<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period from __________ to __________
Commission file number 0-24787
-------
AFFILIATED COMPUTER SERVICES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0310342
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2828 North Haskell, Dallas, Texas 75204
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 841-6111
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING AS OF
TITLE OF EACH CLASS MAY 12, 1999
------------------------------------ ----------------------------------
<S> <C>
Class A Common Stock, $.01 par value 45,911,582
Class B Common Stock, $.01 par value 3,299,686
----------
49,211,268
</TABLE>
<PAGE> 2
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and
June 30, 1998 1
Consolidated Statements of Income for the Three Months and
Nine Months Ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1999 and 1998 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 3
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 44,112 $ 75,888
ATM cash 8,700 8,100
Accounts receivable, net of allowance for doubtful
accounts of $4,496 and $2,840, respectively 325,013 236,523
Inventory 13,816 9,911
Prepaid expenses and other current assets 41,658 24,455
Deferred taxes 5,889 10,210
---------- ----------
Total current assets 439,188 365,087
Property and equipment, net of accumulated depreciation and
amortization of $106,858 and $90,096, respectively 163,100 142,717
Software, net of accumulated amortization of $13,642 and
$11,029, respectively 20,957 9,947
Goodwill, net of accumulated amortization of $37,267 and
$25,846, respectively 543,867 373,236
Other intangible assets, net of accumulated amortization
of $22,351 and $14,414, respectively 41,044 38,073
Long-term investments and other assets 28,694 20,738
---------- ----------
Total assets $1,236,850 $ 949,798
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,202 $ 27,953
Accrued compensation and benefits 57,087 40,595
Other accrued liabilities 107,504 80,343
Notes payable and current portion of long-term debt 11,220 10,624
Current portion of unearned revenue 19,144 7,454
---------- ----------
Total current liabilities 228,157 166,969
Convertible notes due 2005 230,000 230,000
Long-term debt 155,879 4,848
Deferred taxes 26,762 24,103
Other long-term liabilities 12,913 20,208
---------- ----------
Total liabilities 653,711 446,128
---------- ----------
Stockholders' equity:
Class A common stock 459 449
Class B common stock 33 33
Additional paid-in capital 315,793 298,393
Retained earnings 266,854 204,795
---------- ----------
Total stockholders' equity 583,139 503,670
---------- ----------
Total liabilities and stockholders' equity $1,236,850 $ 949,798
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 435,884 $ 304,945 $ 1,190,874 $ 855,174
----------- ----------- ----------- -----------
Expenses:
Wages and benefits 196,518 129,218 515,670 363,435
Services and supplies 125,783 91,873 360,734 260,009
Rent, lease and maintenance 50,014 37,236 137,909 112,028
Depreciation and amortization 17,732 12,371 49,079 34,204
Merger costs -- -- -- 12,974
Other operating expenses 4,828 2,914 13,563 7,803
----------- ----------- ----------- -----------
Total operating expenses 394,875 273,612 1,076,955 790,453
----------- ----------- ----------- -----------
Operating income 41,009 31,333 113,919 64,721
Interest expense 4,916 3,285 12,084 8,807
Other non-operating income, net (1,916) (390) (3,080) (7,052)
----------- ----------- ----------- -----------
Pretax profit 38,009 28,438 104,915 62,966
Income tax expense 15,584 11,588 42,856 27,064
----------- ----------- ----------- -----------
Net income $ 22,425 $ 16,850 $ 62,059 $ 35,902
=========== =========== =========== ===========
Earnings per common share:
Basic $ .46 $ .35 $ 1.27 $ .76
=========== =========== =========== ===========
Diluted $ .43 $ .34 $ 1.20 $ .74
=========== =========== =========== ===========
Shares used in computing
earnings per common share:
Basic 49,161 47,858 48,835 47,394
Diluted 56,047 50,011 55,674 48,923
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 62,059 $ 35,902
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 49,079 34,204
Non-cash portion of merger costs -- 2,250
Gain on redemption of preferred stock -- (6,742)
Other 1,327 --
Changes in assets and liabilities, net of effects from acquisitions:
Increase in ATM cash (600) (1,550)
Increase in accounts receivable (45,901) (12,847)
Increase in inventory (1,999) (980)
Increase in prepaid expenses and other current assets (7,235) (3,010)
Change in deferred taxes 24,857 10,678
(Increase) decrease in other long-term assets 559 (5,802)
Decrease in accounts payable (4,319) (1,749)
Increase (decrease) in accrued compensation and benefits 8,330 (2,672)
Increase (decrease) in other accrued liabilities 10,147 (4,688)
Change in income taxes receivable/payable (3,797) 10,276
Increase in unearned revenue 4,405 1,736
Decrease in other long-term liabilities (5,284) (11,590)
--------- ---------
Total adjustments 29,569 7,514
--------- ---------
Net cash provided by operating activities 91,628 43,416
--------- ---------
Cash flows from investing activities:
Purchases of property, equipment and software, net of sales (47,896) (29,664)
Payments for acquisitions, net of cash acquired (225,135) (69,918)
Proceeds from the redemption of long-term investments -- 12,596
Additions to other intangible assets (6,680) (5,768)
Other 458 (301)
--------- ---------
Net cash used in investing activities (279,253) (93,055)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of issuance 183,003 329,926
costs
Repayments of long-term debt (33,664) (239,555)
Proceeds from stock options exercised and related tax 6,872 4,642
benefits
Net borrowings of ATM debt 600 1,550
Dividends paid -- (377)
Other, net (962) (227)
--------- ---------
Net cash provided by financing activities 155,849 95,959
--------- ---------
Net increase in cash and cash equivalents (31,776) 46,320
Cash and cash equivalents at beginning of period 75,888 18,997
--------- ---------
Cash and cash equivalents at end of period $ 44,112 $ 65,317
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Affiliated
Computer Services, Inc. and its majority-owned subsidiaries (the "Company"
or "ACS"). All material intercompany profits, transactions and balances have
been eliminated. ACS provides a full range of information technology
services including technology outsourcing, business process outsourcing, and
systems integration and professional services primarily in North America, as
well as Central America, South America, Europe and the Middle East.
The financial information presented should be read in conjunction with the
Company's consolidated financial statements for the year ended June 30,
1998. The foregoing unaudited consolidated financial statements reflect all
adjustments (all of which are of a normal recurring nature) which are, in
the opinion of management, necessary for a fair presentation of the results
of the interim periods. The results for the interim periods are not
necessarily indicative of results to be expected for the year.
2. BUSINESS COMBINATIONS
During the quarter ended March 31, 1999, the Company completed the purchase
of the remaining 5.1 million shares (the "Shares") of the common stock of
BRC Holdings, Inc. ("BRC") at a purchase price of $19 per share. The total
amount of funds used to acquire the Shares was approximately $104.7 million,
which also included amounts due to BRC option holders. During the quarter
ended December 31, 1998, the Company had purchased 63% of the issued and
outstanding shares of BRC for approximately $165.4 million. The acquisition
was accounted for under the purchase method of accounting with assets
acquired of $298.5 million (including cash and other liquid investments of
approximately $101.7 million) and liabilities assumed of $25.0 million for a
net purchase price of $273.5 million.
3. EARNINGS PER SHARE
In accordance with the Statement of Financial Accounting Standard No. 128,
"Earnings per Share", the following table (in thousands except per share
amounts) sets forth the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Numerator for earnings per share (basic) -
Income available to common stockholders $22,425 $16,850 $62,059 $35,902
Effect of dilutive securities:
Interest on 4% convertible debt 1,536 207 4,609 207
------- ------- ------- -------
Numerator for earnings per share assuming
dilution - income available to common
stockholders $23,961 $17,057 $66,668 $36,109
======= ======= ======= =======
Denominator:
Weighted average shares outstanding (basic) 49,161 47,858 48,835 47,394
Effect of dilutive securities:
4% convertible debt 5,392 719 5,392 240
Stock options 1,494 1,120 1,315 1,013
Warrants and other -- 314 132 276
------- ------- ------- -------
Total potential common shares 6,886 2,153 6,839 1,529
------- ------- ------- -------
Denominator for earnings per share
assuming dilution 56,047 50,011 55,674 48,923
======= ======= ======= =======
Earnings per common share (basic) $ .46 $ .35 $ 1.27 $ .76
======= ======= ======= =======
Earnings per common share assuming dilution $ .43 $ .34 $ 1.20 $ .74
======= ======= ======= =======
</TABLE>
4
<PAGE> 7
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements, other than statements of historical facts,
included in this MD&A regarding the Company's financial position, business
strategy and plans and objectives of management of the Company for future
operations are forward-looking statements, including statements regarding the
Company's Year 2000 exposure. These forward-looking statements rely on a number
of assumptions concerning future events and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control, that could cause actual results to materially differ from such
statements. While the Company believes that the assumptions concerning future
events are reasonable, it cautions that there are inherent difficulties in
predicting certain important factors, especially the timing and magnitude of
technological advances; the performance of recently acquired businesses; the
prospects for future acquisitions; the possibility that a current customer could
be acquired or otherwise be affected by a future event that would diminish its
information technology requirements; Year 2000 problems affecting the Company's
and its clients' business; the competition in the information technology
industry and the impact of such competition on pricing, revenues and margins;
the degree to which business entities continue to outsource information
technology and business processes; uncertainties surrounding budget reductions
or changes in funding priorities or existing government programs and the cost of
attracting and retaining highly skilled personnel.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of income as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ----------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Wages and benefits 45.1 42.4 43.3 42.5
Services and supplies 28.9 30.1 30.3 30.4
Rent, lease and maintenance 11.5 12.2 11.6 13.1
Depreciation and amortization 4.0 4.1 4.1 4.0
Merger costs -- -- -- 1.5
Other operating expenses 1.1 0.9 1.1 0.9
------ ------ ------ ------
Total operating expenses 90.6 89.7 90.4 92.4
------ ------ ------ ------
Operating income 9.4 10.3 9.6 7.6
Interest expense 1.1 1.1 1.0 1.0
Other non-operating income, net (.4) (0.1) (0.2) (0.8)
------ ------ ------ ------
Pretax profit 8.7 9.3 8.8 7.4
Income tax expense 3.6 3.8 3.6 3.2
------ ------ ------ ------
Net income 5.1% 5.5% 5.2% 4.2%
====== ====== ====== ======
</TABLE>
COMPARISON OF THE QUARTER ENDED MARCH 31, 1999 TO THE QUARTER ENDED MARCH 31,
1998
Revenues increased $131.0 million, or 43%, to $435.9 million in the quarter
ended March 31, 1999 (the third quarter of the Company's 1999 fiscal year) from
$304.9 million in the third quarter of fiscal 1998 due to acquisitions,
increased volumes on certain contracts with federal agencies and the signing of
new long-term contracts. Of the 43% increase in revenue, approximately 19% was
from internal growth and 24% was from the five acquisitions completed since the
third quarter of fiscal 1998. During the third quarter of fiscal 1999, the
Company benefited from the signing of contracts in both the Company's commercial
and federal government business lines subsequent to March 31, 1998.
