<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
THE REYNOLDS AND REYNOLDS COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THE REYNOLDS AND REYNOLDS COMPANY
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
[LOGO]
THE REYNOLDS AND REYNOLDS COMPANY
115 SOUTH LUDLOW STREET
DAYTON, OHIO 45402
January 5, 1999
Dear Fellow Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders on
Thursday, February 11, 1999 at 11:00 a.m., Eastern Standard Time, in the
Frederick C. Smith Auditorium located in the David H. Ponitz Sinclair Center,
Building 12, on the Sinclair Community College campus, 444 West Third Street,
Dayton, Ohio 45402. Directions to the meeting appear on the back page of this
booklet.
The notice of meeting and proxy statement following this letter describe the
business to be transacted. During the meeting we will also report on the current
activities of the Company and give you an opportunity to ask questions. We
encourage you to participate in the meeting and to allow time to visit our
demonstration and display area either before or after the meeting. The demo and
display area, which is also in the David H. Ponitz Sinclair Center, will be open
from 10:00 a.m. until 12:30 p.m.
Whether or not you plan to attend the meeting, we urge you to sign and date the
enclosed proxy card and return it as soon as possible so that your shares will
be represented. The vote of every shareholder is important.
We look forward to welcoming you at the meeting.
Sincerely,
David R. Holmes
Chairman, President and
Chief Executive Officer
<PAGE> 3
THE REYNOLDS AND REYNOLDS COMPANY
115 SOUTH LUDLOW STREET, DAYTON, OHIO 45402
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 11, 1999
To All Shareholders:
The Annual Meeting of Shareholders ("Meeting") of The Reynolds and Reynolds
Company, an Ohio corporation, will be held in the Frederick C. Smith Auditorium
located in the David H. Ponitz Sinclair Center, Building 12, on the Sinclair
Community College campus, 444 West Third Street, Dayton, Ohio 45402, on
Thursday, February 11, 1999, at 11:00 a.m., Eastern Standard Time, for the
following purposes:
1. To elect three (3) Directors;
2. To appoint Deloitte & Touche LLP as independent auditors for the
company; and
3. To transact such other business as may properly be brought before the
Meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on December 18, 1998, are
entitled to vote at the Meeting or any adjournment(s) thereof.
Your attention is called to the accompanying Proxy Card and Proxy
Statement.
A copy of the company's Annual Report for its fiscal year ended September
30, 1998, is enclosed. It is not deemed to be part of the official Proxy
soliciting material. If any shareholder fails to receive a copy of the Annual
Report, one may be obtained by writing to the Secretary of the company or by
calling the toll-free information hotline 1-888-4-REYREY (473-9739).
BY ORDER OF THE BOARD OF DIRECTORS
Adam M. Lutynski, Secretary
Dayton, Ohio
January 5, 1999
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Meeting,
please sign and return the proxy in the enclosed postage prepaid envelope
so your shares can be voted.
1
<PAGE> 4
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
THE REYNOLDS AND REYNOLDS COMPANY
115 South Ludlow Street, Dayton, Ohio 45402
TO BE HELD FEBRUARY 11, 1999
THIS PROXY STATEMENT IS ARRANGED IN THE FOLLOWING ORDER:
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL INFORMATION 3
DESCRIPTION OF CAPITAL STOCK 3
VOTING SECURITIES OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 4
ELECTION OF DIRECTORS (PROPOSAL I) 5
Board Committees, Meetings, Compensation and Indemnification of Directors 7
-------------------------------------------------------------------------
EXECUTIVE COMPENSATION 8
Summary Compensation Table 9
--------------------------
Option/SAR Grants in Last Fiscal Year 10
-------------------------------------
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value 10
--------------------------------------------------------------------------------
Long-Term Incentive Plan -- Awards in Last Fiscal Year 11
------------------------------------------------------
Pension Plan Table 11
------------------
Employment and Change in Control Severance Agreements 12
-----------------------------------------------------
Performance Graph 14
-----------------
Report of the Compensation Committee of the Board of Directors on Executive Compensation 14
----------------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 17
APPOINTMENT OF INDEPENDENT AUDITORS (PROPOSAL II) 17
SHAREHOLDER PROPOSALS 18
OTHER MATTERS 18
</TABLE>
2
<PAGE> 5
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by The Reynolds and Reynolds Company ("company") for its Annual
Meeting of Shareholders ("Meeting"), February 11, 1999. This solicitation is
being made by mail. The company has retained Georgeson & Company Inc. to assist
in its proxy solicitation. Georgeson's fee will be $8,000 plus out-of-pocket
expenses incurred on the company's behalf. The company may also use its officers
and other employees to solicit proxies from shareholders, personally or by
telephone, facsimile or letter. The costs of this solicitation will be borne by
the company. If the company requests nominees and brokers to solicit their
principals and customers for their proxies, the company will reimburse such
nominees and brokers for their reasonable out-of-pocket expenses.
All shares represented by valid proxies received from this
solicitation, and not revoked, will be voted at the Meeting. If shareholder
directions appear on the Proxy Card, such shares will be voted according to
those directions. Unless contrary directions are given, all shares will be voted
in favor of the nominees for Director and independent auditors as described in
the accompanying Notice of Meeting and this Proxy Statement and, in the
discretion of the Appointed Proxies, upon such other matters as may properly
come before the Meeting. Any proxy may be revoked by the shareholder at any time
before the vote, by giving written notice to the company at its address provided
on page 1 of this Proxy Statement or at the Meeting before any vote is taken.
Under Section 1701.55 of the Ohio Revised Code, a shareholder may
exercise cumulative voting rights in the election of Directors by giving written
notice of that desire to the President, a Vice President or the Secretary of the
company not fewer than 48 hours before the scheduled start of the Meeting. If an
announcement of the giving of such notice is made at the start of the Meeting by
the Chairman or Secretary, or by or on behalf of the shareholder giving such
notice, each shareholder shall have the right to cumulate his or her votes in
voting for Directors. In voting cumulatively, a shareholder may give one
candidate that number of votes determined by multiplying the number of his or
her shares by the number of Directors to be elected or may distribute that
number of votes among two or more candidates as he or she sees fit. If
cumulative voting is elected and no further instructions are given, the
Appointed Proxies shall, at their discretion, distribute the votes they cast
among the nominees.
The Board of Directors has fixed the close of business on December 18,
1998 as the Record Date for the determination of the shareholders entitled to
receive notice of, and to vote at, the Meeting or at any adjournment(s) thereof
despite any subsequent transfers of shares. The stock transfer books of the
company will not be closed.
