-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PkV0/3qYbg2cgVxPBF8nJb8PxW2ubB1qCkxqokTKa8J3j/Eki+RpbKYT4cdp58EG dT+sxNh5oTS1u5AEMdwtNQ== 0001047469-98-012178.txt : 19980403 0001047469-98-012178.hdr.sgml : 19980403 ACCESSION NUMBER: 0001047469-98-012178 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980513 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUFF & PHELPS CREDIT RATING CO CENTRAL INDEX KEY: 0000928599 STANDARD INDUSTRIAL CLASSIFICATION: 7320 IRS NUMBER: 363569514 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-13286 FILM NUMBER: 98577227 BUSINESS ADDRESS: STREET 1: 55 EAST MONROE ST CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3123683100 MAIL ADDRESS: STREET 1: 55 EAST MONROE ST CITY: CHICAGO STATE: IL ZIP: 60603 DEF 14A 1 DEF 14A SCH, SHAREHOLDERS, NOTICE SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to !240.14a-11(c) or !240.14a-12 DUFF & PHELPS CREDIT RATING CO. - - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) 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 transaction applies: ----------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ----------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ----------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ----------------------------------------------------------------------- (5) Total fee paid: ----------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ----------------------------------------------------------------------- 2) Form, Schedule or Registration Statement No.: ----------------------------------------------------------------------- 3) Filing Party: ----------------------------------------------------------------------- 4) Date Filed: ----------------------------------------------------------------------- [LOGO] DUFF & PHELPS CREDIT RATING CO. 55 EAST MONROE STREET CHICAGO, ILLINOIS 60603 ------------------------ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 13, 1998 --------------------- To the Shareholders of DUFF & PHELPS CREDIT RATING CO. NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Duff & Phelps Credit Rating Co. (the "Company") will be held at The Palmer House Hotel, 17 East Monroe Street, Chicago, Illinois 60690, on Wednesday, May 13, 1998, at 9:30 a.m., for the purpose of considering and acting upon the following matters: 1. To elect five directors to serve until the next annual meeting of shareholders and until their successors are duly elected and qualified; and 2. To consider and act upon such other business as may properly come before the meeting or any adjournments thereof. Shareholders of record as of the close of business on March 20, 1998 shall be entitled to notice of and to vote at the meeting. The transfer books will not be closed. For ten days prior to the meeting, a list of shareholders entitled to vote at the meeting will be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, at the offices of Duff & Phelps Credit Rating Co., 55 East Monroe Street, Chicago, Illinois 60603. Shareholders who do not expect to attend the meeting in person are urged to execute and return the accompanying proxy in the envelope enclosed. By order of the Board of Directors Marie C. Becker, SECRETARY Chicago, Illinois March 31, 1998 PROXY STATEMENT DUFF & PHELPS CREDIT RATING CO. ANNUAL MEETING OF SHAREHOLDERS MAY 13, 1998 --------------------- GENERAL INFORMATION This proxy statement is being furnished to the shareholders of Duff & Phelps Credit Rating Co., an Illinois corporation (the "Company"), 55 East Monroe Street, Chicago, Illinois 60603, in connection with the solicitation of proxies by its Board of Directors for use at the annual meeting of shareholders to be held on Wednesday, May 13, 1998 and at any adjournments thereof. The approximate date on which this proxy statement and the accompanying proxy are first being sent to shareholders is March 31, 1998. The proxy is revocable at any time before it is voted by a subsequently dated proxy, by written notification to the persons named therein as proxies, which may be mailed or delivered to the Company at the above address, or by attendance at the meeting and voting in person. All shares represented by effective proxies will be voted at the meeting and at any adjournments thereof. If the enclosed proxy is properly executed and returned in time for voting with a choice specified thereon, the shares represented thereby will be voted as indicated thereon. If no specification is made, the proxy will be voted by the proxy committee for the election as directors of the nominees named below (or substitutes therefor, if any nominees are unable or refuse to serve) and in its discretion upon such matters not presently known or determined which may properly come before the meeting. The Company has one class of stock outstanding, Common Stock, without par value ("Common Stock"). On March 20, 1998, 4,833,999 shares of Common Stock were outstanding and entitled to one vote each on all matters to be considered at the meeting. Shareholders of record as of the close of business on March 20, 1998 are entitled to notice of and to vote at the meeting. There are no