<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COMPUTER SCIENCES CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
[LOGO OF COMPUTER
SCIENCES CORPORATION] ON AUGUST 10, 1998
The Annual Meeting of Stockholders of Computer
Sciences Corporation will be held at the Sheraton
Gateway Hotel, Los Angeles Airport, 6101 West Century
Boulevard, Los Angeles, California 90045, at 2:00 p.m.,
Pacific Daylight Time, on August 10, 1998 for the
following purposes:
1. To elect a board of nine directors to serve for
the ensuing year and until their successors are elected
and qualified;
2. To vote upon the approval of the proposed 1998
Stock Incentive Plan; and
3. To transact such other business as may properly
come before the meeting.
Only stockholders of record at the close of business
on June 19, 1998 will be entitled to notice of and to
vote at the meeting or any adjournment thereof.
STOCKHOLDERS WHO ARE NOT ABLE TO ATTEND THE MEETING
PERSONALLY ARE URGED BY MANAGEMENT TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE.
By Order of the Board of Directors,
/s/ Hayward D. Fisk
Hayward D. Fisk
Vice President, General Counsel and Secretary
El Segundo, California
July 2, 1998
<PAGE>
COMPUTER SCIENCES CORPORATION
2100 East Grand Avenue
El Segundo, California 90245
(310) 615-0311
----------------
PROXY STATEMENT
----------------
The Annual Meeting of Stockholders of Computer Sciences Corporation ("CSC"
or the "Company") will be held at the Sheraton Gateway Hotel, Los Angeles
Airport, 6101 West Century Boulevard, Los Angeles, California 90045, at 2:00
p.m., Pacific Daylight Time, on August 10, 1998 for the following purposes:
1. To elect a board of nine directors to serve for the ensuing year and
until their successors are elected and qualified;
2. To vote upon the approval of the proposed 1998 Stock Incentive Plan;
and
3. To transact such other business as may properly come before the
meeting.
The approximate date of mailing the proxy material is July 2, 1998.
SOLICITATION OF PROXIES
This Proxy Statement is furnished to stockholders of the Company in
connection with the solicitation of proxies for use at the Annual Meeting.
This solicitation is made by the Board of Directors of the Company and the
cost of solicitation will be borne by the Company. Solicitation other than by
mail may be made personally, by telephone or by facsimile, by regularly
employed officers and employees of the Company who will not be additionally
compensated therefor. The Company will request persons holding stock in their
names for others, such as trustees, brokers and nominees, to forward proxy
material to their principals and request authority for the execution of the
proxy and will reimburse such persons for their expenses in so doing. In
addition, the Company has engaged the services of Morrow & Co., Inc. with
respect to proxy soliciting matters at an expected cost to the Company of
approximately $8,000, not including incidental expenses.
The Annual Report of the Company for the fiscal year ended April 3, 1998 is
being mailed to stockholders under the same cover as this Proxy Statement.
You are requested to complete, date, sign and return the enclosed proxy to
ensure that your shares will be voted. All shares of CSC Common Stock
represented by properly executed proxies will, unless such proxies have
previously been revoked, be voted in accordance with the instructions
indicated in such proxies. IF NO SUCH INSTRUCTIONS ARE INDICATED, SUCH SHARES
OF CSC COMMON STOCK WILL BE VOTED IN FAVOR OF THE PROPOSED 1998 STOCK
INCENTIVE PLAN AND THE ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS. The
Company does not know of any matters other than as described in the Notice of
Annual Meeting that are to come before the Annual Meeting. If any other matter
or matters are properly presented for action at the Annual Meeting, the proxy
holders named in the enclosed proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment,
unless such authorization is withheld.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice thereof to the Secretary of the Company, by
signing and returning a proxy bearing a later date or by voting in person at
the Annual Meeting. Mere attendance at the Annual Meeting, however, will not
in and of itself have the effect of revoking the proxy.
1
<PAGE>
VOTING RIGHTS
Only stockholders of record at the close of business on June 19, 1998 will
be entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. The issued and outstanding capital stock of the Company at that date
consisted of 157,621,295 shares of Common Stock.
The presence in person or by properly executed proxy of the holders of a
majority of the outstanding shares of CSC Common Stock is necessary to
constitute a quorum at the Annual Meeting. Abstentions and broker non-votes
will be treated as shares which are present for purposes of determining the
existence of a quorum, but which are not present for purposes of determining
whether a proposal has been approved. The term "broker non-vote" refers to
shares held by a broker in street name which are present by proxy, but which
are not voted on a matter pursuant to rules prohibiting brokers from voting on
non-routine matters, such as the approval of the 1998 Stock Incentive Plan,
without instructions from the beneficial owner of the shares. The election of
directors is a routine matter upon which a broker may, in the absence of
instructions from the beneficial owner, exercise his or her discretion in
voting the shares.
Holders of CSC Common Stock are entitled to one vote for each share, except
that stockholders and any proxy holders for such stockholders are entitled to
exercise the right to cumulative voting for the election of directors. In
order to exercise the right of cumulative voting, one or more of the
stockholders requesting cumulative voting must give notice before the vote to
the President or Secretary of the Company that the stockholder desires that
the voting for the election of directors be cumulative.
Under cumulative voting, each stockholder may give one nominee the number of
votes equal to the number of directors to be elected multiplied by the number
of shares held by the voting stockholder, or the individual stockholder can
distribute his or her votes among as many nominees as such stockholder deems
appropriate. The nominees (up to the number to be elected) receiving the
highest number of votes will be declared elected. If the right to cumulative
voting is exercised, the proxy holders named in the enclosed proxy and acting
thereunder will have the discretion to cumulate votes in any manner, and to
vote for less than all of the nominees indicated on any such duly executed
proxy, in order to elect the maximum number of the nominees set forth in ITEM
I below.
The approval of the proposed 1998 Stock Incentive Plan described in ITEM 2
below requires the affirmative vote of a majority of the total votes cast
thereon, provided that the total votes cast thereon represent a majority of
the outstanding shares of CSC Common Stock.
STOCK SPLIT
On February 2, 1998, the Company's Board of Directors declared a 2-for-1
stock split of CSC Common Stock in the form of a 100% stock dividend. The
dividend of one share for each outstanding share was paid on March 23, 1998 to
holders of record of CSC Common Stock as of the close of business on March 2,
1998.
Unless otherwise indicated, all information in this Proxy Statement
regarding CSC Common Stock, and stock options and restricted stock units with
respect thereto, has been adjusted to reflect the effect of this stock split.
2
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth information regarding beneficial ownership of
CSC Common Stock as of June 19, 1998 by (i) each person or group known by the
Company to own beneficially more than 5% of the outstanding CSC Common Stock,
(ii) each of the five executive officers of the Company named in the Summary
Compensation Table on page 9, (iii) each of the directors of the Company and
(iv) all executive officers and directors of the Company, as a group. Unless
otherwise indicated, each such person or group has sole voting and investment
power with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER(/1/) BENEFICIALLY OWNED OF CLASS
------------------------ ------------------ --------
<S> <C> <C>
DST Systems Inc. ........ 8,649,142(/2/) 5.5%(/2/)
1055 Broadway
Kansas City, Missouri
64105
Van B. Honeycutt......... 576,657(/3/) (/3/)(/4/)
Ronald W. Mackintosh..... 176,000(/3/) (/3/)(/4/)
Thomas R. Madison, Jr. .. 104,330(/3/) (/3/)(/4/)
Leon J. Level............ 169,333(/3/) (/3/)(/4/)
Milton E. Cooper......... 235,262(/3/) (/3/)(/4/)
Irving W. Bailey, II..... 6,384(/5/) (/4/)
William R. Hoover........ 489,810(/6/) (/4/)
Richard C. Lawton........ 3,000(/7/) (/4/)
Thomas A. McDonnell...... 16,348(/3/)(/5/)(/8/) (/3/)(/4/)
F. Warren McFarlan....... 8,542(/5/) (/4/)
James R. Mellor.......... 5,496(/5/) (/4/)
William P. Rutledge...... 948(/5/) (/4/)
All executive officers
and directors of the
Company, as a group
(19 persons)............ 2,022,696(/3/)(/5/)(/8/)(/9/) 1.3%(/3/)(/5/)
</TABLE>
- ---------------------
(/1/) Unless otherwise indicated, the address of each person or group is c/o
Computer Sciences Corporation, 2100 East Grand Avenue, El Segundo,
California 90245.
