<PAGE>
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 Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE SABRE GROUP HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
THE SABRE GROUP HOLDINGS, INC.
P.O. BOX 619615, DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TX 75261-9615
March 31, 1998
TO OUR STOCKHOLDERS,
You are cordially invited to attend the annual meeting of stockholders of
The SABRE Group Holdings, Inc., which will be held in the Flagship Auditorium at
the American Airlines Training and Conference Center, 4501 Highway 360, Fort
Worth, Texas 76155, on Wednesday, May 20, 1998, at 1:00 P.M., Central Daylight
Time. An Official Notice of the Meeting, Proxy Statement and form of proxy are
enclosed with this letter.
We hope that those of you who plan to attend the annual meeting will join us
beforehand for refreshments. If you cannot be present, please execute and return
the proxy card in the enclosed envelope so that your shares will be represented.
If you plan to attend the annual meeting, please make certain that you mark the
appropriate box on the proxy card when you return it, and bring to the annual
meeting the admission ticket that is printed on the last page of the proxy
statement.
Sincerely,
[SIGCUT]
Robert L. Crandall
CHAIRMAN OF THE BOARD
<PAGE>
THE SABRE GROUP HOLDINGS, INC.
P.O. BOX 619615, DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TX 75261-9615
------------------------
OFFICIAL NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
The annual meeting of stockholders of The SABRE Group Holdings, Inc., will
be held in the Flagship Auditorium at the American Airlines Training and
Conference Center, 4501 Highway 360, Fort Worth, Texas 76155, on Wednesday, May
20, 1998, at 1:00 P.M., Central Daylight Time, for the purpose of considering
and acting upon the following:
(1) election of directors;
(2) ratification of the selection of Ernst & Young LLP as independent
auditors for the year 1998;
and such other matters as may properly come before the meeting or any
adjournments thereof.
If you plan to attend the annual meeting, please check the appropriate box
on your proxy card when you return it, and bring to the annual meeting the
admission ticket that is printed on the last page of the proxy statement. Only
stockholders of record at the close of business on March 24, 1998, will be
entitled to attend or to vote at the meeting.
By Order of the Board of Directors,
[SIGCUT]
Andrew B. Steinberg
SENIOR VICE PRESIDENT, GENERAL
COUNSEL
AND CORPORATE SECRETARY
March 31, 1998
IF YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU MUST HAVE AN ADMISSION TICKET
(PRINTED ON THE LAST PAGE OF THE PROXY STATEMENT) OR OTHER PROOF OF SHARE
OWNERSHIP. IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE EXECUTE
AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE SO THAT YOUR
SHARES WILL BE VOTED. THE ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE>
THE SABRE GROUP HOLDINGS, INC.
P.O. BOX 619615, DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TX 75261-9615
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998
This statement and the form of proxy are being mailed to stockholders on or
around March 31, 1998, in connection with a solicitation of proxies by the Board
of Directors of The SABRE Group Holdings, Inc. (the "Corporation" or "TSG") for
use at the annual meeting of stockholders to be held on May 20, 1998.
If the enclosed form of proxy is signed and returned, it will be voted as
specified in the proxy, or if no vote is specified, it will be voted FOR each of
the matters described in this statement, and as to any other matters, it will be
voted in the discretion of the proxy holder. A stockholder who executes a proxy
may revoke it at any time before it is voted.
The Corporation will bear the cost of this solicitation. In addition to
using the mails, proxies may be solicited by directors, officers and regular
employees of the Corporation or its subsidiaries, in person or by telephone. The
Corporation will also request brokers or nominees who hold common stock in their
names to forward proxy material at the Corporation's expense to the beneficial
owners of such stock, and has retained D.F. King & Co., Inc., a firm of
professional proxy solicitors, to aid in the solicitation at an estimated fee of
$6,000 plus reimbursement of normal expenses.
OUTSTANDING STOCK AND VOTING RIGHTS
The holders of record of the Corporation's common stock at the close of
business on March 24, 1998, will be entitled to vote at the meeting. On that
date, the Corporation had outstanding 22,958,887 shares of Class A Common Stock
and 107,374,000 shares of Class B Common Stock. Each holder of Class A Common
Stock will be entitled to one vote in person or by proxy for each share of Class
A Common Stock held. Each holder of Class B Common Stock will be entitled to 10
votes in person or by proxy for each share of Class B Common Stock held. AMR
Corporation ("AMR") owns 100% of the Class B Common Stock.
Directors of the Corporation are elected by a plurality of the votes cast at
the annual meeting. Any other matters submitted to vote of the stockholders will
be determined by a majority of the votes cast at the annual meeting. Abstentions
from voting (including broker non-votes) on the
<PAGE>
election of directors or on other matters will have no effect on the outcome of
such votes, because matters are determined on the basis of votes cast, and
abstentions are not counted as votes cast.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
From time to time, stockholders present proposals which may be proper
subjects for inclusion in the proxy statement and for consideration at the
annual meeting. In addition, the Compensation/Nominating Committee of the Board
of Directors will consider recommendations by stockholders for nominees for
election as directors. Such recommendations should be submitted in writing to
the Corporate Secretary of the Corporation with a suitable description of the
nominee's qualifications and evidence of his or her consent to serve. To be
included in the 1999 proxy statement, proposals and director nominations must be
received by the Corporation no later than December 1, 1998. Proposals and
nominations must be made by a stockholder entitled to vote at the 1999 annual
meeting and must comply with the notice requirements in the Corporation's
by-laws. Proposals and nominations, as well as any questions related thereto,
should be directed to the Corporate Secretary of the Corporation.
PROPOSAL 1--ELECTION OF DIRECTORS
The Board of Directors is divided into three classes of directors with
staggered terms. Each director was elected to an initial term which expires on
the annual meeting date occurring one, two or three years after the director was
first elected. Thereafter, directors are elected to terms which expire on the
annual meeting date three years following the annual meeting at which they are
elected.
The terms of three directors will expire at the annual meeting in 1998. It
is proposed that each of those three directors, who are named on the next page,
be re-elected at the annual meeting for a three-year term that will expire at
the annual meeting in 2001. Directors will be elected by a plurality of the
votes cast.
Unless otherwise indicated, all proxies that authorize the proxy holder to
vote for the election of directors will be voted FOR the election of the
nominees listed on the next page. If any nominee becomes unavailable for
election as a result of unforeseen circumstances, it is the intention of the
proxy holder to vote for the election of such substitute nominee, if any, as the
Board of Directors may propose.
2
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
Each of the nominees for election as a director has furnished to the
Corporation the following information with respect to principal occupation or
employment and principal business directorships.
BUSINESS AFFILIATIONS
GERARD J. ARPEY, Senior Vice President and Chief Financial Officer, AMR
Corporation and Senior Vice President-Finance and Planning and Chief Financial
Officer of American Airlines, Inc., Fort Worth, Texas; air transportation and
diversified services.
Mr. Arpey is 39. He became a director in July 1996, with a term expiring
at the annual meeting in 1998. He is a member of the Executive Committee.
PAUL C. ELY, JR., President of Santa Cruz Yachts, Santa Cruz, California;
yacht manufacturing; former General Partner of Alpha Partners, Menlo Park,
California; venture capital. He is also a director of Parker Hannifin
Corporation and Tektronix, Inc.
Mr. Ely is 66. He became a director in January 1997, with a term
expiring at the annual meeting in 1998. He is a member of the Audit
Committee and the Compensation/Nominating Committee.
GLENN W. MARSCHEL, JR., Executive Chairman of the Board of Additech, Inc.,
Houston, Texas; petrochemicals; and associate of Signature Capitol LLC, New
York, New York; venture capital; former President and CEO of Paging Network,
Inc.; telecommunications; former Vice Chairman of First Financial Management
Corporation; credit reporting and collection; former Group President of
Automatic Data Processing; information systems.
Mr. Marschel is 51. He became a director in November 1996, with a term
expiring at the annual meeting in 1998. He is a member of the Audit
Committee and the Compensation/ Nominating Committee.
A plurality of the votes cast is necessary for the election of a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED ABOVE.
3
<PAGE>
CONTINUING DIRECTORS
EDWARD A. BRENNAN, retired Chairman, President and Chief Executive Officer,
Sears, Roebuck and Co., Chicago, Illinois; merchandising. He is also a director
of The Allstate Corporation; AMR Corporation; American Airlines, Inc.; Dean
Foods Company; Morgan Stanley, Dean Witter, Discover & Co.; Minnesota Mining and
Manufacturing Company; and Unicom Corporation.
Mr. Brennan is 64. He became a director in November 1996, and was
re-elected to a term expiring at the annual meeting in 2000. He is Chairman
of the Compensation/ Nominating Committee.
ROBERT L. CRANDALL, Chairman of the Board, President and Chief Executive
Officer of AMR Corporation and Chairman of the Board and Chief Executive Officer
of American Airlines, Inc., Fort Worth, Texas; air transportation and
diversified services. He is also a director of AMR Corporation; American
Airlines, Inc.; Halliburton Company; and U.S. West, Inc.
Mr. Crandall is 62. He became a director in July 1996, with a term
expiring at the annual meeting in 1999. He is Chairman of the Board and the
Executive Committee.
MICHAEL J. DURHAM, President and Chief Executive Officer of The SABRE Group
Holdings, Inc., Fort Worth, Texas; information systems; formerly Chief Financial
Officer of AMR Corporation and American Airlines, Inc., Fort Worth, Texas; air
transportation and diversified services.
Mr. Durham is 47. He became a director in July 1996, with a term
expiring at the annual meeting in 1999. He is a member of the Executive
Committee.
DEE J. KELLY, Senior Founding Partner, Kelly, Hart & Hallman, P.C., Fort
Worth, Texas; law firm. He is also a director of AMR Corporation; American
Airlines, Inc.; and Justin Industries, Inc.
Mr. Kelly is 69. He became a director in November 1996, and was
re-elected to a term expiring at the annual meeting in 2000. He is a member
of the Executive Committee and the Compensation/Nominating Committee.
BOB L. MARTIN, President and Chief Executive Officer of Wal-Mart
International, Inc.; retailing.
Mr. Martin is 49. He became a director in January 1997, with a term
expiring at the annual meeting in 1999. He is a member of the Audit
Committee and the Compensation/ Nominating Committee.
4
<PAGE>
ANNE H. MCNAMARA, Senior Vice President and General Counsel, AMR Corporation
and American Airlines, Inc., Fort Worth, Texas; air transportation and
diversified services. She is also a director of LG&E Energy Corporation and
Louisville Gas and Electric Company.
Mrs. McNamara is 50. She became a director in August 1996, and was
re-elected to a term expiring at the annual meeting in 2000.