cumulative voting rights with respect to the election of directors. Inspectors of election will be appointed to tabulate the number of shares of Common Stock represented at the meeting in person or by proxy, to determine whether or not a quorum is present and to count all votes cast at the meeting. The inspectors of election will treat abstentions and broker non-votes as shares that are present and entitled to vote for purposes of determining the presence of a quorum. With respect to the tabulation of votes cast on a specific proposal presented to the shareholders at the meeting, abstentions will be considered as present and entitled to vote with respect to that specific proposal, whereas broker non-votes will not be considered as present and entitled to vote with respect to that specific proposal. PRINCIPAL HOLDERS OF COMMON STOCK The following table shows with respect to each person who is known to be the beneficial owner of more than 5% of the Common Stock of the Company: (i) the total number of shares of Common Stock beneficially owned as of March 20, 1998; and (ii) the percent of the Common Stock so owned as of that date:
AMOUNT AND NATURE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF COMMON BENEFICIAL OWNER OWNERSHIP(1) STOCK - - ---------------------------------------------------- ---------------------- ------------------- Royce & Associates, Inc. ........................... 371,332(2) 7.7% 1414 Avenue of the Americas New York, New York 10019 Harris Associates, Inc. ............................ 313,586(3) 6.5 Two North LaSalle Street, Suite 500 Chicago, Illinois 60602-3790 The Kaufmann Fund, Inc. ............................ 300,000(4) 6.2 140 East 45th Street, 43rd Floor New York, New York 10017 RH Capital Associates LLC .......................... 299,800(5) 6.2 55 Harristown Road Glen Rock, New Jersey 07452 Mellon Bank Corporation ............................ 294,299(6) 6.1 One Mellon Bank Center Pittsburgh, Pennsylvania 15258
The following table shows with respect to each director and nominee for director of the Company, the executive officers of the Company named in the Executive Compensation Table, and all directors and executive officers as a group, eight in number: (i) the total number of shares of Common Stock beneficially owned as of March 20, 1998; and (ii) the percent of the Common Stock so owned as of that date:
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK - - ---------------------------------------------------------- ------------------ --------------- Paul J. McCarthy(7)....................................... 170,270 3.5% Philip T. Maffei(7)....................................... 97,597 2.0 Milton L. Meigs (7)(8).................................... 103,697 2.1 Jonathan Ingham(7)........................................ 20,397 * Donald J. Herdrich(7)..................................... 12,897 * Ernest T. Elsner(7)....................................... 91,632 1.9 Peter J. Stahl(7)(9)...................................... 86,106 1.8 Larry A. Brossman(7)...................................... 29,683 * All directors and executive officers as a group (8 persons)(7)........................................... 612,279 11.7%
- - ------------------------ * Less than one percent. 2 (1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934. Unless otherwise stated below, each such person has sole voting and investment power with respect to all such shares. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. (2) Number of shares reported in the most recent Schedule 13G filed by Royce & Associates, Inc. with the Securities and Exchange Commission. (3) Number of shares reported in the most recent Schedule 13G filed by Harris Associates, Inc. ("Harris") with the Securities and Exchange Commission. Includes 313,586 shares as to which Harris has shared voting power, 4,786 shares as to which Harris has sole dispositive power, and 308,800 shares as to which Harris has shared dispositive power. (4) Number of shares reported in the most recent Schedule 13G filed by The Kaufmann Fund, Inc. with the Securities and Exchange Commission. (5) Number of shares reported in the most recent Schedule 13G filed by RH Capital Associates LLC ("RH Capital") with the Securities and Exchange Commission. Includes 16,500 shares as to which RH Capital has sole voting power, 283,300 shares as to which RH Capital has shared voting power, 16,500 shares as to which RH Capital has sole dispositive power, and 283,300 shares as to which RH Capital has shared dispositive power. (6) Number of shares reported in the most recent Schedule 13G filed by Mellon Bank Corporation with the Securities and Exchange Commission. (7) Includes shares of Common Stock which could be acquired through the exercise of stock options as follows: Mr. McCarthy, 103,603 shares; Mr. Maffei, 66,500 shares; Mr. Meigs, 59,717 shares; Mr. Ingham, 20,397 shares; Mr. Herdrich, 12,897 shares; Mr. Elsner, 56,732 shares; Mr. Stahl, 47,183 shares; Mr. Brossman, 22,933 shares; and all directors and executive officers as a group, 397,295 shares. (8) Includes 80 shares owned by Mr. Meigs' wife. Mr. Meigs disclaims