(/2/) This information, which is not within the direct knowledge of the
Company, has been derived from a Schedule 13D filed with the Securities
and Exchange Commission on August 12, 1996.
(/3/) With respect to Messrs. Honeycutt, Mackintosh, Madison, Level, Cooper,
McDonnell and all executive officers and directors as a group, includes
500,887, 134,000, 102,000, 146,800, 218,000, 15,800 and 1,279,005 shares
of CSC Common Stock, respectively, subject to options which were
outstanding on June 19, 1998 and which will be exercisable within 60 days
thereafter. These shares have been deemed to be outstanding in computing
the Percent of Class.
With respect to Messrs. Honeycutt, Mackintosh, Madison, Level, Cooper and
all executive officers and directors as a group, includes 5,870, 0, 330,
1,857, 2,262, and 15,827 shares of CSC Common Stock, respectively, which
are held for the accounts of such persons under the Company's Matched
Asset Plan and with respect to which such persons had the right, as of
June 19, 1998, to give voting instructions to the Committee administering
the Plan.
(/4/) Less than 1%.
(/5/) With respect to Messrs. Bailey, McDonnell, McFarlan, Mellor and Rutledge,
includes 2,384, 548, 3,742, 4,296 and 548 shares of CSC Common Stock,
respectively, which shares are subject to restricted stock units that
were outstanding on June 19, 1998, and which shares would, pursuant to
such restricted stock units, be distributed to such directors if their
directorships were to terminate prior to August 18, 1998. These shares
have been deemed to be outstanding in computing the Percent of Class.
(/6/) Mr. Hoover and his wife share voting and investment power with respect to
all of such shares.
(/7/) Mr. Lawton and his wife share voting and investment power with respect to
all of such shares.
(/8/) Does not include the 8,649,142 shares of CSC Common Stock indicated above
as beneficially owned by DST Systems, Inc., of which Mr. McDonnell is
President, Chief Executive Officer and a director.
(/9/) Of such 2,022,696 shares of CSC Common Stock, the executive officers and
directors, as a group, have sole voting and investment power with respect
to 1,514,636 shares, and shared voting and investment power with respect
to 508,060 shares.
3
<PAGE>
ITEM 1.
ELECTION OF DIRECTORS
The Board of Directors consists of nine directors, each of whom will stand
for reelection at the Annual Meeting. One of such directors, Richard C. Lawton,
reached mandatory retirement age in June 1998. The Company has not yet
concluded its search for Mr. Lawton's successor, however. Consequently, on May
4, 1998 the Board of Directors amended the mandatory retirement provisions of
the Bylaws, as described below, to permit a director of the Company to continue
to serve as a director for a period of up to one year after reaching mandatory
retirement age if the Board determines that such continuation is in the best
interests of the Company. The Board has determined that it is in the best
interests of CSC for Mr. Lawton to continue to serve as a director until June
15, 1999. The Board expects to elect a successor director prior to that date.
Subject to the foregoing, each of the nine directors to be elected at the
Annual Meeting will hold office for the ensuing year and until his or her
successor is elected and qualified. It is intended that the accompanying proxy,
if furnished, will be voted for the election to the Board of Directors of the
nine nominees named below.
The following information with respect to each person nominated for election
as a director has been furnished to the Company by the nominees as of June 19,
1998.
<TABLE>
<CAPTION>
DIRECTOR
NAME BUSINESS EXPERIENCE(/1/) SINCE
---- ------------------------ --------
<C> <S> <C>
Irving W. Bailey, II.... President, Bailey Capital Corporation. 1992
Former Chairman and Chief Executive
Officer of Providian Corporation. Age 57.
Van B. Honeycutt........ Chairman, President and Chief Executive 1993
Officer of the Company. Prior thereto,
President and Chief Operating Officer of
the Company. Director of Beckman Coulter,
Inc. Age 53.
William R. Hoover....... Chairman of the Executive Committee of the 1968
Board of Directors of the Company. Former
Chairman, President and Chief Executive
Officer of the Company. Director of
Merrill Lynch & Co., Inc., Storage
Technology Corporation, Eltron
International, Inc. and Rofin-Sinar
Technologies Inc. Age 68.
Richard C. Lawton....... President and Chief Executive Officer of 1986
Chandler's Palos Verdes Sand & Gravel
Company. Former President of Transmix
Corporation. Age 72.
Leon J. Level........... Vice President, Chief Financial Officer 1989
and Director of the Company. Age 57.
Thomas A. McDonnell..... President, Chief Executive Officer and 1997
Director of DST Systems, Inc. Director of
Euronet Services, Inc., Informix
Software, Inc., BHA Group, Inc., Cerner
Corporation and Janus Capital
Corporation. Age 52.
F. Warren McFarlan...... Senior Associate Dean, Director of 1989
External Relations and Albert H. Gordon
Professor of Business Administration,
Graduate School of Business
Administration, Harvard University.
Director of Providian Financial
Corporation and Pioneer Hi-Bred
International, Inc. Age 60.
James R. Mellor......... Former Chairman and Chief Executive 1992
Officer of General Dynamics Corporation.
Director of General Dynamics Corporation,
Bergen Brunswig Corporation, Pinkerton's,
Inc. and United States Surgical
Corporation. Age 68.
William P. Rutledge..... Former President, Chief Executive Officer 1997
and Director of Allegheny Teledyne
Incorporated. Director of First Federal
Bank. Age 56.
</TABLE>
- ---------------------
(/1/) Represents the nominee's principal occupation during the past five years
and current directorships of publicly held companies and registered
investment companies.
4
<PAGE>
No nominee for director beneficially owns 1% or more of the outstanding
shares of the Company. See note 8 on page 3 above, however.
Article III, Section 15 of the Bylaws provides that a director shall not
serve beyond, and shall automatically retire at, the close of the first
meeting of the Board of Directors held during the month in which such director
shall become age 70; provided, however, that any person who was a director on
December 6, 1996 and who was age 65 or older on such date may serve until, but
shall automatically retire at, the close of the first meeting of the Board of
Directors held during the month in which such director shall become age 72. If
no meeting of the Board of Directors is held during such month, the director
shall automatically retire as of the last day of such month. Notwithstanding
the foregoing, if the Board of Directors shall determine that it is in the
best interests of the Company and its stockholders for a person to continue to
serve as a director for a period of time not exceeding one year after the date
upon which Article III, Section 15 would otherwise require such person to
retire, then such person shall not be so required to retire until the end of
such period of time.
At the previous election of directors held at the Annual Meeting of
Stockholders on August 11, 1997, approximately 85% of the outstanding shares
eligible to vote were represented either in person or by proxy. More than 98%
of the shares present and voting at the 1997 Annual Meeting of Stockholders
voted for the director nominees.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended April 3, 1998, the Board of Directors held nine
meetings. The incumbent directors, while serving during the last fiscal year,
attended 96% of the meetings of the Board of Directors and all of the meetings
held by all committees of the Board on which they served.
Among the standing committees of the Board of Directors of the Company are
the Audit Committee, Compensation Committee and Executive Committee. The Board
of Directors does not have a Nominating Committee.
Messrs. Lawton (Chairman), McDonnell and McFarlan serve as the members of
the Audit Committee, which during the last fiscal year held three meetings.
