<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
LHS GROUP 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> 2
(LHS LOGO)
LHS GROUP INC.
Six Concourse Parkway
Suite 2700
Atlanta, Georgia 30328
May 3, 1999
Dear Stockholder:
On behalf of the Board of Directors and management of LHS Group Inc. (the
"Company"), I cordially invite you to the 1999 Annual Meeting of Stockholders to
be held on Monday, June 7, 1999 at 9:00 a.m. at The Westin Atlanta North at
Perimeter, Seven Concourse Parkway, Atlanta, Georgia.
At the Annual Meeting, stockholders will be asked to: (a) elect two
directors in Class II to serve until the 2002 Annual Meeting of Stockholders, or
until their successors are duly elected and qualified; and (b) ratify the
appointment of independent accountants. These matters are fully described in the
accompanying Notice of Annual Meeting and Proxy Statement.
It is important that your stock be represented at the meeting regardless of
the number of shares you hold. You are encouraged to specify your voting
preferences by so marking the enclosed proxy card. Please then sign and date the
proxy card and return it in the enclosed envelope whether or not you plan to
attend the meeting. If you do attend and wish to vote in person, you may revoke
your proxy at the meeting.
If you plan to attend the meeting, please check the card in the space
provided. This will assist us with meeting preparations and will enable us to
expedite your admittance. If your shares are not registered in your own name and
you would like to attend the meeting, please ask the broker, trust, bank or
other nominee which holds the shares to provide you with evidence of your share
ownership, which will enable you to gain admission to the meeting.
Sincerely,
/S/HARTMUT LADEMACHER
Hartmut Lademacher
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
LHS GROUP INC.
SIX CONCOURSE PARKWAY
SUITE 2700
ATLANTA, GEORGIA 30328
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 7, 1999
---------------------
NOTICE HEREBY IS GIVEN that the 1999 Annual Meeting of Stockholders of LHS
Group Inc., a Delaware corporation (the "Company"), will be held at The Westin
Atlanta North at Perimeter, Seven Concourse Parkway, Atlanta, Georgia on Monday,
June 7, 1999 at 9:00 a.m., local time, for the purposes of:
1. Electing two directors in Class II to serve until the 2002 Annual
Meeting of Stockholders;
2. Ratifying the appointment of Ernst & Young LLP as independent
accountants of the Company for the fiscal year ending December 31, 1999;
and
3. Transacting such other business as properly may come before the
Annual Meeting or any adjournments thereof.
Information relating to the foregoing matters is set forth in the attached
Proxy Statement. Only stockholders of record at the close of business on April
23, 1999 are entitled to receive notice of and to vote at the Annual Meeting and
any adjournments thereof. The transfer books will not be closed. A complete list
of stockholders entitled to vote at the Annual Meeting will be made available
for inspection by stockholders at the offices of the Company during the ten days
prior to the Annual Meeting.
By Order of the Board of Directors.
/s/Scott A. Wharton
Scott A. Wharton
Secretary
Atlanta, Georgia
May 3, 1999
PLEASE READ THE ATTACHED PROXY STATEMENT AND PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. YOU
CAN SPARE YOUR COMPANY THE EXPENSE OF FURTHER PROXY SOLICITATION BY RETURNING
YOUR PROXY CARD PROMPTLY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE THE
PROXY AND VOTE IN PERSON IF YOU SO DESIRE.
<PAGE> 4
LHS GROUP INC.
---------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 7, 1999
---------------------
This Proxy Statement is being furnished to the stockholders of LHS Group
Inc. ("LHS" or the "Company"), a Delaware corporation, in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
1999 Annual Meeting of Stockholders of the Company and at any adjournments
thereof (the "Annual Meeting"). The Annual Meeting will be held on Monday, June
7, 1999 at 9:00 a.m., local time, at The Westin Atlanta North at Perimeter,
Seven Concourse Parkway, Atlanta, Georgia.
The approximate date on which this Proxy Statement and the accompanying
proxy card are first being sent or given to stockholders is May 3, 1999.
VOTING
GENERAL
The securities that can be voted at the Annual Meeting consist of Common
Stock of the Company, $.01 par value per share (the "Common Stock"). Holders of
Common Stock are entitled to cast one vote for each share held on the record
date on each matter submitted to the stockholders at the Annual Meeting.
The record date for the determination of stockholders who are entitled to
receive notice of and to vote at the Annual Meeting has been fixed by the Board
of Directors as the close of business on April 23, 1999. On the record date,
52,974,055 shares of Common Stock were outstanding and eligible to be voted at
the Annual Meeting.
QUORUM AND VOTE REQUIRED
The presence of a majority of the outstanding shares of the Company's
Common Stock entitled to vote at the Annual Meeting, present in person or
represented by proxy, is necessary to constitute a quorum at the Annual Meeting.
