SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Fair, Isaac and Company, Incorporated
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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)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
February 3, 1998
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of Fair, Isaac
and Company, Incorporated (the "Company") will be held at 9:30 A.M., P.S.T., on
Tuesday, February 3, 1998, at Fair, Isaac's Conference Center, 111 Smith Ranch
Road, San Rafael, California, for the following purposes:
1. To elect directors to serve until the 1999 Annual Meeting of
Stockholders and thereafter until their successors are elected and
qualified.
2. To approve amendments to the Company's 1992 Long-term Incentive Plan as
described in the accompanying proxy statement.
3. To ratify the appointment of the independent auditors of the Company.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
All of the above matters are more fully described in the accompanying Proxy
Statement. Only stockholders of record at the close of business on Friday,
December 5, 1997, are entitled to notice of and to vote at the meeting or any
postponement or adjournment thereof. A list of stockholders entitled to vote at
the Annual Meeting will be available for inspection at the Company's offices,
111 Smith Ranch Road, San Rafael, California, at least 10 days before the
meeting.
All stockholders are cordially invited to attend the meeting in person. However,
to assure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy as promptly as possible in the postage prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if he or she returned a proxy.
Sincerely,
Peter L. McCorkell
Senior Vice President and Secretary
San Rafael, California
December 31, 1997
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Your Vote is Important. In order to assure your representation at the meeting,
you are requested to complete, sign and date the enclosed proxy as promptly as
possible and return it in the enclosed envelope (to which no postage need be
affixed if mailed in the United States).
Proxy Statement
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of Fair, Isaac and Company, Incorporated
(the "Company") of proxies to be used at the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held on Tuesday, February 3, 1998, and
any postponement or adjournment thereof. A copy of the Company's Annual Report
to Stockholders for the fiscal year ended September 30, 1997, which includes the
Company's financial statements as of September 30, 1997, accompanies this Proxy
Statement. Stockholders may obtain a copy of the Company's Annual Report on Form
10-K and a list of the exhibits thereto without charge by written request to
Peter L. McCorkell, Corporate Secretary, 120 North Redwood Drive, San Rafael, CA
94903. This Proxy Statement and the accompanying form of proxy are being mailed
to stockholders on or about December 31, 1997.
Proxy Solicitation
The shares represented by the proxies received pursuant to this
solicitation and not revoked will be voted at the Annual Meeting. A stockholder
who has given a proxy may revoke it by giving written notice of revocation to
the Secretary of the Company or by giving a duly executed proxy bearing a later
date. Attendance in person at the Annual Meeting does not of itself revoke a
proxy; however, any stockholder who does attend the Annual Meeting may revoke a
proxy previously submitted by voting in person. Subject to any such revocation,
all shares represented by properly executed proxies will be voted in accordance
with specifications on the enclosed proxy. If no such specifications are made,
proxies will be voted FOR the election of the nine nominees for director listed
in this Proxy Statement, FOR the proposed amendments to the Company's 1992
Long-term Incentive Plan, and FOR the ratification of the appointment of KPMG
Peat Marwick LLP as the Company's auditors for the current fiscal year.
The Company will bear the expense of preparing, printing and mailing this
Proxy Statement and the proxies solicited hereby and will reimburse banks,
brokerage firms and nominees for their reasonable expenses in forwarding
solicitation materials to beneficial owners of shares held of record by such
banks, brokerage firms and nominees. In addition to the solicitation of proxies
by mail, officers and regular employees of the Company may communicate with
stockholders either in person or by telephone for the purpose of soliciting such
proxies; no additional compensation will be paid for such solicitation. The
Company has retained Skinner & Co. to assist in the solicitation of proxies at a
cost of $3,500 plus normal out-of-pocket expenses.
Outstanding Shares and Voting Rights
Only stockholders of record at the close of business on December 5, 1997
(the "record date") are entitled to notice of and to vote at the Annual Meeting.
At the
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close of business on the record date, there were 13,507,887 shares of the
Company's Common Stock, $0.01 par value (the "Common Stock"), issued and
outstanding, excluding 12,008 shares of Common Stock held as treasury stock by
the Company. The shares held as treasury stock are not entitled to be voted.
Each share of Common Stock is entitled to one vote with respect to each matter
to be voted on at the Annual Meeting subject to the provisions regarding
cumulative voting in the election of directors as described below. A plurality
of the votes cast is required for the election of the nine nominees for director
listed in this Proxy Statement, and a majority of the votes cast is required to
approve the proposed amendments to the Company's 1992 Long-term Incentive Plan
and to ratify the appointment of KPMG Peat Marwick LLP as the company's auditors
for the current fiscal year. Abstentions with respect to any matter are treated
as shares present or represented by proxy and entitled to vote on that matter
and thus have the same effect as negative votes. Broker non-votes and other
circumstances in which proxy authority has been withheld do not constitute
abstentions.
In the election of the directors, each stockholder is entitled to one vote
per share multiplied by the number of directors to be elected, and the
stockholder may cast all of such votes for a single candidate or may distribute
them among the number of directors to be voted for, or for any two or more of
them as the stockholder may see fit; provided, however, that no stockholder
shall be entitled so to cumulate votes unless such candidate's or candidates'
names have been placed in nomination prior to the voting and the stockholder has
given notice at the meeting prior to the voting of the stockholder's intention
to cumulate votes. If any one stockholder has given such notice, all
stockholders may cumulate their votes for candidates in nomination. The persons
authorized to vote shares represented by executed proxies in the enclosed form
(if authority to vote for the election of directors is not withheld) will have
full discretion and authority to vote cumulatively and to allocate votes among
any or all of the Board of Directors' nominees as they may determine or, if
authority to vote for a specified candidate or candidates has been withheld,
among those candidates for whom authority to vote has not been withheld.
Election of Directors
Nominees
There are currently nine directors. The Board of Directors has nominated
the following persons, all of whom currently are serving as directors, for
election as directors to serve until the 1999 Annual Meeting of Stockholders and
thereafter until their respective successors are duly elected and qualified.
A. George Battle, Director. Mr. Battle was elected a director in August,
1996. From 1968 until his retirement in 1995, Mr. Battle was an employee and
then partner of Arthur Andersen and Andersen Consulting. Mr. Battle's last
position at Andersen Consulting was Managing Partner, Market Development. In
that role he was responsible for Andersen Consulting's worldwide industry
activities, its Change
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Management and Strategic Services offerings, and worldwide marketing and
advertising. He served as a Presidential Exchange Executive with the United
States Department of Health, Education and Welfare during 1975-1976. Mr. Battle
is a Senior Fellow of the Aspen Institute and a director of PeopleSoft, Inc.,
Barra, Inc., and Alaska Travel Adventures. He is also past President of the
Board of Trustees of the Berkeley Repertory Theatre, Chairman of the Board of
the Head Royce School and a national trustee of the Marcus A. Foster Educational
Institute. Mr. Battle received a degree in economics from Dartmouth College and
an M.B.A. from the Stanford University Business School. Mr. Battle is 53 years
old.