The principal duties and responsibilities of the Audit Committee are to
recommend to the Board the accounting firm to be engaged as the Company's
independent auditors and the terms of its engagement, and to meet with the
Company's independent and internal auditors to review the scope of their
audits and audit findings. None of the members of the Audit Committee is, or
has ever been, an employee of the Company or any of its subsidiaries.
Messrs. Mellor (Chairman), Bailey and Rutledge serve as the members of the
Compensation Committee, whose principal function is to determine the
compensation of the executive officers, and to administer the Company's stock
incentive plans. During, the last fiscal year, the Compensation Committee held
four meetings. None of the members of the Compensation Committee is, or has
ever been, an employee of the Company or any of its subsidiaries.
Messrs. Hoover (Chairman), Honeycutt and Level serve as members of the
Executive Committee which, within the limits of authority delegated by the
full Board of Directors of the Company pursuant to standing and specific
resolutions of the Board, acts on behalf of the Board. During the last fiscal
year, the Executive Committee held 20 meetings.
5
<PAGE>
COMPENSATION OF DIRECTORS
Cash Compensation
Each of the seven directors who is not an employee of the Company or any of
its subsidiaries receives an annual retainer of $34,000 per year, and a
meeting fee of $1,000 for each day of attendance, in person or telephonically,
at a regularly scheduled Board meeting, and for each day of attendance in
person at a special Board meeting. Each such director who is a member of the
Audit Committee or Compensation Committee receives an additional $5,000 per
year.
Retirement Benefits
Each of the six directors who is not, and has never been, an employee of the
Company or any of its subsidiaries (a "Nonemployee Director") will receive
retirement benefits upon termination of service as a director. Mr. Lawton will
receive benefits pursuant to the 1990 Nonemployee Director Retirement Plan
(the "Retirement Plan"), and Messrs. Bailey, McDonnell, McFarlan, Mellor and
Rutledge will receive benefits pursuant to the 1997 Nonemployee Director Stock
Incentive Plan (the "Stock Incentive Plan").
Retirement Plan. Pursuant to the Retirement Plan, Mr. Lawton is entitled to
receive an annual cash payment equal to the sum of (i) the annual retainer for
Nonemployee Directors in effect as of the date of his retirement from the
Board of Directors, plus (ii) the daily Board meeting fee in effect as of such
date multiplied by the number of regularly scheduled Board meetings held
during the year ending on such date. These benefits will commence upon the
date of his retirement and continue for ten years or until his death, if
later. If Mr. Lawton were to die prior to the payment of benefits for ten
years, the remaining benefits would be paid to his beneficiary.
Restricted Stock Units. Pursuant to the Stock Incentive Plan, the Board of
Directors has awarded restricted stock units ("RSUs") to Messrs. Bailey,
McFarlan, Mellor, McDonnell and Rutledge. When a holder of RSUs ceases to be a
director of the Company, the RSUs are automatically redeemed for shares of CSC
Common Stock and dividend equivalents with respect to such shares. At the
holder's election, which must be made within 30 days after the date of the
award, the RSUs may be redeemed (i) as an entirety, upon the day the holder
ceases to be a director, or (ii) in substantially equal amounts upon the first
five, ten or fifteen anniversaries of such day.
There are two types of RSUs: (i) those awarded in lieu of vested retirement
benefits under the Retirement Plan ("Accrued Benefit RSUs"); and (ii) those
awarded as a form of future retirement benefits ("Future Benefit RSUs"). When
a holder of Accrued Benefit RSUs ceases to be a director of the Company, the
number of shares of CSC Common Stock to be delivered by the Company upon
redemption of the RSUs is equal to the number of such RSUs awarded. When a
holder of Future Benefit RSUs ceases to be a director, the number of shares to
be delivered upon redemption is equal to 20% of the number of such RSUs
awarded, multiplied by the number of full years (but not in excess of five)
that the holder served as a director after the date of award.
On August 11, 1997, Messrs. Bailey, McFarlan, Mellor received awards of
1,836, 3,194, and 3,748 Accrued Benefit RSUs, respectively, as a replacement
for their vested benefits under the Retirement Plan. On the same day, Messrs.
Bailey, McFarlan, Mellor, McDonnell and Rutledge each received an award of
2,742 Future Benefit RSUs.
6
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
General
The Company's executive compensation program is designed to provide
competitive levels of cash compensation and long-term incentives based on the
Company's performance, and includes base salary, annual cash incentive awards
and stock option grants. In addition, the Company has adopted various employee
benefit plans, including retirement plans, health plans, insurance plans and
others, in which executive officers are eligible to participate.
Executive compensation levels and the mix of pay components (base salary and
short-term and long-term incentives) are determined by the Compensation
Committee. An executive's base salary and stock option awards are based
primarily upon his or her position and long-term contribution to the Company.
The annual cash incentive award is based primarily upon the performance of the
executive's business unit compared to prior year performance and established
annual goals. Performance factors include revenue, operating margin, net
income and cash flow, as well as specific individual achievements. The
Compensation Committee also considers qualitative factors such as experience
and length of service with the Company in determining compensation amounts.
In addition, the Compensation Committee considers executive compensation
data from comparable companies. CSC retained Hewitt Associates, a recognized
international compensation consulting firm, to conduct a study of executive
compensation at 17 publicly-held and 2 privately-owned companies reflecting
the Company's business mix, primarily in the information technology and
services industries. The annual revenues of the companies in this comparator
group ranged from $1-14 billion. The study covered each of the pay components
and included regression analysis on the 50th and 75th percentile pay levels.
The Company's executive compensation program takes into account any
potential limitations on the deductibility of compensation in excess of
$1,000,000 per year imposed by Internal Revenue Code Section 162(m), but does
not require that all compensation qualify for exemption from such limitation.
The Company will deduct all compensation paid to executive officers for fiscal
year 1998.
The Compensation Committee believes that the Company's executive
compensation program allows the Company to attract and retain outstanding
executives in the information technology field and is well structured to align
management's and stockholders' interest in the enhancement of stockholder
value through stock ownership programs and incentive programs based on
performance and stock value.
Relationship of Company Performance to Executive Compensation
Fiscal year 1998 compensation was determined on an individual basis in
accordance with the foregoing policies and programs. The Company's performance
exceeded substantially all of its financial goals. Fiscal year 1998 revenue
was $6.6 billion, representing growth of 17.5% over the prior fiscal year;
operating margin was 7.8%, compared to 7.6%; net income was $273 million,
representing growth of 19.7% (before the effect of special items); and free
cash flow was $75 million, up 39.0%. These results were considered strong and
compared quite favorably to the results of the Company's comparator group.
7
<PAGE>
Fiscal Year 1998 Stock Option Grants
The Company granted stock options to various executive officers during
fiscal year 1998, including each of the five Named Executive Officers, as
shown in the Options Granted in Last Fiscal Year table on page 10.
Chief Executive Officer Compensation
Mr. Honeycutt's base salary for fiscal year 1998 reflected an increase of
$171,403, or 24.0%, over his base salary for fiscal year 1997. In determining
Mr. Honeycutt's base salary for fiscal year 1998, the Committee compared his
base salary to the base salaries of chief executive officers at the comparator
companies. The Committee also considered the Company's financial performance
for fiscal year 1997, Mr. Honeycutt's individual performance during that year
and his long-term contributions to the success of the Company. During fiscal
year 1997, revenue growth of 18.5%, operating margin of 7.6%, net income
growth of 33.0% (before the effect of special items) and free cash flow of
approximately $54 million (before restatement of fiscal year 1996 to reflect
an acquisition accounted for as a pooling of interests) were considered strong
results.
For fiscal year 1998, Mr. Honeycutt received an award of 200,000 stock
options, and an annual cash incentive award of $900,000. These pay components
reflect the fact that the Company exceeded its fiscal year 1998 goals (before
the effect of special items) with respect to revenue, net income and EPS
growth.
