1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
The Continuum Company, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $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 transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- - --------------------------------------------------------------------------------
(3) Filing Party:
- - --------------------------------------------------------------------------------
(4) Date Filed:
- - --------------------------------------------------------------------------------
2
THE CONTINUUM COMPANY, INC.
******
9500 Arboretum Boulevard
Austin, Texas 78759
June 15, 1995
Dear Stockholder:
You are cordially invited to attend the 1995 Annual Meeting of
Stockholders of The Continuum Company, Inc. to be held at the Company's
Headquarters, 9500 Arboretum Boulevard, Austin, Texas, at 10:00 a.m., local
time, on July 26, 1995. We look forward to greeting you personally.
We hope you are able to join us at this year's meeting. However,
whether or not you are able to personally attend, please take a moment to sign,
date and return your Proxy in the enclosed envelope. No postage will be
necessary if you mail the enclosed envelope within the United States.
Returning the Proxy will not limit your right to vote in person or to attend
the meeting, but will ensure your representation if you cannot attend. Your
vote is important to us, regardless of the number of shares you own.
Thank you for your continued interest in our Company.
Very truly yours,
Ronald C. Carroll
Chairman of the Board
W. Michael Long
Chief Executive Officer
3
THE CONTINUUM COMPANY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 26, 1995
To the Stockholders of The Continuum Company, Inc.:
The 1995 Annual Meeting of Stockholders of The Continuum Company, Inc. will
be held at the Company's Headquarters, 9500 Arboretum Boulevard, Austin, Texas,
at 10:00 a.m., local time, on July 26, 1995, for the following purposes:
1. To elect a Board of Directors to serve for the ensuing year or
until their successors are duly elected and qualified;
2. To approve the adoption of the 1995 Directors' Stock Option
Plan; and
3. To transact any other business that may properly come before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business on May 26, 1995, are
entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
John L. Westermann III
Secretary
Austin, Texas
June 15, 1995
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. PLEASE COMPLETE, SIGN, AND MAIL THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE EVEN IF YOU INTEND TO BE PRESENT AT THE
MEETING. NO POSTAGE IS NEEDED IF IT IS MAILED IN THE UNITED STATES. RETURNING
THE PROXY WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON OR TO ATTEND THE MEETING,
BUT WILL ENSURE YOUR REPRESENTATION IF YOU CANNOT ATTEND. THE PROXY IS
REVOCABLE AT ANY TIME PRIOR TO ITS USE.
4
THE CONTINUUM COMPANY, INC.
9500 ARBORETUM BOULEVARD
AUSTIN, TEXAS 78759
PROXY STATEMENT
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of The
Continuum Company, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held on July 26, 1995 (the "1995 Annual Meeting"), and any
adjournment thereof. The 1995 Annual Meeting will be held at 9500 Arboretum
Boulevard, Austin, Texas. When such proxy is properly executed and returned,
the shares it represents will be voted at the meeting in accordance with the
directions noted thereon, or if no direction is indicated, they will be voted
in favor of the proposals set forth in the notice attached hereto. Abstentions
are counted as shares present in the determination of whether the shares
represented at the meeting constitute a quorum, and are counted as votes
against proposals to be acted on by the stockholders. Broker non-votes,
however, will not be considered as present at the meeting in determining the
presence of a quorum and are not counted for or against proposals to be acted
on by the stockholders. An automated system administered by the American Stock
Transfer & Trust Company, the Company's transfer agent, is used to tabulate the
votes.
This Proxy Statement and the enclosed proxy are being sent to stockholders
beginning on June 15, 1995. The Company will also supply brokers or other
persons holding stock in their names or in the names of their nominees with
such number of proxies and proxy materials as they may require for mailing to
beneficial owners, and will reimburse them for their reasonable expenses
incurred in connection therewith. In addition to solicitation by mail, certain
Directors, officers, and regular employees of the Company may solicit proxies
by telegraph, telephone, and personal interview.
The cost of the solicitation of proxies for the 1995 Annual Meeting will be
borne by the Company, including expenses in connection with the preparation and
mailing of this Proxy Statement and all papers which now accompany or may
hereafter supplement it. The costs of the solicitation, preparation, and
mailing of proxies are expected to be less than $10,000.
RIGHT TO REVOKE PROXY
Any stockholder giving the proxy enclosed with this Proxy Statement has the
power to revoke such proxy at any time prior to the exercise thereof by filing
with the Company a written revocation thereof at or prior to the 1995 Annual
Meeting, by executing a proxy bearing a later date, or by attending the Annual
Meeting and voting in person the shares of stock such stockholder is entitled
to vote. Unless the persons named in the proxy are prevented by circumstances
beyond their control from acting, the proxy will be voted at the 1995 Annual
Meeting and at any adjournment thereof in the manner specified therein, but
unless otherwise indicated, such proxy will be voted:
(1) FOR the election of the eight nominees listed under "Election
of Directors" as Directors of the Company;
(2) FOR the adoption of the Company's 1995 Directors' Stock Option
Plan; and
(3) At the discretion of the proxy holders on any matter that may
properly come before the 1995 Annual Meeting or any
adjournment thereof.
VOTING SECURITIES
At the close of business on May 26, 1995, which is the record date for the
determination of stockholders of the Company entitled to receive notice and
vote
5
at the 1995 Annual Meeting or any adjournment thereof, the Company had
outstanding 19,142,958 shares of Common Stock, $0.10 par value per share (the
"Common Stock"), exclusive of 63,934 treasury shares which will not be
considered present or entitled to vote. Each share of Common Stock is entitled
to one vote.
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the 1995
Annual Meeting, but if a quorum should not be present, the meeting may be
adjourned from time to time until a quorum is obtained.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of June 5, 1995, by (i) any person or group (as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934)
known to the Company to be the beneficial owner of more than five percent of
the outstanding Company Common Stock; (ii) all Directors and nominees; (iii)
the Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company; and (iv) all executive officers and
Directors as a group. Unless otherwise noted, each of the stockholders has
sole voting and investment power with respect to the shares beneficially owned,
other than shared rights created under joint tenancy or marital property laws
as between such persons and their spouses, if any.
PERCENT
DIRECTORS, NAMED EXECUTIVES NUMBER OF STOCK
AND 5% STOCKHOLDERS OF SHARES OUTSTANDING
----------------------------- --------- -----------
DST Systems, Inc. 5,544,553 29.0%
1055 Broadway
Kansas City, MO 64105
FMR Corp. and Edward C. Johnson 3d 1,959,700(1) 10.2%
82 Devonshire Street
Boston, MA 02109
Lowell C. Anderson -- --
Thomas G. Brown 2,000(2) *
Ronald C. Carroll 199,769 1.0%
W. Michael Long 146,936(3) *
Thomas A. McDonnell 2,000(4) *
Carl S. Quinn 7,000(5) *
Edward C. Stanton, III 600(6) *
E. Lee Walker 10,000(2) *
Neil R. Cullimore 50,121(7) *
Robert S. Maltempo 224,443 1.2%
Piers G.D. Fox 48,565 *
All Directors and executive
officers as a group (16 persons) 799,631(2-7) 4.1%
- - ------------------------------
* Represents less than 1%
(1) This information has been derived from a Schedule 13G filed with the
Securities and Exchange Commission dated December 31, 1994, and is not
within the direct knowledge of the Company. Based upon information
contained in such Schedule 13G, Fidelity Management & Research
Company, an investment advisory and subsidiary of FMR Corp., is the
beneficial owner of 1,939,300 shares of Common Stock (the Fidelity
Magellan Fund's interest amounted to 1,747,900 shares of such Common
Stock), of which FMR Corp. and its Chairman, Edward C. Johnson 3d,
share dispositive power but have no voting power. Another investment
advisory and subsidiary of FMR Corp., Fidelity Management Trust
Company, is the beneficial owner of 20,400 shares of Common Stock, of
which FMR Corp. and Edward C. Johnson 3d have dispositive power but
have no voting power. Mr. Johnson and his family form a controlling
group with respect to FMR Corp.