RICHARD L. THOMAS, Retired Chairman, First Chicago NBD Corporation;
financial services. He is also a director of CNA Financial Corporation; First
Chicago NBD Corporation; IMC Global, Inc.; PMI Group, Inc.; Sara Lee
Corporation; and Scotsman Industries, Inc.
Mr. Thomas is 67. He became a director in November 1996, with a term
expiring at the annual meeting in 1999. He is Chairman of the Audit
Committee and a member of the Compensation/Nominating Committee.
BOARD COMMITTEES
The Corporation has standing Audit, Executive and Compensation/Nominating
Committees which perform the functions described below. The Board of Directors
met eleven times in 1997. All of the directors listed above attended at least
75% of the meetings of the Board of Directors and Committees held during the
periods in which they served on the Board of Directors or such committees.
The Audit Committee, which is composed entirely of directors who are neither
employees or officers of AMR or the Corporation nor directors of AMR, met four
times during 1997 with the Corporation's independent auditors, representatives
of management, and the internal audit staff. The Audit Committee recommends the
selection of independent auditors, reviews the scope and results of the annual
audit, reviews the Corporation's consolidated financial statements, reviews the
scope of non-audit services provided by the independent auditors, reviews
reports of the independent auditors, and oversees the Corporation's compliance
with legal requirements.
The Executive Committee did not meet during 1997. The Executive Committee
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, with the exception of such powers and
authority as are specifically reserved to the Board.
The Compensation/Nominating Committee, which is composed entirely of
directors who are not employees or officers of the Corporation or AMR, met seven
times during 1997. The Compensation/Nominating Committee makes recommendations
with respect to compensation and benefit programs for the officers and directors
of the Corporation and its subsidiaries. It also makes recommendations with
respect to assignments to committees of the Board of Directors and
5
<PAGE>
promotions, changes and succession among the senior management of the
Corporation and its subsidiaries, and recommends suitable candidates for
election to the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation/Nominating Committee consists of Messrs. Brennan, Ely, D.J.
Kelly, Marschel, Martin and Thomas. No member of the Compensation/Nominating
Committee is a current or former employee or officer of the Corporation or any
of its affiliates nor has any interlocking relationship with any other
corporation that requires specific disclosure under this heading.
OTHER MATTERS
The law firm of Kelly, Hart & Hallman, P.C. performed legal services for the
Corporation in 1997. Mr. D.J. Kelly is a partner of the firm. The law firm of
Gibson Dunn & Crutcher also performed legal services for the Corporation in
1997. Mrs. McNamara's husband is a partner of the firm.
COMPENSATION OF DIRECTORS
Outside directors of the Corporation receive a semi-annual retainer of
$12,500 for service on the Board of Directors and $1,000 for each day of Board
or Committee meetings attended. Directors may defer payment of all or any part
of these fees pursuant to two deferral plans. Under the first of these deferral
plans, the Corporation will pay interest on the amount deferred at the prime
rate from time to time in effect at The Chase Manhattan Bank, N.A. Under the
second deferral plan, compensation deferred during any calendar month is
converted into stock equivalent units by dividing the total amount of deferred
compensation by the fair market value of the Corporation's Class A Common Stock
for such month. At the end of the deferral period, the Corporation will pay to
the director an amount in cash equal to the number of accumulated stock
equivalent units multiplied by the fair market value of the Corporation's Class
A Common Stock for the month in which the deferral period terminates.
Pursuant to the Corporation's 1996 Directors Stock Incentive Plan, on the
first business day after the annual meeting of shareholders, each outside
director will receive options for 3,000 shares of the Corporation's Class A
Common Stock. In addition, each new outside director elected since the preceding
annual meeting of shareholders will receive a one-time award of options for
10,000 shares of the Corporation's Class A Common Stock. Options will have an
exercise price equal to the fair market value of the Corporation's Class A
Common Stock on the date of grant,
6
<PAGE>
will generally vest in 20% increments over five years and will expire three
years after the Director's retirement from the Board.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the compensation for the
past three years paid to the individuals who, as of December 31, 1997, were the
five most highly compensated executive officers of the Corporation (the "Named
Executive Officers").
<TABLE>
<CAPTION>
AWARDS
------------------------------------ PAYOUTS
ANNUAL COMPENSATION RESTRICTED SECURITIES -----------
--------------------------------- STOCK UNDERLYING OPTIONS/ LTIP ALL OTHER
NAME YEAR SALARY BONUS(1) AWARDS(2) SARS(3) PAYOUTS(4) COMPENSATION(5)
- -------------- --------- --------- ----------- ------------- --------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
M.J. Durham 1997 $ 459,325 $ 255,000 $ 0 0 $ 636,199 $ 6,946
1996 393,583 230,000 0 158,750 515,750 9,443
1995 360,417 239,672 0 17,400 321,800 9,443
- -------------------------------------------------------------------------------------------------------------------------
T.M. Cook 1997 292,500 80,000 58,136 20,550 250,042 9,486
1996 259,499 90,000 59,940 68,200 190,850 9,176
1995 239,944 110,000 45,544 41,150 109,700 9,181
- -------------------------------------------------------------------------------------------------------------------------
T.B. Jones 1997 276,175 80,000 0 1,750 215,886 8,920
1996 243,700 85,000 0 49,350 264,022 8,121
1995 224,583 119,000 48,797 15,850 81,650 8,133
- -------------------------------------------------------------------------------------------------------------------------
B.J. Boston 1997 238,125 80,000 0 0 250,042 24,973
1996 132,750 85,000 197,925 40,750 135,891 28,565
1995 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
T.P. Kelly 1997 229,238 70,000 0 0 329,412 20,620
1996 186,883 85,000 0 47,650 273,122 2,551
1995 167,142 77,015 0 9,500 107,000 2,551
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
M.J. Durham = Michael J. Durham, President and Chief Executive Officer
T.M. Cook = Thomas M. Cook, Senior Vice President-SABRE Technology Solutions
T.B. Jones = Terrell B. Jones, Senior Vice President-SABRE Interactive and
Chief Information Officer
B.J. Boston = Bradford J. Boston, Senior Vice President-SABRE Technology
Solutions
T.P. Kelly = T. Patrick Kelly, Senior Vice President, Chief Financial Officer
and Treasurer
- ----------------------------------
(1) The amounts shown for 1997 represent payments made in 1998 pursuant to the
Corporation's Variable Compensation Plan for 1997 services. The amounts
shown for 1996 represent payments made in 1997 pursuant to the Corporation's
Variable Compensation Plan for 1996 services. The amounts shown for 1995
represent payments made in 1996 pursuant to the Corporation's Variable
Compensation Plan for 1995 services. (See discussion on page 18 of this
proxy statement.)
(SEE NEXT PAGE FOR ADDITIONAL NOTES.)
7
<PAGE>
(2) The value of the 1997 restricted stock is based on an average market price
of $26.1875 for the Corporation's Class A Common Stock on the New York Stock
Exchange ("NYSE") on the date of grant (April 24, 1997). The value of the
1996 restricted stock award to Mr. Cook is based on a $27.00 initial public
offering ("IPO") price for the Corporation's Class A Common Stock on the
NYSE on October 11, 1996. The value of the 1996 restricted stock award to
Mr. Boston is based on an average market price of $94.25 for AMR common
stock on the NYSE on the date of grant (June 3, 1996). The value of grants
of restricted shares received by the Named Executive Officers in 1996 in
exchange for deferred shares of AMR common stock that vest at retirement
("AMR Career Equity Shares") is not included in this column. The value of
the 1995 restricted stock award is based on an average market price of
$65.063 for AMR common stock on the NYSE on the date of grant (April 24,
1995).
The following table sets forth certain information concerning restricted
stock awards:
RESTRICTED STOCK; TOTAL SHARES AND VALUE
<TABLE>
<CAPTION>
TOTAL NUMBER OF AGGREGATE MARKET VALUE
RESTRICTED SHARES OF RESTRICTED SHARES
NAME HELD AT FY-END (A) HELD AT FY-END (B)
- -------------- ------------------------- -----------------------
<S> <C> <C>
M.J. Durham 0 AMR 24,520 TSG $ 712,613
T.M. Cook 700 AMR 62,950 TSG 1,918,866
T.B. Jones 750 AMR 16,620 TSG 578,784
B.J. Boston 0 AMR 8,640 TSG 251,100
T.P. Kelly 0 AMR 4,440 TSG 129,038
- ------------------------------------------------------------------
</TABLE>
(A) AMR restricted shares are shares of AMR common stock awarded under AMR's
restricted stock plan which vest in 1998 and were not exchanged for the
Corporation's restricted shares at the IPO. TSG restricted shares are
shares of the Corporation's Class A Common Stock that are subject to
restrictions on disposition until vesting and that are subject to
forfeiture if the employee leaves the Corporation ("Restricted Shares").
Messrs. Durham, Jones and T.P. Kelly hold Restricted Shares that vest in
1999. Mr. Boston holds 6,640 Restricted Shares that vest in 1998 and
2,000 Restricted Shares that vest in 1999. Mr. Cook holds 2,220
Restricted Shares that vest in 1999 and 2,220 Restricted Shares that vest
in 2000. Mr. Cook also holds 58,510 deferred shares of the Corporation's
Class A Common Stock which vest at retirement.
(B) Based on an average market price of $127.6875 for AMR common stock and
of $29.0625 for the Corporation's Class A Common Stock on the NYSE on
December 31, 1997.
(3) No option grants were received by Messrs. Durham, Boston and T.P. Kelly in
1997. Messrs. Cook and Jones were awarded option grants during 1997,
pursuant to their employment agreements. The amounts shown for 1996 option
grants include annual grants and one-time grants made in connection with the
IPO. A portion of the one-time grants made in 1996 for each of the Named
Executive Officers was an acceleration of grants that would otherwise have
been made in 1997. The amounts shown for 1996 do not include options
received in the conversion of AMR options and options received in exchange
for AMR Career Equity Shares. The amounts shown for 1995 represent options
received at the IPO in exchange for AMR options granted in 1995.
(SEE NEXT PAGE FOR ADDITIONAL NOTES.)
