SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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MAXIMUS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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[LOGO]
11419 SUNSET HILLS ROAD
RESTON, VIRGINIA 20190
(703) 251-8500
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 18, 2003
The 2003 Annual Meeting of Shareholders of MAXIMUS, Inc. will be held at our
corporate headquarters at 11419 Sunset Hills Road in Reston, Virginia on
Tuesday, March 18, 2003 at 11:00 a.m., Eastern Standard Time, to consider and
act upon the following matters:
1. The election of three Class III Directors to serve until the 2006
Annual Meeting of Shareholders.
2. The consideration of the proposal submitted by a shareholder
regarding establishing a policy and practice of expensing the costs of
future grants of executive stock options.
3. The transaction of any other business that may properly come before
the meeting or any adjournment of the meeting.
Shareholders of record at the close of business on Friday, January 10, 2003
will be entitled to vote at the annual meeting or at any adjournment of the
annual meeting.
Our board hopes that you will attend the meeting. Whether or not you plan to
attend, please complete, date, sign and return the enclosed proxy card in the
accompanying envelope. Your prompt response will greatly facilitate arrangements
for the meeting, and your cooperation will be appreciated.
By Order of the Board of Directors,
David R. Francis, SECRETARY
January 27, 2003
TABLE OF CONTENTS
PAGE
--------
General Information About Voting............................ 1
Security Ownership of Management and Five Percent Owners.... 2
Section 16(a) Beneficial Ownership Reporting Compliance..... 4
PROPOSAL 1: Election of Directors........................... 4
Vote Required............................................... 4
Board and Committee Meetings................................ 8
Director Compensation....................................... 8
Certain Relationships and Related Transactions.............. 9
Executive Compensation...................................... 10
Summary Compensation Table.................................. 10
Option Grant Table.......................................... 12
Aggregate Option Exercises and Fiscal Year-End Option
Values.................................................... 13
Executive Employment Agreements............................. 14
Report of the Board of Directors and Compensation
Committee................................................. 14
Report of the Audit Committee............................... 16
Compensation Committee Interlocks and Insider
Participation............................................. 17
Independent Public Accountants.............................. 17
Stock Performance Graph..................................... 18
PROPOSAL 2: Shareholder Proposal Regarding Expensing Future
Executive Stock Option Awards............................. 19
MAXIMUS Response to Shareholder Proposal.................... 20
Shareholder Proposals for Our 2004 Annual Meeting of
Shareholders.............................................. 20
Other Materials............................................. 21
Appendix A--Audit Committee Charter......................... A-1
i
[LOGO]
11419 SUNSET HILLS ROAD
RESTON, VIRGINIA 20190
(703) 251-8500
PROXY STATEMENT
Our board of directors is soliciting your proxy with the enclosed proxy card
for use at the 2003 Annual Meeting of Shareholders to be held on Tuesday,
March 18, 2003 and at any adjournments of the meeting. This proxy statement and
accompanying proxy are first being sent or given to shareholders on or about
January 27, 2003.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE. You will be entitled to vote your shares of MAXIMUS common
stock at the annual meeting if you were a shareholder of record at the close of
business on January 10, 2003. As of that date, 21,232,791 shares of common stock
were outstanding and entitled to one vote each at the meeting. You are entitled
to one vote on each item voted on at the meeting for each share of common stock
that you held on January 10, 2003.
HOW TO VOTE YOUR SHARES. You can vote your shares either by attending the
annual meeting and voting in person or by voting by proxy. If you choose to vote
by proxy, please complete, date, sign and return the enclosed proxy card. The
proxies named in the enclosed proxy card (David V. Mastran, Richard A. Montoni
and David R. Francis) will vote your shares as you have instructed. You may
authorize the proxies to vote your shares in favor of each of the proposals
contained in this proxy statement by simply signing and returning the enclosed
proxy card without indicating how your votes should be cast.
Even if you expect to attend the meeting, please complete and mail your
proxy card in any case in order to assure representation of your shares. If you
attend the meeting, you can always revoke your proxy by voting in person. No
postage is necessary if the proxy card is mailed in the United States using the
return envelope provided.
QUORUM. A quorum of shareholders is required in order to transact business
at the annual meeting. A majority of the outstanding shares of common stock
entitled to vote must be present at the meeting, either in person or by proxy,
to constitute a quorum.
NUMBER OF VOTES REQUIRED. The number of votes required to approve each of
the proposals that are scheduled to be presented at the meeting is as follows:
PROPOSAL REQUIRED VOTE
-------- -------------
1. Election of three Class III Directors For each nominee, a plurality of the votes
cast for or against such nominee.
2. Shareholder proposal regarding expensing A majority of the votes cast for or against
the cost of future executive stock option the proposal.
grants.
ABSTENTIONS AND BROKER NON-VOTES. A broker non-vote occurs when a broker
cannot vote a customer's shares registered in the broker's name because the
customer did not send the broker instructions on how to vote on the matter. If
the broker does not have instructions AND is barred by law or applicable rules
from exercising its discretionary voting authority in the particular matter,
then the shares will not be voted on the matter, resulting in a "broker
non-vote." Abstentions and broker non-votes will not count as votes cast in the
election of directors or in the vote on expensing options. Therefore,
abstentions and broker non-votes will have no effect on the voting on these
matters at the meeting.
DISCRETIONARY VOTING BY PROXIES ON OTHER MATTERS. Aside from the election
of directors and the shareholder proposal regarding expensing options, we do not
know of any other proposal that may be
presented at the 2003 Annual Meeting. However, if another matter is properly
presented to the meeting, the persons named in the accompanying proxy card will
exercise their discretion in voting on the matter.
HOW YOU MAY REVOKE YOUR PROXY. You may revoke the authority granted by your
executed proxy card at any time before we exercise it by notifying our Corporate
Secretary in writing, by executing a new proxy card bearing a later date and
delivering the new executed proxy card to our Corporate Secretary, or by voting
in person at the annual meeting.
EXPENSES OF SOLICITATION. We will bear all costs of soliciting proxies. We
will request that brokers, custodians and fiduciaries forward proxy soliciting
material to the beneficial owners of stock held in their names, for which we
will reimburse their out-of-pocket expenses. In addition to solicitations by
mail, our directors, officers and regular employees, without additional
remuneration, may solicit proxies by telephone, telegraph and/or personal
interviews.
SECURITY OWNERSHIP OF MANAGEMENT AND FIVE PERCENT OWNERS
The following table shows the number of shares of our common stock
beneficially owned as of December 2, 2002 (unless otherwise indicated), by
(i) the only persons known by us to own more than five percent of our
outstanding shares of common stock, (ii) our directors and the nominees for
director, (iii) the executive officers named in the Summary Compensation Table
contained in this proxy statement and (iv) all of our directors and executive
officers as a group.
The number of shares reported as beneficially owned is based upon the rules
of the Securities Exchange Commission ("SEC"). Under SEC rules, beneficial
ownership includes any shares over which a person has sole or shared voting or
investment power as well as shares which a person has the right to acquire
within 60 days by exercising any stock option or other right. Accordingly, the
following table includes shares that each person has the right to acquire on or
before January 31, 2003. Unless otherwise indicated, to the best of our
knowledge, each person has sole investment and voting power (or shares that
power with his or her spouse) over the shares reported in the table. Inclusion
in the table of shares that a person is deemed to beneficially own under SEC
rules does not constitute an admission by any person listed in the table of
beneficial ownership of those shares for any other purpose.
To compute the percentage ownership of any person or group listed in the
following table, the total number of shares deemed outstanding includes
21,195,503 shares that were outstanding on December 2, 2002 (which number does
not include shares held by us as treasury shares), plus any shares that the
listed person or group could acquire upon exercising any stock options held by
that person or group that are exercisable on or before January 31, 2003.
2
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
-------------------------
BENEFICIAL OWNER SHARES PERCENT
---------------- --------- ---------
T. Rowe Price Associates, Inc............................... 2,420,700(1) 11.4%
100 East Pratt Street
Baltimore, Maryland 21202
Waddell & Reed Financial, Inc............................... 1,662,936(2) 7.8%
6300 Lamar Avenue
Shawnee Mission, Kansas 66201
David V. Mastran............................................ 2,639,634(3) 12.4%
Russell A. Beliveau......................................... 68,420(4) *
Lynn P. Davenport........................................... 80,354(5) *
Thomas A. Grissen........................................... 150,902(6) *
John J. Haley............................................... 7,123(7) *
Peter B. Pond............................................... 45,860(8) *
Marilyn R. Seymann.......................................... 6,262(9) *
James R. Thompson, Jr....................................... 15,795(10) *
David A. Hogan **........................................... 20,280(11) *
Richard L. Bradley **....................................... 25,000(12) *
Richard A. Montoni.......................................... 0 *
All directors and executive officers as a group (13 7,143,266(13) 14.2%
persons)..................................................