(2) The number stated represents options which are exercisable within 60
days.
3
6
(3) The number stated includes 130,000 shares subject to options which are
exercisable within 60 days.
(4) The number stated represents shares subject to options which are
exercisable within 60 days. The number stated excludes the shares
owned by DST Systems, Inc., of which Mr. McDonnell is President and a
Director. Mr. McDonnell disclaims beneficial ownership of any shares
of the Company owned by DST Systems, Inc.
(5) The number stated includes 5,000 shares jointly owned by Mr. Quinn's
spouse. In addition, the number stated includes 2,000 shares subject
to options which are exercisable within 60 days.
(6) The number stated includes 200 shares owned by Mr. Stanton's spouse.
(7) The number stated includes 112 shares owned by Mr. Cullimore's
immediate family and 40,009 shares subject to a security interest
described in "Certain Transactions."
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of eight
Directors. Each of the eight Directors elected at the 1995 Annual Meeting will
serve until the next Annual Meeting of Stockholders or until his successor
shall have been elected and qualified. To be elected a Director each nominee
must receive the affirmative vote of a majority of the shares represented and
entitled to be voted at the meeting, assuming a quorum is present. Unless
authority to vote for Directors is withheld in the proxy, the persons named
therein intend to vote FOR the election of the eight nominees listed. All
nominees have indicated a willingness to serve as Director if elected. Should
any nominee become unavailable for election, discretionary authority is
conferred to vote for a substitute. Management of the Company has no reason to
believe that any of the nominees will be unable or unwilling to serve if
elected to the office.
There is no family relationship between the Directors, executive officers
or persons nominated or chosen by the Board of Directors to become a Director
or executive officer.
The following table sets forth a brief description of the business
experience, including the present principal occupation of each nominee, and, if
different, such occupations during the preceding five years, and the year each
nominee first became a Director. See "Principal Stockholders" above for the
number of shares and the percentage of outstanding Common Stock beneficially
owned by each nominee.
OFFICES HELD WITH THE COMPANY DIRECTOR OF
AND BUSINESS EXPERIENCE DURING THE COMPANY
NAME THE PRECEDING FIVE YEARS(1) AGE SINCE
- - ------------------- ------------------------- --- -----------
Ronald C. Carroll Chairman of the Board of Directors
of the Company (July 1991 to
present); Chairman of the Board of
Directors and Chief Executive
Officer of the Company (to July 1991) 60 1975
Lowell C. Anderson Chairman, President and Chief Exec-
utive Officer of Allianz Life
Insurance Company of North America
(life insurance) 58 1994
Thomas G. Brown President and Chief Executive Officer
of Duncanson & Holt, Inc. (rein-
surance managers) 50 1994
4
7
OFFICES HELD WITH THE COMPANY DIRECTOR OF
AND BUSINESS EXPERIENCE DURING THE COMPANY
NAME THE PRECEDING FIVE YEARS(1) AGE SINCE
- - ------------------- ------------------------------ --- -----------
W. Michael Long Chief Executive Officer and President
of the Company (July 1991 to present);
President and Chief Operating Officer
of the Company (to July 1991) 42 1983
Thomas A. McDonnell President and Chief Executive Officer
of DST Systems, Inc. (mutual fund
administrative services); Director of
Kansas City Southern Industries, Inc.,
Puritan Bennett Corporation, Informix
Corp., BHA Group, Inc., and First of
Michigan Capital Corporation 49 1994
Carl S. Quinn General Partner of Quinn Oil Company,
Ltd. (oil) (December 1994 to present);
Chairman of the Board, Chief Executive
Officer and President of Interstate
Natural Gas Company (natural gas)
(February 1992 to December 1994);
Chairman of the Board and Chief Exec-
utive Officer of Arkla Exploration
Company (oil and gas exploration and
development) (to January 1992);
Director of Atmos Energy Corporation
and Coho Energy, Inc. 64 1994
Edward C. Stanton, III President of Cramon Corp. (private
investment corporation); General
Partner of Inwood Investors
Partnership, L.P. (private invest-
ment partnership); Managing Director
of Oppenheimer & Co., Inc. (investment
bankers) (August 1990 to March 1992) 51 1988
E. Lee Walker Private Investor (March 1990 to
present); President and Chief
Operating Officer of Dell Computer
Corporation (to March 1990); Director
of Mobile Telecommunication
Technologies Corporation 53 1989
(1) Directorships are listed for other corporations which have a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or are subject to the requirements of Section 15(d) of that Act,
and for any company registered as an investment company under the
Investment Company Act of 1940.
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended March 31, 1995, the Board of Directors held
four meetings and seven committee meetings. Each Director attended
seventy-five percent or more of the total number of meetings of the Board of
Directors and its committees of which he was a member held during the period
for which he was a Director or committee member.
The Board has no standing Executive or Nominating Committees. The Board of
Directors of the Company has a standing Compensation Committee and an Audit
Committee, both of which are comprised of all Directors who are not officers of
the Company.
The Compensation Committee approves the compensation of executive officers
and administers and makes recommendations to the Board of Directors concerning
executive and incentive compensation plans and other employee benefit plans.
The
5
8
Audit Committee's functions include recommendations concerning the engagement
of independent auditors, and reviewing with the independent auditors the plans
and results of the audit engagement. The Compensation Committee met six times
and the Audit Committee met once during the fiscal year ended March 31, 1995.
DIRECTORS' COMPENSATION
Directors who are not also employees of the Company receive $20,000 per
year as compensation for their services. Non-employee Directors also receive
$500 for each committee meeting attended in person and $250 for each Board or
committee meeting conducted by telephone.
All non-employee Directors of the Company were granted a one-time award
upon commencement of services as a Director of an option to purchase 10,000
shares of the Company's Common Stock, except for Mr. Anderson who declined the
option grant as a result of his employer's management policies. The exercise
price of the options is based on the closing price of the stock on the date of
grant. The options vest twenty percent per year for five consecutive years,
contingent on continued service as a Director of the Company.
MANAGEMENT OF THE COMPANY -- EXECUTIVE OFFICERS
Listed below are the executive officers of The Continuum Company, Inc. and
subsidiaries as of June 5, 1995. All officers serve until the next annual
election of officers or until a successor is duly elected and qualified.
