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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 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.
[ ] 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.
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[ ] 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 2, 1999
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 2, 1999, 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 2000 Annual Meeting of
Stockholders and thereafter until their successors are elected and
qualified.
2. To ratify the appointment of the independent auditors of the Company.
3. 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 Monday,
December 7, 1998, 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, 1998
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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 2, 1999, and any postponement or adjournment thereof. A copy of the
Company's Annual Report to Stockholders for the fiscal year ended September 30,
1998, which includes the Company's financial statements as of September 30,
1998, 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, 1998.
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 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 7,
1998 (the "record date") are entitled to notice of and to vote at the Annual
Meeting. At the close of business on the record date, there were 14,047,284
shares of the Company's Common Stock, $0.01 par value (the "Common Stock"),
issued and outstanding, excluding 10,690 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 the affirmative vote of a majority of the
shares present or represented by proxy and entitled to vote is required 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
1
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 2000 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 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., Masters Select Equity Mutual Fund and
Masters Select International Mutual Fund. He is also a director of Ask Jeeves,
Inc. and Alaska Travel Adventures, both private companies. Further, he is 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 54 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 and
Lifetouch, Inc. of Minneapolis, Minnesota, a private company. 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 71 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 58 years old.
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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 52 years old.
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 January 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 55 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 67 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 52 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 in
December 1998. He was elected a Vice President in May 1974, a Senior Vice
President in June 1983, an Executive Vice President in January 1985 and served
as Chief Operating Officer from February 1989 through July 1995. 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 55 years old.
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 55 years old.
3
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 A. George Battle, 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 1998.
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 six
meetings in fiscal 1998.
During the past fiscal year, there were four regular meetings and two
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 1998.
Stock Ownership
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 7, 1998, 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 Fair, Ellen I. Fair and Erik E. Fair includes the same 1,514,521
shares held in trust as described in footnote 3 to the table.
4
Stock Ownership Table
Beneficial Ownership(1)
Directors, Nominees, Executive Officers ------------------------------------
and 5% Stockholders Number Percent(2)
- -----------------------------------------------------------------------------------------------------------
Inger J. Fair(3) 1,514,521 10.8%
120 North Redwood Drive
San Rafael, CA 94903
Christian Fair(3,4) 1,664,649 11.9%
120 North Redwood Drive
San Rafael, CA 94903
Ellen I. Fair(3) 1,676,352 11.9%
120 North Redwood Drive
San Rafael, CA 94903
Erik E. Fair(3) 1,708,162 12.2%
120 North Redwood Drive
San Rafael, CA 94903
Judith W. Isaac(5) 1,793,110 12.8%
5 Capilano Drive
Novato, CA 94947
Peter L. McCorkell, Patricia Cole 862,825 6.1%
and John Waller,
Trustees for Fair Isaac Employee Stock
Ownership Trust
120 North Redwood Drive
San Rafael, CA 94903
Robert D. Sanderson(6,7) 361,547 2.6%
Larry E. Rosenberger(7) 278,468 2.0%
David M. LaCross(7,8) 206,104 1.5%
John D. Woldrich(7,9) 119,081 *
Patrick G. Culhane(7,10) 22,713 *
Kenneth M. Rapp(7,11) 9,724 *
H. Robert Heller(7,12) 56,136 *
A. George Battle(13) 5,333 *
Bryant J. Brooks(14) 20,000 *
Guy R. Henshaw(14) 19,000 *
David S. P. Hopkins(14) 19,000 *
Robert M. Oliver(15) 43,000 *
All executive officers and directors as
a group (16 persons)(6,7,16) 1,287,179 9.0%
- ----------------
* Represents holdings of less than one percent.
5
(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) Percentages are calculated with respect to a holder of stock options
exercisable on or prior to March 1, 1999 as if such holder had
exercised such option. Shares deemed issued to a holder of stock
options pursuant to the preceding sentence are not included in the
percentage calculation with respect to any other stockholder.
(3) Includes 1,514,521 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, Trust B Non-Exempt under the
William and Inger Fair Trust Agreement dated 3/28/86 and The William
and Inger Fair Trust C under the William and Inger Fair Trust Agreement
dated 3/28/96. Christian 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.
(4) Includes options for 100 shares.
(5) Does not include 222,190 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.
(6) Includes options for 100 shares.
(7) 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.
(8) Includes options for 133,613 shares.
(9) Includes 2,410 shares held by Mr. Woldrich's minor children. Mr.
Woldrich disclaims beneficial ownership of such shares.
(10) Includes options for 5,000 shares.
(11) Includes options for 9,510 shares.