8
<PAGE>
(4) The following table sets forth information concerning LTIP payouts:
<TABLE>
<CAPTION>
LTIP PAYOUT
- --------------------------------------------------------------------------------
PERFORMANCE RETURN PERFORMANCE SHARE
NAME YEAR PAYMENT(A) PROGRAM PAYOUT(B) TOTAL
- -------------- --------- --------------------- ------------------- ---------
<S> <C> <C> <C> <C>
M.J. Durham 1997 $ 0 $ 636,199 $ 636,199
1996 77,000 438,750 515,750
1995 60,000 261,800 321,800
- --------------------------------------------------------------------------------
T.M. Cook 1997 0 250,042 250,042
1996 23,600 167,250 190,850
1995 16,200 93,500 109,700
- --------------------------------------------------------------------------------
T.B. Jones 1997 0 215,886 215,886
1996 23,600 240,422 264,022
1995 16,200 65,450 81,650
- --------------------------------------------------------------------------------
B.J. Boston 1997 0 250,042 250,042
1996 0 135,891 135,891
1995 0 0 0
- --------------------------------------------------------------------------------
T.P. Kelly 1997 0 329,412 329,412
1996 32,700 240,422 273,122
1995 13,500 93,500 107,000
- --------------------------------------------------------------------------------
</TABLE>
(A) The amounts shown for 1996 and 1995 represent AMR performance returns,
granted by AMR with respect to AMR deferred shares, which were payable
annually in cash, and were based, in part, on AMR's prior five-year
average return on investment. The Corporation discontinued performance
returns effective with its IPO.
(B) The amounts shown for 1995 represent payments made in 1996 under the AMR
1993-1995 performance share program for shares that were granted in 1993
and vested over a three-year performance period. The amounts shown for
1996 represent payments made in 1997 under the AMR 1994-1996 performance
share program for shares that were granted in 1994, except for Mr. Boston
who received a grant in 1996, and vested over a three-year performance
period. The amounts shown for 1997 represent payments made in 1998 under
the TSG 1995-1997 performance share program for AMR performance shares
that were granted in 1995, except for Mr. Boston who received a grant in
1996, and vested over a three-year performance period, which were
exchanged for TSG performance shares.
(5) The information shown for 1997 includes: the above-market portion of
interest (defined as a rate of interest exceeding 120% of the applicable
federal long-term rate, with compounding) on deferred compensation that was
credited but not paid in the current fiscal year ("Interest Differential");
employer contributions to a Corporation-sponsored 401(k) plan
("Contributions to Defined Contribution Plan"); employer contributions to a
Supplemental Executive Retirement Plan that provides pension benefits to
officers who earned compensation in excess of qualified plan limits
(currently $160,000) ("Contributions to SERP"); and the full amount of
premiums paid under a split-dollar life insurance arrangement whereby the
Corporation will recover certain premiums paid ("Insurance Premiums"). The
Named Executive Officers were credited with the following: Interest
Differential: Mr. Cook--$1,102, Mr. Jones--$2,842; Contributions to Defined
Contribution Plan: Mr. Boston-- $9,150, Mr. Kelly--$9,150; Contributions to
SERP: Mr. Boston--$9,430, Mr. T.P. Kelly--$8,919; Insurance Premiums: Mr.
Durham--$6,946, Mr. Cook--$8,384, Mr. Jones--$6,078, Mr. Boston--$6,393, Mr.
T.P. Kelly--$2,551.
9
<PAGE>
STOCK OPTIONS GRANTED
The following table sets forth information concerning stock options granted
during 1997 by the Corporation to the Named Executive Officers. The hypothetical
present values of stock options granted in 1997 are calculated under a modified
Black-Scholes model, a mathematical formula used to value options. The actual
amount, if any, realized upon the exercise of stock options will depend upon the
amount by which the market price of the Corporation's Class A Common Stock on
the date of exercise exceeds the exercise price. The actual amount realized may
be higher or lower than the hypothetical present values of stock options
presented in this table.
IF THE HYPOTHETICAL PRESENT VALUES PRESENTED IN THIS TABLE WERE ACTUALLY
REALIZED UPON EXERCISE OF THE OPTIONS, THE CORRESPONDING INCREASE IN TOTAL
STOCKHOLDER VALUE WOULD BE OVER $1.0 BILLION.
<TABLE>
<CAPTION>
OPTIONS/SARS GRANTED IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------
% OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR PER SHARE DATE(1) VALUE(2)
- ---------------- ------------- ----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
M.J. Durham 0 0 -- -- $ 0
T.M. Cook 20,550 2.8 26.1875 4/24/07 192,143
T.B. Jones 1,750 0.2 26.1875 4/24/07 16,363
B.J. Boston 0 0 -- -- 0
T.P. Kelly 0 0 -- -- 0
</TABLE>
- ------------------------
(1) Options have a term of ten years and have an exercise price equal to the
average market price of the Corporation's Class A Common Stock on the NYSE
on the date of grant. They become exercisable at the rate of 20% per year
over a five-year period.
(2) The modified Black-Scholes model used to calculate the hypothetical values
at date of grant considers a number of factors to estimate the option's
present value, including the volatility factor of the expected market price
of the Corporation's Class A Common Stock, the weighted average expected
life of the option, and interest rates. The assumptions used in the
valuation of the options were: stock price volatility--29%, expected
life--4.5 years, interest rate--6.53%, and dividend yield--0%.
10
<PAGE>
STOCK OPTION EXERCISES AND
DECEMBER 31, 1997 STOCK OPTION VALUE
The following table sets forth certain information concerning stock options
exercised during 1997 by the Named Executive Officers and the number and value
of unexercised in-the-money options for the Corporation's Class A Common Stock
at December 31, 1997. The actual amount, if any, realized upon exercise of stock
options will depend upon the amount by which the market price of the
Corporation's Class A Common Stock on the date of exercise exceeds the exercise
price. The actual value realized upon the exercise of unexercised in-the-money
stock options (whether exercisable or unexercisable) may be higher or lower than
the values reflected in this table.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUE
- ------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FY-END FY-END(1)
SHARES ACQUIRED -------------------------- -------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ----------------- ----------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
M.J. Durham 0 0 164,290 304,490 $915,521 $741,741
T.M. Cook 0 0 59,860 104,870 412,562 431,501
T.B. Jones 0 0 50,400 110,590 283,948 340,535
B.J. Boston 0 0 9,750 39,000 15,531 62,123
T.P. Kelly 0 0 45,430 78,830 280,963 231,783
</TABLE>
- ------------------------
(1) Based on an average market price of $29.0625 for the Corporation's Class A
Common Stock on the NYSE on December 31, 1997.
11
<PAGE>
LONG TERM INCENTIVE PLAN AWARDS
Under the Corporation's 1996 Long-Term Incentive Plan ("LTIP"), deferred
shares of the Corporation's Class A Common Stock ("Performance Shares") may be
awarded to officers and other key employees, including the Named Executive
Officers. Further information concerning Performance Shares can be found on page
20 of this proxy statement.
<TABLE>
<CAPTION>
LONG TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OTHER PERIOD NON-STOCK PRICE BASED PLANS
NUMBER OF SHARES, UNITS UNTIL MATURATION -------------------------------------
NAME OR OTHER RIGHTS(1) OR PAYOUT THRESHOLD TARGET MAXIMUM
- --------------- ----------------------- ---------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
M.J. Durham 15,570 12/31/99 0 15,570 32,697
- -------------------------------------------------------------------------------------------------
T.M. Cook 6,960 12/31/99 0 6,960 14,616
- -------------------------------------------------------------------------------------------------
T.B. Jones 6,960 12/31/99 0 6,960 14,616
- -------------------------------------------------------------------------------------------------
B.J. Boston 6,120 12/31/99 0 6,120 12,852
- -------------------------------------------------------------------------------------------------
T.P. Kelly 7,660 12/31/99 0 7,660 16,086
</TABLE>
- --------------------------
(1) All awards were grants of Performance Shares.
12
<PAGE>
PENSION PLAN
Effective January 1, 1997, the Corporation established The SABRE Group
Retirement Plan (the "SGRP"), a defined contribution plan qualified under
Section 401(k) of the Internal Revenue Code of 1986 (the "Code"). Upon
establishment, substantially all employees of the Corporation under the age of
40 at December 31, 1996 began participating in the SGRP.
The Corporation contributes 2.75% of each participating employee's base pay
to the SGRP. Employees fully vest in the Corporation's contributions after three
years of service, including any prior service with AMR affiliates. In addition,
the Corporation matches 50 cents of each dollar contributed by participating
employees, limited to the first 6% of the employee's base pay contribution,
subject to IRS limitations. Employees are immediately vested in their own
contributions and the Corporation's matching contributions.
The obligation for benefits previously earned by employees under the age of
40 under American's tax-qualified defined benefit pension plan (the "American
Plan") are now the responsibility of the Legacy Pension Plan (the "LPP"), a
defined benefit plan sponsored by the Corporation which offers benefits
substantially similar to those offered by the American Plan. These benefits are
based on the credited years of service earned as of December 31, 1996 or date of
transfer to the Corporation from American Airlines, Inc. ("American") or its
affiliates, whichever is later. However, these employees will continue to earn
years of service for purposes of determining vesting and early retirement
eligibility under the LPP based on future service to the Corporation.
Additionally, future increases in compensation levels will be considered in the
calculation of retirement benefits to be paid from the LPP to these employees
upon their retirement.
Employees age 40 or over as of December 31, 1996, who were participants in
the American Plan at that date, were given the option of participating in the
SGRP or the LPP. Benefits provided by the LPP to retirees of the Corporation are
based on years of credited service and the employee's base pay for the highest
consecutive five years of the ten years preceding retirement. With the exception
noted below, the obligation for benefits previously earned by these employees
under the American Plan is now the responsibility of the LPP.
Certain employees of the Corporation meeting specified criteria have elected
to remain in the American Plan for service through December 31, 1996, and are in
the LPP for service and increases in compensation levels subsequent to that
date. The obligation for benefits earned by these employees as of December 31,
1996 under the American Plan remained with the American Plan. Mr. Jones elected
to remain in American's Defined Benefit Plan for service through December 31,
1996.
13
<PAGE>
Officers of the Corporation are eligible for additional retirement benefits,
to be paid by the Corporation under the Supplemental Executive Retirement Plan
(the "SERP") as an operating expense. The SERP provides pension benefits
(calculated upon the basis of final average base salary, incentive compensation
payments and performance returns) to which officers of the Corporation would be
entitled, but for the limit of $125,000 on the maximum annual benefit payable
under the Employee Retirement Income Security Act of 1974 ("ERISA") and the
Code, and the limit on the maximum amount of compensation which may be taken
into account under the Corporation's retirement program ($160,000 for 1997).
