
circumstances in which proxy authority has been withheld do not constitute
abstentions.
In the election of the directors, each stockholder is entitled to one vote
per share multiplied by the number of directors to be elected, and the
stockholder may cast all of such votes for a single candidate or may distribute
them among the number of directors to be voted for, or for any two or more of
them as the stockholder may see fit; provided, however, that no stockholder
shall be entitled so to cumulate votes unless such candidate's or candidates'
names have been placed in nomination prior to the voting and the stockholder has
given notice at the meeting prior to the voting of the stockholder's intention
to cumulate votes. If any one stockholder has given such notice, all
stockholders may cumulate their votes for candidates in nomination. The persons
authorized to vote shares represented by executed proxies in the enclosed form
(if authority to vote for the election of directors is not withheld) will have
full discretion and authority to vote cumulatively and to allocate votes among
any or all of the Board of Directors' nominees as they may determine or, if
authority to vote for a specified candidate or candidates has been withheld,
among those candidates for whom authority to vote has not been withheld.
ELECTION OF DIRECTORS
NOMINEES
There are currently nine directors. The Board of Directors has nominated
the following persons, all of whom currently are serving as directors, for
election as directors to serve until the 1997 Annual Meeting of Stockholders and
thereafter until their respective successors are duly elected and qualified.
BRYANT J. BROOKS, JR., DIRECTOR. Mr. Brooks was elected a director in
February 1989. Since 1975 Mr. Brooks has been an independent financial
consultant in San Francisco, California, specializing in the valuation of the
securities of privately held companies. He provided such services for the
Company's Employee Stock Ownership Plan prior to the Company's initial public
offering in July 1987. From 1968 to 1974, he was the president of Boothe
Computer Investment Corporation and
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its successor, Bay Equities, Inc. Prior to that he held a number of financial
and management positions in other companies. He is currently a director of
McGrath RentCorp of San Lorenzo, California. Mr. Brooks received a B.S. in
Economics from Yale University in 1950 and an M.B.A. from Harvard in 1955. Mr.
Brooks is 68 years old.
WILLIAM R. FAIR, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Fair was a founder
of the Company and was its President from 1960 until his retirement in March
1991. He is currently acting as a consultant to the Company. Mr. Fair has been a
director since November 1960. He was named Chief Executive Officer in December
1985 and was elected Chairman of the Board of Directors in May 1987. From 1951
to 1956 Mr. Fair conducted a variety of operations research projects at the
Stanford Research Institute. Mr. Fair received a B.S.E.E. from the California
Institute of Technology and an M.S. in Electrical Engineering Administration
from Stanford University, and the graduate degree of Electrical Engineer from
the University of California, Berkeley. Mr. Fair is 73 years old.
H. ROBERT HELLER, DIRECTOR. Dr. Heller was elected a director in February
1994. He has been the President of International Payments Institute since
December 1994. He was President and Chief Executive Officer of Visa U.S.A., Inc.
from 1991 to 1993, and an Executive Vice President of Visa International from
1989 to 1991. He served as a member of the Board of Governors of the Federal
Reserve System from 1986 to 1989. Prior to that, Dr. Heller held positions with
the Bank of America and the International Monetary Fund and taught economics at
the University of California, Los Angeles, and the University of Hawaii. He
holds an M.A. in Economics from the University of Minnesota and a Ph.D. in
Economics from the University of California, Berkeley. Dr. Heller is 55 years
old.
GUY R. HENSHAW, DIRECTOR. Mr. Henshaw was elected a director in February
1994. He has been Chief Executive Officer of Payday, The Payroll Company, since
March 1993. He served as a Director of Payday from 1989 through 1995 and was its
Chairman from 1992 through 1995. From 1984 to 1992 he was President, Chief
Financial Officer and a Director of Civic BanCorp and Treasurer and a Director
of the CivicBank of Commerce. Prior to that, Mr. Henshaw held positions with the
Bank of America and Security National Bank. He holds a B.A. in Economics from
Ripon College and an M.B.A. from the Wharton School of Business at the
University of Pennsylvania. Mr. Henshaw is 49 years old.
DAVID S. P. HOPKINS, DIRECTOR. Dr. Hopkins was elected a director in August
1994. Since January 1995, he has been an independent consultant in health care.
Prior to that, he was Vice President, Client Services and Corporate Development
of International Severity Information Systems, Inc., a medical severity indexing
software and consulting firm. From 1971 to 1994 he held a number of senior
management positions at Stanford University and its University Hospital, Medical
Center and Medical School. A graduate of Harvard University, he earned both his
Ph.D. in operations research and his M.S. in statistics at Stanford University.
Dr. Hopkins is 52 years old.
3
ROBERT M. OLIVER, DIRECTOR. Dr. Oliver was elected a director in December
1986. He was a Professor of Engineering Science in the College of Engineering,
University of California, Berkeley, from 1960 until his retirement in January
1993. He is also a director and Trustee of the AnSer Corporation of Arlington,
Virginia, and is a member of the Board of Directors of the Berkeley Repertory
Theater. He received his Ph.D. in Physics and Operations Research from the
Massachusetts Institute of Technology in 1957, following a year as a Fullbright
Scholar at the University of London. He has served as the President of the
Operations Research Society of America and was the recipient of the Lanchester
Prize, the senior award in the field of Operations Research. Dr. Oliver is 64
years old.
LARRY E. ROSENBERGER, DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr.
Rosenberger has been employed by the Company since 1974 and was elected a
director in December 1983. In December 1977 Mr. Rosenberger was named a Vice
President, in June 1983 he was named a Senior Vice President, and in January
1985 he became an Executive Vice President. In March 1991 he was named President
and Chief Executive Officer. He received a B.S. in Physics from the
Massachusetts Institute of Technology, and an M.S. in Physics, an M.S. in
Operations Research and an M. Eng. in Operations Research from the University of
California, Berkeley. Mr. Rosenberger is 49 years old.
ROBERT D. SANDERSON, DIRECTOR. Dr. Sanderson joined the Company in 1969 and
was elected a director in March 1977. He was named a Vice President of the
Company in May 1974, a Senior Vice President in June 1983, an Executive Vice
President in January 1985 and Chief Operating Officer in February 1989. Dr.
Sanderson retired as an executive officer of the Company effective September 30,
1995. On November 1, 1995 he was appointed a director of TF International, LLC,
a joint venture between the Company and Trans Union Corporation. He received a
B.S. degree in Mathematics at Cornell University and an M.S. and a Ph.D. in
Industrial Engineering and Operations Research from the University of
California, Berkeley. Dr. Sanderson is 52 years old.
JOHN D. WOLDRICH, DIRECTOR, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING
OFFICER. Mr. Woldrich joined the Company in 1972 and was elected a director in
December 1983. Mr. Woldrich was named a Vice President in December 1977, a
Senior Vice President in June 1983, an Executive Vice President in January 1985
and Chief Operating Officer effective August 1, 1995. Prior to August 1, 1995,
Mr. Woldrich was in charge of the Company's Marketing Division. Mr. Woldrich has
a B.S. in Electrical Engineering from the University of Santa Clara and an
M.B.A. from the Wharton School of Business at the University of Pennsylvania.
Mr. Woldrich is 52 years old.
If any nominee is unable or declines to serve, the proxies in the
accompanying form will be voted for any nominee who may be nominated by the
present Board of Directors to fill such vacancy or the size of the Board may be
reduced accordingly. It is foreseeable that Mr. Fair might be unable to serve
because of health reasons.
4
Officers are elected at the first meeting of the Board of Directors
following the Annual Meeting of Stockholders at which the directors are elected
and serve until their successors are elected and qualified. There are no family
relationships between any of the directors, nominees for director and any
executive officer.
BOARD AND COMMITTEE MEETINGS
The Company has standing audit and compensation committees of the Board of
Directors.
The audit committee consists of Bryant J. Brooks, Guy R. Henshaw, David S.
P. Hopkins and Robert M. Oliver. The audit committee monitors the effectiveness
of the audit conducted by the Company's independent auditors and of the
Company's internal financial and accounting controls, and reports its findings
to the Board of Directors. The committee meets with management and the
independent auditors as may be required. The independent auditors have full and
free access to the audit committee without the presence of management. The audit
committee held three meetings during fiscal 1995.
The compensation committee consists of Bryant J. Brooks, Guy R. Henshaw and
H. Robert Heller. This committee determines all aspects of the compensation of
the Company's president, executive vice presidents and the heads of strategic
business units. This Committee also administers the Company's 1992 Long-term
Incentive Plan. The compensation committee held five meetings in fiscal 1995.
During the past fiscal year, there were four regular meetings of the Board
of Directors. Each incumbent director attended more than 75 percent of the
aggregate number of all board meetings and meetings of committees on which he
served during fiscal 1995.
STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 8, 1995, by (i) each of
the Company's directors and nominees for director, (ii) each of the executive
officers named in the Summary Compensation Table below, (iii) all executive
officers and directors of the Company as a group, and (iv) each person known to
the Company who beneficially owns more than 5% of the outstanding shares of its
Common Stock.