------------------------
* Percentage is less than 1% of all outstanding shares of common stock.
** Mr. Hogan and Mr. Bradley are current employees who served as executive
officers as that term is defined in Rule 3b-7 of the Securities Exchange Act
of 1934 until April 2002.
(1) As of November 30, 2002, as reported by T. Rowe Price Associates, Inc. ("T.
Rowe Price"). T. Rowe Price indicates that the reported shares are owned by
various individual and institutional investors, including the T. Rowe Price
Small Cap Stock Fund, Inc. (which owns 1,158,300 of the reported shares),
which T. Rowe Price Associates, Inc. serves as investment advisor with power
to direct investments and/or power to vote the reported securities. T. Rowe
Price further indicates that it has sole dispositive power for all of the
reported shares and sole voting power for 429,200 of the reported shares,
and that for purposes of Securities Exchange Act reporting, it is deemed the
beneficial owner of the reported shares, but it disclaims that it is in fact
the beneficial owner of the reported shares.
(2) As reported by Waddell & Reed Financial, Inc. on behalf of itself,
Waddell & Reed Financial Services, Inc., Waddell & Reed, Inc. and Waddell &
Reed Investment Management Company ("Waddell & Reed"). Waddell & Reed
indicates that the reported shares include shares owned by open-ended
investment companies or separately managed accounts advised or sub-advised
by Waddell & Reed Investment Management Company.
(3) Includes (i) 62,129 shares and 13,269 shares issuable under stock options
exercisable on or before January 31, 2003 held by Dr. Mastran's spouse and
(ii) 1,800 shares held by Dr. Mastran's father.
(4) Includes 7,144 shares issuable under stock options exercisable on or before
January 31, 2003. Also includes 61,276 shares held in a trust of which
Mr. Beliveau and his spouse are the primary beneficiaries.
(5) Includes 79,104 shares issuable under stock options exercisable on or before
January 31, 2003. Also includes 1,250 shares held by Mr. Davenport's son.
(6) Includes 146,622 shares issuable under stock options exercisable on or
before January 31, 2003. Also includes 600 shares held by Mr. Grissen's
daughter.
3
(7) Reflects 7,123 shares issuable under stock options exercisable on or before
January 31, 2003.
(8) Reflects 45,860 shares issuable under stock options exercisable on or before
January 31, 2003.
(9) Reflects 6,262 shares issuable under stock options exercisable on or before
January 31, 2003.
(10) Reflects 15,795 shares issuable under stock options exercisable on or
before January 31, 2003.
(11) Reflects 20,280 shares issuable under stock options exercisable on or
before January 31, 2003.
(12) Reflects 25,000 shares issuable under stock options exercisable on or
before January 31, 2003.
(13) Includes shares beneficially owned by David A. Hogan and Richard L.
Bradley, our employees who ceased to be executive officers as that term is
defined in Rule 3b-7 of the Securities Exchange Act of 1934 as of
April 2002. Includes 366,459 shares issuable under stock options exercisable
on or before January 31, 2003.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our directors, our executive officers and anyone owning beneficially more
than ten percent of our equity securities are required under Section 16(a) of
the Securities Exchange Act of 1934 to file with the SEC reports of their
ownership and changes of their ownership of our securities. They must also
furnish copies of the reports to us. During some or all of our 2002 fiscal year,
Dr. Mastran, Governor Thompson, Dr. Seymann, Messrs. Beliveau, Davenport,
Grissen, Haley, Pond and Montoni, David Francis and Jesse Brown were our
directors and/or executive officers. During some or all of our 2002 fiscal year,
T. Rowe Price and its affiliates as indicated in footnote one above were a ten
percent beneficial owner of us. Based solely on our review of the reports
furnished to us and any written representations that no other reports were
required received by us, we believe that during our 2002 fiscal year, our
directors, executive officers and ten percent beneficial owners complied with
all applicable Section 16(a) filing requirements, except that our former
director, Jesse Brown, reported his November 2001 purchase of 383 shares of our
common stock in March 2002.
PROPOSAL 1: ELECTION OF DIRECTORS
The board of directors has fixed the number of directors at eight for fiscal
year 2003. Under our charter, the board is divided into three classes, with each
class having as nearly equal a number of directors as possible. The term of one
class expires, with their successors being subsequently elected to a three-year
term, at each annual meeting of shareholders. At the 2003 Annual Meeting, three
Class III Directors will be elected to hold office for three years and until
their successors are elected and qualified. The board has nominated Lynn P.
Davenport, Thomas A. Grissen and David V. Mastran for election as Class III
Directors at the upcoming annual meeting. Mr. Davenport, Mr. Grissen and
Dr. Mastran presently serve as directors of the company. If you return your
proxy card in the enclosed envelope, the persons named in the enclosed proxy
card will vote to elect these three nominees unless you mark your proxy card
otherwise. The proxy may not be voted for a greater number of nominees than
three. Each nominee has consented to being named in this proxy statement and to
serve if elected. If for any reason a nominee should become unavailable for
election prior to the annual meeting, the proxy may vote for the election of a
substitute. We do not presently expect that any of the nominees will be
unavailable.
VOTE REQUIRED
The affirmative vote of a plurality of the total number of votes cast for or
withheld from Mr. Davenport at the meeting is required to re-elect
Mr. Davenport to our board. The affirmative vote of a plurality of the total
number of votes case for or withheld from Mr. Grissen at the meeting is required
to re-elect Mr. Grissen to our board. The affirmative vote of a plurality of the
total number of votes case for or withheld from Dr. Mastran at the meeting is
required to re-elect Dr. Mastran to our board. Abstentions and broker non-votes
will be considered as present for quorum purposes, but will not be counted as
votes cast. Accordingly, abstentions and broker non-votes will have no effect on
the voting of this matter.
4
The following table contains biographical information about the nominees for
Class III Directors and current directors whose terms of office will continue
after the 2003 Annual Meeting. Information about the number of shares of common
stock beneficially owned by each nominee and director, directly or indirectly,
as of December 2, 2002, appears above under "Security Ownership of Management
and Five Percent Owners."
NOMINEES FOR CLASS III DIRECTORS (PRESENT TERM EXPIRES IN 2003)
--------------------------------------------------------------- DIRECTOR
NAME AND AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS SINCE
------------ --------------------------------------------------------------- -----------
Lynn P. Davenport Lynn P. Davenport has served as the General Manager of our 1994
Age: 55 Health and Consulting Services Strategic Business Unit since
October 2001. Before that he was President of our Consulting
Group from October 2000 to September 2001. Previously, he had
been President of the Human Services Division since he joined
us in 1991. Mr. Davenport has served as a director since 1994.
He has over 25 years of health and human services experience in
the areas of administration, productivity improvement,
management consulting, revenue maximization and management
information systems. Prior to joining us, Mr. Davenport was
employed by Deloitte & Touche, and its predecessor, Touche Ross
& Co., in Boston, Massachusetts, where he became a partner in
1987. Mr. Davenport received his M.P.A. in Public
Administration from New York University in 1971 and his B.A. in
Political Science and Economics from Hartwick College in 1969.
Thomas A. Grissen Thomas A. Grissen has served as the General Manager of our 1999
Age: 43 Human Services and Systems Strategic Business Unit since
October 2001. Before that, he was Chief Operating Officer from
October 2000 to September 2001. Previously, he had been
President of the Government Operations Group since he joined us
in March 1999. Mr. Grissen has served as a director since 1999.
Prior to that, he served as the General Manager and Vice
President of TRW from January 1998. Mr. Grissen was President
of BDM International from April 1997 until joining TRW. Before
starting at BDM International, Mr. Grissen was a principal and
managing director of Unisys for 16 years. Mr. Grissen received
his Executive M.B.A. from Michigan State University and his
B.A. in Business from Central Michigan University.
David V. Mastran David V. Mastran has served as our President and Chief 1975
Age: 60 Executive Officer since he founded MAXIMUS in 1975.
Dr. Mastran received his Sc.D. in Operations Research from
George Washington University in 1973, his M.S. in Industrial
Engineering from Stanford University in 1966 and his B.S. from
the United States Military Academy at West Point in 1965.
