SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
----------------------------------------------------------
Fair, Isaac and Company, Incorporated
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
February 1, 2000
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 9:30 A.M., P.S.T., on
Tuesday, February 1, 2000, 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 2001 Annual Meeting of
Stockholders and thereafter until their successors are elected and
qualified.
2. To approve the adoption of the proposed Employee Stock Purchase Plan
dated November 19, 1999, as described in the accompanying Proxy
Statement.
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 3, 1999, 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
Executive Vice President and Secretary
San Rafael, California
December 30, 1999
- --------------------------------------------------------------------------------
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).
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 1, 2000, and
any postponement or adjournment thereof. A copy of the Company's Annual Report
to Stockholders for the fiscal year ended September 30, 1999, which includes the
Company's financial statements as of September 30, 1999, 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, 200 Smith Ranch Road, San Rafael, CA
94903. This Proxy Statement and the accompanying form of proxy are being mailed
to stockholders on or about December 30, 1999.
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 ten nominees for director listed
in this Proxy Statement, FOR the adoption of the proposed Employee Stock
Purchase Plan, FOR the proposed amendments to the Company's 1992 Long-term
Incentive Plan and FOR the ratification of the appointment of KPMG 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 the 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 3, 1999
(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 14,065,557 shares of the
Company's Common Stock, $0.01 par value (the "Common Stock"), issued and
outstanding, excluding 282,174 shares of Common Stock held as treasury stock by
the Company. 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 Annual 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 ten nominees for director
listed in this Proxy Statement, and the affirmative vote of a majority of the
shares present or represented by proxy and entitled to vote is required to (a)
adopt the Employee Stock Purchase Plan, (b) adopt the amendments to the
Company's 1992 Long-term Incentive Plan, and (c) ratify the appointment of KPMG
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
1
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 ten 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 2001 Annual Meeting of Stockholders and
thereafter until their respective successors are duly elected and qualified.
A. George Battle, Director. Mr. Battle was elected a director in August
1996. From 1968 until his retirement in 1995, Mr. Battle was an employee and
then partner of Arthur Andersen and Andersen Consulting. Mr. Battle's last
position at Andersen Consulting was Managing Partner, Market Development. In
that role he was responsible for Andersen Consulting's worldwide industry
activities, its Change Management and Strategic Services offerings, and
worldwide marketing and advertising. He served as a Presidential Exchange
Executive with the United States Department of Health, Education and Welfare
during 1975-1976. Mr. Battle is a Senior Fellow of the Aspen Institute and a
director of Ask Jeeves, Inc.; PeopleSoft, Inc.; Barra, Inc.; Masters Select
Equity Mutual Fund and Masters Select International Mutual Fund. Further, he is
past President of the Board of Trustees of the Berkeley Repertory Theatre,
Chairman of the Board of the Head Royce School and a national trustee of the
Marcus A. Foster Educational Institute. Mr. Battle received a degree in
Economics from Dartmouth College and an M.B.A. from the Stanford University
Business School. Mr. Battle is 55 years old.
Tony J. Christianson, Director. Mr. Christianson was elected a director in
November 1999. Since its founding in 1980, Mr. Christianson has been a Managing
Partner of Cherry Tree Investments, Inc., a private equity investment firm
focused on application service providers, education businesses and information
technology services companies. He is also a director of Fourth Shift
Corporation; Peoples Education Holding, Inc.; Transport Corp. of America; TRO
Learning, Inc.; AmeriPride Services, Inc.; Dolan Media Company and Capella
Education Company. Mr. Christianson also serves as the chair of Adam Smith
Company, a closely held investment company. He holds a B.S. in Economics and
Accounting from St. John's University of Collegeville, Minnesota and an M.B.A.
from the Harvard Business School. Mr. Christianson is 47 years old.
Thomas G. Grudnowski, Director, President and Chief Executive Officer. Mr.
Grudnowski joined the Company on December 2, 1999, as the Company's President
and Chief Executive Officer. He was elected a director by the Board effective
that date to fill the vacancy created by Larry E. Rosenberger's resignation as a
director. Since 1972 he was employed by Andersen Consulting. He was named a
partner in 1983 and in his last position at Andersen Consulting he was Managing
Partner in charge of Andersen's line-of-business eCommerce ventures. He holds a
B.S. in Mathematics and Accounting from St. John's University in Collegeville,
Minnesota. Mr. Grudnowski is 49 years old.
H. Robert Heller, Director and Executive Vice President. Dr. Heller was
elected a director in February 1994 and an Executive Vice President of the
Company in September 1996. He was President of International Payments Institute
from December 1994 to September 1996. 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
2
Economics from the University of California, Berkeley. Dr. Heller is 59 years
old.
Guy R. Henshaw, Director. Mr. Henshaw was elected a director in February
1994. He is currently Managing Director of Henshaw, Vierra, LLC, a strategy and
management consulting firm. He also serves as a director of Systems LLC, a
private company. From November 1992 to April 1996 he was Chairman of Payday, The
Payroll Company, and was its Chief Executive Officer from March 1993 to April
1996. He served as a Director of Payday from 1989 to 1996. 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 53 years
old.
David S. P. Hopkins, Director. Dr. Hopkins was elected a director in August
1994. He is Director of Health Information Improvement at the Pacific Business
Group on Health, a non-profit coalition of 32 large private and public sector
employers. From January 1995 until January 1996, he was 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 1993 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 56 years old.
Robert M. Oliver, Chairman of the Board of Directors. Dr. Oliver has been a
director of the Company since December 1986 and was elected Chairman of the
Board in January 1996. 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, Trustee and Chairman of the
Board of the AnSer Corporation of Arlington, Virginia, and is a former member
and President 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 Fulbright 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 68 years old.
Robert D. Sanderson, Director. Dr. Sanderson was elected a director in
March 1977. He was employed by the Company from 1969 until his retirement in
December 1998. He was elected a Vice President in May 1974, a Senior Vice
President in June 1983, and an Executive Vice President in January 1985 and
served as Chief Operating Officer from February 1989 through July 1995. 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 56 years old.
Margaret L. Taylor, Director. Ms. Taylor was elected a director in December
1999. Ms. Taylor is currently the chief executive officer of Venture Builders,
LLC which provides a variety of services to startup businesses. From 1989 until
January 1999, she was a Senior Vice President of PeopleSoft, Inc., a developer
of enterprise client/server application software products. At PeopleSoft her
responsibilities included customer services, application development and
corporate operations. Prior to 1989, Ms. Taylor held a number of positions at
The Hibernia Bank and Bank of California, N.A. She holds a B.A. in Psychology
and Communications from Lone Mountain College in San Francisco. Ms. Taylor is 48
years old.
John D. Woldrich, Director and Executive Vice President. 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 and a Senior Vice President
in June 1983. Since January, 1985 he has been an Executive Vice President. Mr.
Woldrich is currently the head of the Company's International, Alliances and
Analytics unit. He served as Company's Chief Operating Officer from 1995 to
November, 1999. Prior to 1995, Mr. Woldrich was in charge of the Company's
Marketing and New Business Development Division. Mr. Woldrich has a B.S. in
Electrical Engineering from the University of Santa Clara and an M.B.A. from the
3
Wharton School of Business at the University of Pennsylvania. Mr. Woldrich is 56
years old.
If any nominee is unable or declines to serve (a contingency which the
Company does not now foresee), 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.
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
During fiscal 1999, the Company had standing audit and compensation
committees of the Board of Directors. A standing nominating committee was
designated on November 19, 1999.
The audit committee consists of A. George Battle, Guy R. Henshaw and David
S. P. Hopkins. 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 six
meetings during fiscal 1999.
The compensation committee consists of Guy R. Henshaw and A. George Battle.
This committee determines all aspects of the compensation of the Company's
executive officers. This Committee also administers the Company's 1992 Long-term
Incentive Plan. The compensation committee held eight meetings in fiscal 1999
(four of which were telephonic meetings).