5
<PAGE> 8
Total operating expenses were $394.9 million in the third quarter of fiscal
1999, an increase of 44% from $273.6 million in the third quarter of fiscal
1998. Operating expenses as a percentage of revenues were 90.6% in the third
quarter of fiscal 1999 as compared to 89.7% in the third quarter of fiscal 1998.
Wages and benefits increased as a percentage of revenue from 42.4% in the third
quarter of fiscal 1998 to 45.1% in the third quarter of fiscal 1999 due to the
continued growth in the Company's business process outsourcing line. Services
and supplies as a percentage of revenues decreased from 30.1% in the third
quarter of fiscal 1998 to 28.9% in the third quarter of fiscal 1999 primarily
due to recent acquisitions. Rent, lease and maintenance expense decreased from
12.2% of revenues in the third quarter of fiscal 1998 to 11.5% in the third
quarter of fiscal 1999 primarily due to the change in business line mix with the
professional services acquisitions made during the last twelve months, which
have a smaller component of rent, lease and maintenance expense.
Operating income increased $9.7 million, or 31%, to $41.0 million in the third
quarter of fiscal 1999, as compared to the third quarter of fiscal 1998. The
increase was due to internal growth and acquisitions since the third quarter of
fiscal 1998. Operating income as a percentage of revenue decreased from 10.3% in
the third quarter of fiscal 1998 to 9.4% in the third quarter of fiscal 1999
primarily due to growth in the Company's federal government business, which has
lower operating margins than Company average, as well as startup expenses
associated with new contracts in the commercial business process outsourcing
line.
Interest expense increased $1.6 million to $4.9 million in the third quarter of
fiscal 1999, compared to $3.3 million in the third quarter of fiscal 1998,
primarily due to increased borrowings under the Company's credit facility and
the issuance in March 1998 of 4% convertible notes to finance acquisitions.
The Company's effective tax rate of approximately 41% in the third quarter of
fiscal 1999 exceeded the federal statutory rate of 35%, due primarily to the
amortization of certain acquisition-related costs that are non-deductible for
tax purposes, plus the net effect of state income taxes.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1999 TO THE NINE MONTHS ENDED
MARCH 31, 1998
Revenues increased $335.7 million, or 39%, to $1.19 billion for the nine months
ended March 31, 1999 from $855.2 million for the same period in fiscal 1998 due
to acquisitions, increased volumes on certain contracts with federal agencies
and the signing of new long-term contracts. Of the 39% increase in revenue,
approximately 21% was from internal growth and 18% was from the five
acquisitions completed during the nine months ended March 31, 1999.
Total operating expenses were $1.08 billion in the first nine months of fiscal
1999, an increase of 39% from $777.5 million, excluding $13.0 million of merger
costs, in the first nine months of fiscal 1998. Excluding merger costs,
operating expenses decreased from 90.9% of revenues in the first nine months of
fiscal 1998 to 90.4% in the first nine months of fiscal 1999, primarily due to a
$6.0 million non-recurring charge in the first quarter of fiscal 1998 for a
binding commitment to a hardware lessor to terminate a computer lease obligation
prior to its expiration.
Wages and benefits increased as a percentage of revenue from 42.5% in the third
quarter of fiscal 1998 to 43.3% in the third quarter of fiscal 1999 due to the
continued internal and acquisition growth in the business process outsourcing
line. Rent, lease and maintenance expense for the first nine months of fiscal
1998 contains the $6.0 million non-recurring charge mentioned above. Excluding
this $6.0 million charge, rent, lease and maintenance expense as a percentage of
revenue decreased from 12.4% in the first nine months of fiscal 1998 to 11.6% in
the first nine months of fiscal 1999 primarily due to the change in business
line mix with the professional services acquisitions made during fiscal 1999,
which have a smaller component of rent, lease and maintenance expense.
After excluding the $13.0 million of merger costs in the first nine months in
fiscal 1998, operating income increased $36.2 million, or 47%, to $113.9 million
in the first nine months of fiscal 1999. The increase was due to internal
revenue growth and acquisitions since the third quarter of fiscal 1998.
Interest expense increased $3.3 million to $12.1 million in the first nine
months of fiscal 1999, compared to $8.8 million in the first nine months of
fiscal 1998. This increase in interest expense is due to increased borrowings on
the Credit Facility and the issuance in March 1998 of 4% convertible notes to
finance acquisitions.
Other non-operating income for the first nine months of fiscal 1998 includes the
recognition of a $6.7 million gain upon the redemption of the Company's
investment in a customer's preferred stock.
6
<PAGE> 9
The Company's effective tax rate of 41% in the first nine months of fiscal 1999
exceeded the federal statutory rate of 35% due primarily to the amortization of
certain acquisition-related costs that are non-deductible for tax purposes, plus
the net effect of state income taxes. The Company's effective rate for the first
nine months of fiscal 1998 was approximately 43% primarily due to certain
non-deductible merger costs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company's liquid assets, consisting of cash and cash
equivalents, totaled $52.8 million, compared to $84.0 million at June 30, 1998.
Working capital was $211.0 million and $198.1 million at March 31, 1999 and June
30, 1998, respectively, an increase of $12.9 million primarily due to the
working capital of the companies acquired during the first nine months of fiscal
1999.
Net cash provided by operating activities was $91.6 million for the first nine
months of fiscal 1999, compared with $43.4 million provided by operating
activities during the first nine months of fiscal 1998. The increase in cash
flow was primarily due to an increase in net income in the first nine months of
fiscal 1999 as compared to the first nine months of fiscal 1998. The Company
used $279.3 million in investing activities for the nine months ended March 31,
1999 due to $225.1 million being used for acquisitions and $47.9 million being
used for capital expenditures. Net cash provided by investing activities in the
first nine months of fiscal 1998 included $12.6 million received from the
redemption of a preferred stock investment. Cash flow from financing activities
was $155.8 million in the first nine months of fiscal 1999 as compared to $96.0
million provided by financing activities for the first nine months of fiscal
1998. This increase in financing activities was primarily due to net borrowings
on the Credit Facility of $149.3 million to fund the acquisition of BRC during
the first nine months of fiscal 1999.
As of March 31, 1999, the Company had $155.0 million in outstanding borrowings
under the Credit Facility. After considering outstanding letters of credit, the
Company has approximately $36.8 million available for use under the Credit
Facility at March 31, 1999.
The Company has an ATM Cash Facility of $11.0 million, of which $8.7 million was
outstanding as of March 31, 1999, which expires December 1999. The Company also
has two vault cash custody agreements with financial institutions which provide
the use of up to $52.0 million in cash in Company-owned ATMs. Cash outstanding
under the cash custody agreements at March 31, 1999 was approximately $44.9
million, and is not an asset or liability of the Company and therefore not
recorded on the accompanying consolidated balance sheets. The larger custody
agreement for $50 million expires February 2001. The remaining cash custody
agreement expires January 2001. Recently enacted federal regulations governing
financial institutions' cash requirements have allowed financial institutions to
significantly reduce their vault cash reserves, which may limit ACS' ability to
secure similar cash custody agreements when its current arrangements expire.
The Company's management believes that available cash and cash equivalents,
together with cash generated from operations and available borrowings under its
credit facilities, will provide adequate funds for the Company's anticipated
needs, including working capital, capital expenditures and ATM cash
requirements. Management also believes that cash provided by operations will be
sufficient to satisfy all existing debt obligations as they become due.
Additional acquisition opportunities, however, requiring significant commitments
of capital, may arise. In order to pursue such opportunities, the Company may be
required to incur debt or to issue potentially dilutive equity securities in the
future. However, no assurance can be given as to the Company's future
acquisition and expansion opportunities and how such opportunities would be
financed.
YEAR 2000
The following statements and all other statements made in this Quarterly Report
on Form 10-Q with respect to the Company's Year 2000 processing capabilities or
readiness are "Year 2000 Readiness Disclosures" in conformance with the Year
2000 Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112
Stat. 2386).
General
Some computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this design
decision, some of these systems could fail to operate or fail to produce correct
results if "00" is interpreted to mean 1900, rather than 2000. These problems
are widely expected to increase in frequency and severity as the year 2000
approaches, and are commonly referred to as the "Year 2000 Problem."
7
<PAGE> 10
ACS acts as an intermediary for the transfer of data between its clients and
third parties. In this capacity, ACS supplies the operating and technical
resources to cause electronic data to be transmitted between ACS and third
parties. With regard to Year 2000 Problems affecting its or its clients
business, ACS generally undertakes to test and modify system software and
hardware platforms used in transmitting such data. In doing so, ACS relies on
representations from third party vendors of system software and hardware
platforms.
The Company has a Year 2000 Management Control System (MCS) to monitor and track
the progress toward meeting the requirements to remediate the Year 2000 Problem.
ACS also has a full-time Year 2000 project manager who not only manages the MCS,
but also assists in identifying points of concern and providing solutions.
Additionally, ACS has designated one person from each business unit as a single
point of contact for Year 2000 issues. This person coordinates all Year 2000
concerns and issues with third parties within his particular area. Accordingly,
under the MCS, each business unit of ACS receives monthly reports from each of
its operating units. At least bi-monthly, each business unit prepares an
executive summary of its progress. The Year 2000 project manager uses these
reports to prepare a monthly summary of corporate Year 2000 activities for
executive management and for the Audit Committee of the Board of Directors.
Status of Year 2000 Readiness
The Company's MCS at each business unit consists of the following five phases:
awareness, assessment, renovation, validation and implementation. The awareness
phase consists of defining the scope of the Year 2000 Problem and establishing a
corporate infrastructure and overall strategy to perform compliance work. The
assessment phase must identify all hardware, software, networks, automatic
teller machines, other various processing platforms and customer and vendor
interdependencies affected by the Year 2000 Problem. This assessment must go
beyond information systems and include environmental systems that are dependent
on embedded microchips, such as security systems elevators and vaults.