In accordance with Delaware law (under which the Company is organized) and
the Company's Bylaws, directors will be elected by a plurality of the votes cast
at the Annual Meeting by the holders of Common Stock entitled to vote in the
election (Proposal 1), provided a quorum is present. As a result, shares that
are withheld from voting on the proposal will not be included in the vote totals
and will have no effect. With regard to Proposal 2, the affirmative vote of the
holders of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting and entitled to vote on the proposal
is required for approval. Abstentions will be included in the number of shares
present or represented and entitled to vote on each proposal, but broker
"non-votes," which occur when a nominee holding shares for a beneficial owner
votes on a proposal but is not entitled to vote on another proposal because the
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner with regard to such other proposal, will
not be so included. As a result, shares that are abstained from voting on
Proposal 2 will have the same effect as a vote against the proposal, but broker
non-votes will have no effect.
PROXIES
The accompanying proxy card is for use at the Annual Meeting if a
stockholder is unable to attend in person or is able to attend but does not wish
to vote in person. Stockholders should specify their choices with regard to each
proposal on the enclosed proxy card. All properly executed and dated proxy cards
delivered by stockholders to the Company in time to be voted at the Annual
Meeting and not revoked will be voted at the
<PAGE> 5
Annual Meeting in accordance with the instructions given. If no specific
instructions are given, the shares represented by a signed and dated proxy card
will be voted "FOR" the election of the two director nominees named in Proposal
1 and "FOR" the ratification of the directors' appointment of independent
auditors described in Proposal 2. If any other matters properly come before the
Annual Meeting, the persons named as proxies will vote upon such matters
according to their judgment. The Board of Directors is not aware of any other
business to be presented to a vote of the stockholders at the Annual Meeting.
The giving of a proxy does not affect the right to vote in person should
the stockholder attend the Annual Meeting. Any stockholder who has given a proxy
has the power to revoke it at any time before it is voted by giving written
notice of revocation to Scott A. Wharton, the Secretary of the Company, at Six
Concourse Parkway, Suite 2700, Atlanta, Georgia 30328, by executing and
delivering to Mr. Wharton a proxy card bearing a later date, or by voting in
person at the Annual Meeting. If a stockholder is not attending the Annual
Meeting, any proxy or notice should be returned in time for receipt no later
than the close of business on the day preceding the Annual Meeting.
In addition to soliciting proxies directly, the Company has requested
brokerage firms, nominees, custodians and fiduciaries to forward proxy materials
to the beneficial owners of shares held of record by them. The Company also may
solicit proxies through its directors, officers and employees in person and by
telephone and facsimile, without payment of additional compensation to such
persons. All expenses incurred in connection with the solicitation of proxies
will be borne by the Company.
STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1999, by (a) each person
who is known by the Company to own more than 5% of the Company's Common Stock,
(b) each director and nominee for director, (c) each executive officer named in
the Summary Compensation Table herein and (d) all directors and executives
officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNED(1)(2)
------------------------------------ ------------ -----------
<S> <C> <C>
5% STOCKHOLDERS
General Atlantic Partners, LLC(3)........................... 8,161,343 15.4%
Dr. Joachim Hertel(4)....................................... 4,269,740 8.0%
DIRECTORS
Hartmut Lademacher(5)....................................... 19,541,644 36.9%
William O. Grabe(3)......................................... 8,314,578 15.7%
William E. Ford(3).......................................... 8,271,343 15.6%
Ulf Bohla(6)................................................ 60,000 *
Jerry W. Braxton(7)......................................... 150,477 *
Dr. Wolf Gaede(8)........................................... 357,786 *
George F. Schmitt(9)........................................ 67,280 *
OTHER NAMED EXECUTIVE OFFICERS
Dr. Hansjorg Beha(9)........................................ 76,875 *
Erik Froberg(9)............................................. 175,000 *
Bruce T. Leonard(9)......................................... 112,500 *
All executive officers and directors as a group (9
persons)(10).............................................. 24,650,902 46.0%
</TABLE>
- ---------------
* Less than one percent (1%).
(1) The persons and entities named in the table have sole voting and investment
power with regard to all shares shown as beneficially owned by them, except
as noted below. Information is as of March 31, 1999 unless otherwise
indicated. Pursuant to the rules of the Securities and Exchange Commission,
the number of shares of Common Stock beneficially owned by a specified
person or group includes shares issuable pursuant to convertible
securities, warrants and options held by such person or group which may
2
<PAGE> 6
be converted or exercised within 60 days after March 31, 1999. Such shares
are deemed to be outstanding for the purpose of computing the percentage of
the class beneficially owned by such person or group but are not deemed to
be outstanding for the purpose of computing the percentage of the class
owned by any other person or group.
(2) Based on 52,973,318 shares of Common Stock outstanding as of March 31,
1999.
(3) Includes (a) 4,941,006 shares of common stock held by General Atlantic
Partners 23, L.P. ("GAP 23"), (b) 2,040,931 shares of common stock held by
General Atlantic Partners 31, L.P. ("GAP 31"), (c) 1,179,406 shares of
common stock owned by GAP Coinvestment Partners, L.P. ("GAP Coinvestment"),
(d) 10,000 shares of common stock and options to purchase an additional
100,000 shares of common stock held by Mr. Ford, and (e) 91,235 shares of
common stock held by Mr. Grabe and 6,000 shares of common stock held by
each of Mr. Grabe's two minor children. We refer to GAP 23, GAP 31 and GAP
Coinvestment as the "General Atlantic Stockholders." The general partner of
GAP 31 and GAP 23 is General Atlantic Partners, LLC ("GAP LLC"). The
managing members of GAP LLC are Steven A. Denning, David C. Hodgson, J.