The nominating committee consists of David S.P. Hopkins, A. George Battle
and Robert M. Oliver. This committee is responsible for identifying appropriate
candidates for election to the Board.
During the past fiscal year, there were four regular meetings and five
special meetings (two of which were telephonic 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 1999.
Stock Ownership
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 3, 1999, 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. The number of shares shown for each of Inger J. Fair, Christian
Fair, Ellen I. Fair and Erik E. Fair includes the same 1,257,996 shares held in
trust as described in footnote 4 to the table.
4
Stock Ownership Table
Directors, Nominees, Executive Officers Beneficial Ownership(1)
---------------------
and 5% Stockholders Number Percent(2)
- -----------------------------------------------------------------------------------------------------------
Judith W. Isaac(3) 1,599,860 11.4%
5 Capilano Drive
Novato, CA 94947
Inger J. Fair(4),(5) 1,304,826 9.3%
200 Smith Ranch Road
San Rafael, CA 94903
Erik E. Fair(4) 1,388,252 9.9%
200 Smith Ranch Road
San Rafael, CA 94903
Ellen I. Fair(4) 1,363,738 9.7%
200 Smith Ranch Road
San Rafael, CA 94903
Christian Fair(4),(6),(8) 1,344,515 9.6%
200 Smith Ranch Road
San Rafael, CA 94903
Peter L. McCorkell, Lennox L. Vernon 814,863 5.8%
and James R. Schoeller, Trustees for
Fair Isaac Employee Stock Ownership Trust
200 Smith Ranch Road
San Rafael, CA 94903
Thomas G. Grudnowski(7) 40,000 *
Larry E. Rosenberger(8),(9) 266,614 1.9%
John D. Woldrich(8),(10) 134,096 *
Patrick G. Culhane(8),(11) 25,331 *
Kenneth M. Rapp(8),(12) 22,989 *
H. Robert Heller(8),(13) 76,277 *
A. George Battle(14) 8,733 *
Tony J. Christianson 0 *
Guy R. Henshaw(15) 20,500 *
David S. P. Hopkins(15) 20,000 *
Robert M. Oliver(16) 41,900 *
Robert D. Sanderson(8),(17) 350,720 2.5%
Margaret L. Taylor 0 *
All executive officers and directors as
a group - (16 persons)(8),(18) 1,027,482 7.2%
_____
* Represents holdings of less than one percent.
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 Percentages are calculated with respect to a holder of stock options
exercisable on or prior to February 28, 2000, as if such holder had
exercised such option. Shares deemed issued to a holder of stock
options pursuant to the preceding sentence are not included in the
percentage calculation with respect to any other stockholder.
3 Includes 247,500 shares held as co-trustee (with F. L. Adams) and as
beneficiary under a trust.
4 Includes 1,257,996 shares held by Inger J. Fair and her adult children,
Erik E. Fair, Ellen I. Fair, and Christian Fair, as co-trustees and as
beneficiaries of The William Rodden Fair and Inger Johanne Fair
Revocable Trust, Trust A under The William and Inger Fair Trust
Agreement dated 3/28/86, Trust B Non-Exempt under the William and Inger
Fair Trust Agreement dated 3/28/86 and The William and Inger Fair Trust
C under the William and Inger Fair Trust Agreement dated 3/28/86.
Christian Fair, Ellen I. Fair and Erik E. Fair each disclaim beneficial
interest in the shares held by the trust except to the extent of such
person's pecuniary interest in such trust.
5 Includes 46,830 shares held by Inger J. Fair in an Individual
Retirement Account.
6 Includes options for 100 shares.
7 Includes options for 40,000 shares.
8 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.
9 Includes options for 27,500 shares.
10 Includes options for 25,000 shares. Also includes 2,810 shares held by
Mr. Woldrich's minor children. Mr. Woldrich disclaims beneficial
ownership of such shares.
11 Includes options for 20,000 shares.
12 Includes options for 22,680 shares.
13 Includes options for 76,000 shares.
14 Includes options for 8,000 shares. Also includes 300 shares held by Mr.
Battle's son who resides with him and includes 100 shares held by his
sister for whom he has dispositive power. Mr. Battle disclaims
beneficial ownership of such shares.
15 Includes options for 20,000 shares.
16 Includes options for 4,000 shares. Also includes 2,000 shares held in
an Individual Retirement Account ("IRA") for Dr. Oliver, 4,000 shares
held in an IRA by his wife and 31,900 shares held jointly by Dr. Oliver
and his wife.
17 Includes options for 2,000 shares.
18 Includes shares included in notes (6), (7), (8), (9), (10), (11), (12),
(13), (14), (15), (16) and (17) above, including a total of 265,280
shares subject to options exercisable on or prior to February 28, 2000.
6
Compensation of Directors and Executive Officers
Directors' Compensation
In fiscal 1999, non-employee directors other than the Chairman were
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 $100,000 per year
for services as Chairman and other consulting work, plus $2,000 for each Board
meeting attended. All non-employee directors other than the Chairman are paid
$250 per hour for committee meetings and other special assignments. See
"Director Consulting Arrangements below."
At a meeting of the Board of Directors on November 19, 1999, the
Compensation Committee recommended and the Board of Directors approved that the
non-employee directors, other than the Chairman, be compensated at the rate of
$20,000 per year plus $1,000 for each Board meeting attended. This increase in
annual compensation would eliminate the hourly fees the non-employee directors
billed to the Company for committee meetings and other special assignments. In
addition the Board of Directors also approved at the meeting that the
non-employee directors who chair standing committees, currently the Audit,
Nominating and Compensation committees, receive an additional $5,000 per year.
No changes were made to the Chairman's compensation. The Compensation Committee
also recommended the adoption of the amendments described below to the Company's
1992 Long-term Incentive Plan with respect to option grants to non-employee
directors.
Currently, under the Company's 1992 Long-term Incentive Plan as amended and
restated effective November 25, 1997, members of the Board of Directors who are
not employees of the Company ("Outside Directors") receive a grant of 10,000
nonqualified stock options (the "Initial Grant") upon election as an Outside
Director and a grant of nonqualified options for 1,000 shares on the date of
each annual meeting provided such person has been an Outside Director since the
prior annual meeting (the "Annual Grant"). The exercise price of all such
options is equal to the fair market value of Common Stock on the date of grant.
The Initial Grants vest in 20% increments on each of the first through fifth
anniversary dates of such person's election as a director and expire ten years
after grant. Annual Grants vest one year after grant and expire five years after
grant. All such options granted to an Outside Director are also exercisable in
full in the event of the termination of such Outside Director's service because
of death, total and permanent disability or voluntary retirement at or after age
65, or a change in control with respect to the Company.
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.
7
Summary Compensation Table
Annual Compensation Long-term Compensation
------------------- -----------------------
Awards Payouts
---------- --------------
Securities Long-term
Underlying Incentive Plan All Other
Name Year Salary Bonus(1) Options Payouts(2) Compensation(3)
- ---------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 1999 $245,250 $127,737 22,500 $107,736 $17,982
President and Chief 1998 222,500 125,250 22,500 156,493 18,156
Executive Officer 1997 212,500 137,856 30,000 292,152 18,957
John D. Woldrich 1999 $243,500 $102,505 20,000 $83,380 $16,670
Executive Vice 1998 214,750 101,870 20,000 117,671 17,130
President and Chief 1997 202,500 110,285 27,500 218,591 17,813
Operating Officer
Patrick G. Culhane 1999 $221,250 $92,255 17,500 $62,207 $14,544
Executive Vice 1998 206,250 91,850 17,500 64,109 14,952
President 1997 191,250 98,298 25,000 79,427 15,162
H. Robert Heller 1999 $201,000 $82,004 10,000 $33,850 $12,513
Executive Vice 1998 191,250 84,335 10,000 19,173 13,024
President 1997 180,000 91,105 ------ 2,644 3,553
Kenneth M. Rapp 1999 $185,750 $70,965 17,500 $12,864 $7,441
Senior Vice 1998 154,500 199,441 12,500 9,792 5,513
President and former 1997 138,998 127,542 15,000 22,536 4,271
President of DynaMark
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 shares of
"phantom stock" awarded 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 1999, employer
401(k) contributions were $2,770, $2,547, $2,637, $1,000 and $4,800 for
Messrs. Rosenberger, Woldrich, Culhane, Heller and Rapp, respectively;
the value of ESOP contributions allocations and dividends were $7,713,
$6,623, $4,406, $4,013 and $2,641 for Messrs. Rosenberger, Woldrich,
Culhane, Heller and Rapp, respectively; and the value of Company
contributions to the Supplemental Retirement and Savings Plan was
$7,500 for each of Messrs. Rosenberger, Woldrich, Culhane and Heller
and $0 for Mr. Rapp.