DESCRIPTION OF CAPITAL STOCK
The company has two classes of authorized capital shares outstanding:
Class A Common Shares with no par value ("Class A Shares") and Class B Common
Shares with no par value ("Class B Shares"). There are 240,000,000 Class A
Shares authorized, of which 77,439,364 were issued and outstanding on December
1, 1998, and 40,000,000 Class B Shares authorized, of which 20,000,000 were
issued and outstanding on that date. In addition, the company has authorized
60,000,000 Preferred Shares ("Preferred Shares") with no par value. As of
December 1, 1998, no Preferred Shares were issued and outstanding. Class A
Shares are listed on the New York Stock Exchange. There is no public market for
Class B Shares.
Each holder of Class A Shares and Class B Shares is entitled to one
vote per share held of record. All shares vote as a single class except that, as
required by Ohio law, shareholders vote separately by classes in the case of
certain proposed amendments to the Amended Articles of Incorporation and certain
other specified transactions.
3
<PAGE> 6
All properly cast votes, in person or by proxy, by shareholders of
record at the close of business on December 18, 1998 will be counted for
purposes of the proposals to be voted on at the Meeting. Abstentions and broker
non-votes will not be counted, and therefore will have no impact on the
plurality vote for Directors or the vote for the appointment of the independent
auditors.
No dividend may be declared or paid on either class of shares unless a
dividend shall be simultaneously declared and paid on both classes. Any dividend
declared and paid on Class A Shares shall be in a per share amount of 20 times
the dividend simultaneously declared and paid on the Class B Shares. In the
event of the liquidation of the company, any distribution made with respect to
the Class A Shares shall be in a per share amount of 20 times the distribution
made with respect to each Class B Share. Neither class of shares has any
preemptive rights.
Each Class B Share may at any time, at the option of the holder
thereof, be converted into 1/20th of a Class A Share. Class B Shares surrendered
for conversion are canceled and may not be reissued. All outstanding Class B
Shares are subject to an agreement under which they may not, unless previously
converted into Class A Shares, be transferred to anyone except the wife,
children and grandchildren (including any trust of which they are the
beneficiaries) of Richard H. Grant, Jr., Chairman of the company's Steering
Committee.
<TABLE>
<CAPTION>
VOTING SECURITIES OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B TOTAL VOTING
SHARES % SHARES % SHARES %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of shares outstanding on
December 1, 1998, except as noted
below were: 77,439,364(1) 100.0 20,000,000 100.0 97,439,364(1) 100.0
The following are the only persons
known by the company to own
beneficially more than 5% of either
class of voting security on
December 1, 1998:
Richard H. Grant, III 226,119(2) .09 20,000,000 100.0 20,226,119(2) 20.6
- ---------------------
Director and Private Investor
800 Germantown Street
Dayton, Ohio 45407
FMR Corp. 7,841,500(3) 10.13 7,841,500(3) 8.0
82 Devonshire Street
Boston, Massachusetts 02109
On December 1, 1998, the shares
beneficially owned by all executive
officers and Directors as a group
(15 persons) were: 3,488,312(4) 2.1 20,000,000 100.0 23,488,312(4) 22.2
==================================================================================================================
</TABLE>
(1) Does not include 14,796,192 Class A Shares held in treasury.
(2) Richard H. Grant, III has sole voting and sole investment power with regard
to 73,000 Class A Shares held in his own name. The total includes 153,119
Class A Shares as to which Mr. Grant holds options exercisable within 60
days. The amount excludes 12,776 Class A Shares held by Mrs. Grant as to
which Mr. Grant disclaims beneficial ownership. This amount does not
include 1,000,000 Class A Shares into which his 20,000,000 Class B Shares
are convertible at a 20-to-1 ratio.
(3) FMR Corp. has sole dispositive power (but not the power to receive
dividends or sale proceeds) over 7,841,500 shares held by two wholly-owned
subsidiaries: Fidelity Management and Research Company (7,469,400 shares)
and Fidelity Management Trust Company (372,100 shares). It also has sole
voting power over 372,100 shares. Voting power over the 7,469,400 shares
resides with the respective Boards of Trustees of the different Fidelity
Funds in which the shares are held. (Information from Schedule 13(G) for
month-end October 1998.)
(4) Includes 1,893,827 Class A Shares as to which such persons may exercise
options within the next 60 days.
4
<PAGE> 7
PROPOSAL I
ELECTION OF DIRECTORS
The Board of Directors of the company has fixed the number of Directors to
constitute the full Board at eleven and proposes that three Directors be elected
for a three-year term expiring in 2002.
The Board has recommended and nominated DR. DAVID E. FRY, RICHARD H. GRANT,
III AND DAVID R. HOLMES each for a three-year term.
Martin D. Walker, a Director whose term expires in 1999, has elected to
retire after having served with distinction for the past eight years. The
company is most grateful for his service and wishes him much success as he
resumes the posts of Chairman and CEO of M. A. Hanna Company.
The enclosed Proxy will be voted FOR electing the three nominees unless a
specification is made to withhold such vote. Since the number of Directors has
been fixed at eleven, the election of three Directors for new terms shall, in
accordance with the company's Consolidated Code of Regulations, be decided by
plurality vote.
If any nominee shall cease to be a candidate for election for any reason,
the Proxy will be voted for a substitute nominee designated by the Board of
Directors and for the other nominees. The Board of Directors currently has no
reason to believe that any nominee will not remain a candidate for election as a
Director or will be unwilling to serve as a Director if elected.
Following is certain information about each nominee-incumbent and those
Directors whose terms of office will continue after the Meeting.
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 2002
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE CLASS A(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dr. David E. Fry 55 President and Chief Executive Officer, Northwood 1987 3,839 (2)
University, a private graduate and
undergraduate university.
Richard H. Grant, III 59 Private Investor since October 1994; prior thereto, 1960 226,119 (3)
Senior Vice President, International, Computer
Systems Division, he Reynolds and Reynolds Company.
David R. Holmes 58 Chairman of the Board, President and Chief Executive 1987 951,167 (5)
Officer. (4)
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 2001
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE CLASS A(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard H. Grant, Jr. 85 Chairman of the Steering Committee. 1939 908,816 (6)
Allan Z. Loren 60 Executive Vice President and Chief Information 1996 1,301 (8)
Officer, American Express Company, a diversified
worldwide travel, financial and network services
company, since May 1994; prior thereto, President
and CEO, Galileo International, a global computer
reservation system company. (7)
Philip A. Odeen 63 Executive Vice President and General Manager TRW 1998 5,000(9)
Systems & Information Technology Group since
January 1998; prior thereto, President and
Chief Executive Officer, BDM International,
Inc., a multinational information technology
company.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 2001 (CONTINUED)
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE CLASS A(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald K. Peterson 49 Executive Vice President and Chief Financial Officer, 1998 2,000(10)
Lucent Technologies, one of the world's leading
designers, developers and manufacturers of
telecommunications systems, software and products,
since February 1996; prior thereto, Vice President
and Chief Financial Officer, AT&T Communications
Services Group from September 1995 to February 1996;
President, Nortel Communications Systems from 1992 to
1994; and Executive Vice President Sales of Northern
Telecom, Inc.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 2000
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE CLASS A(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James L. Arthur 63 A private consultant in high technology industry 1998 1,500(11)
since May, 1996, and Chairman of Board of CoCreate, a
CAD company; Chairman of Board of HPMP, a medical
devices company; Board member of PT Cipta Cakra
Murdaya, a financing company. Each company is a
Hewlett-Packard subsidiary. Prior thereto, Senior
Vice President and General Manager Customer Support,
Hewlett-Packard Company which designs, manufactures
and services equipment and systems for measurement,
computation and communications.