Management also evaluates the Year 2000 effect on other strategic business
initiatives. The assessment considers the potential effect that mergers and
acquisitions, major system development, corporate alliances and system
independences will have on existing systems and/or potential Year 2000 issues
that may arise from acquired systems. The renovation phase includes code
enhancements, hardware and software upgrades, system replacements, vendor
certification and other associated changes. The validation process includes the
testing of incremental changes to hardware and software components. Finally, in
the implementation phase, systems should be certified as Year 2000 compliant and
be accepted by the business users. For those systems which are not compliant,
the consequences will be assessed and any contingency plans put into effect.
For mission critical projects, the Company has generally completed the awareness
and assessment phases and will substantially complete the remaining phases
before June 30, 1999.
In addition to developing an internal risk assessment methodology with respect
to the Year 2000 Problem, ACS is subject to external examinations and project
reviews by regulatory agencies and governmental bodies of the federal
government. To date, these examinations have not identified any material issues
regarding our remediation efforts. The Company has not generally obtained
verification or validation by independent third parties of its processes to
assess Year 2000 Problems, its corrections of Year 2000 Problems or the costs
associated with these activities. However, the Company's Year 2000 program team
is reviewing the project plans prepared by each of the Company's business units
and monitoring their methods and progress against those plans.
Internal Infrastructure
The Company believes that it has identified most of the major computers,
software applications, and related equipment used in connection with its
internal operations that must be modified, upgraded, or replaced to minimize the
possibility of a material disruption to its business. The Company has commenced
the process of modifying, upgrading, and replacing major systems that have been
assessed as adversely affected, and expects to complete this process before the
occurrence of any material disruption of its business.
Client Systems
We are attempting to coordinate with our clients regarding their activities
related to the Year 2000 Problem. Most of our clients maintain their own
application programs, although they use our computer and network resources. We
generally do not have contractual responsibility to ensure that our clients'
application programs are compliant. However, our business could be adversely
affected if our clients experience Year 2000 problems with such applications,
causing them to use less of our computing resources, alter their pattern of
usage of resources or dedicate less of their information processing budgets to
projects we conduct. We do undertake to test and modify system software and
hardware platforms that are represented by the vendors thereof as being Year
2000 compliant. If our vendors fail to provide Year 2000 compliant versions of
their system software, our business could be materially affected.
8
<PAGE> 11
Vendors
The Company has mailed questionnaires to substantially all third party vendors
and suppliers of the major computers, software, and other equipment used,
operated, or maintained by the Company for itself or its clients to identify
and, to the extent possible, to resolve issues involving the Year 2000 Problem.
Responses to these questionnaires are verified against information included with
current releases of vendors' products and services and on vendor web sites and
are shared with ACS' clients. In addition, operating units are instructed not to
acquire hardware, software or other technology that is not contractually
represented by the vendor as Year 2000 compliant. However, the Company has
limited or no control over the actions of these third party vendors. Thus, while
the Company expects that it will be able to resolve any significant issues with
these systems related to the Year 2000 Problem, there can be no assurance that
the Company's vendors will resolve any or all issues with these systems related
to the Year 2000 Problem, before the occurrence of a material disruption to the
business of the Company or any of its clients. Any failure of these third
parties to timely resolve Year 2000 Problems with their systems could have a
material adverse effect on the Company's business, financial condition, and
results of operation.
Systems Other than Information Technology Systems.
In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, photocopiers, telephone switches,
security systems, elevators, air conditioning, fire systems and other common
devices may be affected by the Year 2000 Problem. The Company is currently
assessing the potential effect of, and costs of remediating, the Year 2000
Problem on its office and facilities equipment. In addition, the Company has
initiated a project to assess whether all major leased facilities are Year 2000
compliant.
Costs
Of the approximately $15 million of estimated expenditures for Year 2000
remediation projects, approximately $11 million relates to costs incurred in the
ordinary course of business and $4 million is incremental costs solely
attributable to Year 2000 related problems. Of the $15 million, approximately
$11 million has been incurred through March 31, 1999 and a majority of the
remainder is expected to be incurred by the end of June 1999. This estimate is
being monitored and will be revised as additional information becomes available.
The costs required to achieve substantial Year 2000 compliance or failure to do
so could have a material adverse impact on our business, financial condition and
results of operations.
Most Likely Consequences of Year 2000 Problems
The Company expects to identify and resolve all Year 2000 Problems that could
materially adversely affect its business operations. However, management
believes that it is not possible to determine with complete certainty that all
Year 2000 Problems affecting the Company or its clients have been identified or
corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, no one can accurately
predict how many Year 2000 Problem-related failures will occur or the severity,
duration, or financial consequences of these perhaps inevitable failures. As a
result, management believes that the following consequences are possible:
o a significant number of operational inconveniences and inefficiencies for
the Company and its clients that will divert management's time and
attention and financial and human resources from ordinary business
activities;
o a lesser number of serious system failures that will require significant
efforts by the Company or its clients to prevent or alleviate material
business disruptions;
o several routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 Problems incurred by clients, which will be
resolved in the ordinary course of business; and
o a few serious business disputes alleging that the Company failed to comply
with the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.
Contingency Plans
The Company is currently developing contingency plans to be implemented if its
efforts to identify and correct Year 2000 Problems affecting its internal
systems are not effective. At this time, business units comprising approximately
30% of fiscal 1998 revenues have completed formal contingency plans. For mission
critical projects, the Company expects to complete its contingency plans for
most of its remaining business groups by the end of June 1999. Depending on the
systems affected, these plans could include accelerated replacement of affected
equipment or software; short- to medium-term use of backup sites, equipment, and
software, increased work hours for Company personnel; use of contract personnel
to correct on an accelerated schedule any Year 2000 Problems that arise or to
provide manual workarounds for
9
<PAGE> 12
information systems; and similar approaches. If the Company is required to
implement any of these contingency plans, it could have a material adverse
effect on the Company's financial condition and results of operations.
Disclaimer
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely affected by, among other things, the availability
and cost of programming and testing resources, third party suppliers' ability to
modify proprietary software, and unanticipated problems identified in the
ongoing compliance review.
NEW ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative and Hedging Activities", was issued. SFAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities at fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company is evaluating the impact
of SFAS 133 on the Company's future earnings and financial position, but does
not expect it to be material.
In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-up Activities", was issued. This SOP provides guidance on the financial
reporting of start-up and organization costs and requires that these costs be
expensed as incurred. The provisions of SOP 98-5 are effective for financial
statements for fiscal years beginning after December 15, 1998, although early
adoption is allowed. The adoption of SOP 98-5 is not expected to have a material
impact on the Company's financial statements. The Company will adopt the
provisions of this SOP on July 1, 1999.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", were
issued. SFAS No. 130 establishes standards for reporting comprehensive income
and its components with the same prominence as other financial statements. The
Company adopted SFAS No. 130 on July 1, 1998; however, the Company does not have
any items of comprehensive income that would require disclosure in the periods
presented. SFAS No. 131 establishes standards for reporting information about
operating segments in annual and interim financial statements, although this
statement need not be applied to interim financial statements in the initial
year of its application. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997, and therefore the Company will adopt its requirements
in connection with its annual reporting for the year ending June 30, 1999.
10
<PAGE> 13
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 16, 1998, a state district court in Houston, Texas entered final
judgment against the Company in a lawsuit brought by twenty-one former employees
of Gibraltar Savings Association and/or First Texas Savings Association
(collectively, "GSA/FTSA"). The GSA/FTSA employees alleged that they were
entitled to the value of 401,541 shares of the Company's stock pursuant to
options issued to the GSA/FTSA employees in 1988 in connection with a former
data processing services agreement between GSA/FTSA and the Company. The
judgment against the Company was for approximately $17 million, which includes
attorneys' fees and prejudgment interest, but excludes additional attorneys'
fees of approximately $850,000 which could be awarded in the event the
plaintiffs are successful upon appeal and final judgment. The Company continues
to believe that it has a meritorious defense to all or a substantial portion of
the Plaintiffs' claims. The Company filed its appeal of the judgment on March
15, 1999 and plans to vigorously pursue the appeal. The Plaintiffs also have
filed a notice of appeal. Should the proceedings not be favorably resolved on
appeal, the Company may be subject to a material charge.
A putative class action complaint by Matador Capital Management Corporation,
among other plaintiffs, against BRC, the Company and the directors of BRC at
that time, was filed on October 30, 1998 in the Court of Chancery of the State
of Delaware alleging, among other things, misstatements and omissions by BRC in
documents mailed to the stockholders of BRC in connection with the tender offer,
breaches of the fiduciary duties of the board of directors of BRC and the aiding
and abetting of these alleged breaches of fiduciary duties by the Company. On
November 25, 1998, the Court of Chancery issued an opinion and related order
denying Matador's motion for a preliminary injunction except insofar as it
sought to require the disclosure and dissemination of additional information
outlined in the opinion to BRC's stockholders by the Company. On December 2,
1998, the Court of Chancery entered a further order permitting the tender offer
to be consummated on December 14, 1998, following dissemination by BRC to its
stockholders of a disclosure reviewed by the Court of Chancery. BRC mailed the
disclosure to its stockholders on December 2, 1998. No BRC stockholders
exercised their dissenter's rights under Delaware law in connection with the
merger of a subsidiary of the Company with and into BRC, which was concluded on
February 12, 1999. BRC and the Company anticipate prompt settlement of Matador's
remaining claims for an immaterial sum.
On February 11, 1999, and on or about April 16, 1999, Caremark, Inc., one of the
Company's significant outsourcing clients, filed separate lawsuits in federal
district court in Illinois alleging that the Company had breached contractual
obligations to provide certain information and pricing reductions and a price
quote for cost plus pricing to Caremark. Caremark seeks to terminate the
contract, which comprised approximately 1.5% of the Company's revenues for the
nine month period ended March 31, 1999. Caremark's pleadings also request
damages in the millions of dollars, without further specificity. The Company
feels that it has complied with all contractual obligations, provided the
required information and is not contractually obligated to provide the price
reduction. On February 25, 1999, the Company filed a lawsuit in County Court in
Dallas, Texas against Caremark and its parent, MedPartners, Inc., alleging that
Caremark and MedPartners, Inc. have caused significant injury to the Company by
trying to manufacture a basis to repudiate this contract and to avoid payment
and other obligations. The Company is asking for actual, consequential and
punitive damages. Although the Company cannot predict the outcome of either of
these lawsuits, if the Company is unsuccessful, the resulting losses could hurt
the Company's revenues and profitability.
The Company is subject to certain other legal proceedings, claims and disputes
which arise in the ordinary course of the Company's business. Although the
Company cannot predict the outcomes of these legal proceedings, the Company's
management does not believe these actions will have a material adverse effect on
the Company's financial position, results of operations or liquidity. However,
if unfavorably resolved, these proceedings could have a material adverse effect
on the Company's financial position, results of operations and liquidity.