5
CLASS I DIRECTORS (PRESENT TERM EXPIRES IN 2004)
-------------------------------------------------------- DIRECTOR
NAME AND AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS SINCE
------------ -------------------------------------------------------- -----------
Peter B. Pond Peter B. Pond has served as one of our directors since 1997
Age: 58 his election by the board in December 1997 and as
Chairman of the Board since September 2001. Mr. Pond is
a founder of ALTA Equity Partners LLC, a venture capital
firm, and has been a General Partner of that firm since
June 2000. Prior to that, Mr. Pond was a Principal and
Managing Director in the Investment Banking Department
at Donaldson, Lufkin & Jenrette Securities Corporation
in Chicago and was head of that company's Midwest
Investment Banking Group. Mr. Pond holds a B.S. in
Economics from Williams College and an M.B.A. in Finance
from the University of Chicago. He is also a director of
Navigant Consulting, Inc.
James R. Thompson, Jr. James R. Thompson, Jr. has served as one of our 2001
Age: 66 directors since his election in March 2001. Governor
Thompson currently serves as Chairman of the Chicago
office of the law firm of Winston & Strawn, a position
he has held since January 1993. He joined that firm in
January 1991 as Chairman of the Executive Committee
after serving four terms as Governor of the State of
Illinois from 1977 until January 1991. Prior to his
terms as Governor, he served as U.S. Attorney for the
Northern District of Illinois from 1971 to 1975.
Governor Thompson served as the Chief of the Department
of Law Enforcement and Public Protection in the Office
of the Attorney General of Illinois, as an Associate
Professor at Northwestern University School of Law, and
as an Assistant State's Attorney of Cook County. He is a
former Chairman of the President's Intelligence
Oversight Board and presently serves as a member of the
National Commission on Terrorist Attacks Upon the United
States. Governor Thompson is currently a member of the
boards of directors of Navigant Consulting, Inc., Prime
Retail, Inc., FMC Corporation, FMC Technologies, Inc.
and Hollinger International Inc., and he is a trustee of
the Prime Group Realty Trust. Governor Thompson also
serves on the boards of directors of the Board of Trade
of the City of Chicago, Inc., the Japan Society (New
York), the Museum of Contemporary Art and the Lyric
Opera, and he is a member of the Abraham Lincoln
Bicentennial Commission. Governor Thompson attended the
University of Illinois and Washington University, and he
received his J.D. from Northwestern University in 1959.
6
CLASS II DIRECTORS (PRESENT TERM EXPIRES IN 2005)
-------------------------------------------------------- DIRECTOR
NAME AND AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS SINCE
------------ -------------------------------------------------------- -----------
Russell A. Beliveau Russell A. Beliveau has served as one of our directors 1995
Age: 55 since 1995. From October 2000 until September 2002, he
served as President of Investor Relations at MAXIMUS,
and from September 1998 until October 2000, he served as
our President of Business Development. Prior to that, he
served as the President of our Government Operations
Group from 1995 to 1998. Mr. Beliveau has more than 20
years of experience in the health and human services
industry during which he has worked in both government
and private sector positions at the senior executive
level. Mr. Beliveau's past positions include Vice
President of Operations at Foundation Health Corporation
of Sacramento, California from 1988 through 1994 and
Deputy Associate Commissioner (Medicaid) for the
Massachusetts Department of Public Welfare from 1983
until 1988. Mr. Beliveau received his Masters in
Business Administration and Management Information
Systems from Boston College in 1980 and his B.A. in
Psychology from Bridgewater State College in 1974.
John J. Haley John J. Haley has served as one of our directors since 2002
Age: 53 his election in June 2002. Mr. Haley is currently
President and Chief Executive Officer of Watson Wyatt &
Company Holdings, a human resources and employee
benefits consulting firm. Mr. Haley joined Watson Wyatt
in 1977. Mr. Haley is also a director of Watson Wyatt &
Company Holdings and serves on the Watson Wyatt LLP
Partnership Board. Mr. Haley is a Fellow of the Society
of Actuaries and is a co-author of Fundamentals of
Private Pensions (University of Pennsylvania Press). He
has an A.B. in Mathematics from Rutgers College and
studied under a Fellowship at the Graduate School of
Mathematics at Yale University.
Marilyn R. Seymann Marilyn R. Seymann has served as one of our directors 2002
Age: 60 since her election in April 2002. Dr. Seymann is
currently President and Chief Executive Officer of M
One, Inc., a management risk and information systems
consulting firm specializing in the financial services
industry. She has been with M One since 1991. Dr.
Seymann holds a B.A. from Brandeis University, an M.A.
from Columbia University, and a Ph.D. from California
Western University. She is a director of Beverly
Enterprises, Inc., Community First Bankshares, Inc., and
NorthWestern Corporation.
7
BOARD AND COMMITTEE MEETINGS
Our board of directors held six meetings during fiscal 2002. During our 2002
fiscal year, each of our directors attended all of the meetings of our board of
directors and all of the meetings of the committees of the board upon which each
served, except that Dr. Mastran and Governor Thompson did not attend one meeting
of the board, and Governor Thompson did not attend one Audit Committee meeting.
Our board has a standing Audit Committee that evaluates our independent
accountants, reviews our audited financial statements, accounting processes and
reporting systems and discusses the adequacy of our internal financial controls
with our management and our independent accountants. The Audit Committee is
directly responsible for the appointment, compensation and oversight of our
independent accountants (including resolution of disagreements between our
management and our independent accountants regarding financial reporting). The
members of the Audit Committee are Mr. Pond, Dr. Seymann and Governor Thompson,
each of whom is independent as defined by applicable New York Stock Exchange
listing standards governing the qualifications of audit committee members in
effect on the date of this proxy statement. The Audit Committee held five
meetings during fiscal 2002. The Audit Committee operates under a written
charter originally adopted by the board on May 16, 2000, as subsequently
amended. The Audit Committee's charter, as amended and currently in effect, is
included as Appendix A to this proxy statement. The Audit Committee's report
appears in this proxy statement under the heading "Report of the Audit
Committee."
Our board also has a standing Compensation Committee that is responsible for
establishing cash compensation policies with respect to our executive officers,
employees, directors and consultants. The members of the Compensation Committee
are Mr. Pond and Governor Thompson. The Compensation Committee's report appears
in this proxy statement under the heading "Report of the Board of Directors and
Compensation Committee." During our 2002 fiscal year, the Compensation Committee
did not meet separately from the full board.
Our board also has a standing Nominating Committee comprised of Mr. Pond and
Governor Thompson, who serves as the chairman of the committee. Our Nominating
Committee will consider nominations from shareholders. Shareholder nominations
should be submitted in writing to our Secretary at our corporate headquarters.
During our 2002 fiscal year, the Nominating Committee did not meet separately
from the full board.
DIRECTOR COMPENSATION
Directors who are also MAXIMUS employees do not receive additional
compensation for their services as directors. Outside directors are paid a
$30,000 annual retainer and a fee of $2,500 for each day of board or committee
meetings in which they participate. Mr. Pond receives an additional $60,000
retainer for his services as Chairman of the Board. Directors who are entitled
to directors' fees may elect to receive all or a portion of their cash fees in
stock options granted under our 1997 Equity Incentive Plan, valued using the
Black-Scholes option pricing method. For fiscal 2002, Mr. Haley, Mr. Pond and
Governor Thompson elected to receive their annual retainers in the form of stock
options, and Dr. Seymann elected to receive her annual retainer in the form of
cash. Pursuant to their elections, Mr. Haley received options to purchase 1,436
shares of our common stock at $30.32 per share, and Mr. Pond and Governor
Thompson each received options to purchase 1,556 shares of our common stock at
an exercise price of $29.60 per share. For fiscal 2002, all of our outside
directors also elected to receive all of their meeting attendance fees in the
form of stock options. Pursuant to these elections, Mr. Haley received options
to purchase 351 shares of our common stock at exercise prices ranging from
$23.10 to $24.32 per share, Mr. Pond received options to purchase 1,329 shares
of our common stock at exercise prices ranging from $23.10 to $42.98 per share,
Dr. Seymann received options to purchase 942 shares of our common stock at
exercise prices ranging from $23.10 to $30.91 per share and Governor Thompson
received options to purchase 978 shares of our common stock at exercise prices
ranging from $24.32 to $42.98 per share.
