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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 (AMENDMENT NO. )
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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Affiliated Computer Services, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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(3) Per unit price or other underlying value of transaction computed
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[ACS LOGO]
AFFILIATED COMPUTER SERVICES, INC.
2828 North Haskell Avenue
Dallas, Texas 75204
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on October 25, 2001
To the Stockholders of
AFFILIATED COMPUTER SERVICES, INC.:
The Annual Meeting of Stockholders of Affiliated Computer Services, Inc.
("ACS") will be held at Cityplace Conference Center, 2711 North Haskell Avenue,
Dallas, Texas 75204 on October 25, 2001 at 11:00 a.m., Dallas, Texas time for
the following purposes:
1. To elect directors to hold office for a one-year term and until
their respective successors shall have been duly elected and qualified;
2. To consider and vote upon the performance-based incentive
compensation for ACS' executive officers;
3. To consider, if presented at the annual meeting, and vote upon a
stockholder proposal regarding the diversity of the Board of Directors; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on September 21,
2001 as the record date for the determination of stockholders of ACS entitled to
notice of, and to vote at, the Annual Meeting of Stockholders. Only stockholders
of record at the close of business on the record date are entitled to notice of
and to vote at the Annual Meeting. A holder of shares of ACS' Class A common
stock is entitled to one vote, in person or by proxy, for each share of Class A
common stock on all matters properly brought before the Annual Meeting, and a
holder of shares of ACS' Class B common stock will be entitled to 10 votes, in
person or by proxy, for each share of Class B common stock on all matters
properly brought before the Annual Meeting.
ALL HOLDERS OF ACS' CLASS A COMMON STOCK AND CLASS B COMMON STOCK (WHETHER
THEY EXPECT TO ATTEND THE ANNUAL MEETING OR NOT) ARE REQUESTED TO COMPLETE,
SIGN, DATE AND RETURN PROMPTLY THE PROXY CARD ENCLOSED WITH THIS NOTICE.
By Order of the Board of Directors
/s/ WILLIAM L. DECKELMAN, JR.
William L. Deckelman, Jr.
Corporate Secretary
September 28, 2001
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AFFILIATED COMPUTER SERVICES, INC.
2828 NORTH HASKELL AVENUE
DALLAS, TEXAS 75204
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 25, 2001
GENERAL INFORMATION
This proxy statement is being furnished to stockholders of record, as of
September 21, 2001, of Affiliated Computer Services, Inc., a Delaware
corporation, in connection with the solicitation by the Board of Directors of
ACS of proxies to be voted at the Annual Meeting of Stockholders to be held at
Cityplace Conference Center, 2711 North Haskell Avenue, Dallas, Texas 75204, on
October 25, 2001, at 11:00 a.m., Dallas, Texas time, or at any adjournments
thereof, for the purposes stated in the Notice of Annual Meeting. The
approximate date of mailing this proxy statement and enclosed form of proxy to
stockholders is on or about September 28, 2001.
RECORD DATE AND VOTING
The Board of Directors of ACS has fixed the close of business on September
21, 2001 as the record date for the Annual Meeting. Only holders of record of
the outstanding shares of Class A common stock and Class B common stock at the
close of business on the record date are entitled to notice of, and to vote at,
the Annual Meeting or any adjournments thereof. As of the close of business on
the record date, ACS had outstanding 47,608,056 shares of Class A common stock,
$0.01 par value, and 3,299,686 shares of Class B common stock, $0.01 par value.
A holder of shares of Class A common stock is entitled to one vote, in person or
by proxy, for each share of Class A common stock standing in his or her name on
the books of ACS on the record date on any matters properly presented to a vote
of the stockholders at the Annual Meeting. A holder of shares of Class B common
stock is entitled to 10 votes, in person or by proxy, for each share of Class B
common stock standing in his or her name on the books of ACS on the record date
on any matter properly presented to a vote of the stockholders at the Annual
Meeting. The Class A common stock and the Class B common stock are the only
classes of stock entitled to vote at the Annual Meeting. The presence, in person
or by proxy, of the holders of a majority of the issued and outstanding shares
of Class A common stock and Class B common stock entitled to vote at the Annual
Meeting or any adjournment thereof is necessary to constitute a quorum to
transact business. Abstentions are counted in tabulations of votes cast on
proposals submitted to stockholders to determine the total number of votes cast.
Abstentions are not counted as votes for or against any such proposal. Broker
nonvotes are not counted as votes cast for purposes of determining whether a
proposal has been approved. Under Delaware law, the stockholders do not have
appraisal rights with respect to matters to be voted upon at this Annual
Meeting.
VOTE REQUIRED
The affirmative vote of the holders of shares of Class A common stock and
Class B common stock, voting together as a class, having a plurality of the
voting power of ACS eligible to vote and voting, in person or by proxy, at the
Annual Meeting, is required to approve Proposal 1, the proposal to elect
directors. The affirmative vote of the holders of shares of Class A common stock
and Class B common stock, voting together as a class, having a majority of the
voting power of ACS eligible to vote and voting, either in person or by proxy,
at the Annual Meeting, is required to approve Proposal 2, the proposal to
approve the performance-based incentive compensation for ACS' executive
officers, and Proposal 3, the stockholder proposal regarding diversity of the
members of the Board of Directors and its committees.
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PROXY SOLICITATION, REVOCATION AND EXPENSES
All proxies that are properly completed, signed and returned prior to the
Annual Meeting will be voted as indicated on the proxy. If the enclosed proxy is
signed and returned, it may, nevertheless, be revoked at any time prior to the
voting thereof at the pleasure of the stockholder signing it, either by (i)
filing a written notice of revocation received by the person or persons named
therein, (ii) the stockholder attending the Annual Meeting and voting the shares
covered thereby in person, or (iii) delivering another duly executed proxy dated
subsequent to the date thereof to the addressee named in the enclosed proxy.
Shares represented by duly executed proxies in the accompanying form will
be voted in accordance with the instructions indicated on such proxies, and, if
no such instructions are indicated thereon, will be voted in favor of the
nominees for election of directors named below, to approve the performance-based
compensation for ACS' executive officers, and to vote against the stockholder
proposal on diversity. Abstentions, broker non-votes and proxies directing that
the shares are not to be voted will not be counted as a vote in favor of a
matter called for vote.
The cost of preparing, assembling, printing and mailing this proxy
statement and the enclosed proxy form and the cost of soliciting proxies related
to the Annual Meeting will be borne by ACS. ACS will request banks and brokers
to solicit their customers who are beneficial owners of shares of common stock
listed of record in names of nominees, and will reimburse such banks and brokers
for the reasonable out-of-pocket expenses for such solicitation.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the record date, certain information
with respect to the shares of Class A common stock and the Class B common stock
beneficially owned by (i) stockholders known to ACS to own more than 5% of the
outstanding shares of such classes, (ii) each of ACS' directors and Named
Executive Officers, and (iii) all ACS' executive officers and directors as a
group:
PERCENT OF AMOUNT PERCENT OF
AMOUNT AND TOTAL AND NATURE TOTAL
NATURE OF SHARES OF OF SHARES OF PERCENT OF TOTAL
BENEFICIAL CLASS A BENEFICIAL CLASS B SHARES OF CLASS A
OWNERSHIP OF COMMON OWNERSHIP COMMON AND CLASS B PERCENT OF
CLASS A STOCK OF CLASS B STOCK COMMON STOCK TOTAL
COMMON OWNED COMMON OWNED OWNED VOTING
DIRECTORS AND EXECUTIVE OFFICERS STOCK BENEFICIALLY STOCK BENEFICIALLY BENEFICIALLY POWER(1)
-------------------------------- ------------ ------------ ---------- ------------ ----------------- ----------
Darwin Deason(2)................ 1,504,562 3.13% 3,299,686 100% 9.36% 42.58%
Jeffrey A. Rich(3).............. 225,858 * -- -- * *
Mark A. King(4)................. 130,453 * -- -- * *
Henry G. Hortenstine(5)......... 1,595 * -- -- * *
William L. Deckelman, Jr. ...... -- * -- -- * *
Harvey V. Braswell(6)........... 696 * -- -- * *
Frank A. Rossi(7)............... 50,000 * -- -- * *
Joseph P. O'Neill(8)............ 33,810 * -- -- * *
Peter A. Bracken................ 2,518 * -- -- * *
Clifford M. Kendall(9).......... 158,209 * -- -- * *
All Executive Officers and
Directors as a Group (fourteen
persons)(10).................. 2,130,631 4.44% 3,299,686 100% 10.58% 43.35%
BENEFICIAL OWNERS OF MORE THAN 5% OF ACS' COMMON STOCK(11)
Fidelity Financial Services..... 6,812,000 14.19% -- -- 13.27% 8.41%
14651 Dallas Parkway
Suite 200
Dallas, TX 75240
T. Rowe Price Associates,
Inc. ......................... 4,656,000 9.70% -- -- 9.07% 5.75%
100 E. Pratt Street
Baltimore, MD 21202
Massachusetts Financial Services
Company....................... 3,874,000 8.07% -- -- 7.55% 4.78%
500 Boylston Street
Boston, MA 02116
Franklin Resources, Inc. ....... 3,482,635 7.25% -- -- 6.79% 4.30%
777 Mariners Island
San Mateo, CA 94404
---------------
* Less than 1%.