Bryant J. Brooks, Jr., Director. Mr. Brooks was elected a director in
February 1989. Since 1975 Mr. Brooks has been an independent financial
consultant in San Francisco, California, specializing in the valuation of the
securities of privately held companies. He provided such services for the
Company's Employee Stock Ownership Plan prior to the Company's initial public
offering in July 1987. From 1968 to 1974, he was the president of Boothe
Computer Investment Corporation and its successor, Bay Equities, Inc. Prior to
that he held a number of financial and management positions in other companies.
He is currently a director of McGrath RentCorp of San Lorenzo, California. Mr.
Brooks received a B.S. in Economics from Yale University in 1950 and an M.B.A.
from Harvard in 1955. Mr. Brooks is 70 years old.
H. Robert Heller, Director and Executive Vice President. Dr. Heller was
elected a director in February 1994 and an Executive Vice President of the
Company in September 1996. He was President of International Payments Institute
from December 1994 to September 1996. He was President and Chief Executive
Officer of Visa U.S.A., Inc. from 1991 to 1993, and an Executive Vice President
of Visa International from 1989 to 1991. He served as a member of the Board of
Governors of the Federal Reserve System from 1986 to 1989. Prior to that, Dr.
Heller held positions with the Bank of America and the International Monetary
Fund and taught economics at the University of California, Los Angeles, and the
University of Hawaii. He holds an M.A. in Economics from the University of
Minnesota and a Ph.D. in Economics from the University of California, Berkeley.
Dr. Heller is 57 years old.
Guy R. Henshaw, Director. Mr. Henshaw was elected a director in February
1994. He is currently Managing Director of Henshaw, Vierra, L.L.C. From November
1992 to April 1996 he was Chairman of Payday, The Payroll Company, and was its
Chief Executive Officer from March 1993 to April 1996. He served as a Director
of Payday from 1989 to 1996. From 1984 to 1992 he was President, Chief Financial
Officer and a Director of Civic BanCorp and Treasurer and a Director of the
CivicBank of Commerce. Prior to that, Mr. Henshaw held positions with the Bank
of America and Security National Bank. He holds a B.A. in Economics from Ripon
College and an M.B.A. from the Wharton School of Business at the University of
Pennsylvania. Mr. Henshaw is 51 years old.
3
David S. P. Hopkins, Director. Dr. Hopkins was elected a director in August
1994. He is Director of Health Information Improvement at the Pacific Business
Group on Health, a non-profit coalition of 32 large private and public sector
employers. From January 1995 until November 1996, he was an independent
consultant in health care. Prior to that, he was Vice President, Client Services
and Corporate Development of International Severity Information Systems, Inc., a
medical severity indexing software and consulting firm. From 1971 to 1993 he
held a number of senior management positions at Stanford University and its
University Hospital, Medical Center and Medical School. A graduate of Harvard
University, he earned both his Ph.D. in operations research and his M.S. in
statistics at Stanford University. Dr. Hopkins is 54 years old.
Robert M. Oliver, Chairman of the Board of Directors. Dr. Oliver has been a
director of the Company since December 1986 and was elected Chairman of the
Board in January 1996. He was a Professor of Engineering Science in the College
of Engineering, University of California, Berkeley, from 1960 until his
retirement in January 1993. He is also a Director, Trustee and Chairman of the
Board of the AnSer Corporation of Arlington, Virginia, and is a former member
and President of the Board of Directors of the Berkeley Repertory Theater. He
received his Ph.D. in Physics and Operations Research from the Massachusetts
Institute of Technology in 1957, following a year as a Fulbright Scholar at the
University of London. He has served as the President of the Operations Research
Society of America and was the recipient of the Lanchester Prize, the senior
award in the field of Operations Research. Dr. Oliver is 66 years old.
Larry E. Rosenberger, Director, President and Chief Executive Officer. Mr.
Rosenberger has been employed by the Company since 1974 and was elected a
director in December 1983. In December 1977 Mr. Rosenberger was named a Vice
President, in June 1983 he was named a Senior Vice President, and in January
1985 he became an Executive Vice President. In March 1991 he was named President
and Chief Executive Officer. He received a B.S. in Physics from the
Massachusetts Institute of Technology, and an M.S. in Physics, an M.S. in
Operations Research and an M. Eng. in Operations Research from the University of
California, Berkeley. Mr. Rosenberger is 51 years old.
Robert D. Sanderson, Director. Dr. Sanderson was elected a director in
March 1977. He was employed by the Company from 1969 until his retirement as an
officer of the Company effective September 30, 1995. He was elected a Vice
President in May 1974, a Senior Vice President in June 1983, an Executive Vice
President in January 1985 and Chief Operating Officer in February 1989. On
November 1, 1995 he was appointed a director of TF International, LLC, a joint
venture between the Company and Trans Union Corporation. He received a B.S.
degree in Mathematics at Cornell University and an M.S. and a Ph.D. in
Industrial Engineering and Operations Research from the University of
California, Berkeley. Dr. Sanderson is 54 years old.
4
John D. Woldrich, Director, Executive Vice President and Chief Operating
Officer. Mr. Woldrich joined the Company in 1972 and was elected a director in
December 1983. Mr. Woldrich was named a Vice President in December 1977, a
Senior Vice President in June 1983, an Executive Vice President in January 1985
and Chief Operating Officer effective August 1, 1995. Prior to August 1, 1995,
Mr. Woldrich was in charge of the Company's Marketing and New Business
Development Division. Mr. Woldrich has a B.S. in Electrical Engineering from the
University of Santa Clara and an M.B.A. from the Wharton School of Business at
the University of Pennsylvania. Mr. Woldrich is 54 years old.
If any nominee is unable or declines to serve (a contingency which the
Company does not now foresee), the proxies in the accompanying form will be
voted for any nominee who may be nominated by the present Board of Directors to
fill such vacancy or the size of the Board may be reduced accordingly.
Officers are elected at the first meeting of the Board of Directors
following the Annual Meeting of Stockholders at which the directors are elected
and serve until their successors are elected and qualified. There are no family
relationships between any of the directors, nominees for director and any
executive officer.
Board and Committee Meetings
The Company has standing audit and compensation committees of the Board of
Directors.
The audit committee consists of Bryant J. Brooks, Guy R. Henshaw and David
S. P. Hopkins. The audit committee monitors the effectiveness of the audit
conducted by the Company's independent auditors and of the Company's internal
financial and accounting controls, and reports its findings to the Board of
Directors. The committee meets with management and the independent auditors as
may be required. The independent auditors have full and free access to the audit
committee without the presence of management. The audit committee held four
meetings during fiscal 1997.
The compensation committee consists of Bryant J. Brooks, Guy R. Henshaw and
A. George Battle. This committee determines all aspects of the compensation of
the Company's executive officers. This Committee also administers the Company's
1992 Long-term Incentive Plan. The compensation committee held seven meetings in
fiscal 1997.