(12) Includes options for 56,000 shares.
(13) Includes options for 5,000 shares, 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.
(14) Includes options for 19,000 shares.
(15) Includes 2,000 shares held in an Individual Retirement Account ("IRA")
for Dr. Oliver, 4,000 shares held in an IRA by his wife, 34,000 shares
held jointly by Dr. Oliver and his wife and options for 3,000 shares.
(16) Includes shares included in notes (6), (7), (8), (9), (10), (11), (12),
(13), (14) and (15) above,
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including a total of 306,513 shares subject to options exercisable on
or prior to March 1, 1999.
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 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.
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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 1998 $222,500 $125,250 22,500 $156,493 $ 18,156
President and Chief 1997 212,500 137,856 30,000 292,152 14,712
Executive Officer 1996 202,500 146,250 27,500 369,869 21,788
John D. Woldrich 1998 $214,750 $101,870 20,000 $117,671 $ 17,130
Executive Vice 1997 202,500 110,285 27,500 218,591 14,709
President and Chief 1996 195,000 117,000 25,000 266,460 21,260
Operating Officer
Patrick G. Culhane 1998 $206,250 $ 91,850 17,500 $ 64,109 $ 14,952
Executive Vice 1997 191,250 98,298 25,000 79,427 14,742
President 1996 180,000 111,150 20,000 73,680 17,973
David M. LaCross 1998 $197,000 $ 90,000 7,500 $ 0 $ 4,524
President and CEO 1997 194,422 135,000 16,000 0 0
of Risk Management 1996 186,945 22,688 0 0 0
Technologies(4)
Kenneth M. Rapp 1998 $154,500 $199,441 12,500 $ 9,792 $ 0
Senior Vice 1997 138,998 127,542 15,000 22,536 0
President and President 1996 125,500 60,629 10,000 25,740 0
of DynaMark
(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.
(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 1998, employer
401(k) contributions were $2,468, $2,521, $2,539, $0 and $2,744 for
Messrs. Rosenberger, Woldrich, Culhane, LaCross and Rapp, respectively;
the value of ESOP contributions and allocations were $8,188, $7,109,
$4,913, $4,524 and $2,769 for Messrs. Rosenberger, Woldrich, Culhane,
LaCross and Rapp, respectively; and the value of Company contributions
to the Supplemental Retirement and Savings Plan was $7,500 for each of
Messrs. Rosenberger, Woldrich, and Culhane and $0 for Messrs. LaCross
and Rapp.
(4) Includes Mr. LaCross' compensation from Risk Management Technologies
("RMT") prior to its merger with the Company on July 21, 1997, and a
bonus of $50,000 for calendar 1997 paid in accordance with the former
incentive plan of RMT.
8
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(2)
Options Employees Exercise Price Expiration -----------------------------
Name Granted in Fiscal Year per share Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
Larry E. Rosenberger 22,500(1) 4.3% $ 38.25 3/19/08 $ 541,242 $1,371,615
John D. Woldrich 20,000(1) 3.8% $ 38.25 3/19/08 $ 481,104 $1,219,213
Patrick G. Culhane 17,500(1) 3.3% $ 38.25 3/19/08 $ 420,966 $1,066,811
David M. LaCross 7,500(1) 1.4% $ 38.25 3/19/08 $ 180,414 $ 457,205
Kenneth M. Rapp 12,500(1) 2.4% $ 38.25 3/19/08 $ 300,690 $ 762,008
(1) Granted at fair market value and exercisable in full on March 19, 2001.
(2) 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 19, 2008.
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 80,000 $ 0 $75,625
John D. Woldrich 0 $ 0 0 72,500 $ 0 $68,750
Patrick G. Culhane 27,460 $593,014 5,000 62,500 $ 70,313 $55,000
David M. LaCross 0 $ 0 133,613 19,500 $4,205,942 $ 0
Kenneth M. Rapp 0 $ 0 9,510 43,840 $ 47,550 $59,200
(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, 1998 ($33.375), less
the exercise price.
Long-Term Incentive Plans--Awards in Last Fiscal Year
Number of Period Until
Name Shares(1) Payout(2)
- ------------------------------------------------------------------------
Larry E. Rosenberger 3,713 4 Years
John D. Woldrich 3,009 4 Years
Patrick G. Culhane 2,704 4 Years
David M. LaCross 0 --
Kenneth M. Rapp 646 4 Years
(1) Shares of "phantom stock" awarded for fiscal 1998 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 1998 divided by
the closing price of the stock on the award date ($33.375 at September
30, 1998). 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.