5
STOCK OWNERSHIP TABLE
Beneficial Ownership(1)
--------------------------------
Directors, Nominees, Officers and 5% Stockholders Number Percent
- -----------------------------------------------------------------------------------------------------------
William R. Fair(2) 1,939,816 15.7%
120 North Redwood Drive
San Rafael, CA 94903
Judith W. Isaac(3) 1,891,010 15.4%
5 Capilano Drive
Novato, CA 94947
Michael C. Gordon, Peter L. McCorkell 1,112,527 9.0%
and John Waller,
Trustees for Fair Isaac Employee Stock
Ownership Trust
120 North Redwood Drive
San Rafael, CA 94903
Pilgrim Baxter Greig & Associates, Ltd(4) 879,600 7.1%
1255 Drummers Lane, Suite 200
Wayne, PA 19087
Robert D. Sanderson(5) 449,354 3.6%
Larry E. Rosenberger(5) 306,090 2.5%
John D. Woldrich(5) 164,559 1.3%
Patrick G. Culhane(5, 6) 33,819 0.3%
Kenneth M. Rapp 0 0%
Bryant J. Brooks(7) 17,000 0.1%
H. Robert Heller(7) 16,000 0.1%
Guy R. Henshaw(7) 16,000 0.1%
David S. P. Hopkins(7) 16,000 0.1%
Robert M. Oliver(8) 52,000 0.4%
All executive officers and directors as
a group (16 persons)(5, 9) 3,354,870 26.7%
1 To the Company's knowledge the persons named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this
table.
2 Does not include 505,698 shares held by Mr. Fair's adult children. Mr.
Fair disclaims beneficial ownership of such shares. Includes 1,854,986
shares held by Mr. Fair and his wife, Inger J. Fair of the same
address, as co-trustees and as beneficiaries under a trust. Includes
options for 16,000 shares.
3 Does not include 358,673 shares held directly by Mrs. Isaac's adult
children or 119,880 shares held by Mrs. Isaac as trustee for her adult
children. Mrs. Isaac disclaims beneficial ownership of such shares.
Includes 247,500 shares held as co-trustee (with F. L. Adams) and as
beneficiary under a trust.
4 The number of shares shown in the table is based on information
supplied by the holder.
6
5 Includes the shares allocated to such individual's account under the
Company's Employee Stock Ownership Plan (amounts have been rounded to
the nearest share). Shares allocated to the accounts of listed
individuals are also included in the total shown for the Trustees of
the Employee Stock Ownership Trust.
6 Includes 28,356 restricted shares issued pursuant to an incentive
compensation agreement.
7 Includes options for 16,000 shares.
8 Includes 2,000 shares held in an Individual Retirement Account ("IRA")
for Dr. Oliver, 4,000 shares held in an IRA for his spouse, 6,000
shares held jointly by Dr. Oliver and his wife, 24,000 shares held as
trustee and as beneficiary under a trust, and options for 16,000
shares.
9 Excludes shares excluded in notes (2) and (3) above. Includes shares
included in notes (2), (3) (5), (6), (7) and (8) above, including a
total of 235,560 shares subject to exercisable options.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS' COMPENSATION
Non-employee directors other than the Chairman are currently compensated at
the rate of $12,000 per year plus $1,000 for each Board meeting attended. The
Chairman is currently compensated at the rate of $24,000 per year plus $2,000
for each Board meeting attended. All directors are paid $125 per hour for
committee meetings and other special assignments. See also below under "Director
Consulting Arrangements."
Under the Company's 1992 Long-term Incentive Plan, members of the Board of
Directors who are not employees of the Company currently receive a grant of
16,000 nonqualified stock options ("NSOs") upon completion of the first six
months' service as an outside director. The exercise price of the NSOs is equal
to the fair market value of Common Stock on the date of grant. The NSOs become
exercisable six months after the date of grant or earlier in the event of a
change in control of the Company or the termination of the director's service
because of death, disability or retirement from the Board at or after age 65.
The NSOs expire ten years after the date of grant, 12 months after the
termination of the director's service because of death or disability or three
months after the termination of the director's service for any other reason. If
the proposed amendments to the 1992 Long-term Incentive Plan are approved, the
grants of options to non-employee directors will be modified accordingly.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash and non-cash compensation awarded
to, earned by or paid to the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company for services rendered
in all capacities to the Company and its subsidiaries during the last fiscal
year.
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SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation -----------------------------------
----------------------------- Awards Payouts
---------------------------- -------
Securities Long-term
Restricted Underlying Incentive Plan All Other
Name Year Salary Bonus(1) Stock Options Payouts(2) Compensation(3)
- ---------------------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 1995 $193,750 $133,760 $0 0 $315,008 $18,527
President and Chief 1994 190,000 125,163 0 0 178,387 14,705
Executive Officer 1993 185,000 111,054 0 0 83,538 18,920
Robert D. Sanderson 1995 $183,750 $105,792 $0 0 $277,359 $20,248
Executive Vice 1994 180,000 98,813 0 0 161,755 17,055
President and 1993 175,000 86,030 0 0 83,083 17,847
Chief Operating
Officer
John D. Woldrich 1995 $158,750 $94,240 $0 0 $233,773 $18,852
Executive Vice 1994 155,000 92,225 0 0 136,521 15,540
President 1993 143,500 84,038 0 0 65,620 15,311
Patrick G. Culhane(4) 1995 $134,375 $199,366 $0 20,000 $65,532 $15,658
Executive Vice 1994 125,000 197,863 0 20,000 35,180 11,721
President 1993 91,800 221,016 172,464 0 16,302 9,915
Kenneth M. Rapp(5) 1995 $124,423 $160,237 $0 15,850 $0 $3,648
Senior Vice 1994 120,507 103,576 0 0 0 3,461
President and 1993 81,962 14,216 0 0 0 0
President,
DynaMark, Inc.
1 Represents the portion of amounts accrued under the Company's Officers'
Incentive Plan which is paid in cash shortly after the end of the
fiscal year in which earned, and amounts paid shortly after year-end
under other incentive plans. See description under "Compensation
Committee Report on Executive Compensation; Incentive Compensation
Plans" below.
2 Payments under the Company's Officers' Incentive Plan for units earned
in prior years. See description under "Compensation Committee Report on
Executive Compensation; Incentive Compensation Plans" below.
3 Represents the value of employer contributions to the Company's 401(k)
Plans, employer contributions to the Company's Supplemental Retirement
and Savings Plan, and employer contributions and other allocations to
the Company's Employee Stock Ownership Plan. For fiscal 1995, employer
401(k) contributions were $1,805, $1,960, $2,246, $1,836 and $3,648 for
Messrs. Rosenberger, Sanderson, Woldrich, Culhane and Rapp,
respectively; the value of ESOP contributions and allocations were
$9,222, $10,788, $9,106 and $6,322 for Messrs. Rosenberger, Sanderson,
Woldrich and Culhane, respectively; and the value of Company
contributions to the Supplemental Retirement and Savings Plan for each
of Messrs. Rosenberger, Sanderson, Woldrich and Culhane was $7,500.
4 Mr. Culhane became an executive officer of the Company on August 1,
1995. His bonus payments and restricted stock awards for the periods
shown include amounts paid or awarded under a personal incentive plan
which was terminated effective August 1, 1995.
5 Mr. Rapp joined the Company in January 1993. The figures shown for
fiscal 1993 reflect nine months' compensation.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
for Option Term
---------------------------
Individual Grants
---------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Price Expiration
Name Granted in Fiscal Year per share Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 0 N/A N/A N/A N/A N/A
Robert D. Sanderson 0 N/A N/A N/A N/A N/A
John D. Woldrich 0 N/A N/A N/A N/A N/A
Patrick G. Culhane 20,000(1) 12% $19.3125 3/15/05 $243,338(2) $614,138(2)
Kenneth M. Rapp 15,850(3) 10% $28.375 9/30/05 $283,339(4) $715,093(4)
1 Granted at fair market value and exercisable in full on March 31, 1998.
2 Assuming 5% and 10% compounded annual appreciation of the stock price
over the terms of the option, the price of a share of Common Stock
would be $31.48 and $50, respectively, on March 15, 2005.
3 Granted at fair market value and exercisable as to 3,170 shares on
September 30 of each year beginning in 1996 through 2000.
4 Assuming 5% and 10% compounded annual appreciation of the stock price
over the terms of the option, the price of a share of Common Stock
would be $46.25 and $73.50, respectively, on September 30, 2005.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Shares Options at FY-End Money Options at FY End(2)
Acquired Value ----------------------- ---------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------- -----------------------------------------------------------------
Larry E. Rosenberger 45,000 $1,215,675 45,000(3) 0 $1,186,165 $ 0
Robert D. Sanderson 45,000 758,700 0 0 0 0
John D. Woldrich 90,000 1,507,500 0 0 0 0
Patrick G. Culhane 0 0 0 40,000 0 478,750
Kenneth M. Rapp 0 0 0 15,850 0 0
1 Equal to the market value of the Company's Common Stock on the date the
options were exercised, less the exercise price.
2 Based on the mean of the closing bid and ask prices of the Company's
Common Stock as reported by the Nasdaq Stock Market for September 30,
1995 ($28.25), less the exercise price.
3 Mr. Rosenberger exercised these options on December 3, 1995.
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LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
Number of Period Until
Name Units(1) Payout(2)
- --------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 133,760 4 Years
Robert D. Sanderson 105,792 4 Years
John D. Woldrich 94,240 4 Years
Patrick G. Culhane 29,091 4 Years
Kenneth M. Rapp 0 N/A
1 Units accrued for fiscal 1995 pursuant to the Company's Officers'
Incentive Plan. The number of units is equal to half of the officer's
total incentive award for fiscal 1995. See the description under
"Compensation Committee Report on Executive Compensation; Incentive
Compensation Plans" below. Units are converted into cash at the payout
dates by multiplying the number of units to be paid out by the mean of
the closing bid and ask prices for the Company's Common Stock on the
payout date, divided by the mean of the closing bid and ask prices of
the stock on the award date ($28.25 at September 30, 1995).
2 The units will be paid out in 25 percent increments as of September 30
in each of the four years following the fiscal year for which they were
accrued provided the recipient is still employed by the Company.