The following table shows typical annual benefits payable under the LPP and
the SERP, based upon retirement in 1997 at age 65, to persons in specified
remuneration and credited years-of-service classifications. Annual retirement
benefits set forth below are subject to reduction for Social Security benefits
and benefits under other qualified and non-qualified plans provided by the
Corporation and American.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFITS
-----------------------------------------------------
FINAL
AVERAGE CREDITED YEARS OF SERVICE
EARNINGS 15 20 25 30 35
- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$250,000 $ 75,000 $ 100,000 $ 125,000 $ 150,000 $ 175,000
300,000 90,000 120,000 150,000 180,000 210,000
400,000 120,000 160,000 200,000 240,000 280,000
500,000 150,000 200,000 250,000 300,000 350,000
600,000 180,000 240,000 300,000 360,000 420,000
700,000 210,000 280,000 350,000 420,000 490,000
800,000 240,000 320,000 400,000 480,000 560,000
900,000 270,000 360,000 450,000 540,000 630,000
1,000,000 300,000 400,000 500,000 600,000 700,000
1,100,000 330,000 440,000 550,000 660,000 770,000
</TABLE>
As of December 31, 1997, the Named Executive Officers had the following
credited years of service: Mr. Durham--17.5; Mr. Cook--14.5; Mr. Jones--18.7;
Mr. Boston--0.6; Mr. T.P. Kelly-- 12.5. Benefits are shown in the table using a
straight-life annuity basis.
14
<PAGE>
EXECUTIVE TERMINATION BENEFITS AGREEMENTS/
EMPLOYMENT AGREEMENTS
The Corporation has executive termination benefits agreements (the
"Agreements") with its officers, including all of the Named Executive Officers.
The benefits provided by the Agreements are triggered by the termination of the
individual who is a party to an Agreement (i) within three years following a
change in control of the Corporation, if the individual's employment with the
Corporation is terminated other than for cause, or if the individual terminates
his or her employment with "good reason"; or (ii) within one year following a
change in control of the Corporation, if the individual terminates his or her
employment with the Corporation. If the individual's employment is terminated
for cause or as a consequence of death or disability, benefits under the
Agreement are not triggered. Under the terms of the Agreements, a change in
control of the Corporation is deemed to occur (i) if a third party, other than
AMR or an affiliate thereof, acquires 20% or more of the combined voting power
of the Corporation's then outstanding securities with respect to election of
directors of the Corporation; (ii) upon the occurrence of a transaction which
requires stockholder approval and involves the acquisition of the Corporation
(through the purchase of assets or by merger or otherwise) by an entity other
than the Corporation, a subsidiary thereof, AMR or an affiliate thereof; or
(iii) if during any 24-month period the individuals who, at the beginning of
such period, constitute the Board of Directors of the Corporation, cease for any
reason other than death to constitute at least a majority thereof, and the new
directors of the Corporation were not elected with the approval of the
individuals who, at the beginning of such period, constitute the Board of
Directors. A change in control would not occur in the event that AMR distributes
its Class B Common Stock (or upon conversion of such Class B Common Stock, the
resulting Class A Common Stock) to its stockholders or sells such common stock
to the public in an underwritten public offering. The Agreements provide that
upon such termination, the individual will receive, in a lump sum payment, (i)
two times the greater of (A) the individual's annual base salary at the
termination date or (B) the individual's annual base salary immediately prior to
the change in control, plus (ii) two times the greater of (x) the median annual
bonus awarded to the executive under the LTIP or any other bonus plan or (y) 50%
of the highest median target bonus rate applicable to the executive for any
period during such prior three-year period, multiplied by the annual applicable
base salary determined under (i) above, and certain other miscellaneous
benefits. In addition, upon a change in control, the vesting and exercisability
of stock awards will be accelerated (for example, deferred and restricted stock
will immediately vest, and all stock options will become immediately
exercisable). Finally, the individual will be reimbursed for excise taxes, if
any, paid pursuant to Section 280G of the Code (or its successor provision) and
for federal income tax paid on such excise tax reimbursement.
15
<PAGE>
The Corporation has an executive termination agreement with Mr. Durham. This
Agreement provides that Mr. Durham will be employed with the Corporation for a
term of three years beginning October 11, 1996 (the date of the Corporation's
IPO). If the Corporation were to terminate Mr. Durham's employment during the
term of the Agreement without cause, Mr. Durham would receive a severance
payment equal to the greater of (i) one year's salary and target incentive
compensation, or (ii) the total amount of salary and target incentive
compensation remaining for the term of the Agreement, and all outstanding stock
awards would continue vesting through the greater of one year or the remainder
of the term of the Agreement.
The Corporation has assumed the obligations of American under agreements
originally entered into by American with Mr. Cook and Mr. Jones (the "American
Agreements"). Mr. Cook's American Agreement provides that Mr. Cook will be
employed by the Corporation as an officer until October 31, 2000. Mr. Jones'
American Agreement provides that Mr. Jones will be employed by the Corporation
as an officer until April 18, 2000, subject to extension by the Corporation to
no later than April 18, 2004. Pursuant to the American Agreements, the
Corporation reserves the right to remove Mr. Cook or Mr. Jones as an officer and
to retain him as an employee for consulting services during the remainder of the
term of the applicable American Agreement. Such officer's base salary as a
consultant would be the rate in effect at the time of his removal as an officer,
and such salary would continue for the remainder of the term of the applicable
American Agreement. Pursuant to the American Agreements, each of Mr. Cook and
Mr. Jones is entitled to receive specified amounts of incentive compensation
under AMR's Long Term Incentive Plan, along with other specified benefits
customarily provided to officers of the Corporation. Each of Mr. Cook and Mr.
Jones has agreed that the incentive compensation to be awarded under AMR's Long
Term Incentive Plan will instead be granted in awards of the Corporation's Class
A Common Stock pursuant to the LTIP.
COMPENSATION/NOMINATING COMMITTEE REPORT
COMMITTEE ROLE IN OVERSEEING EXECUTIVE COMPENSATION POLICY
A primary role of the Compensation/Nominating Committee ("Committee") is to
determine and oversee the administration of compensation for the executive
officers of The SABRE Group Holdings, Inc. ("Corporation"). In this capacity,
the Committee is dedicated to ensuring that the Corporation's compensation
policies and practices are used effectively to support the achievement of the
Corporation's short-term and long-term business objectives.
It is the Committee's overall goal to develop executive compensation
policies that are consistent with, and linked to, strategic business objectives
and the Corporation's values. The Committee approves the design of, assesses the
effectiveness of, and administers executive
16
<PAGE>
compensation programs in support of compensation policies. The Committee also
reviews and approves all salary arrangements and other remuneration for
executives, evaluates executive performance, and considers related matters.
COMPENSATION PHILOSOPHY
The Corporation's primary business objective is to maximize stockholder
value over the long-term. The Corporation's strategy is to maintain its
leadership positions and to pursue growth in revenue and earnings by expanding
its product offerings in electronic travel distribution and technology
solutions. The Corporation's compensation policies are intended to facilitate
the achievement of its business strategy.
Compensation opportunities should enhance the Corporation's ability to
attract, retain, and encourage the development of exceptionally knowledgeable
and experienced executive officers upon whom, in large part, the successful
operation and management of the Corporation depends. An integrated total
compensation program should be structured to appropriately balance short-term
and long-term business and financial strategic goals. A significant amount of
pay for executive officers should be comprised of long-term, at-risk pay to
align executive interests with stockholder interests. Salary and annual
incentive should be sufficient to be competitive for retention purposes. Each
program element should target compensation levels at rates that are reflective
of current market practices, allowing the Corporation to maintain a stable,
successful management team.
As part of its overall compensation philosophy, the Committee has determined
appropriate target levels for base salary, annual incentives, long-term
compensation, and total compensation. In general, the Committee has determined
that total compensation should be targeted at the 50th percentile of the market
but individual pay determinations will be based on individual responsibilities
and contributions. To the extent the Committee determines that individual
compensation levels fall below the targeted levels, the Committee will adjust
these compensation levels as appropriate.
Competitive market data is provided by an independent compensation
consultant. The data provided compares the Corporation's compensation practices
to a group of comparator companies. The Corporation's market, for compensation
comparison purposes, is comprised of a group of companies who tend to have
national and international business operations and similar sales volumes, market
capitalizations, employment levels, and lines of business. The Committee reviews
and approves the selection of companies used for compensation comparison
purposes.
The companies chosen for the comparator group used for compensation purposes
generally are not the same companies which comprise the peer group index in the
Performance Graph
17
<PAGE>
included in this proxy statement. The Committee believes that the Corporation's
most direct competitors for executive talent are not necessarily the same
companies that would be included in a peer group established for comparing
stockholder returns.
The key elements of the Corporation's executive compensation are base
salary, annual incentives, long-term compensation, and benefits. These key
elements are addressed separately below. In determining compensation, the
Committee considers all elements of an executive officer's total compensation
package, including severance plans, insurance, and other benefits.
BASE SALARIES
The Committee regularly reviews each executive officer's base salary. Base
salaries for executive officers are initially determined by evaluating
executives' levels of responsibility, prior experience, breadth of knowledge,
internal equity issues, and external pay practices. Base salaries offer security
to executives and allow the Corporation to attract competent executive talent
and maintain a stable management team.
Mr. Durham's base salary was increased in April 1997 from $427,300 to
$470,000. This increase was intended to recognize Mr. Durham's increased
responsibilities associated with the transition of the Corporation from a
wholly-owned subsidiary of AMR to a separate, public company, considering the
appropriateness of the Corporation's financial performance for the year and Mr.
Durham's individual performance. In 1997, Mr. Durham actually received base
salary payments of $459,325, an increase of $65,742 (17%) over 1996. (See
Summary Compensation Table for further details.)
The Committee also compared Mr. Durham's base salary to the base salaries of
CEOs at the comparator companies. Mr. Durham's base salary was below the 50th
percentile of CEOs at the comparator companies.
VARIABLE COMPENSATION PLAN
The Corporation has an annual incentive compensation plan (the "Variable
Compensation Plan") which provides that participants, including each of the
Named Executive Officers, will be eligible to receive annual cash bonus awards
only if specified financial performance goals are met by the Corporation. Annual
bonus opportunities allow the Corporation to communicate specific goals that are
of primary importance during the coming year and motivate executives to achieve
these goals.
Each year, the Committee will establish specific goals relating to each
named executive's bonus opportunity. While target bonus payments to a
participant under the Variable Compensation Plan are based upon an individual's
job classification level at the Corporation
18
<PAGE>
relative to similar levels at the comparator group, the actual amount of the
award is based on a subjective evaluation of each individual's performance. In
recognition of superior performance, the Committee may award additional amounts
in excess of the funded award as calculated.
The Committee has determined that bonus opportunities will be based on a
combination of performance measures reflecting the performance of the
Corporation and individual performance. The weightings of each of these measures
will vary depending upon each individual's position and responsibilities. For
1997, the Corporation measures were based on revenue growth and operating margin
of the Corporation.