Cleve L. Killingsworth, Jr. 46 President and Chief Executive Officer, Health 1997 1,594(12)
Alliance Plan, and Senior Vice President for Managed
Care, Henry Ford Health System, Michigan's
largest managed care plan, since January
1998; prior thereto, President, Central East
Division, Kaiser Permanente, from March 1996
to January 1998; President of Ohio Region,
Kaiser Permanente, from August 1994 to March
1996; and Senior Vice President of health
care operation for Blue Cross and Blue Shield
of Rochester from January 1986 to August
1994.
Dale L. Medford 48 Vice President, Corporate Finance and Chief Financial 1991 328,067 (13)
Officer.
Gayle B. Price, Jr. 68 Retired September 1998 as Chairman, President and 1976 14,639(14)
Chief Executive Officer, Price Brothers Company,
manufacturer of concrete construction materials.
</TABLE>
(1) Shares owned beneficially on December 1, 1998.
All shares are held with sole voting and sole investment power unless
otherwise indicated. The individual holdings of each Director equal less
than 1% of the issued and outstanding Class A or Class B Shares, except for
Richard H. Grant, Jr. and Richard H. Grant, III whose holdings are
specifically described in Footnotes 3 and 6 below and, in the case of
Richard H. Grant, III, the table under VOTING SECURITIES OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT on page 4.
Richard H. Grant, III is the son of Richard H. Grant, Jr., and they may be
deemed to be "control persons" with respect to the company; however, each
disclaims any beneficial ownership of the Class A Shares or Class B Shares
held by the other.
(2) Dr. Fry has sole voting and sole investment power with regard to 800 Class
A Shares held in his own name. The 3,839 shares include 3,039 Class A
Shares as to which Dr. Fry holds options exercisable within 60 days.
(Footnotes continued on following page)
6
<PAGE> 9
(3) See Note 2 to the table under VOTING SECURITIES OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT on page 4.
(4) Mr. Holmes also serves as a director of The Dayton Power & Light Company
and NCR Corporation.
(5) Mr. Holmes has sole voting and sole investment power with regard to 266,759
Class A Shares. The 951,167 shares include 10,278 Class A Shares, 10,145
Class A Shares and 10,145 Class A Shares held in the names of his three
sons and 653,840 Class A Shares as to which Mr. Holmes holds options
exercisable within 60 days. This amount (951,167) excludes 12,496 Class A
Shares held by Mrs. Holmes as to which Mr. Holmes disclaims beneficial
ownership.
(6) Richard H. Grant, Jr. has sole voting and sole investment power with regard
to 4,916 Class A Shares held in his own name. He also has sole voting and
sole investment power with regard to 903,900 Class A Shares held in a trust
for his benefit. The 908,816 shares exclude 40,532 Class A Shares held by
Mrs. Grant as to which Mr. Grant disclaims beneficial ownership.
(7) Mr. Loren also serves as a director of Venator Group, Inc. and is a
director-nominee of Hershey Foods Corp.
(8) Mr. Loren's 1,301 shares represent options exercisable within 60 days.
(9) Mr. Odeen has sole voting and sole investment power with regard to the
5,000 shares held in his own name.
(10) Mr. Peterson has sole voting and sole investment power with regard to the
2,000 shares held in his own name
(11) Mr. Arthur has sole voting and sole investment power with regard to the
1,500 shares held in his own name
(12) Mr. Killingsworth has sole voting and sole investment power with regard to
the 1,070 shares held in his own name. The 1,594 shares include 524 Class A
Shares as to which Mr. Killingsworth holds options exercisable within 60
days.
(13) Mr. Medford has sole voting and sole investment power with regard to the
85,337 shares held in his own name. The 328,067 shares include 242,730
Class A Shares as to which Mr. Medford holds options exercisable within 60
days.
(14) Mr. Price has sole voting and sole investment power with regard to 12,179
Class A Shares held in his own name. The 14,639 shares include 2,460 Class
A Shares as to which Mr. Price holds options exercisable within 60 days.
BOARD COMMITTEES, MEETINGS, COMPENSATION
AND INDEMNIFICATION OF DIRECTORS
The Board of Directors has established Audit, Compensation, Investment and
Finance Committees.
The Audit Committee (Messrs. Fry (Chairman), Arthur, Killingsworth, Loren,
Peterson, Price and Walker) meets with the company's independent public
accountants, internal auditors, Chief Executive Officer and financial management
executives to review the scope and results of audits, as well as recommendations
made by those persons with respect to internal and external accounting controls
and specific accounting and financial reporting issues. During the last fiscal
year, this Committee met four times.
The Compensation Committee (Messrs. Walker (Chairman), Fry, Loren, Odeen
and Price) formulates and oversees the company's various upper management
incentive compensation programs, reviews for budget purposes specific
recommendations on general compensation levels for upper management, establishes
compensation for key executive officers and supervises the company's stock
option plans. During the last fiscal year, this Committee met five times.
The Investment Committee (Messrs. Grant, Jr. (Chairman), Holmes and
Medford) makes investment decisions for the company's retirement plans trust
fund. During the last fiscal year, this Committee met four times.
The Finance Committee (Messrs. Grant, Jr. (Chairman), Holmes and Medford)
oversees contributions to the company's retirement plan trust fund, reviews
company debt limits and cash position and recommends stock repurchases and
public stock offerings. During the last fiscal year, this Committee met once.
The company does not have a standing nominating or other similar committee.
7
<PAGE> 10
During the fiscal year ended September 30, 1998, the Board of Directors met
five times and all Directors with the exception of Mr. Odeen attended 75% or
more of the aggregate number of meetings of the Board and committees of which
they were members. Mr. Odeen attended 62.5% of the aggregate number of meetings
he was eligible to attend.
Non-employee Directors receive an annual fee of $22,500 plus $1,000 for
each Board of Directors Meeting attended and, on October 1 of each year, options
to purchase that number of Class A Shares which represent a fair market value of
$40,000 (adjusted annually for increases in the consumer price index).
Non-employee Directors who serve on a committee receive an additional $500 for
each committee meeting attended. Committee Chairmen receive an additional $1,500
per year. No Director who is an employee of the company receives any
compensation for services as a Director or committee member.