(1) In calculating the percent of total voting power, the voting power of
shares of Class A common stock (one vote per share) and Class B common
stock (ten votes per share) are aggregated.
(2) The 3,299,686 shares of Class B common stock listed and 1,003,397 of the
shares of Class A common stock listed are owned by The Deason International
Trust. Mr. Deason holds the sole voting power with respect to such shares
through an irrevocable proxy signed by the Trust. The investment power with
respect to such shares is held by the Trust. The shares of Class A common
stock include 7,310 shares owned by Mr. Deason's spouse and spouse's
daughter, as to which shares Mr. Deason disclaims beneficial ownership and
2,155 shares owned by Mr. Deason through the ACS Employee Stock Purchase
Plan. ACS has filed an S-3 registration statement with the Securities and
Exchange
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Commission, in which 1,504,562 shares of Class A common stock owned by Mr.
Deason or The Deason International Trust are to be registered upon the
effectiveness of such registration statement; however, Mr. Deason and The
Deason International Trust have indicated that they have no present
intention to sell such shares upon registration.
(3) Includes 198,050 shares of Class A common stock, which are not outstanding,
but are subject to options exercisable within sixty days of the record
date; 126 shares owned through the ACS 401(k) Plan; and 496 shares owned
through the ACS Employee Stock Purchase Plan.
(4) Includes 80,000 shares of Class A common stock, which are not outstanding,
but are subject to options exercisable within sixty days of the record
date; 5,689 shares of Class A common stock owned by Mr. King's spouse, to
which Mr. King disclaims beneficial ownership; 959 shares of Class A common
stock owned through the ACS 401(k) Plan; 2,993 shares of Class A common
stock owned by Mr. King through the ACS Employee Stock Purchase Plan; and
2,000 shares of Class A common stock owned by Mr. King in an IRA.
(5) Includes 1,493 shares owned through the ACS Employee Stock Purchase Plan;
and 102 shares owned through the ACS 401(k) Plan.
(6) Includes 696 shares of Class A Common Stock owned through the ACS Employee
Stock Purchase Plan.
(7) Includes 40,000 shares of Class A common stock, which are not outstanding,
but are subject to options exercisable within sixty days of the record
date.
(8) Includes 20,000 shares of Class A common stock, which are not outstanding,
but are subject to options exercisable within sixty days of the record
date.
(9) Includes 22,000 shares of Class A common stock owned by Mr. Kendall's
spouse, as to which Mr. Kendall disclaims beneficial ownership; and 2,409
shares owned by Mr. Kendall in an IRA.
(10) Includes 348,050 shares of Class A common stock, which are not outstanding,
but are subject to options exercisable within sixty days of the record
date; 1,869 shares of Class A common stock owned through the ACS 401(k)
Plan; and 9,394 shares of Class A common stock owned through the ACS
Employee Stock Purchase Plan.
(11) Based on filings by the stockholder with the Securities and Exchange
Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires ACS'
Directors, certain officers and persons who own more than 10% of the outstanding
common stock of ACS to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of the common stock of
ACS held by such persons. These persons are also required to furnish ACS with
copies of all forms they file under this regulation. To ACS' knowledge, based
solely on a review of the copies of such reports furnished to ACS and without
further inquiry, all required forms were filed on time.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors consists of nine directors. All directors must stand
for election at the Annual Meeting and shall hold office for a one-year term and
until their respective successors are elected and qualified.
Shares represented by proxies returned duly executed will be voted, unless
otherwise specified, in favor of each of the nominees for the Board of Directors
named below. The proxies cannot be voted for more than nine nominees. The
nominees have indicated that they are able and willing to serve as directors.
Stockholders may withhold authority to vote for any nominee by striking the name
of such nominee on the proxy card.
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NOMINEES FOR ELECTION AS DIRECTOR
The following table lists the name and principal occupation of each nominee
for director and the year in which each such person was first elected as a
director of ACS.
SERVED AS
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE
---- -------------------- ---------
Darwin Deason........................... Chairman of the Board 1988
Jeffrey A. Rich......................... President and Chief Executive Officer 1991
Mark A. King............................ Chief Operating Officer 1996
William L. Deckelman, Jr. .............. Executive Vice President, Corporate 2000
Secretary and General Counsel
Henry G. Hortenstine.................... Executive Vice President, Global 1996
Business Development
Peter A. Bracken........................ Private Investor 1997
Joseph P. O'Neill....................... President and Chief Executive Officer, 1994
Public Strategies Washington, Inc.
Frank A. Rossi.......................... Chairman, FAR Holdings Company, L.L.C. 1994
Clifford M. Kendall..................... Private Investor 1997
BUSINESS EXPERIENCE OF EACH NOMINEE
Set forth below is certain information with respect to each of the nominees
for the office of director.
DARWIN DEASON, age 61, has served as Chairman of the Board of ACS since its
formation in 1988. He also served as Chief Executive Officer from the formation
of ACS until February 1999. Prior to the formation of ACS, Mr. Deason spent 20
years with MTech Corp., a data processing subsidiary of MCorp, a bank holding
corporation based in Dallas, Texas, serving as MTech's Chief Executive Officer
and Chairman of the Board from 1978 until April 1988, and served on the board of
various subsidiaries of MTech and MCorp. Mr. Deason is also a director of DDH
Aviation, Inc.
JEFFREY A. RICH, age 41, has been a director of ACS since August 1991. Mr.
Rich has served as President and Chief Executive Officer of ACS since February
1999. Prior to then, he had served as President and Chief Operating Officer
since April 1995. Mr. Rich joined ACS in 1989 as Senior Vice President and Chief
Financial Officer and was named Executive Vice President in 1991. Prior to
joining ACS, Mr. Rich served as a Vice President of Citibank N.A. from March
1986 through June 1989. Mr. Rich also serves as a director of Pegasus Solutions,
Inc.
MARK A. KING, age 44, has been a director of ACS since 1996. Mr. King has
served as Chief Operating Officer of ACS since March 2001. Prior to that date,
he had served as Executive Vice President and Chief Financial Officer since May
1995. Mr. King joined ACS in November 1988 as Chief Financial Officer of various
ACS subsidiaries. Prior to joining ACS, Mr. King was Vice President and
Assistant Controller of Mtech Corp.
WILLIAM L. DECKELMAN, JR., age 44, has served as Executive Vice President,
Corporate Secretary and General Counsel and as a director of ACS since March
2000. From May 1995 to March 2000, Mr. Deckelman was in private law practice,
and was a stockholder of the law firm of Munsch Hardt Kopf & Harr, P.C. in
Austin, Texas from January 1996 until March 2000. Previously, Mr. Deckelman
served as Executive Vice President, Secretary and General Counsel of ACS from
November 1993 until May 1995, and as Senior Vice President, Secretary and
General Counsel of ACS from February 1989 through November 1993. Prior to that
time he was an attorney with Electronic Data Systems Corporation.