NAME AGE BUSINESS EXPERIENCE -- LAST FIVE YEARS
- - -------------------- --- --------------------------------------
Ronald C. Carroll 60 Chairman of the Board (July 1991 to present); Chairman of the Board and Chief Executive
Officer (to July 1991)
W. Michael Long 42 President and Chief Executive Officer (July 1991 to present); President and Chief
Operating Officer (to July 1991)
Neil R. Cullimore 51 Executive Vice President (July 1993 to present); Chief Executive Officer of Paxus
Corporation Limited (to July 1993)
Robert S. Maltempo 54 Executive Vice President (October 1993 to present); President of Vantage Computer
Systems, Inc. (to October 1993)
Michael W. Brinsford 45 Senior Vice President (February 1994 to present); Vice President and Managing Director --
European Operations (to February 1994)
Piers G.D. Fox 50 Senior Vice President
Ronald A. Nowak 42 Senior Vice President (May 1993 to present); Vice President and Managing Director of
Continuum Australia Limited (October 1990 to May 1993); Vice President (to October 1990)
Kenneth L. Williams 49 Senior Vice President (November 1992 to present); Vice President (October 1990 to
November 1992); President of Software Marketing Associates (privately owned consulting
firm) (to October 1990)
Philip H. Small 45 Managing Director of Continuum Australia Limited (August 1993 to present); Managing
Director of Paxus Corporation Europe (to August 1993)
John L. Westermann III 49 Vice President, Secretary, Treasurer, and Chief Financial Officer
6
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
the Chief Executive Officer and each of the four other most highly compensated
executive officers (hereinafter referred to as the named executives) for each
of the fiscal years ended March 31, 1995, 1994, and 1993.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------- ----------------------
AWARDS
------
SECURITIES
OTHER UNDER- ALL
ANNUAL LYING OTHER
NAME AND COMPEN- RESTRICTED STOCK COMPEN-
PRINCIPAL SALARY BONUS SATION(1) STOCK(2) OPTIONS SATION(3)
POSITION YEAR ($) ($) ($) ($) (#) ($)
- - ------------ ---- -------- -------- ------- -------- ------- --------
W.M. Long 1995 318,750 300,000 -- -- 100,000 181,425
Chief 1994 247,917 150,000 49,172 75,000 100,000 7,959
Executive 1993 221,875 -- 70,200 156,250 50,000 7,389
Officer
R.C. Carroll 1995 195,833 150,000 -- -- 60,000 181,425
Chairman of 1994 150,000 75,000 -- -- 50,000 7,959
the Board 1993 150,000 72,060 -- -- -- 7,389
N.R. Cullimore(4) 1995 208,333 100,000 -- -- 30,000 122,613
Executive Vice 1994 126,667 100,000 98,438 175,000 60,000 --
President 1993 -- -- -- -- -- --
R.S. Maltempo(4) 1995 250,000 125,000 -- -- 30,000 122,613
Executive Vice 1994 125,000 -- 75,904 108,750 60,000 --
President 1993 -- -- -- -- -- --
P.G.D. Fox 1995 187,056 81,050 51,294 -- 27,500 103,545
Senior Vice 1994 166,334 104,895 33,836 56,250 50,000 13,307
President 1993 174,992 -- -- 93,750 -- 13,999
(1) All amounts in this column represent payments made directly to tax
authorities on behalf of each executive officer granted a restricted
stock award under the Company's 1990 Restricted Stock and Bonus Plan
in an amount substantially sufficient to offset the executive's income
tax liabilities resulting from the award, except that the amounts for
Mr. Fox include automobile expenses of $12,970 and $9,396 for the years
1995 and 1994, respectively.
(2) The restricted stock awards were made pursuant to the Company's 1990
Restricted Stock and Bonus Plan. All shares awarded are subject to a
five-year vesting period, commencing one year after grant. During the
restriction period, dividends, if any, are paid on the shares awarded.
The total number of unvested restricted stock holdings and fair market
value as of March 31, 1995, for the named executives are as follows:
UNVESTED
RESTRICTED MARCH 31, 1995
NAME SHARES VALUE
----------- ------------ --------------
Mr. Long 11,600 $345,100
Mr. Carroll 6,000 $178,500
Mr. Cullimore 8,000 $238,000
Mr. Maltempo 4,800 $142,800
Mr. Fox 8,600 $255,850
7
10
(3) The amounts reported in this column for the 1994 and 1993 years
represent contributions by the Company on behalf of the named
executives to the Company's defined contribution retirement plan. The
amounts reported in this column for the 1995 year include contributions
to the defined contribution retirement plan in the following amounts:
RETIREMENT PLAN
NAME AMOUNTS
----------- --------
Mr. Long $ 5,030
Mr. Carroll $ 5,030
Mr. Cullimore $ 5,030
Mr. Maltempo $ 5,030
Mr. Fox $ 14,965
Otherwise, the amounts in this column for the fiscal year ended March
31, 1995, represent amounts accrued to the named executives under the
deferred compensation plan, which is described under the "Compensation
Committee Report on Executive Compensation" below.
(4) Mr. Cullimore and Mr. Maltempo became executive officers of the Company
during the fiscal year ended March 31, 1994, and therefore no
compensation is reported for them in the prior fiscal year.
STOCK OPTIONS
The following table sets forth certain information with respect to stock
options granted to the named executives during the fiscal year ended March 31,
1995. Further, in accordance with Securities and Exchange Commission rules,
hypothetical gains on the respective options are shown. These gains assume
rates of annual compounded stock price appreciation of five percent and ten
percent over the full option term. The hypothetical gains to the optionees are
not possible without an increase in the market value of the Company's Common
Stock, which will likewise benefit all stockholders proportionately. In
assessing these hypothetical gains, it is important to emphasize that the
ultimate value of the options will depend on the market value of the Company's
Common Stock at a future date.
OPTION GRANTS IN LAST FISCAL YEAR
% OF
NUMBER OF TOTAL POTENTIAL
SECURITIES OPTIONS REALIZABLE VALUE AT
UNDERLYING GRANTED EXERCISE ASSUMED ANNUAL RATES
OPTIONS IN PRICE OF STOCK PRICE APPRE-
GRANTED FISCAL ($ PER EXPIRATION CIATION FOR OPTION TERM
NAME (#) YEAR (%) SHARE) DATE 5% ($) 10% ($)
- - ------------------ ---------- -------- ------ ---------- -------------------------------
All Stockholders(1) 19,143,624 -- 23.250(1) -- 279,914,243 709,357,649
Mr. Long 100,000 17.50 23.875 6/09/04(2) 1,399,680 3,642,951
Mr. Carroll 60,000 10.50 23.875 6/09/04(2) 839,808 2,185,771
Mr. Cullimore 20,000 3.50 23.250 5/17/04(2) 292,436 741,090
10,000 1.75 21.750 10/05/04(3) 161,218 385,545
Mr. Maltempo 20,000 3.50 23.250 5/17/04(2) 292,436 741,090
10,000 1.75 21.750 10/05/04(3) 161,218 385,545
Mr. Fox 20,000 3.50 23.250 5/17/04(2) 292,436 741,090
7,500 1.31 21.750 10/05/04(3) 120,914 289,159
(1) The potential realizable value for all stockholders is based on the
number of shares of Common Stock outstanding on June 5, 1995, and
assumes a per share price of $23.250, the closing price of Common Stock
on May 17, 1994, the date many of the options in this table were
granted, and assumes hypothetical gains resulting from annual
compounded stock price
8
11
appreciation of five percent and ten percent over ten years, the term
of all the options in the table. This information is included to
illustrate how the stockholders will have fared compared to the named
executives if the assumed appreciation is achieved.