8
Any director who is not a MAXIMUS employee is eligible to participate in our
1997 Director Stock Option Plan. Options under the Director Stock Option Plan
are automatically granted to an eligible director upon the election or
re-election of the director. Under the plan, each option consists of 5,000
shares of common stock for each year of the term of office to which the director
is elected or re-elected, with any period of term of office less than a year
deemed a full year. The option becomes exercisable for 5,000 shares immediately
upon grant and, if the grant is for more than 5,000 shares, then it also becomes
exercisable for an additional 5,000 shares at each subsequent annual
shareholders meeting during which the optionee is an eligible director and
shares remain unexercisable under the option. Options granted under the Director
Stock Option Plan have a ten-year term. The exercise price for each option is
equal to our common stock's last sale price on the trading day immediately
preceding the date of grant, as reported on the New York Stock Exchange. During
fiscal year 2002, the eligible directors were Mr. Haley, Mr. Pond, Dr. Seymann
and Governor Thompson.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Governor Thompson, who has served as one of our directors since his election
in March 2001, is Chairman of the law firm of Winston & Strawn in Chicago.
Winston & Strawn has provided certain specialized legal services to MAXIMUS from
May 2000 to the present.
Donna Muldoon Mastran is employed by us as an Executive Vice President. She
is married to Dr. Mastran, our President and CEO and one of our directors.
Mrs. Mastran earned $125,600 in salary and $7,500 in bonus from us during our
2002 fiscal year. As of the date of this proxy statement, Mrs. Mastran remains
employed by us on similar terms.
Keven L. Kvasnicka is employed by us as a Manager in our Office of
Information Systems. Mr. Kvasnicka is married to Dr. Mastran's daughter.
Mr. Kvasnicka earned $83,460 in salary and $5,000 in bonus from us during our
2002 fiscal year. As of the date of this proxy statement, Mr. Kvasnicka remains
employed by us on similar terms.
Joseph L. Mastran, Dr. Mastran's brother, is employed by us as a Corporate
Real Estate Specialist. Joseph Mastran earned $63,000 in salary and $2,000 in
bonus from us during our 2002 fiscal year. As of the date of this proxy
statement, Joseph Mastran remains employed by us on similar terms.
Richard A. Montoni, who joined us as our Chief Financial Officer and
Treasurer in March 2002, was provided by us with a bridge loan intended to
facilitate Mr. Montoni's relocation to Virginia. The principal amount of the
loan was $325,000 and interest was charged on the loan at the rate of 4.0% per
year. On September 25, 2002, Mr. Montoni repaid all of the outstanding principal
and interest on the loan.
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below provides earned compensation information for our CEO and our
six most highly compensated other employees who served as our executive officers
during some or all of our 2002 fiscal year whose salary and bonus from MAXIMUS
earned for fiscal year 2002 exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
---------------------------------- NUMBER OF
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
FISCAL SALARY BONUS COMPENSATION STOCK UNITS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) OPTIONS ($)(4)
--------------------------- -------- -------- -------- ------------ ----------- ---------- ------------
David V. Mastran......... 2002 375,000 -- -- -- -- --
President and Chief 2001 350,000 -- -- -- -- --
Executive Officer 2000 350,000 -- -- -- -- --
Lynn P. Davenport........ 2002 360,000 20,000 -- 256,190 5,000(5) 8,000
General Manager, Health 2001 340,000 -- -- -- -- 6,800
and Consulting Services 2000 320,000 138,750 -- -- 21,985(6) 6,800
SBU
Thomas A. Grissen........ 2002 360,000 20,000 -- 226,050 5,000(7) 6,500
General Manager, Human 2001 340,000 30,100 -- -- 6,800
Services and Systems SBU 2000 320,000 95,000 -- 36,944(8) 8,250
David A. Hogan*.......... 2002 290,000 20,000 -- 150,700 -- 8,000
President, Human Services 2001 260,000 74,630 -- -- 7,108
Group 2000 205,000 97,000 -- 32,175(9) 6,796
Richard L. Bradley**..... 2002 273,000 20,000 -- 105,490 -- 6,150
President, Systems Group 2001 234,394 30,100 -- -- 50,000(10) 5,200
2000 -- -- -- -- -- --
Russell A. Beliveau***... 2002 280,000 10,000 -- -- -- 8,000
President of Investor 2001 280,000 24,070 -- -- -- 6,800
Relations 2000 280,000 25,000 -- -- 2,880(11) 6,800
Richard A. Montoni****... 2002 176,042 54,166 69,886(12) 105,490 60,000(13) 3,250
Chief Financial Officer 2001 -- -- -- -- -- --
2000 -- -- -- -- -- --
--------------------------
* Mr. Hogan is a current employee who served as one of our executive officers
as that term is defined in Rule 3b-7 of the Securities Exchange Act of 1934
until April 2002.
** Mr. Bradley is a current employee who served as one of our executive
officers as that term is defined in Rule 3b-7 of the Securities Exchange Act
of 1934 until April 2002. Mr. Bradley's employment with us began in
October 2000.
*** Mr. Beliveau resigned from his position as President of Investor Relations
effective September 30, 2002. He continues to serve as a member of our board
of directors.
****Mr. Montoni's employment with us began in March 2002.
(1) The bonuses shown for fiscal year 2002 were earned in fiscal year 2002, but
were paid on or about October 15, 2002. Similarly, bonuses shown for fiscal
year 2001 were earned in fiscal year 2001, but paid on or about October 31,
2001, and bonuses shown for fiscal year 2000 were earned in fiscal year
2002, but were paid on or about October 31, 2000.
10
(2) Compensation in the form of perquisites and other personal benefits has been
omitted when the total amount of those perquisites and personal benefits
constituted less than either $50,000 or 10% of the total annual salary and
bonus for the officer for the 2002 fiscal year.
(3) The values attributed to the RSUs granted in our 2002 fiscal year reported
in this column are determined by multiplying the number of RSUs awarded by
the market value of our common stock on the grant date of the RSUs. The
aggregate number and market value (based on the closing price of our stock
on September 30, 2002) of the RSUs held by each of the individuals listed in
this chart on September 30, 2002 (based on the closing price of our common
stock on September 30, 2002) was as follows: Dr. Mastran, no RSUs;
Mr. Davenport, 8,500 RSUs valued at $190,400; Mr. Grissen, 7,500 RSUs valued
at $168,000; Mr. Hogan, 5,000 RSUs valued at $112,000; Mr. Bradley, 3,500
RSUs valued at $78,400; Mr. Beliveau, no RSUs; Mr. Montoni, 3,500 RSUs
valued at $78,400. These RSUs were granted on March 31, 2003 and vest as to
one-sixth of each award on each of the first six anniversaries of March 31,
2003, subject to acceleration of vesting if certain earnings targets are
met. Dividend equivalents will not be paid on the RSUs.
(4) The figures in this column represent our contribution to the employee's
account under our 401(k) plan.
(5) Consists of options earned in fiscal 2002 to purchase common stock at an
exercise price of $22.17 per share granted in October 2002.
(6) Consists of options earned in fiscal 2000 to purchase 15,985 shares of
common stock at an exercise price of $20.75 per share granted in
October 2000 and options to purchase 6,000 shares of common stock at an
exercise price of $20.438 per share granted in June 2000.
(7) Consists of options earned in fiscal 2002 to purchase common stock at an
exercise price of $22.17 per share granted in October 2002.
(8) Consists of options earned in fiscal 2000 to purchase 30,944 shares of
common stock at an exercise price of $20.75 per share granted in
October 2000 and options to purchase 6,000 shares of common stock at an
exercise price of $20.438 per share granted in June 2000.
(9) Consists of options earned in fiscal 2000 to purchase 26,175 shares of
common stock at an exercise price of $20.75 per share granted in
October 2000 and options to purchase 6,000 shares of common stock at an
exercise price of $20.438 per share granted in June 2000.
(10) Consists of options earned in fiscal 2001 to purchase common stock at an
exercise price of $20.875 per share granted in October 2000.
(11) Consists of options earned in fiscal 2000 to purchase common stock at an
exercise price of $20.75 per share granted in October 2000.
(12) Moving allowance (Mr. Montoni relocated from Denver, Colorado to Reston,
Virginia).
(13) Consists of options earned in fiscal 2002 to purchase common stock at an
exercise price of $32.67 per share granted in February 2002.