HENRY G. HORTENSTINE, age 57, has served as Executive Vice President,
Global Business Development of ACS since March 2001 and as a director since
September 1996. From March 1995 to March 2001 Mr. Hortenstine served as
Executive Vice President and in addition during the period from April 1998 to
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March 2001 he also served as Group President of ACS Technology Solutions Group.
Prior to March 1995, he served as Senior Vice President -- Business Development
from July 1993 to March 1995. Mr. Hortenstine was engaged by ACS as a consultant
providing various business and corporate development services from 1990 to July
1993.
PETER A. BRACKEN, age 60, joined Computer Data Systems, Inc. (now known as
ACS Government Services, Inc.) in May 1996 as Chief Executive Officer and
President. At the time of the acquisition by ACS of ACS Government Services,
Inc. by a merger in December 1997, Mr. Bracken became an Executive Vice
President and director of ACS, and served as Group President of ACS Government
Services, Inc. from April 1998 until July 1999. Mr. Bracken served ACS as Vice
Chairman of ACS Government Services, Inc. until June 2001. From 1986 to 1996,
Mr. Bracken was employed by Martin Marietta Corporation (now Lockheed Martin
Corporation), most recently as President of the Information Sciences Group.
Before joining Martin Marietta in 1986, Mr. Bracken served as Director of
Mission Operation and Data Systems for NASA's Goddard Space Flight Center.
JOSEPH P. O'NEILL, age 54, has served as a director of ACS since November
1994. Mr. O'Neill has served as President and Chief Executive Officer of Public
Strategies Washington, Inc., a public affairs and consulting firm, since March
1991, and from 1985 through February 1991, he served as President of the
National Retail Federation, a national association representing United States
retailers.
FRANK A. ROSSI, age 64, has served as a director of ACS since November
1994. Mr. Rossi has served as Chairman of FAR Holdings Company, L.L.C., a
private investment firm, since February 1994, and before that was employed by
Arthur Andersen & Co. for over 35 years. Mr. Rossi served in a variety of
capacities for Arthur Andersen since 1959, including Managing Partner/Chief
Operating Officer and as a member of the firm's Board of Partners and Executive
Committee.
CLIFFORD M. KENDALL, age 70, had been with ACS Government Services, Inc.
since the founding of its predecessor in 1968 until it was acquired by ACS by a
merger in December 1997. At the time of the merger in December 1997, Mr. Kendall
became a director of ACS. From 1970 to 1991, Mr. Kendall served as Chief
Executive Officer of ACS Government Services, Inc. Mr. Kendall also serves as a
director of Washington Real Estate Investment Trust, as Chairman of the Board of
On-Site Sourcing, Inc., and as a Director of VSE Corporation.
Except as set forth above, none of the nominees holds a directorship in any
company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or subject to the requirements of
Section 15(d) of the Securities Exchange Act or any company registered as an
investment company under the Investment Company Act of 1940, as amended.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES FOR DIRECTOR SET
FORTH ABOVE.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors are the Audit Committee,
the Compensation Committee, the Special Compensation Committee, the Independent
Directors Committee, the Special Transactions Committee and the Nominating
Committee.
The Audit Committee is composed of Messrs. Rossi (Chairman), O'Neill and
Kendall. The Audit Committee is responsible for monitoring the integrity of ACS'
consolidated financial statements, its system of internal controls and the
independence and performance of its internal and independent auditors. The Audit
Committee recommends to the Board of Directors the selection of ACS' independent
auditors. The Audit Committee consists of three non-employee directors and
operates under a written charter adopted and approved by the Board of Directors.
Messrs. Rossi and O'Neill are considered "independent" directors as defined by
the New York Stock Exchange listing standards (the "Standards"). Mr. Kendall was
not considered independent under the Standards because his termination of
employment was less than three years ago. Because of his substantial business
experience in government contracting and the importance of that expertise to the
Audit Committee, Mr. Kendall has been elected by the Board of Directors to serve
on the
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Audit Committee pursuant to the "override provisions" set forth in the
Standards. A copy of the current Audit Committee Charter is attached to this
Proxy Statement as Appendix A. The Audit Committee also is responsible for
recommending to the Board of Directors the appointment of ACS' independent
public accountants and EDP auditors. The Report of the Audit Committee for
fiscal year 2001 is included in this proxy statement on page 16.
The Compensation Committee was formed in May 1994. The members of the
Compensation Committee are Messrs. Deason (Chairman), Rossi and O'Neill. The
Compensation Committee is responsible for recommending to the Board of Directors
policies and plans concerning the salaries, bonuses and other compensation of
the executive officers of ACS, including reviewing the salaries of the executive
officers and recommending bonuses and other forms of additional compensation for
the executive officers. In connection with ACS' establishment of certain
procedures to comply with the requirements of Section 162(m) of the Internal
Revenue Code of 1986, as amended, so that compensation to executive officers
whose annual compensation exceeds $1 million may be deductible by ACS for
federal income tax purposes, ACS formed the Special Compensation Committee in
August 1996. The members of the Special Compensation Committee are Messrs. Rossi
and O'Neill (Chairman). The Special Compensation Committee is responsible for
reviewing the compensation of the executive officers whose annual compensation
exceeds $1 million, including reviewing and recommending salaries, bonuses and
other forms of additional compensation. The Special Compensation Committee is
also responsible for the grant of all awards under the stock option plans (other
than those to outside directors). The Report of the Compensation Committee and
Special Compensation Committee for fiscal year 2001 is included in this proxy
statement on page 14.
The members of the Independent Directors Committee are Messrs. O'Neill and
Rossi (Chairman). The Independent Directors Committee was formed in May 1994 to
review annually the prices and terms of the services, forms and supplies
provided between ACS and Precept Business Services, Inc. Precept Business
Services, Inc. filed bankruptcy during ACS' fiscal year ending June 30, 2001 and
ACS has discontinued acquiring services, forms and supplies from this vendor.
See "Certain Transactions."
The Special Transactions Committee, which was formed in August 1997 and on
which Mr. Deason serves, has the responsibility of considering, evaluating, and
approving the terms of potential transactions resulting in the acquisition of
assets, businesses, or stock of third parties for cash, ACS Class A common
stock, or other consideration with a dollar value of up to 10% of ACS'
consolidated assets. The Special Transaction Committee has delegated to the
Chief Executive Officer the authority to consider, evaluate, and approve the
terms of potential transactions resulting in the acquisition of assets,
businesses, or stock of third parties for cash, ACS Class A common stock, or
other consideration with a dollar value of up to $25,000,000.
The Nominating Committee, which was formed in March 1999 and on which Mr.
Deason serves, has the responsibility of considering, evaluating and
recommending to the Board the slate of director nominees. Recommendations as to
nominees will be considered by the Nominating Committee. Such recommendations
can be submitted to the Nominating Committee by directing them to ACS' executive
offices at 2828 North Haskell Avenue, Dallas, Texas 75204, to the attention of
Darwin Deason.
During the fiscal year ended June 30, 2001, there were five meetings of
ACS' Board of Directors. During the fiscal year, there were eight meetings held
by the Audit Committee, five meetings held by the Compensation Committee, no
meetings held by the Independent Directors Committee, two meetings held by the
Special Transaction Committee, five meetings held by the Special Compensation
Committee, and one meeting held by the Nominating Committee. All current
directors attended at least 75% of the meetings of the Board and the Board
committees of which they are members.
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PROPOSAL 2
APPROVAL OF PERFORMANCE-BASED INCENTIVE
COMPENSATION FOR ACS' EXECUTIVE OFFICERS
The Internal Revenue Code limits ACS' tax deduction for expense in
connection with compensation of its chief executive officer and its four other
most highly-compensated executive officers for any fiscal year to the extent
that the remuneration of such person exceeds $1 million during such fiscal year,
excluding remuneration that qualifies as "performance-based compensation."