As of June 19, 1998, Mr. Honeycutt had options to purchase an aggregate of
1,018,726 shares of CSC Common Stock and beneficially owned 576,657 shares of
CSC Common Stock, including 500,887 shares underlying options which will be
exercisable on or prior to August 18, 1998.
Conclusion
The Committee believes that this executive compensation program serves the
interests of stockholders and the Company effectively. The various pay
vehicles offered are appropriately balanced to motivate executives to
contribute to the Company's overall future successes, thereby enhancing the
value of the Company for the stockholders.
We will continue to address the effectiveness of the Company's total
compensation program to meet the needs of the Company and serve the interests
of its stockholders.
James R. Mellor
Irving W. Bailey, II
William P. Rutledge
8
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers") for services rendered to the Company in all capacities during the
fiscal years ended April 3, 1998, March 28, 1997 and March 29, 1996.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------------- ------------ ALL OTHER
NAME AND PRINCIPAL SALARY(/1/) BONUS(/2/) OPTIONS(/3/) COMPENSATION(/4/)
POSITION YEAR ($) ($) (#) ($)
- ------------------ ---- ----------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Van B. Honeycutt........ 1998 903,058 900,000 200,000 7,825
Chairman, President and 1997 714,616 652,500 50,000 2,492
Chief Executive Officer 1996 625,000 (/5/) 23,516(/5/) 1,548
Ronald W. Mackintosh.... 1998 450,909 375,037 40,000 51,421
Corporate Vice
President and 1997 376,193 272,541 30,000 31,866
President, European
Group 1996 335,607 236,633 20,000 31,473
Thomas R. Madison, Jr. . 1998 457,954 317,240 30,000 5,008
Corporate Vice
President and 1997 409,404 288,400 30,000 4,439
President, Financial
Services Group 1996 379,231 269,500 20,000 2,492
Leon J. Level........... 1998 387,054 267,000 30,000 3,498
Corporate Vice
President and 1997 361,637 217,980 20,000 3,185
Chief Financial Officer 1996 343,789 173,000 10,000 2,343
Milton E. Cooper........ 1998 381,644 239,000 40,000 4,090
Corporate Vice
President and 1997 326,827 231,000 30,000 4,115
President, Federal
Sector 1996 295,173 207,900 20,000 2,327
</TABLE>
- ---------------------
(/1/) The amounts shown reflect all salary earned during the covered fiscal
year.
(/2/) Bonuses earned during any fiscal year are determined and paid in the
following fiscal year pursuant to the Annual Incentive Plan. Payment of
such bonuses may be deferred by Messrs. Honeycutt, Madison, Level and
Cooper pursuant to the Deferred Compensation Plan, or by Mr. Mackintosh
pursuant to the European Capital Accumulation Plan. The amounts shown
reflect all bonuses earned during the covered fiscal year, whether or not
payment thereof was deferred.
(/3/) The amounts shown reflect the aggregate number of shares underlying stock
options granted during the covered fiscal year. All amounts have been
adjusted to reflect the effect of the 2-for-1 stock split in the form of
a 100% stock dividend paid on March 23, 1998.
(/4/) The amounts shown for Messrs. Honeycutt, Madison, Level, and Cooper for
fiscal years 1998 and 1997 include preferential interest (that portion of
interest that is considered to be at above-market rates pursuant to the
rules of the Securities and Exchange Commission) accrued under the
Deferred Compensation Plan as follows: (a) fiscal year 1998--$5,001,
$2,465, $1,025 and $1,492, respectively; and (b) fiscal year 1997--$0,
$2,245, $865 and $1,732, respectively.
The balance of the amounts shown reflect contributions by the Company to
U.S. and U.K. defined contribution plans. Messrs. Honeycutt, Madison,
Level and Cooper participate in a U.S. defined contribution plan that
provides for a Company contribution equal to 50% of the first 3% of base
salary (not in excess of the maximum base salary specified in the
Internal Revenue Code--$160,000 for calendar year 1998) contributed by
the employee. Messrs. Honeycutt, Madison, Level and Cooper also
participate in defined benefit plans. See "Defined Benefit Plans" on page
11. Mr. Mackintosh, who does not participate in a defined benefit plan,
participates in a U.K. defined contribution plan that provides for a
Company contribution equal to 100% of the first 8% of pensionable salary
(base salary plus an allowance for bonus) contributed by the employee. In
fiscal years 1998, 1997 and 1996, the Company's contribution was equal to
7%, 5.5% and 5.5%, respectively, of his pensionable salary.
The amounts shown for Mr. Madison do not include (a) aggregate
incremental expenses of $119,236 incurred by the Company during fiscal
year 1998 in connection with his relocation from Virginia to Texas, or
(b) aggregate incremental expenses of $216,565 incurred by the Company
during fiscal years 1997 and 1996 in connection with his relocation from
Georgia to Virginia. See "Certain Relationships and Related Transactions"
on page 12.
(/5/) The amounts shown in the Options column for Mr. Honeycutt in fiscal year
1996 include 23,516 shares underlying a stock option granted in lieu of
the cash bonus he earned during such fiscal year. This stock option,
which was granted approximately one month after fiscal year-end, has an
exercise price of $8.86 per share (25% of the market value per share on
the date of grant), and becomes exercisable to purchase one-third of the
underlying shares on each of the first three anniversaries of the option
grant date.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
to the Named Executive Officers during the fiscal year ended April 3, 1998. No
stock appreciation rights were granted in such fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
---------------------------------------------- STOCK PRICE
PERCENT OF APPRECIATION FOR
TOTAL OPTIONS EXERCISE OPTION TERM(/2/)
OPTIONS GRANTED TO OR BASE --------------------
GRANTED(/1/) EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($)/SH. DATE ($) ($)
- ---- ------------ ------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Van B. Honeycutt........ 200,000 6.10% 33.94 5/5/07 4,268,622 10,817,527
Ronald W. Mackintosh.... 40,000 1.22% 33.94 5/5/07 853,724 2,163,505
Thomas R. Madison, Jr... 30,000 .91% 33.94 5/5/07 640,293 1,622,629
Leon J. Level........... 30,000 .91% 33.94 5/5/07 640,293 1,622,629
Milton E. Cooper........ 40,000 1.22% 33.94 5/5/07 853,724 2,163,505
</TABLE>
- ---------------------
(/1/) These nonqualified stock options have an exercise price equal to the
market value of the underlying shares on the date of grant, and become
exercisable to purchase 20% of the underlying shares on each of the first
five anniversaries of the date of grant of the option.
(/2/) Amounts shown reflect the potential realizable value of each grant of
stock options, assuming that the market price of the underlying shares
appreciates in value from the date of grant to the expiration date at an
annualized rate of 5% or 10%. These potential values are reported in
order to comply with Securities and Exchange Commission requirements, and
the Company cannot predict whether these values will be achieved.
FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the value of
unexercised in-the-money stock options held by the Named Executive Officers on
April 3, 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS AT THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END(/1/)
ACQUIRED VALUE ------------------------- -------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Van B. Honeycutt........ 8,400(/2/) 372,750(/2/) 397,978 420,748 16,138,992 11,481,289
Ronald W. Mackintosh.... 6,000 272,250 104,000 88,000 4,417,000 2,177,750
Thomas R. Madison, Jr... none n/a 68,000 102,000 2,345,125 2,778,000
Leon J. Level........... 20,000 636,750 122,800 64,000 5,323,675 1,632,125
Milton E. Cooper........ none n/a 200,000 76,000 8,798,000 1,663,750
</TABLE>
- ---------------------
(/1/) The amounts shown reflect the spread between the exercise price and the
market value of the underlying shares of CSC Common Stock on April 3,
1998 (based on the $54.8125 closing price of CSC Common Stock on that
date reported on the Composite Tape for New York Stock Exchange listed
companies).