8
Option/SAR Grants in Last Fiscal Year
Individual Grants
---------------------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to for Option Term(2)
Options Employees Exercise Price Expiration ------------------
Name Granted in Fiscal Year per share Date 5% 10%
- -------------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 22,500(1) 2.3% $37.0625 3/31/09 $524,439 $1,329,032
John D. Woldrich 20,000(1) 2.0% $37.0625 3/31/09 $466,168 $1,181,362
Patrick G. Culhane 17,500(1) 1.8% $37.0625 3/31/09 $407,897 $1,033,691
H. Robert Heller 10,000(1) 1.0% $37.0625 3/31/09 $233,084 $ 590,681
Kenneth M. Rapp 17,500(1) 1.8% $37.0625 3/31/09 $407,897 $1,033,691
1 Granted at fair market value and exercisable in full on March 31, 2002.
2 Assuming 5% and 10% compounded annual appreciation of the stock price
over the term of the option, the price of a share of Common Stock would
be $60.37 and $96.13, respectively, on March 31, 2009.
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 0 $ 0 27,500 75,000 $ 0 $0
John D. Woldrich 0 $ 0 25,000 67,500 $ 0 $0
Patrick G. Culhane 5,000 $106,637 20,000 60,000 $ 0 $0
H. Robert Heller 0 $ 0 66,000 70,000 $203,687 $0
Kenneth M. Rapp 0 $ 0 22,680 48,170 $ 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 closing prices of the Company's Common Stock as reported
by the New York Stock Exchange for September 30, 1999 ($28.0625), less
the exercise price.
Long-term Incentive Plans--Awards in Last Fiscal Year
Number of Period Until
Name Shares(1) Payout(2)
- ------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 4,552 4 Years
John D. Woldrich 3,653 4 Years
Patrick G. Culhane 3,287 4 Years
H. Robert Heller 2,922 4 Years
Kenneth M. Rapp 2,529 4 Years
1 Shares of "phantom stock" awarded for fiscal 1999 pursuant to the
Company's Officers' Incentive Plan. The number of shares is equal to
half of the officer's total incentive award for fiscal 1999 divided by
the closing price of the stock on the award date ($28.0625 at September
30, 1999). See the description under "Compensation Committee Report on
Executive Compensation; Incentive Compensation Plans" below. Shares of
phantom stock are converted into cash at the payout dates at the
closing price for the Company's Common Stock on the payout date.
2 The shares of phantom stock will be converted to cash 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
9
employed by the Company.
Pension Plan
Until September 30, 1999, the Company maintained the Fair, Isaac Pension
Plan (the "Pension Plan") for the benefit of employees of the Company (not
including employees of its subsidiaries, DynaMark, Inc. and Risk Management
Technologies), including officers and directors who are employees. Effective
October 1, 1999, the Pension Plan was frozen as employees of these subsidiaries
and others became employees of the Company. No new participants will be admitted
to the Pension Plan and no further benefits will accrue under the Pension Plan.
Subject to certain age and service requirements, participants in the Pension
Plan accrued 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 the
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, prior to October 1, 1999. 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.
The following table illustrates the estimated annual benefits payable upon
retirement to an employee and 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 that 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
The number of years of service credited to each of the named executives as
of September 30, 1999 was as follows: Mr. Rosenberger, 24 years; Mr. Woldrich,
26 years; and Mr. Culhane, 13 years; and Mr. Heller 2 years. Mr. Rapp is not
eligible and did not participate in the Pension Plan.
The benefits shown in the foregoing table are based on the current formula
applied to all credited service. "Grandfather" provisions related to the 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 a pension plan). The limit in effect during 1999 was $160,000.
10
Director Consulting Arrangements
The Company has an agreement with Dr. Oliver under which he has agreed to
make himself available to the Company approximately 1,000 hours per year at the
rate of $100,000 per year for so long as he remains Chairman of the Company's
Board of Directors. The term of the agreement began January 1, 1996 and
continues indefinitely until terminated.
Employment Agreements
The Company has entered into an employment agreement dated August 23, 1999
with Thomas G. Grudnowski, who is serving as the Company's Chief Executive
Officer and as a director since December 2, 1999. The agreement has a term of
four years, subject to earlier termination under certain circumstances. The
agreement provides that during fiscal 2000 Mr. Grudnowski will be paid at an
annualized rate of $800,000. Beginning in fiscal 2001, the agreement provides
that Mr. Grudnowski will receive an annual salary of $400,000, with an incentive
target of $400,000 upon the attainment of certain strategic, business and
financial objectives to be mutually determined by Mr. Grudnowski and the Board
of Directors. The actual incentive bonus can range from zero to twice the target
amount. In connection with the employment agreement, the Company has granted Mr.
Grudnowski options to purchase up to 420,000 shares of Common Stock at fair
market value as of August 23, 1999. The Company has also granted Mr. Grudnowski
options to purchase an additional 40,000 shares of Common Stock at fair market
value as of December 3, 1999. The options to purchase Common Stock vest fully
upon termination of Mr. Grudnowski without cause, a change in control of the
Company or termination owing to Mr. Grudnowski's death or disability. The
agreement further provides that if the Company should terminate Mr. Grudnowski's
employment without cause, then the Company will pay Mr. Grudnowski, among other
things, twice Mr. Grudnowski's then base salary and twice the incentive award
granted by the Company to Mr. Grudnowski for the period immediately prior to
termination.
Compensation Committee Interlocks and Insider Participation
A. George Battle and Guy R. Henshaw served as the members of the Company's
Compensation Committee for the fiscal year ended September 30, 1999. Messrs.
Battle and Henshaw are non-employee Directors of the Company and had no other
relationship with the Company for the fiscal year ended September 30, 1999. None
of the Executive Officers of the Company had any "interlock" relationships to
report during the fiscal year ended September 30, 1999. Bryant J. Brooks also
served as a member of the Compensation Committee until his death on March 8,
1999.
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 executive officers, 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.
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.
In fiscal 1999, the Company's executive compensation program consisted 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 were 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 maintained a Supplemental Retirement and
Savings Plan for the benefit of certain highly compensated employees, including
most executive officers.
11
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.
Officer Incentive 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 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 four
percent for non-exempt employees to more than 65 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 previously established by the
Board to establish his or her incentive award for the year. During fiscal 1999,
operating margin received three times the weight given to revenue growth and
awards could range from zero to three times the target amount. For fiscal 1999,
the operating margin was adjusted to eliminate the adverse affect of an
accounting change which the Company adopted as of July 1, 1999. During fiscal
2000, income growth and operating margin will receive equal weight and awards
can range from zero to twice the target amount.
In fiscal 1999, all officers received 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 shares of "phantom stock" based on the market price of the
Company's Common Stock at the end of the fiscal year. Those shares of phantom
stock 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 or is retired from the Company), based on the market price of the
Company's stock at the end of each of those years. The Company has decided not
to continue the "phantom stock" feature of the plan in fiscal 2000 and
succeeding years and has offered participants from prior years the option of an
early payout based on the market value of the stock on December 21, 1999.