beneficial ownership of such shares. (9) Includes 1,000 shares owned by Mr. Stahl's wife. Mr. Stahl disclaims beneficial ownership of such shares. ELECTION OF DIRECTORS NOMINEES AND DIRECTORS At the meeting, five directors are to be elected to hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified. All of the nominees are presently directors of the Company. The affirmative vote of the holders of a plurality of the shares of Common Stock represented in person or by proxy at the annual meeting is required to elect directors. It is intended that, in the absence of contrary specifications, votes will be cast pursuant to the enclosed proxies for the election of such nominees. Should any of the nominees become unable or unwilling to accept nomination or election, it is intended, in the absence of contrary specifications, that the proxies will be voted for the balance of those named and for a substitute nominee or nominees. However, the Company now knows of no reason 3 to anticipate such an occurrence. All of the nominees have consented to be named as nominees and to serve as directors if elected. The following persons are nominees for election as directors of the Company: PAUL J. MCCARTHY Age - 59 Director since - 1991 Mr. McCarthy has been Chairman of the Board of the Company since December 1995 and Chief Executive Officer of the Company since February 1991. He has also been Chief Financial Officer of the Company since November 1994. Mr. McCarthy was also President of the Company from February 1991 to December 1995. Mr. McCarthy was also an Executive Vice President and a Director of Duff & Phelps Corporation ("D&P") from January 1992 to November 1994 and an Executive Vice President and a Director of Duff & Phelps Inc. from February 1991 until its dissolution in November 1992. From May 1975 to February 1991, he served as President, Chief Executive Officer and a Director of McCarthy, Crisanti & Maffei, Inc., the investment research operations of which were acquired by D&P in February 1991. PHILIP T. MAFFEI Age - 54 Director since - 1991 Mr. Maffei has been President of the Company since December 1995 and Chief Operating Officer of the Company since October 1994. From February 1991 to December 1995, Mr. Maffei was an Executive Vice President of the Company. From May 1975 to February 1991, he served as an Executive Vice President, Treasurer and a Director of McCarthy, Crisanti and Maffei, Inc., the investment research operations of which were acquired by D&P in February 1991. MILTON L. MEIGS Age - 65 Director since - 1991 Mr. Meigs is presently retired. Mr. Meigs was an Executive Vice President of the Company from February 1991 to December 31, 1994. From December 1987 to February 1991, Mr. Meigs was a Group Vice President of the Company. JONATHAN INGHAM Age - 56 Director since - 1994 Mr. Ingham has been President and Chief Executive Officer of Ingham Industries Inc. (DBA Auth Chimes), a manufacturer of door chimes, since August 1989. DONALD J. HERDRICH Age - 55 Director since - 1995 Mr. Herdrich is presently a private investor. From 1987 to 1989, Mr. Herdrich was general partner of Stonebridge Partners, and from 1978 to 1986 Mr. Herdrich was employed by Kohlberg Kravis Roberts & Co. THE BOARD OF DIRECTORS The business and affairs of the Company are managed under the direction of the Board of Directors. The Board has responsibility for establishing broad corporate policies and for evaluating the overall performance of the Company. Members of the Board are kept informed of the Company's business by various reports and documents sent to them, as well as by reports presented at meetings of the Board and its committees. During 1997, the Board of Directors met four times. All directors attended 100% of the meetings of the Board of Directors and the committees on which he served. 4 BOARD COMMITTEES The Board of Directors has three standing committees, the Executive Committee, the Audit Committee and the Compensation Committee. The Executive Committee is empowered to exercise the authority of the Board of Directors in the management of the business and affairs of the Company between meetings of the Board of Directors, except as such authority may be limited by the provisions of the Illinois Business Corporation Act. The Executive Committee, which is composed of Messrs. McCarthy (Chairman) and Maffei, meets informally from time to time. The Audit Committee recommends to the Board of Directors the appointment of the independent public accountants for the following year. The Audit Committee also reviews the scope of the annual audit, the annual financial statements of the Company and the auditor's report thereon and the auditor's comments relative to the adequacy of the Company's system of internal controls and accounting systems. The Audit Committee, which is composed of Messrs. Herdrich (Chairman), Ingham and Meigs, met one time during 1997. The Compensation Committee reviews management compensation levels and provides recommendations regarding salaries and other compensation for the Company's officers, including bonuses, grants of stock options and other incentive