(2) Subject to early vesting as discussed under "Change in Control
Provisions," options vest one-half on March 31, 1997, and one-sixth
vest on each subsequent anniversary through March 31, 2000.
(3) Subject to early vesting as discussed under "Change in Control
Provisions," options vest twenty percent per year for five consecutive
years beginning October 5, 1995.
The following table shows stock options exercised by the named executives
during the fiscal year ended March 31, 1995, including the market value of the
underlying securities at each exercise date minus the option exercise price.
In addition, this table sets forth information concerning exercisable and
unexercisable stock options as of March 31, 1995. Also reported are the values
of "in-the-money" options which represent the positive spread between the
exercise price of any such existing stock options and the Common Stock price as
of March 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT OPTIONS AT
FISCAL YEAR- FISCAL YEAR-
------------ ------------
SHARES END (#) END ($)
ACQUIRED ON VALUE ------------ ------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
--------------- ---------- -------- ------------- -------------
Mr. Long -- -- 120,000/ 2,457,500/
230,000 2,111,250
Mr. Carroll -- -- 0/ 0/
110,000 902,500
Mr. Cullimore -- -- 0/ 0/
90,000 945,000
Mr. Maltempo -- -- 0/ 0/
90,000 960,000
Mr. Fox -- -- 0/ 0/
77,500 740,000
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
establishing the salaries and other compensation of the executive officers of
the Company. The Committee is composed of the non-employee Directors and
reports to the full Board of Directors. Recommendations on the compensation
packages are provided to the Committee by the Chairman of the Board and the
Chief Executive Officer for all of the executive officers besides themselves,
along with the rationale based on performance evaluations. The Committee,
meeting several times each year, reviews the recommendations and makes the
final determination on compensation packages for executive officers.
The objective of the Compensation Committee is to maximize shareholder
value by structuring executive compensation packages to provide adequate
incentives to attract and retain individuals capable of achieving aggressive
corporate goals. Accordingly, the Committee as a general policy ensures that a
substantial portion of the executive officers' cash compensation is based on
objective performance
9
12
criteria including the Company's success in the preceding year.
At the beginning of the Company's 1995 fiscal year, the Committee
commissioned a nationally recognized consulting group to recommend compensation
practices. Additionally, the Committee reviewed the compensation practices of
comparable companies and used this information to determine the best methods to
adequately motivate executive officers to achieve outstanding performance. The
Company also participated in several market surveys of corporate executive
compensation in the information systems and software development industries,
including, among others, the AEA/Mercer Benchmark Survey and the Mercer's
Information Systems Survey. The surveys assist the Company in comparing its
compensation policies with those of other companies in the same or similar
lines of business.
The Committee has studied the potential impact on executive compensation of
the new compensation limits for deductibility under Section 162(m) of the
Internal Revenue Code of 1986, as amended. It appears that the limitation on
deductibility of compensation payments imposed by Section 162(m) will not
affect the Company adversely considering the current composition and levels of
executive compensation.
The three major components of executive compensation packages include base
salaries, incentive cash bonuses, and long-term incentives such as stock
options and deferred compensation. The Committee believes that the structure
of the packages adequately rewards executive officers for performance in the
preceding fiscal year as well as provides incentives to maximize long-term
shareholder value. Additionally, the executive officers are entitled to
participate in the Company's benefit plans that are generally available to
employees of the Company, including health and life insurance, the Company's
retirement plan, and the Employee Stock Purchase Plan.
BASE SALARIES
In setting executive officers' salaries, the Compensation Committee offers
competitive base salaries to hire and retain high quality management. The
Committee considers the responsibilities of the executives' respective
positions in addition to the executive officers' performance in the preceding
fiscal years. The determination of competitive base salaries is in part
derived from salary data for comparable executives with global software and
service companies. The Committee utilizes for comparison the practices of
several of the corporations within the Standard & Poor's Computer Software and
Services Index, the industry index presented in the stock performance graph in
this Proxy Statement.
For the last fiscal year the average salary increase for executive officers
was fourteen percent as compared to the prior year. The Committee felt the
raises were appropriate considering the substantial growth in revenues and net
operating income the Company has achieved, specifically during the last two
fiscal years, along with the accompanying increase in the executives'
responsibilities. Individual salary increases were also based on subjective
evaluations of the specific executive's personal performance and contribution
to the Company.
CASH BONUSES
At the beginning of each year the Company establishes a cash bonus
incentive plan for each of the executive officers based on objective measures
of performance expected during the then current fiscal year. The total amount
of cash available for the bonus incentive plans is dependent upon a number of
factors, including the Company's financial health, net income, cash flow, and
competitive market conditions.
The target bonus for each of the executive officers is based in large part
on corporate earnings per share targets established in advance of the fiscal
year. Two-thirds of the corporate earnings target is based on quarterly
results,
10
13
with the remainder attributed to annual earnings results. In addition, for
each executive officer responsible for a specific operating division, fifty
percent of his bonus is contingent on the attainment of predefined pre-tax
profit levels for the executive's respective division.
Generally, none of an executive's bonus will be paid unless he achieves at
least eighty percent of any specific target. Additional bonus amounts may be
awarded upon the achievement of results in excess of the targets up to a
designated maximum.
Both pre-tax profit and earnings per share growth are financial measures
focusing on shareholder value appreciation. The target levels are typically
set aggressively high to encourage outstanding performance. Moreover, the
Committee attempts to stimulate the executive's focus on Company growth by
placing a substantial percentage of the executive's total cash compensation at
risk under the bonus program.
During the fiscal year ended March 31, 1995, the corporate earnings targets
were achieved. As the stock performance graph shown below indicates, the
Company's share value exceeded that of both the Standard & Poor's 500 Stock
Index and the Smallcap 600 Index during the most recent two fiscal years. In
addition, most of the executives' operating divisions met their bonus targets.
The Committee, consequently, awarded bonus amounts to the executives
substantially in accordance with the bonus measures established at the
beginning of the 1995 fiscal year.
OPTION AWARDS
During the Company's last fiscal year, non-qualified options were granted
to all executive officers. In return for the grants, each of the executives has
executed an agreement limiting his right to compete with the Company for a
specified period after any termination of the executive's employment. The
option grants during the last fiscal year were made under the Company's 1992
Stock Option Plan and the 1994 Incentive Stock Plan.
Stock options achieve the Committee's goal of linking executives' interests
with those of the Company's stockholders. Stock options also encourage
outstanding performance by executive officers, resulting in increased share
value to all stockholders. The ultimate value of the options is entirely
dependent on the long-term growth of the Company's stock price.
The Committee grants options based on level of responsibility, rather than
individualizing the grants. The largest grants are generally given to the
upper tier of executive officers, who are considered to have the greatest
potential impact on the earnings and performance of the Company.
The exercise price of the grants during the last year was 100 percent of
the fair market value of Common Stock as of the date of grant. The options
generally vest over a period ranging from five to seven years.