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 Messrs. Rosenberger, Woldrich, Culhane, Heller and Rapp in fiscal
1999 and are reflected in the Option/SAR Grants in Last Fiscal Year Table and
Aggregated Option/SAR Exercises in Last Fiscal Year Table and Fiscal Year-End
Option/SAR Values Table above.
12
Limits on Tax-Deductible Compensation
The Committee believes that for fiscal 1999 it is highly unlikely that the
combination of base salary, Officer Incentive Plan cash awards, and payments for
shares of phantom stock 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 rules currently in
effect so that compensation arising from the exercise of options granted under
that plan will 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. The 420,000 options granted to Mr. Grudnowski and
50,000 options granted to Henk J. Evenhuis, the Company's new Chief Financial
Officer, as part of inducements to accept employment with the Company do not
qualify for the exemption from Section 162(m) of the Internal Revenue Code and
may thus result in compensation to Messrs. Grudnowski and Evenhuis which is not
deductible by the Company.
CEO Compensation
The amounts of Mr. Rosenberger's base salary and incentive plan target for
fiscal 1999 were established by the Compensation Committee using the criteria
discussed above. Mr. Rosenberger's base salary for fiscal 1999 was $245,250,
compared with a base of $222,500 for fiscal 1998. His incentive plan target for
fiscal 1999 was $162,000 which represented an increase of $12,000 over 1998.
Because the Company's revenue growth of 13 percent and operating margin of 16.7
percent (when adjusted for the accounting change noted above) exceeded the goals
set by the Board for 1999, Mr. Rosenberger's total incentive award for the year
was $255,474. Of that amount, 50 percent was paid in cash shortly after the end
of the year and is shown in the Summary Compensation Table under the column
captioned "Annual Compensation; Bonus." The remainder was awarded in the form of
shares of "phantom stock" as explained above which will become payable in 25
percent increments after each year during the four year period ending September
30, 1999 through 2002, based on the stock price on those dates subject to the
early payout election described above. Amounts shown under the caption
"Long-term Incentive Plan Payouts" reflect payments for phantom shares awarded
in prior years.
A. George Battle
Guy R. Henshaw
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 Center for Research in Security Prices ("CRSP") Total
Return Index for the S&P 500 Stocks 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.; HNC Software Inc.; and Inference Corporation. 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 which are in the same order of
magnitude as the Company in revenue and market capitalization. Barra, Inc. is
headquartered near the Company's headquarters and competes with the Company for
available technical staff.
13
Comparison of Five Year Cumulative Return
CRSP Index Self-determined
Measurement Period Fair, Isaac and Company, for S&P 500 Peer Group
(Fiscal year covered) Incorporated Stocks Index
- ----------------------------------------------------------------------------------------
9/94 100.0 100.0 100.0
9/95 164.3 129.9 184.0
9/96 220.1 156.4 311.1
9/97 251.9 219.8 267.9
9/98 190.4 240.5 321.9
9/99 160.4 307.8 283.9
The returns shown assume $100 invested on September 30, 1994 in the
Company's stock, the CRSP Indices for the S&P 500 Stocks (U.S. Companies) and
the peer group indices, 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 Adopt the Fair, Isaac and Company, Incorporated Employee Stock
Purchase Plan
At the Annual Meeting, the stockholders are being asked to approve the
adoption of the Company's Employee Stock Purchase Plan as set forth in Appendix
A to this Proxy Statement (the "Plan") and as unanimously adopted the Board of
Directors on November 19, 1999, subject to stockholder approval.
Overview of the Employee Stock Purchase Plan
The following is a summary of certain features of the Plan, but the summary
is qualified in its entirety by reference to the full text of the Plan. All
capitalized terms not defined in this Proxy Statement have the meanings set
forth in the Plan.
Purpose
The purpose of the Plan is to furnish to the Company's employees an
incentive to advance the best interests of the Company by providing a way for
employees to purchase Common Stock of the Company ("Shares") at a favorable
price and on favorable terms. In the opinion of the Company, the Plan is not
subject to any of the provisions of the Employee Retirement Income Security Act
of 1974, as amended.
Shares Subject to the Employee Stock Purchase Plan
The Plan provides for the issuance, upon purchase by its employees, of up to
an aggregate of 1,500,000 Shares (subject to adjustment in the event of stock
splits and certain other corporate events, as described under "Adjustments Upon
Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale").
Such Shares may be unissued or reacquired Shares or Shares bought on the market
for purposes of the Plan. To the extent Shares are set aside for purchase by
employees at the beginning of a purchase period but are not purchased by such
employees, those Shares will again be available for purchase under the Plan.
Administration
Under the terms of the Plan, the Plan will be administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee is authorized to (i) interpret the Plan and all rights to purchase
Shares, (ii) make rules and determinations, and (iii) correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any right
to purchase Shares, as necessary or desirable to administer the Plan. The
Committee will not be liable for any decision, determination or action taken in
good faith in connection with the
14
administration of the Plan. The Committee will have the authority to delegate
routine day-to-day administration of the Plan to such officers and employees of
the Company or a third party as the Committee deems appropriate.
Eligibility for Participation
All employees of the Company and employees of any present or future
subsidiary of the Company designated by the Board of Directors as eligible to
participate in this Plan, are eligible to participate in the Plan. No employee
will have a right to purchase Shares if such employee, immediately after
acquiring such right, owns stock with five percent or more of the total combined
voting power or value of all classes of stock of the Company. As of the date of
this Proxy Statement, the Company has approximately 1,600 employees, about 1,500
of whom will be eligible to participate in the Plan. Non-U.S. employees are not
currently eligible to participate in the Plan.
Employees who elect to participate in the Plan do so by means of payroll
deduction. An employee's purchases under the Plan may not exceed either (i) 10%
of "eligible compensation" from which the deduction is made or (ii) $25,000 of
fair market value of the Shares (determined at the beginning of the Plan year)
for any calendar year.
Rights to Purchase Shares
The purchase price per Share to be paid by each employee on each purchase of
Shares will be an amount equal to 85% of the lesser of the fair market value of
the Shares on the first day of each Offering Period (currently January 1 and
July 1) or on the last day of each Offering Period (currently June 30 and
December 31). The fair market value of the Shares will be the per Share price of
the last sale of the Shares as reported by the New York Stock Exchange (the
"NYSE") on these dates (or, if such date is not a trading date on the NYSE, the
last preceding trading date). An employee will not have any rights or privileges
of a stockholder of the Company for any Shares subject to the Plan until Shares
have been purchased and a certificate for Shares has been issued. The closing
market price of the Shares on the NYSE on December 3, 1999 was $42.50.
Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or
Asset Sale
Whenever any change is made in the Shares, by reason of a stock dividend or
by reason of subdivision, stock split, reverse stock split, recapitalization,
reorganization, combination, reclassification of Shares, or other similar
changes, appropriate action will be taken by the Board of Directors to adjust
the number of Shares subject to the Plan and the number and purchase price of
Shares subject to rights to purchase Shares outstanding under the Plan.
If the Company is not the surviving corporation in any merger or
consolidation (or survives only as a subsidiary of an entity other than a
previously wholly owned subsidiary of the Company), or if the Company is to be
dissolved or liquidated, then unless a surviving corporation assumes or
substitutes new purchase rights for all rights to purchase Shares then
outstanding, (i) the date of purchase for all rights outstanding under the Plan
will be accelerated to dates fixed by the Board of Directors prior to the
effective date of such merger or consolidation or such dissolution or
liquidation, and (ii) upon such effective date any unexercised rights to
purchase Shares will expire.