11
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
* 3.(ii). Bylaws of the Company, as amended and in effect on
February 15, 1999
* 10.(iii)(A). Employment Agreement between the Company and Darwin
Deason, Chairman of the Board, dated February 16,
1999
* 27. Financial Data Schedule
b) Reports on Form 8-K:
On February 5, 1999 the Company filed a Current Report on Form
8-K/A to report the historical and proforma financial statements
of BRC Holdings, Inc.
* Filed herewith
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 14th day of May 1999.
AFFILIATED COMPUTER SERVICES, INC.
By: /s/ Mark A. King
-------------------------------------
Mark A. King
Executive Vice President and
Chief Financial Officer
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
* 3.(ii). Bylaws of the Company, as amended and in effect on February 15,
1999
* 10.(iii)(A). Employment Agreement between the Company and Darwin Deason,
Chairman of the Board, dated February 16, 1999
* 27. Financial Data Schedule
</TABLE>
* Filed herewith
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
AFFILIATED COMPUTER SERVICES, INC.
As Amended and in Effect on
February 15, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
STOCKHOLDERS' MEETINGS...................................................................................1
1. Time and Place of Meetings..........................................................................1
2. Annual Meeting......................................................................................1
3. Special Meetings ...................................................................................1
4. Notice of Meetings..................................................................................1
5. Inspectors .........................................................................................1
6. Quorum .............................................................................................1
7. Voting .............................................................................................2
8. Order of Business ..................................................................................2
DIRECTORS................................................................................................4
9. Function ...........................................................................................4
10. Number, Election, and Terms.........................................................................4
11. Vacancies and Newly Created Directorships ..........................................................4
12. Removal.............................................................................................4
13. Nominations of Directors: Election..................................................................4
14. Resignation.........................................................................................5
15. Regular Meeting.....................................................................................6
16. Special Meetings ...................................................................................6
17. Quorum .............................................................................................6
18. Participation in Meetings by Telephone Conference...................................................6
19. Committees..........................................................................................6
20. Compensation .......................................................................................7
21. Rules ..............................................................................................7
NOTICES..................................................................................................7
22. Generally...........................................................................................7
23. Waivers.............................................................................................7
OFFICERS.................................................................................................8
24. Generally...........................................................................................8
25. Compensation........................................................................................8
26. Succession..........................................................................................8
27. Authority and Duties................................................................................8
STOCK....................................................................................................8
28. Certificates........................................................................................8
29. Classes of Stock....................................................................................9
30. Transfers...........................................................................................9
31. Lost, Stolen, or Destroyed Certificates.............................................................9
32. Record Dates........................................................................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
INDEMNIFICATION.........................................................................................10
33. Damages and Expenses...............................................................................10
34. Insurance, Contracts and Funding...................................................................10
GENERAL.................................................................................................11
35. Fiscal Year........................................................................................11
36. Seal...............................................................................................11
37. Reliance upon Books, Reports, and Records..........................................................11
38. Time Periods.......................................................................................11
39. Amendments.........................................................................................11
40. Certain Defined Terms..............................................................................11
</TABLE>
<PAGE> 4
STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings. All meetings of the stockholders for the election
of Directors or for any other purpose will be held at such time and place,
within or without the State of Delaware, as may be designated by the Board of
Directors or, in the absence of a designation by the Board of Directors, the
Chairman of the Board of Directors, the President, or the Secretary, and stated
in the notice of meeting. The Board of Directors may postpone and reschedule any
previously scheduled annual or special meeting of the stockholders.
2. Annual Meeting. An annual meeting of the stockholders will be held at such
date and time as may be designated from time to time by the Board of Directors,
at which meeting the stockholders will elect by a plurality vote the Directors
to succeed those whose terms expire at such meeting and will transact such other
business as may properly be brought before the meeting in accordance with Bylaw
8.
3. Special Meetings. Special meetings of the stockholders may be called only by
(a) the Chairman of the Board of Directors, and (b) the Secretary within 10
calendar days after receipt of the written request of a majority of the Whole
Board of Directors. Any such request by a majority of the Whole Board of
Directors must be sent to the Chairman of the Board of Directors and the
Secretary and must state the purpose or purposes of the proposed meeting.
Special meetings of holders of the outstanding Preferred Stock, if any, may be
called in the manner and for the purposes provided in the applicable Preferred
Stock Designation.
4. Notice of Meetings. Written notice of every meeting of the stockholders,
stating the place, date, and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, will be given
not less than 10 nor more than 60 calendar days before the date of the meeting
to each stockholder of record entitled to vote at such meeting, except as
otherwise provided herein or by law. When a meeting is adjourned to another
place, date, or time, written notice need not be given of the adjourned meeting
if the place, date, and time thereof are announced at the meeting at which the
adjournment is taken; provided however, that if the adjournment is for more than
30 calendar days, or if after the adjournment a new record date is fixed for the
adjourned meeting, written notice of the place, date, and time of the adjourned
meeting must be given in conformity herewith. At any adjourned meeting, any
business may be transacted which properly could have been transacted at the
original meeting.
5. Inspectors. The Board of Directors may appoint one or more inspectors of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of the stockholders, or any adjournment thereof, in advance of
such meeting. The Board of Directors may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the presiding officer
of the meeting may appoint one or more substitute inspectors.
6. Quorum. Except as otherwise provided by law or in a Preferred Stock
Designation, the holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, will
constitute a quorum at all meetings of the stockholders for the
1
<PAGE> 5
transaction of business thereat. If, however, such quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, will have the power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present or represented.
7. Voting. Except as otherwise provided by law, by the Certificate of
Incorporation, or in a Preferred Stock Designation, each stockholder will be
entitled at every meeting of the stockholders to one vote for each share of
stock having voting power standing in the name of such stockholder on the books
of the Company on the record date for the meeting and such votes may be cast
either in person or by written proxy. Every proxy must be duly executed and
filed with the Secretary. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary. The vote upon any question brought before a
meeting of the stockholders may be by voice vote, unless otherwise required by
the Certificate of Incorporation or these Bylaws or unless the Chairman of the
Board of Directors or the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting otherwise determine. Every vote taken by written ballot will be counted
by the inspectors of election. When a quorum is present at any meeting, the
affirmative vote of the holders of a majority of the stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
and which has actually been voted will be the act of the stockholders, except in
the election of Directors or as otherwise provided in these Bylaws, the
Certificate of Incorporation, a Preferred Stock Designation, or by law.
8. Order of Business. (a) The Chairman of the Board of Directors, or such other
officer of the Company designated by a majority of the Whole Board of Directors,
will call meetings of the stockholders to order and will act as presiding
officer thereof. Unless otherwise determined by the Board of Directors prior to
the meeting, the presiding officer of the meeting of the stockholders will also
determine the order of business and have the authority in his or her sole
discretion to regulate the conduct of any such meeting, including, without
limitation, by imposing restrictions on the persons (other than stockholders of
the Company or their duly appointed proxies) who may attend any such
stockholders' meeting, by ascertaining whether any stockholder or his proxy may
be excluded from any meeting of the stockholders based upon any determination by
the presiding officer, in his sole discretion, that any such person has unduly
disrupted or is likely to disrupt the proceedings thereat, and by determining
the circumstances in which any person may make a statement or ask questions at
any meeting of the stockholders.
(b) At an annual meeting of the stockholders, only such business will be
conducted or considered as is properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors in accordance with Bylaw 4, (ii) otherwise properly
brought before the meeting by the presiding officer or by or at the direction of
a majority of the Whole Board of Directors, or (iii) otherwise properly
requested to be brought before the meeting by a stockholder in accordance with
Bylaw 8(c).
2
<PAGE> 6
(c) In order to properly submit any business to an annual meeting of
stockholders, a stockholder must give timely notice in writing to the Secretary
of the Company. To be considered timely, a stockholder's notice must be
delivered either in person or by United States certified mail, postage prepaid,
and received at the principal executive offices of the Company (a) not less than
120 days nor more than 150 days before the first anniversary date of the
Company's proxy statement in connection with the last annual meeting of
stockholders or (b) if no annual meeting has been called after the expiration of
more than 30 days from the date for such meeting contemplated at the time of the
previous year's proxy statement, not less than a reasonable time, as determined
by the Board of Directors, prior to the date of the applicable annual meeting.
The Secretary of the Company will deliver any stockholder proposals and
nominations received in a timely manner for review by the Board of Directors or
a committee designated by the Board of Directors.
A stockholder's notice to submit business to an annual meeting of stockholders
will set forth (i) the name and address of the stockholder, (ii) the class and
number of shares of stock beneficially owned by such stockholder, (iii) the name
in which such shares are registered on the stock transfer books of the Company,
(iv) a representation that the stockholder intends to appear at the meeting in
person or by proxy to submit the business specified in such notice, (v) any
material interest of the stockholder in the business to be submitted, and (vi) a
brief description of the business desired to be submitted to the annual meeting,
including the complete text of any resolutions to be presented at the annual
meeting, and the reasons for conducting such business at the annual meeting. In
addition, the stockholder making such proposal will promptly provide any other
information reasonably requested by the Company.
Notwithstanding the foregoing provisions of this Bylaw 8(c), a stockholder who
seeks to have any proposal included in the Company's proxy statement will comply
with the requirements of Regulation 14A under the Securities Exchange Act of
1934, as amended.
(d) At a special meeting of stockholders, only such business may be conducted or
considered as is properly brought before the meeting. To be properly brought
before a special meeting, business must be (i) specified in the notice of the
meeting (or any supplement thereto) given by or at the direction of the Chairman
of the Board of Directors or a majority of the Whole Board of Directors in
accordance with Bylaw 4, or (ii) otherwise properly brought before the meeting
by the presiding officer or by or at the direction of a majority of the Whole
Board of Directors.
(e) The determination of whether any business sought to be brought before any
annual or special meeting of the stockholders is properly brought before such
meeting in accordance with this Bylaw will be made by the presiding officer of
such meeting. If the presiding officer determines that any business is not
properly brought before such meeting, he or she will so declare to the meeting
and any such business will not be conducted or considered.
3
<PAGE> 7
DIRECTORS
9. Function. The business and affairs of the Company will be managed under the
direction of its Board of Directors.
10. Number, Election, and Terms. (a) Subject to the rights, if any, of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation and to the minimum and maximum number
of authorized Directors provided in the Certificate of Incorporation, the
authorized number of Directors may be determined from time to time only by a
vote of a majority of the Whole Board of Directors. The Directors, other than
those who may be elected by the holders of any series of the Preferred Stock,
will be classified with respect to the time for which they severally hold office
in accordance with the Certificate of Incorporation.