DEFERRED COMPENSATION
The Company has for many years maintained a deferred compensation plan,
which is an unfunded plan administered by the Committee and limited to the
executive officers. For the last fiscal year, the Committee established a
profit sharing amount equal to twenty percent of earnings in excess of a target
earnings amount, subject to a maximum amount. "Earnings" for these purposes
are consolidated income before taxes. If target earnings are not met, the
participants receive nothing for that year.
The Committee sets high levels for profit sharing targets. For the five
fiscal years ended March 31, 1994, no amounts were awarded pursuant to the
deferred compensation plan as the set targets had not been met. For the fiscal
year ended March 31, 1995, the targets were achieved and, accordingly, the
11
14
Committee made awards under the deferred compensation plan. Under the plan,
amounts credited to the executives are paid out over a four-year period
commencing one year after the award, contingent upon continued employment with
the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee granted Mr. Long a thirty percent raise in base salary at the
beginning of the fiscal year ended March 31, 1995. A number of factors were
considered in granting such a raise. The Committee wished to ensure that Mr.
Long's salary was competitive to that of the chief executive officers of
comparable companies. In addition, Mr. Long was instrumental in the Company's
successful acquisition and integration of the businesses of Paxus Corporation
Limited, an Australian computer software and services company acquired by the
Company in August 1993, and of Vantage Computer Systems, Inc., a domestic life
insurance software and services company acquired in September 1993.
Mr. Long received a bonus of $300,000 during the last fiscal year. The
Committee determined that the bonus properly recognized Mr. Long's instrumental
contribution to the Company's success last year, including the achievement of
Company highs in terms of revenues and net income. This performance increased
shareholder value during Fiscal 1994 and 1995. As the stock performance graph
shown below indicates, the Company's share value exceeded that of both the
Standard and Poor's 500 Stock Index and the Smallcap 600 Index during the most
recent two fiscal years.
Mr. Long was granted an option for 100,000 shares during the last fiscal
year. The exercise price was the share price as of the date of grant. The
option grant is consistent with the Compensation Committee's view of linking
Mr. Long's compensation to long-term stock performance.
While in prior years Mr. Long has received a restricted stock grant in
addition to options, no restricted stock was granted during the fiscal year
ended March 31, 1995.
This Report on Executive Compensation is made by and on behalf of the
Company's Compensation Committee.
Lowell C. Anderson Thomas G. Brown
Thomas A. McDonnell Carl S. Quinn
Edward C. Stanton, III E. Lee Walker
THE FOREGOING COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND
THE FOLLOWING STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE "SOLICITING
MATERIAL" OR TO BE "FILED" WITH THE SECURITIES AND EXCHANGE COMMISSION AND
SHALL NOT BE DEEMED INCORPORATED BY REFERENCE INTO ANY FILING UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, NOTWITHSTANDING
ANY GENERAL INCORPORATION BY REFERENCE OF THIS PROXY STATEMENT INTO ANY OTHER
DOCUMENT.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock against the cumulative
total return of the Standard & Poor's 500 Stock Index, the Standard & Poor's
Smallcap 600 Index, and the Standard & Poor's Computer Software and Services
Index for the period of five fiscal years commencing April 1, 1990, and ending
March 31, 1995. The graph assumes the value of the investment in the Company's
Common Stock and each index was $100 on April 1, 1990, and all dividends were
reinvested.
Over the five year period, the Company's performance has approximated that
of the Standard & Poor's 500 and Smallcap 600 Indices. The Company's stock
performance in the most recent fiscal year exceeded that of both the Standard &
Poor's 500 and Smallcap 600 Indices.
12
15
FIVE YEAR CUMULATIVE TOTAL RETURNS
---------------------------------------------------------------
3/90 3/91 3/92 3/93 3/94 3/95
The Continuum Company, Inc 100 106 122 114 120 168
Standard & Poor's 500 100 114 127 146 149 172
Standard & Poor's SMALLCAP 600 100 101 126 148 161 169
Standard & Poor's Computer Software
and Services 100 91 118 156 175 236
CERTAIN TRANSACTIONS
Mr. Cullimore, Executive Vice President, was indebted to the Company in an
aggregate amount of approximately $554,000 during the fiscal year ended March
31, 1995. The indebtedness represents non-recourse loans made by Paxus
Corporation Limited, an entity acquired by the Company in August 1993, to Mr.
Cullimore to fund the purchase of Paxus Corporation Limited ordinary shares
under Paxus Corporation Limited's Employee Share Plan. No interest accrues on
the loans and they have no stated maturity date. Mr. Cullimore's loans are
currently secured by 40,009 shares of Common Stock held in the name of Mr.
Cullimore.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. McDonnell, a Director of the Company and a member of the Compensation
Committee, is also Chief Executive Officer of DST Systems, Inc. ("DST"). As of
June 5, 1995, DST owned twenty-nine percent of the Common Stock of the Company.
During the last fiscal year, DST provided certain services to the Company.
These services included DST's support of the Company's data processing
requirements using DST's data center in Kansas City, Missouri. DST and the
Company are also parties to a distributorship agreement which permits the
Company to market certain of DST's software products in return for a royalty to
DST. In addition, for a term ending in the year 2001, the Company leases
office space from DST in Kansas City, Missouri for a monthly lease fee of
$94,878, plus an amount for operating expenses. The amount of expense
recognized by the Company for payments to DST during the fiscal year ended
March 31, 1995, for the related transactions discussed in this paragraph was
$15,661,997.
13
16
CHANGE IN CONTROL PROVISIONS
Each of the named executives has received grants of options or restricted
stock awards. See the "Compensation Committee's Report on Executive
Compensation" above for additional information on the option awards. These
restricted stock awards and options contain provisions relating to a possible
change in control of the Company.
Each restricted stock award granted to a named executive on or before May
1, 1995, has included a vesting period whereby a portion of the restricted
stock vests over a five-year period. However, all of the restricted stock
awards immediately vest in the event the holder's employment is involuntarily
terminated after the occurrence of a change in control.
The option awards granted to the named executives also contain change in
control provisions. Such provisions provide that the options shall
automatically vest in the event the option holder's employment is terminated,
other than for cause, after a change in control of the Company.
For purposes of the restricted stock awards, as well as for purposes of the
option awards granted to the named executives during the fiscal year ended
March 31, 1995, a change in control is defined as having taken place when any
third party purchases or otherwise acquires beneficial ownership of more than
thirty percent of the Common Stock, or, as a result of a contested election of
Directors, a majority of the Board of Directors of the Company before such
election cease to be members of the Board of Directors. However, in the case
of the option grants during the last fiscal year, the required percentage of
beneficial ownership to constitute a change in control is thirty-two percent in
the event the acquiror is DST.
EXCHANGE ACT COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers, and beneficial owners of more than ten percent
of any class of equity securities of the Company to file certain forms
regarding such persons' ownership of equity securities of the Company. Based on
Company records and other information, the Company believes that its executive
officers, Directors, and ten percent shareholders timely complied with all
these filing requirements with respect to the fiscal year ended March 31, 1995.