Amendment or Termination of the Plan
The Board of Directors in its discretion may terminate the Plan at any time
as to any Shares not then subject to an employee's rights to purchase. The Board
of Directors may alter or amend the Plan from time to time, except that any
right already granted may not be changed in a way that would impair the rights
of an employee without his or her consent. Also, the Board of Directors may not,
without the approval of the stockholders of the Company, make any alteration or
amendment that would (i) materially increase the benefits accruing to employees
under the Plan, (ii) increase the aggregate number of Shares that may be issued
under the Plan (other than as prescribed for changes in capitalization as
described above), (iii) change the persons eligible to purchase Shares, (iv)
cause rights to purchase Shares to fail to meet the requirements of employee
stock purchase options as defined in Section 423 of the Code or (v) otherwise
modify the requirements as to eligibility for participation in the Plan.
15
Use of Funds
All funds received or held by the Company under the Plan will be included in
the general funds of the Company free of any trust or other restriction, and may
be used for any corporate purpose. No interest will be paid to any employee or
credited to his or her account under the Plan.
Federal Income Tax Consequences
In General. The Plan is not qualified under Section 401(a) of the Code.
The following summary is based on the applicable provisions of the Code as
currently in effect and the income tax regulations and proposed income tax
regulations thereunder.
Status of Rights to Purchase Shares Under the Plan. For tax purposes rights
to purchase Shares under the Plan are intended to qualify as employee stock
purchase plan options as defined in Section 423 of the Code.
Tax Consequences of Grant of Right to Purchase Shares Under the Plan. An
employee's payroll deductions to purchase Shares are made on an after-tax basis.
No federal income tax is imposed on an employee upon the grant of a right to
purchase Shares under the Plan. The Company is not entitled to a business
expense deduction as a result of the grant of a right to purchase Shares.
Tax Consequences of Exercise of Right to Purchase Shares Under the Plan. No
federal income tax is imposed on an employee upon the purchase of Shares under
the Plan. The Company is not entitled to take a business expense deduction as a
result of the purchase of Shares under the Plan.
Tax Consequences of a Qualifying Disposition of Shares. If an employee
disposes of Plan Shares (including by way of gift) more than eighteen months
after the date of acquisition of the Shares, typically at the end of an Offering
Period ("Date of Purchase") or dies while owning Plan Shares, any gain is first
recognized as ordinary income up to the lesser of (i) the excess of the fair
market value of Shares at the time of disposition over the purchase price of
such Shares, or (ii) the excess of the fair market value of Shares at the date
the employee made the election to purchase the Shares (typically the beginning
of an Offering Period), over the purchase price. The employee's basis in Plan
Shares is increased by any ordinary income recognized. Any remaining gain upon
disposition is recognized as a long-term capital gain. If the employee disposes
of Plan Shares more than eighteen months after the Date of Purchase for less
than the Purchase Price, a long-term capital loss is recognized.
If an employee satisfies the long-term capital gain holding period
requirements discussed above, then the Company will not be allowed a deduction
with respect to the employee's disposition of the Shares.
Tax Consequences of Disqualifying Disposition. If an employee disposes of
Plan Shares less than eighteen months after the Date of Purchase, then the
employee would be treated as having received, at the time of disposition,
compensation taxable as ordinary income. The amount recognized as ordinary
income upon such disposition is the difference between the purchase price and
the fair market value of Plan Shares at the Date of Purchase. The difference
between the basis (the purchase price) of the Plan Shares, increased by any
ordinary income recognized, and the selling price of the Plan Shares is a
capital gain or loss, short-term or long-term depending on how long the shares
are held after the Date of Purchase. In such event, as long as any applicable
withholding obligations are satisfied, the Company may claim a deduction for
compensation paid at the same time and in the same amount as the ordinary income
recognized by the employee.
Federal Income Tax Rates. Compensation taxable to an employee is generally
subject to a maximum income tax rate of 39.6%. Long-term capital gain is
generally subject to a maximum effective tax rate of 20%.
Parachute Payment Sanctions. Certain actions that may be taken by the Board
of Directors in relation to the Plan may afford an employee (generally, officers
or highly compensated employees) special protections or payments that are
contingent on a change in the ownership of the Company, the effective control of
the Company or the ownership of a substantial portion of the Company's assets.
To the extent triggered by the occurrence of any such event, these special
protections or payments may constitute "parachute payments" that, when
aggregated with
16
other parachute payments received by the employee, if any, could result in the
employee's receiving "excess parachute payments" (a portion of which would be
allocated to those protections or payments derived from the right to purchase
Shares). The Company would not be allowed a deduction for any such excess
parachute payment, and the recipient of the payment would be subject to a
nondeductible 20% excise tax upon such payment in addition to income tax
otherwise owed with respect to such payment.
Vote Required
The Board of Directors recommends a vote FOR approval for the adoption of
the Fair, Isaac and Company, Incorporated Employee Stock Purchase Plan. The
affirmative vote of a majority of the shares present and entitled to vote is
required for approval.
Proposal to Amend the Fair, Isaac and Company, Incorporated 1992 Long-term
Incentive Plan
At the Annual Meeting, the stockholders are being asked to approve the
adoption of the following amendments to the Company's 1992 Long-term Incentive
Plan (the "Plan"), as unanimously adopted by the Board of Directors on November
19, 1999 and subject to stockholder approval:
(a) to provide for an "Initial Grant" of non-qualified stock options ("NSO") to
purchase 20,000 shares to any person who first becomes an Outside Director
on or after the date of the Company's 2000 annual meeting of stockholders,
vesting in increments of 4,000 shares on each of the first through fifth
anniversaries of the date of grant;
(b) to make additional grants of options to each person serving as an Outside
Director immediately prior to the Company's 2000 annual meeting so that
such grants plus the Initial Grant received by such Outside Director shall
equal options for 20,000 shares;
(c) on the date of each annual meeting of stockholders on or after January 1,
2000, to make an annual grant to each person who has served as an Outside
Director since the prior annual meeting of an NSO covering 5,000 shares
which shall be immediately exercisable;
(d) on the date of each annual meeting of stockholders held on or after January
1, 2000, to grant an additional NSO covering 1,000 shares to each Outside
Director who chairs a standing committee of the Board of Directors;
(e) to provide that all NSOs granted to an Outside Director on or after the
date of the Company's 2000 annual meeting shall become immediately
exercisable upon termination of such Outside Director's services for any
reason, and shall remain exercisable for a period of 12 months after such
termination; and
(f) to provide for a separate pool of 150,000 shares reserved for grants to
Outside Directors made on or after the date of the Company's 2000 annual
meeting.
At the same time the Board of Directors adopted these amendments regarding
option grants to Outside Directors, the Board adopted the changes in cash
compensation for such directors described above under "Director's Compensation."
The Board of Directors believes that stock-based compensation--particularly
stock options--is a valuable component of compensation for executives and
outside directors in that it serves to align the interests of directors and
management with those of the stockholders. In addition, the ability to grant
options is an increasingly essential factor in allowing the Company to be
competitive in the recruiting and retaining high quality outside directors. A
review of the director compensation practices of other California high-tech
companies revealed that the Company's current practice regarding option grants
to outside directors is below average for similar companies.
Overview of the 1992 Long-term Incentive Plan
17
The following description of the Plan is a summary only. All capitalized
terms not defined in this Proxy Statement have the meanings set forth in the
Plan. Any stockholder who wishes to review the text of the Plan can obtain a
copy by writing to the Company, Attention: Corporate Secretary.
History
The 1992 Long-term Incentive Plan (the "Plan") was originally 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 adopted certain amendments which were
approved by the stockholders at the annual meeting held on February 6, 1996. An
additional amendment to the Plan to permit certain gifts of non-qualified stock
options was adopted by the Board of Directors on December 23, 1996. This
amendment did not require stockholder approval. On November 25, 1997, the Board
of Directors adopted certain amendments increasing the number of restricted
shares, stock units and options available for grant each year. This amendment
was approved by the stockholders at the annual meeting held on February 3, 1998.
Purpose
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. Awards made
under prior plans will continue to be administered in accordance with those
plans.
