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 (S) 240.14a-11(c) or (S) 240.14a-12
ELECTRONIC DATA SYSTEMS CORPORATION
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(Name of Registrant as Specified In Its Charter)
ELECTRONIC DATA SYSTEMS CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
[LOGO OF EDS]
Richard H. Brown
Chairman of the Board and Chief Executive Officer
April 2, 2001
Dear fellow shareholder:
On behalf of your Board of Directors, it is my pleasure to invite you to
attend the 2001 Annual Meeting of Shareholders of EDS. The meeting will be held
on Tuesday, May 22, 2001, at 1:00 p.m. local time, at The Plano Centre, 2000 E.
Spring Creek Parkway, Plano, Texas 75074. You will find information regarding
the matters to be voted on at the meeting in the following pages. The 2000
Annual Report to Shareholders is also enclosed with these materials.
Please let us know whether you plan to attend the meeting by marking the
appropriate box on your proxy card or, if you vote by telephone or Internet,
indicating your plans when prompted. If you are a shareholder of record, please
bring the top portion of the proxy card to the meeting as your admission ticket.
If you plan to attend the meeting and your shares are held in street name (by a
bank or broker, for example), you may bring a recent account statement to the
meeting in lieu of the admission ticket.
Your vote is important. Whether or not you plan to attend the meeting,
please either complete and return the enclosed proxy card in the accompanying
envelope or vote through the telephone or Internet voting procedures described
on the proxy card (if you hold your shares in street name, telephone or Internet
voting will be available to you only if offered by your bank or broker). Please
note that your completed proxy, or your telephone or Internet vote, will not
prevent you from attending the meeting and voting in person should you so
choose.
I look forward to seeing you at the meeting.
Sincerely,
Richard H. Brown
Our Annual Report and Proxy Statement are available electronically. As an
alternative to receiving printed copies of these documents in future years, you
may elect to access them electronically and vote on the Internet. To do so, if
you are a registered holder, please follow the instructions for Internet voting
on your proxy card and, when voting, indicate when prompted that you agree to
access these documents electronically in future years. If you hold shares in
street name, follow the instructions for Internet voting, if available, on your
voting instruction card and indicate if prompted that you agree to access these
documents electronically in future years.
TABLE OF CONTENTS
Page
----
About the Meeting............................................................................. 1
Who Can Vote................................................................................ 1
How You Can Vote............................................................................ 1
Revocation of Proxies....................................................................... 1
Required Votes.............................................................................. 1
Other Matters to be Acted Upon at the Meeting............................................... 2
Expenses of Solicitation.................................................................... 2
Board Of Directors............................................................................ 2
Committees Established By the Board......................................................... 2
Corporate Governance........................................................................ 3
Compensation of Directors................................................................... 4
Report of Audit Committee................................................................... 4
Proposal 1: Election Of Directors............................................................. 5
Directors Standing for Election............................................................. 5
Directors Continuing in Office.............................................................. 6
Management Stock Ownership.................................................................. 8
Executive Compensation...................................................................... 9
Report of Compensation and Benefits Committee on Executive Compensation................... 9
Compensation and Benefits Committee Interlocks and Insider Participation.................. 11
Performance Graph......................................................................... 12
Summary Compensation Table................................................................ 13
Option Grants in 2000..................................................................... 14
Option Values at December 31, 2000........................................................ 14
Retirement Plans.......................................................................... 15
Employment Agreement with Richard H. Brown................................................ 15
Offer of Employment to James E. Daley..................................................... 16
Offer of Employment to Troy W. Todd....................................................... 16
Change of Control Employment Agreements................................................... 17
Retention Plan............................................................................ 18
Certain Transactions...................................................................... 18
Section 16(a) Beneficial Ownership Reporting Compliance................................... 18
Proposal 2: Ratification Of Appointment Of Auditors.......................................... 19
Proposal 3: Approval Of Amended And Restated Electronic Data Systems Corporation
Incentive Plan................................................................... 19
Proposals 4 And 5: Shareholders' Proposals................................................... 23
Proposal 4: Shareholder Proposal Relating To Rights Plans.................................. 23
Proposal 5: Shareholder Proposal Relating To Majority Vote................................. 25
Shareholder Proposals For 2002 Annual Meeting................................................. 26
Appendix A: Audit Committee Charter........................................................... A-1
Appendix B: Amended and Restated EDS Incentive Plan........................................... B-1
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 2001
The Annual Meeting of Shareholders of Electronic Data Systems Corporation
("EDS") will be held at The Plano Centre, 2000 E. Spring Creek Parkway, Plano,
Texas 75074 on Tuesday, May 22, 2001, at 1:00 p.m. local time. The purpose of
the meeting is to vote on the following proposals (in the case of the
shareholder proposals, if presented at the meeting) described in the
accompanying Proxy Statement, and any other business that may properly be
presented at the meeting or any adjournment thereof:
PROPOSAL 1. Election of three directors for a three-year term;
PROPOSAL 2. Ratification of the appointment of KPMG LLP as independent
auditors;
PROPOSAL 3. Approval of the Amended and Restated EDS Incentive Plan;
PROPOSAL 4. Shareholder proposal relating to rights plans; and
PROPOSAL 5. Shareholder proposal relating to majority vote.
The record date for the annual meeting is March 23, 2001. Only
shareholders of record at the close of business on that date can vote at the
meeting.
D. Gilbert Friedlander
Senior Vice President, Secretary
and General Counsel
April 2, 2001
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If you are a shareholder with a disability requiring special assistance and
would like to attend the Annual Meeting, please call EDS Investor Relations at
(972) 605-8933. We will make reasonable efforts to accommodate your needs.
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[LOGO OF EDS]
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 2001
The Board of Directors of EDS is soliciting proxies to be used at the 2001
Annual Meeting of Shareholders (the "Meeting"). Distribution of this Proxy
Statement and a proxy form is scheduled to begin on April 2, 2001. The mailing
address of EDS' principal executive offices is 5400 Legacy Drive, Plano, Texas
75024-3199.
ABOUT THE MEETING
Who Can Vote
Record holders of EDS common stock (the "Common Stock") at the close of
business on March 23, 2001, may vote at the Meeting. On that date, 467,456,737
shares of Common Stock were outstanding. Each share is entitled to cast one
vote.