PROPOSAL 2: APPROVAL OF ADOPTION OF THE
1995 DIRECTORS' STOCK OPTION PLAN
ADOPTION AND PURPOSE OF THE DIRECTORS' PLAN
The Board of Directors of the Company has recently adopted, subject to
approval of the stockholders at the 1995 Annual Meeting, the Company's 1995
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for the non-discretionary grant of stock options to Directors of the
Company who are not employees of the Company or any subsidiary of the Company
("Nonemployee Directors"). There are currently six Nonemployee Directors. The
Directors' Plan is intended to succeed the discontinued Directors Stock Option
Plan created during the previous fiscal year, under which the Company granted
to each of three new Directors an option to purchase 10,000 shares of Common
Stock at fair market value as of the date of the option grant.
In the opinion of the Board of Directors, the Directors' Plan will provide
a means whereby Nonemployee Directors may develop a sense of proprietorship and
personal involvement in the development and financial success of the Company,
and to encourage such Directors to remain with and devote their best efforts to
the business of the Company. Approval of the Directors' Plan requires the
affirmative vote of a majority of the shares present and entitled to vote at
the Annual Meeting. The following summary of the Directors' Plan is qualified
in its entirety by reference to the Directors' Plan itself.
14
17
DESCRIPTION OF THE DIRECTORS' PLAN
The Directors' Plan provides for the automatic grant of options to each new
Nonemployee Director elected or appointed after the 1995 Annual Meeting.
Options for 10,000 shares of Common Stock will be granted to each such
individual on the date of his or her election or appointment to serve as a
Director of the Company. In addition, each Nonemployee Director who has
continuously served on the Board for five years will receive automatically a
grant of options for 10,000 shares of Common Stock on the fifth anniversary of
his or her initial election or appointment to serve as a Director of the
Company. As two of the incumbent Nonemployee Directors have already served as
Directors for at least five continuous years, each will receive a grant of
options for 10,000 shares of Common Stock as of the date of the 1995 Annual
Meeting. Any Nonemployee Director receiving an automatic grant of options
under the Directors' Plan may refuse such grant with written notice to the
Company.
The aggregate number of shares of Common Stock that may be issued under the
Directors' Plan shall not exceed 100,000. Common Stock issued upon exercise of
options granted under the Directors' Plan may consist of authorized but
unissued shares of Common Stock or previously issued shares of Common Stock
reacquired by the Company. Should any option expire or terminate prior to its
exercise in full, the shares theretofore subject to such option may again be
subject to an option granted under the Directors' Plan. The aggregate number
of shares which may be issued under the Directors' Plan shall be subject to
adjustment in the event of any subdivision or consolidation of shares or other
capital readjustment, payment of a stock dividend, merger, consolidation, or
similar transaction affecting the Common Stock.
The Directors' Plan shall be administered by the Secretary of the Company.
As the Directors' Plan is intended to comply with the "formula award" exception
under the rules promulgated under Section 16 of the Securities Exchange Act,
the Secretary shall have no power to determine the eligibility for options, the
number of shares of Common Stock underlying options granted, or the timing,
exercise price, or vesting of options.
GRANTS UNDER THE DIRECTORS' PLAN
The purchase price of Common Stock issued under each option shall be the
fair market value of Common Stock on the date the option is granted. None of
the options granted under the Directors' Plan will be incentive stock options
as defined by the Internal Revenue Code.
Options will become exercisable in equal annual installments over a five-
year period commencing on the first anniversary of the grant date, except that
any option which has been outstanding for at least six months shall immediately
become exercisable upon the death or disability of the Nonemployee Director or
in the event of a change in control of the Company. For purposes of the
Directors' Plan, a change in control occurs when any third party purchases or
otherwise acquires beneficial ownership of more than thirty percent of the
Common Stock (alternatively, thirty-two percent ownership is required if the
acquiror is DST Systems, Inc.), or, as a result of a contested election of
directors, a majority of the Board of Directors of the Company before such
election cease to be members of the Board. Exercise of an option requires
payment of the option exercise price in cash.
No option granted under the Directors' Plan is transferable except upon the
death of the optionee. Options may be exercised while the Nonemployee Director
remains a member of the Board of Directors and for a period of one year after
ceasing to be a member of the Board by reason of death or disability or for a
period of three months after ceasing to be a member of the Board for reasons
other than death or disability. However, no option shall be exercisable more
than ten years after the date of grant.
15
18
The closing price of Common Stock on June 5, 1995 was $31.875.
FEDERAL INCOME TAX CONSEQUENCES
Neither the optionee nor the Company will bear any income tax consequences
as a result of the grant of options under the Directors' Plan. At the time of
exercise of the option, an optionee will normally recognize ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares
on the exercise date over the optionee's purchase price for the shares. The
Company generally may deduct an amount equal to the taxable income so
recognized by the optionee in the year of recognition.
MODIFICATION AND TERMINATION OF THE DIRECTORS' PLAN
The Directors' Plan shall terminate ten years from the date of stockholder
approval, unless terminated earlier by the Board. The Board of Directors may
amend, alter, or terminate the Directors' Plan, except that stockholder
approval is required for any amendment which would increase the total number of
shares of Common Stock available under the Directors' Plan, materially increase
benefits accruing to Nonemployee Directors, modify the requirements as to
eligibility for participation, or modify the provisions of the Directors' Plan
relating to the timing, amount, or exercise price of options. In addition,
provisions relating to the timing, amount, and exercise price of options
granted under the Directors' Plan may not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code or the
Employee Retirement Income Securities Act of 1974.
NEW PLAN BENEFITS
No options to purchase Common Stock were granted to any person under the
Directors' Plan prior to the 1995 Annual Meeting. The following table
identifies the incumbent Nonemployee Directors and designates the number of
shares of Common Stock underlying options that such Directors will receive in
the fiscal year ending March 31, 1996, if the Directors' Plan is approved by
the stockholders.
DOLLAR NUMBER
NAME VALUE ($) OF UNITS (#)
---- --------- ------------
Mr. Anderson -- --
Mr. Brown -- --
Mr. McDonnell -- --
Mr. Quinn -- --
Mr. Stanton --(1) 10,000
Mr. Walker --(1) 10,000
Non-Executive Director Group --(1) 20,000
(1) Options will be granted at fair market value as of the date of grant.
RECOMMENDATION AND VOTE
The affirmative vote of the holders of a majority of the shares of the
Common Stock present (whether in person or by proxy) and entitled to vote is
required for approval of the adoption of the Directors' Plan. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ADOPTION OF THE 1995
DIRECTORS' STOCK OPTION PLAN.
AUDITORS
Representatives of Ernst & Young LLP are expected to be present at the 1995
Annual Meeting, with the opportunity to make a statement if they desire to do
so and to be available to respond to appropriate questions. Ernst & Young LLP,
or its predecessor, Ernst & Whinney, has audited the Company's financial
statements beginning with the fiscal year ended March 31, 1977.
16
19
STOCKHOLDERS' PROPOSALS
FOR 1996 ANNUAL MEETING
It is anticipated that the 1996 Annual Meeting of Stockholders of the
Company will be held in July or August 1996. Stockholders who wish to submit
proposals for inclusion in the proxy statement of the Company for the 1996
Annual Meeting must submit their proposals to the Secretary of the Company no
later than March 28, 1996.
OTHER MATTERS
The Board of Directors does not know of any other matters which will be
presented for action at the meeting. However, if any other matter properly
comes before the meeting, the persons named in proxies intend to vote on it in
accordance with their best judgment.
