<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Filed by the Registrant [X] [ ] Confidential, for Use of the
Filed by a Party other than the Registrant Commission Only
[ ] (as permitted by Rule 14a-6(e)(2))
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11 or section 240.14a-12
</TABLE>
BMC Software, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set for the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously paid. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[BMC LOGO]
BMC SOFTWARE, INC.
HOUSTON, TEXAS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 30, 1999
To the Stockholders of
BMC Software, Inc.:
The annual meeting of stockholders of BMC Software, Inc., a Delaware
corporation (the "Company"), will be held at 2101 CityWest Boulevard, Houston,
Texas, on August 30, 1999 at 10:00 a.m., Central Daylight Savings Time, for the
following purposes:
1. To elect seven directors of the Company, each to serve until the
next annual meeting or until his respective successor has been duly elected
and qualified;
2. To ratify the Board of Directors' appointment of Arthur Andersen
LLP as the Company's independent accountants; and
3. To consider and act upon such other business as may properly come
before the meeting or any adjournments thereof.
A record of stockholders has been taken as of the close of business on July
6, 1999, and only those stockholders of record on that date will be entitled to
notice of and to vote at the meeting. A list of stockholders will be available
commencing July 10, 1999 and may be inspected during normal business hours prior
to the annual meeting at the offices of the Company, 2101 CityWest Boulevard,
Houston, Texas 77042-2827 and at the time and place of the annual meeting.
By Order of the Board of Directors,
/s/ M. BRINKLEY MORSE
July 23, 1999 M. Brinkley Morse
Secretary
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. YOU MAY VOTE YOUR SHARES BY COMPLETING AND
RETURNING THE ACCOMPANYING PROXY CARD, BY A TELEPHONE VOTE, OR BY VOTING
ELECTRONICALLY VIA THE INTERNET. PLEASE SEE THE ACCOMPANYING INSTRUCTIONS FOR
DETAILS ON TELEPHONE AND ELECTRONIC VOTING. RETURNING YOUR PROXY PROMPTLY WILL
ASSIST THE COMPANY IN REDUCING THE EXPENSES OF ADDITIONAL PROXY SOLICITATION.
SUBMITTING YOUR PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND
THE MEETING.
BY SUBMITTING YOUR PROXY (EITHER BY EXECUTING AND RETURNING THE PAPER PROXY
CARD, BY A TELEPHONE VOTE, OR BY VOTING ELECTRONICALLY VIA THE INTERNET), YOU
AUTHORIZE MANAGEMENT TO REPRESENT YOU AND VOTE YOUR SHARES AT THE MEETING IN
ACCORDANCE WITH YOUR INSTRUCTIONS. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN
PERSON, REGARDLESS OF WHETHER YOU HAVE SUBMITTED A PROXY. IN ADDITION, YOU MAY
REVOKE YOUR PROXY AT ANY TIME BEFORE ITS EXERCISE AT THE MEETING BY DELIVERING A
WRITTEN NOTICE OF REVOCATION TO THE COMPANY'S SECRETARY OR BY SUBMITTING A
LATER-DATED PROXY.
THIS PROXY STATEMENT AND THE ACCOMPANYING MATERIALS WILL BE MADE AVAILABLE
ON THE INTERNET (WWW.BMC.COM/CORPORATE/INVRELS) ON OR ABOUT JULY 29, 1999.
<PAGE> 3
BMC SOFTWARE, INC.
2101 CITYWEST BOULEVARD
HOUSTON, TEXAS 77042-2827
JULY 23, 1999
PROXY STATEMENT
GENERAL INFORMATION
PROXY SOLICITATION
This proxy statement is furnished to the stockholders of BMC Software,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board").
The proxies are to be voted at the 1999 Annual Meeting of Stockholders to be
held at 2101 CityWest Boulevard, Houston, Texas 77042-2827, at 10:00 a.m.,
Central Daylight Savings Time, on August 30, 1999, and any adjournments thereof,
for the purposes set forth in the accompanying notice. The Board is not aware of
any other matters to be presented at the meeting. If any other matter should be
presented at the meeting upon which a vote properly may be taken, shares
represented by all duly executed proxies received by the Company will be voted
with respect thereto in accordance with the best judgment of the persons
designated as the proxies. This proxy statement and the accompanying form of
proxy have been mailed to stockholders on or about July 23, 1999.
RECORD DATE AND VOTING RIGHTS
As of July 6, 1999, the record date for the determination of stockholders
entitled to notice of and to vote at the meeting, there were outstanding and
entitled to vote 237,738,760 shares of the common stock, $.01 par value, of the
Company (the "Common Stock"). Each share of Common Stock entitles the holder to
one vote on each matter presented at the meeting. A majority of the outstanding
shares will constitute a quorum at the meeting. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions are counted in tabulations of the votes
cast on proposals presented to stockholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
VOTING OF PROXY; REVOCABILITY
Proxies will be voted in accordance with the directions specified thereon
and otherwise in accordance with the judgment of the persons designated as
proxies. Any proxy on which no direction is specified will be voted FOR the
election of the nominees named herein to the Board and FOR the ratification of
the appointment of Arthur Andersen LLP as the Company's independent accountants.