11
OPTION GRANT TABLE
The following table provides information for options granted during our 2002
fiscal year to our CEO and our six most highly compensated other employees who
served as our executive officers during some or all of our 2002 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE OF ASSUMED
PERCENT ANNUAL RATES OF
NUMBER OF OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- -------------- ----------- ---------- ---------- ----------
David V. Mastran............. -- -- -- -- -- --
Lynn P. Davenport............ -- -- -- -- -- --
Thomas A. Grissen............ -- -- -- -- -- --
David A. Hogan............... -- -- -- -- -- --
Richard L. Bradley........... -- -- -- -- -- --
Russell A. Beliveau.......... -- -- -- -- -- --
Richard A. Montoni........... 60,000(2) 13% 32.67 02/19/2012 1,233,000 3,124,200
------------------------
(1) The values in this column are given for illustrative purposes; they do not
reflect our estimate or projection of future stock prices. The values are
based on an assumption that our common stock's market price will appreciate
at the stated rate, compounded annually, from the date of the option grant
until the end of the option's ten-year term. We based the values on the
common stock's last sale price on the business day immediately preceding the
date of grant, as reported on the New York Stock Exchange. Actual gains, if
any, on stock option exercises will depend upon the future performance of
our common stock's price, which will affect all shareholders
proportionately.
(2) This option was granted on February 19, 2002 under our 1997 Equity Incentive
Plan. The option expires upon the earlier of three months after
Mr. Montoni's termination of employment or February 19, 2012. The option
vests as to one-fourth of the shares subject to the option on each of the
first four anniversaries of the grant date.
12
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides information regarding stock options exercised
during our 2002 fiscal year by our CEO and our six most highly compensated other
employees who served as our executive officers during some or all of our 2002
fiscal year, the number of shares of stock underlying unexercised stock options
held on September 30, 2002 by our CEO and our six most highly compensated other
employees who served as our executive officers during some or all of our 2002
fiscal year, and the value of unexercised stock options held on September 30,
2002 by our CEO and our six most highly compensated other employees who served
as our executive officers during some or all of our 2002 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS EXERCISED DURING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR 2002 FISCAL YEAR-END FISCAL YEAR-END ($)(2)
-------------------------------- --------------------------- ---------------------------
NUMBER OF
SHARES ACQUIRED VALUE REALIZED
NAME ON EXERCISE ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
David V. Mastran........... -- -- -- -- -- --
Lynn P. Davenport.......... 40,000 1,395,500 89,104 13,609 1,143,490 19,073
Thomas A. Grissen.......... -- -- 146,622 69,521 28,472 31,415
David A. Hogan............. -- -- 20,280 17,211 24,538 27,480
Richard L. Bradley......... -- -- 12,500 37,500 19,063 57,188
Russell A. Beliveau........ 21,344 390,841 2,144 1,965 1,188 2,376
Richard A. Montoni......... -- -- -- 60,000 -- --
------------------------
(1) The values in this column represent the fair market value of the shares
acquired upon exercise of options as of the date of exercise, less the
exercise price paid to exercise those options.
(2) The values in this column represent the difference between the last reported
sales price of the common stock as reported by the New York Stock Exchange
on September 30, 2002 ($22.40) and the exercise price of the option,
multiplied by the number of shares subject to the option.
13
EXECUTIVE EMPLOYMENT AGREEMENTS
COMPENSATION. Dr. Mastran, Mr. Davenport and Mr. Beliveau formerly served
as officers of MAXIMUS under executive employment agreements which expired in
September 2001. Mr. Hogan and Mr. Bradley do not have employment agreements with
us. Accordingly, these officers served in fiscal 2002 as employees-at-will.
Mr. Grissen and Mr. Montoni serve as officers of MAXIMUS under executive
employment agreements which provide for minimum base salaries, subject to annual
review for adjustment. Mr. Grissen's executive employment agreement set his
initial base salary at $25,000 per month, and Mr. Montoni's executive employment
agreement set his initial base salary at $27,083 per month. In addition, each of
these officers is entitled to receive a year-end bonus under his employment
agreement that is consistent with our past practices. Mr. Montoni's agreement
also provided for a moving allowance and a relocation loan.
TERM AND TERMINATION. Dr. Mastran's, Mr. Davenport's and Mr. Beliveau's
employment agreements expired on September 30, 2001. Mr. Grissen's employment
term began March 1, 1999 and continues through March 1, 2003. Mr. Montoni's
employment term began March 18, 2002 and continues through March 18, 2006. The
employment of each of these officers is subject to our right to terminate the
officer's employment if the officer breaches any material duty or obligation to
us or engages in other proscribed conduct.
OTHER TERMS. Mr. Grissen's and Mr. Montoni's employment agreements provides
that they will not compete with us and will maintain our trade secrets in strict
confidence. Although now expired, our employment agreements with Dr. Mastran,
Mr. Davenport and Mr. Beliveau contain provisions which survive the expiration
of the agreements which similarly limit these officers from engaging in certain
competitive activities and require these officers to maintain the
confidentiality of our proprietary information.
REPORT OF THE BOARD OF DIRECTORS AND COMPENSATION COMMITTEE
The Compensation Committee of our board of directors establishes the cash
compensation policies for the company's executive officers. During our 2002
fiscal year, the Compensation Committee consisted of Mr. Pond and Mr. Jesse
Brown, two of our outside directors, until Mr. Brown's resignation effective
March 31, 2002. Beginning April 4, 2002, Governor Thompson, another of our
outside directors, joined Mr. Pond on the Compensation Committee. The board of
directors is responsible for approving the equity compensation of executive
officers under the MAXIMUS 1997 Equity Incentive Plan. The board and the
Compensation Committee submit this report on compensation policies and actions
during fiscal year 2002 with respect to our executive officers, including
Dr. Mastran in his capacity as President and Chief Executive Officer of the
company and our six most highly compensated other employees who served as our
executive officers during some or all of our 2002 fiscal year.
COMPENSATION PHILOSOPHY
MAXIMUS bases its executive compensation philosophy on the belief that
competitive compensation is essential to attract, motivate, retain and reward
highly-qualified and industrious executives who contribute to the company's
long-term success. Through its compensation policy, MAXIMUS strives to provide
total compensation that is competitive with other companies in comparable lines
of business. The compensation program includes both motivational and
retention-related compensation components. Effective individual performance that
meets and exceeds MAXIMUS' current plans and objectives is encouraged through
bonus awards and stock option and restricted stock unit ("RSU") grants. Stock
options and RSUs are granted in order to link a meaningful portion of the
compensation of MAXIMUS' executives with the performance of MAXIMUS' common
stock.
MAXIMUS endeavors to reward each executive's achievement of designated
targets that relate to MAXIMUS' annual and long-term performance, customer
satisfaction and individual fulfillment of
14
responsibilities. While compensation survey data are useful guides for
comparative purposes, we believe that an effective compensation program also
requires the application of judgment and subjective determinations of individual
performance. Therefore, the Compensation Committee and MAXIMUS' board of
directors apply their judgment to reconcile the program's objectives with the
realities of retaining valued employees.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to a public company for compensation over $1 million
paid to its chief executive officer and its four other most highly compensated
executive officers. However, if certain performance-based requirements are met,
qualifying compensation will not be subject to this deduction limit. MAXIMUS
currently intends to structure its stock option grants to executive officers in
a manner that meets these performance-based requirements.
EXECUTIVE COMPENSATION PROGRAM
Compensation for MAXIMUS' executives consists of three principal elements:
annual base salary, annual cash bonus and annually-awarded long term equity
incentives.
BASE SALARY. Mr. Grissen and Mr. Montoni receive an initial monthly base
salary under the terms of their employment agreements, subject to annual review
for adjustment. Mr. Grissen's employment agreement was approved by MAXIMUS in
1999, and Mr. Montoni's agreement was approved by MAXIMUS in 2002.
Messrs. Davenport, Hogan, Bradley and Beliveau were paid base salaries during
our 2002 fiscal year as determined by the Compensation Committee. MAXIMUS sets
the salaries or minimum salaries of its executive officers by referring to the
relevant executive's salary history and by considering internal and external
factors, and MAXIMUS may adjust base salaries for future periods based upon
individual performance, experience and the salaries paid to individuals in
comparable positions with other companies.