How You Can Vote
If you return your signed proxy, or vote by telephone or the Internet,
before the Meeting, we will vote your shares as you direct. You can specify
whether your shares should be voted for all, some or none of the nominees for
director. You can also specify whether you approve, disapprove or abstain from
each of the other proposals. Proposals 1, 2 and 3 will be presented at the
Meeting by management. Proposals 4 and 5 may be presented by a shareholder.
If you participate in the EDS Stock Purchase Plan, the Common Stock fund
under the EDS 401(k) Plan, the EDS 1996 Incentive Plan, or a dividend
reinvestment program, you will receive one proxy card for all shares registered
in the same name. If your accounts are not registered in the same name, you will
receive a separate proxy card for your individual plan shares. Generally, shares
in these plans cannot be voted unless the proxy card is signed and returned,
although shares held in the 401(k) Plan may be voted in the discretion of the
plan trustee.
IF YOU DO NOT SPECIFY ON YOUR PROXY CARD HOW YOU WANT TO VOTE YOUR SHARES,
WE WILL VOTE THEM "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTOR AS SET FORTH
UNDER "ELECTION OF DIRECTORS" BELOW; "FOR" THE RATIFICATION OF KPMG LLP AS
INDEPENDENT AUDITORS; FOR THE AMENDED AND RESTATED EDS INCENTIVE PLAN; AND
"AGAINST" PROPOSALS 4 AND 5.
Revocation of Proxies
You can revoke your proxy at any time before it is exercised in any of the
following three ways: (1) by submitting written notice of revocation to the
Secretary of EDS; (2) by submitting another proxy that is properly signed and
later dated; or (3) by voting in person at the Meeting.
Required Votes
The holders of a majority of the shares entitled to vote who are either
present in person or represented by proxy at the Meeting will constitute a
quorum for the transaction of business at the Meeting.
The affirmative vote of a plurality of the votes cast at the Meeting is
required for the election of directors. A proxy that has properly withheld
authority with respect to the election of one or more directors will not be
voted with respect to the director or directors indicated, although it will be
counted for purposes of determining whether there is a quorum.
For each other proposal, the affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote on the
proposal will be required for approval. An abstention with respect to any such
proposal will not be voted, although it will be counted for purposes of
determining whether there is a quorum. Accordingly, an abstention will have the
effect of a negative vote.
If you hold your shares in street name, your broker may not be permitted to
exercise voting discretion with respect to some of the matters to be acted upon.
Thus, if you do not give your broker specific instructions, your shares may not
be voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum. EDS
understands that, pursuant to New York Stock Exchange rules, the two shareholder
proposals on the Meeting agenda are non-discretionary proposals for which your
broker may not exercise voting discretion.
Other Matters to be Acted Upon at the Meeting
We do not know of any other matters to be validly presented or acted upon
at the Meeting. Under our Bylaws, no business besides that stated in the
meeting notice may be transacted at any meeting of shareholders. If any other
matter is presented at the Meeting on which a vote may properly be taken, the
shares represented by proxies will be voted in accordance with the judgment of
the person or persons voting those shares.
Expenses of Solicitation
The proxies solicited hereby are being solicited by EDS. The cost of
soliciting proxies will be paid by EDS. Our officers and employees may, but
without compensation other than their regular compensation, solicit proxies by
further mailing or personal conversations, or by telephone, facsimile or e-mail.
We will, upon request, reimburse brokerage firms and others for their reasonable
expenses in forwarding proxy materials to beneficial owners of Common Stock.
Shareholders with Multiple Accounts
Shareholders who previously have elected not to receive an annual report
for a specific account may request EDS to promptly mail its 2000 Annual Report
to that account by writing EDS Investor Relations, 5400 Legacy Drive, Mail Stop
H1-2D-05, Plano, Texas 75024 or by calling (888) 610-1122 or (972) 605-8933.
BOARD OF DIRECTORS
The Board of Directors provides guidance and strategic oversight to the
company's management with the objective of optimizing shareholders' returns on
their investment in EDS. The Board is designed to assure that there is
independent review and oversight as well as approval of significant strategic
and management decisions affecting the company. Regular meetings of the Board
are held six times per year and special meetings are scheduled when required.
The Board held eight meetings in 2000. All current directors attended at least
75% of the meetings of the Board and the Board Committees of which they are
members, except Roger A. Enrico. Scheduling conflicts identified prior to Mr.
Enrico's appointment to the Board in February 2000 prevented him from attending
some of EDS' meetings during his first year in office, but those conflicts have
been resolved for future years.
Committees Established by the Board
The Board of Directors has established the following Committees to assist
it in discharging its responsibilities:
Audit Committee. The Audit Committee, which met five times in 2000, is
composed of Ray J. Groves (Chairman), Roger A. Enrico and Ray L. Hunt. Each of
such persons is "independent" as such term is defined in the listing standards
for the New York Stock Exchange. The Audit Committee recommends to the Board
the
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appointment of independent auditors and reviews the scope and cost of proposed
audit and non-audit services as well as the qualifications and independence of
the independent auditors. The committee reviews with the independent auditors
and internal audit staff the results of audits, any recommendations therefrom
and the status of management's actions for implementing such recommendations, as
well as the quality and adequacy of our internal financial controls and internal
audit staff. It also reviews our annual and quarterly financial statements,
programs established to monitor compliance with our Code of Conduct, and the
status of material pending litigation and regulatory proceedings. Attached as
Appendix A to this Proxy Statement is a copy of the written charter for the
Audit Committee adopted by the Board of Directors.
Compensation and Benefits Committee. The Compensation and Benefits
Committee, which met seven times in 2000, is composed of C. Robert Kidder
(Chairman), William H. Gray, III and Ray J. Groves. The committee establishes
the compensation of our executive officers and reviews recommendations made by
the Chief Executive Officer with respect to the long-term incentive compensation
of other corporate officers. It also oversees our employee benefit plans,
reviews new employee benefit plans and significant amendments to existing plans,
and administers all stock based plans.