Michael Cline, William O. Grabe, Peter L. Bloom, William E. Ford and
Franchon M. Smithson. The managing member of GAP LLC are the general
partners of GAP Coinvestment. Messrs. Ford and Grabe, directors of the
Company, are managing members of GAP LLC and general partners of GAP
Coinvestment. Mr. Ford and Mr. Grabe disclaim beneficial ownership of
shares owned by the General Atlantic Stockholders, except to the extent of
their respective pecuniary interests therein. The General Atlantic
Stockholders disclaim beneficial ownership of the shares of common stock
and options to purchase common stock held by Mr. Ford and the shares of
common stock held by Mr. Grabe and his minor children. The address for the
General Atlantic Stockholders, GAP LLC, Mr. Ford and Mr. Grabe is c/o of
General Atlantic Service Corporation, 3 Pickwick Plaza, Greenwich,
Connecticut 06830.
(4) The address for Dr. Hertel is 3913 Merriweather Woods, Alpharetta, Georgia
30022.
(5) Includes (a) options to purchase 114,064 shares of Common Stock and (b)
14,077,580 shares, the beneficial holders of which have granted to Mr.
Lademacher the right to vote such shares in his discretion. The voting
rights expire on December 31, 1999. The address of Mr. Lademacher is LHS
Group Inc., Six Concourse Parkway, Suite 2700, Atlanta, Georgia 30328.
(6) Includes options to purchase 60,000 shares of Common Stock.
(7) Includes options to purchase 146,477 shares of Common Stock.
(8) Includes options to purchase 137,786 shares of Common Stock. Dr. Gaede was
not an executive officer of the Company as of April 8, 1999.
(9) Consists of options to purchase shares of Common Stock. Dr. Beha, Mr.
Froberg and Mr. Leonard were not executive officers of the Company as of
March 31, 1999.
(10) Includes options to purchase 607,464 shares of Common Stock.
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
Pursuant to the Company's Certificate of Incorporation and Bylaws, the
authorized number of directors of the Company is seven, and the Board is divided
into three classes as nearly equal in number as possible. The directors in each
class are elected by the stockholders for a term of three years and until their
successors are elected and qualified. The term of office of one of the classes
of directors expires each year at the Annual Meeting of Stockholders, and a new
class of directors is elected by the stockholders each year at that time.
At the Annual Meeting, the terms of two directors, William O. Grabe and
George F. Schmitt, will expire, and the Board of Directors has nominated each of
these individuals to stand for re-election as directors at the Annual Meeting.
If elected by the stockholders, each of the nominees will serve as directors in
Class II for a three-year term which will expire at the Annual Meeting of
Stockholders in 2002. If either of the nominees should be unavailable to serve
for any reason (which is not anticipated), the Board of Directors may designate
a substitute nominee or nominees (in which case the persons named as proxies on
the enclosed proxy card will vote the shares represented by all valid proxy
cards for the election of such substitute nominee or nominees),
3
<PAGE> 7
allow the vacancy or vacancies to remain open until a suitable candidate or
candidates are located and nominated, or by resolution provide for a lesser
number of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE PROPOSAL TO RE-ELECT WILLIAM O. GRABE AND GEORGE F. SCHMITT AS DIRECTORS OF
THE COMPANY FOR A THREE-YEAR TERM EXPIRING AT THE ANNUAL MEETING OF STOCKHOLDERS
IN 2002 AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED.
INFORMATION REGARDING NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information regarding the two
nominees for director and the five incumbent directors whose terms as directors
will continue following the Annual Meeting.
<TABLE>
<S> <C>
CLASS II DIRECTORS NOMINATED TO SERVE UNTIL THE 2002 ANNUAL MEETING OF
STOCKHOLDERS
William O. Grabe Mr. Grabe, age 60, has been a director of the Company since
December 1995. Mr. Grabe is a managing member of GAP LLC
and has been with GAP LLC since April 1992. Prior to April
1992, Mr. Grabe was Corporate Vice President and General
Manager, Marketing & Services for IBM US. Mr. Grabe is a
director of Compuware Corporation, Marcam Solutions, Inc.,
Baan Company N.V and Coda Group Plc., all of which are
software companies, and is also a director of Gartner
Group, an information technology consulting company. He is
also a director of a number of privately held software
companies.
George F. Schmitt Mr. Schmitt, age 55, has been a director of the Company
since October 1996. He has served as President and as a
member of the Board of Directors of Omnipoint
Communications, Inc., a PCS carrier, since October 1995.
