<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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Affiliated Computer Services Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Affiliated Computer Services Inc.
- --------------------------------------------------------------------------------
(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>
PRELIMINARY PROXY MATERIALS
AFFILIATED COMPUTER SERVICES, INC.
2828 NORTH HASKELL AVENUE
DALLAS, TEXAS 75204
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1998
To the Stockholders of Affiliated Computer Services, Inc.:
The Annual Meeting of Stockholders of Affiliated Computer Services,
Inc. ("ACS" or the "Company") will be held at CityPlace, 2711 North Haskell
Avenue, Dallas, Texas 75204 on October 27, 1998 at 11:00 a.m. for the
following purposes:
1. To elect three directors to hold office for a three year term
and until their respective successors shall have been duly
elected and qualified;
2. To consider and vote upon the performance-based incentive
compensation for the Company's Executive Officers; and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on September
15, 1998 as the record date (the "Record Date") for the determination of
stockholders of the Company entitled to notice of, and to vote at, the Annual
Meeting of Stockholders (the "Annual Meeting"). Only stockholders of record
at the close of business on the Record Date are entitled to notice of and to
vote at the Annual Meeting. A holder of shares of the Company's Class A
Common Stock is entitled to one vote, in person or by proxy, for each share
of Class A Common Stock on all matters properly brought before the Annual
Meeting, and a holder of shares of the Company's Class B Common Stock will be
entitled to 10 votes, in person or by proxy, for each share of Class B Common
Stock on all matters properly brought before the Annual Meeting.
ALL HOLDERS OF THE COMPANY'S CLASS A COMMON STOCK AND CLASS B COMMON
STOCK (WHETHER THEY EXPECT TO ATTEND THE ANNUAL MEETING OR NOT) ARE REQUESTED
TO COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE PROXY CARD ENCLOSED WITH THIS
NOTICE.
By Order of the Board of Directors
David W. Black
SECRETARY
September __, 1998
1
<PAGE>
PRELIMINARY PROXY MATERIALS
AFFILIATED COMPUTER SERVICES, INC.
2828 NORTH HASKELL AVENUE
DALLAS, TEXAS 75204
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1998
GENERAL INFORMATION
This Proxy Statement is being furnished to stockholders of record of
Affiliated Computer Services, Inc., ("ACS" or the "Company") as of September
15, 1998 in connection with the solicitation by the Board of Directors of ACS
of proxies to be voted at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at CityPlace, 2711 North Haskell Avenue, Dallas, Texas
75204, on October 27, 1998, at 11:00 a.m., or at any adjournments thereof,
for the purposes stated in the Notice of Annual Meeting. The approximate date
of mailing this Proxy Statement and enclosed form of proxy to stockholders is
on or about September __, 1998.
RECORD DATE AND VOTING
The Board of Directors of ACS has fixed the close of business on
September 15, 1998 as the record date (the "Record Date") for the Annual
Meeting. Only holders of record of the outstanding shares of Class A Common
Stock and Class B Common Stock at the close of business on the Record Date
are entitled to notice of, and to vote at, the Annual Meeting or any
adjournments thereof. As of the close of business on the Record Date, the
Company had outstanding __________ shares of Class A Common Stock, $0.01 par
value, and _________ shares of Class B Common Stock, $0.01 par value
(collectively, the "Common Stock"). A holder of shares of Class A Common
Stock is entitled to one vote, in person or by proxy, for each share of Class
A Common Stock standing in his or her name on the books of ACS on the Record
Date on any matters properly presented to a vote of the Stockholders at the
Annual Meeting. A holder of shares of Class B Common Stock is entitled to 10
votes, in person or by proxy, for each share of Class B Common Stock standing
in his name on the books of ACS on the Record Date on any matter properly
presented to a vote of the stockholders at the Annual Meeting. The Class A
Common Stock and the Class B Common Stock are the only classes of stock
entitled to vote at the Annual Meeting. The presence, in person or by proxy,
of the holders of a majority of the issued and outstanding shares of Class A
Common Stock and Class B Common Stock entitled to vote at the Annual Meeting
or any adjournment thereof is necessary to constitute a quorum to transact
business. Abstentions are counted in tabulations of votes cast on proposals
submitted to stockholders to determine the total number of votes cast.
Abstentions are not counted as votes for or against any such proposal. Broker
nonvotes are not counted as votes cast for purposes of determining whether a
proposal has been approved.
VOTE REQUIRED
The affirmative vote of the holders of shares of Class A Common
Stock and Class B Common Stock, voting together as a class, having a
plurality of the voting power of the Company, in person or by proxy, is
required to elect directors. The affirmative vote of the holders of shares of
the Class A Common Stock and Class B Common Stock, voting together as a
class, having a majority of the voting power of the Company actually voting,
either in person or by proxy, at the Annual Meeting, is required to approve
Proposal 2, the proposal to approve the performance-based incentive
compensation for the Company's Executive Officers.