Section 162(m) of the Internal Revenue Code provides that in order for
remuneration to be treated as qualified performance-based compensation, the
material terms of the performance goals must be disclosed to and approved by the
stockholders of the employer.
At the Annual Meeting, the stockholders will be asked to approve the terms
relating to incentive compensation to be paid to ACS' executive officers for
fiscal year 2002. Executive officer compensation for fiscal year 2002 will
consist of a base salary, stock option plan, and bonus compensation and will be
based on criteria similar to criteria previously used for ACS' executive
officers. There are approximately 10 executive officers who will participate in
the incentive compensation plan. See "Executive Compensation and Other
Information -- Compensation Committee Report on Executive Compensation."
Executive officers (other than Mr. Rexford) will be entitled to receive varying
ranges of up to 250% (up to 250% for the Chairman of the Board, up to 200% for
the President and Chief Executive Officer, up to 175% for the Chief Operating
Officer, and from 125% up to 150% for all other executive officers) of their
base salaries upon achievement of bonus performance goals, which include ACS'
achievement of pre-established growth performance goals in the following four
targeted financial measures: consolidated revenues, consolidated earnings before
interest, taxes and depreciation, consolidated pre-tax earnings and consolidated
earnings per share. In addition to the above described bonus plan, for fiscal
year 2002, there is an accelerator bonus plan which allows each of the executive
officers to earn up to an additional 25% of their maximum bonus upon exceeding
certain financial projections. The maximum bonus that any executive officer may
receive for the fiscal year 2002 will be $1,902,369. The bonus performance goals
have been pre-established by the Compensation Committee and approved by the
Board of Directors for all executive officers other than any executive officer
whose compensation may exceed $1 million. For any executive officer whose
compensation may exceed $1 million, bonus performance goals are previously
established by the Special Compensation Committee, which consists solely of
non-employee directors, and are then approved by the Board of Directors. ACS
believes that the incentive-related provisions provide performance incentives
that are and will be beneficial to ACS and its stockholders.
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Since the amounts payable under the performance-based incentive
compensation plan for the fiscal year ending June 30, 2002 are dependent on ACS'
financial performance, the amounts are not currently determinable. However, the
following table sets forth information regarding the amounts which would have
been earned by each of the following executive officers if the plan had been in
effect for the fiscal year ending June 30, 2001.
NEW PLAN BENEFITS
PERFORMANCE-BASED INCENTIVE COMPENSATION FOR ACS' EXECUTIVE OFFICERS
DOLLAR VALUE
NAME AND POSITION ($)(1)
----------------- ------------
Darwin Deason............................................... 1,521,895
Chairman of the Board
Jeffrey A. Rich............................................. 1,050,000
President and Chief Executive Officer
Mark A. King................................................ 700,000
Chief Operating Officer
Henry G. Hortenstine........................................ 450,000
Executive Vice President, Global Business Development
Harvey V. Braswell.......................................... 412,500
Group President -- Government Services and Executive Vice
President
All executive officers...................................... 5,028,020
---------------
(1) Since fiscal year 2002 incentive compensation is not yet determinable, the
dollar value was calculated utilizing the fiscal year 2002 base salary and
bonus percentages for each executive officer and the fiscal year 2001 bonus
performance goals achieved by each respective executive officer.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCENTIVE COMPENSATION
PLAN FOR THE EXECUTIVE OFFICERS.
DIRECTOR AND EXECUTIVE COMPENSATION
DIRECTOR'S COMPENSATION
Messrs. Rossi, O'Neill and Kendall, three of the members of the Board of
Directors of ACS who were not employed by ACS in fiscal year 2001, receive
compensation in the amount of $3,000 for attendance at each Board meeting.
Directors are reimbursed for their travel expenses incurred in connection with
the meetings. On November 30, 1994 ACS granted to Mr. Rossi options to purchase
50,000 shares of Class A common stock. Mr. Rossi's options are fully vested and
exercisable and Mr. Rossi has exercised options to purchase 10,000 shares of
Class A common stock. On November 30, 1994 ACS granted to Mr. O'Neill options to
purchase 20,000 shares of Class A common stock, and all of such options are
fully vested and exercisable. On July 3, 2001 ACS granted to Mr. O'Neill options
to purchase 30,000 shares of Class A common stock, none of which options are
vested or exercisable. Mr. O'Neill has not exercised any options to purchase
shares of Class A common stock. In addition, Mr. Kendall has an option covering
50,000 shares of Class A common stock which was awarded to him shortly after the
acquisition by merger of ACS Government Services, Inc. in December 1997, in
recognition of his duties after the merger with ACS and ACS Government Services,
Inc. Mr. Kendall's options vest ratably over five years, but are not exercisable
until the fifth year.
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SUMMARY OF NAMED EXECUTIVE OFFICERS' CASH AND OTHER COMPENSATION
The following table sets forth certain information regarding compensation
paid for all services rendered to ACS in all capacities during fiscal years
2001, 2000, and 1999 by ACS' chief executive officer and the four other most
highly compensated executive officers of ACS whose total annual salary and bonus
exceeded $100,000, based on salary and bonuses earned during fiscal year 2001
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- ----------------------------------------------
RESTRICTED
OTHER ANNUAL STOCK LTIP ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2) SARS(2) ($)(3) ($)(4)
------------------ ---- --------- --------- ------------ ---------- -------- ------- ------------
Darwin Deason................. 2001 574,295 1,435,750 -- -- -- -- 9,558
Chairman of the Board 2000 525,000 1,367,625 -- -- -- -- --
1999 525,000 1,312,500 -- -- 75,000 -- --
Jeffrey A. Rich............... 2001 500,000 1,000,000 -- -- 100,000 -- 5,992
President and Chief 2000 425,000 885,700 -- -- -- -- 1,063
Executive Officer 1999 425,000 850,000 -- -- 250,000 -- 2,922
Mark A. King.................. 2001 333,333 600,000 -- -- 150,000 -- 9,086
Chief Operating Officer 2000 275,000 429,825 -- -- 50,000 -- 1,146
1999 275,000 412,500 -- -- 50,000 -- 1,289
Henry G. Hortenstine.......... 2001 300,000 450,000 -- -- -- -- 7,545
Executive Vice President, 2000 275,000 429,825 -- -- 100,000 -- 1,203
Global Business Development 1999 275,000 412,500 -- -- -- -- 1,719
Harvey Braswell............... 2001 238,846 343,750 -- -- 100,000 -- 4,711
Group
President -- Government 2000 200,000 180,000 -- -- 25,000 -- 6,480
Services, and Executive 1999 107,962 100,000 -- -- 100,000 -- 3,313
Vice President
---------------
(1) None of the Named Executive Officers received personal benefits, securities
or property in excess of the lesser of $50,000 or 10% of such individual's
reported salary and bonus during fiscal years 2001, 2000, or 1999.
(2) ACS did not grant any restricted stock awards or stock appreciation rights
("SARS") to the Named Executive Officers during fiscal years 2001, 2000 or
1999.
(3) ACS did not grant any long-term incentive plan payouts to the Named
Executive Officers during fiscal years 2001, 2000, or 1999.
(4) Payments for executive medical and life insurance plans. For those
executives participating in ACS' 401(k) Plan, amounts paid by ACS to match
the employee's contribution are included.
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The following table sets forth the number of options granted during the
fiscal year ended June 30, 2001 to the Named Executive Officers to purchase
shares of Class A common stock and the potential realizable value of these
options.
OPTION GRANTS DURING FISCAL YEAR 2001
INDIVIDUAL GRANTS
---------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS/SARS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN FOR OPTION TERM(2)
OPTIONS/SARS FISCAL EXERCISE OR EXPIRATION ----------------------------
NAME GRANTED(#)(1) YEAR(%)(1) BASE PRICE($) DATE 5%($) 10%($)
---- ------------- ------------ ------------- ---------- ------------ -------------
Darwin Deason......... -- -- -- -- -- --
Jeffrey A. Rich....... 100,000 7.55 32.875 7/11/2010 2,067,491 5,239,428
Mark A. King.......... 150,000 11.33 (3) (3) 4,747,368 12,030,763
Henry G.