PENSION PLAN
Employees of the Company (not including those of its subsidiary, DynaMark,
Inc.), including officers and directors who are employees, participate in the
Fair Isaac Pension Plan (the "Pension Plan") after completing one year of
service. Subject to certain age and service requirements, participants in the
Pension Plan accrue a right to a retirement income payable monthly for life. The
annual benefit is equal to 0.60% of "Final Average Compensation" up to $15,000
plus 1.20% of Final Average Compensation in excess of $15,000, multiplied by
years of service up to a maximum of 35 years. "Final Average Compensation" means
the highest average compensation for five consecutive years during the last ten
years of employment. Compensation includes all amounts paid for services. If
benefit payments commence between age 55 (the earliest permissible age) and age
65, the amount is actuarially discounted; if benefits commence after age 65, the
amount is actuarially increased. The Pension Plan also provides various forms of
survivor benefits for a participant's beneficiary and for optional forms of
payment with equal actuarial value, including a lump sum.
10
The following table illustrates the estimated annual benefits payable upon
retirement to an employee in the specified compensation and years of credited
service classifications shown, assuming that the benefits commence at age 65 and
are payable in the normal form. These calculations are straight-life annuity
amounts based on current plan formulae and are not reduced by any Social
Security offsets.
Years of Credited Service
--------------------------------------------------------------------------
Final Average
Compensation 15 20 25 30 35 40
-------- --------- --------- --------- --------- ---------
$150,000 $25,650 $34,200 $42,750 $51,300 $59,850 $64,350
-------------------
$175,000 30,150 40,200 50,250 60,300 70,350 75,600
-------------------
$200,000 34,650 46,200 57,750 69,300 80,850 86,850
-------------------
$225,000 39,150 52,200 65,250 78,300 91,350 98,100
-------------------
$250,000 43,650 58,200 72,750 87,300 101,850 109,350
-------------------
$275,000 48,150 64,200 80,250 96,300 112,350 120,600
-------------------
$300,000 52,650 70,200 87,750 105,300 122,850 131,850
-------------------
Notes: Above benefits are based on current formula applied to all
credited service. "Grandfather" provisions related to prior
formula may result in larger benefits attributable to service
credited prior to 1995.
The Internal Revenue Code limits the amount of compensation which
may be taken into account for purposes of determining benefits
from a tax-qualified plan (such as the Fair Isaac Pension Plan).
The current limit is $150,000. Current law provides that this
limit will increase with increases in the Consumer Price Index.
DIRECTOR CONSULTING ARRANGEMENTS
Since April 10, 1991, the Company has had an agreement with William R.
Fair, its retired President and Chief Executive Officer, under which Mr. Fair
has agreed to perform approximately 1,000 hours of consulting services for the
Company each year between April 1 and March 31 and for which the Company has
agreed to pay Mr. Fair $75,000. The current contract with Mr. Fair expires March
31, 1996.
Effective August 1, 1992, the Company entered into an agreement with Dr.
Robert M. Oliver, a Director of the Company, under which Dr. Oliver may perform
consulting services on technical matters at the request of the Company's
president. Dr. Oliver is compensated at the rate of $100 per hour for such
services. He was paid $101,600 for services rendered pursuant to this agreement
in fiscal 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Bryant J. Brooks, Guy R. Henshaw and H. Robert Heller served as the members
of the Company's Compensation Committee for the fiscal year ended September 30,
1995. Messrs. Brooks, Henshaw and Heller are non-employee Directors of the
Company and had no other relationship with the Company. None of the Executive
Officers of the Company had any "interlock" relationships to report during the
fiscal year ended September 30, 1995.
11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed entirely
of directors who are not employees of the Company. The Committee determines all
aspects of the compensation of the Company's Chief Executive Officer, Executive
Vice Presidents and heads of the Company's strategic business units, and also
administers the Company's 1992 Long-term Incentive Plan under which grants of
stock options or restricted stock may be awarded to any employee.
Through December 31, 1995, the compensation of Kenneth Rapp, a Senior Vice
President of the Company and the President of the Company's DynaMark subsidiary,
was determined in accordance with the terms of an employment agreement entered
into with Mr. Rapp in connection with the Company's acquisition of DynaMark in
December 1992 and thus has not been reviewed by the Compensation Committee. For
purposes of the following discussion, Mr. Rapp is not included in the group
referred to as "executive officers."
The primary objectives of the Company's executive compensation program are
to provide a level of compensation that will attract and retain well qualified
executives, to structure their compensation packages so that a significant
portion is tied to achieving targets for revenue growth and operating margin,
and to align their interests with those of the Company's stockholders through
the use of stock-based compensation.
The Company's executive compensation program consists of three main
components: annual base salary, participation in the Company's Officers'
Incentive Plan, and the opportunity to receive awards of stock options or
restricted stock. The executive officers are eligible for the same benefits
available generally to the Company's employees, including group health and life
insurance and participation in the Company's pension, employee stock ownership
and 401(k) plans. The Company also maintains a Supplemental Retirement and
Savings Plan for the benefit of certain highly compensated employees, including
most executive officers.
ANNUAL BASE SALARY
The Compensation Committee determines the annual base salary of each of the
Company's executive officers, including the Chief Executive Officer. The same
principles are applied in setting the salaries of all officers to ensure that
salaries are equitably established. Salaries are determined annually by
considering the officer's duties and responsibilities within the Company and
business unit, the officer's ability to impact the operations and profitability
of the Company, and the officer's experience and past performance.
INCENTIVE COMPENSATION PLAN
Substantially all of the Company's employees participate in incentive plans
based on the Company's performance with respect to goals for revenue growth and
operating margin set by the Board of Directors for each fiscal year. An
incentive
12
compensation target amount is determined for each participant at the beginning
of the fiscal year. The ratio of incentive plan target to base salary increases
with the level of the employee's responsibilities and ranges from one percent
for non-exempt employees to more than 50 percent for the Chief Executive
Officer. The Compensation Committee sets the incentive compensation targets for
each of the executive officers. Compensation increases for executive officers in
recent years have primarily resulted from increases in incentive plan targets,
reflecting the Committee's emphasis on performance-based pay. After the
conclusion of the fiscal year, the target amount for each participant is
multiplied by a factor based on the Company's actual performance with respect to
the revenue growth and operating margin goals (equally weighted) previously
established by the Board to establish his or her incentive award for the year.
Awards can range from zero to three times the target amount.
All officers receive 50 percent of their incentive awards in cash shortly
after the end of the fiscal year. The remaining 50 percent is paid in the form
of "participating units" whose value is based on the market price of the
Company's Common Stock. Those units are converted to cash payments, in 25
percent increments, at the end of each of the succeeding four fiscal years
(assuming the officer remains employed by the Company), based on the market
price of the Company's stock at the end of each of those years.
OPTIONS AND RESTRICTED STOCK
The Committee may award options to purchase the Company's Common Stock or
shares of restricted stock to any employee, including the executive officers,
under the Company's 1992 Long-term Incentive Plan. The exercise price for all
options granted under this Plan must be at least equal to the fair market value
of the shares on the date of grant. In addition to the level of responsibility
and performance of the recipient, the Committee takes previous grants of options
and restricted stock into consideration in making such awards. Awards of options
were made to Mr. Culhane and Mr. Rapp in fiscal 1995 and are reflected in the
tables on pages ___ and ___. The Committee did not make any awards of options or
restricted stock to other named executive officers during the year primarily
because of awards to such officers in prior years.
LIMITS ON TAX-DEDUCTIBLE COMPENSATION
The Committee believes that it is highly unlikely that the combination of
base salary, officer incentive plan cash awards, and payments for participating
units for any executive officer would exceed $1 million in any year and
currently has no plans to amend the officers' incentive plan to ensure
deductibility for federal tax purposes of any "excess" amounts. The Committee
believes that the 1992 Long-term Incentive Plan meets the transition rules
available through the earlier of end of 1996 or the adoption of any material
amendments, including an increase in the number of shares reserved, so that any
compensation arising out of the exercise of options previously granted under
that plan will be deductible. The Committee further believes that, if Proposal
number 4 (limiting the number of options that can be awarded under the Plan) is
adopted, the Plan will meet the rules currently in effect
13
so that compensation arising from the exercise of options granted under that
plan in the future will also be deductible by the Company. The Committee
believes it is highly unlikely that any combination of grants of restricted
stock that will be awarded under that plan and other compensation will exceed $1
million for a single individual in any given year.
CEO COMPENSATION
The amounts of Mr. Rosenberger's base salary and incentive plan target are
established by the Compensation Committee using the criteria discussed above.
Mr. Rosenberger's base salary for fiscal 1995 was $193,750, compared with a base
of $190,000 for fiscal 1994. His incentive plan target for fiscal 1995 was
$106,250 which represented an increase of $11,250 over 1994. Because the
Company's revenue growth of 26 percent and operating margin of 17.4 percent
substantially exceeded the goals set by the Board for 1995, Mr. Rosenberger's
total incentive award for the year was $267,520. Of that amount, 50 percent was
paid in cash shortly after the end of the year and is shown in the Summary
Compensation Table on page ___ under the caption "Annual Compensation; Bonus."
The remainder was converted to the form of participating units as explained
above which will become payable in 25 percent increments after each of the four
years ending September 30, 1996 through 1999, based on the stock price on those
dates. Amounts shown under the caption "Long-term Incentive Plan Payouts"
reflect participating units earned in prior years.
Bryant J. Brooks
Guy R. Henshaw
H. Robert Heller
PERFORMANCE GRAPH
In accordance with SEC rules, the following table shows a line-graph
presentation comparing cumulative five-year stockholder returns on an indexed
basis with a broad equity market index and either a nationally recognized
industry standard or an index of peer companies selected by the Company. The
Company has selected the CRSP Index of the Nasdaq Stock Market (U.S. Companies)
for the broad equity index, and a self-determined group of peer companies.