Any proxy may be revoked at any time prior to its exercise by delivery to the
Secretary of the Company of written notice of revocation or a duly executed
proxy bearing a later date, or by voting in person at the meeting.
ANNUAL REPORT
An Annual Report to Stockholders (the "Annual Report"), containing
financial statements for the fiscal year ended March 31, 1999, accompanies this
proxy statement.
Stockholders are referred to that report for financial and other
information about the activities of the Company. The Annual Report is not
incorporated by reference into this proxy statement and is not deemed to be a
part hereof.
<PAGE> 4
ITEM ONE: ELECTION OF DIRECTORS
NOMINEES
Each of the persons named below has been nominated for election as a
director of the Company until the next Annual Meeting of Stockholders or until
his successor has been duly elected and qualified. Each of the nominees listed
below was elected by the stockholders at the last annual meeting and is
currently a director. All directors serve one year terms. No proxy may be voted
for more persons than the number of nominees listed below. Shares represented by
all duly executed proxies received by the Company and not marked to withhold
authority to vote for any individual director or for all directors will be voted
FOR the election of all the nominees named below. The Board knows of no reason
why any such nominee should be unable or unwilling to serve, but if such should
be the case, the shares represented by duly executed proxies received by the
Company will be voted for the election of a substitute nominee selected by the
Board. The nominees receiving a majority of the votes cast at the meeting will
be elected as directors. Stockholders may not cumulate their votes in the
election of directors.
Certain information concerning the nominees is set forth below:
<TABLE>
<CAPTION>
POSITION AND OFFICES DIRECTOR
NAME AGE OF THE COMPANY SINCE
---- --- -------------------- --------
<S> <C> <C> <C>
Max P. Watson Jr. ................ 53 Chairman of the Board, President 1990
and Chief Executive Officer
John W. Barter.................... 52 Director 1988
B. Garland Cupp................... 58 Director 1989
Meldon K. Gafner.................. 51 Director 1987
L. W. Gray........................ 62 Director 1991
George F. Raymond................. 62 Director 1987
Tom C. Tinsley.................... 46 Director 1997
</TABLE>
Mr. Watson joined the Company in October 1985 and has served as President
and Chief Executive Officer since April 1990 and as Chairman of the Board since
January 1992. He served as Executive Vice President and Chief Operating Officer
from January 1989 to April 1990 and as Senior Vice President, North American
Sales and Marketing from February 1987 to December 1988.
Mr. Barter is a consultant and private investor. Mr. Barter was employed
from 1977 until his retirement in December 1997 with AlliedSignal, Inc. in
various financial and executive capacities. From July 1988 to September 1994 he
served as Senior Vice President and Chief Financial Officer of AlliedSignal,
Inc., and from October 1994 to December 1997 he served as Executive Vice
President of AlliedSignal, Inc. and President of AlliedSignal Automotive. Mr.
Barter is a director of Iomega Corp., Louisiana Pacific Corporation, Baan
Company N.V. and Kestrel Solutions, Inc.
Mr. Cupp was employed by the American Express Corporation from 1978 to 1995
in various executive positions, his last position before retiring in 1995 was
Executive Vice President -- TRS Technologies and Chief Information Officer at
the Travel Related Services subsidiary of American Express Corporation. Mr. Cupp
is currently a private investor.
Mr. Gafner is Chairman of the Board of Kestrel Solutions, Inc., a privately
held manufacturer of high speed fiber optic communications systems for advanced
public and private networks. He was Vice Chairman of the Board of Comstream
Corporation, a manufacturer of high speed satellite earth stations for data
distribution, from December 1992 to July 1997 and was its President from July
1988 to December 1992.
Mr. Gray is a private investor. He was employed from 1961 to 1987 by the
International Business Machines Corporation ("IBM") in various executive
capacities including President, National Marketing Division. He was a corporate
vice president of IBM from 1983 to 1987.
Mr. Raymond is a private investor and a director of several public and
privately held software companies. He founded Automatic Business Centers, Inc.,
a payroll processing company ("ABC"), in 1972 and sold the
2
<PAGE> 5
company to CIGNA Corporation ("CIGNA") in 1983. Mr. Raymond and other members of
ABC's management repurchased ABC in 1986 from CIGNA and sold ABC to Automatic
Data Processing Corporation in 1989. Mr. Raymond is a director of DocuCorp
International, Inc., Atlantic Data Services, Inc. and Balance Bar Inc.
Mr. Tinsley is a private investor. From November 1995 to July 1999 he
served in various executive positions at Baan Company N.V., a leading provider
of Enterprise Software Applications. Most recently he served as Chairman and
Chief Executive of the Management Board. Prior to joining Baan, he was a
director at McKinsey & Company, Inc., where he was employed for eighteen years.
Mr. Tinsley also serves on the board of Meta-4 and Philanthropic Research Inc.
BOARD ORGANIZATION AND MEETINGS
The Board met 13 times in fiscal 1999. No Board member attended fewer than
75% of the total number of the meetings of the Board and of the committees on
which he served.