programs. The Compensation Committee serves as the committee that administers the Company's 1994 Long-Term Stock Incentive Plan. The Compensation Committee, which is composed of Messrs. Ingham (Chairman), Herdrich and Meigs, met two times during 1997. The Company does not have a standing nominating committee of the Board of Directors. This function is performed by the Board of Directors. The Company's Bylaws establish procedures, including advance notice procedures, with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors. In general, notice must be received by the Company at its principal executive offices not less than 60 days nor more than 90 days prior to meetings of shareholders of the Company. Such notice must set forth all information with respect to each such nominee as required by the federal proxy rules. Such notice must be accompanied by a signed statement of such nominee consenting to be a nominee and a director, if elected. 5 REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION GENERAL The Compensation Committee of the Board of Directors is responsible for establishing, administering and evaluating the Company's policies regarding the compensation of its executive officers. The Company's compensation policies are intended to align executive compensation with the business objectives and performance of the Company. Additionally, the Company's compensation policies are designed to permit the Company to attract, retain and motivate executive officers to ensure the long-term success of the Company. The compensation of executive officers is composed of three components: salary, annual incentive compensation and long-term incentive compensation. The Compensation Committee considers the total compensation of each executive officer in establishing each element of his or her compensation. The compensation of the Company's Chief Executive Officer is subject to the same policies that are applicable to all executive officers of the Company. SALARY In establishing the annual salaries of each of the Company's executive officers, the Compensation Committee considers the responsibilities, abilities and industriousness of the executive officer and the Company's performance. The salaries of the Company's executive officers are reviewed annually. ANNUAL INCENTIVE COMPENSATION The Company maintained two annual incentive compensation plans in 1997: the Incentive Compensation Plan and the Executive Management Incentive Compensation Plan. Incentive compensation under both plans was variable and closely tied to corporate and individual performance in a manner that encouraged a continuous focus on providing top-quality service to clients, increasing productivity and obtaining new business opportunities in order to increase profitability and shareholder value. INCENTIVE COMPENSATION PLAN. The Company has maintained the Incentive Compensation Plan for several years. Pursuant to the Incentive Compensation Plan, cash bonuses have been awarded annually to officers and a limited number of other key employees of the Company, including executive officers, based on operating income (before depreciation, amortization, incentive compensation and name use fees) and a performance assessment of the participant. Approximately 82% of the Company's professional staff participated in the Incentive Compensation Plan during 1997. (The professional staff is all employees other than secretarial and similar support staff.) The Compensation Committee reviewed awards under the Incentive Compensation Plan, subject to approval of such awards by the Board of Directors. At the beginning of 1997, a target incentive fund was established based on an operating income goal (before depreciation, amortization, incentive compensation and name use fees) for the Company. After the results of operations for the year were known, the incentive fund was adjusted by a percentage of the variance of the actual operating income (before depreciation, amortization, incentive compensation and name use fees) from the operating income goal (before depreciation, amortization, incentive compensation and name use fees) established at the beginning of the year. 6 The persons entitled to receive a bonus under the Incentive Compensation Plan and the amounts awarded were determined as a result of a process involving a recommendation by the Executive Committee, based on a formalized performance assessment, and review and final approval by the Compensation Committee of the Board of Directors. EXECUTIVE MANAGEMENT INCENTIVE COMPENSATION PLAN. Under the Executive Management Incentive Compensation Plan, cash bonuses have been awarded annually to the executive officers of the Company based on the operating income (before depreciation, amortization, incentive compensation and name use fees) of the Company. The plan and awards have been reviewed and approved annually by the Compensation Committee of the Board of Directors. At the beginning of 1997, a target bonus was established based on the operating income goal (before depreciation, amortization, incentive compensation and name use fees) for the Company. Adjustments to the