PROXY SOLICITATION, REVOCATION AND EXPENSES
All proxies that are properly completed, signed and returned prior
to the Annual Meeting will be voted as indicated on the proxy. If the
enclosed proxy is signed and returned, it may, nevertheless, be revoked at
any time prior to the voting thereof at the pleasure of the stockholder
signing it, either by (i) filing a written notice of
2
<PAGE>
revocation received by the person or persons named therein, (ii) the
stockholder attending the Annual Meeting and voting the shares covered
thereby in person, or (iii) delivering another duly executed proxy statement
dated subsequent to the date thereof to the addressee named in the enclosed
proxy.
Shares represented by duly executed proxies in the accompanying form
will be voted in accordance with the instructions indicated on such proxies,
and, if no such instructions are indicated thereon, will be voted in favor of
the nominees for election of directors named below, and in favor of the
proposal to approve the performance-based compensation for the Company's
executive officers. Abstentions, broker non-votes and proxies directing that
the shares are not to be voted will not be counted as a vote in favor of a
matter called for vote.
The cost of preparing, assembling, printing and mailing the Proxy
Statement and the enclosed proxy form and the cost of soliciting proxies
related to the Annual Meeting will be borne by the Company. The Company will
request banks and brokers to solicit their customers who are beneficial
owners of shares of Common Stock listed of record in names of nominees, and
will reimburse such banks and brokers for the reasonable out-of-pocket
expenses for such solicitation.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, certain
information with respect to the shares of Class A Common Stock and the Class
B Common Stock beneficially owned by stockholders known to the Company to own
more than 5% of the outstanding shares of such classes and the shares of
Class A Common Stock and Class B Common Stock beneficially owned by each of
the Company's directors and executive officers and by all the Company's
executive officers and directors as a group:
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF TOTAL
TOTAL PERCENT OF SHARES OF
AMOUNT AND SHARES OF AMOUNT AND TOTAL CLASS A
NATURE OF CLASS A NATURE OF SHARES OF AND CLASS B
BENEFICIAL COMMON BENEFICIAL CLASS B COMMON PERCENT OF
OWNERSHIP STOCK OWNERSHIP COMMON STOCK TOTAL
DIRECTORS AND EXECUTIVE OF CLASS A OWNED OF CLASS B STOCK OWNED OWNED VOTING
OFFICERS COMMON STOCK BENEFICIALLY COMMON STOCK BENEFICIALLY BENEFICIALLY POWER (1)
- ------------------------------- ------------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Darwin Deason (2) ............. 2,579,202 5.65% 3,299,686 100% 12.01% 45.23%
Jeffrey A. Rich (3) ........... 33,186 * - - * *
Mark A. King (4) .............. 45,529 * - - * *
Henry G. Hortenstine (5) ...... 591 * - - * *
David W. Black (6) ............ 5,254 * - - * *
Peter A. Bracken (7) .......... 143,010 * - - * *
Joseph P. O'Neill ............. 23,810 * - - * *
Frank A. Rossi ................ 5,000 * - - * *
Clifford M. Kendall (8) ....... 474,960 * - - * *
All Executive Officers and
Directors as a Group (10
persons) (9) ................ 3,328,437 7.29% 3,299,686 100% 13.54% 46.18%
BENEFICIAL OWNERS OF MORE THAN 5% OF THE COMPANY'S STOCK (10)
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116 ........... 5,369,000 11.76% - - 10.97% 6.83%
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202 ........ 4,579,500 10.03% - - 9.35% 5.82%
Fidelity Financial Services
14651 Dallas Parkway
Suite 200
Dallas, TX 75240 ........... 3,477,000 7.62% - - 7.10% 4.42%
Putnam Investments
1 Post Office Square
Boston, MA 02109 ........... 3,178,000 6.96% - - 6.49% 4.04%
</TABLE>
- ----------------------
* Less than 1%.
4
<PAGE>
(1) In calculating the percent of total voting power, the voting power of
shares of Class A Common Stock (one vote per share) and Class B Common
Stock (ten votes per share) is aggregated.
(2) 2,488,397 of the shares of ACS Class A Common Stock listed are owned by The
Deason International Trust (the "Trust"), and 72,728 of the shares of ACS
Class A Common Stock are owned by the Deason Foundation (the "Foundation").
Mr. Deason holds the sole voting power with respect to such shares through
an irrevocable proxy granted by the Trust and a board resolution passed by
the Foundation. The investment power with respect to such shares is
held by the Trust and the Foundation. The shares of ACS Class A Common
Stock include 7,310 shares owned by Mr. Deason's spouse and spouse's
daughter, to which Mr. Deason disclaims beneficial ownership.
(3) Includes 28,186 shares of Class A Common Stock issuable pursuant to options
that are currently exercisable.
(4) Includes 4,679 shares of ACS Class A Common Stock owned by Mr. King's
spouse, to which Mr. King disclaims beneficial ownership; 894 shares of ACS
Class A Common Stock contained in the ACS 401(k) Plan, and 1,823 shares of
ACS Class A Common Stock granted to Mr. King under the ACS Employee Stock
Purchase Plan.
(5) Represents shares owned under the ACS Employee Stock Purchase Plan.