The Board has established an Audit Committee and a Compensation Committee
to act on behalf of the Board and to advise the Board with respect to specific
matters. The Board does not have a standing nominating committee or a committee
that performs a similar function. The responsibilities of the Audit Committee
and Compensation Committee are as follows:
Audit Committee. The Audit Committee is comprised entirely of directors who
are not officers of the Company. The Audit Committee has been established to
discuss the scope and plan of the annual audit of the books and records of the
Company; to review, evaluate and advise the Board with respect to the engagement
of independent public accounts; to review the adequacy of internal accounting
procedures; and to review audit results. Messrs. Barter and Raymond are members
of the Audit Committee, which held 6 meetings in fiscal 1999.
Compensation Committee. The Compensation Committee is comprised entirely of
directors who are not officers of the Company. The Compensation Committee's
function is to review the compensation levels of the Company's executive
officers; to administer the Company's stock option and incentive stock plans;
and to authorize bonuses, awards under such plans and any other form of
remuneration. Messrs. Barter, Gafner and Cupp are members of the Compensation
Committee, which held 7 meetings in fiscal 1999.
COMPENSATION OF DIRECTORS
Board members (other than those employed by the Company) receive a fixed
annual fee of $25,000. All board members are reimbursed for travel and certain
other expenses incurred in connection with their duties as a director of the
Company.
In August 1994, the Company's stockholders approved the BMC Software, Inc.
1994 Nonemployee Directors' Stock Option Plan (the "1994 Directors' Plan"). The
1994 Directors' Plan provides for automatic grants of "nonqualified" stock
options to nonemployee directors, with a one-time 40,000 share grant to a newly
elected director and annual 20,000 share grants to each existing director upon
his or her annual re-election. The 1994 Directors' Plan has 800,000 shares
reserved for issuance. All options granted under the 1994 Directors' Plan have
an exercise price equal to fair market value on the grant date and vest
quarterly in 6.25% increments over four years from the grant date.
THE BOARD RECOMMENDS A VOTE FOR EACH OF THE DIRECTOR NOMINEES.
3
<PAGE> 6
ITEM TWO: PROPOSAL TO RATIFY THE SELECTION OF
INDEPENDENT AUDITORS
APPOINTMENT OF ARTHUR ANDERSEN LLP
The Board, upon recommendation of the Audit Committee, has appointed Arthur
Andersen LLP, independent public accountants, as the Company's independent
accountants for the fiscal year ended March 31, 2000, subject to ratification of
this appointment by the stockholders of the Company. Arthur Andersen LLP
performed audit services in connection with the examination of the financial
statements of the Company and its subsidiaries for the fiscal year ended March
31, 1999 and is considered by management of the Company to be well qualified. If
this proposal does not receive a majority vote at the meeting, the Board will
reconsider the appointment. Representatives of Arthur Andersen LLP will be
present at the 1999 Annual Meeting of Stockholders. They will have an
opportunity to make a statement if they desire to do so and to answer
appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION OF
INDEPENDENT AUDITORS.
ITEM THREE: OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the 1999 Annual Meeting of Stockholders. However, if any
other matter should be presented at the meeting upon which a vote properly may
be taken, shares represented by all duly executed proxies received by the
Company will be voted with respect thereto in accordance with the best judgment
of the persons designated as the proxies.
OTHER INFORMATION
CERTAIN STOCKHOLDERS
The following table sets forth as of July 20, 1999 certain information
regarding beneficial ownership of the Common Stock by each stockholder known by
the Company to be the beneficial owner of more than 5% of its Common Stock, each
director, the Chief Executive Officer, each of the four other most highly
compensated executive officers and all directors and officers as a group. Unless
otherwise indicated, the stockholders have sole voting and investment power with
respect to shares beneficially owned by them, subject to community property
laws, where applicable.
<TABLE>
<CAPTION>
COMMON
STOCK
NAME OWNED PERCENT
- ---- ---------- -------
<S> <C> <C>
Massachusetts Financial Services Company.................... 30,196,000 12.7%
500 Bolyston Street
Boston, MA 02116
FMR Corp.................................................... 16,489,000 8.2%
82 Devonshire Street
Boston, MA 02109
Max P. Watson Jr.(1)........................................ 2,767,180 1.1%
Robert E. Beauchamp(2)...................................... 160,480 *
Richard P. Gardner(3)....................................... 384,000 *
William M. Austin(4)........................................ 220,049 *
M. Brinkley Morse(5)........................................ 572,188 *
John W. Barter(6)........................................... 149,000 *
B. Garland Cupp(7).......................................... 250,000 *
Meldon K. Gafner(8)......................................... 125,000 *
L. W. Gray(9)............................................... 160,000 *
George F. Raymond(10)....................................... 108,804 *
Tom C. Tinsley(11).......................................... 37,500 *
All directors and officers as a group (20 persons).......... 5,374,698 2.2%
</TABLE>
4
<PAGE> 7
- ---------------
* Represents less than 1%.
(1) Includes 2,037,000 shares subject to employee stock options exercisable
within 60 days after July 20, 1999 and 80,000 shares held by trusts for the
benefit of Mr. Watson's children, of which he is one of two trustees and
shares voting and investment powers, Mr. Watson disclaims beneficial
ownership of the shares held by trusts for the benefit of his children.