The company has an Indemnification Agreement with each Director which
indemnifies the Director to the fullest extent permitted by law. The agreements
cover any and all fees, expenses, judgments, fines, penalties and settlement
amounts paid in any matter relating to the Director's role as a Director,
officer, employee, agent or fiduciary of the company or when serving as the
company's representative with respect to another entity. A Director would not be
entitled to indemnification in connection with a proceeding initiated by that
Director prior to a Change in Control (as defined in the Indemnification
Agreements) unless such proceeding was authorized or consented to by the
company's Board of Directors.
The Indemnification Agreements provide for the prompt advancement of all
expenses incurred in connection with any proceeding subject to the Director's
obligation to repay (at the company's request) those advances if it is
determined later that the Director is not entitled to indemnification.
If a) it is determined that a Director is not entitled to indemnification
under applicable law; and b) the Director challenges that determination in
court, the Indemnification Agreements provide that, subject to applicable law,
the challenging Director is entitled to indemnification for, and advancement of,
all fees and expenses incurred in any such proceeding.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTING DR. DAVID E. FRY,
RICHARD H. GRANT, III AND DAVID R. HOLMES EACH FOR A TERM OF THREE (3)
YEARS.
EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation paid
to the company's Chief Executive Officer and the company's four other most
highly compensated executive officers during the fiscal year ended September 30,
1998, and the two prior fiscal years.
(Tables on following pages)
8
<PAGE> 11
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- ----------------------------
NAME AND OPTION LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS (#) PAYOUTS ($) COMPENSATION($)(1)
- ------------------------- ------- ----------- ----------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
David R. Holmes 1998 541,025 556,636 322,000 541,025 45,121
- ---------------
Chairman of the Board, 1997 480,575 277,784 226,640 480,575 43,436
President and Chief 1996 466,575 487,095 439,600 466,575 38,232
Executive Officer
Robert C. Nevin 1998 303,907 310,702 31,000 243,126 45,529
- ---------------
President, Automotive 1997 295,056 194,674 22,360 236,045 40,716
Division 1996 286,463 302,985 18,480 229,170 36,977
Rodney A. Hedeen 1998 268,750 198,640 21,000 215,000 11,441
- ----------------
President, Business 1997 233,600 148,663 5,520 173,493 11,078
Systems Division
H. John Proud 1998 261,250 91,017 21,000 209,000 12,539
- -------------
President, Healthcare 1997 243,750 66,766 9,720 195,000 11,698
Systems Division 1996 221,250 131,667 13,920 177,000 11,380
Dale L. Medford 1998 249,490 244,214 19,800 174,643 16,326
- ---------------
Vice President, 1997 224,541 118,563 7,560 157,179 14,667
Corporate Finance and 1996 218,003 216,689 11,520 152,602 13,936
Chief Financial Officer
</TABLE>
(1) The 1998 amounts disclosed in this column include:
<TABLE>
<CAPTION>
ABOVE MARKET
DEFINED IMPUTED INTEREST INTEREST ON TOTAL
CONTRIBUTION ON SPLIT DOLLAR DEFERRED OTHER
NAME PLANS ($) LIFE INSURANCE ($)(1) COMPENSATION ($)(2) COMPENSATION ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David R. Holmes 2,930 25,145 17,046 45,121
Robert C. Nevin 2,930 22,081 20,518 45,529
Rodney A. Hedeen 2,930 8,511 0 11,441
H. John Proud 2,930 9,609 0 12,539
Dale L. Medford 2,930 8,926 4,470 16,326
</TABLE>
(1) Each participant pays the term equivalent premium on the split dollar
policy and the company pays the remainder of the premium. At termination of
the policy, all premium payments made by the company are reimbursed.
Interest was imputed on the amount receivable from the participant at the
company's short-term investment rate.
(Footnotes continued on following page)
9
<PAGE> 12
(2) The named executives (except for Mr. Hedeen and Mr. Proud) entered into
Deferred Compensation Agreements with the company whereby income was
deferred for four years in order to provide individual retirement benefits
at age 65 of up to $100,000 per year for a fixed term of 15 years. The
deferrals were completed as of September 30, 1989. Benefits payable are
reduced for early retirement, and upon retirement lump sum distributions
are available at the participant's discretion. The amounts presented
represent the above market interest earned on the funds deferred and were
calculated assuming a 15-year payment stream at age 65.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO APPRECIATION FOR
NUMBER OF EMPLOYEES IN EXERCISE OR OPTION TERM
OPTIONS FISCAL YEAR BASE PRICE EXPIRATION -----------------------
NAME GRANTED(2) (%) ($/SHARE)(2) DATE 5%($) 10%($)
------------- --------------- ------------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
David R. Holmes 72,000 2.6423 20.1000 10/01/07 909,403 2,305,296
250,000 9.1748 14.6875 08/17/08 2,309,222 5,852,022
Robert C. Nevin 21,000 .7707 20.1000 10/01/07 265,243 672,378
10,000 .0367 21.5000 11/18/07 79,219 253,495
Rodney A. Hedeen 21,000 .7707 20.1000 10/01/07 265,243 672,378
H. John Proud 21,000 .7707 20.1000 10/01/07 265,243 672,378
Dale L. Medford 19,800 .7266 20.1000 10/01/07 250,086 633,957
</TABLE>
(1) No Stock Appreciation Rights (SARs) were awarded in the 1998 fiscal
year.
(2) Grants, other than Mr. Holmes' grants of 250,000 shares and Mr. Nevin's
grant of 10,000 shares, were made on October 1, 1997, with the exercise
price equal to the fair market value ($20.10) on that date. Options
vest 25% annually beginning October 1, 1998, except for Mr. Holmes'
options of which 125,000 vest 100% on August 17, 2001 and 125,000 vest
100% on August 17, 2003, and Mr. Nevin's options which vest 25%
annually beginning November 18, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FY-END FY-END
ON REALIZED EXERCISABLE/ EXERCISABLE/
EXERCISE VALUE UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
- ---------------------- ----------- ---------- ------------------- ---------------------
<S> <C> <C> <C> <C>
David R. Holmes 0 0 45,960/1,535,100 187,219/3,414,980
Robert C. Nevin 0 0 46,446/370,970 229,780/1,486,475
Rodney A. Hedeen 500 6,359 45,080/171,980 355,848/660,143
H. John Proud 0 0 31,230/178,010 143,584/660,683
Dale L. Medford 18,240 175,703 19,170/245,070 57,960/988,665
</TABLE>
10
<PAGE> 13
LONG-TERM INCENTIVE PLAN -- AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE OR ---------------------------------------------------
NAME OTHER OTHER PERIOD THRESHOLD TARGET MAXIMUM
RIGHTS UNTIL PAYOUT ($) ($) ($)
- ------------------------- ----------- ------------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
David R. Holmes (1) (1) 0 270,513 541,025
Robert C. Nevin (1) (1) 0 121,563 243,126
Rodney A. Hedeen (1) (1) 0 107,500 215,000
H. John Proud (1) (1) 0 104,500 209,000
Dale L. Medford (1) (1) 0 87,322 174,643
</TABLE>
(1) Participants in the Intermediate Plan (including Mr. Holmes who
participates in his own substantially similar plan), which is considered
a long-term incentive plan, are determined strictly by grade level
within the company. No formal awards are made and there are no vested
rights. Annual amounts are paid to participants with the amount of the
award dependent upon the company's three year average return on equity.