CASH BONUS. Messrs. Davenport, Grissen, Hogan, Bradley, Beliveau and
Montoni also may receive an annual cash bonus as significant part of their
annual compensation. In fiscal 2002, their cash bonuses represented the
following percentages of the indicated officer's total fiscal 2002 earned cash
compensation: Mr. Davenport, 5.3%; Mr. Grissen, 5.3%; Mr. Hogan, 6.5%,
Mr. Bradley, 6.8%, Mr. Beliveau, 3.6%; and Mr. Montoni, 18.0%. A target cash
bonus is established for Mr. Grissen and Mr. Montoni by the terms of their
employment agreements. We determine the amount of the cash bonuses awarded to
our other executive officers based upon our financial performance and each
officer's contribution to this performance. We review and evaluate the
performance of the executive's division or activity, the impact on us of that
division or activity and the skills and experience required for the job in
assessing each executive's contribution to our success. We also compare these
factors with similar factors applied to other executives, both inside and
outside of MAXIMUS.
EQUITY OWNERSHIP. MAXIMUS also provides long-term incentive compensation to
its executives in the form of options to purchase common stock and RSUs. The
MAXIMUS equity ownership program is designed to (i) highlight and reinforce the
mutual long-term interests between employees and the shareholders and
(ii) attract and retain important key executives, managers and individual
contributors. The retention of key executives is essential to our growth and
development.
Generally, the stock options and RSUs that MAXIMUS grants have relatively
long vesting periods and, in the case of stock options, exercise prices equal to
the fair market value per share of common stock on the date of the grant. The
retention value of these options and RSUs is maximized, and our executive
officers are provided with an incentive for longer-term success, through long
vesting periods. Many of our stock options vest in equal annual installments
over four years beginning on the first anniversary of the
15
date of the option grant. If employees leave MAXIMUS before their options are
exercisable, the unexercisable portions are forfeited. While MAXIMUS believes
that these longer vesting periods are in the shareholders' best interest, the
vesting periods may result in an increased number of outstanding options
compared to companies with shorter vesting schedules. The RSUs typically vest in
equal installments over six years beginning on the first anniversary of the RSU
grant, subject to acceleration in the event the company achieves certain
performance targets.
In general, the number of RSUs and shares of common stock underlying the
stock options granted to each executive officer reflects the significance of
that executive officer's current and anticipated contributions to MAXIMUS and
the equity compensation policies of competitors and other privately-held and
publicly-traded companies with similar capitalizations. MAXIMUS expects to
continue to apply this philosophy to future grants of its stock options and
RSUs. The value that may be realized upon exercise of options depends upon the
price of our common stock at the time of exercise and the exercise price of the
option. Each individual option-holder, and not the board, makes the decision as
to whether to exercise options that are exercisable at any particular time.
DR. MASTRAN'S COMPENSATION
Dr. Mastran's minimum base annual salary for fiscal 2002 was fixed at
$375,000 by the board of directors, representing a $25,000 increase from
Dr. Mastran's base salary during fiscal 2001. The board has set Dr. Mastran's
base salary at a level it believed was consistent with Dr. Mastran's salary
history at MAXIMUS. The Compensation Committee is responsible for determining
Dr. Mastran's annual bonus after the end of the fiscal year by evaluating
MAXIMUS' overall financial performance and Dr. Mastran's contribution to
MAXIMUS' performance. Despite Dr. Mastran's substantial contributions to
MAXIMUS' performance in fiscal 2002, Dr. Mastran received no bonus, stock awards
or option grants in light of his existing significant equity ownership in
MAXIMUS. On October 15, 2002, the Compensation Committee approved an increase in
Dr. Mastran's base salary for our 2003 fiscal year to $430,000.
MAXIMUS, INC.
BOARD OF DIRECTORS
Russell A. Beliveau
Lynn P. Davenport
Thomas A. Grissen
John J. Haley
David V. Mastran
Peter B. Pond
Marilyn R. Seymann
James R. Thompson, Jr.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the board of directors' primary function is to assist
the board in fulfilling its oversight responsibilities for financial reporting
compliance by reviewing the audited financial statements, the systems of
internal controls which management and the board of directors have established
and the overall audit process. In the course of its oversight, the Audit
Committee of the board has (i) reviewed and discussed with management the
MAXIMUS audited financial statements for the fiscal year ended September 30,
2002, (ii) discussed with Ernst & Young LLP, MAXIMUS' independent accountants,
the matters required to be discussed by Statement on Accounting Standards
No. 61, COMMUNICATION WITH AUDIT COMMITTEES, and (iii) received the written
disclosures and the letter from the auditors required by Independence Standards
Board Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES. In
addition, the Audit Committee discussed with the independent accountants the
auditors' independence and considered whether the provision by Ernst & Young LLP
of the non-audit services described in the
16
section of this proxy statement captioned "Independent Public Accountants" below
is compatible with maintaining the auditors' independence.
Based on this review and discussion, the Audit Committee recommended to the
board of directors that the audited financial statements be included in the
MAXIMUS Annual Report on Form 10-K for the year ended September 30, 2002 for
filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Peter B. Pond
Marilyn R. Seymann
James R. Thompson, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2002, the MAXIMUS Compensation Committee consisted of
Mr. Pond and Mr. Jesse Brown, until Mr. Brown's resignation from the Board
effective March 31, 2002. Governor Thompson was elected to the Compensation
Committee on April 4, 2002, a position he held for the remainder of our 2002
fiscal year. As disclosed under the caption "Certain Relationships and Related
Transactions" above, Governor Thompson is Chairman of the law firm of Winston &
Strawn, which firm has provided certain specialized legal services to MAXIMUS
from May 2000 to the present.
In addition, Dr. Mastran and Messrs. Beliveau, Davenport and Grissen, in
their respective capacities as members of our board of directors, participated
in our board's deliberations during our 2002 fiscal year concerning executive
officer compensation. During our 2002 fiscal year, these individuals served as
officers and employees of MAXIMUS.
INDEPENDENT PUBLIC ACCOUNTANTS
We have selected the firm of Ernst & Young LLP as our independent public
accountants for fiscal year 2003. Ernst & Young examined our financial
statements for fiscal year 2002. Representatives of Ernst & Young are expected
to attend the annual meeting to respond to questions and will have the
opportunity to make a statement if they desire.
AUDIT FEES. The aggregate of fees billed to us by Ernst & Young for
professional services rendered for the audit of our annual financial statements
for our 2002 fiscal year and for reviewing our financial statements included in
our Quarterly Reports on Form 10-Q filed with the SEC for our 2002 fiscal year
was $281,000. The aggregate of fees billed to us by Ernst & Young for
professional services rendered for accounting consultations during our 2002
fiscal year and for all other audit-related services provided to us by Ernst &
Young during our 2002 fiscal year was $228,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. No fees were
billed to us by Ernst & Young for financial systems design and implementation
services for our 2002 fiscal year.
ALL OTHER FEES. The aggregate of fees billed to us by Ernst & Young for all
services rendered to us by Ernst & Young for our 2002 fiscal year, other than
the fees disclosed in the preceding two paragraphs of this proxy statement, was
$161,000.
17
STOCK PERFORMANCE GRAPH
The following graph compares cumulative total shareholder return on our
common stock for the five-year period from September 30, 1997 to September 30,
2002, with the cumulative total return for the NYSE Stock Market (U.S.
Companies) Index and the NYSE/AMEX/NASDAQ Stocks (SIC 8740-8749 U.S. Companies)
Management and Public Relations Services Index. This graph assumes the
investment of $100 on September 30, 1997 in our common stock, the NYSE Stock
Market (U.S. Companies) Index and the NYSE/AMEX/NASDAQ Stocks (SIC 8740-8749
U.S. Companies) Management and Public Relations Services Index and assumes
dividends are reinvested.
[GRAPH]
LEGEND
9/30/97 9/30/98 9/30/99 9/30/00 9/30/01 9/30/02
-------- -------- -------- -------- -------- --------
MAXIMUS, Inc................................ $100.0 $105.4 $103.5 $ 76.5 $137.3 $ 77.4
NYSE Stock Market (U.S. Companies) Index.... $100.0 $104.1 $123.8 $141.6 $120.4 $100.5
NYSE/AMEX/NASDAQ Stocks (SIC 8740-8749 U.S.