(2) Includes 160,480 shares subject to employee stock options exercisable
within 60 days after July 20, 1999.
(3) Includes 334,000 shares subject to employee stock options exercisable
within 60 days after July 20, 1999.
(4) Includes 135.000 shares subject to employee stock options exercisable
within 60 days after July 20, 1999 and 60,000 shares of restricted stock.
(5) Includes 564,000 shares subject to employee stock options exercisable
within 60 days after July 20, 1999.
(6) Includes 125,000 shares subject to employee stock options exercisable
within 60 days after July 20, 1999.
(7) Includes 250,000 shares subject to nonemployee director stock options
exercisable within 60 days after July 20, 1999.
(8) Includes 125,000 shares subject to nonemployee director stock options
exercisable within 60 days after July 20, 1999.
(9) Includes 160,000 shares subject to nonemployee director stock options
exercisable within 60 days after July 20, 1999.
(10) Includes 99,000 shares subject to nonemployee director stock options
exercisable within 60 days after July 20, 1999.
(11) Includes 37,500 shares subject to nonemployee director stock options
exercisable within 60 days after July 20, 1999.
(12) Includes 4,468,830 shares subject to stock options exercisable within 60
days after July 20, 1999 and 85,049 shares of restricted stock.
EXECUTIVE OFFICERS
The executive officers are elected to serve annual terms. Certain
information concerning the Company's executive officers as of the date of this
proxy statement is set forth below, except that information concerning Mr.
Watson is set forth above under Item One: "Election of Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William M. Austin................. 53 Senior Vice President and Chief Financial Officer
Robert E. Beauchamp............... 39 Senior Vice President, Product Management and
Development
Richard P. Gardner................ 45 Senior Vice President, Field Operations
Kevin M. Klausmeyer............... 40 Vice President, Controller and Chief Accounting
Officer
Marco Landi....................... 55 Senior Vice President, European Operations
Wayne Morris...................... 42 Vice President, Marketing
M. Brinkley Morse................. 41 Senior Vice President, Corporate Development
Stephen B. Solcher................ 38 Vice President and Treasurer
Theodore W. Van Duyn.............. 50 Chief Technology Officer
Roy J. Wilson..................... 43 Senior Vice President, Human Resources
Kevin Weiss....................... 43 Senior Vice President, Americas
</TABLE>
Mr. Austin joined the Company as Senior Vice President and Chief Financial
Officer in January 1997. Prior to joining the Company, Mr. Austin was employed
since 1991 with McDonnell Douglas Corporation in
5
<PAGE> 8
various senior financial positions, lastly as Vice President and Chief Financial
Officer of McDonnell Douglas Aerospace, a division of McDonnell Douglas
Corporation. From 1973 to 1991, Mr. Austin was employed with Bankers Trust
Company in various positions, serving as Managing Director -- Acquisition and
Structured Finance from 1989 to 1991.
Mr. Beauchamp has been Senior Vice President, Research and Development
since August 1997. He has been employed by the Company since 1988, when he
joined the Company as a senior sales representative. During his employment with
the Company, he has served in various senior sales, marketing and strategic
planning positions, and was Vice President, Business Strategy, prior to his
appointment to his current position.
Mr. Gardner has been Senior Vice President, Field Operations since April 1,
1999 and was Senior Vice President, Worldwide Sales and Marketing from August
1997 to April 1999. He joined the Company as Senior Vice President, North
American Sales, in May 1994. He was employed by IBM Corporation from March 1975
to May 1994 in various sales and general management capacities, lastly as
General Manager of its Houston, Texas operations.
Mr. Klausmeyer joined the Company in August 1993 as Corporate Controller
and has served as Chief Accounting Officer since October 1994 and as Vice
President since April 1998. From December 1979 through July 1993, he was
employed by Arthur Andersen LLP in various capacities, the last of which was
Principal -- High Technology/Enterprise Group.
Mr. Landi joined the Company as Senior Vice President, European Operations
in January 1998. He was employed by Apple Computer corporation ("Apple") from
January 1995 to May 1997, and served as Chief Operating Officer of Apple from
June 1996 to May 1997. Mr. Landi was employed by Texas Instruments, Inc. from
April 1970 to January 1995, where he served in various senior sales and general
management positions, including President, Asian Operations and President,
European Operations.
Mr. Morris has served as Vice President, Marketing since July 1998. He
joined the Company in January 1995 and has held several senior marketing
positions. Prior to joining the Company he was Vice President of Marketing for
Enterprise Software Corporation and a marketing and business unit manager for
Hewlett-Packard Company.
Mr. Morse joined the Company in November 1988 as General Counsel and
Secretary and served as General Counsel from November 1988 to September 1998,
when he became Senior Vice President, Corporate Development. He continues to
serve as Secretary.
Mr. Solcher joined the Company as Assistant Treasurer in September 1991 and
has served as Treasurer since April 1992. Prior to joining the Company, Mr.
Solcher was employed as an audit manager by Arthur Andersen LLP, the Company's
independent auditors, from 1983 to 1991.