The periods considered in the calculation are the most recent fiscal
year and the preceding two years. The potential annual payout amounts
reported here were calculated using fiscal year 1998 salaries. The
payout for fiscal year 1998 is included in the LTIP Payout column of the
Summary Compensation Table. Additional information on the Intermediate
Plan appears on page 16.
<TABLE>
<CAPTION>
PENSION PLAN TABLE (1)
YEARS OF SERVICE (2)
------------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30
- ------------------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 45,000 $ 67,500 $ 90,000 $112,500 $135,000
400,000 60,000 90,000 120,000 150,000 180,000
500,000 75,000 112,500 150,000 187,500 225,000
600,000 90,000 135,000 180,000 225,000 270,000
700,000 105,000 157,500 210,000 262,500 315,000
800,000 120,000 180,000 240,000 300,000 360,000
900,000 135,000 202,500 270,000 337,500 405,000
1,000,000 150,000 225,000 300,000 375,000 450,000
1,100,000 165,000 247,500 330,000 412,500 495,000
1,200,000 180,000 270,000 360,000 450,000 540,000
1,300,000 195,000 292,500 390,000 487,500 585,000
1,400,000 210,000 315,000 420,000 525,000 630,000
1,500,000 225,000 337,500 450,000 562,500 675,000
1,600,000 240,000 360,000 480,000 600,000 720,000
1,700,000 255,000 382,500 510,000 637,500 765,000
1,800,000 270,000 405,000 540,000 675,000 810,000
1,900,000 285,000 427,500 570,000 712,500 855,000
2,000,000 300,000 450,000 600,000 750,000 900,000
</TABLE>
(1) This table sets forth the annual retirement benefits payable under the
company's qualified pension plan and the non-qualified Supplemental
Retirement Plan ("Supplemental Plan") upon retirement at age 65 based on an
employee's final average annual compensation. Compensation as defined in
the Plans includes Salary, Bonus and Long-Term Incentive Plan payments. The
qualified pension benefits are reduced by 1.67% of monthly primary Social
Security benefits multiplied by years of credited service up to a maximum
of 30 years. The Supplemental Plan provides benefits to participants who
would lose benefits because of legislative limits imposed on qualified
plans or because of their participation in the company's Non-Qualified
Deferred Compensation Plan. Additional benefits provided under the
Supplemental Plan for participants with employment agreements are not
included in the table but are discussed below with employment agreements.
Participation in the Supplemental Plan requires approval by the Board.
Optional payment forms of actuarial equivalence are also available.
(Footnotes continued on following page)
11
<PAGE> 14
(2) Respective years of service for purposes of the qualified plan as of
September 30, 1998, for the persons named in the Summary Compensation Table
are: Mr. Holmes, 13; Mr. Nevin, 12; Mr. Hedeen, 12; Mr. Proud, 27; and Mr.
Medford, 24.
In addition to the plans discussed above, the company also provides
compensation or death benefits generally payable over 10 years, beginning
at the earlier of retirement or death of the officer. The compensation
benefit is equal to either 100%, 150% or 200% of the current year's total
cash compensation depending upon the respective officer's grade level. The
company generally insures against its obligations through the purchase of
life insurance policies on the lives of such officers.
EMPLOYMENT AND CHANGE IN CONTROL
SEVERANCE AGREEMENTS
Effective August 17, 1998, Mr. Holmes entered into a Second Amended and
Restated Employment Agreement to continue as the company's Chairman, President
and Chief Executive Officer until August 17, 2003, at an annual base salary of
$640,000 (effective January 1, 1999) which may not be reduced without his
consent or resolution by arbitration. This base salary may be increased from
time to time consistent with the recommendations of the Compensation Committee
and as approved by the Board of Directors. The retirement benefit at age 59 is
65% of final average annual compensation. Thereafter, it increases by an
additional 1% of final average annual compensation for each additional
twelve-month period of employment.
Mr. Holmes' Agreement also provided for two special grants of
non-qualified stock options on August 17, 1998 of 125,000 shares each vesting on
August 17, 2001, and August 17, 2003, respectively. Both were at fair market
value on the date of the grant. These grants are in addition to the customary
annual awards made under the company's stock option plan in which Mr. Holmes is
a participant.
Messrs. Nevin and Hedeen have Employment Agreements by which they each
agree to remain employed by the company until, respectively, September 30, 2001
and February 1, 2001 at respective annual base salaries of $297,220, and
$250,000 which may not be reduced without the individual's consent or resolution
by arbitration. These base salaries may be increased from time to time
consistent with the recommendations of the Compensation Committee and as
approved by the Board of Directors.
If Mr. Nevin elects early retirement after reaching age 58, his
respective annual retirement benefits shall be 55% of final average annual
compensation plus 1% for each additional twelve-month period of service after
age 58, but before reaching age 65. Mr. Hedeen's retirement benefits are those
provided under the company-sponsored qualified and non-qualified programs in
which he participates.
The Employment Agreements of Messrs. Holmes and Nevin also provide for
certain disability and death benefits, including retirement benefits as
described above in case of permanent disability. The Agreements also provide for
continued medical coverage of the surviving spouses for a period which ends at
the earlier of the spouse's death or 42 months after the employee's death. Mr.
Hedeen's coverage in the case of death or disability is that provided under the
company-sponsored programs in which he participates. During the terms of the
Agreements and for two years after the respective terminations of them, or the
cessation of payments made under them (whichever is later), each of Messrs.
Holmes, Nevin and Hedeen shall not compete directly or indirectly with the
company. However, if Mr. Hedeen's Agreement is not renewed, the non-competition
restriction applicable to him shall continue for only one year.
All three Agreements generally provide that if the employee is
discharged by the company before the expiration date other than for cause (as
defined in the Agreements), or if the company fails to renew the Agreements
other than for cause, the employee shall be entitled to receive (i) payments
equal to the employee's Annual Compensation Value (as defined in the
Agreements), reduced by 70% of compensation from subsequent employment
(reduction does not apply to Mr. Hedeen) (a) for two years (for Mr. Nevin, the
lesser of two years or the number of months then remaining in the term of his
Agreement and for Mr. Holmes the number of months then remaining in the term of
his Agreement) from the date of termination of employment with respect to
discharge before the expiration of the Agreements, or (b) for one year from the
expiration of the Agreements in the case of non-renewal (non-renewal benefit
does not apply to Mr. Nevin and Mr. Holmes); (ii) credit for certain amounts of
additional service under the Supplemental Plan (iii) continuing coverage under
company-sponsored medical benefits programs ending at the earlier of employee's
securing other employment or two years from termination; (iv) reimbursement of
up to $20,000 in out-placement fees; and (v) required payments under the
employee's (except for Mr. Hedeen) Deferred Compensation Agreement. These
Employment Agreements also contain "change in control"
12
<PAGE> 15
severance provisions described below.