The peer group consists of Acxiom Corporation; American Management Systems,
Inc.; Barra, Inc.; Broderbund Software, Inc.; and Hogan Systems, Inc. The
Company does not believe there are any publicly traded companies which compete
with the Company across the full spectrum of its product and service offerings.
The companies in the peer group represent a variety of information and decision
service providers and software developers traded on the Nasdaq Stock Market and
which are in the same order of magnitude as the Company in revenue and market
capitalization. In addition, Barra and Broderbund are headquartered near the
Company's headquarters and compete with the Company for available technical
staff.
14
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
[Graph]
Among Fair, Isaac and Company, Incorporated, the CRSP index for NASDAQ stock
market (US Companies) and the self-determined peer group index:
CRSP Index For NASDAQ Self-determined
Measurement Period Fair, Isaac and Company, Stock Market Peer Group
(Fiscal year covered) Incorporated (US Companies) Index
- -----------------------------------------------------------------------------------------------------------------
9/90 100 100 100
9/91 181.3 157.3 151.1
9/92 264.2 176.3 205.5
9/93 448.7 231.0 269.2
9/94 773.3 232.9 328.0
9/95 1270.8 320.7 714.4
The returns shown assume $100 invested on September 30, 1990 in the
Company's stock, the CRSP Index for the NASDAQ Stock Market (U.S. Companies) and
the peer group index, with reinvestment of dividends. The reported dates are the
last trading dates of the Company's fiscal year which ends on September 30.
PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved the amendment of Section (a) of Article
4 of the Company's Restated Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 15,000,000 to 35,000,000. The Board of
Directors recommends that the Company's stockholders approve this amendment.
The Board of Directors believes that it is in the Company's best interests
to increase the number of authorized shares of Common Stock in order to have
additional authorized but unissued shares available for issuance to meet
business needs as they arise. The Board of Directors believes that the
availability of such additional shares will help the Company attract and retain
talented employees through the grant of stock options and other stock-based
incentives. The Board of Directors also believes that the availability of such
shares will provide the Company with the flexibility to issue Common Stock for
other proper corporate purposes which may be identified by the Board of
Directors in the future, such as stock dividends, financing or acquisitions. The
issuance of additional shares of Common Stock may have a dilutive effect on
earnings per share and, for a person who does not purchase additional shares to
maintain his or her pro rata interest, on a stockholder's percentage voting
power.
The Board of Directors does not recommend this proposed amendment with the
intent to use the ability to issue additional Common Stock to discourage tender
offers or takeover attempts. However, the availability of authorized Common
Stock for issuance could render more difficult or discourage a merger, tender
offer, proxy contest or other attempt to obtain control of the Company. Neither
the management of the Company nor the Board of Directors is aware of any
existing or planned effort on the part of any party to accumulate material
amounts of Common Stock or to acquire control of the Company by means of merger,
tender offer, proxy contest or
15
otherwise, or to change the Company's management, nor is the Company aware of
any offer by any person to acquire any material amount of Common Stock or assets
of the Company.
Of the 15,000,000 shares of Common Stock currently authorized for issuance,
1,750,748 shares are unissued and unreserved for issuance. The authorized shares
of Common Stock in excess of those issued will be available for issuance at such
times and for such corporate purposes as the Board of Directors may deem
advisable without further action by the Company's stockholders, except as may be
required by applicable laws or the rules of any stock exchange or national
securities association trading system on which the securities may be listed or
traded. Except for awards under the Company's 1992 Long-term Incentive Plan
described below, the Company's management has no arrangements, agreements,
understandings or plans at the present time for the issuance or use of the
additional shares of Common Stock proposed to be authorized. Upon issuance, such
shares will have the same rights as the outstanding shares of Common Stock.
Holders of Common Stock do not have preemptive rights. The Board of Directors
does not intend to issue any Common Stock except on terms which the Board deems
to be in the best interests of the Company and its then-existing stockholders.
The full text of Section (a) of Article 4, as such Section is proposed to
be amended pursuant to this proposal, is as follows:
4. (a) The total number of shares of all classes of stock which the
corporation shall have authority to issue is thirty-six million
(36,000,000), of which one million (1,000,000) shares shall be Preferred
Stock of the par value of $.01 per share, and thirty-five million
(35,000,000) shares shall be Common Stock of the par value of $.01 per
share. The number of authorized shares of Common Stock or Preferred Stock
may be increased or decreased (but not below the number of shares thereof
then outstanding) if the increase or decrease is approved by the holders
of a majority of the shares of Common Stock, without the vote of the
holders of the shares of Preferred Stock or any series thereof, unless
any such Preferred Stock holders are entitled to vote thereon pursuant to
the provisions established by the Board of Directors in the resolution or
resolutions providing for the issue of such Preferred Stock, and if such
holders of such Preferred Stock are so entitled to vote thereon, then,
except as may otherwise be set forth in this Certificate of
Incorporation, the only stockholder approval required shall be that of a
majority of the combined voting power of the Common and Preferred Stock
so entitled to vote.
VOTE REQUIRED AND EFFECTIVE DATE
The affirmative vote of the holders of a majority of the Company's
outstanding Common Stock is required to approve this proposal. If approved by
the stockholders, the proposed amendment to Section (a) of Article 4 will become
effective upon the filing of a Certificate of Amendment with the Secretary of
State of Delaware amending the Company's Restated Certificate of Incorporation,
which will occur as soon as reasonably practicable.
16
The Board of Directors recommends a vote FOR the proposal to amend Section
(a) of Article 4 of the Company's Restated Certificate of Incorporation as set
forth above.
PROPOSALS TO AMEND THE FAIR, ISAAC AND COMPANY, INCORPORATED
1992 LONG-TERM INCENTIVE PLAN
The 1992 Long-term Incentive Plan ("Plan") was unanimously adopted by the
Company's Board of Directors on November 23, 1992 and approved by the Company's
stockholders at the annual meeting held on February 2, 1993. On November 21,
1995, the Board of Directors unanimously adopted four amendments to the Plan:
(a) to increase the number of restricted shares, stock units and options
available for grant under the plan by 1,000,000 shares;
(b) to limit the number of options which may be awarded under the plan to any
individual to 50,000 shares in any fiscal year;
(c) to provide for a grant of options for 10,000 shares to each new
non-employee director, and for grants of 1,000 shares to each
non-employee director in each year after such director's first year of
service; and
(d) to extend the date until which Incentive Stock Options may be granted
under the Plan to November 20, 2005.
The Board of Directors recommends approval of these amendments to the Plan.
The affirmative vote of a majority of the shares present and entitled to vote is
required for approval. These amendments will be effective upon approval by the
stockholders. The following description of the Plan is a summary only. Any
stockholder who wishes to review the text of the Plan can obtain a copy by
writing to the Company, Attention: Investor Relations.
OVERVIEW OF THE 1992 INCENTIVE PLAN
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by attracting and retaining eligible
individuals with exceptional qualifications, by encouraging such individuals to
focus on long-range objectives, and by linking participants directly to
stockholder interests through increased stock ownership. While all awards since
February 2, 1993 have been made under the Plan, awards made under prior plans
will continue to be administered in accordance with those plans.
The Plan provides for awards in the form of restricted shares, stock units
or options (which may be granted in tandem with stock appreciation rights
("SARs")), or any combination thereof. No payment is required upon receipt of an
award, except that a recipient of newly issued restricted shares must pay at
least the par value of such restricted shares to the Company. The Plan requires
that the exercise price of any option granted under the Plan be at least equal
to the fair market value of the Company's Common Stock on the date of grant. As
of December 15, 1995, the fair market value of the Company's stock (defined by
the Plan as the mean of the
17
closing bid and ask prices of the Company's Common Stock as reported by the
Nasdaq Stock Market) was $27.625 per share.
ADMINISTRATION AND ELIGIBILITY
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee selects the individuals who will
receive awards, determines the size of any award and establishes any vesting or
other conditions. Employees and non-employee directors of the Company (or any
subsidiary of the Company) are eligible to participate in the Plan, although
incentive stock options ("ISOs") may be granted only to employees. The
participation of non-employee Directors of the Company is limited to grants of
non-qualified stock options, as described below. There are currently six
non-employee directors and approximately 850 employees who are eligible to
participate in the Plan.
SHARES SUBJECT TO THE INCENTIVE PLAN
The total number of restricted shares, stock units and options (which may
be granted in combination with SARs) currently available for grant under the
Plan is only 146,971 shares. There are options for a total of 738,110 shares
outstanding, of which 376,260 are currently exercisable and 361,850 are not yet
exercisable. Of those currently exercisable, options for 323,260 shares were
granted under prior plans. However, those options, as well as those granted
under the Plan, would become available for new awards under the Plan if they are
forfeited or otherwise terminate prior to exercise. In addition, 63,391 shares
of restricted stock, issued under the Plan, have not yet vested. If such shares
are forfeited prior to vesting, these shares would also become again available
for grant under the Plan. If all options currently outstanding are forfeited or
otherwise terminate prior to exercise, and all shares of outstanding restricted
stock are forfeited prior to vesting, 801,501 shares would be available for
grant under the Plan.
The proposed amendments would increase the number of shares available for
grant by 1,000,000 shares. The Board believes that stock-based
compensation--particularly stock options--is a valuable component of the
compensation for executives and outside directors in that it serves to align the
interests of directors and management with those of the stockholders. Several
members of senior management currently hold no options, restricted shares or
stock units, and the number of shares now available for grant is relatively
small.
18
TERMS OF AWARDS
Restricted shares are shares of Common Stock that are subject to forfeiture
in the event that the applicable vesting conditions are not satisfied.
Restricted shares are nontransferable prior to vesting (except for certain
transfers to a trustee). Restricted shares have the same voting and dividend
rights as other shares of Common Stock.