(b) Notwithstanding anything contained in the Certificate of Incorporation or
these Bylaws to the contrary, the term of any Director who is also an officer of
the Company will terminate automatically, without any further action on the part
of the Board of Directors or such Director, upon the termination for any reason
of such Director in his or her capacity as an officer of the Company.
Notwithstanding anything contained in the Certificate of Incorporation or these
Bylaws to the contrary, the affirmative vote of at least 80% of the Directors
then in office will be required to amend, repeal, or adopt any provision
inconsistent with this Bylaw 10(b).
11. Vacancies and Newly Created Directorships. Subject to the rights, if any, of
the holders of any series of Preferred Stock to elect additional Directors under
circumstances specified in a Preferred Stock Designation, newly created
directorships resulting from any increase in the number of Directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other cause will be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
though less than a quorum of the Board of Directors, or by a sole remaining
Director. Any Director elected in accordance with the preceding sentence will
hold office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until such
Director's successor is elected and qualified. No decrease in the number of
Directors constituting the Board of Directors will shorten the term of an
incumbent Director.
12. Removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect additional Directors under circumstances specified in a
Preferred Stock Designation, any Director may be removed from office by the
stockholders only for cause and only in the manner provided in the Certificate
of Incorporation.
13. Nominations of Directors; Election. (a) Subject to the rights, if any, of
the holders of any series of Preferred Stock to elect additional Directors under
circumstances specified in a Preferred Stock Designation, only persons who are
nominated in accordance with the following procedures will be eligible for
election at a meeting of stockholders as Directors of the Company.
(b) Nominations of persons for election as Directors of the Company may be made
at an annual meeting of stockholders only (i) by or at the direction of the
Board of Directors or (ii) by any
4
<PAGE> 8
stockholder who is a stockholder of record at the time of giving of notice
provided for in this Bylaw 13, who is entitled to vote for the election of
Directors at such meeting, and who complies with the procedures set forth in
this Bylaw 13. All nominations by stockholders must be made pursuant to timely
notice in proper written form to the Secretary.
(c) Nominations by stockholders, if made, must be made pursuant to timely notice
in writing to the Secretary of the Company. To be timely, a stockholder's notice
will be delivered to or mailed and received at the principal executive offices
of the Company (a) with respect to an election to be held at the annual meeting
of the stockholders of the Company, not less than 120 nor more than 150 days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders of the Company, and (b) with respect to an election to be held at a
special meeting of stockholders of the Company for the election of Directors,
not later than the close of business on the tenth day following the date on
which notice of the date of the special meeting was mailed to stockholders of
the Company or public disclosure of the date of the special meeting was made,
whichever first occurs.
Such stockholder's notice to the Secretary will set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
Director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serve as a Director if elected), and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Company's books, of such stockholder and (ii) the class and number of shares of
voting stock of the Company which are beneficially owned by such stockholder. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director will furnish to the Secretary of the
Company that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. In the event that a person is validly
designated as a nominee to the Board of Directors in accordance with the
procedures set forth in this Bylaw 13(c) and thereafter becomes unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee.
The presiding officer of the meeting of stockholders will, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these bylaws, and if he should so
determine, he will so declare to the meeting and the defective nomination will
be disregarded.
Notwithstanding the foregoing provisions of this Bylaw 13(c), a stockholder will
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw 13(c).
14. Resignation. Any Director may resign at any time by giving written notice of
his resignation to the Chairman of the Board of Directors or the Secretary. Any
resignation will be effective upon actual receipt by any such person or, if
later, as of the date and time specified in such written notice.
5
<PAGE> 9
15. Regular Meetings. Regular meetings of the Board of Directors may be held
immediately after the annual meeting of the stockholders and at such other time
and place either within or without the State of Delaware as may from time to
time be determined by the Board of Directors. Notice of regular meetings of the
Board of Directors need not be given.
16. Special Meetings. Special meetings of the Board of Directors may be called
by the Chairman of the Board of Directors or the President on one day's notice
to each Director by whom such notice is not waived, given either personally or
by mail, telephone, telegram, telex, facsimile, or similar medium of
communication, and will be called by the Chairman of the Board of Directors or
the President in like manner and on like notice on the written request of five
or more Directors. Special meetings of the Board of Directors may be held at
such time and place either within or without the State of Delaware as is
determined by the Board of Directors or specified in the notice of any such
meeting.
17. Quorum. At all meetings of the Board of Directors, a majority of the total
number of Directors then in office will constitute a quorum for the transaction
of business. Except for the designation of committees as hereinafter provided
and except for actions required by these Bylaws or the Certificate of
Incorporation to be taken by a majority of the Whole Board of Directors, the act
of a majority of the Directors present at any meeting at which there is a quorum
will be the act of the Board of Directors. If a quorum is not present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time to another place, time, or date, without notice other
than announcement at the meeting, until a quorum is present.
18. Participation in Meetings by Telephone Conference. Members of the Board of
Directors or any committee designated by the Board of Directors may participate
in a meeting of the Board of Directors or any such committee, as the case may
be, by means of telephone conference or similar means by which all persons
participating in the meeting can hear other, and such participation in a meeting
will constitute presence in person at the meeting.
19. Committees. (a) The Board of Directors, by resolution passed by a majority
of the Whole Board of Directors, may designate one or more directorate
committees, each such committee to consist of one or more Directors and each to
have such lawfully delegable powers and duties as the Board of Directors may
confer.
(b) Each committee of the Board of Directors will serve at the pleasure of the
Board of Directors or as may be specified in any resolution from time to time
adopted by the Board of Directors. The Board of Directors may designate one or
more Directors as alternate members of any such committee, who may replace any
absent or disqualified member at any meeting of such committee. In lieu of such
action by the Board of Directors, in the absence or disqualification of any
member of a committee of the Board of Directors, the members thereof present at
any such meeting of such committee and not disqualified from voting, whether or
not they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
6
<PAGE> 10
(c) Except as otherwise provided in these Bylaws or by law, any committee of the
Board of Directors, to the extent provided in the resolution of the Board of
Directors, will have and may exercise all the powers and authority of the Board
of Directors in the direction of the management of the business and affairs of
the Company. Any such committee designated by the Board of Directors will have
such name as may be determined from time to time by resolution adopted by the
Board of Directors. Unless otherwise prescribed by the Board of Directors, a
majority of the members of any committee of the Board of Directors will
constitute a quorum for the transaction of business, and the act of a majority
of the members present at a meeting at which there is a quorum will be the act
of such committee. Each committee of the Board of Directors may prescribe its
own rules for calling and holding meetings and its method of procedure, subject
to any rules prescribed by the Board of Directors, and will keep a written
record of all actions taken by it.
20. Compensation. The Board of Directors may establish the compensation for, and
reimbursement of the expenses of, Directors for membership on the Board of
Directors and on committees of the Board of Directors, attendance at meetings of
the Board of Directors or committees of the Board of Directors, and for other
services by Directors of the Company or any of its majority-owned subsidiaries.
21. Rules. The Board of Directors may adopt rules and regulations for the
conduct of meetings and the oversight of the management of the affairs of the
Company.
NOTICES
22. Generally. Except as otherwise provided by law, these Bylaws, or the
Certificate of Incorporation, whenever by law or under the provisions of the
Certificate of Incorporation or these Bylaws notice is required to be given to
any Director or stockholder, it will not be construed to require personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder, at the address of such Director or stockholder as it
appears on the records of the Company, with postage thereon prepaid, and such
notice will be deemed to be given at the time when the same is deposited in the
United States mail. Notice to Directors may also be given by telephone,
telegram, telex, facsimile, or similar medium of communication or as otherwise
may be permitted by these Bylaws.
23. Waivers. Whenever any notice is required to be given by law or under the
provisions of the Certificate of Incorporation or these Bylaws, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time of the event for which notice is to be given, will be
deemed equivalent to such notice. Attendance of a person at a meeting will
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened.
7
<PAGE> 11
OFFICERS
24. Generally. The officers of the Company will be elected by the Board of
Directors and will consist of a Chairman of the Board of Directors (who, if the
Board of Directors so specifies, may but will not be required to be also the
Chief Executive Officer), a President (who may also be the Chief Executive
Officer), a Secretary, and a Treasurer. The Board of Directors may also choose
any or all of the following: one or more Vice Chairmen of the Board of
Directors, one or more Assistants to the Chairman of the Board of Directors, one
or more Vice Presidents (who may be given particular designations with respect
to authority, function, or seniority), and such other officers as the Board of
Directors may from time to time determine. Notwithstanding the foregoing, by
specific action the Board of Directors may authorize the Chairman of the Board
of Directors to appoint any person to any office other than Chairman and may
authorize the President to appoint any person to any office other than Chairman,
President, Secretary or Treasurer. Any number of offices may be held by the same
person. Any of the offices may be left vacant from time to time as the Board of
Directors may determine. In the case of the absence or disability of any officer
of the Company or for any other reason deemed sufficient by a majority of the
Board of Directors, the Board of Directors may delegate the absent or disabled
officer's powers or duties to any other officer or to any Director.
25. Compensation. The compensation of all officers and agents of the Company who
are also Directors of the Company will be fixed by the Board of Directors or by
a committee of the Board of Directors. The Board of Directors may fix, or
delegate the power to fix, the compensation of other officers and agents of the
Company to an officer of the Company.
26. Succession. The officers of the Company will hold office until their
successors are elected and qualified. The Chief Executive Officer, President,
Chief Financial Officer, any Executive Vice President, General Counsel,
Secretary and Treasurer may be removed from office at any time by the Chairman
and any other officers may be removed at any time by the President or Chief
Executive Officer. Any vacancy occurring in any office of the Company may be
filled by the Board of Directors or by the Chairman of the Board of Directors as
provided in Bylaw 24.
27. Authority and Duties. Each of the officers of the Company will have such
authority and will perform all duties as are customarily incident to their
respective offices or as may be specified from time to time by the Board of
Directors.
STOCK
28. Certificates. Certificates representing shares of stock of the Company will
be in such form as from time to time may be determined by the Board of
Directors, subject to applicable legal requirements. Each such certificate will
be numbered and its issuance recorded in the books of the Company, and such
certificate will exhibit the holder's name and the number of shares and will be
signed by, or in the name of, the Company by the Chairman of the Board of
Directors and the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer, and will also be signed by, or bear the facsimile signature
of, a duly authorized officer or agent of any properly designated transfer agent
of the Company. Any or all of the signatures and the seal of the Company,
8
<PAGE> 12
if any, upon such certificates may be facsimiles, engraved, or printed. Such
certificates may be issued and delivered notwithstanding that the person whose
facsimile signature appears thereon may have ceased to be such officer at the
time the certificates are issued and delivered.