(6) Includes 254 shares of Class A Common Stock contained in the ACS 401(k)
Plan.
(7) Includes 80,360 shares of Class A Common Stock not outstanding but subject
to currently exercisable options; 1,759 shares of Class A Common Stock
owned by Mr. Bracken's spouse, as to which Mr. Bracken disclaims beneficial
ownership and 531 shares of Class A Common Stock acquired under the ACS
Employee Stock Purchase Plan.
(8) Includes 183,105 shares of ACS Class A Common Stock owned by Mr. Kendall's
spouse, as to which Mr. Kendall disclaims beneficial ownership; 52,770
shares of Class A Common Stock issuable pursuant to options that are
currently exercisable and 2,409 shares owned by Mr. Kendall in an
individual retirement account.
(9) Includes 161,316 shares of ACS Class A Common Stock issuable pursuant to
options that are currently exercisable; 1,148 shares of ACS Class A Common
Stock owned through the ACS 401(k) Plan; and 3,814 shares of ACS Class A
Common Stock granted under the ACS Employee Stock Purchase Plan.
(10) Based on filings by the stockholder with the Securities and Exchange
Commission.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is comprised of nine directors, divided into
three classes. Messrs. Deason and Rich are in the class whose terms expire in
2000; Messrs. Hortenstine, O'Neill, Rossi and Kendall are in the class whose
terms expire in 1999. The third class of directors, each of whom currently
serves on the Board of Directors and is up for election at this Annual
Meeting, is comprised of Messrs. King, Black and Bracken. All directors serve
until their respective successors are duly elected and qualified.
Shares represented by proxies returned duly executed will be voted,
unless otherwise specified, in favor of the three nominees for the Board of
Directors named below. The proxies cannot be voted for more than three
nominees. The nominees have indicated that they are able and willing to serve
as directors. If any (or all) such persons should be unable to serve, the
persons named in the enclosed proxy will vote the shares covered thereby for
such substitute nominee (or nominees) as the Board of Directors may select.
Stockholders may withhold authority to vote for any nominee by entering the
name of such nominee in the space provided for such purpose on the proxy card.
NOMINEES FOR ELECTION AS DIRECTOR; CONTINUING DIRECTORS
The following table lists the name and principal occupation of each
nominee and each continuing director, and the year in which each such person
was first elected as a director of ACS.
<TABLE>
<CAPTION>
Served as
Director
Name Principal Occupation Since
------------------ --------------------------------------------------------- ---------
<S> <C> <C>
Darwin Deason Chairman of the Board and Chief Executive Officer 1988
Jeffrey A. Rich President and Chief Operating Officer 1991
Mark A. King* Executive Vice President and Chief Financial Officer 1996
David W. Black* Executive Vice President, Secretary and General Counsel 1995
Henry Hortenstine Executive Vice President; Group President of ACS 1996
Technology Solutions Group
Peter A. Bracken* Executive Vice President; Group President of ACS 1997
Government Solutions Group, Inc.
Joseph P. O'Neill President and Chief Executive Officer, Public Strategies 1994
Washington, Inc.
Frank A. Rossi Chairman, FAR Holdings Company, L.L.C. 1994
Clifford M. Kendall Private Investor 1997
</TABLE>
*Nominee for election as director at this year's Annual Meeting.
BUSINESS EXPERIENCE OF NOMINEES AND CONTINUING DIRECTORS
Set forth below is certain information with respect to each of the
directors, both nominees as well as continuing directors.
DARWIN DEASON, age 58, has served as Chairman of the Board and Chief
Executive Officer of the Company since its formation in 1988. Prior to the
formation of the Company, Mr. Deason spent 20 years with MTech Corp
("MTech"), a data processing subsidiary of MCorp, a bank holding corporation
based in Dallas, Texas ("MCorp"), serving as MTech's Chief Executive Officer
and Chairman of the Board from 1978 until April 1988, and served on the board
of various subsidiaries of MTech and MCorp. Prior to that, Mr. Deason was
employed in the data processing department of Gulf Oil in Tulsa, Oklahoma.
Mr. Deason has over 30 years of experience in the information technology
industry. Mr. Deason is also a director of Precept Business Services, Inc.
6
<PAGE>
("Precept"), an affiliate of ACS and a publicly traded company, where he is
Chairman of the Board and has voting control.
JEFFREY A. RICH, age 38, has served as President and Chief Operating
Officer of the Company since April 1995 and as a director since August 1991.
Mr. Rich joined the Company in 1989 as Senior Vice President and Chief
Financial Officer and was named Executive Vice President in 1991. Prior to
joining the Company, Mr. Rich served as a Vice President of Citibank N.A.
from March 1986 through June 1989, and also served as an Assistant Vice
President of Interfirst Bank Dallas, N.A. from 1982 until March 1986.
MARK A. KING, age 41, has served as Executive Vice President and
Chief Financial Officer since May 1995 and as a director since May 1996. Mr.
King joined the Company in November 1988 as Chief Financial Officer of
various ACS subsidiaries. Prior to joining the Company, Mr. King was Vice
President and Assistant Controller of MTech. Mr. King has over 19 years of
finance and accounting experience, including over 10 years of experience with
the data processing industry.