Types of Awards
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 3, 1999, the fair market value of the Company's stock (defined by
the Plan as the closing price of the Company's Common Stock as reported by the
New York Stock Exchange) was $42.50 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 seven
non-employee directors and approximately 1,600 employees who are eligible to
participate in the Plan.
The Committee has full discretion to determine the size and condition of
any award granted under the Plan, subject to an annual limitation on the total
number of options that may be granted to any individual in any fiscal year.
Therefore, the awards that will be received by each of the officers named in the
Summary Compensation Table above, the executive officers as a group and all
other employees under the amended Plan are not presently determinable. Details
with respect to Plan awards granted during the last three years to such named
officers are presented above in the Summary Compensation Table.
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 currently 670,360 shares. There are options for a total of 2,128,751
shares outstanding, of which 474,856 are currently exercisable and 1,653,895 are
not yet exercisable. However, those options would become available for new
awards under the Plan if they are forfeited or otherwise
18
terminate prior to exercise. Currently, there are no shares of restricted stock
issued under the Plan. In addition, the number of shares that would be available
for grants of ISOs during the remaining term of the Plan is 684,485 shares,
unless a greater number is subsequently approved by the stockholders. The number
of shares available for grant each fiscal year is increased by a number equal to
four percent of the number of shares of the Company's Common Stock outstanding
on the last day of the preceding fiscal year.
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 NSOs as well as ISOs intended to qualify for special
tax treatment. The exercise price of any option under the 1992 Long-term
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 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. ISOs and SARs
are nontransferable prior to the optionee's death; NSOs may be transferred to
family members (including certain trusts) of the optionee.
Limit on Individual Awards
The Plan limits the number of options that may be granted to any individual
in any fiscal year to 50,000 shares. 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.
Non-Employee Directors
Prior to the proposed amendments, the Plan provided 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 of
stockholders provided such person has been an "Outside Director" since the prior
annual meeting (the "Annual Grants"). Initial Grants vest in 20 percent
increments on each of the first through fifth anniversary dates of such person
becoming an Outside Director and expire ten years after grant. Annual Grants
vest one year after grant and expire five years
19
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 percent of the fair market
value of the Company's Common Stock on the date of grant.
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 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 an
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 Long-term 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 Long-term
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. However, the Company has never "repriced" options
previously granted. The 1992 Long-term 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 Long-term Incentive Plan at any
time and in any respect, subject to stockholder approval if required by law. The
1992 Long-term Incentive Plan will remain in effect until terminated by the
Board of Directors, except that, under the Plan as amended in 1997, no ISO may
be granted after November 24, 2007.
Vote Required and Effective Date
The Board of Directors recommends a vote FOR approval of the proposed
amendments to the Plan so that the Company will have a sufficient number of
shares available for option grants in order to remain competitive in recruiting
and retaining well-qualified outside directors.
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 LLP as the Company's independent auditors for the
Company's current fiscal year ending September 30, 2000. KPMG LLP has served as
the Company's independent auditors since May, 1991. Representatives of KPMG 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.
20
The Board of Directors recommends a vote FOR the ratification of KPMG LLP
as the Company's independent auditors. The affirmative vote of a majority of the
shares present or represented by proxy and entitled to vote on this matter 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) Beneficial Ownership Reporting Compliance
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 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 Mrs. Fair, a ten percent owner, inadvertently failed
to report 68,830 shares that were owned by her late husband through the
Company's Employee Stock Ownership Plan. Upon Mr. Fair's death, these shares
were rolled over into an IRA and became reportable by Mrs. Fair. Upon Mrs.
Fair's becoming aware that these shares were not reported, Mrs. Fair promptly
amended her filing to include these shares. In addition, Mrs. Fair had a late
filing for the sale of 900 shares in June 1999 from a sale inadvertently omitted
by her broker in a monthly accounting report. Mrs. Fair promptly amended her
filing to correct the omission.
Submission of Proposals of Stockholders
Proposals of stockholders intended to be presented at the Company's 2001
Annual Meeting of Stockholders must be received at the Corporate Secretary's
Office, 200 Smith Ranch Road, San Rafael, California 94903, no later than
September 1, 2000, to be considered for inclusion in the proxy statement and
form of proxy for that meeting.
In order for business, other than a stockholder proposal included in the
Company's proxy statement and form of proxy, to be properly brought before the
2001 Annual Meeting by a stockholder, the stockholder must give timely written
notice thereof to the Corporate Secretary of the Company and must otherwise
comply with the Company's Bylaws. The Company's Bylaws provide that, to be
timely, a stockholder's notice must be received by the Corporate Secretary at
the Company's principal executive offices no less than 60 days nor more than 90
days prior to the scheduled date of the annual meeting. If the Company gives
less than 70 days' notice or prior public disclosure of the scheduled meeting
date, then, to be timely, the stockholder's notice must be received no later
than the earlier of (i) the close of business on the tenth day following the day
on which such notice was mailed or such disclosure was made, whichever occurs
first, and (ii) two days prior to the scheduled meeting date.
By Order of the Board of Directors
Peter L. McCorkell
Executive Vice President and Secretary
Dated: December 30, 1999
21
APPENDIX A
FAIR, ISAAC AND COMPANY, INCORPORATED
1999 Employee Stock Purchase Plan
22
FAIR, ISAAC AND COMPANY, INCORPORATED
1999 Employee Stock Purchase Plan
1. Purpose....................................................................................................1
2. Definitions................................................................................................1
3 Eligibility................................................................................................3
4. Offering Periods...........................................................................................3
5. Participation..............................................................................................3
6 Payroll Deductions.........................................................................................4
7. Grant of Options...........................................................................................5
8. Exercise of Option.........................................................................................5
9 Delivery of Shares; Participant Accounts...................................................................5
10. Withdrawal of Payroll Deductions or Shares; Termination of Employment......................................6
11. Interest...................................................................................................7
12. Stock......................................................................................................7
13. Administration.............................................................................................7
14. Designation of Beneficiary.................................................................................8
15. Transferability............................................................................................8
16. Use of Funds...............................................................................................8
17. Reports....................................................................................................9
18. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.......................................................................................9
19. Amendment or Termination...................................................................................9
20. Notices...................................................................................................10
21. Conditions Upon Issuance of Shares........................................................................10
22. Plan Effective Date and Stockholder Approval..............................................................10
FAIR, ISAAC AND COMPANY, INCORPORATED
1999 Employee Stock Purchase Plan
1. Purpose. The purpose of this 1999 Employee Stock Purchase Plan (the
"Plan") is to provide employees of Fair, Isaac and Company, Incorporated (the
"Company") and its Designated Subsidiaries with an opportunity to purchase Stock
of the Company through accumulated payroll deductions, enabling such persons to
acquire or increase a proprietary interest in the Company in order to strengthen
the mutuality of interests between such persons and the Company's stockholders.
It will also provide a benefit that will assist the Company in competing to
attract and retain employees of high quality. It is the intention of the Company
that the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Code. Accordingly, the provisions of the Plan shall be construed in a manner
consistent with the requirements of that Section of the Code.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms as defined in Section 1
hereof:
(a) "Account" means the account maintained on behalf of the
participant by the Custodian for the purpose of investing in
Stock and engaging in other transactions permitted under the
Plan.
(b) "Administrator" means the person or persons designated to
administer the Plan under Section 13(a).
(c) "Board" means the Company's Board of Directors.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and
successor provisions and regulations thereto.
(e) "Committee" means the Compensation Committee of the
Company's Board of Directors.
(f) "Compensation" means all gross earnings and commissions,
including payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other cash
compensation, but excluding grants of options , restricted
stock, stock appreciation rights and payments for severance.
(g) "Custodian" means a custodian or any successor thereto as
appointed by the Board from time to time.
1
(h) "Designated Subsidiaries" means the Subsidiaries which have
been designated by the Board from time to time in its sole
discretion as eligible to have their Employees participate
in the Plan.
(i) "Employee" means any individual who is a common law employee
of the Company or a Designated Subsidiary.