A stock unit represents the equivalent of one share of Common Stock and is
nontransferable prior to the holder's death (except for certain transfers to a
trustee). Vested stock units will be settled at the time determined by the
Committee in the form of cash, Common Stock or a combination thereof. A holder
of stock units has no voting rights or other privileges as a stockholder but is
entitled to receive dividend equivalents on his or her units equal to the amount
of dividends paid on the same number of shares of Common Stock. Dividend
equivalents may be converted into additional stock units or settled in the form
of cash, Common Stock or a combination thereof. If the time of settlement is
deferred, interest or additional dividend equivalents may be credited on the
deferred payment.
Options may include non-qualified stock options ("NSOs") as well as
incentive stock options ("ISOs") intended to qualify for special tax treatment.
The exercise price of any option under the 1992 Incentive Plan must be equal to
or greater than the fair market value of the Common Stock on the date of grant.
Both NSOs and ISOs may be granted in combination with SARs, or SARs may be added
to outstanding NSOs at any time after the grant. A SAR permits the participant
to elect to receive any appreciation in the value of the optioned stock directly
from the Company, in shares of Common Stock or cash or a combination thereof, in
lieu of exercising the option. The Committee has the discretion to determine the
form in which such payment will be made. The amount payable upon exercise of a
SAR is measured by the difference between the market value of the optioned stock
at exercise and the option exercise price. Generally, SARs may be exercised at
any time after the underlying NSO or ISO vests. Upon exercise of a SAR, the
corresponding portion of the related option must be surrendered and cannot
thereafter be exercised. Conversely, upon exercise of an option to which a SAR
is attached, the SAR may no longer be exercised to the extent that the
corresponding option has been exercised. The term of an ISO cannot exceed ten
years, and all options and SARs are nontransferable prior to the optionee's
death.
The exercise price of an option may be paid in any lawful form permitted by
the Committee, including (without limitation) the surrender of shares of Common
Stock or restricted shares already owned by the optionee. The 1992 Incentive
Plan also allows the optionee to pay the exercise price of an option by giving
"exercise/sale" or "exercise/pledge" directions. If exercise/sale directions are
given, a number of option shares sufficient to pay the exercise price and any
withholding taxes is issued directly to a securities broker approved by the
Company who, in turn, sells these shares in the open market. The broker remits
to the Company the proceeds from the sale of these shares, and the optionee
receives the remaining option shares. If exercise/pledge directions are given,
the option shares are issued directly to a securities broker or other lender
approved by the Company. The broker or other lender will hold the shares as
security and will extend credit for up to 50% of their market value. The loan
proceeds will be paid to the Company to the extent
19
necessary to pay the exercise price and any withholding taxes. Any excess loan
proceeds may be paid to the optionee. If the loan proceeds are insufficient to
cover the exercise price and withholding taxes, the optionee will be required to
pay the deficiency to the Company at the time of exercise. The Committee may
also permit optionees to satisfy their withholding tax obligation upon exercise
of a NSO by surrendering a portion of their option shares to the Company. The
recipient of restricted shares or stock units may pay all projected withholding
taxes relating to the award with Common Stock rather than cash.
As noted above, the Committee determines the number of restricted shares,
stock units or options to be included in the award as well as the vesting and
other conditions. The vesting conditions may be based on the recipient's
service, his or her individual performance, the Company's performance or other
appropriate criteria. In general, the vesting conditions will be based on the
recipient's service. Vesting may be accelerated in the event of the recipient's
death, disability or retirement or in the event of a change in control of the
Company. Moreover, the Committee may determine that outstanding options and any
related SARs will become fully vested if it has concluded that there is a
reasonable possibility of a change in control within six months thereafter.
For purposes of the 1992 Incentive Plan, the term "change in control" means
(1) that any person is or becomes the beneficial owner, directly or indirectly,
of at least 50% of the combined voting power of the Company's outstanding
securities, except by reason of a repurchase by the Company of its own
securities, or (2) that a change in the composition of the Board of Directors
occurs as a result of which fewer than one-half of the incumbent directors are
directors who either had been directors of the Company 24 months prior to such
change or were elected or nominated for election to the Board of Directors with
the approval of at least a majority of the directors who have been directors of
the Company 24 months prior to such change and who were still in office at the
time of the election or nomination.
LIMIT ON INDIVIDUAL AWARDS
The Plan currently contains no limit on the number of restricted shares,
stock units or options that may be granted to any particular individual. Under
Section 162(m) of the Internal Revenue Code, the Company may not claim a
deduction for tax purposes for compensation paid to the Chief Executive Officer
and the four other most highly compensated executive officers in excess of $1
million per person per fiscal year. However, compensation arising out of the
exercise of NSOs is deductible by the Company without limit if certain
conditions are met including approval by stockholders of the material provisions
of the plan (including the number of shares available for grant), administration
by a committee composed entirely of outside directors, and a limit on the size
of grants to any individual. The Board believes that options granted under the
Company's 1992 Long-term Incentive Plan meet all of these conditions except that
there has been no absolute limit on the size of grants to any individual.
Accordingly, the Board recommends approval of the proposed amendments to the
Plan which include a limit on the number of options granted to any individual in
any fiscal year to 50,000 shares.
20
NON-EMPLOYEE DIRECTORS
Members of the Board of Directors who are not employees of the Company are
not currently eligible for any awards under the 1992 Incentive Plan other than a
one-time grant of 16,000 NSOs upon completion of the first six months' service
as an outside Director. The exercise price is equal to the fair market value of
Common Stock on the date of grant. The NSOs become exercisable six months after
the date of grant or, if earlier, in the event of a change in control of the
Company or the termination of the director's service because of death,
disability or retirement after age 65. The NSOs expire ten years after the date
of grant, 12 months after the termination of the director's service because of
death or disability or three months after the termination of the director's
service for any other reason.
The proposed amendments include an amendment to the provisions of the Plan
governing grants of options to non-employee directors. The Board believes the
current practice of a single large grant with a relatively short vesting period,
with no subsequent grants regardless of length of service, not only could
provide a windfall to a director whose service is relatively brief, but also
fails to reward directors for longer service and fails to provide an ongoing
incentive tending to align the interests of the directors with those of the
stockholders. In addition, the shortcomings of the existing practice may hamper
future efforts to recruit highly qualified outside directors.
The proposed amendments seek to correct these shortcomings by providing for
(a) a grant of options for 10,000 shares to each person who becomes an "Outside
Director" on or after February 6, 1996 (the "Initial Grant") and (b) a grant of
options for 1,000 shares to each "Outside Director" on the date of the annual
meeting provided such person has been an "Outside Director" since the prior
annual meeting (the "Annual Grants"). An Initial Grant would vest in 20%
increments on each of the first through fifth anniversary dates of such person
becoming an Outside Director and would expire ten years after grant. Annual
Grants would vest one year after grant and expire five years after grant. An
"Outside Director" is defined by the Plan as "a member of the Board who is not a
common-law employee of the Company or of a Subsidiary [of the Company]." The
Plan further provides that the exercise price of all options so granted to
Outside Directors shall be equal to 100% of the fair market value of the
Company's Common Stock on the date of grant. If the proposed amendments to the
Plan are not approved, the existing provisions of the Plan regarding grants of
options to non-employee directors will remain in effect.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
Neither the optionee nor the Company will incur any federal tax
consequences as a result of the grant of an option. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Company will receive no deduction when an ISO is exercised.
Upon exercising a NSO, the optionee generally must recognize ordinary income
equal to the "spread" between the exercise price and the fair market value of
Common Stock on the date of exercise; the Company will be entitled to a
deduction for the same amount. In the case of an employee, the option spread at
the time a NSO is exercised is subject to income tax withholding, but the
optionee generally may elect to satisfy the
21
withholding tax obligation by having shares of Common Stock withheld from those
purchased under the NSO. The tax treatment of a disposition of option shares
depends on how long the shares have been held and on whether such shares were
acquired by exercising an ISO or by exercising a NSO. The Company will not be
entitled to a deduction in connection with a disposition of option shares,
except in the case of a disposition of shares acquired under an ISO before the
applicable ISO holding period has been satisfied. Awards under the 1992
Incentive Plan may provide that if any payment (or transfer) by the Company to a
recipient would be nondeductible by the Company for federal income tax purposes,
then the aggregate present value of all such payments (or transfers) will be
reduced to an amount which maximizes such value without causing any such payment
(or transfer) to be nondeductible.
AMENDMENT AND ADJUSTMENT OF GRANTS
The Committee is authorized, within the provisions of the 1992 Incentive
Plan, to amend the terms of outstanding restricted shares or stock units, to
modify or extend outstanding options or to exchange new options for outstanding
options, including outstanding options with a higher exercise price than the new
options. The 1992 Incentive Plan provides for appropriate adjustments in the
number of shares available for future awards as well as the exercise price of
and the number of shares covered by outstanding options in the event of a
reclassification, stock split, combination of shares, stock dividend,
extraordinary cash dividend or other recapitalization of the Company. In the
event of a merger, awards will be subject to the agreement of merger or
reorganization.
AMENDMENT AND TERMINATION OF PLAN
The Board of Directors may amend the 1992 Incentive Plan at any time and in
any respect, subject to stockholder approval if required by law. The 1992
Incentive Plan will remain in effect until terminated by the Board of Directors,
except that under the Plan as originally adopted, no ISO may be granted after
November 22, 2002.
Under applicable federal regulations, ISOs may not be granted more than ten
years after the adoption of a plan which is subsequently approved by the
stockholders. The latest date for the grant of ISOs may be changed by subsequent
Board and stockholder action to a date not more than ten years after such
action. The amendments proposed by the Board of Directors would extend the date
for grants of ISOs under the Plan to November 20, 2005.