target bonus were also specified based on variances of the actual operating income (before depreciation, amortization, incentive compensation and name use fees) from the established operating income goal (before depreciation, amortization, incentive compensation and name use fees). LONG-TERM INCENTIVE COMPENSATION Pursuant to the Company's 1994 Long-Term Stock Incentive Plan, key employees of the Company, including executive officers, are eligible to receive long-term incentives in a variety of forms including stock options, stock appreciation rights, restricted stock, phantom stock and other stock based awards. The purpose of the Stock Incentive Plan is to enable the Company to attract and retain the best available executive personnel and other key employees, to provide for the Company's long-term growth and business success and to provide an incentive for such employees to exert their best efforts on behalf of the Company and its shareholders. The Compensation Committee believes that the grant of awards whose value is related to the value of the Company's Common Stock aligns the interests of shareholders and employees who receive awards. The Stock Incentive Plan is administered by the Compensation Committee. The Compensation Committee determines the individuals to whom awards are granted, the type and amount of awards to be granted, the time of all such grants and the terms, conditions and provisions of such awards and the restrictions related thereto. In making awards under the Stock Incentive Plan, the Compensation Committee considers the recommendations of the Executive Committee, the responsibilities of each grantee, his past performance and his anticipated future contribution to the Company. During 1997, only stock options were granted under the Stock Incentive Plan. The Compensation Committee believes that the grant of stock options provides a strong incentive for employees to increase shareholder value over the long term because the full benefit of such awards cannot be realized unless the value of the Company's Common Stock appreciates over a specified number of years. Approximately 75% of the officers of the Company received options in 1997. The exercise price of options granted in 1997 was equal to the fair market value per share of Common Stock on the date of grant. One-third of each option grant vests on the first, second and third anniversaries of the date of grant and such options expire ten years after the date of grant. Amendments adopted in 1993 to the Internal Revenue Code limit the deductibility for federal income tax purposes of certain compensation payable to top executive officers of publicly held corporations. Certain types of compensation are excluded from the limitations. The Company believes that the limitations are not applicable to stock options granted under the Stock Incentive Plan or to awards under the Incentive Compensation Plan or the Executive Management Incentive Compensation Plan. 7 The salary, annual incentive compensation and long-term incentive compensation paid by the Company in 1997 to the Chief Executive Officer and the other four people serving as executive officers of the Company at December 31, 1997 is set forth in the tables that follow this Report. The Compensation Committee believes that the executive officers of the Company are dedicated to increasing profitability and shareholder value and that the compensation policies that the Compensation Committee has established and administered contribute to this focus. THE COMPENSATION COMMITTEE Jonathan Ingham (Chairman) Donald J. Herdrich Milton L. Meigs The foregoing Report of the Compensation Committee on Executive Compensation shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates such information by reference. 8 EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION TABLE The following table sets forth certain information regarding the compensation paid or accrued by the Company to or for the account of the Chief Executive Officer and each of the other four people serving as executive officers of the Company at December 31, 1997 for services rendered in all capacities during each of the Company's fiscal years ended December 31, 1997, 1996 and 1995:
LONG TERM COMPENSATION AWARDS -------------- ANNUAL COMPENSATION SECURITIES ------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#) COMPENSATION(3) - - ------------------------------- ---- ---------- ---------- -------------- ------------------- Paul J. McCarthy,.............. 1997 $ 380,000 $ 890,521 12,000(2) $ 9,251 Chairman of the Board 1996 365,000 762,772 18,000(2) 8,325 and Chief Executive 1995 348,000 604,000 18,000(2) 7,886 Officer Philip T. Maffei,.............. 1997 260,000 750,521 10,000(2) 7,103 President and Chief 1996 250,000 622,772 15,000(2) 6,397 Operating Officer 1995 236,000 454,000 14,000(2) 6,165 Ernest T. Elsner,.............. 1997 198,000 330,434 6,600(2) 7,957 Executive Vice President 1996 189,000 283,280 10,000(2) 7,300 1995 180,000 215,000 8,000(2) 6,958 Peter J. Stahl,................ 1997 190,000 354,100 6,600(2) 6,066 Executive Vice President 1996 142,000 434,612 10,000(2) 5,481 1995 132,000 361,336 10,000(2) 5,472 Larry A. Brossman,............. 1997 165,000 195,304 6,600(2) 12,020 Executive Vice President(4)