In recognition of the Corporation's performance and Mr. Durham's
performance, the Committee awarded a 1997 Variable Compensation Plan payment to
Mr. Durham of $255,000, representing 56% of his base salary as is reflected in
the Summary Compensation Table. Mr. Durham's annual variable compensation is
below the median of annual incentive compensation paid other CEOs at the
comparator companies.
LONG-TERM INCENTIVES
In keeping with the Corporation's desire to provide a total compensation
package which favors at-risk components of pay, long-term incentives comprise
the largest portion of a named executive's total compensation package. The
Committee's objective is to provide executives with long-term incentive award
opportunities that are competitive with the market.
When awarding long-term incentives, the Committee considers executives'
levels of responsibility, prior experience, historical award data, various
performance criteria, and compensation practices at comparator companies.
Long-term incentives are provided pursuant to the Corporation's 1996
Long-Term Incentive Plan (the "LTIP"). Under the LTIP, stock-based compensation
(which may include stock options, stock appreciation rights, restricted stock,
deferred stock, stock purchase rights, and other stock-based awards) may be
granted to officers and key employees of the Corporation, its subsidiaries, and
its affiliates. The purpose of equity participation is to align the interests of
the Corporation's executive officers with the interests of the Corporation's
stockholders and the Corporation's growth in real value over the long-term.
STOCK OPTIONS
Options to purchase the Corporation's Class A Common Stock, are exercisable
for ten years from the date of grant, have an exercise price equal to the
average market price on the NYSE of the Corporation's Class A Common Stock on
the date of grant and vest in 20% increments over five years. This approach is
designed to provide an incentive to create stockholder value over the
19
<PAGE>
long-term, since the full benefit of the stock option compensation package
cannot be realized unless stock appreciation occurs over a number of years.
The Committee determines the number of options to be granted based upon a
subjective evaluation of the executive with respect to two factors, individual
performance and the executive's retention value to the Corporation. The number
of stock options awarded, if any, depends upon the executive's rating with
respect to these factors.
No grants were received by Messrs. Durham, Boston and T.P. Kelly in 1997. A
portion of the one-time grants made in 1996 was an acceleration of grants that
would otherwise have been made in 1997. In 1996, the Corporation granted Mr.
Durham options to purchase 158,750 shares of the Corporation's Class A Common
Stock, which included an annual grant of options, and a one-time grant made in
connection with the IPO. Messrs. Cook and Jones were awarded grants during 1997
pursuant to their employment agreements, which reflect that a portion of the
one-time grants made in 1996 was an acceleration of grants that would otherwise
have been made in 1997.
RESTRICTED STOCK
Restricted stock awards are grants of the Corporation's Class A Common Stock
which carry full stockholder privileges, including the right to vote and the
right to receive any declared dividends in respect of such shares. The shares
are held by the Corporation with vesting based on the satisfaction of future
service requirements. The shares are nontransferable and are subject to risk of
forfeiture. Restricted stock awards are designed to retain the services of key
executives and, therefore, do not vest, generally, until a minimum of two years
has passed since the date of grant.
PERFORMANCE SHARES
Under the Corporation's 1997-1999 Performance Share Program, the Corporation
may grant performance shares to key employees of the Corporation, which awards
consist of deferred shares of the Corporation's Class A Common Stock issued
pursuant to the LTIP (the "Performance Shares"). These shares are granted
contingent upon the Corporation's attainment of predetermined revenue growth and
operating margin objectives over a three-year "performance period." The
percentage of the shares granted which will vest ranges from 0% to 210% based
upon varying levels of revenue growth and operating margin over the performance
period. If the Corporation fails to achieve a certain level of revenue growth or
operating margin, no Performance Shares will be earned. Performance share grants
within the Corporation are based upon a subjective evaluation of the executive's
current performance and retention value.
In 1997, the Board of Directors determined the number of Performance Shares
to be granted to the Corporation's executive officers. On April 1, 1997, the
Corporation granted Mr. Durham
20
<PAGE>
15,570 Performance Shares. The grant was based on the Board's subjective
evaluation of Mr. Durham's service and strategic contributions, the
Corporation's favorable financial results and the amount of Mr. Durham's
compensation relative to CEOs of comparator companies. The amount of Performance
Shares awarded to other Named Executive Officers was based on comparable
criteria for each executive's respective position. The combined value of stock
options previously granted and Performance Shares were both taken into
consideration in determining the long-term incentive opportunity provided to the
Corporation's executive officers in 1997.
CONVERSION OF AMR EQUITY COMPENSATION TO CLASS A COMMON STOCK
Upon consummation of the Corporation's IPO, except as noted below, each
employee had an opportunity to have all unexercised or unvested stock awards
from AMR then held by such employee converted into awards of the Corporation's
Class A Common Stock which vest under the original time schedule applicable with
respect to such AMR awards. Each of the officers of the Corporation elected to
convert his AMR awards into awards payable in the Corporation's Class A Common
Stock. Stock options to purchase AMR common stock were exchanged on the date of
the Corporation's IPO for options to purchase Class A Common Stock of equal
in-the-money value. Performance shares of AMR common stock that were based upon
the Corporation's attainment of predetermined cash flow objectives over the
period from January 1, 1995 to December 31, 1997 were converted to Performance
Shares of the Corporation, payable in either cash or shares. The shares vested
according to their original performance metric and time frame and, at the
Board's discretion, were paid in cash in 1998.
From time to time, the Corporation's Named Executive Officers also were
granted shares of deferred AMR common stock that vest at retirement ("AMR Career
Equity Shares") through the AMR Career Equity Program. AMR Career Equity Shares
for Mr. Cook were converted to deferred shares of the Corporation's Class A
Common Stock that vest at retirement ("TSG Career Equity"). All of the other AMR
Career Equity Shares held by the Named Executive Officers were converted, on the
date of consummation of the Corporation's IPO, into some combination of
restricted shares of Class A Common Stock and options to purchase Class A Common
Stock.
Performance shares of AMR common stock relating to the period from January
1, 1994 through December 31, 1996 (issuable in 1997) were not altered in
connection with the IPO and were paid in 1997.
Each share of AMR restricted stock held by a Named Executive Officer, except
Mr. Boston, will vest according to its original vesting schedule and will not be
converted to restricted shares of the Corporation's Class A Common Stock. Each
share of AMR restricted stock held by Mr. Boston was converted at the IPO to
shares of TSG restricted stock of equal value.
21
<PAGE>
BENEFITS
Benefits offered to key executives serve a different purpose than other
elements of compensation. In general, they provide a safety net of protection
against financial catastrophes that can result from illness, disability, or
death. Benefits offered to key executives are generally those offered to the
general employee population with some variation to promote tax efficiency and
replacement of benefit opportunities lost due to regulatory limits.
INTERNAL REVENUE CODE 162(M) CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986 ("Code") provides that
executive compensation in excess of $1 million will not be deductible for
purposes of corporate income taxes unless it is performance-based compensation
and is paid pursuant to a plan meeting certain requirements of the Code. To
satisfy these requirements, and to preserve objectivity, a separate committee
composed of independent, non-employee directors approves such plans. The
Committee intends to continue reliance on performance-based compensation
programs. Such programs will be designed to fulfill, in the best possible
manner, future corporate business objectives. To the extent consistent with this
goal, the Committee currently anticipates that such programs will also be
designed to satisfy the requirements of Section 162(m) of the Code with respect
to the deductibility of compensation paid.
CONCLUSION
The Committee believes these executive compensation policies and programs
serve the interests of stockholders and the Corporation effectively. The various
pay vehicles offered are appropriately balanced to provide increased motivation
for executives to contribute to the Corporation's overall future successes,
thereby enhancing the value of the Corporation for the stockholders' benefit.
We will continue to monitor the effectiveness of the Corporation's total
compensation program to meet the current needs of the Corporation.
COMPENSATION/NOMINATING COMMITTEE
<TABLE>
<S> <C> <C>
Edward A. Brennan, Chairman Dee J. Kelly Bob L. Martin
Paul C. Ely, Jr. Glenn W. Marschel, Richard L. Thomas
Jr.
</TABLE>
22
<PAGE>
CORPORATE PERFORMANCE
The following graph compares the change in the Corporation's cumulative
total stockholder return on its Class A Common Stock with the cumulative total
return on the published Standard & Poor's 500 Stock Index and the cumulative
total return on an index of peer companies calculated by the Corporation, in
each case over the period from October 11, 1996 to December 31, 1997. The
Corporation believes that although total stockholder return is an INDICATOR of
corporate performance, it is subject to the vagaries of the market.
CUMULATIVE TOTAL RETURNS*
ON $100 INVESTMENT MADE IN OCTOBER 11, 1996
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PEER GROUP PEER GROUP
<S> <C> <C> <C> <C>
The SABRE Group S&P 500 without Galileo** with Galileo
October 11, 1996 $100.00 $100.00 $100.00 $100.00
December 31, 1996 $103.24 $106.64 $85.33 $85.33
December 31, 1997 $106.94 $139.71 $90.80 $91.93
</TABLE>
- ------------------------
* Defined as stock price appreciation plus dividends paid, assuming
reinvestment of dividends.
** Publicly held companies in the electronic data processing and/or information
technology business included: Electronic Data Systems, Inc., First Data
Corporation; Automatic Data Processing, Inc.; Computer Sciences Corporation;
Equifax, Inc.; Ceridian Corporation; American Management Systems, Inc.; and
Fiserv, Inc. Includes Galileo International Inc. after an IPO of its stock
on July 25, 1997. Excludes BDM International, Inc. after its acquisition by
TRW on December 26, 1997.
23
<PAGE>
OWNERSHIP OF SECURITIES
SECURITIES OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
As of March 24, 1998, the directors and officers of the Corporation owned,
or had been granted, securities or rights equivalent to the shares of Class A
Common Stock of the Corporation or common stock of AMR indicated in the table
below:
<TABLE>
<CAPTION>
TSG CLASS A PERCENT OF AMR PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK CLASS COMMON STOCK CLASS
- ------------------------------------------------------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
Robert L. Crandall (1) 2,500 * 248,500 *
Gerard J. Arpey (2) 500 * 70,100 *
Edward A. Brennan (3) (4) 17,111 * 8,969 *
Paul C. Ely, Jr. (3) 14,000 * 0 *
Dee J. Kelly (3) (4) 15,800 * 3,000 *
Glenn W. Marschel, Jr. (3) 29,111 * 0 *
Bob L. Martin (3) 15,124 * 0 *
Anne H. McNamara (5) 500 * 60,200 *
Richard L. Thomas (3) 23,611 * 0 *
Michael J. Durham (6) 612,198 * 0 *
Thomas M. Cook (7) 241,600 * 700 *
Terrell B. Jones (8) 192,688 * 850 *
Bradford J. Boston (9) 105,960 * 0 *
T. Patrick Kelly (10) 179,784 * 0 *
Directors and Officers as a group 1,654,077 2.09% 392,588 *
</TABLE>
* Percentage does not exceed 1% of the total outstanding class.