Governance Committee. The Governance Committee, which met four times in
2000, is composed of James A. Baker, III (Chairman), William M. Daley and Judith
Rodin. The Governance Committee reviews management succession and development
plans, recommends to the Board the election of the Chairman and the Chief
Executive Officer, and reviews the Chief Executive Officer's recommendations
regarding the election of other principal officers. It also reviews Board
processes and policies, makes recommendations regarding shareholder proposals,
determines the criteria for qualification of directors, and recommends to the
Board candidates for director and for committee memberships. The procedures for
submission by a shareholder of a director nominee are described below under the
heading "Shareholder Proposals for 2002 Annual Meeting."
Corporate Governance
The Board of Directors believes that sound governance practices and
policies provide an important framework to assist it in fulfilling its duty to
our shareholders. The current Board structure was established at the time of our
split-off from General Motors Corporation in June 1996. The structure was
established, and the Board's members selected, in a manner intended to implement
governance practices and policies appropriate for EDS and its business, culture
and challenges. This included the requirement that a substantial majority of
directors be outside, independent directors with no significant financial or
personal tie to EDS, that all Board committees be composed entirely of
independent directors, and that a significant portion of director compensation
be comprised of interests in Common Stock. Since its establishment in 1996, the
Board has continually reviewed and updated its practices and policies and
developed and adopted significant additional practices and policies that it
believes to be appropriate for EDS and in the best interest of its shareholders.
These include the following:
. Executive Sessions. The outside members of the EDS Board hold periodic
executive sessions without the Chief Executive Officer or any other inside
director.
. CEO Evaluation. The outside directors conduct an annual evaluation of the
performance of the Chief Executive Officer. This evaluation is coordinated
with the activities of the Compensation and Benefits Committee in setting
the Chief Executive Officer's compensation. In addition, the outside
directors and the Governance Committee review the performance of other
senior executives and, together with the Chief Executive Officer, review
succession plans for the company's senior executive positions.
. Board Evaluation. The Board periodically conducts a self-evaluation to
identify and implement specific improvements to Board activities.
. Independence. The Board has adopted a formal definition of independence for
its members, and the Governance Committee has adopted specific guidelines
for assessing the independence of outside directors. Such definition and
guidelines have been amended in order to parallel recent changes in that
definition adopted by the New York Stock Exchange. The Governance Committee
reviews the independence of each member of the Audit Committee on an annual
basis, and each other outside director prior to his or her nomination for
election to the Board, using such definition and guidelines.
3
. Retirement/Resignation. The Board's policy regarding director retirement
provides that directors shall not be nominated or elected after reaching
age 70 unless the Board expressly determines to permit such service, in
which case the individual may be nominated or elected for not more than one
term after reaching age 70. The Board's policy also provides that a
director should submit his or her resignation in the event of a significant
change of the job responsibility he or she held at the time of election to
the Board. The Board may elect to not accept such resignation.
. Charitable Contributions. Charitable contributions by EDS to organizations
of which a Board member is an officer, director or trustee must be approved
by the Board or the Governance Committee, depending on the size of the
contribution.
. Written Committee Charters. All Committees of the Board operate under
written charters approved and adopted by the Board. Each of these charters
were comprehensively reviewed and amended in 2000.
. Executive Stock Ownership. As more fully described below in the Report of
the Compensation and Benefits Committee on Executive Compensation, that
Committee has approved requirements for the ownership of Common Stock by
senior executives.
Compensation of Directors
A director who is also an employee of EDS is not entitled to any additional
compensation for serving as a director. Each non-employee director receives
annual cash compensation of $35,000, as well as $5,000 for serving as a
committee chairman and $2,500 for attendance at each meeting of the Board or a
Board committee. In addition, each non-employee director receives on an annual
basis (i) options to purchase 4,000 shares of Common Stock at an exercise price
equal to the fair market value of the shares at the date of grant and (ii) 500
shares of Common Stock. Such options and stock are subject to restrictions on
sale that generally expire ratably over a three-year period. Additional cash
compensation of $5,000 was paid to non-employee directors attending the Board's
regularly scheduled October meeting due to the number of Board sessions and
extensive pre-meeting preparation in connection with that meeting, which took
place over a period of two days. A non-employee director may elect each year to
receive, in lieu of all or part of the cash fees he or she would otherwise
receive in the next year, (i) additional stock options and/or (ii) additional
shares of restricted stock.
Under the Deferred Compensation Plan for Non-employee Directors, a director
may elect annually to defer all or a portion of his or her director's fees and
to have such deferred fees treated as if they had been invested either in cash
or Common Stock. Fees deferred in cash earn interest at a rate, adjusted as of
January 1 of each year, equal to 120% of the applicable federal long-term rate
published by the Internal Revenue Service, compounded monthly. Fees deferred
and treated as if they had been invested in Common Stock are deemed to have
purchased shares of Common Stock on the effective date of the deferral at the
then fair market value of the stock. All amounts accumulated in the account,
including any interest or deemed dividends, are paid to the director in either a
lump sum or annual installments commencing upon (i) the date of termination of
his or her status as a director or (ii) five years after such date.
Report of Audit Committee
The Audit Committee oversees EDS' financial reporting process on behalf of
the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the committee reviewed
the audited financial statements in the Annual Report with management including
a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The committee reviewed with the independent auditors who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the committee under
generally accepted auditing standards. In addition, the committee has discussed
with the independent auditors the auditors' independence from management and
EDS, including the matters in the written disclosures required by the
Independence Standards Board, and considered the compatibility of non-audit
services with the auditors' independence.
4
The committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The committee and the Board have also recommended the selection of
the Company's independent auditors and that such selection be submitted to
shareholders for ratification.
Audit Committee
Ray J. Groves, Chairman
Roger A. Enrico
Ray L. Hunt
PROPOSAL 1: ELECTION OF DIRECTORS
Our Certificate of Incorporation provides for three classes of directors to
be as equal in number as possible. Each class serves a three-year term, with one
class elected each year. Currently, the Board of Directors is composed of 10
members. The three Class II directors whose terms expire at this Meeting are
William M. Daley, Roger A. Enrico and C. Robert Kidder. The Board of Directors
has nominated these persons for election as Class II directors. If elected, each
director will serve until the annual meeting in 2004, or until he is succeeded
by another qualified director who has been elected. All other directors will
continue in office until expiration of the terms of their classes at the annual
meeting in 2002 or 2003, as the case may be.