22
The Board of Directors recommends a vote FOR approval of the amendments to
the Company's 1992 Long-term Incentive Plan to:
(a) to increase the number of restricted shares, stock units and options
available for grant under the Plan by 1,000,000 shares;
(b) to limit the number of options which may be awarded under the Plan to
any individual to 50,000 shares in any fiscal year;
(c) to provide for a grant of options for 10,000 shares to each new
non-employee director, and for grants of 1,000 shares to each
non-employee director in each year after such director's first year
of service; and
(d) to extend the date until which Incentive Stock Options may be granted
under the Plan to November 21, 2005.
The affirmative vote of a majority of the shares present and entitled to
vote is required for approval. The amendments to the Plan will become effective
upon approval by the stockholders.
RATIFICATION OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of KPMG Peat Marwick LLP as the Company's independent
auditors for the Company's current fiscal year ending September 30, 1996. KPMG
Peat Marwick LLP has served as the Company's independent auditors since May
1991. Representatives of KPMG Peat Marwick LLP are expected to be present at the
Company's Annual Meeting with the opportunity to make statements and/or respond
to appropriate questions from stockholders present at the meeting.
The Board of Directors recommends a vote FOR the ratification of KPMG Peat
Marwick LLP as the Company's independent auditors. A majority vote is required
for ratification.
OTHER BUSINESS
The Board of Directors does not know of any business to be presented at the
Annual Meeting other than the matters set forth above, but if other matters
properly come before the meeting it is the intention of the persons named in the
proxies to vote in accordance with their best judgment on such matters.
SECTION 16(A) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules of the Securities and Exchange Commission (the "Commission")
thereunder require the Company's directors, executive officers and persons who
own more than ten percent of the Company's Common Stock to file reports of their
ownership and changes in ownership of Common Stock with the Commission.
Personnel of the Company generally prepare these reports on the basis of
information obtained from each director, officer and greater than ten percent
owner. Based on such
23
information, the Company believes that all reports required by Section 16(a) of
the Exchange Act to be filed by its directors, executive officers and greater
than ten percent owners during the last fiscal year were filed on time except
that two reports, one covering a gift of 2,000 shares and the other covering two
sale transactions totaling 4,000 shares, were filed late by Mrs. Judith W.
Isaac.
SUBMISSION OF PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the Company's 1997
Annual Meeting of Stockholders must be received at the Corporate Secretary's
Office, 120 North Redwood Drive, San Rafael, California 94903, no later than
September 3, 1996, to be considered for inclusion in the proxy statement and
form of proxy for that meeting.
By Order of the Board of Directors
Peter L. McCorkell
Senior Vice President and Secretary
Dated: January 2, 1996
24
APPENDIX A
PROXY
FAIR, ISAAC AND COMPANY, INCORPORATED
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING FEBRUARY 6, 1996
The undersigned hereby appoints William R. Fair, Larry E. Rosenberger
and Robert D. Sanderson, or any of them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse, all the shares of Common Stock of Fair, Isaac and
Company, Incorporated that the undersigned is entitled to vote at the Annual
Meeting of Stockholders to be held on February 6, 1996, or any postponement or
adjournment thereof.
(To be signed on reverse side)
/ x / Please mark your votes as this
I PLAN TO ATTEND THE MEETING / /
COMMON
The Board of Directors recommends a vote "FOR" Items 1, 2, 3 and 4.
1. Election of Directors:
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
Bryant J. Brooks, Jr., William R. Fair, H. Robert Heller, Buy R. Henshaw, David
S. P. Hopkins, Robert M. Oliver, Larry E. Rosenberger, Robert D. Sanderson and
John D. Woldrich.
FOR WITHHELD
FOR ALL
/ / / /
2. To approve the amendment of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
15,000,000 to 35,000,000.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve the amendments to the Company's 1992 Long-term Incentive Plan as
described in the accompanying proxy statement.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the current fiscal year.
FOR AGAINST ABSTAIN
/ / / / / /
5. In their discretion upon such other business as may properly come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED
STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION OF DIRECTORS AND "FOR" ITEMS 2, 3 AND 4.
- -------------------------
(Stockholder's Signature)
- -------------------------
(Stockholder's Signature)
Dated: , 1996
------------
(Note: Sign exactly as your name appears on this proxy card. If shares are held
jointly each holder should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If
corporation or partnership, please sign in firm name by authorized person.)
Please mark, sign, date and return this proxy card promptly using enclosed
envelope.
2
APPENDIX B
FAIR, ISAAC AND COMPANY, INCORPORATED
1992 LONG-TERM INCENTIVE PLAN
As amended and restated effective November 21, 1995
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TABLE OF CONTENTS
Page
ARTICLE 1. INTRODUCTION............................................................ 5
ARTICLE 2. ADMINISTRATION.......................................................... 5
2.1 Committee Composition................................................. 5
2.2 Committee Responsibilities............................................ 5
ARTICLE 3. SHARES AVAILABLE FOR GRANTS............................................. 6
3.1 Basic Limitation...................................................... 6
3.2 Additional Shares..................................................... 6
3.3 Dividend Equivalents.................................................. 6
ARTICLE 4. ELIGIBILITY............................................................. 6
4.1 General Rules......................................................... 6
4.2 Outside Directors..................................................... 6
4.3 Ten-Percent Stockholders.............................................. 7
4.4 Limitation on Option Grants........................................... 7
ARTICLE 5. OPTIONS................................................................. 8
5.2 Stock Option Agreement................................................ 8
5.2 Awards Nontransferable................................................ 8
5.3 Number of Shares...................................................... 8
5.4 Exercise Price........................................................ 8
5.5 Exercisability and Term............................................... 8
5.6 Effect of Change in Control........................................... 8
5.7 Modification or Assumption of Options................................. 9
ARTICLE 6. PAYMENT FOR OPTION SHARES............................................... 9
6.1 General Rule.......................................................... 9
6.2 Surrender of Stock.................................................... 9
6.3 Exercise/Sale......................................................... 9
6.4 Exercise/Pledge....................................................... 9
6.5 Promissory Note....................................................... 9
6.6 Other Forms of Payment................................................ 10
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ARTICLE 7. STOCK APPRECIATION RIGHTS............................................... 10
7.1 Grant of SARs......................................................... 10
7.2 Exercise of SARs...................................................... 10
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS....................................... 10
8.1 Time, Amount and Form of Awards....................................... 10
8.2 Payment for Awards.................................................... 11
8.3 Vesting Conditions.................................................... 11
8.4 Form and Time of Settlement of Stock Units............................ 11
8.5 Death of Recipient.................................................... 11
8.6 Creditors' Rights..................................................... 11
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.............................................. 11
9.1 Restricted Shares..................................................... 11
9.2 Stock Units........................................................... 12
ARTICLE 10. PROTECTION AGAINST DILUTION............................................. 12
10.1 Adjustments........................................................... 12
10.2 Reorganizations....................................................... 12
ARTICLE 11. LONG-TERM PERFORMANCE AWARDS............................................ 12
ARTICLE 12. LIMITATION ON RIGHTS.................................................... 13
12.1 Retention Rights...................................................... 13
12.2 Stockholders' Rights.................................................. 13
12.3 Regulatory Requirements............................................... 13
ARTICLE 13. LIMITATION ON PAYMENTS.................................................. 13
13.1 Basic Rule............................................................ 13
13.2 Reduction of Payments................................................. 14
13.3 Overpayments and Underpayments........................................ 14
13.4 Related Corporations.................................................. 15
ARTICLE 14. WITHHOLDING TAXES....................................................... 15
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14.1 General............................................................... 15
14.2 Share Withholding..................................................... 15
ARTICLE 15. ASSIGNMENT OR TRANSFER OF AWARDS........................................ 15
ARTICLE 16. FUTURE OF PLAN.......................................................... 16
16.1 Term of the Plan...................................................... 16
16.2 Amendment or Termination.............................................. 16
ARTICLE 17. DEFINITIONS............................................................. 16
ARTICLE 18. EXECUTION............................................................... 19
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FAIR, ISAAC AND COMPANY, INCORPORATED
1992 LONG-TERM INCENTIVE PLAN
AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 21, 1995
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on November 23, 1992, subject to approval by
the Company's stockholders. The Plan was amended and restated by the Board on
November 21, 1995, subject to approval by the Company's stockholders. All share
amounts in this restatement have been adjusted to reflect the 100% stock
dividend paid by the Company on June 26, 1995. The purpose of the Plan is to
promote the long-term success of the Company and the creation of stockholder
value by (a) encouraging Key Employees to focus on critical long-range
objectives, (b) encouraging the attraction and retention of Key Employees with
exceptional qualifications and (c) linking Key Employees directly to stockholder
interests through increased stock ownership. The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares, Stock Units,
Options (which may constitute incentive stock options or nonstatutory stock
options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the laws of the
State of California.
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist of two or more disinterested directors of
the Company, who shall be appointed by the Board. A member of the Board shall be
deemed to be "disinterested" only if he or she satisfies such requirements as
the Securities and Exchange Commission may establish for disinterested
administrators acting under plans intended to qualify for exemption under Rule
16b-3 (or its successor) under the Exchange Act. An Outside Director shall not
fail to be "disinterested" solely because he or she receives the NSO grant
described in Section 4.2.
2.2 Committee Responsibilities. The Committee shall (a) select
the Key Employees who are to receive Awards under the Plan, (b) determine the
type, number, vesting requirements and other conditions of such Awards, (c)
interpret the Plan and (d) make all other decisions relating to the operation of
the Plan. The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. The Committee's determinations under the Plan
shall be final and binding on all persons.