From November 1994 to September 1995, Mr. Schmitt was
President and Chief Executive Officer of PCS PrimeCo L.P.,
a PCS services provider formed by AirTouch Communications,
Bell Atlantic, NYNEX and U.S. West. From November 1993 to
November 1994, Mr. Schmitt was Executive Vice President of
International Operations of AirTouch Communications. From
January 1990 to March 1994, he served as Vice President of
Pacific Telesis Group, a predecessor of AirTouch
Communications. Mr. Schmitt is also a director of Objective
Systems Integrators, Inc. and Telesoft partners.
CLASS I DIRECTORS TO SERVE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS
Ulf Bohla Mr. Bohla, age 55, has been a director of the Company since
December 1995. He was Chairman of the Board of Vebacom
GmbH, a telecommunications service provider, from July 1994
through July 1998. He was General Manager of
Telecommunications and Vice President of International
Marketing Operations for IBM Deutschland from 1970 to 1994.
While with IBM, Mr. Bohla also acted as Director of the
North German Region.
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
Jerry W. Braxton Mr. Braxton, age 52, has served as the Company's Executive
Vice President, Chief Financial Officer and Treasurer since
August 1996 and as a director of the Company since
September 1996. Before joining LHS, Mr. Braxton served as
Chief Financial Officer of National Data Corporation, a
provider of transaction processing services and software
applications systems, from 1992 to 1996. From 1976 to 1992,
Mr. Braxton was employed by Contel Corporation, a
telecommunications services provider, where he last served
as Vice President/Controller and Treasurer.
CLASS III DIRECTORS TO SERVE UNTIL THE 2000 ANNUAL MEETING OF STOCKHOLDERS
William E. Ford Mr. Ford, age 37, has been a director of the Company since
December 1995. Mr. Ford is a managing member of GAP LLC and
has been with GAP LLC since July 1991. From August 1987 to
July 1991, Mr. Ford was an associate with Morgan Stanley &
Co. Incorporated. Mr. Ford is also a director of E* Trade
Group, an electronic discount brokerage company, Envoy
Corporation, a health insurance claims processing company,
and GT Interactive, Mapics, Inc., and SS&C Technologies,
all of which are software companies.
Dr. Wolf J. Gaede Dr. Gaede, age 42, has been a director of the Company since
September 1996 and served the Company as Executive Vice
President and General Counsel from January 1997 through
March 1999, and as Secretary through November 1998. From
1991 to January 1997, Dr. Gaede was a partner with the
German law firm of Oppenhoff & Radler. From 1989 to 1991,
Dr. Gaede served with the law firm of Fischotter & Luther
in Hamburg, Germany and the law firm of Fulbright,
Jaworski, Reavis & McGrath in New York, New York. From 1986
to 1989, Dr. Gaede acted as Adjunct Professor at the
University of Hamburg, Germany.
Hartmut Lademacher Mr. Lademacher, age 50, is one of the founders of the
Company and has served as Chairman of the Board and Chief
Executive Officer since the Company's inception in October
1990. From 1973 to October 1990, Mr. Lademacher was
employed by IBM in Germany where he last served as Manager
of Project Marketing.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company conducts its business through
meetings of the full Board and through committees of the Board, including an
Audit Committee (the "Audit Committee") and a Compensation Committee (the
"Compensation Committee"). During the Company's fiscal year ended December 31,
1998, the Board of Directors held four meetings, the Compensation Committee held
one meeting and the Audit Committee held two meetings. Each director attended at
least 75% of all meetings of the Board of Directors, including the meetings of
the committees of the Board of Directors.
The Audit Committee is responsible for reviewing and making recommendations
regarding the Company's independent auditors, the annual audit of the Company's
financial statements and the Company's internal accounting practices and
policies. The Audit Committee is comprised of William E. Ford, who serves as
Chairman of the Committee, and George F. Schmitt.
The Compensation Committee approves compensation arrangements for officers
and key employees of the Company, establishes general levels of compensation for
all other employees of the Company, and administers the Company's Stock
Incentive Plan. The Compensation Committee is comprised of William O. Grabe, who
serves as Chairman of the Committee, and Ulf Bohla.
5
<PAGE> 9
The Board of Directors as a whole functions as a nominating committee to
select management's nominees for election to the Board. The Board of Directors
will also consider nominees recommended by stockholders. For a description of
requirements regarding stockholder nominations and other proposals, see
"Stockholders' Proposals for the 2000 Annual Meeting."
DIRECTOR COMPENSATION
Directors do not receive cash retainers or fees for attendance at meetings
of the Board of Directors or committees of the Board but are reimbursed for
reasonable expenses incurred by them in connection with their attendance at
Board and committee meetings.
In lieu of cash compensation, the Company in 1996 granted non-qualified
options to purchase 100,000 shares of Common Stock to each of the seven
directors of the Company. The exercise price of all options held by current
directors is $2.65 per share, and these options expire in 2006. These options
are immediately exercisable into non-vested restricted shares of Common Stock,
or vest at the rate of 25% one year from the date of the option grant and 1.56%
on the monthly anniversary of the grant date in each of the succeeding 48
months. The restrictions on 25% of the restricted shares lapse one year from the
date of the option grant, and the restrictions on 1.56% of the shares lapse on
the monthly anniversary of the grant date in each of the succeeding 48 months.