DAVID W. BLACK, age 36, has served as Executive Vice President,
Secretary and General Counsel and as a director of the Company since May
1995. Mr. Black joined the Company in February 1995 as Associate General
Counsel. Prior to that time, Mr. Black was an attorney engaged in private
practice in Dallas from 1986 through January 1995.
HENRY G. HORTENSTINE, age 54, has served as Executive Vice President
of the Company since March 1995, as Group President of ACS Technology
Solutions Group since April 1998 and as a director since September 1996.
Prior to that time, he served as Senior Vice President - Business Development
from July 1993 to March 1995. Mr. Hortenstine was engaged by the Company as a
consultant providing various business and corporate development services from
1990 to July 1993. Prior to that, he was Senior Executive Vice President of
Lomas Mortgage USA, a subsidiary of Lomas Financial Corporation, from 1987 to
1989.
PETER A. BRACKEN, age 57, joined Computer Data Solutions, Inc. (now
known as ACS Government Solutions, Inc. ("Government Solutions")) in May 1996
as Chief Executive Officer and President and has served as Group President of
Government Solutions since April 1998. From 1986 to 1996, Mr. Bracken was
employed by Martin Marietta Corporation (now Lockheed Martin Corporation),
most recently as President of the Information Sciences Group. Before joining
Martin Marietta in 1986, Mr. Bracken served as Director of Mission Operation
and Data Systems for NASA's Goddard Space Flight Center. At the time of the
acquisition of ACS of Government Solutions by a merger in December 1997
("Government Solutions Merger"), Mr. Bracken became an Executive Vice
President and ACS director.
JOSEPH P. O'NEILL, age 51, has served as a director of the Company
since November 1994 and also serves as a consultant to the Company. Mr.
O'Neill has served as President and Chief Executive Officer of Public
Strategies Washington, Inc., a public affairs and consulting firm, since
March 1991, and from 1985 through February 1991, served as President of the
National Retail Federation, a national association representing United States
retailers. Mr. O'Neill also is a director of Careerstaff, Inc.
FRANK A. ROSSI, age 61, has served as a director of the Company
since November 1994 and also serves as a consultant to the Company. Mr. Rossi
has served as Chairman of FAR Holdings Company, L.L.C., a private investment
firm, since February 1994, and before that was employed by Arthur Andersen &
Co. for over 35 years. Mr. Rossi served in a variety of capacities for Arthur
Andersen since 1959, including Managing Partner/Chief Operating Officer and
as a member of the firm's Board of Partners and Executive Committee.
CLIFFORD M. KENDALL, age 67, had been with Government Solutions
since the founding of its predecessor in 1968 until the Government Solutions
Merger and is currently Chairman of Government Solutions' Advisory Board of
Directors. At the time of the Government Solutions Merger in December 1997,
Mr. Kendall became an ACS director. From 1970 to 1988, Mr. Kendall served as
Chairman of the Board, President and Chief Executive Officer of Government
Solutions. He served as Government Solution's Chairman and Chief Executive
Officer from 1988 to 1991 and as Chairman from 1991 until the Government
Solutions Merger in 1997. Mr. Kendall also currently serves as the Chairman
of the Board of Objective Communications, Inc.
7
<PAGE>
Except as set forth above, none of the nominees holds a directorship
in any company with a class of securities registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
subject to the requirements of Section 15(d) of the Exchange Act or any
company registered as an investment company under the Investment Company Act
of 1940, as amended.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES FOR DIRECTOR
SET FORTH ABOVE.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors are the Audit
Committee, the Compensation Committee, the Special Compensation Committee,
the Independent Directors Committee and the Special Transactions Committee.
The Board of Directors does not have a standing nominating committee. The
Audit Committee is composed of Messrs. Rossi (Chairman), O'Neill and Kendall.
The Audit Committee was formed in 1994 and given general responsibility for
meeting periodically with representatives of the Company's independent public
accountants and electronic data processing ("EDP") auditors to review the
general scope of audit coverage, including consideration of the Company's
accounting and EDP practices and procedures and the adequacy of the Company's
system of internal controls, and to report to the Board of Directors with
respect thereto. The Audit Committee also is responsible for recommending to
the Board of Directors the appointment of the Company's independent public
accountants and EDP auditors and is also responsible for monitoring the
Company's "Year 2000" compliance.
The Compensation Committee was formed in May 1994. The members of
the Compensation Committee are Messrs. Deason, Rossi and O'Neill. The
Compensation Committee is responsible for recommending to the Board of
Directors policies and plans concerning the salaries, bonuses and other
compensation of the executive officers of the Company, including reviewing
the salaries of the executive officers and recommending bonuses and other
forms of additional compensation for the executive officers and the
administration of and grant of awards under the Company's stock option plans.