We will vote your shares as you specify in your proxy. If you sign, date
and return your proxy but do not specify how you want your shares voted, we will
vote them FOR the election of the three nominees listed below. If due to
unforeseen circumstances (such as death or disability) a nominee should become
unavailable for election, the Board may either reduce the number of directors or
substitute another person for the nominee, in which event your shares will be
voted for that other person.
The following information regarding the nominees for director and each
current director continuing in office is as of March 15, 2001.
The Board of Directors recommends a vote FOR each of the nominees for director.
Directors Standing for Election
William M. Daley, 52
Chairman of the Gore Lieberman 2000 campaign from July to December 2000,
and Secretary of the United States Department of Commerce from January
1997 to July 2000. In 1993, Mr. Daley served as Special Counsel to
President Clinton to pass the North American Free Trade Agreement. He
was a partner at the law firm of Mayer, Brown & Platt from 1985 to 1989
and 1993 to 1997, and was President and Chief Operating Officer of
Amalgamated Bank of Chicago from 1989 to 1993. Mr. Daley has been a
director of EDS since February 2001.
5
Roger A. Enrico, 56
Chief Executive Officer of PepsiCo Inc. since April 1996, Chairman of the
Board since November 1996 and a director since 1987. Mr. Enrico was Vice
Chairman of PepsiCo Inc. from 1993 to 1996. He joined PepsiCo Inc. in
1971, became President & CEO of Pepsi-Cola USA in 1983, President & CEO
of PepsiCo Worldwide Beverages in 1986, Chairman & CEO of Frito-Lay, Inc.
in 1991, and Chairman & CEO of PepsiCo Worldwide Foods in 1992. Mr.
Enrico was Chairman and CEO, PepsiCo Worldwide Restaurants, from 1994 to
1997. He is a director of PepsiCo Inc., Target Corporation, and A.H. Belo
Corporation. Mr. Enrico has been a director of EDS since February 2000.
C. Robert Kidder, 56
Chairman and Chief Executive Officer of Borden, Inc. since January 1995.
Mr. Kidder was Chairman and Chief Executive Officer of Duracell
International, Inc. from August 1991 through October 1994 and its
President and Chief Executive Officer from June 1988 to August 1991. He
is a director of Borden, Inc. and Morgan Stanley Dean Witter & Co. Mr.
Kidder has been a director of EDS since June 1996.
Directors Continuing in Office
Term Expiring in 2002
Richard H. Brown, 53
Chairman and Chief Executive Officer of EDS since January 1999. Prior to
joining EDS, Mr. Brown was Chief Executive Officer of Cable & Wireless
plc from July 1996 to December 1998. He was President and Chief Executive
Officer of H&R Block, Inc., and Chairman of its CompuServe subsidiary,
from May 1995 to July 1996. Mr. Brown was Vice Chairman of Ameritech
Corporation from January 1993 to May 1995 and President of its Illinois
Bell subsidiary from 1990 to 1993. He held various executive positions
with United Telecommunications, Inc. from 1981 to 1990, most recently as
Executive Vice President, and was with Ohio Bell from 1969 to 1981. Mr.
Brown is a director of The Home Depot, Inc. and Vivendi Universal SA.
James A. Baker, III, 70
Senior Partner of Baker Botts LLP since March 1993 and a Senior Counselor
of The Carlyle Group, a merchant banking firm, since 1993. Mr. Baker
served as Senior Counselor to the President of the United States and
White House Chief of Staff from August 1992 to January 1993, as Secretary
of State from January 1989 to August 1992, as Secretary of the Treasury
from 1985 to 1988, and as White House Chief of Staff from 1981 to 1985.
He is a director of Reliant Energy Inc. as well as Rice University and
the Howard Hughes Medical Institute. Mr. Baker has been a director of EDS
since June 1996.
6
Judith Rodin, 56
President of the University of Pennsylvania, as well as a professor of
psychology and of medicine and psychiatry at the university, since 1994.
Dr. Rodin was Provost of Yale University from 1992 to 1994, and held
various professorial and other positions at Yale from 1972 to 1994,
including Dean of the Graduate School of Arts and Sciences and Chair of
the Department of Psychology. She is a director of AMR Corporation and
AETNA, Inc. Dr. Rodin has been a director of EDS since June 1996.
Term Expiring in 2003
William H. Gray, III, 59
President and Chief Executive Officer of The College Fund/UNCF since
September 1991. Mr. Gray has also served as the Senior Minister of the
Bright Hope Baptist Church in Philadelphia since 1972. He served as a
Congressman from Pennsylvania from 1979 to 1991. During his tenure, he
was Chairman of the House Budget Committee, a member of the
Appropriations Committee, Chairman of the House Democratic Caucus and
Majority Whip. Mr. Gray is a director of Viacom Inc., J.P. Morgan Chase
& Co., Dell Computer Corporation, Municipal Bond Investors Assurance
Corporation, The Prudential Insurance Company of America, Rockwell
International Corporation, Visteon Corporation and Pfizer Corp. He has
been a director of EDS since February 1997.
Ray J. Groves, 65
Chairman of Legg Mason Merchant Banking, Inc. since March 1995. Mr.
Groves retired as Chairman and Chief Executive Officer of Ernst & Young
LLP in September 1994, which position he held since 1977. He is a
director of Allegheny Technologies Incorporated, Boston Scientific
Corporation, Marsh & McLennan Companies, Inc., American Water Works
Company, Inc. and The New Power Company. Mr. Groves has been a director
of EDS since June 1996.
Jeffrey M. Heller, 61
Vice Chairman of EDS since November 2000 and a director of EDS since
1983. Mr. Heller oversees operation of EDS' six global industry groups
and its corporate support functions. He was President and Chief Operating
Officer of EDS from June 1996 until December 2000, Senior Vice President
of EDS from 1984 until June 1996 and Chairman of EDS' Unigraphics
Solutions Inc. subsidiary from January 1999 to February 2001. Mr. Heller
joined EDS in 1968 and has served in numerous technical and management
capacities. He is a director of Unigraphics Solutions Inc., Trammell
Crow Company and Mutual of Omaha.