(/2/) This option was exercised one day before it expired.
10
<PAGE>
DEFINED BENEFIT PLANS
Messrs. Honeycutt, Madison, Level and Cooper participate in the Pension Plan
and the Supplemental Executive Retirement Plan (the "SERP"). Mr. Mackintosh
does not participate in either Plan.
Pension Plan
The Pension Plan is a contributory, career average defined benefit plan.
Benefits are determined based on the participant's average base salary during
all years of participation. There is no deduction for Social Security or other
offset amounts, and base salary does not include any bonus, overtime or shift
differential compensation. At age 65, Messrs. Honeycutt, Madison, Level and
Cooper will have participated in the Pension Plan for 24, 16, 16 and 19 years,
respectively, and, assuming no increase in base salary, will have received an
average base salary during all years of Pension Plan participation of
$624,327, $441,007, $340,708, and $257,234, respectively.
Pursuant to Internal Revenue Code requirements, the maximum base salary
covered by the Pension Plan is limited each year. For calendar year 1998, the
maximum base salary is $160,000. The excess benefit that would be payable
under the Pension Plan absent these limitations (the "Excess Benefit"), is
paid under the SERP to persons who participate in both Plans, as described in
the following section.
Normal retirement under the Pension Plan is age 65 or older, and there is a
6% reduction in benefits for each year by which a participant's age at
retirement is less than 65. The table below shows the estimated annual
benefit, on a single life annuity basis, payable under the Pension Plan and
the Excess Benefit restoration provision of the SERP to a person who retires
at age 65 and participates in both Plans.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
AVERAGE ANNUAL BASE
COMPENSATION 5 10 15 20 25 30
- ------------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$250,000................. $28,125 $ 56,250 $ 84,375 $112,500 $140,625 $168,750
350,000................. 39,375 78,750 118,125 157,500 196,875 236,250
450,000................. 50,625 101,250 151,875 202,500 253,125 303,750
550,000................. 61,875 123,750 185,625 247,500 309,375 371,250
650,000................. 73,125 146,250 219,375 292,500 365,625 438,750
750,000................. 84,375 168,750 253,125 337,500 421,875 506,250
</TABLE>
Supplemental Executive Retirement Plan
The SERP provides retirement benefits to certain designated officers and key
executives of the Company who satisfy its minimum service requirements. It
provides two types of benefits: (i) as described above, an Excess Benefit
restoration, which restores the shortfall of Pension Plan benefits resulting
from Internal Revenue Code limits on the base salary used to compute those
benefits ($160,000 in calendar year 1998), is provided for SERP participants
who also participate in the Pension Plan, and (ii) as described below, an
Additional Benefit is provided for all SERP participants.
The Additional Benefit is payable to the participant for his or her lifetime
in an annual amount equal to 50% of the average of the participant's highest
three (of the last five) annual base salaries, with a deduction of 100% of the
amount of primary Social Security benefits payable at the time of
determination. Upon the death of the participant, a spousal benefit of 50% of
the participant's benefit is generally payable for the spouse's lifetime.
11
<PAGE>
Payment of the Additional Benefit commences upon normal retirement at age 62
or older, or, in the sole discretion of the Chief Executive Officer, upon
early retirement at age 61 or younger. Except as set forth in the following
paragraph, the amount of the Additional Benefit payable will be reduced by 5%
for each year by which the participant's age at retirement is less than 62,
and by 1/12 for each year by which the participant's period of continuous
employment is less than 12 years.
If there were a change in control of the Company and a participant either
(i) had an involuntary termination of employment, or a voluntary termination
of employment for good reason, within three years thereafter or (ii) had any
voluntary termination of employment more than one but within three years
thereafter, then payment of the Additional Benefit would commence upon such
termination of employment and would be calculated as if the participant were
age 62 or older and had at least 12 year of continuous employment.
For the fiscal year ended April 3, 1998, the base salary covered by the SERP
for Messrs. Honeycutt, Madison, Level and Cooper was $903,058, $457,954,
$387,054 and $381,644, respectively. Assuming no increase in base salary, the
estimated annual Additional Benefit, on a single life annuity basis, payable
to Messrs. Honeycutt, Madison, Level and Cooper upon retirement at age 62 is
$438,041, $215,381, $180,063 and $177,322, respectively.
SEVERANCE PLAN
Each of the Named Executive Officers also participates in the Severance Plan
for Senior Management and Key Employees (the "Severance Plan"), which provides
certain benefits to participants in the event of a change in control of the
Company.
If there were a change in control and any of the Named Executive Officers
either (i) had a voluntary termination of employment for good reason within
two years thereafter or (ii) had an involuntary termination of employment,
other than for death, disability or cause, within three years thereafter
(collectively, a "Severance Event"), then he would receive a one-time payment
and medical benefits during a specified period after termination. Mr.
Honeycutt would also be entitled to a one-time payment and medical benefits if
he had a voluntary employment termination, with or without cause, during the
thirteenth month following a change in control.
The amount of the one-time payment is equal to a multiple of the
participant's then-current annual base salary, plus the average annual
incentive bonus paid or determined with respect to the three fiscal years
preceding the participant's termination of employment. The multiple is two for
Messrs. Mackintosh, Madison Level and Cooper, and three for Mr. Honeycutt. The
number of years after termination of employment during which a participant
would receive medical benefits is equal to the applicable multiple (two or
three).
In addition, the Severance Plan provides that the Company would reimburse
participants for all excise taxes they would be required to pay as a
consequence of a change in control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to its executive relocation program, the Company purchased Thomas
R. Madison, Jr.'s home for $617,000 (the average of two independent
appraisals) in fiscal year 1998. The residence was subsequently sold at that
price during fiscal year 1998.
DST Systems, Inc. provides data processing and consulting services and
licenses certain software products to the Company. During fiscal year 1998,
the Company incurred aggregate expenses of
12
<PAGE>
$27,270,874 related thereto. DST Systems, Inc. beneficially owns 5.5% of the
outstanding CSC Common Stock, and Thomas A McDonnell, President, Chief
Executive Officer and Director of DST Systems, Inc., is a Director of the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the
Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of CSC Common Stock
and other equity securities of the Company. Executive officers, directors and
greater than ten percent stockholders are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on review of information furnished
to CSC, reports filed through CSC and representations that no other reports
were required, during the fiscal year ended April 3, 1998, all Section 16(a)
filing requirements applicable to its executive officers, directors and
greater than ten percent beneficial owners were complied with in a timely
manner with two exceptions:
(1) a Form 4 filed on June 10, 1998 by Edward P. Boykin reported that on
November 10, 1997, 4,950 (post stock-split) shares of CSC Common Stock that
he had owned jointly with his wife were transferred into her name; and
(2) a Form 4 filed on January 5, 1998 by Thomas Williams reported that on
November 21, 1997, he sold 20,000 (post stock-split) shares of CSC Common
Stock.
13
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph demonstrates the performance of the cumulative total
return on CSC Common Stock during the previous five fiscal years in comparison
to the cumulative total return on the Standard & Poor's 500 Stock Index, the
Standard & Poor's Computer Software & Services Index (the "S&P CSS Index") and
the Goldman Sachs Technology Services Index (the "GS TS Index").
In previous years, the Company has used the S&P CSS Index as the comparator
industry index in its Proxy Statement performance graphs. The market
capitalization of this index, however, is heavily weighted in favor of
companies which derive a majority of their revenues from software products
rather than information technology services. As a result, the Company intends
to use the GS TS Index in future Proxy Statement performance graphs. The
market capitalization of this index is more evenly weighted across a greater
number of companies, all of whom are predominantly in the information
technology services business.
