<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
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>
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 28, 1998
1
<PAGE>
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 30, 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 44,960,764
shares of Class A Common Stock, $0.01 par value, and 3,299,686 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.
Abstention and broker nonvotes are counted for purposes of determining the
presence or absence of a quorum for transaction of 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.
2
<PAGE>
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 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 of 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 1.04% -- -- * *
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%.
(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.
4
<PAGE>
(2) 2,488,397 of the shares of Class A Common Stock listed are owned by The
Deason International Trust (the "Trust"), and 72,728 of the shares of 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 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 Class A Common Stock owned by Mr. King's spouse, to
which Mr. King disclaims beneficial ownership; 894 shares of Class A Common
Stock contained in the ACS 401(k) Plan, and 1,823 shares of 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 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 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 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 Technology 1996
Solutions Group
Peter A. Bracken*............... Executive Vice President; Group President of ACS Government 1997
Solutions Group, Inc.
Joseph P. O'Neill............... President and Chief Executive Officer, Public Strategies Washington, 1994
Inc.
Frank A. Rossi.................. Chairman of the Board, 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
6
<PAGE>
has over 30 years of experience in the information technology industry. Mr.
Deason is also a director of Precept Business Services, Inc. ("Precept"), an
affiliate of ACS and a publicly traded company, where he is Chairman of the
Executive Committee 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,
7
<PAGE>
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.
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."
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, 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.
8
<PAGE>
During the fiscal year ended June 30, 1998, there were four 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 five 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
the compensation of its chief executive officer and its four other most
highly-compensated executive officers for any fiscal year to the extent that the
compensation of such person exceeds $1 million during such fiscal year,
excluding compensation that qualifies as "performance-based compensation."
Section 162(m) of the Code provides that in order for compensation to be treated
as qualified performance-based compensation, among other things, the material
terms of the performance goals must be disclosed to and approved by the
stockholders of the employer before the compensation is paid. If the material
terms of the performance goals, as outlined in this Proposal, are not approved
by the stockholders, the performance-based compensation will not be paid to the
chief executive officer and the four other most highly-compensated employees.
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 pre-established by the Special Compensation Committee,
which is comprised solely of two or more outside 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.
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
9
<PAGE>
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
50,000 and 20,000 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 $100,000, based on salary and bonuses earned
during fiscal year 1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------------------
------------------------------------------------ PAYOUTS
OTHER RESTRICTED -------------
ANNUAL STOCK OPTIONS/ LTIP
BONUS COMPENSATION AWARDS SARS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) (1) ($) (2) (3) ($) (2)
- -------------------------------------- --------- --------- --------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Darwin Deason......................... 1998 487,512 1,250,000 -- -- -- --
Chairman of the Board and 1997 450,000 1,125,000 -- -- -- --
Chief Executive Officer 1996 403,918 807,836 -- -- -- --
Jeffrey A. Rich....................... 1998 312,504 650,000 -- -- -- --
President and Chief 1997 274,995 550,000 -- -- -- --
Operating Officer 1996 222,385 437,500 -- -- 100,000 --
Mark A. King.......................... 1998 212,500 337,500 -- -- 40,000 --
Executive Vice President 1997 175,000 218,750 -- -- 40,000 --
and Chief Financial Officer 1996 125,000 125,000 -- -- 80,000 --
Henry G. Hortenstine.................. 1998 237,506 375,000 -- -- 40,000 --
Executive Vice President 1997 200,000 250,000 -- -- 40,000 --
1996 166,000 166,000 -- -- 120,000 --
Peter A. Bracken...................... 1998 283,845 230,483 -- -- 270,360(5) --
Group President - 1997 300,000 173,960 -- -- -- --
Government Solutions 1996 28,846 N/A 21,750(4) -- 70,360(5) --
<CAPTION>
ALL
OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)
- -------------------------------------- ---------------
<S> <C>
Darwin Deason......................... --
Chairman of the Board and --
Chief Executive Officer --
Jeffrey A. Rich....................... --
President and Chief --
Operating Officer --
Mark A. King.......................... --
Executive Vice President --
and Chief Financial Officer --
Henry G. Hortenstine.................. --
Executive Vice President --
--
Peter A. Bracken......................
Group President - 3,750
Government Solutions 361
</TABLE>
- ------------------------------
(1) None of the Named Executive Officers received personal benefits, securities
or property in excess of the lesser of $50,000 or 10% of such individual's
reported salary and bonus during fiscal years 1998, 1997 and 1996.
(2) The Company did not grant any restricted stock awards or long-term incentive
plan payouts to the Named Executive Officers during fiscal years 1998, 1997
and 1996.
(3) The Company did not grant any stock appreciation rights ("SARS") to the
Named Executive Officers during fiscal years 1998, 1997 or 1996.
(4) Mr. Bracken joined Government Solutions as an employee on May 31, 1996.
"Other Annual Compensation" represents fees paid for consulting services for
the period from April 10, 1996 through May 13, 1996.
(5) Option grants have been adjusted in connection with the Government Solutions
Merger.
10
<PAGE>
The following table sets forth the number of options granted during the
fiscal year ended June 30, 1998 to the Named Executive Officers to purchase
shares of Class A Common Stock and the potential realizable value of these
options.
OPTION GRANTS DURING FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS/SARS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM (1)
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) YEAR (%) ($) 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 $24.00 exercise price and expires on December 15, 2007.
The following table provides information related to options exercised by the
Named Executive Officers during fiscal year 1998 and the number and value of
options held at fiscal year end. The Company does not have any SARS outstanding.
AGGREGATE OPTION/SAR EXERCISES IN FISCAL 1998
AND FISCAL YEAR END 1998 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT SARS AT FISCAL
SHARES VALUE FISCAL YEAR END (#) YEAR END ($) (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>
- ------------------------
(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.
11
<PAGE>
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 and the Special Compensation
Committee of the Company's Board of Directors. The Compensation Committee and
the Special Compensation Committee have 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 and the Special Compensation Committee
also have 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
pursuant to a stock purchase right shall not be less than 50% of the fair market
value of
12
<PAGE>
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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P COMPUTER SOFTWARE
<S> <C> <C> <C>
ACS & Services Index S&P Stock Index
9-26-94 100 100 100
6-30-97 350 295 200
6-30-98 481 427 257
</TABLE>
Note: The graph above compares the total cumulative stockholder return on
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, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
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
14
<PAGE>
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 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 28, 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 September 28, 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.