During the past fiscal year, there were four regular meetings and five
special meetings of the Board of Directors. Each incumbent director attended
more than 75 percent of the aggregate number of all board meetings and meetings
of committees on which he served during fiscal 1997.
Stock Ownership
5
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 5, 1997, by (i) each of
the Company's directors and nominees for director, (ii) each of the executive
officers named in the Summary Compensation Table below, (iii) all executive
officers and directors of the Company as a group, and (iv) each person known to
the Company who beneficially owns more than 5% of the outstanding shares of its
Common Stock. The number of shares shown for each of Inger J. Fair, Christian I.
Fair, Ellen I. Fair and Erik E. Fair include the same 1,595,621 shares held in
trust as described in footnote 2 to the table.
6
Stock Ownership Table
Beneficial Ownership(1)
Directors, Nominees, Executive Officers ---------------------
and 5% Stockholders Number Percent
- --------------------------------------------------------------------------------
Inger J. Fair(2) 1,595,621 11.8%
120 North Redwood Drive
San Rafael, CA 94903
Christian I. Fair(2) 1,742,265 12.9%
120 North Redwood Drive
San Rafael, CA 94903
Ellen I. Fair(2) 1,765,477 13.1%
120 North Redwood Drive
San Rafael, CA 94903
Erik E. Fair(2) 1,783,062 13.2%
120 North Redwood Drive
San Rafael, CA 94903
Judith W. Isaac(3) 1,830,210 13.5%
5 Capilano Drive
Novato, CA 94947
Peter L. McCorkell, Patricia Cole 947,677 7.0%
and John Waller,
Trustees for Fair Isaac Employee Stock
Ownership Trust
120 North Redwood Drive
San Rafael, CA 94903
Robert D. Sanderson(4) 393,079 2.9%
Larry E. Rosenberger(4) 281,753 2.1%
John D. Woldrich(4) 119,054 *
Patrick G. Culhane(4) 28,536 *
Barrett B. Roach(4) 8,600 *
H. Robert Heller(5) 26,000 *
A. George Battle(6) 2,733 *
Bryant J. Brooks(7) 18,000 *
Guy R. Henshaw(7) 17,000 *
David S. P. Hopkins(7) 17,000 *
Robert M. Oliver(8) 51,000 *
All executive officers and directors as
a group (16 persons)(4), (9) 1,460,253 9.25%
- ------------------
* Represents holdings of less than one percent of the Outstanding Common
Stock.
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(1) To the Company's knowledge the persons named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this
table.
(2) Includes 1,595,621 shares held by Inger J. Fair and her adult children
as co-trustees and as beneficiaries of The William Rodden Fair and
Inger Johanne Fair Revocable Trust, Trust A under The William and Inger
Fair Trust Agreement dated 3/8/86, Trust B Exempt under the William and
Inger Fair Trust Agreement dated 3/20/86 and Trust B Non-Exempt under
the William and Inger Fair Trust Agreement dated 3/28/86. Christian I.
Fair, Ellen I. Fair and Erik E. Fair each disclaim beneficial interest
in the shares held by the trust except to the extent of such person's
pecuniary interest in such trust.
(3) Does not include 263,433 shares held directly by Mrs. Isaac's adult
children nor 119,880 shares held by Mrs. Isaac as trustee for her adult
children. Mrs. Isaac disclaims beneficial ownership of such shares.
Includes 247,500 shares held as co-trustee (with F. L. Adams) and as
beneficiary under a trust.
(4) Includes the shares allocated to such individual's account under the
Company's Employee Stock Ownership Plan (amounts have been rounded to
the nearest share). Shares allocated to the accounts of listed
individuals are also included in the total shown for the Trustees of
the Employee Stock Ownership Trust.
(5) Includes options for 26,000 shares.
(6) Includes options for 2,000 shares. Also includes 300 shares held by Mr.
Battle's son who resides with him and includes 100 shares held by his
sister for whom he has dispositive power. Mr. Battle disclaims
beneficial ownership of such shares.
(7) Includes options for 17,000 shares.
(8) Includes 2,000 shares held in an Individual Retirement Account ("IRA")
for Dr. Oliver, 4,000 shares held in an IRA by his wife, 7,000 shares
held jointly by Dr. Oliver and his wife, 37,000 shares held as trustee
and as beneficiary under a trust, and options for 1,000 shares.
(9) Includes shares included in notes (4), (5), (6), (7) and (8) above,
including a total of 268,513 shares subject to exercisable options.
Compensation of Directors and Executive Officers
Directors' Compensation
Non-employee directors other than the Chairman are currently compensated at
the rate of $12,000 per year plus $1,000 for each Board meeting attended. The
Chairman is currently compensated at the rate of $100,000 per year for services
as Chairman and other consulting work, plus $2,000 for each Board meeting
attended. All non-employee directors other than the Chairman are paid $250 per
hour for committee meetings and other special assignments. See also below under
"Director Consulting Arrangements."
Under the Company's 1992 Long-term Incentive Plan as amended and restated
effective November 21, 1995, members of the Board of Directors who are not
employees of the Company ("Outside Directors") currently receive a grant of
10,000
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nonqualified stock options (the "Initial Grant") upon election as an Outside
Director and a grant of nonqualified options for 1,000 shares on the date of the
annual meeting provided such person has been an Outside Director since the prior
annual meeting (the "Annual Grant"). The exercise price of all such options is
equal to the fair market value of Common Stock on the date of grant. The Initial
Grants vest in 20% increments on each of the first through fifth anniversary
dates of such person's election as a director and expire ten years after grant.
Annual Grants vest one year after grant and expire five years after grant. All
such options granted to an Outside Director are also exercisable in full in the
event of the termination of such Outside Director's service because of death,
total and permanent disability or voluntary retirement at or after age 65, or a
change in control with respect to the Company.
Compensation of Executive Officers
The following table sets forth the cash and non-cash compensation awarded
to, earned by or paid to the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company for services rendered
in all capacities to the Company and its subsidiaries during the last fiscal
year.
Summary Compensation Table
Long-Term Compensation
Annual Compensation ------------------------------------------
------------------------- Awards Payouts
------ -------
Securities Long-term
Underlying Incentive Plan All Other
Name Year Salary Bonus(1) Options Payouts(2) Compensation(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 1997 $212,500 $137,856 30,000 $292,152 $ 14,712
President and Chief 1996 202,500 146,250 27,500 369,869 21,788
Executive Officer 1995 193,750 133,760 0 315,008 18,920
John D. Woldrich 1997 $202,500 $110,285 27,500 $218,591 $ 14,709
Executive Vice 1996 195,000 117,000 25,000 266,460 21,260
President and Chief 1995 158,750 94,240 0 233,773 18,852
Operating Officer
Patrick G. Culhane 1997 $191,250 $ 98,298 25,000 $ 79,427 $ 14,742
Executive Vice 1996 180,000 111,150 20,000 73,680 17,973
President 1995 134,375 199,366 20,000 65,532 15,658
H. Robert Heller 1997 $180,000 $ 91,105 50,000 $ 2,644 $ 3,553
Executive Vice 1996 15,000 9,263 50,000 0 0
President 1995 0 0 0 0 0
Barrett B. Roach 1997 $168,250 $ 56,821 15,000 $140,809 $ 14,697
Executive Vice 1996 161,000 66,690 15,000 113,894 17,365
President 1995 153,750 65,056 20,000 67,136 14,651
<FN>
(1) Represents the portion of amounts accrued under the Company's Officers'
Incentive Plan which is paid in cash shortly after the end of the
fiscal year in which earned, and amounts paid shortly after year-end
under other incentive plans. See description under "Compensation
Committee Report on Executive Compensation; Incentive Compensation
Plans" below.