Ray L. Hunt, 57
Chairman of the Board, President and Chief Executive Officer of Hunt
Consolidated Inc. and Chairman of the Board and Chief Executive Officer
of Hunt Oil Company for more than five years. Mr. Hunt is a director of
Halliburton Company, Pepsico Inc. and Security Capital Group
Incorporated. He has been a director of EDS since June 1996.
7
Management Stock Ownership
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 5, 2001, by each director and
nominee for director, the Chief Executive Officer, the executive officers named
in the Summary Compensation Table in this Proxy Statement, and all current
directors and executive officers as a group. Each of the individuals/groups
listed below is the owner of less than one percent of the outstanding Common
Stock.
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Amount and Nature of Beneficial
Name Ownership
James A. Baker, III.................................................. 15,346 (a)(b)(c)
William M. Daley..................................................... 125 (c)
Roger A. Enrico...................................................... 11,121 (a)(b)(c)
William H. Gray, III................................................. 7,063 (a)(c)
Ray J. Groves........................................................ 20,177 (a)(c)
Ray L. Hunt.......................................................... 39,939 (a)(c)
C. Robert Kidder..................................................... 16,832 (a)(c)
Judith Rodin......................................................... 15,169 (a)(b)(c)
Richard H. Brown..................................................... 760,571 (a)(d)(e)(f)
Jeffrey M. Heller.................................................... 644,897 (a)(d)(e)(f)
James E. Daley....................................................... 148,909 (a)(d)(e)(f)
Paul J. Chiapparone.................................................. 267,909 (a)(d)(f)
Troy W. Todd......................................................... 260,475 (a)(e)(f)
Directors and executive officers as a group (17 persons)............. 2,378,057 (a)-(f)
----------------------------------------------------------------------------------------------------------------
___________________
(a) Includes shares of Common Stock which may be acquired on or before May 4,
2001, through the exercise of stock options as follows: Mr. Baker--4,500
shares; Mr. Enrico--166 shares; Mr. Gray--3,600 shares; Mr. Groves--10,579
shares; Mr. Hunt--13,214 shares; Mr. Kidder--9,466 shares; Dr. Rodin--7,845
shares; Mr. Brown--430,000 shares; Mr. Heller--215,000 shares; Mr. James
Daley--130,000 shares; Mr. Chiapparone--80,000 shares; Mr. Todd--230,000
shares; and all directors and executive officers as a group--1,257,736
shares.
(b) Includes restricted stock units granted to the directors under the 1996
Incentive Plan as follows: Mr. Baker--3,632 shares; Mr. Enrico--111 shares;
Dr. Rodin--1,816 shares; and all directors as a group--5,559 shares.
(c) Includes compensation deferrals treated as phantom stock under the Non-
Employee Director Deferred Compensation Plan as follows: Mr. Baker--1,319
shares; Mr. William Daley--125 shares; Mr. Enrico--789 shares; Mr. Gray--
2,363 shares; Mr. Groves--7,538 shares; Mr. Hunt--3,417 shares; Mr. Kidder--
5,066 shares; Dr. Rodin--3,474 shares; and all directors as a group--24,091
shares.
(d) Excludes unvested restricted stock units granted under the 1996 Incentive
Plan (and its predecessor) as follows: Mr. Brown--30,000 units; Mr. Heller--
368,000 units; Mr. James Daley--8,333 units; Mr. Chiapparone--73,000 units;
and all executive officers as a group--506,046 units. The units vest
(subject to earlier vesting based on the achievement of performance goals by
EDS) during the period from 2001 through the earlier of normal retirement or
2009, subject to earlier vesting under the terms of the agreements with
certain named executive officers described below.
(e) Includes vested compensation deferrals treated as invested in Common Stock
under employee compensation deferral plans and agreements as follows: Mr.
Brown--84,098 shares; Mr. Heller--120,508 shares; Mr. James Daley--11,620
shares; Mr. Todd--20,482 shares; and all executive officers as a group--
242,017 shares.
(f) Includes vested compensation deferrals treated as invested in Common Stock
under the EDS 401(k) Plan as follows: Mr. Brown--584 shares; Mr. Heller--
28,566 shares; Mr. James Daley--540 shares; Mr. Chiapparone--147 shares; Mr.
Todd--93 shares; and all executive officers as a group--32,467 shares.
As of March 5, 2001, the General Motors Special Hourly Employees Pension
Trust under the General Motors Hourly Rate Employees Pension Plan, c/o United
States Trust Company of New York, 114 West 47th Street, New York, NY 10036,
owned 36,622,552 shares of Common Stock, or approximately 7.9% of the
outstanding Common Stock.
8
Executive Compensation
Report of Compensation and Benefits Committee on Executive Compensation
The Compensation and Benefits Committee of the Board of Directors (the
"Committee"), which is composed entirely of non-employee directors, is
responsible for the establishment and administration of the compensation
programs for EDS' executives, including the Chief Executive Officer. In
fulfilling these responsibilities, the Committee establishes and administers the
compensation for the company's executives, including approving adjustments to
base salary, establishing targets for the payment of annual incentive bonuses
and the vesting of stock-based awards and granting long-term incentive
compensation awards. The Committee met seven times in 2000 and routinely
reported to the Board on its activities.
Compensation Philosophy. Our compensation philosophy is based on the
premise that executives should receive competitive compensation determined by
reference to both EDS' performance and the individual's contribution to that
performance. Compensation plans are intended to motivate and reward executives
for long-term strategic management and the enhancement of shareholder value,
support a performance-oriented environment that rewards achievement of internal
business goals, and attract and retain executives whose abilities are critical
to the long-term success and competitiveness of EDS.
In determining compensation levels, the Committee evaluates survey market
data prepared by an independent third party consulting firm. The market for EDS'
executive talent is broader than the technology and information technology (IT)
services industries. Accordingly, we review survey data for two separate
comparator groups. One group consists of approximately 25 large global
corporations, which include several companies outside the technology and IT
services industries. The second group consists of technology companies that are
similar in revenues, market capitalization and net income to EDS. These
companies primarily represent firms that we believe compete with EDS for
executive talent.