In connection with the Company's establishment of certain procedures to
comply with the requirements of Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), so that compensation to executive officers
whose compensation exceeds $1 million may be deductible by the Company for
federal income tax purposes, the Company formed the Special Compensation
Committee in August 1996. The members of the Special Compensation Committee
are Messrs. Rossi and O'Neill. The Special Compensation Committee is
responsible for reviewing the compensation of the executive officers whose
compensation exceeds $1 million, including reviewing salaries, recommending
bonuses and other forms of additional compensation, including grants of
awards under the stock option plans.
The members of the Independent Directors Committee are Messrs.
O'Neill and Rossi. The Independent Directors Committee was formed in May 1994
to review annually the prices and terms of the services, forms and supplies
provided between the Company and Precept, an affiliate of the Company,
pursuant to the Company's reciprocal services agreement and other related
party transactions. See "Certain Transactions."
8
<PAGE>
The Special Transactions Committee which was formed in August 1997
and on which Mr. Deason serves has the responsibility of considering,
evaluating, and approving the negotiations of potential transactions
resulting in the acquisition of assets, businesses, or stock of third parties
for cash, ACS Class A Common Stock, or other consideration with a dollar
value of up to the greater of $50,000,000 or 10% of ACS's consolidated assets.
During the fiscal year ended June 30, 1998, there were 4 regular
meetings of the Company's Board of Directors. No incumbent directors attended
fewer than 75% of the aggregate of (i) the Board meetings held during the
fiscal year and (ii) the meetings held by all committees of the Board on
which he served. There were 5 meetings held by the Company's Audit Committee
during the fiscal year, two meetings held by each of the Company's
Compensation and Special Compensation Committees and one meeting held by the
Independent Directors Committee during the fiscal year.
PROPOSAL 2
APPROVAL OF PERFORMANCE-BASED INCENTIVE
COMPENSATION FOR THE COMPANY'S EXECUTIVE OFFICERS
The Code limits the Company's tax deduction for expense in connection
with compensation of its chief executive officer and its four other most
highly-compensated executive officers for any fiscal year to the extent that
the remuneration of such person exceeds $1 million during such fiscal year,
excluding remuneration that qualifies as "performance-based compensation."
Section 162(m) of the Code provides that in order for remuneration to be
treated as qualified performance-based compensation, the material terms of
the performance goals must be disclosed to and approved by the stockholders
of the employer.
At the Annual Meeting, the stockholders will be asked to approve the
terms relating to incentive compensation to be paid to the Company's
Executive Officers. Executive Officer compensation for fiscal 1999 will
consist of a base salary, stock option plan, and bonus compensation and will
be based on criteria similar to criteria previously used for the Company's
executive officers. See "Executive Compensation and Other
Information--Compensation Committee Report on Executive Compensation."
Executive Officers will be entitled to receive varying ranges of up to 250%
(up to 250% for the Chairman of the Board, up to 200% for the President and
the Chief Operating Officer, and up to 150% for all other executive officers)
of their base salaries upon achievement of bonus performance goals which
include the Company's achievement of four targeted financial measures:
consolidated revenues, consolidated earnings before interest, taxes and
amortization, consolidated pre-tax earnings and consolidated earnings per
share. The bonus performance goals have been pre-established by the
Compensation Committee and approved by the Board of Directors for all
executive officers other than any executive officer whose compensation may
exceed $1 million. For any executive officer whose compensation may exceed $1
million, bonus performance goals are previously established by the Special
Compensation Committee, which is comprised solely of non-employee directors,
and approved by the Board of Directors. The Company believes that the
incentive-related provisions provide performance incentives that are and will
be beneficial to the Company and its stockholders.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCENTIVE
COMPENSATION PROVISIONS FOR THE EXECUTIVE OFFICERS.
9
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
DIRECTOR'S COMPENSATION
Each member of the Board of Directors of the Company who is not
employed by the Company receives compensation in the amount of $3,000 for
attendance at each Board meeting. Directors are reimbursed for their travel
expenses incurred in connection with the meetings. On November 30, 1994, the
Company and each of Messrs. O'Neill and Rossi entered into consulting
agreements in which Messrs. O'Neill and Rossi agreed to provide, among other
things, certain corporate development services to the Company. Such
agreements are terminable by either party with 30 days notice. Pursuant to
such agreements, in exchange for such services, Messrs. O'Neill and Rossi
receive nominal consideration and the Company reimburses both Messrs. O'Neill
and Rossi for their out-of-pocket expenses. The Company granted Messrs. Rossi
and O'Neill options to purchase 25,000 and 10,000 shares of Class A Common
Stock, respectively. Such options vest ratably over five years.