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth the compensation for 1998 earned by the
Chief Executive Officer of the Company and the four other most highly
compensated (in terms of salary and bonus) executive officers of the Company
(collectively, the "Named Executive Officers").
SUMMARY OF COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- -----------------
OTHER ANNUAL SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS (#)
- --------------------------- -------- ------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Hartmut Lademacher...................... 1998 $540,000 -- $60,118(1) --
Chairman of the Board and 1997 519,233 -- 108,168(1) --
Chief Executive Officer 1996 353,870 -- 58,341(2) 400,000
Jerry W. Braxton(3)..................... 1998 250,000 -- 12,300(4) --
Executive Vice President, Chief 1997 250,000 -- -- --
Financial Officer and Treasurer
Dr. Hansjorg Beha(5).................... 1998 215,000 -- 31,486(6) --
Erik Froberg(7)......................... 1998 300,000 -- 17,385(8) --
1997 288,469 -- 66,213(8) --
1996 124,594 $37,378 37,871 800,000
Dr. Wolf J. Gaede(9).................... 1998 350,000 -- 12,300(10) --
1997 350,000 -- 64,884(10) --
Bruce T. Leonard(11).................... 1998 200,000 -- -- --
</TABLE>
- ---------------
(1) Consists of allowances for personal use of a Company-provided automobile in
both the United States and Europe of $58,387 and $56,177 in 1998 and 1997,
respectively, and for personal transportation of and $21,062 in 1997,
tuition reimbursement for Mr. Lademacher's children of $17,702 in 1997,
deferred compensation of $11,496 in 1997, and premiums for life insurance
of $1,731 and $1,731 in 1998 and 1997, respectively.
(2) Represents the value of personal use of a Company-provided automobile in
both the United States and Europe.
(3) Mr. Braxton's employment with the Company commenced on August 28, 1996.
(4) Consists of allowance for personal use of a Company-provided automobile.
(5) Dr. Beha resigned from his position as Executive Vice President-Technology
effective March 29, 1999.
(6) Consists of allowances for expenses of $22,486 incurred in connection with
Dr. Beha's relocation from Germany to the United States and $9,000 for
personal use of a Company-provided automobile.
(7) Mr. Froberg's employment with the Company commenced on August 12, 1996. Mr.
Froberg resigned from his position as Executive Vice President of the
Company effective February 17, 1999.
(8) Consists of allowances for personal transportation of $43,270 in 1997, and
for personal use of a Company-provided automobile of $11,000 and $22,250 in
1998 and 1997, respectively, premiums for life insurance of $692 in 1997
and $6,385 tuition reimbursement for Mr. Froberg's children in 1998.
(9) Dr. Gaede's employment with the Company commenced on January 1, 1997, and
Dr. Gaede became a member of the Board of Directors of the Company on
September 17, 1996. Dr. Gaede served the Company as Executive Vice
President and General Counsel during 1998. Effective April 8, 1999, Dr.
Gaede's employment with the Company was terminated by the Company's Board
of Directors.
(10) Consists of allowances for expenses of $50,000 incurred in connection with
Dr. Gaede's relocation from Germany to the United States in 1997, for
personal use of a Company-provided automobile of $12,300 in 1998 and 1997,
respectively, and for personal transportation of $2,584 in 1997.
(11) Mr. Leonard resigned from his position as President of the Company
effective August 31, 1998.
7
<PAGE> 11
EMPLOYMENT AGREEMENTS
Jerry Braxton, Executive Vice President, Chief Financial Officer and
Treasurer of the Company, entered into an employment agreement with the Company
on August 28, 1996. The agreement provides for base compensation of $175,000 per
year, which amount is reviewed annually by the Board of Directors or a committee
thereof based on its assessment of Mr. Braxton's performance, and was
subsequently increased to $250,000 per year effective as of November 1, 1996.