29. Classes of Stock. The designations, preferences, and relative participating,
optional, or other special rights of the various classes of stock or series
thereof, and the qualifications, limitations, or restrictions thereof, will be
set forth in full or summarized on the face or back of the certificates which
the Company issues to represent its stock or, in lieu thereof, such certificates
will set forth the office of the Company from which the holders of certificates
may obtain a copy of such information.
30. Transfers. Upon surrender to the Company or the transfer agent of the
Company of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it will be the
duty of the Company to issue, or to cause its transfer agent to issue, a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.
31. Lost, Stolen or Destroyed Certificates. The Secretary may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact, satisfactory
to the Secretary, by the person claiming the certificate of stock to be lost,
stolen, or destroyed. As a condition precedent to the issuance of a new
certificate or certificates, the Secretary may require the owners of such lost,
stolen, or destroyed certificate or certificates to give the Company a bond in
such sum and with such surety or sureties as the Secretary may direct as
indemnity against any claims that may be made against the Company with respect
to the certificate alleged to have been lost, stolen, or destroyed or the
issuance of the new certificate.
32. Record Dates. (a) In order that the Company may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which will
not be more than 60 nor less than 10 calendar days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders will be at the close of business on the calendar
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the calendar day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of the stockholders will apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Company may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date will not be more
than 60 calendar days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose will be at the
close of business on the calendar day on which the Board of Directors adopts the
resolution relating thereto.
9
<PAGE> 13
(c) The Company will be entitled to treat the person in whose name any share of
its stock is registered as the owner thereof for all purposes, and will not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the Company has notice thereof,
except as expressly provided by applicable law.
INDEMNIFICATION
33. Damages and Expenses. (a) Without limiting the generality or effect of
Article Ninth of the Certificate of Incorporation, the Company will to the
fullest extent permitted by applicable law as then in effect indemnify any
person (an "Indemnitee") who is or was involved in any manner (including,
without limitation, as a party or a witness) or is threatened to be made so
involved in any threatened, pending, or completed investigation, claim, action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(including, without limitation, any action, suit, or proceeding by or in the
right of the Company to procure a judgment in its favor) (a "Proceeding") by
reason of the fact that such person is or was or had agreed to become a
Director, officer, employee, or agent of the Company, or is or was serving at
the request of the Board of Directors or an officer of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, whether for profit or not for profit, or
anything done or not by such person in any such capacity, against all expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
Proceeding. Such indemnification will be a contract right and will include the
right to receive payment in advance of any expenses incurred by an Indemnitee in
connection with such Proceeding upon receipt of an undertaking by or on behalf
of such person to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the Company as authorized by this Bylaw 33
or otherwise.
(b) The right of indemnification provided in this Bylaw 33 will not be exclusive
of any other rights to which any person seeking indemnification may otherwise be
entitled, and will be applicable to Proceedings commenced or continuing after
the adoption of this Bylaw 33, whether arising from acts or omissions occurring
before or after such adoption.
(c) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Bylaw 33 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
34. Insurance, Contracts, and Funding. The Company may purchase and maintain
insurance to protect itself and any Indemnitee against any expenses, judgments,
fines, and amounts paid in settlement or incurred by any Indemnitee in
connection with any Proceeding referred to in Bylaw 33 or otherwise, to the
fullest extent permitted by applicable law as then in effect. The Company may
enter into contracts with any person entitled to indemnification under Bylaw 33
or otherwise, and may create a trust fund, grant a security interest, or use
other means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in Bylaw 33.
10
<PAGE> 14
GENERAL
35. Fiscal Year. The fiscal year of the Company will end on June 30 of each year
or such other date as may be fixed from time to time by the Board of Directors.
36. Seal. The Board of Directors may adopt a corporate seal and use the same by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
37. Reliance upon Books, Reports and Records. Each Director, each member of a
committee designated by the Board of Directors, and each officer of the Company
will, in the performance of his or her duties, be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports, or statements presented to the Company by any of the Company's officers
or employees, or committees of the Board of Directors, or by any other person or
entity as to matters the Director, committee member, or officer believes are
within such other person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Company.
38. Time Periods. In applying any provision of these Bylaws that requires that
an act be done or not be done a specified number of days prior to an event or
that an act be done during a period of a specified number of days prior to an
event, calendar days will be used unless otherwise specified, the day of the
doing of the fact will be excluded, and the day of the event will be included.
39. Amendments. Except as otherwise provided by law or by the Certificate of
Incorporation or these Bylaws, these Bylaws or any of them may be amended in any
respect or repealed at any time, either (a) at any meeting of stockholders,
provided that any amendment or supplement proposed to be acted upon at any such
meeting has been described or referred to in the notice of such meeting, or (b)
at any meeting of the Board of Directors, provided that no amendment adopted by
the Board of Directors may vary or conflict with any amendment properly adopted
by the stockholders.
40. Certain Defined Terms. Terms used herein with initial capital letters that
are not otherwise defined are used herein as defined in the Certificate of
Incorporation.
11
<PAGE> 1
EXHIBIT 10(iii)(A)
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 16th day of February, 1999, between Affiliated
Computer Services, Inc., a Delaware corporation (the "Company"), and Darwin
Deason (the "Executive").
WHEREAS, the Executive has served on the Board of Directors (the
"Board") of the Company and as its Chairman and Chief Executive Officer since
the date of the Company's incorporation;
WHEREAS, it is currently contemplated that although Executive will
continue to have certain powers and authority customarily associated with a
chief executive officer position, the Company's President will be designated as
the Chief Executive Officer while the Executive will retain the title of
Chairman;
WHEREAS, the Executive will, consistent with the preceding recital,
have exclusive authority for the following specified areas: (i) selecting and
appointing the individual(s) to serve in, or to be removed from, the offices of
Chief Executive Officer, President, Chief Financial Officer, Executive Vice
Presidents, General Counsel, Secretary and Treasurer and (subject to appropriate
charter amendment confirming the Executive's authority to fill such vacancies)
to fill any director vacancies created in the event any such removal from
office, (ii) recommending to the Board individuals for election to, or removal
from, the Board itself, and (iii) recommending to the Compensation Committee to
the Board or, as applicable, to the Special Compensation Committee to the Board
salary, bonus, stock option and other compensation matters for such officers,
(iv) approval of acquisitions to the extent authority has previously been
granted by the Board to the Executive in his capacity as the member of the
Special Transactions Committee (except to the extent the Executive has
previously delegated authority to the President with
1
<PAGE> 2
respect to such acquisitions which do not exceed $25 million in total
consideration), (v) spending commitments in excess of $5 million, and (vi)
approval of expense reports for the CEO and CFO;
WHEREAS, the Executive possesses an intimate knowledge of the business
and affairs of the Company, its policies, methods, personnel and plans for the
future;
WHEREAS, the Board recognizes that the Executive's contribution as
Chairman and Chief Executive Officer to the growth and success of the Company
has been substantial and desires to assure the Company of the Executive's
continued employment in an executive capacity and to compensate him therefor;
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms herein provided;
WHEREAS, the Executive and the Company are currently parties to that
certain Severance Agreement ("Severance Agreement") made and effective as of
the 6th day of August, 1997, which Severance Agreement is to be replaced
completely by this Agreement; and
WHEREAS, the Executive and the Company are also currently parties to
that certain Supplemental Executive Retirement Agreement, dated as of December
15, 1998 ("SERP Agreement"), which SERP Agreement the parties hereto do not
intend to abrogate by this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Employment. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth herein for the period commencing on the date
hereof and expiring on May 18, 2004
2
<PAGE> 3
(unless sooner terminated as hereinafter set forth); provided, however, that
commencing on May 18, 2000 and each May 18 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless at
least thirty (30) days prior to any such May 18 date, either the Company (upon
a unanimous vote by all of the Board except the Executive) or the Executive
shall have given notice that it or he does not wish to extend this Agreement.
The term of this Agreement, as it may from time to time be extended in
accordance with this Section, may be referred to herein as the "Period of
Employment."
2. Position and Duties. The Executive, during the Period of
Employment, shall be the Chairman of the Board, shall have the power and
authority outlined below, shall report only to the Board, shall devote
sufficient working time and efforts to the business and affairs of the Company,
and shall have such other powers and duties as may from time to time be
prescribed by the Board, provided that such duties are consistent with his
present duties and with the Executive's position as a senior executive officer
in charge of the general management of the Company. Upon designation of the
Company's President as Chief Executive Officer, the Executive shall have sole
responsibility and authority with respect to the following specified areas: (i)
selecting and appointing the individual(s) to serve in, or to be removed from,
the offices of Chief Executive Officer, President, Chief Financial Officer,
Executive Vice Presidents, General Counsel, Secretary and Treasurer and
(subject to appropriate charter amendment confirming the Executive's authority
to fill such vacancies) to fill any director vacancies created in the event any
such removal from office, (ii) recommending to the Board individuals for
election to, or removal from, the Board itself, (iii) recommending to the
Compensation Committee to the Board, or as applicable, to the Special
Compensation Committee to the Board, salary, bonus, stock option and other
compensation matters for such officers, (iv) approval of
3
<PAGE> 4
acquisitions to the extent authority has previously been granted by the Board
to the Executive in his capacity as the member of the Special Transactions
Committee (except to the extent the Executive had previously delegated
authority to the President with respect to such acquisitions which do not
exceed $25 million in total consideration), (v) spending commitments in excess
of $5 million, and (vi) approval of expense reports for the CEO and CFO. With
respect to the responsibility and authority of Executive referenced in
sub-clause (ii) regarding recommending to the Board individuals for election to
the Board, the Board shall annually designate the Executive to serve as a
one-person Nominating Committee for the Board charged with recommending to the
Board charged with recommending to the Board (x) a slate of director nominees
proposed for election at each annual meeting of stockholders and (y) director
nominees proposed to be elected by the remaining directors or by the
stockholders at a special meeting to fill any vacancies on the Board resulting
from a loss of one or more directors (other than vacancies resulting from
removal from office of an officer who was also serving as a director, which
vacancy shall be filled by the Executive). In the event any time during the
Period of Employment the current President of the Company no longer occupies
such office or no longer carries the title of "Chief Executive Officer", any
and all powers, duties and authority and such title of "Chief Executive
Officer" shall, automatically and without further action, revert to the
Executive until a successor is duly appointed and qualified.