9
(2) Payments under the Company's Officers' Incentive Plan for shares of
"phantom stock" awarded in prior years. See description under
"Compensation Committee Report on Executive Compensation; Incentive
Compensation Plans" below.
(3) Represents the value of employer contributions to the Company's 401(k)
Plans, employer contributions to the Company's Supplemental Retirement
and Savings Plan, and employer contributions and other allocations to
the Company's Employee Stock Ownership Plan. For fiscal 1997, employer
401(k) contributions were $2,469, $2,466, $2,499, $1,169 and $2,454 for
Messrs. Rosenberger, Woldrich, Culhane, Heller and Roach, respectively;
the value of ESOP contributions and allocations were $4,743 for each of
Messrs. Rosenberger, Woldrich, Culhane and Roach, (no ESOP contribution
was allocated to Mr. Heller); and the value of Company contributions to
the Supplemental Retirement and Savings Plan was $7,500 for each of
Messrs. Rosenberger, Woldrich, Culhane and Roach, and $2,384 for Mr.
Heller.
</FN>
Option/SAR Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------
Potential Realizable Value
Number of % of Total at Assumed Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to for Option Term(3)
Options Employees Exercise Price Expiration -----------------------------
Name Granted in Fiscal Year per share Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 30,0001 5.2% $ 38.25 3/10/07 $ 721,657 $1,828,819
John D. Woldrich 27,5001 4.7% $ 38.25 3/10/07 $ 661,519 $1,676,418
Patrick G. Culhane 25,0001 4.3% $ 38.25 3/10/07 $ 601,380 $1,524,016
H. Robert Heller 50,0002 8.6% $ 35.75 10/14/06 $1,124,149 $2,848,815
Barrett B. Roach 15,0001 2.6% $ 38.25 3/10/07 $ 360,828 $ 914,410
<FN>
(1) Granted at fair market value and exercisable in full on March 31, 2000.
(2) Granted at fair market value and exercisable in full on October 14,
2001.
(3) Assuming 5% and 10% compounded annual appreciation of the stock price
over the terms of the option, the price of a share of Common Stock
would be $62.31 and $99.21, respectively, on March 10, 2007 and $58.23
and $92.73, respectively on October 14, 2006.
</FN>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Shares Options at FY-End Money Options at FY-End(2)
Acquired Value ----------------- ------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 0 $ 0 0 57,500 $ 0 $554,687
John D. Woldrich 0 $ 0 0 52,500 $ 0 $505,625
Patrick G. Culhane 7,540 $168,708 12,460 65,000 $386,260 $921,250
H. Robert Heller 0 $ 0 26,000 90,000 $517,125 $595,000
Barrett B. Roach 12,460 $271,037 7,540 50,000 $233,740 $793,125
<FN>
(1) Equal to the market value of the Company's Common Stock on the date the
options were exercised, less the exercise price.
(2) Based on the closing prices of the Company's Common Stock as reported
by the New York Stock Exchange for September 30, 1997 ($44.25), less
the exercise price.
</FN>
Long-Term Incentive Plans--Awards in Last Fiscal Year
10
Number of Period Until
Name Shares(1) Payout(2)
- --------------------------------------------------------------------------------
Larry E. Rosenberger 3,115 4 Years
John D. Woldrich 2,492 4 Years
Patrick G. Culhane 2,221 4 Years
H. Robert Heller 2,058 4 Years
Barrett B. Roach 1,284 4 Years
(1) Shares of "phantom stock" awarded for fiscal 1997 pursuant to the
Company's Officers' Incentive Plan. The number of shares is equal to
half of the officer's total incentive award for fiscal 1997 divided by
the closing price of the stock on the award date ($44.25 at September
30, 1997). See the description under "Compensation Committee Report on
Executive Compensation; Incentive Compensation Plans" below. Shares of
phantom stock are converted into cash at the payout dates at the
closing price for the Company's Common Stock on the payout date.
(2) The shares of phantom stock will be converted to cash in 25 percent
increments as of September 30 in each of the four years following the
fiscal year for which they were accrued provided the recipient is still
employed by the Company.
Pension Plan
Employees of the Company (not including those of its subsidiary, DynaMark,
Inc.), including officers and directors who are employees, participate in the
Fair Isaac Pension Plan (the "Pension Plan") after completing one year of
service. Subject to certain age and service requirements, participants in the
Pension Plan accrue a right to a retirement income payable monthly for life. The
annual benefit is equal to 0.60% of "Final Average Compensation" up to $15,000
plus 1.20% of Final Average Compensation in excess of $15,000, multiplied by
years of service up to a maximum of 35 years. "Final Average Compensation" means
the highest average compensation for five consecutive years during the last ten
years of employment. Compensation includes all amounts paid for services. If
benefit payments commence between age 55 (the earliest permissible age) and age
65, the amount is actuarially discounted; if benefits commence after age 65, the
amount is actuarially increased. The Pension Plan also provides various forms of
survivor benefits for a participant's beneficiary and for optional forms of
payment with equal actuarial value, including a lump sum.
The following table illustrates the estimated annual benefits payable upon
retirement to an employee in the specified compensation and years of credited
service classifications shown, assuming that the benefits commence at age 65 and
are payable in the normal form. These calculations are straight-life annuity
amounts based on current plan formulae and are not reduced by any Social
Security offsets.
Years of Credited Service
-----------------------------------------------------------------------
Final Average
Compensation 15 20 25 30 35 40
-------- --------- --------- --------- --------- ------
$150,000 $25,650 $34,200 $42,750 $51,300 $59,850 64,350
11
$175,000 30,150 40,200 50,250 60,300 70,350 75,600
$200,000 34,650 46,200 57,750 69,300 80,850 86,850
$225,000 39,150 52,200 65,250 78,300 91,350 98,100
$250,000 43,650 58,200 72,750 87,300 101,850 109,350
$275,000 48,150 64,200 80,250 96,300 112,350 120,600
$300,000 52,650 70,200 87,750 105,300 122,850 131,850
The number of years of service credited to each of the named executives as
of September 30, 1997 was as follows: Mr. Rosenberger, 22 years; Mr. Woldrich,
24 years; Mr. Culhane, 11 years; Mr. Heller, 1 year and Mr. Roach, 4 years.