The agreement also provides for an annual performance bonus of up to $50,000 and
options to purchase 200,000 shares of Common Stock at $5.30 per share, which
options vest rateably over a five year period. The agreement with Mr. Braxton
may be terminated by either Mr. Braxton or the Company upon 90 days notice.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options to the Named Executive Officers
during the fiscal year ended December 31, 1998.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information regarding (a) the number of
shares of Common Stock received upon exercise of options by the Named Executive
Officers in the fiscal year ended December 31, 1998, (b) the net value realized
upon such exercise, (c) the number of unexercised options held as of December
31, 1998 and (d) the aggregate dollar value of unexercised options held at
December 31, 1998.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES UNDER- IN-THE-MONEY
LYING UNEXERCISED OPTIONS OPTIONS AT
SHARES AT DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(1)
ACQUIRED VALUE --------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------------- ----------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Hartmut Lademacher...... 44,686 $2,548,992 43,751/201,563 $ 2,142,705/$9,871,547
Jerry W. Braxton........ 134,000 $6,822,802 50,170/179,830 $ 2,457,076/$8,807,174
Dr. Hansjorg Beha....... 120,000 $2,880,844 30,000/450,000 $ 877,500/$19,162,500
Erik Froberg............ 247,500 $8,542,497 112,500/400,000 $5,509,688/$11,590,000
Dr. Wolf J. Gaede....... 193,605 $8,139,783 52,132/154,263 $ 2,553,165/$7,555,000
Bruce T. Leonard........ 200,000 $5,743,752 50,000/550,000 $1,393,750/$15,331,250
</TABLE>
- ---------------
(1) Value is based on the difference between the option exercise price and the
fair market value of $51.625 per share at December 31, 1998 multiplied by
the number of shares underlying the option.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
INTRODUCTION
The Compensation Committee is responsible for developing the Company's
executive compensation policies and advising the Board of Directors with respect
to such policies. In April 1997, the members of the Compensation Committee,
William O. Grabe, who serves as Chairman of the Compensation Committee, and Ulf
Bohla, were appointed. Prior to the establishment of the Compensation Committee,
all matters regarding executive compensation were addressed by the entire Board
of Directors. The Compensation Committee's goal is to implement a competitive
compensation program which will attract and retain talented executives and
provide incentives to management to enhance Company performance and stockholder
value.
8
<PAGE> 12
COMPENSATION POLICIES
The Committee establishes compensation according to the following guiding
principles:
(a) Compensation should be directly linked to the Company's operating
and financial performance.
(b) Total compensation should be competitive when compared to
compensation levels of executives of companies against which the Company
competes for management.
(c) Performance-related pay should be a significant component of total
compensation, placing a substantial portion of an executive's compensation
at risk.
COMPENSATION PRACTICES
Compensation for executives includes base salary, annual bonuses and
long-term incentive awards. Consistent with the above principles, a substantial
proportion of executive compensation depends on Company performance and on
enhancing stockholder value.
Base Salary. The Company uses externally-developed compensation surveys to
assign a competitive salary range to each salaried position, including executive
positions. The Committee sets actual base salary levels for the Company's
executives based on recommendations by management. The Committee bases its
decisions on the executive's performance, the executive's position in the salary
range and the executive's experience.
Annual Bonus. The Company employs a formal system for developing measures
of and evaluating executive performance. Bonuses are determined with reference
to quantitative measures established by the Committee each year. Each of these
factors is weighted. At the beginning of each year, the Committee also approves
performance targets relating to the quantitative measures that, if achieved,
will establish a bonus pool equal to the sum of the individual target bonuses
for all executives. The Committee also establishes performance targets that
could result in a range of bonus payouts from a minimum of zero to a maximum
bonus payout of 150% of target bonus. At the end of the year, Company
performance, as compared to the quantitative measures described above,
determines the bonus pool for the executive group. Target bonuses for individual
executives are in the range of 25% to 60% of base salary. The Committee retains
the discretion to adjust any individual bonus if deemed appropriate.
In 1998, the quantitative measures for bonus payments were revenue and
earnings before interest and taxes ("EBIT"). The maximum possible bonus payout
was 150% of target.
Although the Company's performance in fiscal 1998, with revenue above
target and EBIT above target, satisfied the quantitative measures designated to
fund bonuses at the maximum level, the Committee decided not to award bonuses to
the Company's executives in part due to the performance of the Company's Common
Stock and the corresponding value of stock options previously granted to
executives and in part to reward non-executive management and other professional
employees with greater incentive bonuses.
For 1999, the Committee determined that the quantitative measure for bonus
payments would remain revenue and EBIT and that the maximum possible bonus
payout would be 150% of target.
Long-Term Incentives. Long-term incentives are designed to link management
reward with the long-term interests of the Company's stockholders. Currently,
the Committee grants stock options as long-term incentives. Individual stock
option awards are based on level of responsibility, the Company's stock
ownership objectives for management and the Company's performance versus certain
financial performance objectives. Currently, the Committee anticipates annual
option grants to the eligible employee group of less than 4% of the outstanding
Common Stock, which would include option grants to be used by the Company in
recruiting senior management. The Company's long-term performance ultimately
determines the level of compensation resulting from stock options, since stock
option value is entirely dependent on the long-term growth of the Common Stock
price.
9
<PAGE> 13
CHIEF EXECUTIVE OFFICER COMPENSATION
Hartmut Lademacher, Chairman of the Board and Chief Executive Officer of
the Company, has an employment agreement with LHS with a stated term of three
years that began on January 1, 1997, but may be terminated at any time by either
party upon 90 days notice to the other party. The agreement provides for salary
in 1997 of $540,000 for Mr. Lademacher, which salary is to be adjusted annually
by the Board of Directors or a committee thereof based on its assessment of Mr.
Lademacher's performance. The agreement does not provide for any bonus
compensation and, despite Mr. Lademacher's continuing contribution to the
success of the Company, the Compensation Committee does not currently intend to
award Mr. Lademacher with any bonus compensation in the future. The employment
agreement further provides that LHS will provide Mr. Lademacher with an
automobile, pay for disability insurance and otherwise allow Mr. Lademacher to
participate in all benefit programs offered by the Company. The agreement also
contains covenants relating to (i) the non-disclosure of confidential
information; (ii) the protection of inventions and other developments; (iii) the
non-solicitation of customers; and (iv) the non-recruitment of the Company's
employees.