- ------------------------
(1) AMR amount includes AMR stock options for 180,000 shares of AMR common stock
and 67,500 shares of AMR deferred stock granted under the 1988 AMR Long Term
Incentive Plan ("AMR 1988 LTIP"). AMR stock options representing 76,000
shares of AMR common stock are vested and currently exercisable. The
remaining AMR stock options will vest during the period from July 1998
through July 2002. The AMR deferred shares are AMR performance shares that
are scheduled to vest (subject to the attainment of specified performance
criteria) during the period 1997 through 1999.
(SEE NEXT PAGE FOR ADDITIONAL NOTES.)
24
<PAGE>
(2) AMR amount stock includes AMR stock options for 31,000 shares of AMR common
stock and 39,100 shares of AMR deferred stock granted under the AMR 1988
LTIP. AMR stock options representing 14,900 shares of AMR common stock are
vested and currently exercisable. The remaining AMR stock options will vest
during the period from July 1998 through July 2002. The AMR deferred shares
are comprised of (i) 18,100 AMR performance shares that are scheduled to
vest (subject to the attainment of specified performance criteria) during
the period 1997 through 1999, and (ii) 21,000 AMR Career Equity Shares that
are scheduled to vest at age 60 (with pro rata vesting in the event of
death, disability or termination not for cause before attaining age 60).
(3) TSG amount includes 2,111, 2,111, 1,924 and 2,111 TSG stock equivalent units
(which are the economic equivalent of a share of stock) granted to Messrs.
Brennan, Marschel, Martin and Thomas, respectively. TSG amount also includes
grants to each of Messrs. Brennan, Ely, D.J. Kelly, Marschel, Martin and
Thomas of TSG stock options for 13,000 shares of the Corporation's Class A
Common Stock. For each of Messrs. Brennan, Ely, D.J. Kelly, Marschel, Martin
and Thomas, TSG stock options representing 2,600 shares of the Corporation's
Class A Common Stock will vest and become exercisable in May 1998. The
remaining TSG options for each of Messrs. Brennan, Ely, D.J. Kelly,
Marschel, Martin and Thomas will vest during the period from May 1999
through May 2002.
(4) AMR amount includes 1,000 AMR deferred shares granted under the AMR 1994
Directors Stock Incentive Plan to each of Messrs. Brennan and D.J. Kelly.
Such shares will be delivered to the director within six months after the
director ceases to be a member of the Board. AMR amount for Mr. D.J. Kelly
also includes 1,000 shares of AMR common stock held by Mr. D.J. Kelly and
1,000 shares held by Kelly Group Investors. Mr. D.J. Kelly disclaims any
beneficial interest in 545 of such shares. In addition, AMR amount for Mr.
Brennan includes 6,969 AMR stock equivalent units (which are the economic
equivalent of a share of stock).
(5) AMR amount includes AMR stock options for 14,600 shares of AMR common stock,
and 45,600 shares of AMR deferred stock, all granted under the AMR 1988
LTIP. No stock options are vested and currently exercisable. The remaining
AMR stock options will vest during the period from July 1998 through July
2002. The AMR deferred shares are comprised of (i) 15,600 AMR Performance
Shares that are scheduled to vest (subject to the attainment of specified
performance criteria) during the period 1997 through 1999, and (ii) 30,000
AMR Career Equity Shares that are scheduled to vest at age 60 (with pro rata
vesting in the event of death, disability or termination not for cause
before attaining age 60).
(6) TSG amount includes TSG stock options for 543,780 shares of the
Corporation's Class A Common Stock, 42,240 shares of TSG deferred stock and
24,520 shares of TSG restricted stock, all granted under the 1996 LTIP.
Stock options representing 164,290 shares of common stock are vested and
currently exercisable. The remaining stock options will vest during the
period from July 1998 through January 2003. The deferred shares are TSG
Performance Shares that are scheduled to vest (subject to the attainment of
specified performance criteria) during the period 1998 through 2000.
Restrictions lapse on the TSG restricted stock in 1999. TSG amount also
includes 408 shares of stock purchased under the TSG Employee Stock Purchase
Plan.
(SEE NEXT PAGE FOR ADDITIONAL NOTES.)
25
<PAGE>
(7) TSG amount includes TSG stock options for 164,730 shares of the
Corporation's Class A Common Stock, 72,430 shares of TSG deferred stock and
4,440 shares of TSG restricted stock, all granted under the 1996 LTIP. Stock
options representing 59,860 shares of the Corporation's Class A Common Stock
are vested and currently exercisable and an additional 12,340 shares of the
Corporation's Class A Common Stock will vest within the next sixty days. The
remaining stock options will vest during the period from July 1998 through
April 2002. The TSG deferred shares are comprised of (i) 13,920 TSG
Performance Shares that are scheduled to vest (subject to the attainment of
specified performance criteria) during the period 1998 through 1999, and
(ii) 58,510 TSG Career Equity Shares that are scheduled to vest at age 60
(with pro rata vesting in the event of death, disability or termination not
for cause before attaining age 60). Restrictions lapse on the TSG restricted
stock in 1999 through 2000. AMR amount includes 700 shares of AMR restricted
stock. Restrictions lapse on the AMR restricted stock in 1998.
(8) TSG amount includes TSG stock options for 160,990 shares of the
Corporation's Class A Common Stock, 13,920 shares of TSG deferred stock and
16,620 shares of TSG restricted stock, all granted under the 1996 LTIP.
Stock options representing 50,400 shares of the Corporation's Class A Common
Stock are vested and currently exercisable and an additional 3,520 shares of
the Corporation's Class A Common Stock will vest within the next sixty days.
The remaining stock options will vest during the period from July 1998
through April 2002. The TSG deferred shares are TSG Performance Shares that
are scheduled to vest (subject to the attainment of specified performance
criteria) during the period 1998 through 1999. Restrictions lapse on the TSG
restricted stock in 1999. TSG amount also includes 158 shares of stock
purchased under the TSG Employee Stock Purchase Plan. AMR amount includes
750 shares of AMR restricted stock. Restrictions lapse on the AMR restricted
stock in 1998.
(9) TSG amount includes TSG stock options for 78,750 shares of the Corporation's
Class A Common Stock, 18,570 shares of TSG deferred stock and 8,640 shares
of TSG restricted stock, all granted under the 1996 LTIP. TSG stock options
representing 9,750 shares of the Corporation's Class A Common Stock are
vested and currently exercisable. The remaining stock options will vest
during the period from June 1998 through January 2003. The TSG deferred
shares are TSG Performance Shares that are scheduled to vest (subject to the
attainment of specified performance criteria) during the period 1998 through
2000. Restrictions lapse on the TSG restricted stock in 1998 through 1999.
(10) TSG amount includes TSG stock options for 154,260 shares of the
Corporation's Class A Common Stock, 19,630 shares of TSG deferred stock and
4,440 shares of TSG restricted stock, all granted under the 1996 LTIP. Stock
options representing 45,430 shares of the Corporation's Class A Common Stock
are vested and currently exercisable. The remaining stock options will vest
during the period from June 1998 through January 2003. The deferred shares
are TSG Performance Shares that are scheduled to vest (subject to the
attainment of specified performance criteria) during the period 1998 through
2000. Restrictions lapse on the TSG restricted stock in 1999. TSG amount
also includes 204 shares of stock purchased under the TSG Employee Stock
Purchase Plan.
26
<PAGE>
SECURITIES OWNED BY CERTAIN BENEFICIAL OWNERS
The following firms have informed the Corporation they were the beneficial
owners of more than 5% of the Corporation's outstanding common stock at December
31, 1997.
<TABLE>
<CAPTION>
CLASS OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK AMOUNT HELD CLASS
- ----------------------------------------------------------- ------------- ---------------- -----------
<S> <C> <C> <C>
AMR Corporation ........................................... Class B 107,374,000(1) 100.00%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
FMR Corp. ................................................. Class A 2,746,900(2) 11.73%
82 Devonshire Street
Boston, MA 02109
Vanguard/Primecap Fund, Inc. .............................. Class A 2,289,200(3) 9.78%
PO Box 2600
Valley Forge, PA
Oppenheimer Capital ....................................... Class A 2,115,658(4) 9.04%
Oppenheimer Tower, World Financial Center
New York, New York 10281
Scudder Kemper Investments, Inc. .......................... Class A 1,617,693(5) 6.91%
Two International Place
Boston, MA 02110
Jurika & Voyles LP ........................................ Class A 1,465,514(6) 6.26%
1999 Harrison Street, Suite 700
Oakland, CA 94612
KR Capital Advisors, Inc. ................................. Class A 1,366,573(7) 5.84%
450 Park Avenue
New York, NY 10022
</TABLE>
- ------------------------------
(1) Shares represent 100% of the outstanding Class B Common Stock, which are
convertible at AMR's option into 107,374,000 shares of Class A Common Stock.
Class B Common Stock is entitled to 10 votes per share. The Class B Common
Stock held by AMR Corporation represents 97.8% of the total voting power of
the Corporation's stockholders. If fully converted, the Class B Common Stock
owned by AMR would represent 82.1% of all outstanding shares of Class A
Common Stock as of the record date.
(SEE NEXT PAGE FOR ADDITIONAL NOTES.)
27
<PAGE>
(2) Based on Schedule 13G filed on February 14, 1998 by FMR Corp., Abigail P.
Johnson and Edward C. Johnson 3d: FMR Corp. had sole voting power over
78,900 shares, and sole dispositive power over and beneficial ownership of
2,746,900 shares, of Class A Common Stock. Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR Corp. and an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940
("Fidelity"), is the beneficial owner of 2,638,600 shares of the Class A
Common Stock as a result of acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. Mr. Johnson, FMR Corp., through its control of Fidelity, and
the Fidelity Funds each has sole dispositive power over 2,638,600 shares
owned by the Fidelity Funds. Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp. and a bank as defined in Section
3(a)(6) of the Securities Exchange Act of 1934 ("Fidelity Trust"), is the
beneficial owner of 108,300 shares of the Class A Common Stock as a result
of its serving as investment manager of the institutional account(s). Mr.
Johnson and FMR Corp., through its control of Fidelity Trust, each has sole
dispositive power over 108,300 shares, and sole power to vote or direct the
voting of 78,900 shares, of Class A Common Stock owned by the institutional
accounts.