The Committee generally targets total compensation at the 50th percentile
of the comparator group companies. However, the Committee believes it is
important to put a portion of each executive's total compensation at risk, and
therefore seeks to target total compensation above the 50th percentile when
EDS significantly exceeds its goals.
A primary focus of EDS' compensation philosophy has been to encourage
significant long-term stock ownership by executives, thereby further linking
management and shareholder interests. With that goal in mind, the Committee
adopted share ownership guidelines to encourage, and eventually require,
executives to own a significant amount of EDS stock. These guidelines are
expressed as a multiple of an executive's base pay. Executives will have three
years to meet the requirements. Furthermore, EDS' compensation program provides
executives with multiple vehicles that will allow them to accumulate EDS stock.
These include a non-qualified deferred compensation plan that allows executives
to defer base salary, annual incentive compensation and restricted stock units
into EDS stock units. The plan also provides a matching contribution, in the
form of EDS stock, with respect to cash compensation deferred under the Plan.
In addition, as described below, a portion of executive bonuses are now paid in
the form of EDS stock and the Committee has authorized a policy to grant long-
term incentive compensation in the form of annual stock option grants to
executive officers.
In addition to benefit plans and programs generally available to all EDS
employees, executive compensation consists of the following three principal
components: base salary, annual incentive compensation and long-term incentive
compensation. The annual and long-term incentive compensation components enable
the Committee to subject executive compensation to substantial risk based on
achievement-oriented objectives. We have adopted the following approach to base
salary, annual incentive compensation and long-term incentive compensation.
Base Salary. The Committee generally targets base salaries for executive
officers at the 50th percentile paid for similar positions by the comparator
groups described above. Base salaries are reviewed annually relative to survey
market data and individual performance and contribution. The Committee approves
actual salary rates for all Section 16 executive officers, including the Chief
Executive Officer, as well as certain other executives. Individual executives
may be paid higher or lower than the market level depending on a combination of
factors, including the executive's performance, responsibilities and experience,
as well as his or her opportunity for annual and long-term incentive
compensation.
9
Annual Incentive Compensation. Annual incentive compensation reflects our
policy that a significant portion of each executive's annual compensation be
contingent upon the company's current performance as well as the individual
executive's contribution to that performance. The Committee reviews bonus
targets used by the comparator groups in setting executive bonus target levels.
Annual incentive compensation is paid pursuant to the terms of the EDS
Executive Bonus Plan, which plan was established under the Incentive Plan.
Bonuses with respect to years prior to 2000 were generally paid in the form of
cash. However, consistent with the Committee's goal of further aligning
management and shareholder interests, commencing with bonuses for 2000, 25% of
each executive's annual bonus is paid directly in the form of EDS Common Stock
with the remainder payable in cash.
Pursuant to the terms of the Executive Bonus Plan, the Committee
establishes performance targets for EDS at the beginning of each fiscal year and
only if such targets are met will an executive be eligible to receive a bonus
with respect to that year. The Committee believes executives should be held
accountable for the company's earnings as well as the efficient use of company
assets. Therefore, annual earnings per share (EPS) and return on net assets
(RONA) are the financial metrics used to determine incentive awards under the
company's plan. Sixty percent of the earned award is paid to an executive based
on EDS' achievement of the EPS and RONA targets established by the Committee at
the beginning of a year, while forty percent is subject to achievement of the
executive's individual objectives established at the beginning of the year. If
the financial targets are met with respect to a plan year, the forty percent of
an executive's bonus subject to individual performance may be increased or
decreased based on the executive's achievement of his or her financial, customer
and employee performance goals for the year, provided the overall amount payable
to all executives is not increased from the amount established at the beginning
of the year. The Committee may elect at any time to increase or decrease such
overall amount based on current business conditions as well as overall company
performance, and did increase such overall amount available for annual bonuses
with respect to 2000 by approximately ten percent based on EDS' performance that
year.
Long-Term Incentive Compensation. Long-term incentive opportunities are an
important element of the total compensation package for EDS executives. The
Committee believes this approach links management and shareholder interests and
motivates executives to make long-term decisions in the best interest of EDS and
its shareholders.
Historically, EDS used restricted stock grants as the principal component
of its long-term incentive compensation strategy, with such grants made from
time to time at two or three year intervals. However, since the company's
split-off in 1996, EDS has utilized both stock options and restricted stock as
long-term incentive compensation, with a strong emphasis on stock options. All
stock-based awards to executives are made under the Incentive Plan, which
authorizes awards of stock options, stock appreciation rights, restricted stock
and other stock-based awards. In granting stock-based awards, the Committee
considers the long-term incentive compensation paid for similar executive
positions by the comparator groups, the number of shares of unvested restricted
stock and stock options subject to previously granted awards, and the
executive's performance. Restricted stock and stock options awarded to
executive officers generally vest ratably over a five or ten year period subject
to the continued employment of the executive and, with respect to some
restricted stock awards, based on the company's achievement of performance goals
established prior to the year of vesting. In the event the performance goals
are not met for such restricted stock awards subject to vesting requirements,
the vesting otherwise scheduled for that year will generally be extended until
the end of the five or ten year period. Stock options granted under the
Incentive Plan have not been repriced, nor does the Committee intend to consider
option repricing in the future.
In 1999, the Committee authorized a strategy to grant stock options to
executives on an annual basis beginning in 2001. Options will be issued with an
exercise price equal to the fair market value of the EDS Common Stock on the
grant date and will generally have a ten-year term.
Chief Executive Officer Compensation. Richard H. Brown was appointed
Chairman and Chief Executive Officer of EDS effective as of January 1, 1999.
Mr. Brown's compensation is governed by his Employment Agreement, the principal
terms of which were approved by the Board of Directors upon the recommendation
of the Committee, on December 9, 1998. The terms of that Agreement are
described under the heading "Employment Agreement with Richard H. Brown" on
pages 15-16 of this Proxy Statement. In approving the terms of Mr. Brown's
compensation, the Committee considered the compensation packages for comparable
positions, the need to
10
hire an executive with the strategic, financial, and leadership skills to
improve the company's performance, Mr. Brown's compensation at his former
employer, and the benefits he would forfeit upon his resignation from that
employer.