- - ------------------------ (1) The Company maintains an Incentive Compensation Plan pursuant to which cash bonuses are awarded annually to officers and other key employees of the Company based on operating income (before depreciation, amortization, incentive compensation and name use fees) and a performance assessment of the participant. The Company also maintains an Executive Management Incentive Compensation Plan pursuant to which cash bonuses are awarded annually to the executive officers of the Company based on operating income (before depreciation, amortization, incentive compensation and name use fees) of the Company. The Company also maintains a commission plan based on specific performance criteria for an executive officer. (2) Number of shares of Common Stock subject to options granted during 1997, 1996 and 1995 under the Company's 1994 Long-Term Stock Incentive Plan. (3) Consists of matching contributions made by the Company pursuant to the Company's Savings Plan and life insurance premiums paid by the Company on behalf of each executive officer. For 1997, life insurance premiums in the following amounts were paid by the Company: Mr. McCarthy, $4,451; Mr. Maffei, $2,303; Mr. Elsner, $3,157; Mr. Stahl, $1,266; and Mr. Brossman, $7,220. (4) Mr. Brossman became an executive officer of the Company on February 13, 1997. 9 EMPLOYEE STOCK OPTIONS OPTION GRANTS. The following table sets forth certain information regarding options to purchase shares of Common Stock granted as incentive compensation to the executive officers of the Company named in the Executive Compensation Table during the Company's 1997 fiscal year:
INDIVIDUAL GRANTS ----------------------------------------------------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS GRANT DATE UNDERLYING GRANTED TO EXERCISE PRESENT OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE ($)(3) - - ------------------------------- --------------- ----------------- ----------- ---------------------- ----------- Paul J. McCarthy............... 12,000 5.4% $ 36.875 November 13, 2007 $ 215,027 Philip T. Maffei............... 10,000 4.5 36.875 November 13, 2007 179,202 Ernest T. Elsner............... 6,600 2.9 36.875 November 13, 2007 118,287 Peter J. Stahl................. 6,600 2.9 36.875 November 13, 2007 118,287 Larry A. Brossman.............. 6,600 2.9 36.875 November 13, 2007 118,287
- - ------------------------ (1) All options were granted on November 13, 1997 under the Company's 1994 Long-Term Stock Incentive Plan. All options are non-qualified stock options. Beginning November 13, 1998, annually, upon the anniversary of the date of grant of the options, one-third of the options granted become vested and exercisable, until the third anniversary of the date of grant, whereupon all of the options granted are vested and exercisable. (2) The option exercise price is equal to the fair market value per share of Common Stock on the date of grant. (3) Calculated pursuant to the Black-Scholes option pricing model. Assumes expected volatility of 25%, risk-free rate of return of 5.7%, dividend yield of .3%, time of exercise of 10 years and no risk of forfeiture. OPTION EXERCISES. The following table sets forth certain information regarding options to purchase shares of Common Stock exercised during the Company's 1997 fiscal year and the number and value of 10 unexercised options to purchase shares of Common Stock held at the end of the Company's 1997 fiscal year by the executive officers of the Company named in the Executive Compensation Table:
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS FISCAL YEAR END AT FISCAL YEAR END NUMBER OF (#) ($)(2) SHARES VALUE ---------------- ------------------ ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE - - --------------------------- ------------ ------------ ---------------- ------------------ Paul J. McCarthy........... 0 $0 103,603/30,000 $3,172,953/418,500 Philip T. Maffei........... 0 0 66,500/24,667 1,953,663/340,000 Ernest T. Elsner........... 0 0 56,732/15,933 1,745,408/214,750 Peter J. Stahl............. 0 0 47,183/16,600 1,392,622/232,250 Larry A. Brossman.......... 0 0 22,933/14,600 656,411/179,750
- - ------------------------ (1) Value realized is equal to the difference between the fair market value per share of Common Stock on the date of exercise and the option exercise price per share multiplied by the number of shares acquired upon exercise of an option. (2) Value of unexercised in-the-money options is equal to the difference between the fair market value per share of Common Stock at December 31, 1997 and the option exercise price per share multiplied by the number of shares subject to options. SEVERANCE PROTECTION AGREEMENTS The Company has entered into Severance Protection Agreements with each of the executive officers of the Company named in the Executive Compensation Table providing them with severance compensation equal to 2.9 times their annual salary and bonus in the event their employment