(3) Based on Schedule 13G filed on February 9, 1998 by Vanguard/Primecap Fund,
Inc.: Vanguard/Primecap Fund Inc. had sole voting power and shared
dispositive power over, and beneficial ownership of, 2,289,200 shares of
Class A Common Stock. Vanguard/Primecap Fund, Inc. is an investment company
registered under Section 8 of the Investment Company Act.
(4) Based on Schedule 13G filed on March 10, 1998 by Oppenheimer Capital:
Oppenheimer Capital has shared voting power and shared dispositive power
over, and beneficial ownership of, 2,115,658 shares of Class A Common Stock.
Oppenheimer Capital is a Delaware general partnership and an investment
adviser registered under Section 203 of the Investment Advisers Act of 1940.
(5) Based on Schedule 13G filed on February 9, 1998 by Scudder Kemper
Investments, Inc.: Scudder Kemper Investments, Inc., had sole voting power
over 335,400 shares, shared voting power over 410,993 shares, and sole
dispositive power over and beneficial ownership of 1,617,693 shares, of
Class A Common Stock. Scudder Kemper Investments, Inc. is an investment
adviser registered under Section 203 of the Investment Advisers Act of 1940.
(6) Based on Schedule 13G filed on February 6, 1998 by Jurika & Voyles LP:
Jurika & Voyles LP had shared voting power over 1,222,259 shares, and shared
dispositive power over and beneficial ownership of 1,465,514 shares, of
Class A Common Stock. Jurika & Voyles LP is an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940.
(7) Based on Schedule 13G filed on February 11, 1998 by KR Capital Advisors,
Inc. and Edward D. Klein: KR Capital Advisors, Inc. had sole voting power
over 1,281,173 shares, and sole dispositive power over and beneficial
ownership of 1,366,573 shares, of Class A Common Stock. KR Capital Advisors,
Inc. is an investment adviser registered under Section 203 of the Investment
Advisors Act of 1940.
RELATIONSHIPS WITH AMR CORPORATION AND AFFILIATES
On July 2, 1996, AMR completed a reorganization (the "Reorganization"),
pursuant to which the Corporation became the successor to the businesses of The
SABRE Group which were formerly operated as divisions or subsidiaries of AMR or
American.
28
<PAGE>
DISTRIBUTIONS TO AND CONTRIBUTIONS FROM AFFILIATES
Certain of The SABRE Group entities from which the Corporation was formed
distributed, in their capacity as divisions of American, $394 million in 1995 to
American. Also during 1995, AMR contributed $245 million to the Corporation and
a note payable to AMR of $66 million was capitalized in order to adequately
capitalize certain of The SABRE Group entities from which the Corporation was
formed. Proceeds from the contribution were used to reduce cash advances from
AMR.
In conjunction with the capital infusion discussed above, amounts payable to
AMR of approximately $54 million were converted to intercompany notes payable in
1995, upon which the Corporation was charged interest expense at an average rate
of 9.9%. On July 1, 1996 the note payable to AMR of approximately $54 million
was capitalized.
INTEREST ON CASH EQUIVALENTS
Prior to the Reorganization, American allocated interest income or expense
monthly based on the net balance of cash equivalents and the payable to AMR at
the average rate earned by American's portfolio of short-term marketable
securities. The allocation may not be representative of what the Corporation
would have earned or paid if its cash were held externally. Cash payments for
interest are equivalent to net interest expense for periods prior to the
Reorganization.
DEBENTURE PAYABLE TO AMR
On July 2, 1996, in connection with the Reorganization, American transferred
to the Corporation certain divisions and subsidiaries of American through which
AMR previously conducted its information technology businesses, and in return
the Corporation issued to American a floating rate subordinated debenture due
September 30, 2004 with a principal amount of $850 million (the "Debenture") and
common stock representing 100% of the equity ownership interest in the
Corporation. American subsequently prepaid a portion of its note payable to AMR
with the Debenture. Because the assets and liabilities of the divisions and
subsidiaries of American transferred to the Corporation are included in the
historical financial statements of the Corporation, issuing the Debenture
resulted in a reduction of stockholders' equity.
The Corporation used approximately $532 million of the net proceeds from the
IPO to repay a portion of the Debenture held by AMR.
The interest rate on the Debenture is based on the sum of the London
Interbank Offered Rate ("LIBOR") plus a margin determined based upon the
Corporation's senior unsecured
29
<PAGE>
long-term debt rating or, if such debt rating is not available, upon the
Corporation's ratio of net debt to total capital. The interest rate is
determined monthly and accrued interest is payable each September 30 and March
31. The average interest rate on the Debenture was 6.2% and 7.1% for 1997 and
1996, respectively. The Corporation may prepay the principal balance,
approximately $318 million at December 31, 1997, in whole or in part at any
interest payment date.
PROPERTY AND EQUIPMENT
On July 1, 1996 American contributed buildings, furniture and fixtures in
addition to those discussed above to the Corporation with an original cost of
approximately $298 million and a net book value of $193 million. During 1997,
the Corporation acquired a building from American for approximately $6 million.
AFFILIATE AGREEMENTS
In connection with the Reorganization, the Corporation or its principal
operating subsidiary, The SABRE Group, Inc. ("Operating Company") has entered
into certain agreements with AMR and its affiliates (the "Affiliate
Agreements"), which are discussed below.
INFORMATION TECHNOLOGY SERVICES AGREEMENT. The Operating Company is party
to the Information Technology Services Agreement with American dated July 1,
1996 (the "Technology Services Agreement"), to provide American with certain
information technology services. The parties agreed to apply the financial terms
of the Technology Services Agreement as of January 1, 1996. The base term of the
Technology Services Agreement expires June 30, 2006. The terms of the services
to be provided by the Operating Company to American, however, vary. For example,
the Operating Company will provide: (i) Data Center services, data network
services, application development and existing application maintenance
enhancement services until June 30, 2006; (ii) services relating to existing
client server operations until June 30, 2001; and (iii) distributed systems
services until June 30, 2000; and voice network services until June 30, 2001.
The Technology Services Agreement provides for annual price adjustments. For
certain prices, adjustments are made according to formulas which, commencing in
1998, are reset every two years and which may take into account the market for
similar services provided by other companies. The resulting rates may reflect an
increase or decrease over the previous rates.
With limited exceptions, under the Technology Services Agreement the
Operating Company will continue to be the exclusive provider of all information
technology services provided by the Operating Company to American immediately
prior to the execution of the Technology Services Agreement. Any new information
technology services, including most new application
30
<PAGE>
development services, requested by American can be outsourced pursuant to
competitive bidding by American or performed by American on its own behalf. With
limited exceptions, the Operating Company has the right to bid on all new
services for which American solicits bids. Additionally, American may continue
to perform development and enhancement work that it is currently performing on
its own behalf.
After July 1, 2000, American may terminate the Technology Services Agreement
for convenience. If it does so, American will be required to pay a termination
fee equal to the sum of all amounts then due under the Technology Services
Agreement, including wind-down costs, net book value of dedicated assets and a
significant percentage of estimated lost profits. American may also terminate
the Technology Services Agreement without penalty, in whole or in part depending
upon circumstances, for egregious breach by the Operating Company of its
obligations or for serious failure to perform critical or significant services.
If the Operating Company is acquired by another corporation (other than AMR or
American) with more than $1 billion in annual airline transportation revenue,
then American may terminate the Technology Services Agreement without paying any
termination fee. Additionally, if American were to dispose of any portion of its
businesses or any affiliate accounting for more than 10% of the Operating
Company's fees from American, then American shall either cause such divested
business or affiliate to be obligated to use the Operating Company's services in
accordance with the Technology Services Agreement or pay a proportionate
termination fee.
In addition, Airline Management Services, Inc., a subsidiary of AMR, and
Canadian Airlines International Ltd. ("Canadian") have entered into an agreement
pursuant to which AMR and American supply to Canadian various services,
including technology services. The Operating Company is a principal provider of
data processing and network distributed systems services to Canadian under the
terms of the Canadian Technical Services Subcontract (the "Canadian
Subcontract") with American which expires in 2006. Under the terms of the
Canadian Subcontract, American guaranteed full payment for services actually
performed by the Operating Company and deferred costs associated with the
installation and implementation of certain systems. As permitted by the terms of
the Canadian Subcontract, in December 1996, American paid the Operating Company
approximately $40 million, representing the unrecovered contract costs.
Approximately $5 million of these deferred costs were charged to operations in
both 1996 and 1995.
MANAGEMENT SERVICES AGREEMENT. The Operating Company and American are
parties to a Management Services Agreement dated July 1, 1996 (the "Management
Services Agreement"), pursuant to which American performs various management
services for the Operating Company,
31
<PAGE>
including treasury, risk management, and other administrative services, that
American has historically provided to the Operating Company. American also
manages the Operating Company's cash balances under the terms of the Management
Services Agreement. Transactions with American are settled through monthly
billings, with payment due in 30 days. The Management Services Agreement will
expire on June 30, 1999, unless terminated earlier if American and the Operating
Company are no longer under common control or if the Technology Services
Agreement is terminated early. Amounts charged to the Operating Company under
this agreement approximate American's cost of providing the services plus a
margin. The parties agreed to apply the financial terms of the Management
Services Agreement as of January 1, 1996.
MARKETING COOPERATION AGREEMENT. The Operating Company and American are
parties to the Marketing Cooperation Agreement dated July 1, 1996 (the
"Marketing Cooperation Agreement"), pursuant to which American will provide
marketing support for 10 years for the Operating Company's professional SABRE
products targeted to travel agencies and for five years for SABRE Business
Travel Solutions ("SABRE BTS"), Travelocity and easySABRE. The parties agreed to
apply the financial terms of the Marketing Cooperation Agreement as of January
1, 1996. The Marketing Cooperation Agreement may be terminated by either party
prior to June 30, 2006 only if the other party fails to perform its obligations
thereunder.
Under the Marketing Cooperation Agreement, American's marketing efforts
include ongoing promotional programs to assist in the sale of those SABRE
products, development with the Operating Company of an annual sales plan,
sponsorship of sales/promotional events and the targeting of potential
customers. Under the terms of the Marketing Cooperation Agreement, the Operating
Company pays American a fee for its marketing support for professional SABRE,
the amount of which may increase or decrease, depending on total SABRE booking
volumes generated by certain professional SABRE subscribers in the U.S., the
Caribbean and elsewhere and on SABRE's market share of travel agency bookings in
those areas. That fee was approximately $22 million and $20 million in 1997 and
1996, respectively. As payment for American's support of the Operating Company's
promotion of SABRE BTS, Travelocity and easySABRE, the Operating Company pays
American a marketing fee based upon booking volume. Additionally, the Operating
Company has guaranteed to American certain cost savings in the fifth year of the
Marketing Cooperation Agreement. If American does not achieve those savings, the
Operating Company will pay American any shortfall, up to a maximum of $50
million.