POLICY WITH RESPECT TO DEDUCTIBILITY OF COMPENSATION EXPENSE
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the tax deduction that the Company may take with respect to the
compensation of certain executive officers, unless the compensation is
"performance based" as defined in the Code. The LHS Group Inc. Stock Incentive
Plan is designed to comply with the Internal Revenue Service ("IRS")
requirements for deductibility of performance-based compensation.
CONCLUSION
The Company's compensation program described above is designed to closely
link pay with performance and the creation of stockholder value. The
Compensation Committee believes that the program has been and will continue to
be successful in supporting the Company's financial, growth and other business
objectives.
COMPENSATION COMMITTEE
William O. Grabe, Chairman
Ulf Bohla
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee is comprised of William O. Grabe, who serves as
the Chairman of the Committee, and Ulf Bohla. There were no compensation
committee interlocks during 1998.
10
<PAGE> 14
CERTAIN TRANSACTIONS
A subsidiary of the Company leases office space in Frankfurt, Germany from
a corporation that is owned in part by Hartmut Lademacher (25%) and Dr. Joachim
Hertel (25%). During the fiscal year ended December 31, 1998, the Company made
lease payments totaling $316,000 to this corporation.
In connection with the E-Plus project in Dusseldorf, Germany, a subsidiary
of the Company leases housing space for certain of its employees. This space is
owned by a partnership in which Hartmut Lademacher and Dr. Joachim Hertel are
one-third partners. During the fiscal year ended December 31, 1998, the Company
made lease payments of approximately $66,000 to the partnership.
During 1998, the Company paid $103,000 to H.L. Aircraft Leasing Company for
the use of its aircraft. Hartmut Lademacher is the sole proprietor of H.L.
Aircraft Leasing Company.
The Company believes that each of the above transactions was on terms no
less favorable to the Company than could have been obtained from unaffiliated
third parties on an arm's-length basis. The Company has adopted a policy
requiring that all transactions between the Company and its officers, directors
or other affiliates, or entities in which such person has an interest, must be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties on an arm's-length basis and must be approved in
advance by a majority of the Company's directors who have no interest in the
transaction.
11
<PAGE> 15
STOCK PERFORMANCE GRAPH*
The Company's Common Stock began trading on the Nasdaq National Market on
May 16, 1997 in connection with the Company's initial public offering. The price
information reflected for the Common Stock in the following performance graph
represents the closing sales price of the Common Stock for the period from May
16, 1997 through December 31, 1998. The performance graph compares the
cumulative stockholder returns on the Common Stock with the S&P 500 Index and a
Peer Index (as described below) over the same period (assuming the investment of
$100 in the Company's Common Stock, the S&P 500 Index and the Peer Index on May
16, 1997, and reinvestment of all dividends).
<TABLE>
<CAPTION>
Measurement Period LHS Group S&P Group S&P 500
(Fiscal Year Covered) Inc. Index Index
<S> <C> <C> <C>
05/16/97 100.00 100.00 100.00
06/30/97 227.60 101.85 104.48
09/30/97 238.96 110.68 112.31
12/31/97 310.39 104.21 115.53
03/31/98 478.90 139.63 131.65
06/30/98 684.42 157.96 135.99
09/30/98 504.55 152.42 122.46
12/31/98 536.36 188.62 148.55
</TABLE>
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
LHS GROUP INC............................................... 310% 536%
THE S&P 500 INDEX........................................... 116% 149%
PEER INDEX.................................................. 105% 189%
</TABLE>
Total return calculations for the S&P 500 Index and the Peer Index were
prepared by Media General Financial Services. The Peer Index is composed of the
stocks of certain companies included in the Nasdaq Computer and Data Processing
Index. Specific information regarding the companies comprising the Peer Index
will be provided to any stockholder upon request to Scott A. Wharton, the
Secretary of the Company.
- ---------------
* This graph is not "soliciting material," is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference
in any filing of the Company under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language in any
such filing. The stock price performance shown on this graph is not
necessarily indicative of future price performance. Information used on the
graph was obtained from Media General Financial Services, a source believed to
be reliable, but the Company is not responsible for any errors or omissions in
such information.
12
<PAGE> 16
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities and Exchange Commission thereunder require the
Company's directors and executive officers and any persons who beneficially own
more than 10% of the Common Stock, as well as certain affiliates of such
persons, to file initial reports of their ownership of the common Stock and
subsequent reports of changes in such ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. Directors,
executive officers and persons beneficially owning more than 10% of the Common
Stock are required by applicable regulations to furnish the Company with copies
of all Section 16(a) reports they file. Based solely on its review of the copies
of such reports received by it and written representations that no other reports
were required of those persons, the Company believes that during the fiscal year
ended December 31, 1998, all of its directors, executive officers and beneficial
owners of more than 10% of the Common Stock compiled with applicable Section
16(a) filing requirements.