ANNUAL REPORT
The Annual Report to Stockholders for the fiscal year ended March 31, 1995,
which includes the Company's financial statements, is being mailed along with
this Proxy Statement. The financial statements contained therein are not
deemed material to the exercise of prudent judgment in regard to any matter to
be acted upon at the Annual Meeting and, therefore, such financial statements
are not incorporated by reference herein.
AVAILABILITY OF FORM 10-K
The Company will provide, without charge, a copy of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995, upon written
request addressed to: John L. Westermann III, The Continuum Company, Inc., 9500
Arboretum Boulevard, Austin, Texas 78759. The exhibits to the Form 10-K are
available upon payment of charges which approximate the Company's cost of
reproduction.
SOURCES OF INFORMATION
The information contained in this Proxy Statement relating to the principal
occupations and security holdings of Directors, nominees for election as
Directors of the Company, and executive officers and their transactions with
the Company is based upon information received from the individual Directors,
nominees, and executives.
17
20
PROXY
THE CONTINUUM COMPANY, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS - JULY 26, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby makes, constitutes and appoints Ronald C. Carroll, W.
Michael Long and John L. Westermann III, and each of them, to be his true and
lawful agent and attorney-in-fact, with full power of substitution, to vote all
of the shares of Common Stock registered in the undersigned name on the books
of The Continuum Company, Inc. (the "Company") at the Annual Meeting of
Stockholders of the Company to be held on the 26th day of July, 1995, at 10:00
a.m., Austin, Texas time, at the Company's headquarters, 9500 Arboretum
Boulevard, Austin, Texas, and at any and all adjournments thereof with all the
powers the undersigned would possess if personally present and participating,
without limiting the foregoing, to vote as follows:
1. Election of Directors
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to
(except as marked to the contrary vote for all nominees
below) listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Lowell C. Anderson, Thomas G. Brown, Ronald C. Carroll, W. Michael Long,
Thomas A. McDonnell, Carl S. Quinn, Edward C. Stanton, III, E. Lee Walker
2. Proposal to approve the adoption of the Company's 1995 Directors' Stock
Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. If any other business is presented at the meeting, or adjournments thereof,
the persons named will vote in accordance with their best judgement on such
matters.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
NOTE: THIS PROXY WILL BE VOTED AS SPECIFIED OR IF NO SPECIFICATION IS MADE
IT WILL BE VOTED FOR ALL DIRECTOR NOMINEES LISTED ABOVE.
Date Signed: ______________________________
(please fill in date)
___________________________________________
Signature(s)
___________________________________________
Signature(s)
NOTE: When signing as attorney, executor,
administrator, trustee, or guardian, please
give full title. If more than one trustee,
all should sign. It is important that
you date your proxy in the space provide
above.
21
THE CONTINUUM COMPANY, INC.
1995 DIRECTORS' STOCK OPTION PLAN
I.
PURPOSE OF THE PLAN
The Continuum Company, Inc. 1995 Directors' Stock Option Plan (the
"Plan") is intended to promote the interests of The Continuum Company, Inc., a
Delaware corporation (the "Company"), and its shareholders by helping to
attract and retain highly-qualified independent directors, and allowing them
to develop a sense of proprietorship and personal involvement in the
development and financial success of the Company. Accordingly, the Company
shall grant to directors of the Company who are not and who never have been
employees of the Company or of its subsidiaries ("Nonemployee Directors") the
option ("Option") to purchase shares of the common stock of the Company, par
value $0.10 ("Stock"), as hereinafter set forth. Options granted under the
Plan shall be options which do not constitute incentive stock options within
the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
II.
OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement between the
Nonemployee Director and the Company which shall contain the terms provided in
the Plan.
III.
GRANT OF OPTIONS
Options may be granted only to individuals who are Nonemployee
Directors of the Company and only on the occasions described below. For
purposes herein, an Advisory Director shall not be considered as being a
director of the Company. Any Nonemployee Director receiving an automatic grant
hereunder may refuse such grant by giving the Secretary of the Company written
notice decling the grant within thirty (30) days of the event giving rise to
the automatic grant.
(a) Each Nonemployee Director who is elected or appointed to the
Board of Directors of the Company (the "Board") for the first time after the
effective date of the Plan shall receive, as of the date of his or her election
or appointment to the Board, and without the exercise of the discretion of any
person or persons, an Option exercisable for 10,000 shares of Stock (subject to
adjustment in the same manner as provided in Paragraph VII hereof with respect
to shares of Stock subject to Options then outstanding).
(b) Each Nonemployee Director shall receive, as of the fifth
anniversary of his or her continuous service as a director of the Company, and
without the exercise of the discretion of any person or persons, an Option
exercisable for 10,000 shares of Stock (subject to adjustment in the same
manner as provided in Paragraph VII hereof with respect to shares of Stock
subject to Options then outstanding). However, each incumbent Nonemployee
Director who has served as a director of the Company for at least five
continuous years before the effective date of the Plan shall receive such
Option as of such effective date.
IV.
TERMS OF OPTIONS
(a) The purchase price of Stock issued under each Option shall be
the fair market value of Stock subject to the Option on the date the Option is
granted. For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the closing price of the Stock on
the New York Stock Exchange composite tape on that date, or if no prices are
reported on that date, on the last preceding date on which
1
22
such prices of the Stock are so reported.
(b) Except as set forth in this Paragraph IV, an Option shall
become exercisable for 2,000 shares of Stock on the first anniversary of the
date of grant and for an additional 2,000 shares on each subsequent anniversary
through and including the fifth anniversary of the grant date.
(c) An Option may be exercised only while the Nonemployee Director
remains a director of the Company and will terminate and cease to be
exercisable upon the termination or expiration of his or her services as a
director of the Company, except that:
(i) If a Nonemployee Director's service as a director
with the Company terminates by reason of disability (within the
meaning of Section 22(e)(3) of the Code), any Option shall become
exercisable as of the date of such termination for 10,000 shares (less
the number of shares for which the Option has been exercised before
such termination), and the Nonemployee Director (or the Nonemployee
Director's estate or the person who acquires the Option by will or the
laws of decent and distribution or otherwise by reason of the death of
the Nonemployee Director) may exercise the Option for a period of one
year after ceasing to be a director.
(ii) If a Nonemployee Director dies while serving as a
director of the Company, the Nonemployee Director's estate, or the
person who acquires the Option by will or the laws of decent and
distribution or otherwise by reason of the death for 10,000 shares
(less the number of shares for which the Option has been exercised
before death), and the Nonemployee Director's estate or the person who
acquires the Option by will or the laws of descent and distribution or
otherwise by reason of the death of the Nonemployee Director may
exercise the Option for a period of one year after the Nonemployee's
death.