Effective August 17, 1998, Dale L. Medford and two other officers
entered into Change in Control Severance Agreements with the company. These are
not employment agreements. If an "escrow funding event" occurs before August 17,
2003, the Agreements provide that the three officers will receive the benefits
described in the following paragraph in the event of a Change in Control
Termination.
The Employment Agreements and the Change in Control Severance
Agreements may require the company to fund an escrow immediately in the event of
a "change in control" (as defined in such Agreements) of the company. Funding is
required upon the occurrence of any "escrow funding event," as defined in such
Agreements. The Agreements also provide that: (i) the employee will be entitled
to receive the escrowed amount upon a Change in Control Termination that occurs
within 24 months of a change in control; (ii) the employee will receive an
additional 24 months of service credit under the Supplemental Plan following a
Change in Control Termination; (iii) the payments to be made upon a Change in
Control Termination include a payment equal to three times the employee's annual
salary in effect at the date of termination or immediately prior to the change
in control (whichever is higher) and his average bonus with respect to the three
calendar years preceding the year in which his termination of employment occurs;
(iv) if the total amount of any payments payable to the employee upon the
termination of the employee's employment or upon a change in control (whether or
not pursuant to the severance provisions) would be subject to an excise tax as
"parachute payments" pursuant to Sections 280G and 4999 of the Internal Revenue
Code of 1986, the amount of the severance payments under the severance
provisions will be reduced to avoid such excise tax, but only if the net effect
of such reduction is to increase the net after tax income to the executive; and
(v) the amount paid into escrow shall be the amount described in clause (iii) as
may be limited pursuant to clause (iv) and for periodic adjustment of such
amount.
The company estimates that if Messrs. Holmes, Nevin, Hedeen and
Medford had been terminated on December 1, 1998, following a change in control
of the company, the total severance payments by the company to the officers
under their respective Agreements would have been $10,035,239. If such
termination were to occur, the non-competition restrictions in the respective
Employment Agreements are void and non-binding.
Throughout fiscal year 1998, Mr. Proud had an employment agreement with
the company having the same terms and conditions as Mr. Hedeen's with two
exceptions: i) his base salary was $210,000 and ii) the expiration date was
September 1, 1999. In connection with the company's sale of its Healthcare
Systems Division to Infocure Corporation in October 1998, Mr. Proud and the
company entered into a retirement agreement which supersedes his employment
agreement. The retirement agreement combines the benefit which would have been
payable to Mr. Proud for two years under his employment agreement with the
accelerated payment of certain other benefits and benefits to which he is
entitled under various company-sponsored plans to provide a level, negotiated
retirement benefit over a ten year period beginning January 1, 1999. The
retirement agreement includes death benefits substantially similar to those in
Mr. Proud's employment agreement. Mr. Proud's retirement agreement subjects him
to confidentiality and non-competition restrictions substantially similar to
those in his employment agreement.
[Rest of page intentionally left blank]
13
<PAGE> 16
PERFORMANCE GRAPH
FISCAL YEARS 1993 THROUGH 1998
Comparison of Five Year Cumulative Total Return Among
The Reynolds and Reynolds Company,
S&P 500 Index and a Composite of Two Indices
STOCK PERFORMANCE GRAPH
FISCAL YEARS 1993 THROUGH 1998
<TABLE>
<CAPTION>
9-30-93 9-30-94 9-30-95 9-30-96 9-30-97 9-30-98
<S> <C> <C> <C> <C> <C> <C>
Reynolds and Reynolds 100 130 180 276 209 195
The S&P 500 100 104 135 162 277 248
Composite Peer Group 100 114 159 195 276 299
</TABLE>
The graph compares the cumulative total shareholder return on a $100
investment in the company's Class A Shares for the last five fiscal years with
the cumulative total return on $100 invested in each of (i) the S&P 500 Index
and (ii) a composite of two indices. The composite index is comprised of the S&P
Computer Software and Services Index and a self-constructed business forms index
and is adjusted each year to reflect the percent of the company's revenues from
products and services represented by each index. The company selected the
following business forms companies for its self-constructed index: American
Business Products, Inc., Ennis Business Forms, Inc., Moore, Ltd., New England
Business Services, Inc., Standard Register Company and Wallace Computer
Services, Inc. The graph assumes all investments were made at market value on
September 30, 1993, and the reinvestment of all dividends.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Committee
---------
The Compensation Committee of the Board of Directors consists entirely
of non-employee, independent Directors. The Committee reviews, recommends and
approves changes to the company's compensation policies and programs applicable
to the company's officers and senior personnel.
Compensation Policy and Objectives
----------------------------------
The Committee's primary goal is unchanged from last year: to assure
that the compensation provided to executives is linked to the company's business
strategies and objectives, thereby aligning the financial interests of senior
management with those of the shareholders. Beyond that, our priorities are to
assure that the executive compensation programs enable the company to attract,
retain and motivate the high caliber executives required for the success of the
business. These objectives are achieved through a variety of compensation
programs, summarized below, which support both the current and long-term
performance of the business.
14
<PAGE> 17
Base Salary
- -----------
Base salaries for executive officers are determined by evaluating the
responsibilities of the position and comparing them with other executive
positions in the marketplace. From time to time the company's compensation
consultant surveys senior executive salaries from a representative sampling
(approximately 20) of companies in the computer services and business forms
industries. The company's pay grade levels are then set at approximately the
competitive mid-range. Each of the executive officers is assigned a pay grade
based on that competitive marketplace data. Individual salaries may then vary
somewhat below or above the mid-range, based upon the individual's performance
and contribution to company success, tenure on the job and internal equity.
Annual salary adjustments are determined by individual performance during the
fiscal year and paid from a budget for officer salary increases approved by the
Committee. In addition, during fiscal 1997 the Committee asked its compensation
consultant to review officer salary levels. Based on the consultant's report,
the Committee awarded increases to certain grade levels to bring them up to the
mid-point of the competitive range. As a result, effective January 1, 1998, base
salary levels for executive officers increased an average of 10%. This paragraph
applies to all executives except those whose employment agreements may contain
terms which vary from these provisions. See EMPLOYMENT AND CHANGE IN CONTROL
SEVERANCE AGREEMENTS, pages 12 and 13.