-5-
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Any Common Shares issued pursuant to the
Plan may be authorized but unissued shares or treasury shares. The aggregate
number of Restricted Shares, Stock Units and Options awarded under the Plan
shall not exceed 1,400,000 plus the number of Common Shares remaining available
for awards under the Company's 1987 Stock Option Plan and Stock Option Plan for
Non-employee Directors (the "Prior Plans") at the time this Plan is first
approved by the stockholders. (No additional grants shall be made under the
Prior Plans after this Plan has been approved by the stockholders.) The limi-
tation of this Section 3.1 shall be subject to adjustment pursuant to Article
10.
3.2 Additional Shares. If any Stock Units or Options are
forfeited or if any Options terminate for any other reason before being
exercised, then such Stock Units or Options shall again become available for
Awards under the Plan. If any options under the Prior Plans are forfeited or
terminate for any other reason before being exercised, then such options shall
become available for additional Awards under this Plan. However, if Options are
surrendered upon the exercise of related SARs, then such Options shall not be
restored to the pool available for Awards.
3.3 Dividend Equivalents. Any dividend equivalents distributed
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units or Options available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees shall be eligible for
designation as Participants by the Committee. Key Employees who are Outside
Directors shall only be eligible for the grant of the NSOs described in Section
4.2.
4.2 Outside Directors. Any other provision of the Plan
notwithstanding, the participation of Outside Directors in the Plan shall be
subject to the following restrictions:
(a) Outside Directors shall receive no Awards other than the
NSOs described in this Section 4.2.
(b)(i) Each person who first becomes an Outside Director on
or after February 6, 1996, shall, upon becoming an Outside
Director, receive an NSO covering 10,000 Common Shares (subject
to adjustment under Article 10), hereinafter referred to as an
"Initial Grant." Such Initial Grant shall become exercisable in
increments of 2,000 shares (subject to adjustment under Article
10) on each of the first through fifth anniversaries of the date
of grant.
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(ii) On the date of each annual meeting of stockholders
of the Company held on or after February 6, 1996, each Outside
Director who has been an Outside Director at least since the
prior annual meeting shall receive an NSO covering 1,000 Common
Shares (subject to adjustment under Article 10), hereinafter
referred to as an "Annual Grant." Such Annual Grants shall become
exercisable in full 12 months after the date of grant.
(c) All NSOs granted to an Outside Director under this
Section 4.2 shall also become exercisable in full in the event of
(i) the termination of such Outside Director's service because of
death, total and permanent disability or voluntary retirement at
or after age 65 or (ii) a Change in Control with respect to the
Company.
(d) The Exercise Price under all NSOs granted to an Outside
Director under this Section 4.2 shall be equal to 100% of the
Fair Market Value of a Common Share on the date of grant, payable
in one of the forms described in Sections 6.1, 6.2, 6.3 and 6.4.
(e) All Initial Grants granted to an Outside Director under
this Section 4.2 shall terminate on the earliest of (i) the 10th
anniversary of the date of grant, (ii) the date three months
after the termination of such Outside Director's service for any
reason other than death or total and permanent disability or
(iii) the date 12 months after the termination of such Outside
Director's service because of death or total and permanent
disability. All Annual Grants granted to an Outside Director
under this Section 4.2 shall terminate on the earliest of (i) the
fifth anniversary of the date of grant, (ii) the date three
months after the termination of such Outside Director's service
for any reason other than death or total and permanent disability
or (iii) the date 12 months after the termination of such Outside
Director's service because of death or total and permanent
disability.
4.3 Ten-Percent Stockholders. A Key Employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Company or any of its Subsidiaries shall not be eligible for the grant of an
ISO unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
4.4 Limitation on Option Grants. No person shall receive Options
for more than 50,000 Common Shares (subject to adjustment under Article 10) in
any single fiscal year of the Company.
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ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical.
5.2 Awards Nontransferable. No Option granted under the Plan
shall be transferable by the Optionee other than by will, by a beneficiary
designation executed by the Optionee and delivered to the Company or by the laws
of descent and distribution. An Option may be exercised during the lifetime of
the Optionee only by him or her or by his or her guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during his or her lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.
5.3 Number of Shares. Each Stock Option Agreement shall specify
the number of Shares subject to the Option and shall provide for the adjustment
of such number in accordance with Article 10.
5.4 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price shall not be less than 100% of the Fair
Market Value of a Common Share on the date of grant.
5.5 Exercisability and Term. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. NSOs may also be awarded in
combination with Restricted Shares or Stock Units, and such an Award may provide
that the NSOs will not be exercisable unless the related Restricted Shares or
Stock Units are forfeited.
5.6 Effect of Change in Control. The Committee may determine, at
the time of granting an Option or thereafter, that such Option (and any SARs
included therein) shall become fully exercisable as to all Common Shares subject
to such Option in the event that a Change in Control occurs with respect to the
Company. If the Committee finds that there is a reasonable possibility that,
within the succeeding six months, a Change in Control will occur with respect to
the Company, then the Committee may determine that any or all outstanding
Options (and any SARs included therein) shall become fully exercisable as to all
Common Shares subject to such Options.
-8-
5.7 Modification or Assumption of Options. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding options or
may accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. The Stock Option Agreement may
specify that payment may be made in any form(s) described in this
Article 6.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for more than twelve
months. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker or other party
approved by the Company to sell Common Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Common Shares to a securities
broker or lender approved by the Company, as security for a loan, and to deliver
all or part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is
applicable, payment for all or any part of the Exercise Price may be made with a
full-recourse promissory note; provided that the par value of newly issued
Common Shares must be paid in lawful money of the U.S. at the time when such
Common Shares are purchased.
-9-
6.6 Other Forms of Payment. To the extent that this Section 6.6
is applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 Grant of SARs. At the discretion of the Committee, an SAR may
be included in each Option granted under the Plan, other than the NSOs granted
to Outside Directors under Section 4.2. Such SAR shall entitle the Optionee (or
any person having the right to exercise the Option after his or her death) to
surrender to the Company, unexercised, all or any part of that portion of the
Option which then is exercisable and to receive from the Company Common Shares
or cash, or a combination of Common Shares and cash, as the Committee shall
determine. If an SAR is exercised, the number of Common Shares remaining subject
to the related Option shall be reduced accordingly, and vice versa. The amount
of cash and/or the Fair Market Value of Common Shares received upon exercise of
an SAR shall, in the aggregate, be equal to the amount by which the Fair Market
value (on the date of surrender) of the Common Shares subject to the surrendered
portion of the Option exceeds the Exercise Price. In no event shall any SAR be
exercised if such Fair Market Value does not exceed the Exercise Price. An SAR
may be included in an ISO only at the time of grant but may be included in an
NSO at the time of grant or at any subsequent time, but not later than six
months before the expiration of such NSO.
7.2 Exercise of SARs. An SAR may be exercised to the extent that
the Option in which it is included is exercisable, subject to the restrictions
imposed by Rule 16b-3 (or its successor) under the Exchange Act, if applicable.
If, on the date when an Option expires, the Exercise Price under such Option is
less than the Fair Market Value on such date but any portion of such Option has
not been exercised or surrendered, then any SAR included in such Option shall
automatically be deemed to be exercised as of such date with respect to such
portion. An Option granted under the Plan may provide that it will be
exercisable as an SAR only in the event of a Change in Control.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Restricted Shares or Stock
Units with respect to an Award Year may be granted during such Award Year or at
any time thereafter. Awards under the Plan may be granted in the form of
Restricted Shares, in the form of Stock Units, or in any combination of both.
Restricted Shares or Stock Units may also be awarded in combination with NSOs,
and such an Award may provide that the Restricted Shares or Stock Units will be
forfeited in the event that the related NSOs are exercised.
-10-
8.2 Payment for Awards. To the extent that an Award is granted in
the form of newly issued Restricted Shares, the Award recipient shall be
required to pay the Company in lawful money of the U.S. an amount equal to the
par value of such Restricted Shares. To the extent that an Award is granted in
the form of Stock Units or treasury shares, no cash consideration shall be
required of Award recipients.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock
Units shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award Agreement may
provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may determine, at the
time of making an Award or thereafter, that such Award shall become fully vested
in the event that a Change in Control occurs with respect to the Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of
vested Stock Units may be made in the form of cash, in the form of Common
Shares, or in any combination of both. Methods of converting Stock Units into
cash may include (without limitation) a method based on the average Fair Market
Value of Common Shares over a series of trading days. Vested Stock Units may be
settled in a lump sum or in installments. The distribution may occur or commence
when all vesting conditions applicable to the Stock Units have been satisfied or
have lapsed, or it may be deferred to any later date. The amount of a deferred
distribution may be increased by an interest factor or by dividend equivalents.
Until an Award of Stock Units is settled, the number of such Stock Units shall
be subject to adjustment pursuant to Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award that
becomes payable after the recipient's death shall be distributed to the
recipient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Stock Award Agreement, however, may require that
the holders of Restricted Shares invest any cash dividends received in
additional
-11-
Restricted Shares. Such additional Restricted Shares shall be subject to the
same conditions and restrictions as the Award with respect to which the
dividends were paid. Such additional Restricted Shares shall not reduce the
number of Common Shares available under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan
shall carry with it a right to dividend equivalents. Such right entitles the
holder to be credited with an amount equal to all cash dividends paid on one
Common Share while the Stock Unit is outstanding. Dividend equivalents may be
converted into additional Stock Units. Settlement of dividend equivalents may be
made in the form of cash, in the form of Common Shares, or in a combination of
both. Prior to distribution, any dividend equivalents which are not paid shall
be subject to the same conditions and restrictions as the Stock Units to which
they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common Shares,
a declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff
or a similar occurrence, the Committee shall make appropriate adjustments in one
or more of (a) the number of Options, Restricted Shares and Stock Units
available for future Awards under Article 3, (b) the number of NSOs to be
granted to Outside Directors under Section 4.2, (c) the number of Stock Units
included in any prior Award which has not yet been settled, (d) the number of
Common Shares covered by each outstanding Option or (e) the Exercise Price under
each outstanding Option. Except as provided in this Article 10, a Participant
shall have no rights by reason of any issue by the Company of stock of any class
or securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock dividend
or any other increase or decrease in the number of shares of stock of any class.