3. Place of Performance. In connection with his employment by the
Company during the Period of Employment, the Executive shall be based at the
Company's principal executive offices in Dallas, Texas and shall not be
required to be absent therefrom on travel status or otherwise more than
forty-five (45) days in any calendar year. The Company shall not, during the
Period of Employment, without the written consent of the Executive, relocate or
4
<PAGE> 5
transfer its principal executive offices to a location more than twenty (20)
miles from the Executive's current principal residence. The Company will
promptly pay (or reimburse the Executive for) all reasonable moving expenses
incurred by the Executive relating to a change of his principal residence in
connection with any such relocation of the Company's principal executive
offices to which the Executive has consented.
4. Compensation and Related Matters.
(a) Base Salary. Initially, the Executive shall receive a base
salary ("Base Salary") at the annual rate of Five Hundred Twenty Five
Thousand Dollars ($525,000) during the period ending June 30, 1999.
Thereafter, the Executive's Base Salary (or, if applicable, Adjusted
Base Salary) shall be adjusted (increased or decreased, as the case
may be), effective on July 1, 1999 and on each July 1 thereafter
during the Period of Employment, by a percentage equal to the average
percentage adjustment (increase or decrease, as the case may be), if
any, in the annual salaries for the top five executive officers of the
Company for the fiscal year beginning on the applicable July 1 as
compared to the annual salaries for such executives for the
immediately preceding fiscal year (provided that if any such executive
did not occupy such executive position, or a similar one, for such
preceding year, then that executive's salary shall not be used in
calculating the average adjustment). The Base Salary, as changed by
such adjustments, may be referred to herein as "Adjusted Base Salary."
Base Salary or Adjusted Base Salary shall be payable in substantially
equal bi-monthly installments, shall in no way limit or reduce the
obligations of the Company hereunder.
(b) Bonus Compensation. In addition to Base Salary or Adjusted Base
Salary, the Executive shall be entitled to receive, on or about June
30 (the Company's fiscal year
5
<PAGE> 6
end), but in no event later than August 31 next following, of each
year, during the Period of Employment, bonus compensation of up to (or
greater than, if so decided by the Special Compensation Committee) a
Yearly Targeted Bonus. For purposes of this Agreement, the Yearly
Targeted Bonus for a particular fiscal year will be two hundred fifty
percent (250%) (or, in the discretion of the Special Compensation
Committee, a greater percentage) of the Base Salary or, as the case
may be, of the Adjusted Base Salary for the fiscal year associated
with such June 30. In the case of a particular fiscal year, if the
Executive achieves the financial goals set for the Executive for that
year (which goals shall be set each year by the Special Compensation
Committee to the Board based upon the criteria currently in use), then
the Company will pay the entire (or, in the discretion of the Special
Compensation Committee, a greater amount) Yearly Targeted Bonus. If
such goals are not achieved by the Executive for a particular fiscal
year, the exact portion of the Yearly Targeted Bonus to be paid for
that particular fiscal year shall be determined in accordance with the
provisions of the Company's existing executive bonus plan.
(c) Expenses. During any Period of Employment the Executive shall
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in accordance with the policies and
procedures presently established by the Company for its senior
executive officers) in performing services hereunder, provided that
the Executive properly accounts therefor in accordance with Company
policy.
(d) Other Benefits. The Executive shall be entitled to continue to
participate in or receive benefits under all of the Company's Employee
Benefit Plans or Other Arrangements in effect on the date hereof, or
under plans or arrangements that provide the Executive with at least
equivalent benefits to those provided under such Employee
6
<PAGE> 7
Benefit Plans or Other Arrangements. As used herein, "Employee Benefit
Plans or Other Arrangements" include, without limitation, each pension
and retirement plan, supplemental pension, retirement and deferred
compensation plan, savings and profit-sharing plan, stock ownership
plan, stock purchase plan, stock option plan, life insurance plan,
medical insurance plan, disability plan, health and accident plan or
arrangement established and maintained by the Company on the date
hereof. The Executive shall be entitled to participate in or receive
benefits under any employee benefit plan or arrangement which may, in
the future, be made available by the Company to its executives and key
management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plan or
arrangement. Nothing paid to the Executive under any Employee Benefit
Plan or Other Arrangement presently in effect or any employee benefit
plan or arrangement which may be made available in the future shall be
deemed to be in lieu of compensation payable to the Executive pursuant
to Subsections 4(a) and 4(b) above. Any payments or benefits payable
to the Executive under a plan or arrangement referred to in this
Subsection 4(d) in respect of any calendar year during which the
Executive is employed by the Company for less than the whole of such
year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such
calendar year during which he is so employed. Should any such payments
or benefits accrue on a fiscal (rather than calendar) year, then the
proration in the preceding sentence shall be on the basis of a fiscal
year rather than calendar year.
(e) Vacations. The Executive shall be entitled to the number of
paid vacation days in each calendar year determined by the Company
from time to time for its senior
7
<PAGE> 8
executive officers, but not less than four (4) weeks in any calendar
year (prorated in any calendar year during which the Executive is
employed hereunder for less than the entire such year in accordance
with the number of days in such calendar year during which he is so
employed). The Executive shall also be entitled to all paid holidays
given by the Company to its senior executive officers.
(f) Perquisites. The Executive shall be entitled to continue to
receive the perquisites and fringe benefits in accordance with present
practices currently received by the Executive.
5. Offices. The Executive agrees to serve as a director of the Company
and any of its direct or indirect subsidiaries and in one or more executive
offices of any of the Company's direct or indirect subsidiaries, if elected or
appointed thereto, provided he is indemnified for serving in any and all such
capacities on a basis no less favorable than is currently provided by the
Company's By-laws; such service will be provided without any additional
compensation beyond what is set out in this Agreement.
6. Unauthorized Disclosure.
(a) During the Period of Employment hereunder, the Executive shall
not, without the written consent of the Board or a person authorized
thereby, disclose to any person, other than an employee of the Company
or a person to whom disclosure is reasonably necessary or appropriate
in connection with the performance by the Executive of his duties as
an executive of the Company or a may be required by law or
regulations, any material confidential information obtained by him
while in the employ of the Company with respect to any of the
Company's products, systems, customers or organization, the disclosure
of which he knows will be materially damaging to the
8
<PAGE> 9
Company; provided, however, that confidential information shall not
include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information
of a type not otherwise considered confidential by persons engaged in
the same business or a business similar to that conducted by the
Company. For the period ending two (2) years following the termination
of employment hereunder, the Executive shall not disclose any
confidential information of the type described above except as
determined by him to be reasonably necessary in connection with any
business or activity in which he is then engaged.
(b) The foregoing provisions of this Section 6 shall be binding
upon the Executive's heirs, successors and legal representatives.
7. Termination. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent
from his duties hereunder on a full-time basis for one hundred eighty
(180) consecutive calendar days, and within thirty (30) days after
written Notice of Termination is given (which may occur no earlier
than thirty (30) days before, but at any time after, the end of such
one hundred eighty (180) day period), the Executive shall not have
returned to the performance of his duties hereunder on a full-time
basis, the Company may terminate the Executive's employment hereunder.
(c) Termination by Company for Cause. Upon a vote to terminate by
the Board in which at least all of the members of the Board other than
the Executive vote to
9
<PAGE> 10
terminate, the Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, the term "Cause"
shall have the meaning as set out in Schedule A to this Agreement.
(d) Termination by the Executive. The Executive may, during the
Period of Employment, upon giving Notice of Termination, terminate his
employment hereunder.
(e) Notice of Termination. Any termination, during the Period of
Employment, of the Executive's employment by the Company or any such
termination by the Executive (other than termination pursuant to
Subsection 7(a) above on account of death) shall be communicated by
written Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall, during the
Period of Employment, mean (i) if the Executive's employment is
terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated on account of disability pursuant
to Subsection 7(b) above, thirty (30) days after Notice of Termination
is given (provided that the Executive shall not, during such thirty
(30) day period, have returned to the performance of his duties on a
full-time basis), (iii) if the Executive's employment is terminated
(by the Company for Cause) pursuant to Subsection 7(c) above, the date
specified in the Notice of Termination, and (iv) if the Executive's
employment is terminated for any other reason, the date on which a
Notice of Termination is given. Should, however, within thirty (30)
days after any Notice of Termination is given, the
10
<PAGE> 11
party receiving such Notice of Termination notify the other party that
a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected).
8. Change of Control Benefits. Upon a Change of Control (as defined in
Schedule A to this Agreement), the Executive shall be entitled to the benefits
provided herein.
(a) Severance Payments. Within two (2) business days after a Change
of Control, the Company shall pay the Executive a lump sum amount, in
cash, equal to:
(i) a multiple equal to number of years (including any portion of
a year) left remaining under this Agreement applied to,
(A) the Executive's per annum base salary in effect on the
date of the Change of Control ("Base Salary"), and
(B) the greater of the Executive's bonus for the immediately
preceding fiscal year and the average of the Executive's
bonuses for the two immediately preceding fiscal years;
and
(ii) the Executive's target bonus for the current fiscal year
multiplied by a fraction, the numerator of which shall be the
number of days the Executive was employed by the Company in
the fiscal year in which the Change of Control occurs and the
denominator of which shall be 365.
(b) Continued Benefits. Until the earlier of the third anniversary
of the Change of Control or the date on which the Executive becomes
employed by a new
11
<PAGE> 12
employer, the Company shall, at its expense, provide the Executive
with medical, dental, life insurance, disability and accidental death
and dismemberment benefits at the highest level provided to the
Executive immediately prior to the Change of Control, provided,
however, that if the Executive becomes employed by a new employer
which maintains a major medical plan that either (i) does not cover
the Executive with respect to a pre-existing condition which was
covered under the Company's major medical plan, or (ii) does not cover
the Executive for a designated waiting period, the Executive's
coverage under the Company's major medical plan shall continue (but
shall be limited in the event of noncoverage due to a preexisting
condition, to the preexisting condition itself) until the earlier of
the end of the applicable period of noncoverage under the new
employer's plan or the third anniversary of the Change of Control.
(c) Payment of Accrued But Unpaid Amounts. Within two (2) business
days after a Change of Control, the Company shall pay the Executive
(i) any unpaid portion of compensation previously earned by the
Executive; and (ii) all compensation previously deferred by the
Executive but not yet paid.