Companies) Management and Public Relations
Services Index............................ $100.0 $ 78.7 $ 69.4 $ 49.3 $ 33.4 $ 26.6
18
PROPOSAL 2: SHAREHOLDER PROPOSAL REGARDING EXPENSING FUTURE EXECUTIVE STOCK
OPTION AWARDS
THE AMALGAMATED BANK LONGVIEW SMALLCAP 600 INDEX FUND, 11-15 UNION SQUARE,
NEW YORK, NEW YORK 10003, HOLDER OF 17,295 SHARES OF OUR COMMON STOCK, HAS
SUBMITTED THE FOLLOWING PROPOSED RESOLUTION AND SUPPORTING STATEMENT FOR
CONSIDERATION AT OUR 2003 ANNUAL MEETING:
RESOLVED: The shareholders of MAXIMUS, Inc. (the "Company") hereby request
that the Board of Directors establish a policy and practice of expensing in the
Company's annual income statement the costs of all future stock options issued
to Company executives.
SUPPORTING STATEMENT
Stock options are an important part of the Company's overall executive
compensation program. The grant of stock options is designed to provide positive
incentives for executives to focus on creating long-term corporate value. The
increasing use of stock options at a time of growing investor skepticism about
the accuracy and transparency of corporate financial reporting has prompted a
public debate on the appropriate accounting treatment for stock options.
Current accounting rules allow companies to report stock option expenses
annually in a company income statement or as a footnote in the annual report.
(See Financial Accounting Standards Board Statement No. 123). Most companies,
including MAXIMUS, report the calculated cost of corporate stock options as a
footnote in the annual report. Thus, option costs are not included in
determining the Company's operating income.
We believe that including the estimated cost of stock option grants in a
company's income statement would more accurately reflect a company's operational
earnings. Standard & Poor's ("S&P") recently issued a report entitled MEASURES
OF CORPORATE EARNINGS, which set out a new formula for more accurately
calculating the after-tax earnings generated from a company's principal business
or businesses. S&P's call for a more accurate "core earnings" calculation of
corporate operational earnings was prompted in large measure by investor
concerns about the transparency, accuracy and reliability of corporate financial
reporting.
One of the key reporting items examined in the S&P report was the accounting
treatment of stock option grants. S&P stated that the "growing use [of options]
means that investors and analysts should have the essential data needed to
evaluate options and their impact on corporate profits. Research shows that
options expense could lower Core Earnings by as much as 10%."
We believe that stock option costs should be included in earnings statements
because these stock grants are part of a company's executive compensation plans,
no less than such items as salaries, cash bonuses and other benefits.
We believe that a company's failure to treat stock option grant costs as
expenses on corporate income statements may provide investors with an inaccurate
assessment of corporate profitability. Also, we believe that the failure to
expense executive stock options can result in excessive use of such options
based on a belief that they impose "no cost" on the company.
These factors prompt concern regarding MAXIMUS, given that in 2002 the
potential equity dilution under existing option plans was approximately 25% of
market value, according to Institutional Shareholder Services.
In our view, expensing stock option costs would help promote more
appropriate use of stock options in executive compensation plans and give
investors a more accurate picture of company operational earnings and the true
cost of executive compensation.
We urge you to vote YES on this proposal.
19
MAXIMUS RESPONSE TO SHAREHOLDER PROPOSAL
MAXIMUS views the use of stock options as a valuable tool for recruiting top
management talent, and we believe that we have used that tool with prudence and
moderation. We acknowledge the concerns of some shareholders that the cost of
stock options should be reflected in the Company's financial statements. MAXIMUS
is not opposed to the idea of expensing stock options, but we believe such an
important accounting principle should be applied consistently among all
companies. Currently, the Notes to the Company's Consolidated Financial
Statements contained in our Form 10-K include a calculation to show the cost of
stock options, on a pro forma basis, as required by Statement of Financial
Accounting Standard No. 123.
Although the issue of expensing stock options has attracted significant
interest from the accounting, legal, and investment communities, there is no
standard applicable to all companies by which options are required to be valued,
and no consensus has emerged on the appropriate method for measuring the true
cost of stock options to the Company. Our experience using the Black-Scholes
option valuation formula suggests that it is a very imprecise tool for these
purposes. Moreover, the dilution of the common stock that occurs when the
options are exercised creates another "cost" for the Company. Thus, the impact
of expensing of stock options is doubly felt.
MAXIMUS does and will continue to comply with all SEC and Financial
Accounting Standards Board (FASB) requirements, and we will continue to apply
conservative option valuation methods consistent with sound accounting and
industry practices. At this time, however, we believe the Company would be
placed at a relative disadvantage in attracting and retaining executive talent
if it were required to expense the cost of stock options, especially since this
accounting treatment has not been standardized or widely adopted and is not
required of our competitors. Because of the cost and negative tax consequences,
MAXIMUS would essentially be foreclosed from issuing stock options as part of
our compensation package if we implement this accounting method before
widespread industry adoption. We would likely have difficulty in attracting and
retaining key executives. Ultimately this could make the Company a less
attractive investment and harm our shareholders.
Due to our September fiscal year end, we find ourselves confronting this
issue much sooner than our competitors and before there is any clear guidance
from regulatory agencies. MAXIMUS believes the proper method for accounting for
options is a matter best left to the SEC and FASB, and those organizations
should adopt standards applicable to all companies. We do not believe our
shareholders are best served by having the Company adopt a practice that may not
become widely used, that will depress our earnings relative to those of our peer
group companies, and that will place us at a disadvantage in recruiting and
holding key executives.
FOR THESE REASONS, WE RESPECTFULLY URGE YOU TO VOTE AGAINST THIS PROPOSAL.
SHAREHOLDER PROPOSALS FOR OUR 2004 ANNUAL MEETING OF SHAREHOLDERS
Generally, our bylaws require a shareholder who wishes to bring business
before or propose director nominations at an annual meeting to give written
notice to our Corporate Secretary at least 45 days before the meeting. However,
if we have given less than 60 days notice or public disclosure of the meeting,
then we must receive a shareholder's notice within 15 days after our notice or
disclosure was given. A shareholder notice must describe the proposed business
or nominee and identify the shareholder making the proposal or nomination.
Any proposal you intend to present at the 2004 Annual Meeting of
Shareholders must be received by MAXIMUS at our principal office at 11419 Sunset
Hills Road, Reston, Virginia 20190, Attention: Corporate Secretary, not later
than September 29, 2003 if you wish to have it included in the proxy statement
and form of proxy for that meeting.
20
In addition, if we do not receive your proposal for presentation at the 2004
Annual Meeting by December 13, 2003, then our management proxies will be
permitted to use their discretionary voting authority when the proposal is
raised at the annual meeting, without having advised shareholders of the
proposal in the proxy statement for the 2004 Annual Meeting.
OTHER MATERIALS
Our Summary Annual Report for our 2002 fiscal year and our Annual Report on
Form 10-K for our 2002 fiscal year as filed with the SEC on December 20, 2002
(excluding certain exhibits) are being mailed to shareholders along with this
notice and proxy statement on or about January 27, 2003. UPON WRITTEN REQUEST,
WE WILL PROVIDE ANY RECIPIENT OF THIS PROXY STATEMENT, FREE OF CHARGE, ONE COPY
OF OUR COMPLETE ANNUAL REPORT ON FORM 10-K FOR OUR 2002 FISCAL YEAR, INCLUDING
ALL EXHIBITS. REQUESTS SHOULD BE DIRECTED TO RICHARD A. MONTONI, CHIEF FINANCIAL
OFFICER; MAXIMUS, INC.; 11419 SUNSET HILLS ROAD; RESTON, VIRGINIA 20190.
By Order of the Board of Directors,
David R. Francis, SECRETARY
January 27, 2003
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APPENDIX A
AUDIT COMMITTEE CHARTER
PURPOSE
The principal purpose of the Audit Committee ("Committee") is to assist the
Board of Directors ("Board") in fulfilling its responsibility to oversee
management's conduct of the Company's financial reporting processes and audits
of the Company's financial statements. The Committee will review the financial
reports and other financial information provided by the Company, the Company's
disclosure controls and procedures and internal accounting and financial
controls, the internal audit function, the legal compliance and ethics programs,
and the annual independent audit process.
In discharging its oversight role, the Committee is granted the authority to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and the authority and resources
to engage independent outside counsel, auditors, or other experts as it deems
necessary to carry out its duties.
The outside auditor is ultimately accountable to the Board and the Committee
as representatives of the shareholders. The Committee, as a committee of the
Board, shall have the direct authority and responsibility for the appointment
(and where appropriate, replacement), compensation and oversight of the work of
the outside auditor in preparing or issuing an audit report or related work,
including resolving any disagreements between management and the outside auditor
regarding financial reporting. The Committee shall receive direct reports from
the outside auditor. The Committee shall be responsible for overseeing the
independence of the outside auditor and for pre-approving all auditing services
and permitted non-audit services provided by the outside auditor.