Mr. Van Duyn joined the Company in October 1985 as Director of Research and
served as Senior Vice President, Research and Development from July 1986 to
February 1993, when he became Chief Technology Officer.
Mr. Wilson joined the Company in September 1997 as Senior Vice President,
Human Resources. He was employed by Compaq Computer Corporation as Vice
President, Human Resources, from 1993 to September 1997 and by the Pearle Vision
subsidiary of Grand Metropolitan PLC from 1990 to 1993 as Senior Vice President,
Human Resources.
Mr. Weiss joined the Company in 1995 as Vice President, North American
Sales. He became Vice President, Senior Vice President, Americas as of April 1,
1999. Before joining the Company, Mr. Weiss was employed for 17 years by
International Business Machines Corporation, where he held various sales,
marketing management and strategic planning positions.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following tables and notes thereto present information concerning the
cash compensation, restricted stock grants, stock option grants and stock option
exercises of Messrs. Watson, Beauchamp, Gardner, Austin and Morse (the "Named
Executive Officers"). The Company's compensation policies are discussed below
under the caption "-- Report of the Compensation Committee of the Board."
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
FISCAL SALARY BONUS COMPENSATION STOCK AWARD OPTIONS
YEAR ($) ($) ($)(1) ($) (#)
------ ------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Max P. Watson Jr. .......... 1999 400,000 1,903,901 5,000 0 500,000
Chairman of the Board, 1998 240,000 848,191 5,000 0
President and Chief
Executive Officer 1997 240,000 868,294 5,000 0
Robert E. Beauchamp......... 1999 220,000 839,926 5,000 225,000
Senior Vice President, 1998 120,000 394,522 5,000 0 400,000
Research & Development 1997 120,000 200,731 5,000 0 120,000
Richard P. Gardner.......... 1999 220,000 787,360 5,000 0 225,000
Senior Vice President, 1998 140,000 473,984 5,000 0
Worldwide Sales and
Marketing 1997 140,000 516,246 5,000 0
William M. Austin........... 1999 181,666 668,509 5,000 0 225,000
Senior Vice President 1998 140,000 368,409 5,000 0
and Chief Financial
Officer 1997 26,025 450,000 5,000 2,156,250(2) 400,000
M. Brinkley Morse........... 1999 180,000 565,697 5,000 0 125,000
Senior Vice President, 1998 126,000 342,130 5,000 0
Corporate Development 1997 126,000 319,330 5,000 0
</TABLE>
- ---------------
(1) Represents nondiscriminatory Board authorized matching contributions under
the Company's 401(k) plan.
(2) The Company granted 100,000 shares of restricted stock to Mr. Austin in
January 1997 in connection with Mr. Austin's recruitment to the Company. The
transfer restrictions on these shares lapse in 20% increments on January 1
of each year following the date of grant. At March 31, 1999, Mr. Austin held
60,000 of such restricted shares having a dollar value of $2,227,500, based
upon the closing market price on March 31, 1999 of $37.125.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information on option grants in
fiscal 1998 to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
------------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Max P. Watson Jr. ........ 500,000 8.69% 45.96 2/15/09 14,451,999 36,624,202
Robert E. Beauchamp....... 225,000 3.91% 45.96 2/15/09 6,503,399 16,480,891
Richard P. Gardner........ 225,000 3.91% 45.96 2/15/09 6,503,399 16,480,891
William M. Austin......... 225,000 3.91% 45.96 2/15/09 6,503,399 16,480,891
M. Brinkley Morse......... 130,000 2.26% 45.96 2/15/09 3,757,520 9,522,292
</TABLE>
7
<PAGE> 10
- ---------------
(1) All options listed were granted pursuant to the 1994 Employee Incentive
Plan. The option exercise price is the market price when granted; the
options have a term of 10 years and vest in 20% annual increments on the
first through fifth anniversaries of the February 15, 1999 grant date.
(2) Potential realizable values are based on assumed annual rates of return
specified by the Securities and Exchange Commission. Such increases in
values are based on speculative assumptions and should not inflate
expectations of the future value of the Company's market value.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal 1998
by the Named Executive Officers and the value of such officers' unexercised
options at March 31, 1999 using the closing market price of $37.125.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED FISCAL YEAR-END(#) FISCAL YEAR-END($)
ON VALUE --------------------------- ---------------------------
EXERCISE # REALIZED $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Max P. Watson Jr. ......... 424,240 17,369,696 2,037,000 1,028,000 64,359,015 16,082,160
Robert E. Beauchamp........ 37,920 1,527,731 166,880 657,000 1,426,017 6,622,916
Richard P. Gardner......... 171,800 6,066,207 334,000 489,000 10,552,730 8,341,080
William M. Austin.......... 25,000 683,505 135,000 465,000 2,101,275 3,735,600
M. Brinkley Morse.......... 166,000 7,126,422 564,000 330,000 18,767,430 6,319,000
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
The Compensation Committee is composed of three nonmanagement directors,
who are "independent directors" under Section 16 of the Securities Exchange Act
of 1934. The Compensation Committee designs and administers the compensation
programs for the Company's executive officers and other key employees and makes
grants under the Company's equity compensation plans. The Compensation
Committee, with the aid of internal staff and independent compensation
consultants, at least annually reviews and evaluates the Company's compensation
programs to determine their effectiveness in attracting, motivating and
retaining highly skilled executive officers.