[PERFORMANCE GRAPH APPEARS HERE]
INDEXED RETURN (1994 = 100)*
<TABLE>
<CAPTION>
RETURN RETURN RETURN RETURN RETURN
1994 1995 1996 1997 1998 CAGR
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
CSC Common Stock.................... 37.95% 35.27% 42.53% -11.72% 77.07% 32.98%
S&P 500 Index....................... 1.47 15.57 32.10 19.82 48.00 22.40
S&P Computer Software & Services.... 12.20 34.89 41.37 40.35 82.78 40.57
Goldman Sachs Technology Services
Index.............................. 11.22 25.72 42.06 -5.52 45.08 22.18
</TABLE>
- ---------------------
* Assumes $100 invested on April 1, 1993 in CSC Common Stock, the S&P 500
Index, the S&P Computer Software & Services Index, and the Goldman Sachs
Technology Services Index. Indexed amounts and return percentages assume a
March 31 fiscal year end.
14
<PAGE>
ITEM 2.
PROPOSED 1998 STOCK INCENTIVE PLAN
As of June 19, 1998, an aggregate of 466,668 shares of CSC Common Stock
remained available under the Company's seven stock incentive plans for
issuance to employees pursuant to grants of stock options, restricted stock,
stock appreciation rights or other stock-based incentives. The Board of
Directors believes that such number of shares is insufficient to allow the
Company to continue to make substantial use of stock-based incentives to
attract, retain and motivate qualified employees. In order to increase the
aggregate number of shares available for issuance to employees pursuant to
stock-based incentives, the Board adopted the 1998 Stock Incentive Plan (the
"1998 Plan") on June 15, 1998 and is submitting it to the stockholders for
their approval at the Annual Meeting.
The following description of the 1998 Plan is qualified in its entirety by
reference to the full text of the Plan, a copy of which is attached as
Appendix A to this Proxy Statement.
GENERAL
Each employee of the Company or any of its subsidiaries is eligible to be
considered for the grant of awards under the 1998 Plan. The maximum number of
shares of CSC Common Stock that may be issued pursuant to awards granted under
the 1998 Plan is 9,000,000, subject to certain adjustments to prevent
dilution.
The 1998 Plan will be administered by a committee of two or more nonemployee
directors appointed by the Board of Directors (the "Committee"). Subject to
the provisions of the 1998 Plan, the Committee will have full and final
authority to select the employees to whom awards will be granted thereunder,
to grant the awards and to determine the terms and conditions of the awards
and the number of shares to be issued pursuant thereto.
AWARDS
The 1998 Plan authorizes the Committee to enter into any type of arrangement
with an eligible employee that, by its terms, involves or might involve the
issuance of (i) shares of CSC Common Stock, (ii) an option, warrant,
convertible security, stock appreciation right or similar right with an
exercise or conversion privilege at a price related to CSC Common Stock, or
(iii) any other security or benefit with a value derived from the value of CSC
Common Stock. The maximum number of shares of CSC Common Stock with respect to
which options or rights may be granted under the 1998 Plan to any employee
during any fiscal year is 500,000, subject to certain adjustments to prevent
dilution.
Awards under the 1998 Plan are not restricted to any specified form or
structure and may include arrangements such as sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock, securities convertible
into or redeemable for stock, stock appreciation rights, limited stock
appreciation rights, phantom stock, dividend equivalents, performance units or
performance shares. An award may consist of one such arrangement or two or
more such arrangements in tandem or in the alternative. An award may provide
for the issuance of CSC Common Stock for any lawful consideration, including
services rendered.
An award granted under the 1998 Plan to an employee may include a provision
conditioning or accelerating the receipt of benefits, either automatically or
in the discretion of the Committee, upon the occurrence of specified events,
such as a change of control of the Company, an acquisition of a
15
<PAGE>
specified percentage of the voting power of the Company or a dissolution,
liquidation, merger, reclassification, sale of substantially all of the
property and assets of the Company or other significant corporate transaction.
Any stock option granted to an employee may be a tax-benefited incentive stock
option or a nonqualified stock option that is not tax-benefited. See "Federal
Income Tax Treatment" below. The maximum number of shares of CSC Common Stock
that may be issued to employees pursuant to tax-benefited incentive stock
options granted under the 1998 Plan is 9,000,000, subject to certain
adjustments to prevent dilution.
An award under the 1998 Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant to the
award, and/or to pay all or part of the recipient's tax withholding
obligations with respect to such issuance, by delivering previously owned
shares of capital stock of the Company or other property, or by reducing the
amount of shares or other property otherwise issuable pursuant to the award.
If an option granted under the 1998 Plan permitted the recipient to pay for
the shares issuable pursuant thereto with previously owned shares, the
recipient would be able to "pyramid" his or her previously owned shares, i.e.,
to exercise the option in successive transactions, starting with a relatively
small number of shares and, by a series of exercises using shares acquired
from each transaction to pay the purchase price of the shares acquired in the
following transaction, to exercise the option for a larger number of shares
with no more investment than the original share or shares delivered.
PLAN DURATION
The 1998 Plan became effective upon its adoption by the Board of Directors
on June 15, 1998, but no shares of CSC Common Stock may be issued or sold
under the 1998 Plan until it has been approved by the Company's stockholders.
No awards may be granted under the 1998 Plan after June 15, 2008. Although any
award that was duly granted on or prior to such date may thereafter be
exercised or settled in accordance with its terms, no shares of CSC Common
Stock may be issued pursuant to any award after June 15, 2018.
AMENDMENTS
The Board of Directors may amend or terminate the 1998 Plan at any time and
in any manner, subject to the following:
(1) no recipient of any award may, without his or her consent, be
deprived thereof or of any of his or her rights thereunder or with respect
thereto as a result of such amendment or termination; and
(2) if any national securities exchange upon which any of the Company's
securities are listed requires that any such amendment be approved by the
Company's stockholders, then such amendment will not be effective until it
has been approved by the Company's stockholders.
EFFECT OF SECTION 16(b) OF THE SECURITIES EXCHANGE ACT OF 1934
The acquisition and disposition of CSC Common Stock by officers, directors
and more than 10% stockholders of the Company ("Insiders") pursuant to awards
granted to them under the 1998 Plan may be subject to Section 16(b) of the
Securities Exchange Act of 1934. Pursuant to Section 16(b), a purchase of CSC
Common Stock by an Insider within six months before or after a sale of CSC
Common Stock by the Insider could result in recovery by the Company of all or
a portion of any amount by which the sale proceeds exceed the purchase price.
Insiders are required to file reports of
16
<PAGE>
changes in beneficial ownership under Section 16(a) of the Securities Exchange
Act of 1934 upon acquisitions and dispositions of shares. Rule 16b-3 provides
an exemption from Section 16(b) liability for certain transactions pursuant to
certain employee benefit plans. The 1998 Plan is designed to comply with Rule
16b-3.
FEDERAL INCOME TAX TREATMENT
The following is a brief description of the federal income tax treatment
that will generally apply to awards granted under the 1998 Plan, based on
federal income tax laws in effect on the date hereof. The exact federal income
tax treatment of awards will depend on the specific nature of the award. An
award may be taxable as an option, as restricted or unrestricted stock, as a
cash payment, or otherwise.
Incentive Stock Options
Pursuant to the 1998 Plan, employees may be granted options that are
intended to qualify as incentive stock options under the provisions of Section
422 of the Internal Revenue Code. Except as described in the following two
sentences, the optionee generally is not taxed and the Company is not entitled
to a deduction on the grant or exercise of an incentive stock option, provided
the option is exercised while the optionee is an employee of the Company or
within three months following termination of employment (one year if
termination is due to permanent disability). The amount by which the fair
market value of the shares acquired upon exercise of the option exceeds the
exercise price will be included as a positive adjustment in the calculation of
the optionee's "alternative minimum taxable income" in the year of exercise.
The "alternative minimum tax" imposed on individual taxpayers is generally
equal to the amount by which a specified percentage of the individual's
alternative minimum taxable income (reduced by certain exemption amounts)
exceeds his or her regular income tax liability for the year.