9
(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 subsidiaries,
DynaMark, Inc. and Risk Management Technologies), 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
$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, 1998 was as follows: Mr. Rosenberger, 23 years; Mr.
Woldrich, 25 years; and Mr. Culhane, 12 years; Mr. LaCross and Mr. Rapp are
currently not eligible to participate in the Pension Plan.
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.
10
Employment Agreements
In connection with the Company's acquisition of Risk Management
Technologies ("RMT") in 1997, the Company and Mr. LaCross entered into an
employment agreement with a term of three years, subject to earlier termination
under certain circumstances. The agreement provides for an annual base salary of
$196,310 and "stay-put" bonuses of $40,000 in 1998, $56,000 in 1999 and $64,000
in 2000. The agreement also provided that Mr. LaCross was entitled to a bonus
for calendar 1997 in accordance with the former RMT incentive plan.
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, 1998. 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, 1998. None of the Executive Officers of the
Company had any "interlock" relationships to report during the fiscal year ended
September 30, 1998.
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 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.
11
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 65 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. During fiscal 1998,
operating margin received three times the weight given to revenue growth and the
same weighting will apply in fiscal 1999. 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 or is retired from 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, LaCross and Rapp in fiscal
1998 and are reflected in the Option/SAR Grants in Last Fiscal Year Table and
Aggregated Option/SAR Exercises in Last Fiscal Year Table and Fiscal Year-End
Option/SAR Values Table above.
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 1998 was $222,500, compared with
a base of $212,500 for fiscal 1997. His incentive plan target for fiscal 1998
was $150,000 which represented an increase of $6,250 over 1997. Because the
Company's revenue growth of 23 percent and operating margin of 16.5 percent
exceeded the goals set by the Board for 1998, Mr.
12
Rosenberger's total incentive award for the year was $250,500. 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, 1999 through 2002, 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.; 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 is
headquartered near the Company's headquarters and competes with the Company for
available technical staff.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
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
- --------------------------------------------------------------------------------
9/93 100 100 100
9/94 172.3 103.7 128.5
9/95 283.2 134.7 236.4
9/96 379.3 162.3 399.8
9/97 434.1 228.3 344.3
9/98 328.1 249.6 413.4
The returns shown assume $100 invested on September 30, 1993 in the
Company's stock, the CRSP Indices for the S&P 500 Stocks (U.S. Companies) and
the peer group indices, with reinvestment of dividends. The reported dates are
the last trading dates of the Company's fiscal year which ends on September 30.
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, 1999. KPMG
Peat Marwick LLP has served as the Company's independent auditors
13
since May 1991. Representatives of KPMG Peat Marwick LLP are expected to be
present at the 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. The affirmative vote of
a majority of the shares present or represented by proxy and entitled to vote on
this matter 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 (the "Exchange
Act") 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) of the Exchange Act to be filed by its directors, executive
officers and greater than ten percent owners during the last fiscal year were
filed on time except that Mr. Woldrich, the Company's Executive Vice President
and Chief Operating Officer, inadvertently failed to timely file several Section
16 filings disclosing the purchase of shares of the Company's common stock which
were purchased through a broker's automatic dividend reinvestment program. Mr.
Woldrich had no knowledge of the automatic purchases for the periods for which
such reporting should have been made. Upon becoming aware of the purchases, Mr.
Woldrich promptly amended his filings and the dividend reinvestment program was
canceled. In addition, several of his Section 16 filings were amended to
disclose the indirect ownership of the shares of the Company's common stock held
by his minor children which were inadvertently not disclosed previously.
Submission of Proposals of Stockholders
Proposals of stockholders intended to be presented at the Company's
2000 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, 1999, to be considered for inclusion in the proxy
statement and form of proxy for that meeting.
In order for business, other than a stockholder proposal included in
the Company's proxy statement and form of proxy, to be properly brought before
the 2000 Annual Meeting by a stockholder, the stockholder must give timely
written notice thereof to the Corporate Secretary of the Company and must
otherwise comply with the Company's Bylaws. The Company's Bylaws provide that,
to be timely, a stockholder's notice must be received by the Corporate Secretary
at the Company's principal executive
14
offices no less than 60 days nor more than 90 days prior to the scheduled date
of the annual meeting. If the Company gives less than 70 days' notice or prior
public disclosure of the scheduled meeting date, then, to be timely, the
stockholder's notice must be received no later than the earlier of (i) the close
of business on the tenth day following the day on which such notice was mailed
or such disclosure was made, whichever occurs first, and (ii) two days prior to
the scheduled meeting date.
By Order of the Board of Directors
Peter L. McCorkell
Senior Vice President and Secretary
Dated: December 31, 1998
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