Hortenstine......... -- -- -- -- -- --
Harvey V. Braswell.... 100,000 7.55 (4) (4) 3,302,089 8,368,144
---------------
(1) ACS did not grant any SARS to the Named Executive Officers during fiscal
year 2001.
(2) The amounts in these columns are the result of calculations at the 5% and
10% rates set by the SEC and are not intended to forecast possible future
appreciation, if any, of ACS' stock price.
(3) Two option grants -- Option for 50,000 shares granted July 11, 2000 at an
option price of $32.875 per share, with an expiration of July 11, 2010; and
option for 100,000 shares granted March 21, 2001 at an option price of
$59.050 per share, with an expiration of March 21, 2011.
(4) Two option grants -- Option for 25,000 shares granted July 11, 2000 at an
option price of $32.875 per share, with an expiration of July 11, 2010; and
option for 75,000 shares granted March 21, 2001 at an option price of
$59.050 per share, with an expiration of March 21, 2011.
The following table provides information related to options exercised by
the Named Executive Officers during fiscal year 2001 and the number and value of
options held at fiscal year end. ACS does not have any SARS outstanding.
AGGREGATE OPTION/SAR EXERCISES IN FISCAL 2001
AND JUNE 30, 2001 OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES VALUE AT JUNE 30, 2001(#)(2) AT JUNE 30, 2001($)(2)(3)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Darwin Deason........ -- -- -- 75,000 -- 3,663,563
Jeffrey A. Rich...... 200,000 10,054,235 222,050 410,000 12,369,359 19,162,475
Mark A. King......... 40,014 2,440,562 80,000 330,000 4,402,800 10,958,425
Henry G.
Hortenstine........ 223,970 10,793,175 -- 180,000 -- 6,923,800
Harvey V. Braswell... -- -- -- 225,000 -- 6,296,313
---------------
(1) For options exercised on or prior to December 31, 2000, represents the value
realized upon exercise calculated as the number of options exercised times
difference between the average of the high and low stock trading price from
the trading day immediately prior to the exercise date and the exercise
price. For options exercised on or after January 1, 2001, represents the
value realized upon exercise calculated as the number of options exercised
times difference between the actual stock trading price and the exercise
price.
(2) ACS did not grant any SARS to the Named Executive Officers during fiscal
years 2001, 2000 or 1999.
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(3) Represents the value of unexercised options calculated as the number of
unexercised options times the difference between the closing price at June
30, 2001 of $71.91 and the exercise price.
MR. DEASON'S SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT AND EMPLOYMENT
AGREEMENT; SEVERANCE AGREEMENTS FOR CERTAIN EXECUTIVE OFFICERS
In December 1998, ACS entered into a Supplemental Executive Retirement
Agreement with Mr. Deason. Pursuant to the Supplemental Executive Retirement
Agreement, which was reviewed and approved by the Special Compensation
Committee, Mr. Deason will receive a benefit upon the occurrence of certain
events equal to the excess of (i) an actuarially calculated amount based on a
percentage of his average monthly compensation determined by his monthly
compensation during the highest thirty-six consecutive calendar months from
among the 120 consecutive calendar months ending on the earlier of his
termination with ACS or his normal retirement date over (ii) the value of
particular options granted to Mr. Deason (including 75,000 shares covered by
options granted in October 1998 with an exercise price of $23.08 per share). The
percentage applied to the average monthly compensation will vary from 2% on June
30, 1999 to 56% on May 18, 2005. The events triggering the benefit are normal
retirement, late retirement, total and permanent disability, death, resignation,
change in control of ACS or termination for any reason other than cause. The
benefit will be paid in a lump sum or, at the election of Mr. Deason, in monthly
installments over a period not to exceed ten years. If the payment is caused by
a change in control and at such time Mr. Deason would be subject to an excise
tax under the Internal Revenue Code with respect to the benefit, the amount of
the benefit will be grossed-up to offset this tax.
In March 1999, ACS also entered into an Employment Agreement with Mr.
Deason. The Employment Agreement, which was previously reviewed and approved by
the Special Compensation Committee and replaced an earlier severance agreement,
has a term until May 18, 2004, unless extended in accordance with its terms or
terminated earlier, either by Mr. Deason or by a unanimous vote of the Board of
Directors (not including Mr. Deason). The Employment Agreement provides for a
base salary of $525,000 per year, subject to annual adjustments by a percentage
equal to the average percentage adjustments to the annual salaries of the top
five executive officers of ACS. The Employment Agreement also provides for an
annual bonus based on the achievement of financial goals set for Mr. Deason by
the Special Compensation Committee. This bonus can be up to 250% of Mr. Deason's
base salary for that year. In addition, the Employment Agreement provides for
severance benefits for Mr. Deason upon a change of control of ACS and for
supplemental retirement benefits for Mr. Deason.
ACS has previously entered into severance agreements with its executive
officers who are members of the Board of Directors (other than Mr. Deason),
which upon the occurrence of certain events, will entitle the executive to
receive a severance benefit. Under the severance agreements, one of the
conditions to payment of the severance benefit is that one of the following
triggering events must occur: (i) ACS undergoes a consolidation or merger in
which ACS is not the surviving company or in which ACS common stock is converted
into cash, securities or other property such that ACS holders of common stock do
not have the same proportionate ownership of the surviving company's common
stock as they held of ACS' common stock prior to the merger or consolidation;
(ii) ACS sells, leases or transfers all or substantially all of its assets to a
company in which ACS owns less than 80% of the outstanding voting securities; or
(iii) ACS adopts or implements a plan or proposal to liquidate ACS. If the Board
of Directors of ACS does not approve the consummation of any of such foregoing
triggering events, then each executive officer shall be entitled to receive the
severance benefit. If the Board of Directors of ACS approves the consummation of
the triggering event, then the executive's right to receive the severance
benefit accrues only if, within three years of the consummation of the
triggering event, (a) the executive is terminated without cause, (b) the
executive is directly or indirectly removed from a position he held prior to the
consummation of the triggering event, (c) the executive suffers a significant
and adverse change in the nature or scope of his authority or responsibilities,
(d) the executive believes in good faith that he has been rendered unable to
carry out his responsibilities or has suffered a reduction of his authority or
responsibilities, (e) the executive is required to travel significantly more
than prior to the consummation of the triggering event, or (f) if ACS materially
breaches the severance agreement.
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The executive's right to receive such severance benefit also accrues if a
person or entity (other than one or more trusts established by ACS for the
benefit of employees of ACS or a person or entity that holds 15% or more of ACS'
outstanding common stock on the date the particular severance agreement was
entered into) becomes the beneficial owner of 15% or more of ACS' outstanding
common stock, but only if during any period of 24 consecutive months there is a
turnover of a majority of the board of directors. There shall be excluded form
the determination of the turnover of directors, (i) those directors who are
replaced by new directors who are approved by a vote of at least a majority of
the directors (continuing director) who have been a member of the Board of
Directors of ACS since August 5, 1997, (ii) a member of the board who succeeds
an otherwise continuing director and who was elected, or nominated for election
by ACS' stockholders, by a majority of the continuing directors then still in
office, and (iii) any director elected, or nominated for election by ACS'
stockholders to fill any vacancy or newly created directorship by a majority of
the continuing directors still in office.
The severance benefit to be received by each executive includes a lump sum
payment, equal to (a) three times the sum of (i) the executive's per annum base
salary, plus (ii) the executive's bonus for the preceding fiscal year, plus (b)
the executive's target bonus for the then-current fiscal year, pro rated to
reflect the number of days the executive was employed by ACS in that fiscal
year. In addition, ACS will, for up to three years after severance, continue to
pay insurance benefits to the executive until the executive secures employment
that provides replacement insurance, and ACS will continue to provide insurance
benefits to the executive to the extent any new insurance the executive receives
from a subsequent employer does not cover a pre-existing condition. Also, when
determining any executive's eligibility for post-retirement benefits under any
welfare benefit plan, the executive shall be credited with three years of
participation and age credit. The executive is also entitled to receive
additional payments to compensate for the effect of excise taxes imposed under
Section 4999 of the Internal Revenue Code and any interest or penalties
associated with these excise taxes upon payments made by ACS for the benefit of
the executive.