ANNUAL INCENTIVES
The company's Chief Executive Officer ("CEO"), participates in a
separate, shareholder-approved, performance-based, incentive plan ("CEO Plan")
the terms of which are substantially similar to the annual and intermediate
compensation plans for the other officers. The purpose of this CEO Plan is to
qualify all CEO compensation in excess of $1 million for deductibility under the
applicable provisions of the Internal Revenue Code.
Officers may earn annual bonuses under two plans. The first is the
Annual Plan based on performance against financial targets established by the
Committee. Since 1987, the company has used corporate return on equity ("ROE")
as its primary measure of corporate performance. During fiscal 1996, the
Committee introduced growth in sales and growth in earnings as additional
measures for determining annual bonuses. Although the combinations vary by
division, overall, ROE is weighted more heavily (75%) than the growth components
(25%) in determining annual bonuses. Before any bonus is paid, a minimum ROE
must be achieved. At the divisional level, other measures of performance for the
annual bonus include sales, operating income and return on net assets. In
addition, the Committee approves adjustments to the bonus formula as may be
necessary from time to time to insure against unmerited windfalls or penalties
due to accounting changes or other non-operating factors. The company believes
that linking executive pay principally to corporate ROE directly ties the
executive's interests and rewards to those of the shareholders. Under the
structure of the Annual Plan in effect for fiscal 1998, no bonus is paid until a
threshold corporate ROE of 10% or a 5% growth in sales or earnings is achieved;
maximum payout requires a combination of a 28% ROE and 15% growth in sales and
earnings. The annual bonus payout can range between 0% of annual salary to 90%
of annual salary. During fiscal 1998, the company achieved a 26.8% ROE, a 10%
growth in overall sales plus a 14% increase in earnings (all of which varied by
division). As a result, the annual bonus payout for the named executive officers
(including Mr. Holmes under his substantially similar but separate plan) was up
compared to fiscal 1997 and averaged 71.1% of annual salary.
The second is the personal performance bonus. This plan is designed to
reward all officers for the achievement of financial and non-financial goals,
which are agreed upon, by the officer and the officer's superior. In the case of
Mr. Holmes, this Committee in consultation with him agrees upon his annual
goals. Examples of financial goals have been ROE, sales, return on net assets
and operating income. Examples of non-financial goals have been market share
growth, total quality measures, customer satisfaction and the strengthening of a
key organizational process. With the exception of Mr. Holmes and the division
presidents, whose personal performance bonuses are determined by the
Compensation Committee during its year-end review, all other executive officers
have their personal performance bonus determined by the respective individual to
whom they report during individual year-end evaluations. Depending on an
individual's performance against goals, this bonus can range between 0% to 20%
of annual salary. For fiscal 1998 this personal performance bonus for the named
executive officers ranged from 0% to 20% of annual salary.
15
<PAGE> 18
Long-term Incentives
- --------------------
Stock Options
-------------
To further align the interests of shareholders and management, the
company grants stock options annually to approximately 380 officer and
director-level employees. The exercise price is the fair market value of the
stock on the date of the grant. The options have a ten-year life and are not
exercisable during the first year after the grant. Thereafter, on each of the
first four anniversaries of the grant, twenty-five percent of the options become
exercisable. During 1997, the Committee, with the assistance of an outside
consultant, reviewed the 1993 formula used for making the annual awards. That
review showed that the concept behind the formula was sound. First, the
Committee assigns a percentage to the salary midpoint of each individual officer
grade level. Then, to determine the number of shares on which options will be
granted, the assigned percentage is multiplied by the salary mid-point and the
result is divided by the fair market value of the company's stock on October 1.
The review did show, however, that the company was trailing the market place in
the percentage of salary being used to determine the annual grants to officers.
As a consequence, the Committee raised the lowest percentage from 35% to 58% and
raised the highest percentage (the CEO level) from 125% to 188% of salary.
Such stock options provide incentive for the creation of shareholder
value, since the full benefit of the compensation package cannot be realized
unless an appreciation in the price of the company's common shares occurs over a
specified number of years.
Stock Ownership Guidelines
--------------------------
During fiscal year 1994, the Compensation Committee established
suggested stock ownership guidelines for all officers of the company. These
guidelines specify an appropriate level of ownership of company stock as a
multiple of the officer's annual base salary. These multiples range from a high
of 4.25 times annual salary (in the case of Mr. Holmes) to a low of 1.5 times
annual salary. The Committee thought it appropriate to permit the officers to
achieve these ownership guidelines over a ten-year period in increments of 10%
per year. To encourage steady progress toward meeting the guidelines, the
Committee determined that if an officer owns a quantity of shares sufficient to
meet the ownership guidelines for that year the officer would be granted options
on 20% more shares in addition to the officer's standard stock option grant for
that year. If, for example, the standard stock option grant for that year were
one hundred shares, the officer would receive options on twenty additional
shares of stock for having met the guidelines for that year. As of September 1,
1998, stock ownership among the fifty-eight officers stood at approximately
1,053,700 shares representing a market value of approximately $13,928,000
million. The Committee believes that these guidelines will have the positive
effect of further aligning the interests of the officer group with those of all
other shareholders.
Intermediate Incentive Compensation
-----------------------------------
Certain senior officers, including all named executive officers (except
Mr. Holmes, who participates in a substantially similar plan), also participate
in an Intermediate Incentive Compensation Plan. This plan, which is paid
annually, is based on a three-year average return on equity, and is designed to
focus and reward senior management for producing consistent longer-term
financial results. For fiscal 1998 the payout from the CEO Plan (for Mr. Holmes)
and from the Intermediate Incentive Compensation Plan for the other named
executive officers ranged from 70% to 100% of annual salary.
CEO Compensation
- ----------------
Mr. Holmes has served as Chairman, President and Chief Executive
Officer since August 1990, and President and Chief Executive Officer since
January 1989. The Performance Graph on page 14 illustrates the growth in
shareholder value during 60% of this period. The graph also illustrates the
disappointing performance of the company's stock during the last two fiscal
years. Nevertheless, the company's financial performance during fiscal 1998 was
quite positive. An examination of that performance shows clearly that the
corrective measures taken during fiscal 1997 are having the intended effect. For
fiscal 1998 the company achieved record revenues exceeding 1997's performance by
10%. Reported earnings increased 81.43% or 14% excluding fiscal 1997
restructuring and special charges. The company achieved a 26.8% ROE during
fiscal 1998 representing a substantial improvement over the actual 16.1% ROE for
1997 (24% excluding fiscal 1997 restructuring and special charges). Mr. Holmes'
16
<PAGE> 19
1998 compensation of $1,638,686 (as shown in the Summary Compensation Table on
page 9) included a market-priced base salary of $541,025. Under the CEO Plan he
is eligible for annual and intermediate incentive compensation the performance
standards of which are substantially similar to those in the annual and
intermediate compensation plans for other named executive officers. As a result
of the company's improved performance over fiscal 1997, Mr. Holmes' annual bonus
increased $266,762 from $181,669 in fiscal 1997 to $448,431 in fiscal 1998.