Mr. Brown's annual incentive bonus is paid pursuant to the terms of the EDS
Executive Bonus Plan described above. Consistent with the Committee's philosophy
to place a significant portion of an executive's total compensation at risk, Mr.
Brown's base salary was not increased for 2000. In lieu of an increase in such
base salary, the Committee awarded to Mr. Brown, effective as of January 1,
2001, 210,000 deferred stock units under EDS' executive deferral plan. Such
units vest at the rate of 20% per year commencing on the grant date. The
Committee believes that Mr. Brown's total compensation package is consistent
with the size and mix of total compensation provided to CEOs of the comparator
group companies and is commensurate with the Board's evaluation of his
performance for 2000.
Section 162(m). Section 162(m) of the Internal Revenue Code generally
limits the deductibility of compensation to the Chief Executive Officer and the
four other most highly compensated officers in excess of $1 million per year,
provided, however, that certain "performance-based" compensation may be excluded
from such $1 million deduction limitation. The Committee intends to structure
annual bonus awards and stock option grants under the Incentive Plan in a manner
designed to make such awards "performance-based compensation" to the extent
practicable. However, certain forms and amounts of compensation may exceed the
$1 million deduction limitation from year to year. We anticipate that the $1
million level will be exceeded with respect to the Chief Executive Officer and
certain other executive officers.
Compensation and Benefits Committee
C. Robert Kidder, Chairman
William H. Gray, III
Ray J. Groves
Compensation and Benefits Committee Interlocks and Insider Participation
The Compensation and Benefits Committee is composed of C. Robert Kidder,
William H. Gray, III, and Ray J. Groves, none of whom are employees or current
or former officers of EDS.
11
Performance Graph
The following graph compares the cumulative total shareholder return on
Common Stock, including reinvestment of dividends, for the last five fiscal
years with the cumulative total return of the Standard & Poor's 500 Stock Index
and the Goldman Sachs Technology Services Index assuming an investment of $100
on January 1, 1996. As a result of our split-off from GM, each share of GM
Class E Common Stock was converted into one share of EDS Common Stock effective
June 7, 1996. Accordingly, the return on Common Stock in the following graph
assumes an investment of $100 in the GM Class E Common Stock on January 1, 1996.
This graph is presented in accordance with Securities and Exchange
Commission (SEC) requirements. You are cautioned against drawing any
conclusions from this information, as past results are not necessarily
indicative of future performance. This graph in no way reflects a forecast of
future financial performance.
Comparison of Five Year Cumulative Return
[GRAPH]
EDS Common Stock
(GM Class E Common Stock Goldman Sachs Technology
Prior to Split-Off) Services Index S&P 500 Index
1/1/96 100 100 100
6/7/96 110 119 110
1/1/97 84 114 123
1/1/98 87 131 164
1/1/99 101 164 211
1/1/00 136 207 255
1/1/01 118 186 232
Notwithstanding any statement in any of our filings with the SEC that might
incorporate part or all of any future filings with the SEC by reference,
including this Proxy Statement, the foregoing Report of the Compensation and
Benefits Committee on Executive Compensation and Performance Graph are not
incorporated by reference into any such filings.
12
Summary Compensation Table
The following table sets forth information with respect to the compensation
for the last three years of the Chief Executive Officer and each of the four
other most highly compensated executive officers of EDS as of the end of 2000
(the "named executive officers").
Long-Term
Annual Compensation Compensation Awards
-------------------------------------------------------------------
Name and Other Restricted Number All Other
Principal Position Annual Stock Awards Of Compensation
During 2000 Year Salary (a) Bonus (a) Compensation (b) Options (c)
Richard H. Brown 2000 $1,500,000 $3,412,800 -- $ 465,610 -- $ 2,550
Chairman of the Board 1999 1,500,000 3,636,000 -- -- 400,000 2,400
And Chief Executive Officer
Jeffrey M. Heller 2000 712,036 1,316,270 -- 199,912 175,000 45,971
Vice Chairman 1999 654,514 1,444,950 -- -- -- 40,398
1998 562,500 -- $ 2,202 4,059,375 300,000 39,299
James E. Daley 2000 535,000 929,830 -- 109,917 150,000 2,550
Executive Vice President and 1999 407,372 1,160,000 -- 1,210,156 250,000 2,400
Chief Financial Officer
Paul J. Chiapparone 2000 508,334 951,950 -- -- 100,000 36,235
Executive Vice President 1999 475,000 921,500 101,065 -- -- 36,085
1998 445,833 -- 111,485 -- 100,000 35,679
Troy W. Todd 2000 415,000 786,840 -- 76,374 150,000 2,550
Executive Vice President 1999 269,887 757,500 -- 256,875 200,000 1,406
----------------------------------------------------------------------------------------------------------------------------------
(a) Bonus amounts for 2000 were paid 75% in the form of cash and 25% in the form
of EDS Common Stock, with the portion paid in stock valued at $53.34 per
share, the fair market value of the Common Stock on the date of payment
(January 11, 2001). Amounts reported under Salary and Bonus for 2000 include
amounts deferred by certain of the named executive officers into the fixed
income fund and the EDS stock fund under the EDS Executive Deferral Plan
("EDP") as set forth below:
Deferred into Deferred into
Fixed Income Fund EDS Stock Fund
------------------------------------------------------------
Name Salary Bonus Salary Bonus
Richard H. Brown.......... $ 75,000 $1,305,396 $225,000 $1,723,437
Jeffrey M. Heller......... -- -- 106,805 246,801
James E. Daley............ -- 592,767 80,250 232,456
Troy W. Todd.............. 145,250 300,966 62,250 397,309
(b) Amounts reported for 2000 are comprised exclusively of employer matching
awards by EDS under the EDP. Amount reported for 1999 represents 25,000
restricted stock units granted to Mr. Daley on March 8, 1999, scheduled to
vest at the rate of one-third per year commencing in 2000. Amount reported
for 1998 represents 100,000 restricted stock units granted to Mr. Heller on
August 10, 1998, scheduled to vest at the rate of 20% per year commencing in
1999. As of December 31, 2000, the number and fair market value of unvested
restricted stock units held by the named executive officers were: Mr. Brown,
30,000 shares, $1,732,500; Mr. Heller, 425,000 shares, $24,543,750; Mr.