is terminated for specified reasons within 36 months following a change in control of the Company or in the event the executive officer terminates his employment for any reason during the 60-day period commencing on the first anniversary of a change in control of the Company. The specified reasons for termination which will result in the obligation to pay severance compensation include (a) any termination of the executive officer's employment without Cause (as defined in the Severance Protection Agreement); (b) a change in the executive officer's status, title, position or responsibilities which represents an adverse change from his status, title, position or responsibilities as in effect at any time within 90 days preceding the date of a change in control or at any time thereafter; the assignment to the executive officer of any duties or responsibilities which are inconsistent with his status, title, position or responsibilities as in effect at any time within 90 days preceding the date of a change in control or at any time thereafter; or any removal of the executive officer from or failure to reappoint or reelect him to any of such offices or positions; (c) a reduction in the executive officer's base salary or any failure to pay the executive officer any compensation or benefits to which he is entitled within 5 days of the date due; (d) requiring the executive officer to be based at any place outside a 30-mile radius from the city in which he is employed; (e) the failure by the Company to (A) continue in effect any material compensation or employee benefit plan in which the executive officer was participating at any time within 90 days preceding the date of a change in control or at any time thereafter or (B) provide the executive officer with compensation and benefits, in the 11 aggregate, at least equal to those provided for under each other employee benefit plan, program and practice in which the executive officer was participating at any time within 90 days preceding the date of a change in control or at any time thereafter; (f) the insolvency or the filing of a petition for bankruptcy of the Company, which petition is not dismissed within 60 days; (g) any material breach by the Company of any provision of the Severance Protection Agreement; (h) any purported termination of the executive officer's employment for cause which does not comply with the terms of the Severance Protection Agreement; and (i) the failure of the Company to obtain an agreement, satisfactory to the executive officer, from any successors and assigns to assume and agree to perform the Severance Protection Agreement. Under the Severance Protection Agreements, a "change in control" includes (a) an acquisition of any voting securities of the Company by any person immediately after which such person has beneficial ownership of 20% or more of the combined voting power of the Company's then outstanding voting securities; (b) the cessation for any reason of the individuals who are presently members of the Board (the "Incumbent Board") to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall be considered a member of the Incumbent Board; and (c) approval by shareholders of the Company of (1) a merger, consolidation or reorganization involving the Company, unless (i) the shareholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least 85% of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation or reorganization; (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the Board of Directors of the Surviving Corporation; and (iii) no person has beneficial ownership of 15% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; (2) a complete liquidation or dissolution of the Company; or (3) an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any person. DIRECTORS' COMPENSATION Directors who are employees of the Company do not receive any compensation for serving as directors of the Company. Other directors receive an annual retainer of $18,000 and an additional $2,000 payable to any such director who serves as a chairman of a committee of the Board of Directors, plus an attendance fee for each such director of $1,000 per regular meeting and $500 per committee meeting. Under the Company's 1994 Long-Term Stock Incentive Plan, non-employee directors ("Outside Directors") are automatically granted on the date of their initial election an option to purchase 5,000 shares of the Company's Common Stock at an exercise price per share equal to the fair market value per share of Common Stock on the date of grant. Such options become exercisable one year after the date of grant and expire ten years after the date of grant. Outside Directors may also elect to receive options to purchase shares of Common Stock in lieu of being paid their annual retainer. On November 13, 1997, Messrs. Herdrich, Ingham and Meigs were each granted an option to purchase 3,252 shares of the Company's Common Stock at an exercise price equal to $31.34 per share in lieu of being paid their annual retainer for 1997. Such options become exercisable on the date of the 1998 annual meeting of shareholders 12 and expire on November 