Compensation Philosophy. The Company's compensation program for its
executive officers is designed to preserve and enhance stockholder value by
heavily emphasizing performance-based compensation. The program is directed
towards motivating executives to achieve the Company's business objectives, to
reward them for their achievement and to attract and retain executive officers
who contribute to the Company's long-term success. Competition is intense for
senior executives within the high technology and computer software industries,
with established companies and start-ups aggressively recruiting management
talent. A key design criterion for the Company's compensation programs is
therefore the retention of its senior management and other key employees.
Compensation Review. In late 1997, the Compensation Committee began a
complete review of the Company's executive compensation programs. The
Compensation Committee desired to ensure these programs remained competitive and
comparable to peer companies considering the significant increase in the
Company's revenues, earnings, market capitalization and operating complexity
over the preceding several years. The Compensation Committee engaged the
independent consulting firm of TowersPerrin to review the Company's cash
compensation programs for senior management (the "TowersPerrin Review").
TowersPerrin based its market analysis primarily on high-technology companies
having revenues of between $1 and $2 billion. The Compensation Committee
subsequently engaged the independent consultant firm of Hewitt Associates LLC to
review the Company's long term, equity-based incentive programs for senior
management (the "Hewitt Review"). Hewitt Associates based its market analysis
primarily on two groups of peer software companies, a "small" company group and
a "large" company group. In early 1998, the Compensation
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Committee implemented for fiscal 1999 the revisions discussed below to the
annual, cash-based compensation programs for the Chief Executive Officer, the
Named Executive Officers and certain other executive officers. In early 1999,
the Compensation Committee implemented the new long term, equity based
compensation programs discussed below for the Chief Executive Officer, the Named
Executive Officers and certain other executive officers.
Compensation Components. The Company's executive compensation program has
three primary components: base salary, annual cash incentive bonuses and
long-term incentives. Each is discussed below.
Base Salary. The level of base salary paid to executive officers is
determined on the basis of the importance of the position and on market data.
The salaries have historically been set at the low end of the competitive
market. Prior to fiscal 1999, none of the Named Executive Officers had received
base salary raises since fiscal 1994 (or their date of hiring, if later), except
for base salary increases to Mr. Beauchamp in connection with promotions. The
TowersPerrin Review indicated that the base salary levels for the Named
Executive Officers were generally below the 25th percentile of the comparison
group used in that analysis. The Compensation Committee increased the base
salaries of the Chief Executive Officer, the other Named Executive Officers and
certain other executive officers to approximate the 25th percentile of base
salaries paid by such comparison group.
Annual Cash Incentive Bonuses. Since 1990, the Company has employed an
annual cash incentive compensation program under which bonus amounts are based
on year-over-year increases in pre-tax earnings (excluding one-time charges and
extraordinary items). Under this program, up to 6% of the increase in such
pre-tax earnings is allocated to a bonus pool. The Compensation Committee
establishes targeted bonus amounts for each participating executive at the
beginning of the fiscal year. The individual executive officer's percentage
participation in this pool is based primarily on the ratio of his targeted
annual bonus amount to the total targeted bonus amounts of all participating
executives.
This plan has historically generated annual bonuses in the 90th percentile
of peer companies because of the Company's success and financial performance.
Taken with the executive officers' low relative salary levels, this program
heavily weights a participant's total targeted annual cash compensation to the
performance-based bonus amount. The Compensation Committee has targeted a ratio
between base salary and the targeted annual cash bonus of one to between three
and four.
For fiscal 1999, the Compensation Committee determined not to adjust the
annual bonus plan and made no material changes to the plan. In reaching this
decision, the Compensation Committee projected bonuses for fiscal 1999 using
estimates of pre-tax earnings growth. These estimates indicated that pre-tax
earnings growth in the range of 25% would generate bonuses significantly higher
than prior period bonuses. These projected bonuses fell into approximately the
75th percentile of the comparison group employed in the TowersPerrin Review for
the Chief Executive Officer and approximately between the 75th and 90th
percentile for the other participants. The Company's actual pre-tax earnings
growth in fiscal 1999 substantially exceeded its beginning of the year
projections of earnings growth; consequently, the actual annual bonuses for
fiscal 1999 substantially exceeded the targeted bonus amounts established at the
beginning of the fiscal year.
Long Term Incentives. The Company granted equity-based incentives to all of
the Named Executive Officers in fiscal year 1999. This grant reflects a move to
smaller annual grants from the practice of a single grant designed to be the
sole grant for up to five years. This change is designed to improve the
retention effect of the granted options by providing regular awards with
overlapping vesting periods. The practice of awarding options on an annual basis
also creates more frequent opportunities to adjust the amounts being granted
based on performance. This change in grant practice is designed to make the
stock option program more reflective of stock option grant practices in the
marketplace.