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Ernst & Young LLP to serve
as independent accountants of the Company for the fiscal year ending December
31, 1999. The Board has directed that such appointment be submitted to the
stockholders of the Company for ratification at the Annual Meeting. Ernst &
Young LLP has served as independent accountants of the Company since 1995 and is
considered by management of the Company to be well qualified. If the
stockholders do not ratify the appointment of Ernst & Young LLP, the Board of
Directors will reconsider the appointment.
Representatives of Ernst & Young LLP will be present at the Annual Meeting.
They will have an opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
STOCKHOLDERS' PROPOSALS FOR THE 2000 ANNUAL MEETING
Nominations by stockholders of persons for election as directors and other
proposals of stockholders intended to be presented at the 2000 Annual Meeting of
Stockholders, together with certain related information specified in Rule 14a-8
of the Securities and Exchange Commission, must be submitted in writing to the
Company on or before December 31, 1999 in order for such matters to be included
in the Company's proxy materials for the 2000 Annual Meeting. All such
proposals, nominations and related information should be submitted on or before
such date by certified mail, return receipt requested, to Scott A. Wharton, the
Secretary of the Company, Six Concourse Parkway, Suite 2700, Atlanta, Georgia
30328. Nominations and other proposals of Stockholders that are submitted to the
Company after such date may not be submitted for action by the Company's
Stockholders at the 2000 Annual Meeting.
13
<PAGE> 17
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors of the Company knows of no matters other than those
referred to in the accompanying Notice of Annual Meeting of Stockholders which
may properly come before the Annual Meeting. However, if any other matter should
be properly presented for consideration and voting at the Annual Meeting or any
adjournments thereof, it is the intention of the persons named as proxies on the
enclosed form of proxy card to vote the shares represented by all valid proxy
cards in accordance with their judgment of what is in the best interest of the
Company.
By Order of the Board of Directors.
/s/ SCOTT A. WHARTON
Scott A. Wharton
Secretary
Atlanta, Georgia
May 3, 1999
---------------------
The Company's 1998 Annual Report, which includes audited financial
statements, has been mailed to stockholders of the Company with these proxy
materials. Such materials do not form any part of the material for the
solicitation of proxies.
14
<PAGE> 18
PROXY LHS GROUP INC.
ATLANTA, GEORGIA
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of LHS Group Inc. (the "Company"), Atlanta,
Georgia, hereby constitutes and appoints Hartmut Lademacher and Jerry W.
Braxton, or either one of them, each with full power of substitution, to vote
the number of shares of Common Stock that the undersigned would be entitled to
vote if personally present at the 1999 Annual Meeting of Stockholders to be held
on Monday, June 7, 1999 at 9:00 a.m. at The Westin Atlanta North at Perimeter,
Seven Concourse Parkway, Atlanta, Georgia, or at any adjournments thereof (the
"Annual Meeting"), upon the proposals (the "Proposals") described in the Notice
to the Holders of Common Stock of the Annual Meeting of Stockholders and Proxy
Statement, both dated May 3, 1999, the receipt of which is acknowledged, in the
manner specified below. The proxies, in their discretion, are further authorized
to vote on any stockholder proposals subsequently presented for a vote of the
stockholders at the Annual Meeting, as well as on the election of any person as
a director if a director nominee named herein is unable to serve or for good
cause will not serve, and on matters incident to the Annual Meeting and any
adjournments thereof. The Board of Directors recommends a vote FOR the
Proposals.
PROPOSAL 1 -- ELECTION OF DIRECTORS. On the Proposal to elect the following
directors in Class II to serve until the 2002 Annual Meeting of Stockholders of
the Company and until their successors are elected and qualified:
William O. Grabe
George F. Schmitt
FOR [ ] WITHHOLD AUTHORITY [ ]
To withhold authority for any individual nominee(s), write the name of the
nominee(s) in the space provided:
- --------------------------------------------------------------------------------
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS. On
the Proposal to ratify the appointment of Ernst & Young LLP to serve as
independent accountants of the Company for the fiscal year ending December 31,
1999:
FOR [ ] AGAINST [ ]
WITHHOLD AUTHORITY [ ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSALS AND WITH DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF. AT PRESENT
TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED TO A
VOTE OF THE STOCKHOLDERS AT THE ANNUAL MEETING.
Number of Shares Held:
------------------------------
------------------------------
Signature of Stockholder
------------------------------
Signature of Stockholder (If
held jointly)
Dated:------------------, 1999
Month Day
Please sign exactly as your
name appears on your stock
certificate and date. Where
shares are held jointly, each
stockholder should sign. When
signing as attorney, executor,
administrator, trustee, or
guardian, please give your
full title. If the holder is a
corporation, please sign in
full corporate name by the
president or other authorized
officer. If the holder is a
partnership, please sign in
full partnership name by an
authorized person.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF LHS GROUP INC.
AND MAY BE REVOKED BY THE STOCKHOLDER PRIOR TO ITS EXERCISE.