If the optionee sells shares acquired upon exercise of an incentive stock
option at any time within one year after the date of exercise or two years
after the date of grant of the option, then:
(1) the optionee will recognize capital gain in an amount equal to the
excess, if any, of the sales price over the fair market value of the shares
on the date of exercise;
(2) the optionee will recognize ordinary income in an amount equal to the
excess, if any, of the lesser of the sales price or the fair market value
of the shares on the date of exercise over the exercise price of the
option;
(3) the optionee will recognize capital loss equal to the excess, if any,
of the exercise price over the sales price; and
(4) the Company will generally be entitled to a deduction in an amount
equal to the amount of ordinary income recognized by the optionee.
If the optionee sells shares acquired upon exercise of an incentive stock
option at any time after the first anniversary of the date of exercise and the
second anniversary of the date of grant of the option, then the optionee will
recognize capital gain or loss equal to the difference between the sales price
and the exercise price of the option, and the Company will not be entitled to
any deduction.
Nonqualified Stock Options
The grant of an option or other similar right to acquire CSC Common Stock
that does not qualify for treatment as an incentive stock option is generally
not a taxable event for the optionee. Upon
17
<PAGE>
exercise of the option, the optionee will generally recognize ordinary income
in an amount equal to the excess of the fair market value of the shares on the
date of exercise over the exercise price, and the Company will be entitled to
a deduction equal to such amount. See "Special Rules for Awards Granted to
Insiders," however, below. A subsequent sale of the shares generally will give
rise to capital gain or loss equal to the difference between the sales price
and the sum of the exercise price paid with respect to such shares plus the
ordinary income recognized with respect to such shares.
Restricted Stock
Awards to employees under the 1998 Plan may include sales, bonuses or other
grants of shares that are subject to restrictions or vesting schedules. The
recipient will generally not be taxed until the restrictions on such shares
expire or are removed, at which time he or she will recognize ordinary income,
and the Company will be entitled to a deduction, in an amount equal to the
excess of the fair market value of the shares at that time over the purchase
price. If the recipient makes an election under Section 83(b) of the Internal
Revenue Code (a "Section 83(b) Election") within 30 days after receiving
restricted shares, he or she will recognize ordinary income, and the Company
will be entitled to a deduction, on the date of receipt of the restricted
shares, equal to the excess of the fair market value of the shares on that
date over the purchase price.
Special Rules for Awards Granted to Insiders
If an Insider exercises an option within six months of the date of grant, or
receives an award of restricted shares, the Insider will generally not
recognize ordinary income until the date of sale of the shares or, if earlier,
six months after the date of grant of the option or award of the restricted
shares. If the Insider makes a Section 83(b) Election within 30 days after the
date (the "Acquisition Date") of the exercise of the option or the award of
the restricted shares, he or she will recognize ordinary income on the
Acquisition Date equal to the excess of the fair market value of the shares on
that date over the exercise or purchase price. In addition, special rules
apply to an Insider who exercises an option having an exercise price greater
than the fair market value of the underlying shares on the date of exercise.
Miscellaneous Tax Issues
Awards may be granted under the 1998 Plan that do not fall clearly into the
categories described above. The federal income tax treatment of these awards
will depend upon their specific terms.
Generally, the Company will be required to make arrangements for withholding
applicable taxes with respect to ordinary income recognized by an employee in
connection with awards made under the 1998 Plan. Special rules will apply in
cases where the recipient of an award pays the exercise or purchase price of
the award or applicable withholding tax obligations by delivering previously
owned shares or by reducing the number of shares otherwise issuable pursuant
to the award. Such delivery of shares will in certain circumstances result in
the recognition of income with respect to such shares.
The terms of the agreements pursuant to which specific awards are made to
employees under the 1998 Plan may provide for accelerated vesting or payment
of an award in connection with a change in ownership or control of the
Company. In that event and depending upon the individual circumstances of the
recipient, certain amounts with respect to such awards may constitute "excess
parachute payments" under the "golden parachute" provisions of the Internal
Revenue Code. Pursuant to these provisions, a recipient will be subject to a
20% excise tax on any "excess parachute payment" and the Company will be
denied any deduction with respect to such payment. In certain instances, the
18
<PAGE>
Company may be denied a deduction for compensation attributable to awards
granted to certain officers of the Company to the extent such compensation
exceeds $1,000,000 in a given year.
BOARD RECOMMENDATION
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to adopt the 1998 Plan in order to enable the
Company and its subsidiaries to attract, retain and motivate their employees
by providing for or increasing the proprietary interests of such employees in
the Company. A majority of the votes cast at the Annual Meeting is necessary
for the approval of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE 1998 STOCK INCENTIVE PLAN. A majority of the votes cast at the
Annual Meeting is necessary for the approval of this proposal.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
It has been the practice of the Company to engage Deloitte & Touche LLP for
annual audit services upon approval by either the Audit Committee or the Board
of Directors. Deloitte & Touche LLP has acted as the Company's independent
public accountant for more than 35 years and will act in that capacity during
the current fiscal year. It is anticipated that a representative of Deloitte &
Touche LLP will be present at the Annual Meeting and will be afforded the
opportunity to make a statement if desired and will be available to respond to
appropriate questions. The engagement of Deloitte & Touche LLP for non-audit
services is approved by the Vice President and Chief Financial Officer of the
Company.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for presentation to the
Company's 1999 Annual Meeting of Stockholders must submit the proposal to
Computer Sciences Corporation, 2100 East Grand Avenue, El Segundo, California
90245, Attention: Secretary, not later than March 4, 1999 for inclusion. If
appropriate, in the Company's proxy statement and form of proxy relating to
its 1999 Annual Meeting.
OTHER MATTERS
The Management of the Company knows of no other business to be presented at
the meeting. If, however, other matters properly come before the meeting, it
is intended that the persons named in the accompanying proxy will vote thereon
in accordance with their best judgment.
By Order of the Board of Directors,
/s/ Hayward D. Fisk
Hayward D. Fisk
Vice President, General Counsel and Secretary
July 2, 1998
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APPENDIX A
COMPUTER SCIENCES CORPORATION
1998 STOCK INCENTIVE PLAN
SECTION 1: PURPOSE OF PLAN
The purpose of this 1998 Stock Incentive Plan ("Plan") of Computer Sciences
Corporation, a Nevada corporation (the "Company"), is to enable the Company
and its subsidiaries to attract, retain and motivate their employees by
providing for or increasing the proprietary interests of such employees in the
Company.
SECTION 2: PERSONS ELIGIBLE UNDER PLAN
Any person, including any director of the Company, who is an employee of the
Company or any of its subsidiaries (an "Employee") shall be eligible to be
considered for the grant of Awards (as hereinafter defined) hereunder.
SECTION 3: AWARDS
(a) The Committee (as hereinafter defined), on behalf of the Company, is
authorized under this Plan to enter into any type of arrangement with an
Employee that is not inconsistent with the provisions of this Plan and that by
its terms, involves or might involve the issuance of (i) shares of common
stock, par value $1.00 per share, of the Company ("Common Shares"), or (ii) a
Derivative Security (as such term is defined in Rule 16a-1 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such
Rule may be amended from time to time) with an exercise or conversion
privilege at a price related to the Common Shares or with a value derived from
the value of the Common Shares. The entering into of any such arrangement is
referred to herein as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or structure and may
include, but are not limited to, sales, bonuses and other transfers of stock,
restricted stock, stock options, reload stock options, stock purchase
warrants, other rights to acquire stock, securities convertible into or
redeemable for stock, stock appreciation rights, limited stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares, and an Award may consist of one such security or benefit, or two or
more of them in tandem or in the alternative.
(c) Common Shares may be issued pursuant to an Award for any lawful
consideration as determined by the Committee, including, without limitation,
services rendered by the recipient of such Award.