The Compensation Committee established the amount of the grants based on
the data presented in the Hewitt Review. The Compensation Committee intended for
the grants to be equivalent to grants in the 75th to 90th percentile of the
comparison group employed in the Hewitt Review. The grants in fiscal 1999 to the
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Named Executive Officers other than the Chief Executive Officer are two times
the targeted annual grant amount, because no additional grants to these
individuals are intended until fiscal 2002. The amounts of these grants are set
forth in the table under the heading "Options Grants in the Last Fiscal Year."
These options vest annually in 20% increments over five years.
Compensation of the Chief Executive Officer. As described above, the
Company determines compensation for all executives, including the Chief
Executive Officer, considering both a pay-for-performance philosophy and market
rates of compensation. Based on the data presented in the TowersPerrin Review,
the Compensation Committee increased Mr. Watson's base salary for the first time
since his becoming Chief Executive Officer in April 1990. His salary increased
from $240,000 to $400,000, which is approximately in the bottom quartile for the
comparable companies in the TowersPerrin Review. The Chief Executive Officer's
annual cash bonus was based on his individual targeted amount of the annual
incentive pool as described above.
Through fiscal 1999, the Compensation Committee has been engaged in
designing a new long-term equity incentive compensation plan for Mr. Watson. Mr.
Watson was last granted a long term incentive in October 1994; these stock
options will become fully vested on November 1, 1999. In February 1999, the
Compensation Committee granted Mr. Watson a nonqualified stock option to
purchase 500,000 shares of the Company's Common Stock. This grant was made in
conjunction with the grants to the other Named Executive Officers discussed
above and also vests annually in 20% increments over five years. The
Compensation Committee made the award in order to provide a significant
additional incentive to Mr. Watson to remain with the Company, to recognize his
performance and leadership and to ensure that he receives compensation in line
with other top-performing chief executive officers in comparable companies. In
determining the form and amount of the award, the Compensation Committee took
into consideration Mr. Watson's central role in contributing to the Company's
performance and the analysis contained in the Hewitt Review of equity incentives
and total compensation paid to chief executive officers in comparable companies.
This grant is part of an overall retention and incentive program for the Chief
Executive Officer that the Compensation Committee is continuing to develop,
review and refine as appropriate.
Deductibility. Internal Revenue Code Section 162(m) precludes a public
corporation from taking a deduction in excess of $1 million for its chief
executive officer or any of its four other highest paid officers.
Performance-based compensation meeting criteria in Section 162(m), however, is
specifically exempt from the deduction limit. The Company's long-term incentive
grants to the Named Executive Officers have all been designed to qualify as
exempt performance-based compensation. The Company has not taken actions
necessary to qualify its annual cash incentive plan for the exclusion to Section
162(m). The Company's increase in pretax earnings in fiscal 1997, fiscal 1998
and fiscal 1999 exceeded its internal plans and this performance generated total
annual compensation to the Chief Executive Officer that exceeded the Section
162(m) limit by $108,294, $88,191 and $1,303,901, respectively. The performance
in fiscal 1999 also caused the total cash compensation of Mr. Beauchamp and Mr.
Gardner to exceed the Section 162(m) limit by $59,926 and $7,360, respectively.
While the Company intends to pursue a strategy of maximizing the deductibility
of compensation paid to executive officers in fiscal 2000, it also intends to
maintain the flexibility to take actions that it considers to be in the
Company's best interests and to take into consideration factors other than tax
deductibility.
Respectfully submitted by the Compensation Committee of the Board of
Directors of the Company:
John W. Barter
B. Garland Cupp
Meldon K. Gafner
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PERFORMANCE GRAPH
The following indexed graph indicates the Company's total return to its
stockholders for the five year period ended March 31, 1999, as compared to the
total return over such period for the Standard & Poor's 500 Composite Index and
the Standard & Poor's Computer Software & Services Composite Index. This graph
assumes a $100 investment at the beginning of such period and the reinvestment
of all dividends.
[CHART]
<TABLE>
<CAPTION>
S&P
Measurement Period BMC Computer
(Fiscal Year Covered) Software S&P 500 Software/Services
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 103.24 115.57 134.89
1996 177.33 152.67 190.70
1997 298.78 182.93 267.64
1998 542.90 270.74 489.18
1999 480.15 320.71 847.41
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that, during the fiscal year ended March 31, 1999, all
Section 16(a) filing requirements applicable to the Company's directors,
executive officers and greater than ten-percent beneficial owners were complied
with except that Richard P. Gardner reported late on Form 5 the exercise of
employee stock options to purchase 20,000 shares of Common Stock and the sale of
those shares.
RELATED TRANSACTIONS
John S. Watson, the brother of Max P. Watson Jr., the Company's Chairman of
the Board, President and Chief Executive Officer, is a partner in the law firm
of Vinson & Elkins L.L.P., which is the Company's principal outside counsel.
Vinson & Elkins invoiced the Company approximately $3,000,000 for legal services
rendered in fiscal 1999.