13, 2007. Additionally, all Outside Directors are reimbursed for expenses incurred in attending board meetings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors maintains a Compensation Committee, which is presently composed of Messrs. Ingham (Chairman), Herdrich and Meigs. Mr. Meigs was an Executive Vice President of the Company until December 31, 1994. None of the other members of the Compensation Committee is presently or was formerly an officer or employee of the Company. PERFORMANCE GRAPH The following graph compares the cumulative total return on the Company's Common Stock with the cumulative total return of the Standard & Poor's 500 Stock Index and the common stock of a peer group selected by the Company for the period beginning on October 24, 1994 (the date on which the Company's Common Stock began trading on a when issued basis) through December 31, 1997. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DUFF & PHELPS Credit Rating Co. S&P 500 Peer Group 24-Oct-94 $ 100.00 $ 100.00 $ 100.00 31-Dec-94 $ 79.25 $ 100.28 $ 97.07 31-Dec-95 $ 116.42 $ 137.96 $ 134.20 31-Dec-96 $ 196.60 $ 169.64 $ 160.54 31-Dec-97 $ 332.28 $ 226.24 $ 229.24
Assumes $100 invested on October 24, 1994 in the Company's Common Stock, the Standard & Poor's 500 Stock Index and the common stock of the peer group members. All indices assume dividend reinvestment. Peer group index members are McGraw-Hill, Inc., Dun & Bradstreet Corp., Equifax Inc., Dow Jones & Co. Inc., and MBIA Inc. The peer group index is market capitalization-weighted. 13 The foregoing table shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates such information by reference. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS The Company's consolidated financial statements for the year ended December 31, 1997, were audited by Arthur Andersen LLP, independent public accountants. Arthur Andersen LLP has been engaged as the Company's independent auditors for fiscal year 1998. Representatives of Arthur Andersen LLP are expected to attend the annual meeting to respond to appropriate questions and to make an appropriate statement if they desire to do so. SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING Shareholder proposals intended to be presented at the next annual meeting must be received by the Company for inclusion in its proxy statement and form of proxy relating to such meeting no later than December 1, 1998. OTHER MATTERS The Company is not aware of any matters, other than those referred to herein, which will be presented at the meeting. If any other appropriate business should properly be presented at the meeting, the proxies named in the accompanying form of proxy will vote the proxies in accordance with their best judgment. EXPENSES OF SOLICITATION All expenses incident to the solicitation of proxies by the Company will be paid by the Company. In addition to solicitation by mail, arrangements have been made with brokerage houses and other custodians, nominees, and fiduciaries to send the proxy material to their principals, and the Company will reimburse them for their reasonable out-of-pocket expenses in doing so. Proxies may also be solicited personally or by telephone or telegraph by regular employees of the Company. Chicago, Illinois March 31, 1998 14 PROXY PROXY DUFF & PHELPS CREDIT RATING CO. 55 EAST MONROE STREET, CHICAGO, ILLINOIS 60603 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 13, 1998 The undersigned hereby appoints Paul J. McCarthy and Marie C. Becker, or either of them, as attorneys and proxies, each with the power to appoint a substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of Common Stock of Duff & Phelps Credit Rating Co. (the "Company") held of record by the undersigned on March 20, 1998, at the annual meeting of stockholders to be held on May 13, 1998 or any adjournment thereof. PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE (CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) - - ------------------------------------------------------------------------------ DUFF & PHELPS CREDIT RATING CO. PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/ 1. ELECTION OF DIRECTORS- For Withhold For All NOMINEES: Donald J. Herdrich, All All Except those whose name(s) Jonathan Ingham, Philip T. appear below Maffei, Paul J. McCarthy and / / / / / / Milton L. Meigs. ---------------------- In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted FOR Proposal 1. This proxy is revocable at any time. Dated: 1998 ---------------------------------- Signature(s) ----------------------------------------------------------------- - - ----------------------------------------------------------------------------- (IMPORTANT: Please sign your name exactly as it appears hereon, in the case of joint holders, all should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President, or other authorized officer. If a partnership, please sign in partnership name by authorized person.) - - ------------------------------------------------------------------------------ TRIANGLE FOLD AND DETACH HERE TRIANGLE YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----