(d) Post-Retirement Welfare Benefits. For purposes of determining
the Executive's eligibility for post-retirement benefits under any
welfare benefit plan (as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) maintained by the
Company immediately prior to the Change of Control and in which the
Executive then participated other than the SERP, the Executive shall
be credited with the excess of three (3) years of participation in the
applicable plan and three (3) years of age over the actual years of
participation and age credited to the Executive on the date of the
Change of Control. If, after taking into account the credited
participation
12
<PAGE> 13
and age, the Executive would have been eligible for post-retirement
benefits, the Executive shall receive, commencing on the date of the
Change of Control, post-retirement benefits based on the terms and
conditions of the applicable plans in effect immediately prior to the
Change of Control.
(e) Supplemental Retirement Benefits.
(i) Upon a Change of Control, the Executive shall become vested in
the benefits provided under the Company's retirement plan or
any successor plans (the "Supplemental Plan").
(ii) Within two (2) business days after the Change of Control, the
Company shall pay the Executive a lump sum cash amount equal
to the present value of the Executive's accrued benefit under
the Supplemental Plan as of the date of the Change of Control.
For purposes of computing the lump sum present value of the
Executive's accrued benefit under the Supplemental Plan, (A)
the Company shall credit the Executive with the excess of
three (3) years of plan participation and service and three
(3) years of age for all purposes (including additional
accruals and eligibility for early retirement) over the
Executive's actual years and fractional years of plan
participation and service and age credited to the Executive
after the Change of Control; and (B) the Company shall apply
the factors prescribed by the Pension Benefit Guaranty
Corporation for determining the actuarial equivalent of a
single sum payment of an immediate annuity for a plan
termination on the date of the Change of Control with
insufficient assets. In determining the Executive's benefits
under this paragraph (e)(ii), the terms of the
13
<PAGE> 14
Supplemental Plan as in effect immediately prior to the
Change of Control, except as expressly modified in this
paragraph (e), shall govern.
(iii) These supplemental retirement benefits are in addition to,
and not in replacement of, the SERP.
(f) Effect on Existing Plans. Except as provided below, all Change
of Control provisions applicable to the Executive and contained in any
plan, program, agreement or arrangement maintained on or after the
date hereof by the Company (including, but not limited to, any stock
option, restricted stock or pension plan and the SERP) shall remain in
effect for such period after the date of a Change of Control as is
necessary to carry out such provisions and provide the benefits
payable thereunder, and may not be altered in a manner which adversely
affects the Executive without the Executive's prior written approval.
No benefits shall be paid to the Executive, however, under any
severance plan maintained generally for the employees of the Company
if the Executive is eligible to receive benefits under this Section 3.
Notwithstanding the foregoing, the Severance Agreement is hereby
terminated and replaced in its entirety by this Agreement.
(g) Outplacement Counseling. The Company shall reimburse all
reasonable expenses incurred by the Executive for professional
outplacement services by qualified consultants selected by the
Executive.
(h) Mitigation. The Executive shall not be required to seek other
employment after a Change of Control and any compensation earned from
other employment shall not reduce the amounts otherwise payable under
this Agreement.
(i) Gross-up. In the event it shall be determined that any payment,
benefit or distribution (or combination thereof) by the Company, or
any trust established by the
14
<PAGE> 15
Company for the benefit of its employees, to or for the benefit of the
Executive (whether payable pursuant to the terms of this Agreement (a
"Payment") would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code and any interest or penalties are
incurred by the Executive with respect to such excise tax (the excise
tax, together with interest and penalties thereon, hereinafter
collectively referred to as the "Excise Tax"), the Executive shall be
entitled to receive an additional payment (a "Gross-up Payment") in an
amount such that after payment by the Executive of all taxes,
including, without limitation, any income taxes and the Excise Tax
imposed upon the Gross-up Payment, the Executive retains an amount of
the Gross-up Payment equal to the Excise Tax imposed upon the
Payments. Subject to the provisions set out below, all determinations
required to be made under this Section 8, including whether and when a
Gross-up Payment is required and the amount of such Gross-up Payment
and the assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized certified public accounting
firm as may be designated by the Executive (the "Accounting Firm").
All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-up Payment, as determined pursuant to this
Section 8, shall be paid by the Company to the Executive within five
(5) days after the receipt of the Accounting Firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall so indicate to the Executive in writing. Any
determination by the Accounting Firm shall be binding upon the Company
and the Executive. The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of a Gross-up Payment. Such
notification shall be given no later than ten (10) business
15
<PAGE> 16
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of the claim and the date of
requested payment. The Executive shall not pay the claim prior to the
expiration of the thirty (30) day period following the date on which
it gives notice to the Company. If the Company notifies the Executive
in writing prior to the expiration of the period that it desires to
contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim;
(2) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(3) cooperate with the Company in good faith in order to
effectively contest such claim; and
(4) permit the Company to participate in any proceedings
relating to such claim;
Without limitation on the foregoing provisions of this Section 8, the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before
any administration tribunal, in a court of initial jurisdiction and in
16
<PAGE> 17
one or more appellate courts, as the Company shall determine provided,
however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of the contest; provided, further, that it the
Company directs the Executive to pay any claim and sue for a refund,
the Company shall advance the amount of the payment to the Executive,
on an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to the advance or with respect to any imputed income with
respect to the advance. In the event that the Company exhausts its
remedies pursuant to this Section 8 and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Gross-up Payment required and such
payment shall be promptly paid by the Company to or for the benefit of
the Executive. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8, the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to this Section 8, a
determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be
17
<PAGE> 18
required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-up Payment required to be
paid.
(j) Indemnification; Director's and Officer's Liability Insurance.
The Executive shall, after the Change of Control, retain all rights to
indemnification under applicable law or under the Company's
Certificate of Incorporation or Bylaws, as they may be amended or
restated from time to time. In addition, the Company shall maintain
Director's and Officer's liability insurance on behalf of the
Executive, at the level in effect immediately prior to the Change of
Control, for the three (3) year period following the Change of
Control, and throughout the period of any applicable statute of
limitations.
9. Office and Support. During the Period of Employment, the Company
will, consistent with Section 3 of this Agreement, provide the Executive at the
Company's principal executive offices in Dallas (and at such other location in
Dallas, Texas as may be designated by the Executive from time to time) with an
office and secretarial and administrative support, consistent with current
practices.
10. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any
18
<PAGE> 19
successor to its business and/or all or part of its assets as
aforesaid which executes and delivers the agreement provided for in
this Section 10 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to the Executive's devisee, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Darwin Deason
8181 Douglas, #1000
Dallas, Texas 75205
If to the Company:
Affiliated Computer Services, Inc.
2828 North Haskell Avenue
Dallas, Texas 75204
Attention: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
19
<PAGE> 20
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas.
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Dallas, Texas, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided that the Company shall be entitled to
seek a restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of Section 6 hereof.
20
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
AFFILIATED COMPUTER SERVICES, INC.
-----------------------------------------
Mark A. King
Executive Vice President & Chief
Financial Officer
-----------------------------------------
Darwin Deason
Approved this _____ day of February, 1999, by the undersigned members
of the Special Compensation Committee of the Board of Directors of Affiliated
Computer Services, Inc.
-----------------------------------------
Joseph P. O'Neill
-----------------------------------------
Frank A. Rossi
21
<PAGE> 22
SCHEDULE A
CERTAIN DEFINITIONS
An used in this Agreement, and unless the context requires a different
meaning, the following terms, when capitalized, have the meaning indicated;
"Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company (other
than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board which specifically identifies
the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to
the Company.
For purpose of this provision, no act or failure to act, on the part of the
Executive, shall be considered willful unless it is done, or omitted to be done,
by the Executive in bad faith or without reasonable belief that the Executive's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The termination of employment of the
Executive shall not be deemed to be for cause unless and until there shall have
been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above and specifying the particulars
thereof in detail.
"Change of Control" shall mean the first to occur of any of the
following dates :
(1) the date the Board of Directors votes to approve and recommends a
stockholder vote to approve:
(A) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which
shares of the Company's Common Stock would be converted into cash,
securities or other property, other than any consolidation or
merger of the Company in which the holders of the Company's Common
Stock immediately prior to the consolidation or merger have the
same proportionate ownership of
22
<PAGE> 23
common stock of the surviving corporation immediately after the
consolidation or merger;
(B) any sale, lease, or other transfer of all, or substantially all,
of the assets of the Company, other than any sale, lease, or other
transfer to any corporation where the Company owns, directly or
indirectly, at least eighty percent (80%) of the outstanding
voting securities of the corporation after the transfer; or
(C) any plan or proposal for the liquidation or dissolution of the
Company.
(2) the date of any person (as such term as used in Section 13(d) of
the Securities Exchange Act of 1934, hereinafter the "1934 Act"), other than
one or more trusts established by the Company for the benefit of employees of
the Company or its subsidiaries, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the 1934 Act) of Rule 13d-3 under the 1934 Act) of
twenty percent (20%) or more of the Company's outstanding Common Stock; or
(3) the date, during any period of twenty-four (24) consecutive
months, on which individuals who at the beginning of such period constitute the
entire Board of Directors of the Company shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director comprising the
majority was approved by a vote of at least a majority of the Continuing
Directors in office on the date of such election or nomination for election of
the new director. For purposes hereof, a "Continuing Director" shall mean:
(A) any member of the Board of Directors at the close of business on
February 1, 1999;
(B) any member of the Board who succeeds any Continuing Director
described in subparagraph (A) above if such successor was elected,
or nominated for election by the Company's stockholders, by a
majority of the Continuing Directors then still in office;
(C) any director elected, or nominated for election by the Company's
stockholders to fill any vacancy or newly created directorship on
the Board of Directors of the Company by a majority of the
Continuing Directors then still in office; or
(D) any member of the Board who succeeds any Continuing Director
described in subparagraph (A), (B) or (C) above or in this
subparagraph, which member was selected and appointed by the
Executive to fill the unexpired term of a director who, because
such person is no longer an officer of the Company, is no longer
on the Board.
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 44,112
<SECURITIES> 0
<RECEIVABLES> 325,013
<ALLOWANCES> 4,496
<INVENTORY> 13,816
<CURRENT-ASSETS> 439,188
<PP&E> 184,057
<DEPRECIATION> 120,500
<TOTAL-ASSETS> 1,236,850
<CURRENT-LIABILITIES> 228,157
<BONDS> 385,879
0
0
<COMMON> 492
<OTHER-SE> 582,647
<TOTAL-LIABILITY-AND-EQUITY> 1,236,850
<SALES> 0
<TOTAL-REVENUES> 435,884
<CGS> 0
<TOTAL-COSTS> 394,875
<OTHER-EXPENSES> (1,916)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,916
<INCOME-PRETAX> 38,009
<INCOME-TAX> 15,584
<INCOME-CONTINUING> 22,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .46
<EPS-DILUTED> .43
</TABLE>