These severance agreements may be terminated by ACS with one year advance
written notice; however, if a triggering event is consummated prior to
termination by ACS, then these agreements will remain in effect for at least
three years plus any additional time necessary to give effect to the terms of
the agreements.
STOCKHOLDER PROPOSAL:
PROPOSAL 3
Diversity of Board Candidates and Committee Members
Calvert Asset Management Company Inc., whose address is 4550 Montgomery
Avenue, Bethesda, Maryland 20814, the holder of 200 shares of ACS' Class A
common stock, has advised ACS that it plans to present the following resolution
at the Annual Meeting. In accordance with applicable proxy regulations, the
proposed resolution and supporting statement, for which ACS accepts no
responsibility is set forth below.
WHEREAS:
We believe that Affiliated Computer Services is operating in an
increasingly diverse global environment. The company can only benefit from the
deliberate recruitment of qualified directors who reflect the people in the
workforce and marketplace of the Twenty-first Century;
We believe the Department of Labor's 1995 Glass Ceiling Commission report
"Good For Business: Making Full Use of the Nation's Human Capital" confirms that
diversity and inclusiveness within corporations has a positive impact on the
bottom line;
We believe that the board of directors of many publicly-owned companies
have benefited from the perspectives brought to their decision-making by their
well qualified board members of both genders and of diverse backgrounds;
We believe that Affiliated Computer Services currently has a distinguished
board of nine persons. Unfortunately, this board does not include women or
minority representatives; and
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We believe that the board of directors, or its nominating committee should
take every reasonable step to ensure that women and minorities are in the pool
from which board nominees are chosen.
BE IT RESOLVED:
That the board of directors, or its nominating committee in its search for
suitable board candidates make a greater effort to search for qualified women
and minority candidates for nomination to the board of directors;
That the company provide to shareholders, at reasonable expense, a report
which includes a description of:
- Efforts to encourage diversified representation on the board;
- Criteria for board qualification;
- The process of selecting board nominations; and
- The selection process for board committee members.
THE POSITION OF THE BOARD OF DIRECTORS WITH RESPECT TO PROPOSAL 3:
ACS is committed to racial and gender diversity throughout the company and
has adopted employment policies regarding that commitment. The Board is always
searching for the most qualified candidates, regardless of race, gender or any
other classification, with the background, experience, knowledge, and skills to
oversee the operations of a corporation as large and as complex as ACS.
Historically, ACS has had very few changes in the makeup of the Board and
additions to the board have generally occurred in the context of specific
significant transactions, such as mergers, in which specific individuals are
added to the Board because of their specific industry knowledge. ACS believes
the current makeup of the Board is appropriate for a company the size of ACS and
is confident that as the company continues to grow all qualified candidates for
director positions, regardless of race or gender, will be considered by our
Nominating Committee. While ACS supports the principles underlying this
stockholder proposal, we believe it would, if adopted, add additional
administrative burden to the company without providing any benefit to its
stockholders.
REPORT OF THE COMPENSATION COMMITTEE AND SPECIAL COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee has been responsible for approving compensation
for ACS' senior executives, including recommending to the Board of Directors
policies and plans concerning the salaries, bonuses and other compensation for
all executive officers, except that such approval and recommendation with
respect to salaries, bonus and other compensation for Mr. Deason, Mr. Rich and
Mr. King are the responsibility of the Special Compensation Committee. The
objective of ACS' executive compensation program is to attract and retain
qualified, motivated executives and to closely align their financial interests
with both the short and long-term interests of ACS' stockholders. The executive
compensation program is intended to provide ACS' executive officers with overall
levels of compensation that are competitive within the information industry, as
well as within a broader spectrum of companies of size and complexity.
The Special Compensation Committee determines the base salary for the CEO,
based upon the financial performance of ACS, and upon the contribution,
performance, and the pay levels of similarly positioned executives in comparable
companies. Evaluation of these factors is subjective, and no fixed, relative
weights are assigned to the criteria considered.
The three principal components of ACS' executive compensation program are
base salary, annual incentive bonus opportunities and stock options.
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BASE SALARIES
Each executive officer's base salary is reviewed annually and is
subject to adjustment on the basis of individual, corporate and, in some
instances, business unit performance, as well as competitive and
inflationary considerations.
INCENTIVE BONUS
Incentive bonus payments for executive officers are made at the end of
each fiscal year based upon the achievement of some or all of the
following: consolidated financial criteria (which can include consolidated
revenues, consolidated earnings before interest, taxes and depreciation,
consolidated pre-tax earnings and consolidated earnings per share),
business unit financial criteria, and the attainment of individual goals.
Such criteria and goals are established by the Chairman of the Board and
CEO of ACS, subject to approval by the Compensation Committee of the Board
of Directors, at the beginning of each fiscal year (or, in the cases of the
Chairman and the Chief Executive Officer, subject to the approval of the
Special Compensation Committee). During fiscal year 2001, ACS achieved 100%
of such measures of consolidated financial criteria.
For fiscal year 2001, executive officers were eligible to receive
maximum bonuses of between 125% and 250% of salary provided the set goals
and criteria were met.
In addition to the above described bonus plan, for fiscal year 2002,
there is an accelerator bonus plan which allows each of the executive
officers to earn up to an additional 25% of their maximum annual bonus upon
exceeding certain consolidated financial criteria. During fiscal year 2001,
ACS achieved none of such measures of consolidated financial criteria under
the accelerator bonus plan, and no payments were made under the accelerator
bonus plan.
STOCK OPTION PLAN
ACS' 1997 Stock Incentive Plan ("Stock Option Plan") is administered
by the Special Compensation Committee. The Special Compensation Committee
approves the individuals eligible to receive grants of options under the
Stock Option Plan, the type of option granted, the number of shares of
Class A common stock subject to a grant and the terms of the grant,
including exercise price, exercise date and any restrictions on exercise.
The Special Compensation Committee also has been responsible for
determining the advisability and terms of any buyout of options previously
granted, reductions in the exercise prices of previously granted options
and the terms of any deferred grant of options granted under the Stock
Option Plan.
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The Stock Option Plan also provides for the issuance of stock purchase
rights. When the Special Compensation Committee determines to grant a stock
purchase right, it will advise the recipient of the grant of the terms and
conditions of the grant, including any restrictions on the grant, the
number of shares subject to the grant, the exercise price of the grant and
the time within which the grant must be accepted by the recipient. The
maximum amount of time that a recipient may have to accept the grant is 30
days. The purchase price of stock acquired pursuant to a stock purchase
right shall not be less than 50% of the fair market value of ACS' Class A
common stock at the time of grant. There have been no stock purchase rights
granted through June 30, 2001.
Submitted by the Compensation
Committee
and the Special Compensation Committee
of the Board of Directors:
DARWIN DEASON*
FRANK A. ROSSI
JOSEPH P. O'NEILL
*Not a member of the
Special Compensation Committee
REPORT OF THE AUDIT COMMITTEE
Management is responsible for the financial reporting process of ACS,
including the system of internal controls, and for the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. ACS' independent auditors
are responsible for auditing those financial statements. The Audit Committee of
the Board of Directors (the "Committee") has the responsibility to monitor and
review these processes. The Committee relies, without independent verification,
on the information provided and on the representations made by management and
the internal and independent auditors.
The eight meetings (four of which were special meetings to approve the
release of the quarterly earnings) held by the Committee during the 2001 fiscal
year were designed, among other things, to facilitate and encourage
communication among the Committee, management, the internal auditors and ACS'
independent auditors, PricewaterhouseCoopers LLP ("PwC"). The Committee
discussed with ACS' internal and independent auditors the overall scope and
plans for their respective audits. The Committee met with the internal and
independent auditors, with and without management present, to discuss the
results of their examinations and their evaluations of ACS' internal controls.