The benefits shown in the foregoing table are based on the current formula
applied to all credited service. "Grandfather" provisions related to the prior
formula may result in larger benefits attributable to service credited prior to
1995. The Internal Revenue Code limits the amount of compensation which may be
taken into account for purposes of determining benefits from a tax-qualified
plan (such as the Fair Isaac Pension Plan). The current limit is $160,000.
Current law provides that this limit will increase with increases in the
Consumer Price Index.
Director Consulting Arrangements
The Company has an agreement with Dr. Oliver under which he has agreed to
make himself available to the Company approximately 1,000 hours per year at the
rate of $100,000 per year for so long as he remains Chairman of the Company's
Board of Directors. The term of the agreement began January 1, 1996 and
continues indefinitely until terminated.
Compensation Committee Interlocks and Insider Participation
A. George Battle, Bryant J. Brooks and Guy R. Henshaw served as the members
of the Company's Compensation Committee for the fiscal year ended September 30,
1997. Messrs. Battle, Brooks, and Henshaw are non-employee Directors of the
Company and had no other relationship with the Company for the fiscal year ended
September 30, 1997. None of the Executive Officers of the Company had any
"interlock" relationships to report during the fiscal year ended September 30,
1997.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is composed entirely
of directors who are not employees of the Company. The Committee determines all
aspects of the compensation of the Company's executive officers, and also
administers the Company's 1992 Long-term Incentive Plan under which grants of
stock options or restricted stock may be awarded to any employee.
The compensation of David M. LaCross, the President of the Company's Risk
Management Technologies subsidiary, is determined in accordance with the terms
of an employment agreement entered into with Mr. LaCross in connection with the
12
Company's acquisition of Risk Management Technologies in July 1997 and thus was
not reviewed by the Compensation Committee.
The primary objectives of the Company's executive compensation program are
to provide a level of compensation that will attract and retain well qualified
executives, to structure their compensation packages so that a significant
portion is tied to achieving targets for revenue growth and operating margin,
and to align their interests with those of the Company's stockholders through
the use of stock-based compensation.
The Company's executive compensation program consists of three main
components: annual base salary, participation in the Company's Officers'
Incentive Plan, and the opportunity to receive awards of stock options or
restricted stock. The executive officers are eligible for the same benefits
available generally to the Company's employees, including group health and life
insurance and participation in the Company's pension, employee stock ownership
and 401(k) plans. The Company also maintains a Supplemental Retirement and
Savings Plan for the benefit of certain highly compensated employees, including
most executive officers.
Annual Base Salary
The Compensation Committee determines the annual base salary of each of the
Company's executive officers, including the Chief Executive Officer. The same
principles are applied in setting the salaries of all officers to ensure that
salaries are equitably established. Salaries are determined annually by
considering the officer's duties and responsibilities within the Company and
business unit, the officer's ability to impact the operations and profitability
of the Company, and the officer's experience and past performance.
Officer Incentive Plan
Substantially all of the Company's employees participate in incentive plans
based on the Company's performance with respect to goals for revenue growth and
operating margin set by the Board of Directors for each fiscal year. An
incentive compensation target amount is determined for each participant at the
beginning of the fiscal year. The ratio of incentive plan target to base salary
increases with the level of the employee's responsibilities and ranges from four
percent for non-exempt employees to more than 50 percent for the Chief Executive
Officer. The Compensation Committee sets the incentive compensation targets for
each of the executive officers. Compensation increases for executive officers in
recent years have primarily resulted from increases in incentive plan targets,
reflecting the Committee's emphasis on performance-based pay. After the
conclusion of the fiscal year, the target amount for each participant is
multiplied by a factor based on the Company's actual performance with respect to
the revenue growth and operating margin goals previously established by the
Board to establish his or her incentive award for the year. Through fiscal 1997,
revenue growth and operating margins
13
were equally weighted in determining incentive awards. For 1998, operating
margin will receive three times the weight given to revenue growth. Awards can
range from zero to three times the target amount.
All officers receive 50 percent of their incentive awards in cash shortly
after the end of the fiscal year. The remaining 50 percent is paid in the form
of shares of "phantom stock" based on the market price of the Company's Common
Stock at the end of the fiscal year. Those shares of phantom stock are converted
to cash payments, in 25 percent increments, at the end of each of the succeeding
four fiscal years (assuming the officer remains employed by the Company), based
on the market price of the Company's stock at the end of each of those years.
Options and Restricted Stock
The Committee may award options to purchase the Company's Common Stock or
shares of restricted stock to any employee, including the executive officers,
under the Company's 1992 Long-term Incentive Plan. The exercise price for all
options granted under this Plan must be at least equal to the fair market value
of the shares on the date of grant. In addition to the level of responsibility
and performance of the recipient, the Committee takes previous grants of options
and restricted stock into consideration in making such awards. Awards of options
were made to Messrs. Rosenberger, Woldrich, Culhane, Heller and Roach in fiscal
1997 and are reflected in the table entitled Option/SAR Grants in Last Fiscal
Year.
Limits on Tax-Deductible Compensation
The Committee believes that it is highly unlikely that the combination of
base salary, Officer Incentive Plan cash awards, and payments for shares of
phantom stock for any executive officer would exceed $1 million in any year and
currently has no plans to amend the officers' incentive plan to ensure
deductibility for federal tax purposes of any "excess" amounts. The Committee
believes that the 1992 Long-term Incentive Plan meets the rules currently in
effect so that compensation arising from the exercise of options granted under
that plan will be deductible by the Company. The Committee believes it is highly
unlikely that any combination of grants of restricted stock that will be awarded
under that plan and other compensation will exceed $1 million for a single
individual in any given year.
CEO Compensation
The amounts of Mr. Rosenberger's base salary and incentive plan target are
established by the Compensation Committee using the criteria discussed above.
Mr. Rosenberger's base salary for fiscal 1997 was $212,500, compared with a base
salary of $202,500 for fiscal 1996. His incentive plan target for fiscal 1997
was $143,750 which represented an increase of $22,500 over 1996. Because the
Company's revenue growth of 28 percent and operating margin of 18.9 percent
substantially exceeded the
14
goals set by the Board for 1997, Mr. Rosenberger's total incentive award for the
year was $275,712. Of that amount, 50 percent was paid in cash shortly after the
end of the year and is shown in the Summary Compensation Table under the column
captioned "Annual Compensation; Bonus." The remainder was awarded in the form of
shares of "phantom stock" as explained above which will become payable in 25
percent increments after each of the four years ending September 30, 1998
through 2001, based on the stock price on those dates. Amounts shown under the
caption "Long-term Incentive Plan Payouts" reflect payments for phantom shares
awarded in prior years.
A. George Battle
Bryant J. Brooks
Guy R. Henshaw
Performance Graph
In accordance with SEC rules, the following table shows a line-graph
presentation comparing cumulative five-year stockholder returns on an indexed
basis with a broad equity market index and either a nationally recognized
industry standard or an index of peer companies selected by the Company. The
Company has selected the Center for Research in Security Prices ("CRSP") Total
Return Index for the S&P 500 Stocks for the broad equity index, and a
self-determined group of peer companies.