(j) "Enrollment Date" means the first day of the next Offering
Period.
(k) "Exercise Date" means the last day of each Offering Period.
(l) "Fair Market Value" means the fair market value of a share
of Stock as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by
the Committee, the Fair Market Value of Stock as of any
given date shall be the last trade price of a share of Stock
reported on a consolidated basis for securities listed on
the New York Stock Exchange for trades on the date as of
which such value is being determined or, if that day is not
a Trading Day, then on the latest previous Trading Day.
(m) "Offering Period" means the approximately six-month periods
commencing (a) on the first Trading Day on or after January
1 and terminating on the last Trading Day in the following
June, and (b) on the first Trading Day on or after July 1
and terminating on the last Trading Day in the following
December. The beginning and ending dates and duration of
Offering Periods may be changed pursuant to Section 4 of the
Plan.
(n) "Purchase Price" means an amount equal to 85% of the Fair
Market Value of a share of Stock on the Enrollment Date or
85% of the Fair Market Value of a share of Stock on the
Exercise Date, whichever is lower.
(o) "Reserves" means the number of shares of Stock covered by
all options under the Plan which have not yet been exercised
and the number of shares of Stock which have been authorized
for issuance under the Plan but which have not yet become
subject to options.
(p) "Stock" means the Company's Common Stock, and such other
securities as may be substituted (or resubstituted) for
Stock pursuant to Section 18 hereof.
2
(q) "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the
Company if each of the corporations (other than the last
corporation in the unbroken chain) owns stock possessing 50%
or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
(r) "Trading Day" means a day on which the New York Stock
Exchange is open for trading.
3. Eligibility.
(a) All Employees (as determined in accordance with Section 2(i)
hereof) of the Company or a Designated Subsidiary on a given
Enrollment Date shall be eligible to participate in the
Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee
(or any other person whose Stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own
capital stock and/or hold outstanding options to purchase
such stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of
the Company or of any Subsidiary, or (ii) to the extent that
his or her rights to purchase stock under all employee stock
purchase plans of the Company and its Subsidiaries accrue at
a rate which exceeds $25,000 worth of stock (determined at
the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is
outstanding at any time.
(c) All participants in the Plan shall have equal rights and
privileges (subject to the terms of the Plan) with respect
to options outstanding during any given Offering Period.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after January 1 and July 1 of each year following the initial Offering
Period, or on such other date as the Committee shall determine, and continuing
thereafter until terminated in accordance with Section 19 hereof. The Committee
shall have the power to change the beginning date, ending date, and duration of
Offering Periods with respect to future offerings without stockholder approval
if such change is announced at least five days prior to the scheduled beginning
of the first Offering Period to be affected thereafter, provided that Offering
Periods will in all cases comply with applicable limitations under Section
423(b)(7) of the Code.
3
5. Participation.
(a) Any person who will be an eligible Employee on a given
Enrollment Date may become a participant in the Plan by
completing a subscription agreement authorizing payroll
deductions and filing it with the Administrator at least 15
days prior to such Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on
the last payroll in the Offering Period to which such
authorization is applicable, unless sooner terminated by the
participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions
made on each pay day during the Offering Period in an amount
from 1% to 10% of the Compensation which he or she receives
for each pay period during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her Account under the Plan. Payroll
deductions shall be withheld in whole percentages only,
unless otherwise determined by the Committee. A participant
may not make any additional payments into such Account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may decrease
the rate of his or her payroll deductions during the
Offering Period, by completing and filing with the
Administrator a new subscription agreement authorizing a
change in payroll deduction rate. Unless otherwise
authorized by the Committee, a participant may not change
his or her payroll deduction rate more than once during any
Offering Period. The change in rate shall be effective with
the first payroll period following 10 business days after
the Administrator's receipt of the new subscription
agreement unless the Company elects to process a given
change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10
hereof.
(d) The foregoing notwithstanding, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b)
hereof, a participant's payroll deductions may be terminated
at such time during any Offering Period which is scheduled
to end during the current calendar year (the "Current
Offering Period") that the aggregate of all payroll
deductions accumulated with respect to the Current Offering
Period equal $21,250 (or such other limit as may apply under
Code Section 423(b)(8)). Payroll deductions shall recommence
at the rate provided in such participant's
4
subscription agreement (as previously on file or as changed
prior to the recommencement date in accordance with Section
6(c)) at the beginning of the next Offering Period which is
scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10
hereof.
(e) The Company or any Designated Subsidiary is authorized to
withhold from any payment to be made to a participant,
including any payroll and other payments not related to the
Plan, amounts of withholding and other taxes due in
connection with any transaction under the Plan, including
any disposition of shares acquired under the Plan, and a
participant's enrollment in the Plan will be deemed to
constitute his or her consent to such withholding. At the
time of a participant's exercise of an option or disposition
of shares acquired under the Plan, the Company may require
the participant to make other arrangements to meet tax
withholding obligations as a condition to exercise of rights
or distribution of shares or cash from the participant's
Account. In addition, a Participant may be required to
advise the Company of sales and other dispositions of Stock
acquired under the Plan in order to permit the Company to
comply with tax laws and to claim any tax deductions to
which the Company may be entitled with respect to the Plan.
7. Grant of Options. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period, at the
applicable Purchase Price, up to a number of shares of Stock determined by
dividing such Employee's payroll deductions accumulated prior to such Exercise
Date and retained in the Participant's Account as of the Exercise Date by the
applicable Purchase Price; provided that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. To the extent not exercised, the option
shall expire on the last day of the Offering Period.
8. Exercise of Option. Participant's option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. Shares purchased shall include fractional shares calculated to at least
three decimal places, unless otherwise determined by the Committee. If
fractional shares are not to be purchased for a participant's Account, any
payroll deductions accumulated in a participant's account not sufficient to
purchase a full share shall be retained in the participant's account for the
subsequent Offering Period, subject to earlier withdrawal by the participant as
provided in Section 10 hereof. During a participant's lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.
5
9. Delivery of Shares; Participant Accounts.
(a) At or as promptly as practicable after the Exercise Date for
an Offering Period, the Company will deliver the shares of
Stock purchased to the Custodian for deposit into the
participant's Account.
(b) Cash dividends on any Stock credited to a participant's
Account will be automatically reinvested in additional
shares of Stock; such amounts will not be available in the
form of cash to participants. All cash dividends paid on
Stock credited to participants' Accounts will be paid over
by the Company to the Custodian at the dividend payment
date. The Custodian will aggregate all purchases of Stock in
connection with the Plan for a given dividend payment date.
Purchases of Stock for purposes of dividend reinvestment
will be made as promptly as practicable (but not more than
30 days) after a dividend payment date. The Custodian will
make such purchases, as directed by the Committee, either
(i) in transactions on any securities exchange upon which
Stock is traded, otherwise in the over-the-counter market,
or in negotiated transactions, or (ii) directly from the
Company at 100% of the Fair Market Value of a share of Stock
on the dividend payment date. Any shares of Stock
distributed as a dividend or distribution in respect of
shares of Stock or in connection with a split of the Stock
credited to a participant's Account will be credited to such
Account. In the event of any other non-cash dividend or
distribution in respect of Stock credited to a participant's
Account, the Custodian will, if reasonably practicable and
at the direction of the Committee, sell any property
received in such dividend or distribution as promptly as
practicable and use the proceeds to purchase additional
shares of Common Stock in the same manner as cash paid over
to the Custodian for purposes of dividend reinvestment.
(c) Each participant will be entitled to vote the number of
shares of Stock credited to his or her Account (including
any fractional shares credited to such Account) on any
matter as to which the approval of the Company's
stockholders is sought. If a participant does not vote or
grant a valid proxy with respect to shares credited to his
or her Account, such shares will be voted by the Custodian
in accordance with any stock exchange or other rules
governing the Custodian in the voting of shares held for
customer accounts. Similar procedures will apply in the case
of any consent solicitation of Company stockholders.