The Committee has reviewed and discussed the audited consolidated financial
statements for the fiscal year ended June 30, 2001 with management, internal
auditors and PwC. The Committee also discussed with the independent auditors
matters required to be discussed with audit committees under auditing standards
generally accepted in the United States of America, including, among other
things, matters related to the conduct of the audit of ACS' consolidated
financial statements and the matters required to be discussed by Statement on
Auditing Standards No. 61, as amended (Communication with Audit Committees).
ACS' independent auditors also provided to the Committee the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and the Committee discussed
with the independent auditors their independence from ACS. When considering
PwC's independence, the Committee considered whether PwC's provision of services
to ACS beyond those rendered in connection with their audit and review of the
ACS' consolidated financial statements was
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compatible with maintaining auditor independence. The Committee also reviewed,
among other things, the amount of fees paid to PwC for audit and non-audit
services.
Based on our review and these meetings, discussions and reports, and
subject to the limitations on the Committee's role and responsibilities referred
to above and in the Audit Committee Charter, the Committee recommended to the
Board of Directors that ACS' audited consolidated financial statements for the
fiscal year ended June 30, 2001 be included in ACS' Annual Report on Form 10-K.
The Committee has also recommended the selection of ACS' independent auditors,
and, based on this recommendation, the Board has selected PwC as ACS'
independent auditors for the fiscal year ending June 30, 2002.
Submitted by the Audit Committee
of the Board of Directors:
FRANK A. ROSSI
JOSEPH P. O'NEILL
CLIFFORD M. KENDALL
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP ("PwC"), independent certified accountants, has
been selected as ACS' independent accountant for the fiscal year 2002. PwC was
also ACS' independent accountant for fiscal year 2001. A representative of PwC
is expected to be present at the Annual Meeting. That representative will have
an opportunity to make a statement, if desired, and will be available to respond
to appropriate questions.
AUDIT FEES
For fiscal year 2001, PwC billed or will bill ACS an aggregate of $389,850
for professional services rendered for the audit of ACS' fiscal year 2001
financial statements and the review of ACS' financial statements included in the
quarterly reports on Securities and Exchange Commission Form 10-Q filed by ACS
in fiscal year 2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For fiscal year 2001, PwC did not render any professional services for ACS
in connection with financial information systems design and implementation.
ALL OTHER FEES
For fiscal year 2001, PwC billed ACS an aggregate of $379,255 for all other
non-audit services performed for ACS. These services consisted of tax
compliance, advisory services, litigation support and other services not
included in the preceding fee sections.
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COMPARISON OF TOTAL CUMULATIVE RETURN FROM SEPTEMBER 26, 1994
THROUGH JUNE 30, 2001 OF
AFFILIATED COMPUTER SERVICES, INC. CLASS A COMMON STOCK,
STANDARD & POOR'S COMPUTER SOFTWARE & SERVICES INDEX
AND THE STANDARD & POOR'S STOCK INDEX
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------------------------------------
09/26/94
(IPO Date) 06/30/95 06/25/96 06/30/97 06/30/98 06/30/99 06/30/00 06/30/01
--------------------------------------------------------------------------------------------------------------
ACS 100 191 294 350 481 633 414 899
Standard & Poor's
Computer Software
& Services Index 100 145 192 296 427 641 717 538
Standard & Poor's
Stock Index 100 120 150 200 257 312 334 287
Note: The graph above compares the total cumulative return of ACS Class A
common stock from September 26, 1994 through June 30, 2001 with the Standard &
Poor's Computer Software & Services Index and the Standard & Poor's Stock Index.
The graph assumes the investment of $100 on September 26, 1994 and the
reinvestment of all dividends. The stock price performance shown on the graph is
not necessarily indicative of future stock performance.
THE ABOVE REPORTS OF THE COMPENSATION COMMITTEE, SPECIAL COMPENSATION
COMMITTEE AND AUDIT COMMITTEE AND THE STOCK PERFORMANCE GRAPH WILL NOT BE DEEMED
TO BE SOLICITING MATERIAL OR TO BE FILED WITH OR INCORPORATED BY REFERENCE INTO
ANY FILING BY ACS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934, EXCEPT TO THE EXTENT THAT ACS SPECIFICALLY INCORPORATES SUCH REPORT
OR GRAPH BY REFERENCE.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For information on Compensation Committee interlocks and insider
participation, see "Certain Transactions."
CERTAIN TRANSACTIONS
In connection with the tax free spin off of Precept Business Services, Inc.
("Precept") from ACS on June 30, 1994, ACS and Precept entered into a reciprocal
services agreement pursuant to which Precept would sell business forms and
supplies, and provide courier and certain other administrative services to ACS,
and ACS would provide office space and certain administrative services to
Precept. Precept filed a petition in bankruptcy during ACS' 2001 fiscal year and
ACS has discontinued acquiring products and services from Precept. Mr. Deason,
who was a director of Precept and held voting control has resigned from the
Board of Precept. Also, Douglas Deason, one of Mr. Deason's sons, who was the
President and Chief Executive Officer and a director of Precept resigned his
officer and director positions prior to the filing of the bankruptcy. The costs
incurred by ACS for product delivered and services provided by Precept covered
by such reciprocal services agreement, which are believed to approximate fair
market value, were approximately $1.4 million for fiscal year 2001.
Mr. Deason and ACS, along with two other investors, are the stockholders in
DDH Aviation, Inc., a corporate airplane brokerage firm organized in late 1997.
DDH has a $47 million line of credit with Citicorp USA, Inc., for which Mr.
Deason and ACS, in exchange for warrants to acquire additional voting stock, act
as guarantors. ACS guaranteed up to approximately $11.5 million of the line of
credit and Mr. Deason has guaranteed up to approximately $16.5 million of the
line of credit. Assuming that all warrants are exercised and all shares to be
issued to certain key employees of DDH (upon the attainment of certain
performance goals) have been issued, Mr. Deason owns approximately 44% of the
equity interests in DDH and ACS owns approximately 6%. Mr. Deason is one of the
five directors of DDH, as well as its Chairman of the Board. ACS has access to
aircraft from DDH. On August 21, 2001, ACS entered into an Agreement for
Purchase with DDH for the purchase of a Challenger 600 aircraft. The purchase
price of the aircraft is $8.5 million, which includes refurbishment of the
interior and exterior of the aircraft. A deposit of $1.7 million was made with
DDH when ACS executed the agreement and an additional deposit of $2.5 million
will be due on October 1, 2001, with the balance due when the aircraft is
delivered to ACS, which should occur in the second calendar quarter of ACS' 2002
fiscal year.
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STOCKHOLDERS PROPOSALS FOR 2002 ANNUAL MEETING
If any stockholder of ACS intends to present a proposal for consideration
at the Fiscal Year 2002 Annual Meeting of Stockholders and desires to have such
proposal in the proxy statement and form of proxy distributed by the Board of
Directors with respect to such meeting, such proposal must be received at ACS'
principal executive offices, 2828 North Haskell Avenue, Dallas, Texas 75204,
Attention: William L. Deckelman, Jr., Corporate Secretary, no sooner than May 1,
2002 but not later than May 31, 2002. If any stockholder of ACS intends to
present a proposal for consideration at the Fiscal Year 2002 Annual Meeting of
Stockholders without inclusion of such proposal in the proxy statement and form
of proxy, such stockholder must provide notice to ACS of such proposal. ACS must
receive such notice at its principal executive offices, 2828 North Haskell
Avenue, Dallas, Texas 75204, Attention: William L. Deckelman, Jr., Corporate
Secretary, no sooner than May 1, 2002, but not later than May 31, 2002 and in
the case of proposals to nominate persons for election to the Board of
Directors, the proposal must be received by ACS no sooner than May 27, 2002, but
not later than June 26, 2002.
By Order of the Board of Directors
/s/ WILLIAM L. DECKELMAN, JR.
William L. Deckelman, Jr.