The peer group consists of Acxiom Corporation; American Management Systems,
Inc.; Barra, Inc.; Broderbund Software, Inc.; Hogan Systems, Inc.; HNC Software
Inc.; and Inference Corporation. The Company does not believe there are any
publicly traded companies which compete with the Company across the full
spectrum of its product and service offerings. The companies in the peer group
represent a variety of information and decision service providers and software
developers which are in the same order of magnitude as the Company in revenue
and market capitalization. Barra and Broderbund are headquartered near the
Company's headquarters and compete with the Company for available technical
staff.
Comparison of Five Year Cumulative Return
CRSP Index Self-determined
Measurement Period Fair, Isaac and Company, for S&P 500 Peer Group
(Fiscal year covered) Incorporated Stocks Index
- --------------------------------------------------------------------------------
9/92 100 100 100
9/93 169.8 112.9 131.0
9/94 292.7 117.1 159.6
9/95 481.0 152.2 348.0
9/96 644.2 183.3 379.0
9/97 737.2 257.9 344.4
15
The returns shown assume $100 invested on September 30, 1992 in the
Company's stock, the CRSP Index for the S&P 500 Stocks (U.S. Companies) and the
peer group index, with reinvestment of dividends. The reported dates are the
last trading dates of the Company's fiscal year which ends on September 30.
Proposals to Amend the Fair, Isaac and Company, Incorporated Long-term Incentive
Plan
The 1992 Long-term Incentive Plan ("Plan") was originally adopted by the
Company's Board of Directors on November 23, 1992, and approved by the Company's
stockholders at the annual meeting held on February 2, 1993. Certain amendments
to the Plan were adopted by the Board on November 21, 1995, and approved by the
stockholders at the annual meeting held on February 6, 1996. An additional
amendment to the Plan to permit certain gifts of non-qualified stock options
("NSO's") was adopted by the Board on December 23, 1996. This amendment did not
require stockholder approval.
On November 25, 1997, the Board of Directors unanimously adopted the
following amendments to the Plan subject to stockholder approval:
(a) to provide that the number of restricted shares, stock units and
options available for grant under the Plan shall be increased
each fiscal year (beginning with the fiscal year ending September
30, 1998) by a number equal to four percent of the number of
shares of the Company's Common Stock outstanding on the last day
of the preceding fiscal year; provided that the number of shares
available for grants of incentive stock options ("ISOs") for the
remaining term of the Plan shall not exceed 1,500,000 shares; and
(b) to extend the date until which ISOs may be granted under the Plan
to November 24, 2007.
The Board of Directors recommends approval of the foregoing amendments to
the Plan. The affirmative vote of a majority of the shares present and entitled
to vote is required for approval. These amendments will be effective upon
approval by the stockholders. The following description of the Plan is a summary
only. Any stockholder who wishes to review the text of the Plan can obtain a
copy by writing to the Company, Attention: Investor Relations.
Overview of the 1992 Incentive Plan
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by attracting and retaining eligible
individuals with exceptional qualifications, by encouraging such individuals to
focus on long-range objectives, and by linking participants directly to
stockholder interests through increased stock ownership. While all awards since
February 2, 1993 have been made
16
under the Plan, awards made under prior plans will continue to be administered
in accordance with those plans.
The Plan provides for awards in the form of restricted shares, stock units
or options which may be granted in tandem with stock appreciation rights
("SARs"), or any combination thereof. No payment is required upon receipt of an
award, except that a recipient of newly issued restricted shares must pay at
least the par value of such restricted shares to the Company. The Plan requires
that the exercise price of any option granted under the Plan be at least equal
to the fair market value of the Company's Common Stock on the date of grant. As
of December 18, 1997, the fair market value of the Company's stock (defined by
the Plan as the closing price of the Company's Common Stock as reported by the
New York Stock Exchange) was $30.875 per share.
Administration and Eligibility
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee selects the individuals who will
receive awards, determines the size of any award and establishes any vesting or
other conditions. Employees and non-employee directors of the Company (or any
subsidiary of the Company) are eligible to participate in the Plan, although
incentive stock options ("ISOs") may be granted only to employees. The
participation of non-employee Directors of the Company is limited to grants of
non-qualified stock options, as described below. There are currently five
non-employee directors and approximately 1,280 employees who are eligible to
participate in the Plan.
The Committee has full discretion to determine the size and condition of
any award granted under the Plan, subject to an annual limitation on the total
number of options that may be granted to any individual in any fiscal year.
Therefore, the awards that will be received by each of the officers named in the
Summary Compensation Table above, the executive officers as a group and all
other employees under the amended Plan are not presently determinable. Details
with respect to Plan awards granted during the last three years to such named
officers are presented above in the Summary Compensation Table.
Shares Subject to the Incentive Plan
The total number of restricted shares, stock units and options (which may
be granted in combination with SARs) currently available for grant under the
Plan is only 243,159 shares. There are options for a total of 1,297,110 shares
outstanding, of which 313,100 are currently exercisable and 984,010 are not yet
exercisable. Of those currently exercisable, options for 142,060 shares were
granted under prior plans. However, those options, as well as those granted
under the Plan, would become available for new awards under the Plan if they are
forfeited or otherwise terminate prior to exercise. In addition, 9,033 shares of
restricted stock, issued under the Plan, have not yet vested. If such shares are
forfeited prior to vesting, these shares would also again become available for
grant under the Plan. If all options currently outstanding are forfeited or
otherwise terminate prior to exercise, and all shares of outstanding restricted
stock are forfeited prior to vesting, 1,306,143 shares would be available for
grant under the Plan.
The proposed amendments provide that the number of shares available for
grant be increased in each fiscal year by a number equal to four percent of the
number of shares of the Company's Common Stock outstanding on the last day of
the preceding fiscal year. On September 30, 1997, the close of the last fiscal
year, there were 13,462,268 shares of Common Stock outstanding. Thus, if the
amendments to
17
the Plan are approved, an additional 538,490 shares would become available for
grant under the Plan in the Company's 1998 fiscal year. Shares not granted would
remain available for grants in future years. However, by law, the number of
ISO's that can be granted under the Plan must be limited to a specified number.
Accordingly, the proposed amendments provide that the number of shares that
would be available for grants of ISOs during the remaining term of the Plan
would be limited to 1,500,000 shares unless a greater number is subsequently
approved by the stockholders.
The Board believes that stock-based compensation--particularly stock
options--is a valuable component of compensation for executives and outside
directors in that it serves to align the interests of directors and management
with those of the stockholders. In addition, the ability to grant options is an
increasingly essential factor in allowing the Company to be competitive in the
recruiting and retaining key technical and management employees. The Company
recently commissioned a study comparing its use of stock-based compensation,
primarily options, to the practices of other high-tech companies with which it
competes for technical and managerial talent. That study showed that during the
past three years, such California high-tech companies made net option grants
(shares granted less shares forfeited) averaging 4.2 percent of shares
outstanding while the Company's grants during the same period averaged only 2.0
percent of shares outstanding. That study also revealed that such other
companies generally grant options to a greater percentage of employees than has
been the Company's usual practice.