Although this increase appears quite dramatic, it must be remembered that Mr.
Holmes' fiscal 1997 annual bonus dropped by $212,111 from the prior year because
of the company's substandard performance during that year. The Committee awarded
a personal performance bonus of $108,205 to Mr. Holmes following its year-end
evaluation. On October 1, 1997, the Committee awarded Mr. Holmes an annual stock
option grant for 72,000 Class A Shares which was based on the formula (explained
above) applicable to his position. In addition, as consideration for the
extension of his employment agreement Mr. Holmes received a grant of 250,000
non-qualified stock options according to the terms of his Second Amended and
Restated Employment Agreement which was approved by this Committee and the full
Board of Directors on August 11, 1998. The Agreement is more fully described on
pages 12 and 13.
SUMMARY
The Committee believes that a high caliber, motivated management team
is critical to sustained business success.
As in prior years, in 1998 a significant portion (approximately 66%) of
the total compensation potential for the named executive officers was "at risk"
and payable based on individual and corporate performance-based variables that
will motivate and focus management on those issues that drive the success of the
company. The Committee intends to continue its performance-based pay policy
which links executive rewards to shareholder returns.
THE COMPENSATION COMMITTEE
Dr. David E. Fry Philip A. Odeen
Allan Z. Loren Gayle B. Price, Jr. Martin D. Walker, Chairman
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Executive Officer or Director is or has been indebted to the company
during the last fiscal year in excess of $60,000. Additionally, during the last
fiscal year, the company did not enter into any transactions or establish any
business relationships with related parties required to be disclosed.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
There were no late filings during Fiscal 1998.
PROPOSAL II
APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors recommends that Deloitte
& Touche LLP be appointed as independent auditors of the company for one year.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting and will have the opportunity to make statements if they so
desire and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPOINTMENT OF DELOITTE &
TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE COMPANY.
17
<PAGE> 20
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2000 Annual
Meeting of Shareholders must be received by the company by September 6, 1999,
for inclusion in the company's Proxy Statement and Proxy relating to the 2000
Annual Meeting of Shareholders.
Shareholder nominations of persons to be elected to the Board of
Directors at the February 10, 2000 Annual Meeting must be delivered to or mailed
and received at the principal executive offices of the company no earlier than
November 10, 1999, and no later than December 10, 1999.
OTHER MATTERS
Management does not intend to present to the Meeting any matters other
than those described above. It does not know of anything that will be presented
by other parties. However, if any other matters shall properly come before the
Meeting, the Appointed Proxies intend to vote on such matters according to their
discretion and best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
ADAM M. LUTYNSKI, SECRETARY
Dayton, Ohio
January 5, 1999
18
<PAGE> 21
THE REYNOLDS AND REYNOLDS COMPANY
ANNUAL MEETING OF SHAREHOLDERS
Frederick C. Smith Auditorium
David H. Ponitz Sinclair Center/Building 12
Sinclair Community College Campus
444 West Third Street
Dayton, Ohio 45402
FEBRUARY 11, 1999
11:00 A.M. EASTERN STANDARD TIME
(Demonstration & Display Area
open from 10:00 a.m. to 12:30 p.m.)
DIRECTIONS TO SINCLAIR CENTER:
From I-75 - Northbound or Southbound:
Take the Third Street exit and travel east on Third Street to Perry Street.
Turn right on Perry Street and travel south one block to Fourth Street.
Turn right on Fourth Street.
The entrance to the underground parking garage in the Sinclair
Center will be on your right. After entering garage, stay to the right
(northeast) and look for Sinclair Center North Entrance sign.
Go through double doors to elevator or stairs.
Take elevator or stairs to the first floor of Sinclair Center/Building 12.
(PARKING PASSES WILL BE PROVIDED AT THE MEETING.)
19
<PAGE> 22
THE REYNOLDS AND REYNOLDS COMPANY
ANNUAL MEETING OF SHAREHOLDERS
Frederick C. Smith Auditorium
David H. Ponitz Sinclair Center/Building 12
Sinclair Community College Campus
444 West Third Street
Dayton, Ohio 45402
FEBRUARY 11, 1999
11:00 A.M. EASTERN STANDARD TIME
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THE REYNOLDS AND REYNOLDS COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 11, 1999
The undersigned hereby appoints David R. Holmes and Adam M. Lutynski, or
either of them ("Appointed Proxies"), with power of substitution to each, to
vote all shares of the undersigned at the Annual Meeting of Shareholders
("Meeting") of The Reynolds and Reynolds Company to be held on Thursday,
February 11, 1999 at 11:00 a.m. EST, or at any adjournment(s) thereof.
THIS PROXY, SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE VOTED
AS DIRECTED. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT WILL BE VOTED FOR
THE ELECTION OF THE NAMED NOMINEES AS DIRECTORS AND FOR THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS AUDITORS FOR THE COMPANY. IF CUMULATIVE VOTING IS
ELECTED AND NO FURTHER INSTRUCTIONS ARE GIVEN, VOTES CAST PURSUANT TO THIS
PROXY WILL BE DISTRIBUTED AMONG THE ABOVE NOMINEES AT THE DISCRETION OF THE
APPOINTED PROXIES.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE
<PAGE> 23
[REYNOLDS & REYNOLDS LETTERHEAD]
- Please detach here -
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<TABLE>
<S> <C> <C>
I. ELECTION OF DIRECTORS: [ ] FOR electing (01) Dr. David E. Fry, [ ] WITHHOLD AUTHORITY to vote for
(02) Richard H. Grant, III and (03) David (01) Dr. David E. Fry, (02) Richard H. Grant, III
R. Holmes each for a three-year term. and (03) David R. Holmes.
(INSTRUCTION: To withhold authority to vote for any individual nominee, ----------------------------------------------
write the number(s) of the nominee(s) in the box to the right.)
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II. Proposal to appoint Deloitte & Touche LLP as independent auditors [ ] FOR [ ] AGAINST [ ] ABSTAIN
If any other business is brought before the Meeting or any adjournment(s) thereof, this proxy will be voted in the discretion of
the Appointed Proxies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTING EACH OF THE NOMINEES AND FOR PROPOSAL II
The undersigned ratifies all that the Appointed Proxies, or their substitutes, may lawfully do by virtue hereof, and revokes any
proxies previously given to vote at the Meeting or adjournment(s).
Address Change? Mark Box [ ] Indicate changes below:
Dated
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Signature(s) in Box
Please sign exactly as name(s) appears to the left.
When signing in fiduciary or representative capacity,
please add your full title. If shares are registered
in more than one name, all holders must sign. If
signature is for a corporation, the handwritten
signature and title of an authorized officer are
required, together with the full corporate name.
</TABLE>