(iii) If a Nonemployee Director's service as a director of
the Company is terminated after a "change in control" (as defined
below) of the Company, the Option shall become exercisable as of the
date of such termination for 10,000 shares (less the number of shares
for which the Option has been exercised before such termination), and
the Nonemployee Director (or the Nonemployee Director's estate or the
person who acquires the Option by will or the laws of descent and
distribution or otherwise by reason of the death of the Nonemployee
Director) may exercise the Option for a period of one year after
ceasing to be a director. "Change in Control" shall mean and shall be
deemed to have taken place if (A) any third person or entity including
a "group" as contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934 (together with all persons or entities
controlling, controlled by or under common control with such person,
entity or group) purchases or, as a result of a tender offer, exchange
offer, merger, consolidation, or other transaction acquires,
beneficial ownership or control (including, without limitation, the
power to vote) of shares of capital stock of the Company having thirty
percent (30%) or more of the number of votes that may be cast for the
election of directors of the Company or (B) as a result of, or in
connection with a contested election for directors, a number of
directors equal to a majority of the Board of Directors of the Company
before such election cease to be members of the Board of Directors of
the Company. In the case of DST Systems, Inc. a "Change of Control"
shall be deemed to have taken place if DST Systems, Inc. (together
with all persons or entities controlling, controlled by or under
common control with DST Systems, Inc.) purchases or, as a result of a
tender offer, exchange offer, merger, consolidation, or other
transaction acquires, beneficial ownership or control (including,
without limitation, the power to vote) of shares of capital stock of
the Company having thirty-two percent (32%) or more of the number of
votes that may be cast for the election of directors of the Company.
For such purposes, the date of occurrence of a "Change of Control"
shall mean the date of occurrence of the specified event constituting
such "Change in Control". If more than one event constituting a
"Change of Control" occurs, the date of the "Change of Control" for
purposes of the Plan shall be the first to occur of such events.
(iv) If a Nonemployee Director's service as a director of
the Company terminates for any reason other than as described in (i),
(ii) or (iii) above, the Option may be exercised by the Nonemployee
2
23
Director at any time during the period of three months following such
termination, or by the Nonemployee Director's estate (or the person
who acquires the Option by will or the laws of descent and
distribution or otherwise by reason of the death of the Nonemployee
Director) during a period of one year following the Nonemployee
Director's death if the Nonemployee Director dies during such
three-month period.
(d) In no event shall any Option be exercisable more than ten (10)
years after the date of grant.
(e) The purchase price of shares as to which an Option is
exercised shall be paid in full at the time of exercise in cash (including
check, bank draft or money order payable to the order of the Company).
Nonemployee Directors must exercise an Option as to whole shares of stock; no
fraction of a share of stock shall be issued by the Company upon exercise of an
Option.
V.
SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options
granted under the Plan shall not exceed 100,000 shares of Stock. Such shares
may consist of authorized but unissued shares of Stock or previously issued
shares of Stock reacquired by the Company. Any of such shares which remain
unissued and which are not subject to outstanding Options at the termination of
the Plan shall cease to be subject to the Plan but, until termination of the
Plan, the Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan. Should any Option hereunder
expire or terminate prior to its exercise in full, the shares theretofore
subject to such Option may again be subject to an Option granted under the
Plan. The aggregate number of shares which may be issued under the Plan shall
be subject to adjustment in the same manner as provided in Paragraph VII hereof
with respect to shares of Stock subject to Options then outstanding. Exercise
of an Option shall result in a decrease in the number of shares of Stock which
may thereafter be available, both for purposes of the Plan and for sale
pursuant to such Option, by the number of shares as to which the Option is
exercised.
VI.
TERM OF PLAN
The Plan shall be effective upon approval by the shareholders of the
Company. Except with respect to Options then outstanding, if not sooner
terminated as provided herein, the Plan shall terminate upon and no further
Options shall be granted after July 26, 2005.
If, as of any date that the Plan is in effect, there are not
sufficient shares of Stock available under the Plan to allow for the grant to
each Nonemployee Director of an Option for the number of shares provided
herein, the Plan shall terminate.
VII.
RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder
shall not affect in any way the right or power of the Board or the shareholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization, or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are
shares of Stock as presently constituted, but if, and whenever prior to the
expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Stock or the payment of a stock
dividend on Stock without receipt of
3
24
consideration by the Company, the number of shares of Stock with respect to
which such Option may thereafter be exercised (i) in the event of an increase
in the number of outstanding shares shall be proportionately increased, and the
purchase price per share shall be proportionately reduced, and (ii) in the
event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
proportionately increased.
(c) Except as hereinbefore expressly provided, the issuance by the
Company of shares of Stock of any class or securities convertible into shares
of Stock of any class for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares of obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Options theretofore granted or the
purchase price per share.
VIII.
AMENDMENT OR TERMINATION OF THE PLAN
The Board may amend, alter, suspend, discontinue, or terminate the
Plan, but no amendment, alteration, suspension, discontinuation, or termination
shall be made that would impair the rights of an optionee under an Option
theretofore granted, without the optionee's consent, or that without the
approval of the Company's stockholders would:
(a) except as is provided in Paragraph VII of the Plan, materially
increase the total number of shares of Stock available under
the Plan;
(b) materially increase benefits accruing to Nonemployee Directors
under the Plan;
(c) modify the requirements as to eligibility for participation
in the Plan; or
(d) modify the provision of the Plan relating to the timing,
amount or exercise price of Options.
In no event shall the provisions relating to the timing, amount or
exercise price of Options be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Securities Act of 1974, as amended, or the rules thereunder.
IX.
SECURITIES LAWS
The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the shares covered by such
Option have not been registered under the Securities Act of 1933 and such other
state and federal laws, rules or regulations as the Company deems applicable
and, in the opinion of legal counsel for the Company, there is no exemption
from the registration requirements of such laws, rules or regulations available
for the issuance and sale of such shares.
X.
GENERAL
(a) Administration. The Plan shall be administered by the
Secretary of the Company who shall perform only ministerial functions and who
shall have no discretion regarding the exercise price, amount or timing of the
Options.
(b) Nonassignability. No Option shall be assignable or
transferable by an Nonemployee Director otherwise than by will or by the laws
of descent and distribution; provided, however, that an Nonemployee Director
may, pursuant to a written designation of beneficiary filed with the Company
prior to his or her death, designate a beneficiary to exercise the rights of
the Nonemployee Director with respect to any Option upon the death of the
4
25
Nonemployee Director. Each Option shall be exercisable during the lifetime of
the Nonemployee Director, only by the Nonemployee Director or, if permissible
under applicable law, by the guardian or legal representative of the
Nonemployee Director.
(c) Restrictions. At least six (6) months must elapse from the
date of acquisition of an Option to the date of disposition of either the
Option or the underlying Stock. In addition, all certificates for Stock
delivered under the Plan shall be subject to such other stock-transfer orders
and other restrictions required under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock are than listed, and any applicable federal or state securities
law, and a legend or legends may be placed on any such certificates to make
appropriate reference to such restrictions.
(d) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable federal laws.
(e) No Right to Position. The grant of an Option shall not be
construed as giving an Nonemployee Director the right to continue as a director
of the Company or of any subsidiary. The Company or a subsidiary may at any
time terminate an Nonemployee Director free from any liability or any claim
under the Plan, except rights of the director expressly stated in Option
Agreements with respect to Options previously granted, if any.
(f) No Trust of Fund Created. Neither the Plan nor any Option
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any subsidiary and an
Nonemployee Director or any other person. To the extent that any person
acquires a right to receive payments from the Company or any subsidiary
pursuant to an Option, such right shall be no greater than the right of any
unsecured general creditor of the Company or any subsidiary.
(g) No Fractional Shares. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan, and cash shall be paid in lieu of any
fractional shares of Stock.
(h) Headings. Headings are given to the sections and subsections
of the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
5