Only 243,159 shares are currently available for grant under the Plan, or
less than 1.8 percent of the Company's currently outstanding shares. This amount
is not sufficient to cover grants at the same levels as in recent years to
existing employees and expected new-hires. In addition, the Company would like
to extend option grants to a greater percentage of its employees than it has
done in the past. Accordingly, the Board recommends a vote FOR approval of the
proposed amendments to the Plan so that the Company will have a sufficient
number of shares available for option grants in order to remain competitive in
recruiting and retaining the key employees required to support future growth.
Terms of Awards
Restricted shares are shares of Common Stock that are subject to forfeiture
in the event that the applicable vesting conditions are not satisfied.
Restricted shares are nontransferable prior to vesting (except for certain
transfers to a trustee). Restricted shares have the same voting and dividend
rights as other shares of Common Stock.
A stock unit represents the equivalent of one share of Common Stock and is
nontransferable prior to the holder's death (except for certain transfers to a
trustee). Vested stock units will be settled at the time determined by the
Committee in the form of cash, Common Stock or a combination thereof. A holder
of stock units has no voting rights or other privileges as a stockholder but is
entitled to receive dividend equivalents on his or her units equal to the amount
of dividends paid on
18
the same number of shares of Common Stock. Dividend equivalents may be converted
into additional stock units or settled in the form of cash, Common Stock or a
combination thereof. If the time of settlement is deferred, interest or
additional dividend equivalents may be credited on the deferred payment.
Options may include non-qualified stock options ("NSOs") as well as
ISOs intended to qualify for special tax treatment. The exercise price of any
option under the 1992 Incentive Plan must be equal to or greater than the fair
market value of the Common Stock on the date of grant. Both NSOs and ISOs may be
granted in combination with SARs, or SARs may be added to outstanding NSOs at
any time after the grant. A SAR permits the participant to elect to receive any
appreciation in the value of the optioned stock directly from the Company, in
shares of Common Stock or cash or a combination thereof, in lieu of exercising
the option. The Committee has discretion to determine the form in which such
payment will be made. The amount payable upon exercise of a SAR is measured by
the difference between the market value of the optioned stock at exercise and
the option exercise price. Generally, SARs may be exercised at any time after
the underlying NSO or ISO vests. Upon exercise of a SAR, the corresponding
portion of the related option must be surrendered and cannot thereafter be
exercised. Conversely, upon exercise of an option to which a SAR is attached,
the SAR may no longer be exercised to the extent that the corresponding option
has been exercised. The term of an ISO cannot exceed ten years. ISOs and SARs
are nontransferable prior to the optionee's death; NSOs may be transferred to
family members (including certain trusts) of the optionee.
The exercise price of an option may be paid in any lawful form permitted by
the Committee, including (without limitation) the surrender of shares of Common
Stock or restricted shares already owned by the optionee. The 1992 Incentive
Plan also allows the optionee to pay the exercise price of an option by giving
"exercise/sale" or "exercise/pledge" directions. If exercise/sale directions are
given, a number of option shares sufficient to pay the exercise price and any
withholding taxes is issued directly to a securities broker approved by the
Company who, in turn, sells these shares in the open market. The broker remits
to the Company the proceeds from the sale of these shares, and the optionee
receives the remaining option shares. If exercise/pledge directions are given,
the option shares are issued directly to a securities broker or other lender
approved by the Company. The broker or other lender will hold the shares as
security and will extend credit for up to 50% of their market value. The loan
proceeds will be paid to the Company to the extent necessary to pay the exercise
price and any withholding taxes. Any excess loan proceeds may be paid to the
optionee. If the loan proceeds are insufficient to cover the exercise price and
withholding taxes, the optionee will be required to pay the deficiency to the
Company at the time of exercise. The Committee may also permit optionees to
satisfy their withholding tax obligation upon exercise of a NSO by surrendering
a portion of their option shares to the Company. The recipient of restricted
shares or stock units may pay all projected withholding taxes relating to the
award with Common Stock rather than cash.
19
As noted above, the Committee determines the number of restricted shares,
stock units or options (and any related SARs) to be included in the award as
well as the vesting and other conditions. The vesting conditions may be based on
the recipient's service, his or her individual performance, the Company's
performance or other appropriate criteria. In general, the vesting conditions
will be based on the recipient's service. Vesting may be accelerated in the
event of the recipient's death, disability or retirement or in the event of a
change in control of the Company. Moreover, the Committee may determine that
outstanding options and any related SARs will become fully vested if it has
concluded that there is a reasonable possibility of a change in control within
six months thereafter.
For purposes of the 1992 Incentive Plan, the term "change in control" means
(1) that any person is or becomes the beneficial owner, directly or indirectly,
of at least 50% of the combined voting power of the Company's outstanding
securities, except by reason of a repurchase by the Company of its own
securities, or (2) that a change in the composition of the Board of Directors
occurs as a result of which fewer than one-half of the incumbent directors are
directors who either had been directors of the Company 24 months prior to such
change or were elected or nominated for election to the Board of Directors with
the approval of at least a majority of the directors who have been directors of
the Company 24 months prior to such change and who were still in office at the
time of the election or nomination.
Limit on Individual Awards
The Plan limits the number of options that may be granted to any individual
in any fiscal year to 50,000 shares. Under Section 162(m) of the Internal
Revenue Code, the Company may not claim a deduction for tax purposes for
compensation paid to the Chief Executive Officer and the four other most highly
compensated executive officers in excess of $1 million per person per fiscal
year. However, compensation arising out of the exercise of NSOs is deductible by
the Company without limit if certain conditions are met including approval by
stockholders of the material provisions of the plan (including the number of
shares available for grant), administration by a committee composed entirely of
outside directors, and a limit on the size of grants to any individual. The
Board believes that options granted under the Company's 1992 Long-term Incentive
Plan meet all of these conditions.
20
Non-Employee Directors
The Plan provides for (a) a grant of options for 10,000 shares to each
person who becomes an "Outside Director" on or after February 6, 1996 (the
"Initial Grant") and (b) a grant of options for 1,000 shares to each "Outside
Director" on the date of the annual meeting of stockholders provided such person
has been an "Outside Director" since the prior annual meeting (the "Annual
Grants"). Initial Grants vest in 20 percent increments on each of the first
through fifth anniversary dates of such person becoming an Outside Director and
expire ten years after grant. Annual Grants vest one year after grant and expire
five years after grant. An "Outside Director" is defined by the Plan as "a
member of the Board who is not a common-law employee of the Company or of a
Subsidiary [of the Company]." The Plan further provides that the exercise price
of all options so granted to Outside Directors shall be equal to 100 percent of
the fair market value of the Company's Common Stock on the date of grant. The
proposed amendments would not affect grants of options to Outside Directors.