(d) Subject to the provisions of this Plan, the Committee, in its sole and
absolute discretion, shall determine all of the terms and conditions of each
Award granted hereunder, which terms and conditions may include, among other
things:
(i) any provision necessary for such Award to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code (an "Incentive
Stock Option");
(ii) a provision permitting the recipient of such Award (including any
recipient who is a director or officer of the Company) to pay the purchase
price of the Common Shares or other property issuable pursuant to such
Award, and/or to pay such recipient's tax withholding obligation with
respect to such issuance, in whole or in part, by delivering previously
owned shares of capital stock of the Company (including "pyramiding") or
other property, and/or by reducing the amount of Common Shares or other
property otherwise issuable pursuant to such Award; or
(iii) a provision conditioning or accelerating the receipt of benefits
pursuant to such Award, either automatically or in the discretion of the
Committee, upon the occurrence of specified events, including, without
limitation, a change of control of the Company, an acquisition of a
specified percentage of the
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voting power of the Company, the dissolution or liquidation of the Company,
a sale of substantially all of the property and assets of the Company or an
event of the type described in Section 7 hereof.
(e) Notwithstanding any other provision of this Plan, the maximum number of
Common Shares with respect to which options or rights may be granted under
this Plan to any Employee during any fiscal year shall be 500,000, subject to
adjustment as provided in Section 7 hereof.
SECTION 4: STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued pursuant to all
Incentive Stock Options granted under this Plan shall not exceed 9,000,000,
subject to adjustment as provided in Section 7 hereof.
(b) At any time, the aggregate number of Common Shares issued and issuable
pursuant to all Awards (including all Incentive Stock Options) granted under
this Plan shall not exceed 9,000,000, subject to adjustment as provided in
Section 7 hereof.
(c) For purposes of Section 4(b) hereof, the aggregate number of Common
Shares issued and issuable pursuant to Awards granted under this Plan shall at
any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares which were issued prior to such time
pursuant to Awards granted under this Plan, other than Common Shares which
were subsequently reacquired by the Company pursuant to the terms and
conditions of such Awards and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares which were otherwise issuable prior to
such time pursuant to Awards granted under this Plan but which were
withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares which are or may be issuable at
or after such time pursuant to Awards granted under this Plan.
SECTION 5: DURATION OF PLAN
No Awards may be granted under this Plan after June 15, 2008. Although
Common Shares may be issued after June 15, 2008 pursuant to Awards that were
duly granted prior to such date, no Common Shares may be issued under this
Plan after June 15, 2018.
SECTION 6: ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a committee of the Board of Directors
(the "Committee") consisting of two or more directors, each of whom is both a
Disinterested Person for purposes of Rule 16b-3 promulgated under the Exchange
Act and an Outside Director for purposes of Section 162(m) of the Internal
Revenue Code, as such Rule and such Section may be amended from time to time).
(b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and regulations relating to this Plan;
(ii) determine which persons are Employees, and to which of such
Employees, if any, Awards shall be granted hereunder;
(iii) grant Awards to Employees and determine the terms and conditions
thereof, including the number of Common Shares issuable pursuant thereto;
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(iv) determine whether, and the extent to which adjustments are required
pursuant to Section 7 hereof; and
(v) interpret and construe this Plan and the terms and conditions of all
Awards granted hereunder.
SECTION 7: ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into cash, property and/or
a different number or kind of securities, or if cash, property and/or
securities are distributed in respect of such outstanding securities, in
either case as a result of a reorganization, merger, consolidation,
recapitalization, restructuring, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or if substantially all of the property and assets of
the Company are sold, then, unless the terms of such transaction shall provide
otherwise, the Committee shall make appropriate and proportionate adjustments
in:
(a) the number and type of shares or other securities or cash or other
property that may be acquired pursuant to Incentive Stock Options and other
Awards theretofore granted under this Plan;
(b) the maximum number and type of shares or other securities that may be
issued pursuant to Incentive Stock Options and other Awards thereafter granted
under this Plan; and
(c) the maximum number of Common Shares with respect to which options or
rights may thereafter be granted under this Plan to any Employee during any
fiscal year.
SECTION 8: AMENDMENT AND TERMINATION OF PLAN
The Board of Directors may amend or terminate this Plan at any time and in
any manner, subject to the following:
(a) no recipient of any Award shall, without his or her consent, be deprived
thereof or of any of his or her rights thereunder or with respect thereto as a
result of such amendment or termination; and
(b) if any rule, regulation or procedure of any national securities exchange
upon which any securities of the Company are listed, or any listing agreement
with any such securities exchange, requires that any such amendment be
approved by the stockholders of the Company, then such amendment shall not be
effective unless and until it is approved by the affirmative vote of the
holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of the stockholders of the
Company.
SECTION 9: EFFECTIVE DATE OF PLAN
This Plan shall be effective as of June 15, 1998, the date upon which it was
approved by the Board of Directors; provided, however, that no Common Shares
may be issued under this Plan until it has been approved by the affirmative
votes of the holders of a majority of the securities of the Company present,
or represented, and entitled to vote at a meeting of the stockholders of the
Company.
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ANNUAL MEETING OF STOCKHOLDERS, AUGUST 10, 1998
The undersigned hereby appoints VAN B. HONEYCUTT, LEON J. LEVEL and
HAYWARD D. FISK, and each of them, with full power of substitution and
discretion in each of them, as the proxy or proxies of the undersigned to
represent the undersigned and to vote all shares of Common Stock of Computer
Sciences Corporation which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of Computer Sciences
Corporation to be held at the Sheraton Gateway Hotel, Los Angeles Airport, 6101
West Century Boulevard, Los Angeles, California 90045, at 2:00 p.m. on August
10, 1998, and at any adjournment thereof, upon the election of directors, the
approval of the proposed 1998 Stock Incentive Plan and any other matter properly
coming before the meeting.
If more than one of such proxies or substitutes shall be present and
vote, a majority thereof shall have the powers hereby granted: and if only one
of them shall be present and vote, he shall have the powers hereby granted.
This card also provides voting instructions for shares, if any, held in
the Company's employee benefit plans.
THIS PROXY WILL BE VOTED AS DIRECTED HEREIN, OR IF NO DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR APPROVAL OF THE PROPOSED
1998 STOCK INCENTIVE PLAN.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTING THEREOF.
NOTE: THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
PROXY
Please sign on the reverse side of this card and return promptly to
Midtown Station, P.O. Box 958 New York, New York 10138-0812.
If you do not sign and return a Proxy, or attend the meeting and vote by ballot,
your shares cannot be voted.
-- FOLD AND DETACH HERE --
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X
WITHHOLD
AUTHORITY to
(FOR all nominees vote for all
except as marked nominees
FOR AGAINST ABSTAIN to the contrary) listed below
1 To approve and adopt the proposed 2. To elect nominees to the CSC
1998 Stock Incentive Plan. Board of Directors.
INSTRUCTIONS:
To withhold authority to vote for any
individual nominees, strike out that
nominee's name in the list below.
Nominees:
Irving W. Bailey, II, Van B. Honeycutt,
William R. Hoover, Richard C. Lawton,
Leon J. Level, Thomas A. McDonnell, F.
Warren McFarlan, James R. Mellor and
William P. Rutledge.
3. To transact such other business as
may properly come before the meeting
and any adjournments or
postponements thereof.
------
| Dated:____________________________ 1998
| _______________________________________
Signature
_______________________________________
Signature
Please date, sign and return this Proxy
promptly whether or not you plan to
attend the meeting. If signing for a
corporation or partnership or an agent,
attorney or fiduciary, indicate the
capacity in which you are signing. If
you do attend the meeting and elect to
vote by ballot, such vote will
supercede this Proxy.
PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD YOUR
VOTE
FOLD AND DETACH HERE