Corporate Secretary
September 28, 2001
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APPENDIX A
CHARTER OF THE AUDIT COMMITTEE
OF THE ACS BOARD OF DIRECTORS
AS REVISED AND ADOPTED ON AUGUST 23, 2000
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial reports and other financial information provided by the Corporation to
any governmental body or the public; the Corporation's systems of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Corporation's auditing,
accounting and financial reporting processes generally. Consistent with this
function, the Audit Committee should encourage continuous improvement of, and
should foster adherence to, the Corporation's policies, procedures and practices
at all levels. The Audit Committee's primary duties and responsibilities are to:
Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system.
Review and appraise the audit efforts of the Corporation's independent
accountants and internal auditing department.
Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal audit
department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of at least three (3) directors as
determined by the Board, each of whom shall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise. Committee members may
enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. The Committee may ask members of management or others
to attend meetings and provide pertinent information as necessary. As part of
its job to foster open communication, the Committee should meet at least
annually with management, the director of any internal audit departments and the
independent accountants in separate executive sessions to discuss any matters
that the Committee or each of these groups believe should be discussed
privately. In addition, the Committee or at least its Chair should meet with the
independent accountants and management quarterly to review the Corporation's
financials consistent with section IV Paragraphs 4. and 6. below.
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IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
DOCUMENTS/REPORTS REVIEW
1. Review and update this Charter periodically as conditions dictate.
2. Review the Corporation's annual financial statements and any reports or
other financial information submitted to any government body, or the public,
including any certification, report, opinion, or review rendered by the
independent accountants. This review is to encompass significant transactions
not a normal part of the Corporation's operations, changes, if any, during the
year in the Corporation's accounting principles or their application and
significant adjustments proposed by the independent public accountants.
3. Review the regular internal reports to management prepared by any
internal auditing department and management's response.
4. Discuss with the independent public accountants the quality of the
Corporation's financial and accounting personnel and any relevant recommendation
that the independent public accountants may have, including a consideration of
the improvement of internal financial controls and a review of accounting
policies and management reporting systems.
5. Review written responses of management to the comments and
recommendations of the independent public accountants, as applicable.
6. Discuss with the independent public accountants the annual reported
earnings prior to the release thereof to the public (i.e., the quarterly
reported earnings may be released to the public irrespective of whether the
Audit Committee has discussed same with the independent public accountants), and
review the quarterly and annual financial statements prior to submission to any
government body or to the public.
INDEPENDENT ACCOUNTANTS
7. Recommend to the Board of Directors the selection of the independence
accountants, considering independence and effectiveness, and approve the fees
and other compensation to be paid to the independent accountants. On an annual
basis, the Committee should review and discuss with the accountants all
significant relationships the accountants have with the Corporation to determine
the accountants' independence.
8. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances warrant.
9. Periodically consult with the independent accountants out of the
presence of management about internal controls and the fullness and accuracy of
the organization's financial statements.
10. Instruct the independent accountants that the Board of Directors is
the accountants' client and that the independent accountants have direct access
to the Audit Committee when warranted.
FINANCIAL REPORTING PROCESS
11. In consultation with the independent accountants and any internal
auditors, review the integrity of the organization's financial reporting
processes, both internal and external.
12. Inquire as to the independent accountants' views and consider the
independent accountants' judgments about whether management's choices of
accounting principles are conservative, moderate, or aggressive from the
perspective of income, asset, and liability recognition, and whether those
principles are common practices or are minority practices.
13. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices as suggested by
the independent accountants, management, or any internal auditing department.
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14. Determine, as regards new transactions or events, the independent
accountants' reasoning for the appropriateness of the accounting principles and
disclosure practices adopted by management.
15. Consider, in consultation with the independent accountants' and
management, the audit scope and plan of the independent accountants and any
internal auditors.
PROCESS IMPROVEMENT
16. Establish regular and separate systems of reporting to the Audit
Committee by each of management, the independent accountants and any internal
auditors regarding any significant judgments made in management's preparation of
the financial statements and the view of each as to appropriateness of such
judgments.
17. Following completion of the annual audit, review separately with each
of management, the independent accountants and any internal auditors, any
significant difficulties encountered during the course of the audit, including
any restrictions on the scope of work or access to required information.
18. Review any significant disagreement, disputes or difficulties among
management and the independent accountants or any internal auditors in
connection with the preparation of the financial statements and other matters
related to the conduct of the audit which are to be communicated to the Audit
Committee under Generally Accepted Auditing Standards.
19. Review with the independent accountants, any internal auditors and
management the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been implemented.
(This review should be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the Committee.)
20. Recommend to the Board of Directors any appropriate extensions or
changes in the duties of the Audit Committee.
ETHICAL AND LEGAL COMPLIANCE
21. Establish, review and update periodically a Code of Business Conduct
and ensure that management has established a system to enforce this Code.
22. Review management's monitoring of the Corporation's compliance with
the organization's Code of Business Conduct and ensure that management has the
proper review system in place to ensure that Corporation's financial statements,
reports and other financial information disseminated to governmental
organizations and the public satisfy legal requirements.
23. Review activities, organizational structure, and qualifications of any
internal audit department.
24. Review, with the organization's counsel, legal compliance matters
including corporate securities trading policies.
25. Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities.
26. Perform any other activities consistent with this Charter, the
Corporation's Bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.
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AFFILIATED COMPUTER SERVICES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 25, 2001
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of Affiliated Computer Services, Inc., a
Delaware corporation (the "Corporation"), hereby acknowledges receipt of the
Notice of Annual Meeting of Stockholders and accompanying Proxy Statement each
dated September 28, 2001 and the Corporation's Annual Report and hereby appoints
Jeffrey A. Rich, William L. Deckelman, Jr. and Warren D. Edwards, or any of
them, as proxies and attorneys-in-fact, each with full power of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Annual Meeting of Stockholders of the Corporation to be held at Cityplace
Conference Center, 2711 North Haskell Avenue, Dallas, Texas 75204, on October
25, 2001 at 11:00 a.m., Dallas, Texas time, and at any adjournment or
adjournments thereof, and to vote, as designated herein, all shares of Common
Stock which the undersigned would be entitled to vote if then and there
personally present, on all matters set forth in the Notice of Annual Meeting of
Stockholders and accompanying Proxy Statement, and in their discretion upon any
other business or matters that may properly come before the meeting or any
adjournment or adjournments thereof:
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
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Please mark
your votes as
indicated in [X]
this example
FOR all nominees listed below
(except as indicated below) WITHHOLD
1. To elect nine (9) directors to serve
until the fiscal year 2002 Annual [ ] [ ]
Meeting of Stockholders and until their
successors are duly elected and
qualified.
IF YOU WISH TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN
THE LIST BELOW.
Nominees: Darwin Deason; Jeffrey A.
Rich; Mark A. King; William L.
Deckelman, Jr.; Henry G. Hortenstine;
Peter A. Bracken; Joseph P. O'Neill;
Frank A. Rossi; Clifford M. Kendall
FOR AGAINST ABSTAIN
2. To approve the performance-based [ ] [ ] [ ]
incentive compensation for the
Corporation's executive officers.
3. To approve the stockholder proposal [ ] [ ] [ ]
regarding diversity of the Board of
Directors (if properly presented at the
Annual Meeting).
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS. THIS PROXY WILL BE VOTED AS
DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF
DIRECTORS, FOR THE APPROVAL OF THE
PERFORMANCE-BASED INCENTIVE COMPENSATION FOR
THE CORPORATION'S EXECUTIVE OFFICERS, AGAINST
THE STOCKHOLDER PROPOSAL REGARDING DIVERSITY,
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING
OF STOCKHOLDERS MAY VOTE IN PERSON EVEN THOUGH
THEY PREVIOUSLY MAILED THIS PROXY.
SIGNATURE(S) DATED: , 2001
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(THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY THE STOCKHOLDER(S) EXACTLY AS HIS OR HER NAME APPEARS
HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE. PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO
INDICATE. IF SHARES ARE HELD BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.)
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