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth certain information regarding
compensation paid for all services rendered to the Company in all capacities
during fiscal years 1998, 1997 and 1996 by the Company's chief executive
officer and the four other most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000, based on
salary and bonuses earned during fiscal year 1998 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------- ------------------------------------------------
PAYOUTS
OTHER RESTRICTED ------- ALL
ANNUAL STOCK OPTIONS/ LTIP OTHER
BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) (1) ($) (2) (3) ($) (2) TION ($)
- ------------------------------- ---- ------- --------- ------------ ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Darwin Deason 1998 487,512 1,250,000 -- -- -- -- --
Chairman of the Board and 1997 450,000 1,125,000 -- -- -- -- --
Chief Executive Officer 1996 403,918 807,836 -- -- -- -- --
Jeffrey A. Rich 1998 312,504 650,000 -- -- -- -- --
President and Chief 1997 274,995 550,000 -- -- -- -- --
Operating Officer 1996 222,385 437,500 -- -- 100,000 -- --
Mark A. King 1998 212,500 337,500 -- -- 40,000 -- --
Executive Vice President 1997 175,000 218,750 -- -- 40,000 -- --
and Chief Financial Officer 1996 125,000 125,000 -- -- 80,000 -- --
Henry G. Hortenstine 1998 237,506 375,000 -- -- 40,000 -- --
Executive Vice President 1997 200,000 250,000 -- -- 40,000 -- --
1996 166,000 166,000 -- -- 120,000 -- --
Peter A. Bracken 1998 283,845 230,483 -- -- 270,360(5) --
Group President - 1997 300,000 173,960 -- -- -- -- 3,750
Government Solutions 1996 28,846 N/A 21,750(4) -- 70,360(5) -- 361
</TABLE>
- -------------------------------------
(1) None of the Named Executive Officers received personal benefits, securities
or property in excess of the lesser of $50,000 or 10% of such individual's
reported salary and bonus during fiscal years 1998, 1997 and 1996.
(2) The Company did not grant any restricted stock awards or long-term
incentive plan payouts to the Named Executive Officers during fiscal years
1998,1997 and 1996.
10
<PAGE>
(3) The Company did not grant any stock appreciation rights ("SARS") to the
Named Executive Officers during fiscal years 1998, 1997 or 1996.
(4) Mr. Bracken joined Government Solutions as an employee on May 31, 1996.
"Other Annual Compensation" represents fees paid for consulting services
for the period from April 10, 1996 through May 13, 1996.
(5) Option grants have been adjusted in connection with the Government
Solutions Merger.
The following table sets forth the number of options granted during
the fiscal year ended June 30, 1998 to the Named Executive Officers to
purchase shares of Class A Common Stock and the potential realizable value of
these options.
OPTION GRANTS DURING FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
---------------------------------------------------------- --------------------------
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES
OPTIONS/SARS IN FISCAL EXERCISE OR EXPIRATION
NAME GRANTED (#) YEAR (%) BASE PRICE ($) DATE 5% ($) 10% ($)
- ----------------------- ------------ ------------ -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Darwin Deason - - - - - -
Jeffrey A. Rich - - - - - -
Mark A. King 40,000 2.1% 31.875 5/18/08 801,841 2,032,022
Henry G. Hortenstine 40,000 2.1% 31.875 5/18/08 801,841 2,032,022
Peter A. Bracken 270,360 14.0% (2) (2) 4,255,415 9,537,793
</TABLE>
- -----------------------------------
(1) The amounts in these columns are the result of calculations at the 5% and
10% rates set by the Commission and are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
(2) Mr. Bracken received two option grants during fiscal year 1998. The first
option grant, occurring before the Government Solutions Merger, was for
70,360 shares (adjusted for the Government Solutions Merger) at a $17.76
exercise price and expires on July 15, 2002. The second option grant,
occurring after the Government Solutions Merger, was for 200,000 shares
with a $24.00 exercise price and expiration on December 15, 2007.
The following table provides information related to options
exercised by the Named Executive Officers during fiscal year 1998 and the
number and value of options held at fiscal year end. The Company does not
have any SARS outstanding.
AGGREGATE OPTION/SAR EXERCISES IN FISCAL 1998
AND FISCAL YEAR END 1998 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT SARS AT FISCAL
SHARES VALUE FISCAL YEAR END (#) YEAR END ($) (2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Darwin Deason -- -- -- -- -- --
Jeffrey A. Rich -- -- 28,186 482,050 1,073,605 11,668,169
Mark A. King -- -- -- 200,014 -- 3,825,397
Henry G. Hortenstine -- -- -- 303,970 -- 6,505,149
Peter A. Bracken 42,770 589,854 80,360 200,000 1,720,616 2,900,000
</TABLE>
11
<PAGE>
- --------------------------------
(1) Represents the value realized upon exercise calculated as the number of
options exercised times the difference between the average of the high and
low stock trading price from the trading day immediately prior to the
exercise date and the exercise price.
(2) Represents the value of unexercised options calculated as the number of
unexercised option times the difference between the closing price at
June 30, 1998 and the exercise price.
COMPENSATION COMMITTEE AND SPECIAL COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION COMMITTEE
The Compensation Committee has been responsible for administering
the Company's Stock Option Plan and approving compensation for the Company's
senior executives, including recommending to the Board of Directors policies
and plans concerning the salaries, bonuses and other compensation for all
executive officers, except that such approval and recommendation with respect
to salaries, bonus and other compensation for Mr. Deason and, beginning with
fiscal year 1999, Mr. Rich are the responsibility of the Special Compensation
Committee. The objective of the Company's executive compensation program is
to attract and retain qualified, motivated executives and to closely align
their financial interests with both the short and long-term interests of the
Company's stockholders. The executive compensation program is intended to
provide the Company's executive officers with overall levels of compensation
that are competitive within the information industry, as well as within a
broader spectrum of companies of size and complexity.