STOCKHOLDER PROPOSALS
Proposals received from the stockholders are given careful consideration by
the Company in accordance with Rule 14a-8 under the Securities Exchange Act of
1934, as amended. Stockholder proposals are eligible for consideration for
inclusion in the proxy statement for the 2000 Annual Meeting of Stockholders if
they are received by the Company on or before March 25, 2000. Any stockholder
proposal should be directed to the attention of the Secretary of the Company, at
the address indicated on page 1 of this proxy statement. In order for a
stockholder proposal submitted outside of Rule 14a-8 to be considered "timely"
within the meaning of Rule 14a-4(c), such proposal must be received by the
Company on or prior to June 8, 2000. The Company will have discretionary
authority with respect to stockholder proposals submitted for consideration at
the 2000 Annual Meeting of Stockholders that are not "timely" within the meaning
of Rule 14a-4(c).
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<PAGE> 14
ANNUAL REPORT ON FORM 10-K
The Company will furnish without charge to each person whose proxy is being
solicited, upon written request of any such person, a copy of the Company's
annual report on Form 10-K for the fiscal year ended March 31, 1999 (the "1999
10-K"), as filed with the Securities and Exchange Commission, including the
financial statements and the financial statement schedules thereto. The Company
will furnish to any such person any exhibit described in the list accompanying
the 1999 10-K, upon the payment, in advance, of the specified reasonable fees
related to the Company's furnishing of such exhibit(s). Requests for copies of
such report and/or exhibit(s) should be directed to Mr. M. Brinkley Morse,
Secretary for the Company, at the Company's principal address as shown on page 1
hereof.
OTHER INFORMATION
Internet and telephone voting. Stockholders have the opportunity to vote
via the Internet or by telephone. Votes submitted electronically via the
Internet or by telephone must be received by midnight Eastern Standard Time, on
August 29, 1999. Submitting a proxy will not affect your right to vote in person
should you decide to attend the Annual Meeting of Stockholders. To vote via the
Internet or by telephone, please refer to the accompanying instructions.
The Internet voting procedures are designed to authenticate stockholder
identities, to allow stockholders to give their voting instructions and to
confirm that stockholders' instructions have been recorded properly.
Stockholders voting via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by the stockholder.
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<PAGE> 15
OTHER MATTERS
The Annual Report to Stockholders for the fiscal year ended March 31, 1999
has been mailed to each stockholder entitled to vote at the annual meeting.
The cost of soliciting proxies in the accompanying form will be borne by
the Company. The Company has engaged Corporate Investor Communications, Inc. to
act as its proxy solicitor and anticipates that its fees will be approximately
$10,000 in connection therewith. In addition to solicitations by mail, a number
of officers, directors and regular employees of the Company may, if necessary to
ensure the presence of a quorum and at no additional expense to the Company,
solicit proxies in person or by telephone or telegraph. The Company also will
make arrangements with brokerage firms, banks and other nominees to forward
proxy materials to beneficial owners of shares and will reimburse such nominees
for their reasonable costs.
The persons designated to vote shares covered by proxies intend to exercise
their judgment in voting such shares on other matters that may come before the
meeting adjourns. Management does not expect, however, that any matters other
than those referred to in this proxy statement will be presented for action at
the meeting.
By Order of the Board of Directors
M. Brinkley Morse
Secretary
Houston, Texas
July 23, 1999
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<PAGE> 16
[BMC LOGO]
2210-PS-99
<PAGE> 17
PROXY BMC SOFTWARE, INC. PROXY
PROXY FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Max P. Watson and M Brinkley Morse, and
each of them, with or without the others, with full power of substitution, to
vote all shares of stock that the undersigned is entitled to vote at the 1999
Annual Meeting of Stockholders of BMC Software, Inc. (the "Company"), to be held
at 2101 CityWest Boulevard, Houston, Texas, on August 30, 1999, at 10:00 a.m.,
Central Daylight Savings Time, and all adjournments and postponements thereof as
follows:
1. Election of seven directors to serve until the Company's 2000 Annual
Meeting:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below) listed below
INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, MARK A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Max P. Watson Jr. John W. Barter B. Garland Cupp Meldon K. Gafner
L.W. Gray George F. Raymond Tom C. Tinsley
2. Proposal to ratify the appointment by the Board of Directors of Arthur
Andersen L.L.P. as independent public accountants for the year ended
March 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon any other business as may properly come before
said meeting.
<PAGE> 18
This proxy will be voted as you specify above. If no specification is made,
this Proxy will be voted with respect to item (1) FOR the nominees listed, and
with respect to item (2) FOR ratification of the appointment of Arthur Andersen
L.L.P. as independent accountants for the year ended March 31, 2000. The
undersigned hereby acknowledges receipt of the Notice of the 1999 Annual Meeting
and related Proxy Statement and the Company's 1999 Annual Report to
Stockholders.
Dated: , 1999
------------------
---------------------------------
Stockholder's Signature(s)
---------------------------------
Signature if held jointly
Note: Joint owners must each sign. Please
sign your name exactly as it appears on
your stock certificate. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title. If
held by a corporation, please sign in the
full corporate name by the president or
other authorized officer.
(PLEASE RETURN THIS SIGNED PROXY CARE IN THE ACCOMPANYING ADDRESSED ENVELOPE)