NON-COMPETITION AGREEMENT. The Corporation, Operating Company, AMR and
American have entered into a Non-Competition Agreement dated July 1, 1996 (the
"Non-Competition Agreement"), pursuant to which AMR and American, on behalf of
themselves and certain of their
32
<PAGE>
subsidiaries, have agreed to limit their competition with the Operating
Company's businesses of (i) electronic travel distribution; (ii) development,
maintenance, marketing and licensing of software for travel agency, travel,
transportation and logistics management; (iii) computer system integration; (iv)
development, maintenance and operation of a data processing center providing
data processing services to third parties; and (v) travel industry,
transportation and logistics consulting services relating primarily to computer
technology and automation. The Non-Competition Agreement expires on December 31,
2001. American may terminate the Non-Competition Agreement, however, as to the
activities described in clauses (ii) though (v) of this paragraph upon 90 days
notice to the Operating Company if the Technology Services Agreement is
terminated as a result of an egregious breach thereof by the Operating Company.
TRAVEL AGREEMENTS. The Operating Company and American are parties to a
Travel Privileges Agreement dated July 1, 1996 (the "Travel Privileges
Agreement"), pursuant to which the Operating Company is entitled to purchase
personal travel for its employees and retirees at reduced fares. The Travel
Privileges Agreement will expire on June 30, 2008. To pay for the provision of
flight privileges to certain of its future retired employees, the Operating
Company makes a lump sum payment to American each year, beginning in 1997, for
each employee retiring in that year. The payment per retiree is based on the
number of years of service with the Operating Company and AMR over the prior ten
years of service. Service years accrue for the Operating Company beginning on
January 1, 1993. AMR will retain the obligation for the portion of benefits
attributable to service years prior to January 1, 1993. The accumulated benefit
obligation for post-retirement travel privileges assumed by the Operating
Company at July 1, 1996 of approximately $8 million, net of deferred taxes of
approximately $3 million, was recorded as a reduction to stockholders' equity.
The remaining cost of providing this privilege is being accrued over the
estimated service lives of the employees eligible for the privilege.
The Operating Company and American are also parties to a Corporate Travel
Agreement dated July 1, 1996 and ending June 30, 1998 (the "Corporate Travel
Agreement"), pursuant to which the Operating Company receives discounts for
certain flights purchased on American. In exchange, the Operating Company must
fly a certain percentage of its travel on American as compared to all other air
carriers combined. If the Operating Company fails to meet the applicable
percentage on an average basis over any calendar quarter, American may terminate
the agreement upon 60 days' notice.
The parties agreed to apply the financial terms of the Travel Privileges
Agreement and the Corporate Travel Agreement as of January 1, 1996.
33
<PAGE>
CREDIT AGREEMENT. On July 1, 1996, the Corporation and American entered
into a Credit Agreement pursuant to which the Corporation is required to borrow
from American, and American is required to lend to the Corporation, amounts
required by the Corporation to fund its daily cash requirements. In addition,
American may, but is not required to, borrow from the Corporation to fund its
daily cash requirements. The maximum amount the Corporation may borrow at any
time from American under the Credit Agreement is $300 million. The maximum
amount that American may borrow at any time from the Corporation under the
Credit Agreement is $100 million. Loans under the Credit Agreement are not
intended as long-term financing. If the Corporation's credit rating is better
than "B" on the Standard & Poor's Rating Service Scale (or an equivalent
thereof) or American has excess cash, as defined, to lend the Corporation, the
interest rate to be charged to the Corporation is the sum of (a) the higher of
(i) American's average rate of return on short-term investments for the month in
which the borrowing occurred or (ii) the actual rate of interest paid by
American to borrow funds to make the loan to the Corporation under the Credit
Agreement, plus (b) an additional spread based upon the Corporation's credit
risk. If the Corporation's credit rating is "B" or below on the Standard &
Poor's Rating Service Scale (or an equivalent thereof) and American does not
have excess cash to lend to the Corporation, the interest rate to be charged to
the Corporation is the lower of (a) the sum of (i) the borrowing cost incurred
by American to draw on its revolving credit facility to make the advance, plus
(ii) an additional spread based on the Corporation's credit risk, or (b) the sum
of (i) the cost at which the Corporation could borrow funds from an independent
party plus (ii) one-half of the margin American pays to borrow under its
revolving credit facility. The Corporation believes that the interest rate it
will be charged by American could, at times, be slightly above the rate at which
the Corporation could borrow externally; however, no standby fees for the line
of credit will be required to be paid by either party. The interest rate to be
charged to American is the Corporation's average portfolio rate for the months
in which borrowing occurred plus an additional spread based upon American's
credit risk. At the end of each quarter, American must pay all amounts owing
under the Credit Agreement to the Corporation. No borrowings have occurred by
either the Corporation or American as of December 31, 1997.
INDEMNIFICATION AGREEMENT. In connection with the Reorganization, the
Operating Company and American entered into an intercompany agreement (the
"Indemnification Agreement") pursuant to which each party indemnified the other
for certain obligations relating to the Reorganization. Pursuant to the
Indemnification Agreement, the Operating Company indemnified American for
liabilities assumed in the Reorganization, against third party claims asserted
against American as a result of American's prior ownership of assets or
operation of businesses contributed to the Operating Company and for losses
arising from or in connection
34
<PAGE>
with the Operating Company's lease of property from American. In exchange,
American indemnified the Operating Company for specified liabilities retained by
it in the Reorganization, against third party claims against the Operating
Company relating to American's businesses and asserted against the Operating
Company as a result of the ownership or possession by American prior to the
Reorganization of any asset contributed to the Operating Company in the
Reorganization and for losses arising from or in connection with American's
lease of property from the Operating Company.
REVENUES FROM AFFILIATES
The Corporation's revenues from American and other subsidiaries of AMR were
$526 million, $500 million and $548 million in 1997, 1996 and 1995,
respectively.
OPERATING EXPENSES
Operating expenses are charged to the Corporation by American and other
subsidiaries of AMR to cover certain employee benefits, facilities rental,
marketing services, management services, legal fees and certain other
administrative costs based on employee headcount or actual usage of facilities
and services. The Corporation believes amounts charged to the Corporation for
these expenses approximate the cost of such services provided by third parties.
Travel service costs for travel by the Corporation's employees for personal and
business travel are charged to the Corporation based on rates negotiated with
American. If the Corporation were not affiliated with American, the personal
travel flight privilege would most likely not be available to employees. It is
estimated that business travel costs, had the Corporation not been affiliated
with American, for 1995 would have been approximately $34 million, based on
corporate travel rates offered by American to similar companies. The rates
negotiated with American for 1996 and 1997 under the Corporate Travel Agreement
approximates corporate travel rates offered by American to similar companies.
Expenses charged to the Corporation by affiliates are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Employee benefits.................................... $ 55,872 $ 85,538 $ 68,743
Facilities rental.................................... 3,526 19,120 29,385
Marketing cooperation................................ 21,779 20,436 --
Management services.................................. 11,276 17,143 16,508
Other administrative costs........................... 6,799 14,767 11,377
Travel services...................................... 47,638 42,855 28,761
---------- ---------- ----------
$ 146,890 $ 199,859 $ 154,774
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
35
<PAGE>
PROPOSAL 2--SELECTION OF AUDITORS
Based upon the recommendation of the Audit Committee, the Board of Directors
has selected Ernst & Young LLP to serve as the Corporation's independent
auditors for the year ending December 31, 1998. The stockholders will be
requested to ratify the Board's selection. Representatives of Ernst & Young LLP
will be present at the annual meeting, will have the opportunity to make a
statement, if they desire to do so, and will be available to answer appropriate
questions.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares represented and entitled to
vote is required to approve the Board's selection of auditors. If the
stockholders do not ratify the selection of Ernst & Young LLP, the selection of
independent auditors will be reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL.
36
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be acted upon at the
meeting, but if any such matters properly come before the meeting, it is
intended that the persons voting the proxies will vote in accordance with their
best judgments.
By Order of the Board of Directors,
[SIGCUT]
Andrew B. Steinberg
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
March 31, 1998
37
<PAGE>
If you are planning to attend the annual meeting in person, you must bring
with you the admission ticket printed on this page. You will be asked for this
ticket at the stockholder registration desk at the annual meeting. If you do not
have an admission ticket, other evidence of share ownership will be necessary to
obtain admission to the annual meeting. See "Official Notice of Annual Meeting"
for details.
(PLEASE CUT ALONG THIS LINE)
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THE SABRE GROUP HOLDINGS, INC.
1998 ANNUAL MEETING ADMISSION TICKET
The Annual Meeting of Stockholders of The SABRE Group Holdings, Inc.
will be held at 1:00 P.M., CDT, on Wednesday, May 20, 1998,
in the Flagship Auditorium at the American Airlines Training and Conference
Center,
4501 Highway 360, Fort Worth, Texas 76155.
TO ATTEND THIS MEETING YOU MUST PRESENT
THIS TICKET OR OTHER PROOF OF SHARE OWNERSHIP
(Doors will open at 12:00 noon. NOTE: Cameras, tape recorders or other recording
devices will not be allowed in the meeting room.)
<PAGE>
THE SABRE GROUP HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE SABRE GROUP HOLDINGS, INC.
P The undersigned hereby appoints Robert L. Crandall, Michael J. Durham
R and Glenn W. Marschel, Jr., or any of them, proxies, each with full
O power of substitution, to vote the shares of the undersigned at the
X Annual Meeting of Stockholders of The SABRE Group Holdings, Inc. on
Y May 20, 1998, and any adjournments thereof, upon all matters as may
properly come before the meeting. Without otherwise limiting the
foregoing general authorization, the proxies are instructed to vote
as indicated herein.
Election of Directions, Nominees:
Gerard J. Arpey, Paul C. Ely, Jr., and Glenn W. Marschel, Jr.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES. SEE REVERSE SIDE. YOU NEED NOT MARK ANY BOXES IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS THE
PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE SIDE
<PAGE>
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL OF THE BOARD OF DIRECTORS' NOMINEES AND FOR PROPOSAL 2.
The Board of Directors recommends a vote FOR proposals 1 and 2.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratification of the / / / / / /
Directors selection of Ernst &
(see reverse) Young LLP as
independent
auditors for the
year 1998.
For, except vote withheld from the following nominee(s)
_________________________________
If you plan to attend the Annual
Meeting, please mark this box / /
WILL ATTEND
SIGNATURE(S) ________________________________________ DATE __________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