The three principal components of the Company's executive
compensation program are base salary, annual incentive bonus opportunities
and stock options.
BASE SALARIES
Each executive officer's base salary is reviewed annually and is
subject to adjustment on the basis of individual, corporate and business unit
performance, as well as competitive and inflationary considerations.
INCENTIVE BONUS
Incentive bonus payments for executive officers are made at the end
of each fiscal year based upon the achievement of some or all of the
following: consolidated financial criteria (which can include consolidated
revenues, consolidated earnings before interest, taxes and amortization,
consolidated pre-tax earnings and consolidated earnings per share), business
unit financial criteria, and the attainment of individual goals. Such
criteria and goals are established by the Chief Executive Officer and the
Chief Operating Officer of the Company subject to approval by the
Compensation Committee of the Board of Directors at the beginning of each
fiscal year (or, in the case of the Chief Executive Officer and, beginning
with fiscal year 1999, the Chief Operating Officer, subject to the approval
of the Special Compensation Committee). During fiscal year 1998, the Company
achieved 100% of such measures of consolidated financial criteria. For fiscal
year 1998, executive officers were eligible to receive maximum bonuses of
between 125% and 250% of salary provided the set goals and criteria were met.
STOCK OPTION PLAN
The Company's 1997 Stock Incentive Plan ("Stock Option Plan") is
administered by the Compensation Committee of the Company's Board of
Directors. The Compensation Committee has determined the individuals eligible
to receive grants of options under the Stock Option Plan, the type of option
granted, the number of shares of Class A Common Stock subject to a grant and
the terms of the grant, including exercise price, exercise date and any
restrictions on exercise. The Compensation Committee also has been
responsible for determining the advisability and terms of any buyout of
options previously granted, reductions in the exercise prices of previously
granted options and the terms of any deferred grant of options granted under
the Stock Option Plan.
The Stock Option Plan also provides for the issuance of stock
purchase rights. When the Compensation Committee determines to grant a stock
purchase right, it advises the recipient of the grant of the terms and
conditions of the grant, including any restrictions on the grant, the number
of shares subject to the grant, the exercise price of the grant and the time
within which the grant must be accepted by the recipient. The maximum amount
of time that a recipient may have to accept the grant is 30 days. The
purchase price of stock acquired
12
<PAGE>
pursuant to a stock purchase right shall not be less than 50% of the fair
market value of the Company's Class A Common Stock at the time of grant.
There have been no stock purchase rights granted through June 30, 1998.
Submitted by the Compensation Committee
and the Special Compensation Committee
of the Board of Directors:
DARWIN DEASON*
FRANK A. ROSSI
JOSEPH P. O'NEILL
* Not a member of the Special
Compensation Committee
13
<PAGE>
COMPARISON OF TOTAL CUMULATIVE RETURN FROM SEPTEMBER 26, 1994
(THE "IPO DATE") THROUGH JUNE 30, 1998 OF
AFFILIATED COMPUTER SERVICES, INC. CLASS A COMMON STOCK,
STANDARD & POOR'S COMPUTER SOFTWARE & SERVICES INDEX
AND THE STANDARD & POOR'S STOCK INDEX
INDEX
[GRAPH]
<TABLE>
<CAPTION>
09/26/94 06/30/97 06/30/98
-------- -------- --------
<S> <C> <C> <C>
ACS 100 350 481
Standard & Poors Computer Software & Services Index 100 295 427
Standard & Poor's Stock Index 100 200 257
</TABLE>
Note: The graph above compares the total cumulative return of ACS
Class A Common Stock from the IPO Date through June 30, 1998 with the
Standard & Poor's Computer Software & Services Index and the Standard &
Poor's Stock Index.
The graph assumes the investment of $100 and the reinvestment of all
dividends. The stock price performance shown on the graph is not necessarily
indicative of future stock performance.
THE ABOVE REPORT OF THE COMPENSATION COMMITTEE AND THE STOCK
PERFORMANCE GRAPH WILL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED
WITH OR INCORPORATED BY REFERENCE INTO ANY FILING BY THE COMPANY UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES SUCH REPORT OR GRAPH BY
REFERENCE.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For information on compensation committee interlocks and insider
participation, see "Certain Transactions."
CERTAIN TRANSACTIONS
In connection with the reorganization of the Company on June 30,
1994, the Company and Precept entered into a reciprocal services agreement
pursuant to which Precept would sell business forms and supplies, and provide
courier and certain other administrative services to the Company, and the
Company would provide office space and certain administrative services to
Precept. Mr. Deason is a director and holds voting control of Precept.
Douglas Deason, one of Mr. Deason's sons, is the President and a director of
Precept and owns in excess of 10% of Precept's outstanding Common Stock.