10.2 Reorganizations. In the event that the Company is a party to
a merger or other reorganization, outstanding Options, Restricted Shares and
Stock Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting or
for settlement in cash.
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ARTICLE 11. LONG-TERM PERFORMANCE AWARDS.
The Company may grant long-term performance awards under other plans or
programs. Such awards may be settled in the form of Common Shares issued under
this Plan. Such Common Shares shall be treated for all purposes under the Plan
like Common Shares issued in settlement of Stock Units and shall reduce the
number of Common Shares available under Article 3.
ARTICLE 12. LIMITATION ON RIGHTS.
12.1 Retention Rights. Neither the Plan nor any award granted
under the Plan shall be deemed to give any individual a right to remain an
employee or director of the Company or a Subsidiary. The Company and its
Subsidiaries reserve the right to terminate the service of any employee or
director at any time, with or without cause, subject to applicable laws, the
Company's certificate of incorporation and by-laws and a written employment
agreement (if any).
12.2 Stockholders' Rights. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date when
such certificate is issued, except as expressly provided in Articles 8, 9 and
10.
12.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 13. LIMITATION ON PAYMENTS.
13.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company to or for the benefit of a Key Employee, whether paid or payable (or
transferred or transferable) pursuant to the terms of this Plan or otherwise (a
"Payment"), would be non-deductible by the Company for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
section 280G of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount; provided that the
Committee, at the time of making an Award under this Plan or at any time
thereafter, may specify in writing that such Award shall not be so reduced and
shall not be subject to this Article 13.
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For purposes of this Article 13, the "Reduced Amount" shall be the amount,
expressed as a present value, which maximizes the aggregate present value of the
Payments without causing any Payment to be nondeductible by the Company because
of section 280G of the Code.
13.2 Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible by the Company because of section 280G of the
Code, then the Company shall promptly give the Key Employee notice to that
effect and a copy of the detailed calculation thereof and of the Reduced Amount,
and the Key Employee may then elect, in his or her sole discretion, which and
how much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Key Employee within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Key Employee promptly of such election. For purposes of this Article 13, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 13 shall be binding upon
the Company and the Key Employee and shall be made within 60 days of the date
when a payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Key Employee such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Key Employee in the future such amounts as become due to him
or her under the Plan.
13.3 Overpayments and Underpayments. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment") or
that additional Payments which will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Key Employee which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Key Employee which he or she shall repay to
the Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Key Employee to the Company if and to the extent that such
payment would not reduce the amount which is subject to taxation under section
4999 of the Code. In the event that the Auditors determine that an Underpayment
has occurred, such Underpayment shall promptly be paid or transferred by the
Company to or for the benefit of the Key Employee, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
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13.4 Related Corporations. For purposes of this Article 13, the
term "Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 14. WITHHOLDING TAXES.
14.1 General. To the extent required by applicable federal,
state, local or foreign law, the recipient of any payment or distribution under
the Plan shall make arrangements satisfactory to the Company for the
satisfaction of any withholding tax obligations that arise by reason of the
receipt or vesting of such payment or distribution. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
14.2 Share Withholding. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold a portion of any Common Shares that otherwise would
be issued to him or her or by surrendering a portion of any Common Shares that
previously were issued to him or her. Such Common Shares shall be valued at
their Fair Market Value on the date when taxes otherwise would be withheld in
cash. Any payment of taxes by assigning Common Shares to the Company may be
subject to restrictions, including any restrictions required by rules of the
Securities and Exchange Commission.
ARTICLE 15. ASSIGNMENT OR TRANSFER OF AWARDS.
Except as provided in Article 14, any Award granted under the Plan shall not be
anticipated, assigned, attached, garnished, optioned, transferred or made
subject to any creditor's process, whether voluntarily, involuntarily or by
operation of law. Any act in violation of this Article 15 shall be void.
However, this Article 15 shall not preclude a Participant from designating a
beneficiary who will receive any undistributed Awards in the event of the
Participant's death, nor shall it preclude a transfer by will or by the laws of
descent and distribution. In addition, neither this Article 15 nor any other
provision of the Plan shall preclude a Participant from transferring or
assigning Restricted Shares or Stock Units to (a) the trustee of a trust that is
revocable by such Participant alone, both at the time of the transfer or
assignment and at all times thereafter prior to such Participant's death, or (b)
the trustee of any other trust to the extent approved in advance by the
Committee in writing. A transfer or assignment of Restricted Shares or Stock
Units from such trustee to any person other than such Participant shall be
permitted only to the extent approved in advance by the Committee in writing,
and Restricted Shares or Stock Units held by such trustee shall be subject to
all of the conditions and restrictions set forth in the Plan and in the
applicable Stock Award Agreement, as if such trustee were a party to such
Agreement.
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ARTICLE 16. FUTURE OF THE PLAN.
16.1 Term of the Plan. The Plan, as set forth herein, shall
become effective upon approval by the Stockholders of the Company. The Plan
shall remain in effect until it is terminated under Section 16.2, except that no
ISOs shall be granted after November 20, 2005.
16.2 Amendment or Termination. The Board may, at any time and for
any reason, amend or terminate the Plan, except that the provisions of Section
4.2 relating to Outside Directors shall not be amended more than once in any
six-month period. An amendment of the Plan shall be subject to the approval of
the Company's stockholders only to the extent required by applicable laws,
regulations or rules. No Awards shall be granted under the Plan after the
termination thereof. The termination of the Plan, or any amendment thereof,
shall not affect any Option previously granted under the Plan.
ARTICLE 17. DEFINITIONS.
17.1 "Award" means any award of an Option (with or without a
related SAR), a Restricted Share or a Stock Unit under the Plan.
17.2 "Award Year" means a fiscal year with respect to which an
Award may be granted.
17.3 "Board" means the Company's Board of Directors, as
constituted from time to time.
17.4 "Change in Control" means the occurrence of either of the
following events:
(a) A change in the composition of the Board, as a result
of which fewer than one-half of the incumbent directors are
directors who either:
(i) Had been directors of the Company 24 months
prior to such change; or
(ii) Were elected, or nominated for election, to
the Board with the affirmative votes of at least a
majority of the directors who had been directors of the
Company 24 months prior to such change and who were still
in office at the time of the election or nomination; or
(b) Any "person" (as such term is used in sections 13(d)
and 14(d) of the Exchange Act) by the acquisition or aggregation
of securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and
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apart from rights accruing under special circumstances) having
the right to vote at elections of directors (the "Base Capital
Stock"); except that any change in the relative beneficial
ownership of the Company's securities by any person resulting
solely from a reduction in the aggregate number of outstanding
shares of Base Capital Stock, and any decrease thereafter in such
person's ownership of securities, shall be disregarded until such
person increases in any manner, directly or indirectly, such
person's beneficial ownership of any securities of the Company.
17.5 "Code" means the Internal Revenue Code of 1986, as amended.
17.6 "Committee" means a committee of the Board, as described in
Article 2.
17.7 "Common Share" means one share of the Common Stock of the
Company.
17.8 "Company" means Fair, Isaac and Company, Incorporated, a
Delaware corporation.
17.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
17.10 "Exercise Price" means the amount for which one Common
Share may be purchased upon exercise of an Option, as specified in the
applicable Stock Option Agreement.
17.11 "Fair Market Value" means the market price of Common
Shares, determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on
the date in question, whether or not classified as a national
market issue, then the Fair Market Value shall be equal to the
mean between the last reported bid and asked prices quoted by the
NASDAQ system for such date;
(b) If the Common Shares were traded on a stock exchange
on the date in question, then the Fair Market Value shall be
equal to the closing price reported by the applicable composite
transactions report for such date; and
(c) If none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee
in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported by the Research Section of the National
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Association of Securities Dealers or in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
17.12 "ISO" means an incentive stock option described in section
422(b) of the Code.
17.13 "Key Employee" means (a) a key common-law employee of the
Company or of a Subsidiary, as determined by the Committee, or (b) an Outside
Director. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Sections 4.1 and 4.2.
17.14 "NSO" means an employee stock option not described in
sections 422 or 423 of the Code.
17.15 "Option" means an ISO or NSO granted under the Plan and
entitling the holder to purchase one Common Share.
17.16 "Optionee" means an individual or estate who holds an
Option.
17.17 "Outside Director" shall mean a member of the Board who is
not a common-law employee of the Company or of a Subsidiary.
17.18 "Participant" means an individual or estate who holds an
Award.
17.19 "Plan" means this Fair, Isaac and Company, Incorporated
1992 Long-Term Incentive Plan, as it may be amended from time to time.
17.20 "Restricted Share" means a Common Share awarded under the
Plan.
17.21 "SAR" means a stock appreciation right granted under the
Plan.
17.22 "Stock Award Agreement" means the agreement between the
Company and the recipient of a Restricted Share or Stock Unit which contains the
terms, conditions and restrictions pertaining to such Restricted Share or Stock
Unit.
17.23 "Stock Option Agreement" means the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
17.24 "Stock Unit" means a bookkeeping entry representing the
equivalent of one Common Share and awarded under the Plan.
17.25 "Subsidiary" means any corporation, if the Company and/or
one or more other Subsidiaries own not less than 50% of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that
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attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
ARTICLE 18. EXECUTION.
To record the adoption of the amended and restated Plan by the Board, the
Company has caused its duly authorized officer to affix the corporate name and
seal hereto.
FAIR, ISAAC AND COMPANY, INCORPORATED
By
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Peter L. McCorkell
Senior Vice President and Secretary
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