10. Withdrawal of Payroll Deductions or Shares; Termination of
Employment.
(a) If a participant decreases his or her payroll deduction rate
to zero during an Offering Period, payroll deductions shall
not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Administrator
a new subscription agreement.
6
(b) Upon a participant's ceasing to be an Employee for any
reason (including upon the participant's death), he or she
shall be deemed to have elected to withdraw from the Plan
and the payroll deductions credited to such participant's
Account during the Offering Period but not yet used to
exercise the option shall be returned to such participant
or, in the case of his or her death, to the person or
persons entitled thereto under Section 14 hereof, and such
participant's option shall be automatically terminated.
(c) Following the completion of two years from the first day of
an Offering Period, a participant may elect to withdraw
shares of Stock acquired during such Offering Period from
his or her Account in certificated form or to transfer such
shares from his or her Account to an account of the
participant maintained with a broker-dealer or financial
institution. During the first two years from the first day
of the Offering Period, all sales and transfers shall only
be effectuated by the Custodian on the participant's behalf.
If a participant elects to withdraw shares, one or more
certificates for whole shares shall be issued in the name
of, and delivered to, the participant, with such participant
receiving cash in lieu of fractional shares based on the
Fair Market Value of a share of Stock on the date of
withdrawal. If shares of Stock are transferred from a
participant's Account to a broker-dealer or financial
institution that maintains an account for the participant,
only whole shares shall be transferred and cash in lieu of
any fractional share shall be paid to such participant based
on the Fair Market Value of a share of Stock on the date of
transfer. A Participant seeking to withdraw or transfer
shares of Stock must give instructions to the Custodian in
such manner and form as may be prescribed by the Committee
and the Custodian, which instructions will be acted upon as
promptly as practicable. Withdrawals and transfers will be
subject to any fees imposed in accordance with Section 10(e)
hereof.
(d) Upon termination of employment of a participant for any
reason, the Custodian will continue to maintain the
participant's Account until the earlier of such time as the
participant withdraws or transfers all Stock in the Account
or two years after the participant ceases to be employed by
the Company and its Subsidiaries. At the expiration of such
two-year period, the assets in Participant's account shall
be withdrawn or transferred as elected by the Participant
or, in the absence of such election, as determined by the
Committee.
(e) Costs and expenses incurred in the administration of the
Plan and maintenance of Accounts will be paid by the
Company, including annual fees of the Custodian and any
brokerage fees and commissions for the purchase of Stock
upon reinvestment of dividends and distributions. The
7
foregoing notwithstanding, the Custodian may impose or pass
through a reasonable fee for the withdrawal of Stock in the
form of stock certificates (as permitted under Section
10(c)), and reasonable fees for other services unrelated to
the purchase of Stock under the Plan, to the extent approved
in writing by the Company and communicated to participants.
In no circumstance shall the Company pay any brokerage fees
and commissions for the sale of Stock acquired under the
Plan by a participant.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan
12. Stock.
(a) The maximum number of shares of Stock which shall be made
available for sale under the Plan shall be 1.5 million
shares, subject to adjustment as provided in Section 18
hereof. If, on a given Exercise Date, the number of shares
with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as
shall be practicable and as it shall determine to be
equitable. Any shares of Stock delivered by the Company
under the Plan may consist, in whole or in part, of
authorized and unissued shares or shares acquired by the
Company in the open market. Shares acquired in the open
market through dividend reinvestment will not count against
the Reserves.
(b) The participant shall have no interest or voting right in
shares purchasable upon exercise of his or her option until
such option has been exercised.
13. Administration.
(a) The Plan shall be administered by the Committee except to
the extent the Board elects to administer the Plan, in which
case references herein to the "Committee" shall be deemed to
include references to the "Board." The Committee shall have
full and final authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. The
Committee may, in its discretion, delegate authority to the
Administrator. Every finding, decision and determination
made by the Committee or Administrator shall, to the full
extent permitted by law, be final and binding upon all
parties (except for any reserved right of the Committee to
review a finding, decision or determination of the
Administrator). The Committee, Administrator, and each
member thereof shall be entitled to, in good faith, rely or
act upon any report or other information furnished
8
to him or her by any executive officer, other officer or
employee of the Company or any Designated Subsidiary, the
Company's independent auditors, consultants or any other
agents assisting in the administration of the Plan. Members
of the Committee or Administrator and any officer or
employee of the Company or any Designated Subsidiary acting
at the direction or on behalf of the Committee shall not be
personally liable for any action or determination taken or
made in good faith with respect to the Plan, and shall, to
the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action or
determination.
(b) The Custodian will act as custodian under the Plan, and will
perform such duties as are set forth in the Plan and in any
agreement between the Company and the Custodian. The
Custodian will establish and maintain, as agent for each
Participant, an Account and any subaccounts as may be
necessary or desirable for the administration of the Plan.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any,
from the participant's Account under the Plan in the event
of (i) such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to a
distribution to such participant of shares or cash then held
in the participant's Account or (ii) such participant's
death prior to exercise of the option. If a participant is
married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be
effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of
the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living
at the time of such participant's death, any shares or cash
otherwise deliverable under Section 14(a) shall be delivered
to the participant's estate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect.
16. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
9
17. Reports. An individual Account shall be maintained by the Custodian
for each participant in the Plan. Statements of Account shall be given to each
participant at least semi-annually, which statements shall set forth the amounts
of payroll deductions, the Purchase Price, the number of shares purchased, any
remaining cash balance, and other information deemed relevant by the Committee.
18. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. The Committee shall
proportionately adjust the Reserves, and the price per share
and the number of shares of Stock covered by each option
under the Plan which has not yet been exercised, for any
increase or decrease in the number of issued shares of Stock
resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Stock, or
other extraordinary corporate event which affects the Stock
in order to prevent dilution or enlargement of the rights of
participants. The determination of the Committee with
respect to any such adjustment shall be final, binding and
conclusive.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering
Period shall terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the
Committee.
(c) Asset Sale or Merger. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, the
Committee shall shorten the Offering Period then in progress
by setting a new Exercise Date (the "New Exercise Date").
The New Exercise Date shall be before the date of the
Company's proposed asset sale or merger. The Committee shall
notify each participant in writing, at least ten business
days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless
prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted,
provided that an Offering Period may be terminated by the
Board of Directors by shortening the Offering Period and
accelerating the Exercise Date to a date not prior to the
date
10
of such Board action if the Board determines that
termination of the Plan is in the best interests of the
Company and its stockholders. Except as provided in Section
18 and this Section 19, no amendment may make any change in
any option theretofore granted which materially adversely
affects the rights of any participant, and any amendment
will be subject to the approval of the Company's
stockholders not later than one year after Board approval of
such amendment if such stockholder approval is required by
any federal or state law or regulation or the rules of any
stock exchange or automated quotation system on which the
Stock may then be listed or quoted, or if such stockholder
approval is necessary in order for the Plan to continue to
meet the requirements of Section 423 of the Code, and the
Board may otherwise, in its discretion, determine to submit
any amendment to stockholders for approval.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been
"adversely affected," the Committee shall be entitled to
change the Offering Periods, limit the frequency and/or
number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit
payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the
Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure
that amounts applied toward the purchase of Stock for each
participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other
limitations or procedures as the Committee determines in its
sole discretion are advisable and consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions. Upon Issuance of Shares. The Company shall not be
obligated to issue shares with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or automated quotation
system upon which the shares may then be listed or quoted, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
22. Plan Effective Date and Stockholder Approval. The Plan has been
adopted by the Board on November 19, 1999, but shall become effective upon
approval by the
11
Company's stockholders by a vote sufficient to meet the requirements of Section
423(b)(2) of the Code within 12 months after the date the Plan was adopted and
prior to the first Exercise Date. In the event stockholders fail to so approve
the Plan, all options granted under the Plan shall be canceled, all payroll
deductions shall be refunded, and the Plan shall be terminated.
12