This Charter shall be reviewed for adequacy on an annual basis by the
Committee.
MEMBERSHIP
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition will meet the New York Stock Exchange
audit committee composition requirements. Accordingly, all of the members will
be directors:
- Who have no relationship to the Company that the Board determines would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director;
- Who do not receive any consulting, advisory or other compensatory fee from
the Company, other than in the member's capacity as a member of the Board
or any of its committees;
- Who are not an "affiliated person" (as defined by applicable law or
regulation) of the Company or any subsidiary, other than as a member of
the Board or any of its committees; and
- Who are financially literate.
In addition, at least one member of the Committee will have sufficient
accounting or related financial management expertise to comply with the New York
Stock Exchange audit committee composition requirements and, to the extent
practicable, be a "financial expert" (as that term is defined by the Securities
and Exchange Commission (the "SEC")).
KEY RESPONSIBILITIES
The Committee's role is one of oversight, and it is recognized that the
Company's management is responsible for preparing the Company's financial
statements and that the outside auditor is responsible for auditing the annual
financial statements and for reviewing the unaudited quarterly financial
statements.
A-1
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. The functions are set forth as
a guide and may be varied from time to time as appropriate under the
circumstances.
- The Committee shall discuss with the internal auditor and the outside
auditor the overall scope, staffing, and plans for their respective
audits.
- The Committee shall review with management and the outside auditor the
audited financial statements and disclosures under management's discussion
and analysis of financial condition and results of operations to be
included in the Company's Annual Report on Form 10-K and the Annual Report
to Stockholders, and shall review and consider with the outside auditor
the matters required to be discussed by Statement on Auditing Standards
No. 61. The Committee shall also review the Company's disclosure in the
annual Proxy Statement pertaining to the responsibilities and activities
of the Committee.
- As a whole, or through the Committee chair, the Committee shall review
with the outside auditor, prior to filing with the SEC, the Company's
interim financial information to be included in the Company's Quarterly
Reports on Form 10-Q and the matters required to be discussed by SAS
No. 61.
- The Committee shall review and discuss earnings press releases with
Company management before they are issued.
- The Committee shall periodically discuss with management, the internal
auditor, and the outside auditor the quality and adequacy of the Company's
internal controls and internal auditing procedures, including any
significant deficiencies in the design or operation of those controls
which could adversely affect the Company's ability to record, process,
summarize and report financial data and any fraud, whether or not
material, that involves management or other employees who have a
significant role in the Company's internal controls, and discuss with the
outside auditor how the Company's financial systems and controls compare
with industry practices.
- When required, the Committee shall review management's assessment of the
effectiveness of internal controls as of the end of the most recent fiscal
year and the outside's auditor's report on management's assessment.
- The Committee shall periodically review with management and the outside
auditor the quality, as well as acceptability, of the Company's accounting
policies, the reasonableness of significant judgments and the clarity of
disclosures in the financial statements. The Committee shall also discuss
with the outside auditor how the Company's accounting policies compare
with those in the industry and all alternative treatments of financial
information within generally accepted accounting principles that have been
discussed with management, the ramifications of use of such alternative
disclosures and treatments and the treatment preferred by the outside
auditor.
- The Committee shall periodically discuss with the outside auditor whether
all material correcting adjustments identified by the outside auditor in
accordance with generally accepted accounting principles and the rules of
the SEC are reflected in the Company's financial statements.
- The Committee shall review with management and the outside auditor any
material financial or other arrangements of the Company which do not
appear on the Company's financial statements and any transactions or
courses of dealing with third parties that are significant in size or
involve terms or other aspects that differ from those that would likely be
negotiated with independent parties, and which arrangements or
transactions are relevant to an understanding of the Company's financial
statements.
- The Committee shall review with management and the outside auditor the
Company's critical accounting policies and practices.
A-2
- The Committee shall review with the outside auditor all material
communications between the outside auditor and management, such as any
management letter or schedule of unadjusted differences.
- The Committee shall request from the outside auditor annually a formal
written statement delineating all relationships between the auditor and
the Company consistent with Independence Standards Board Standard No. 1
and such other requirements as may be established by the Public Company
Accounting Oversight Board, discuss with the outside auditor any such
disclosed relationships or services and their impact on the outside
auditor's independence, and take appropriate action regarding the
independence of the outside auditor.
- As required by SEC regulations, the Committee shall approve, in advance,
all audit services and all permitted non-audit services to be provided to
the Company by the outside auditor. The Committee may delegate
pre-approval authority to a member of the Committee. The decisions of any
member to whom pre-approval authority is delegated must be presented to
the full Committee at the next scheduled meeting.
- The Committee shall prepare its report to be included in the Company's
annual proxy statement as required by SEC regulations.
- The Committee shall recommend to the Board whether, based on the reviews
and discussions referred to above, the financial statements should be
included in the Company's Annual Report on Form 10-K.
- The Committee shall approve a code of ethics, as required by rules of the
SEC, for senior financial officers and such other employees and agents of
the Company as it determines.
- The Committee shall review and approve all related-party transactions.
- The Committee shall receive reports from the Company's legal counsel of
any evidence of material violations of the securities laws or breaches of
fiduciary duty.
- At least annually, the Committee shall obtain and review a report by the
outside auditors describing the Company's internal quality control
procedures and any material issues raised by the most recent internal
quality control review or peer review of the Company, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried
out by the Company, and any steps taken to address any issues identified.
- The Committee shall set clear hiring policies for employees or former
employees of the independent auditors that meet the SEC regulations and
stock exchange listing standards.
COMPLAINT PROCEDURES
Any issue of significant financial misconduct shall be brought to the
attention of the Committee for its consideration. In this connection, the
Committee shall establish procedures for (i) the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting or auditing matters.
A-3
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MAXIMUS, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS MARCH 18, 2003
THE UNDERSIGNED SHAREHOLDER OF MAXIMUS, INC. (THE "COMPANY") HEREBY
APPOINTS DAVID V. MASTRAN, RICHARD A. MONTONI AND DAVID R. FRANCIS, AND EACH
OF THEM ACTING SINGLY, AS THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED, WITH
FULL POWER OF SUBSTITUTION, TO VOTE ON BEHALF OF THE UNDERSIGNED ALL OF THE
SHARES OF CAPITAL STOCK OF THE COMPANY THAT THE UNDERSIGNED IS ENTITLED TO
VOTE AT THE ANNUAL MEETING OF SHAREHOLDERS OF THE COMPANY TO BE HELD ON MARCH
18, 2003, AND AT ALL ADJOURNMENTS THEREOF, HEREBY REVOKING ANY PROXY
HERETOFORE GIVEN WITH RESPECT TO SUCH SHARES.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SEE REVERSE
SIDE
ANNUAL MEETING OF SHAREHOLDERS OF
MAXIMUS, INC.
March 18, 2003
Please date, sign and mail your proxy COMPANY NUMBER _________________
card in the envelope provided as soon ACCOUNT NUMBER ________________
as possible. NUMBER OF SHARES ________________
Please detach and mail in the envelope provided.
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PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
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FOR AGAINST ABSTAIN
1. Election of Class III Directors. 2. Shareholder proposal / / / / / /
to request a policy
The Board of Directors recommends and practice of expensing
a vote "FOR" this proposal. the costs of all
future executive stock options.
The Board of Directors recommends a vote
"AGAINST" this proposal.
NOMINEES
/ / FOR ALL NOMINEES ( ) Lynn P. Davenport
( ) Thomas A. Grissen
( ) David V. Mastran
/ / WITHHOLD AUTHORITY This Proxy, when properly executed, will
FOR ALL NOMINEES be voted in the manner directed by the
undersigned herein. If no specification
is made, this Proxy will be voted "FOR"
/ / FOR ALL EXCEPT proposal 1 and "AGAINST" proposal 2. The
(SEE INSTRUCTIONS BELOW) proxies appointed hereby are also
authorized by this Proxy to vote in
their discretion on behalf of the
undersigned upon such other matters as
may properly come before the meeting.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: (X)
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To change the address on your account, please check the box at right and
indicate you new address in the space above. Please note that / /
changes in the registered name(s) on the account may not be submitted
via this method.
______________________ Please check here if you plan to attend the meeting. / /
Signature of Shareholder ___________________________ Date______________
Signature of Shareholder ___________________________ Date________________
Note: This proxy must be signed exactly as name appears hereon. When shares are
held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is
a corporation, please sign in full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.