Federal Income Tax Consequences of Options
Neither the optionee nor the Company will incur any federal tax
consequences as a result of the grant of an option. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Company will receive no deduction when an ISO is exercised.
Upon exercising a NSO, the optionee generally must recognize ordinary income
equal to the "spread" between the exercise price and the fair market value of
Common Stock on the date of exercise; the Company will be entitled to a
deduction for the same amount. In the case of an employee, the option spread at
the time a NSO is exercised is subject to income tax withholding, but the
optionee generally may elect to satisfy the withholding tax obligation by having
shares of Common Stock withheld from those purchased under the NSO. The tax
treatment of a disposition of option shares depends on how long the shares have
been held and on whether such shares were acquired by exercising an ISO or a
NSO. The Company will not be entitled to a deduction in connection with a
disposition of option shares, except in the case of a disposition of shares
acquired under an ISO before the applicable ISO holding period has been
satisfied. Awards under the 1992 Incentive Plan may provide that if any payment
(or transfer) by the Company to a recipient would be nondeductible by the
Company for federal income tax purposes, then the aggregate present value of all
such payments (or transfers) will be reduced to an amount which maximizes such
value without causing any such payment (or transfer) to be nondeductible.
Amendment and Adjustment of Grants
The Committee is authorized, within the provisions of the 1992 Incentive
Plan, to amend the terms of outstanding restricted shares or stock units, to
modify or extend outstanding options or to exchange new options for outstanding
options, including outstanding options with a higher exercise price than the new
options.
21
However, the Company has never "repriced" options previously granted. The 1992
Incentive Plan provides for appropriate adjustments in the number of shares
available for future awards as well as the exercise price of and the number of
shares covered by outstanding options in the event of a reclassification, stock
split, combination of shares, stock dividend, extraordinary cash dividend or
other recapitalization of the Company. In the event of a merger, awards will be
subject to the agreement of merger or reorganization.
Amendment and Termination of Plan
The Board of Directors may amend the 1992 Incentive Plan at any time and in
any respect, subject to stockholder approval if required by law. The 1992
Incentive Plan will remain in effect until terminated by the Board of Directors,
except that under the Plan as amended in 1995, no ISO may be granted after
November 20, 2005.
Under applicable federal regulations, ISOs may not be granted more than ten
years after the adoption of a plan which is subsequently approved by the
stockholders. The latest date for the grant of ISOs may be changed by subsequent
Board and stockholder action to a date not more than ten years after such
action. The amendments proposed by the Board of Directors would extend the date
for grants of ISOs under the Plan to November 24, 2007.
Vote Required and Effective Date
The Board of Directors recommends a vote FOR approval of the amendments to
the Company's 1992 Long-term Incentive Plan to:
(a) to provide that the number of restricted shares, stock units and
options available for grant under the Plan shall be increased
each fiscal year by a number equal to four percent of the number
of shares of the Company's Common Stock outstanding on the last
day of the preceding fiscal year; provided that the number of
shares available for grants of incentive stock options ("ISOs")
for the remaining term of the Plan shall not exceed 1,500,000
shares; and
(b) to extend the date until which Incentive Stock Options may be
granted under the Plan to November 24, 2007.
The affirmative vote of a majority of the shares present and entitled to
vote is required for approval. The amendments to the Plan will become effective
upon approval by the stockholders.
Ratification of Independent Auditors
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of KPMG Peat Marwick LLP as the Company's independent
auditors for the Company's current fiscal year ending September 30, 1998. KPMG
Peat Marwick LLP has served as the Company's independent auditors since May
1991. Representatives of KPMG Peat Marwick LLP are expected to be present at the
22
Company's Annual Meeting with the opportunity to make statements and/or respond
to appropriate questions from stockholders present at the meeting.
The Board of Directors recommends a vote FOR the ratification of KPMG Peat
Marwick LLP as the Company's independent auditors. A majority of the votes cast
is required for ratification.
Other Business
The Board of Directors does not know of any business to be presented at the
Annual Meeting other than the matters set forth above, but if other matters
properly come before the meeting it is the intention of the persons named in the
proxies to vote in accordance with their best judgment on such matters.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 ("Section 16(a)") and the
rules of the Securities and Exchange Commission (the "Commission") thereunder
require the Company's directors, executive officers and persons who own more
than ten percent of the Company's Common Stock to file reports of their
ownership and changes in ownership of Common Stock with the Commission.
Personnel of the Company generally prepare these reports on the basis of
information obtained from each director, officer and greater than ten percent
owner. Based on such information, the Company believes that all reports required
by Section 16(a) to be filed by its directors, executive officers and greater
than ten percent owners during the last fiscal year were filed on time.
Submission of Proposals of Stockholders
Proposals of stockholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received at the Corporate Secretary's
Office, 120 North Redwood Drive, San Rafael, California 94903, no later than
September 1, 1998, to be considered for inclusion in the proxy statement and
form of proxy for that meeting.
By Order of the Board of Directors
Peter L. McCorkell
Senior Vice President and Secretary
Dated: December 31, 1997
23
PROXY FAIR, ISAAC AND COMPANY PROXY
INCORPORATED
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING FEBRUARY 3, 1998
The undersigned hereby appoints Robert M. Oliver, Larry E. Rosenberger
and John D. Woldrich, or any of them, as Proxies, each with the power to appoint
his substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse, all the shares of Common Stock of Fair, Isaac and
Company, Incorporated that the undersigned is entitled to vote at the Annual
Meeting of Stockholders to be held on February 3, 1998, or any postponement or
adjournment thereof.
(Continued, and to be signed on the other side)
/X/ Please mark
your votes
as in this
example
FOR WITHHHOLD
ALL FOR ALL
NOMINEES NOMINEES
1. Election of Directors BELOW BELOW
(except (except
If you wish to withhold as as
authority to vote for any indicated) indicated)
individual nominee, strike a
line through that nominee's
name in the list below: / / / /
A. George Battle, Bryant J. Brooks, Jr.,
H. Robert Heller, Guy R. Henshaw,
David S.P. Hopkins,
Robert M. Oliver, Larry E. Rosenberger,
Robert D. Sanderson and John D. Woldrich
I PLAN TO ATTEND THE MEETING / /
2. To approve amendments to the Company's 1992 Long-term Incentive Plan as
described in the accompanying proxy statement.
FOR / / AGAINST / / ABSTAIN / /
3. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the current fiscal year.
FOR / / AGAINST / / ABSTAIN / /
4. In their discretion upon such other business as may properly come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED
STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION OF DIRECTORS AND "FOR" ITEMS 2 AND 3.
(Note: Sign exactly as your name appears on this proxy card. If shares are held
jointly each holder should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If
corporation or partnership, please sign in firm name by authorized person.)
Signature(s) Dated , 1998
------------------------------------ ---------------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE PROVIDED SO THAT YOUR
SHARES MAY BE REPRESENTED AT THE MEETING. PLEASE VOTE, DATE AND PROMPTLY RETURN
THIS PROXY IN THE ENCLOSED ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE
UNITED STATES.