The prices for all services, forms and supplies provided by Precept to the
Company under such agreement must be no less favorable than could be obtained
from an independent third party and are subject to review from time to time
by the Independent Directors Committee of the Company. The prices for all
services provided by the
14
<PAGE>
Company to Precept will be at no less than the Company's direct cost. The
costs incurred by the Company for services provided by Precept covered by
such reciprocal services agreement, which are believed to approximate fair
market value, were approximately $4.8 million for fiscal year 1998. Precept's
payments to ACS under the reciprocal services agreement were approximately
$0.3 million for fiscal year 1998.
Mr. Deason, the Company and Precept, along with two other investors,
are the stockholders in DDH Aviation, Inc. ("DDH"), a start-up corporate
airplane brokerage firm organized in late 1997. DDH has a $15 million line of
credit with Wells Fargo Bank, N.A., for which Mr. Deason and the Company, in
exchange for warrants to acquire additional voting stock, act as guarantors
for up to approximately $7 million each. Taking into account the exercise of
such warrants, Mr. Deason owns over one-third of the equity interests in DDH
and the Company owns approximately 18%. Mr. Deason is one of the five
directors of DDH, as well as its Chairman of the Board. The Company has
access to aircraft from DDH. In order to facilitate the purchase of an
aircraft, on June 30, 1998 the Company loaned DDH $100,000 at no interest,
which amount was repaid in full on July 2, 1998.
Also, during fiscal year 1998, the Company purchased, at what the
Company believes were market rates, approximately $200,000 in personal
computers from Microresponse, Inc. David Deason, one of Darwin Deason's sons,
owns and is President and a director of Microresponse.
In addition, Darwin Deason and Douglas Deason are among the
principal owners of Enviro-Kleen, L.P., which provides commercial janitorial
services. Beginning around July 1998, the Company commenced utilizing
Enviro-Kleen at the Company's headquarters campus in Dallas, Texas on a
month-to-month basis involving monthly charges of approximately $30,000,
which the Company believes are market rates.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, independent certified public
accountants, has been selected by the Board of Directors as the Company's
independent accountant for the fiscal year 1999. PricewaterhouseCoopers LLP
was also the Company's independent accountant for the fiscal year 1998. A
representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting. That representative will have the opportunity to make a
statement, if desired, and will be available to respond to appropriate
questions.
STOCKHOLDERS PROPOSALS FOR 1999 ANNUAL MEETING
If any stockholder of the Company intends to present a proposal for
consideration at the 1999 Annual Meeting of Stockholders and/or desires to have
such proposal in the proxy statement and form of proxy distributed by the
Board of Directors with respect to such meeting, such proposal must be
received at the Company's principal executive offices, 2828 North Haskell
Avenue, Dallas, Texas 75204, Attention: David W. Black, Corporate Secretary,
no sooner than May 31, 1999 but not later than June 30, 1999.
By Order of the Board of Directors
David W. Black
SECRETARY
September ___, 1998
15
<PAGE>
FRONT OF PROXY CARD
AFFILIATED COMPUTER SERVICES, INC.
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING
OF SHAREHOLDERS AT 11:00 A.M. TUESDAY, OCTOBER 27, 1998
CITYPLACE, 2711 NORTH HASKELL AVENUE, DALLAS, TEXAS 75204
------------------
The undersigned shareholder of Affiliated Computer Services, Inc. (the
"Company") hereby appoints Darwin Deason and Jeffrey A. Rich or either of them,
as proxies, each with full powers of substitution, to vote the shares of the
undersigned at the above-stated Annual Meeting and at any postponements or
adjournments thereof, on the following proposals:
-------------------------------------------------------------------------
(1) Election of Mark A. King, David W. Black and Peter A. Bracken as
Directors.
FOR all nominees (except as WITHHOLD AUTHORITY
provided to the contrary below) / / to vote for all nominees / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME HERE):
-------------------------------------------------------------------------
(2) Approval of the incentive compensation provisions for the
executive officers.
/ / FOR / / AGAINST / / ABSTAIN
-------------------------------------------------------------------------
In their discretion, the proxies are, and each of them is, authorized
to vote upon such other business or matters as may properly come
before the meeting or any postponements or adjournments thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE>
BACK OF PROXY CARD
(CONTINUED FROM REVERSE SIDE)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE REVERSE SIDE. IF A
CHOICE IS NOT INDICATED WITH RESPECT TO ITEMS (1) AND (2), THIS PROXY WILL BE
VOTED "FOR" SUCH ITEM. THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO
ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE MEETING OF ANY POSTPONEMENTS OR
ADJOURNMENTS THEREOF. THIS PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS
EXERCISED.
Receipt herewith of the Company's Annual Report and Notice of Meeting
and Proxy Statement, dated October ___, 1998, is hereby acknowledged.
Dated: , 1998
--------------------------
----------------------------------------
----------------------------------------
(Signature(s) of Shareholder(s))
(Joint owners must EACH sign. Please
sign EXACTLY as your name(s)
appear(s) on this card. When signing
as attorney, trustee, executor,
administrator, guardian or corporate
officer, please give your FULL
title.)
PLEASE SIGN, DATE AND MAIL TODAY.