Daley, 16,666 shares, $962,462; Mr. Chiapparone, 105,000 shares, $6,063,750;
and Mr. Todd, no shares. Dividend equivalents are paid with respect to
restricted stock units in the amount and at the time of the payment of
dividends on the Common Stock.
(c) Amount reported for 2000 consists of (i) for each of the named executive
officers, $2,550 in respect of the employer matching contribution of Common
Stock under the EDS 401(k) Plan, and (ii) for Messrs. Heller and
Chiapparone, $43,421 and $33,685, respectively, for payments by EDS of
premiums under life insurance policies the proceeds of which may be applied
toward the continuation of salary payments for the benefit of their
surviving spouse.
13
Option Grants in 2000
The following table contains information regarding awards of stock options
to the named executive officers in 2000 and the potential realizable value of
such options. The hypothetical value of the options as of their grant date has
been calculated using the Black-Scholes option pricing model based on the
assumptions identified in footnote (c) below. This model is only one method of
valuing options, and the use of this model should not be interpreted as an
endorsement of its accuracy or a forecast of possible future appreciation, if
any, in the price of the Common Stock. The actual value of the options may be
significantly different, and the value actually realized, if any, will depend
upon the excess of the market value of the Common Stock over the option exercise
price at the time of exercise.
--------------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Stock Options
Underlying Granted to Exercise or Hypothetical
Options Employees in Base Price Expiration Value at Grant
Name Granted 2000 Per Share (a) Date Date (c)
--------------------------------------------------------------------------------------------------------------------------------
Richard H. Brown -- -- -- -- --
Jeffrey M. Heller 175,000 0.81% $68.8125 (b) $5,218,500
James E. Daley 150,000 0.69% $68.8125 (b) $4,473,000
Paul J. Chiapparone 100,000 0.46% $68.8125 (b) $2,982,000
Troy W. Todd 150,000 0.69% $68.8125 (b) $4,473,000
--------------------------------------------------------------------------------------------------------------------------------
(a) All options were granted under the 1996 EDS Incentive Plan. The exercise
price equals the fair market value of the Common Stock on the date of grant
(April 24, 2000). The exercise price may be paid in cash, shares of Common
Stock or pursuant to a cashless exercise procedure under which the holder
provides irrevocable instructions to a brokerage firm to sell the purchased
shares and remit to EDS out of the sales proceeds an amount equal to the
exercise price plus applicable withholding taxes.
(b) The options are exercisable at the rate of 20% per year commencing April 1,
2001, and on each April 1st thereafter through 2005, and will terminate
with respect to each portion thereof on the five-year anniversary of the
date that portion became exercisable.
(c) Calculated using a variation of the Black-Scholes option pricing model
based upon the following assumptions: estimated time until exercise of six
years; volatility rate of 36.937%; risk-free interest rate of 6.26%; and
dividend yield of 0.87%.
Option Values at December 31, 2000
The following table contains information regarding the total number of
exercisable and non-exercisable stock options held by the named executive
officers at December 31, 2000, and the aggregate dollar value of the in-the-
money options at that date. In accordance with SEC rules, values are calculated
by subtracting the exercise price from the fair market value of the underlying
Common Stock, which is deemed to be $57.75, the closing price of the Common
Stock on the New York Stock Exchange on December 29, 2000.
-------------------------------------------------------------------------------
Number of Shares Underlying Value of Unexercised In-The-
Unexercised Options Money Options
--------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
Richard H. Brown 480,000 920,000 $6,500,000 $9,750,000
Jeffrey M. Heller 120,000 855,000 $2,058,750 $9,433,125
James E. Daley 50,000 350,000 $ 467,188 $1,868,750
Paul J. Chiapparone 40,000 360,000 $ 686,250 $3,567,375
Troy W. Todd 100,000 250,000 $ 637,500 $ 637,500
-------------------------------------------------------------------------------
14
Retirement Plans
The following table indicates the estimated annual benefits payable to the
named executive officers upon normal retirement for the specified compensation
and years of service classifications under the combined formulas of the Amended
and Restated EDS Retirement Plan (the "Retirement Plan") and the EDS 1998
Supplemental Executive Retirement Plan (the "Supplemental Plan"). The
Supplemental Plan is a non-qualified, unfunded retirement plan intended to pay
benefits to certain executive level employees whose benefits under the
Retirement Plan are limited under the Internal Revenue Code.
-------------------------------------------------------------------------------------------------------------------------
Final Average Years of Service
------------------------------------------------------------------------------------------------------
Earnings 5 10 15 20 25 30
$ 800,000 $ 73,333 $146,667 $220,000 $ 293,333 $ 366,667 $ 440,000
$ 900,000 $ 82,500 $165,000 $247,500 $ 330,000 $ 412,500 $ 495,000
$1,000,000 $ 91,667 $183,333 $275,000 $ 366,667 $ 458,333 $ 550,000
$2,000,000 $183,333 $366,667 $550,000 $ 733,333 $ 916,667 $1,100,000
$3,000,000 $275,000 $550,000 $825,000 $1,100,000 $1,375,000 $1,650,000
$3,500,000 $320,833 $641,667 $962,500 $1,283,333 $1,604,167 $1,925,000
-------------------------------------------------------------------------------------------------------------------------
As of December 31, 2000, the final average earnings for the highest five
consecutive years over the last 10-year period and the eligible years of
credited service for the named executive officers were as follows: Mr. Brown,
$3,264,053--18 years; Mr. Heller, $1,148,217--33 years; Mr. Daley $1,158,864--4
years; Mr. Chiapparone, $932,118--34 years; and Mr. Todd, $840,225--12 years.
The salary and bonus for the most recent year considered in the calculation of
final average earnings is found in the Summary Compensation Table above. The
eligible years of credited service listed above for Messrs. Brown, Daley and
Todd reflect extra years of service pursuant to their agreements with EDS
described below.
"Compensation" under the Retirement Plan generally refers to total annual
compensation (up to $170,000 for 2001 as limited by the Internal Revenue Code),
together with any salary reduction contributions to the EDS 401(k) Plan and EDS
Flexible Benefits Plan, and excludes benefits under the Incentive Plan and
extraordinary compensation (such as moving allowances). Effective July 1, 1998,
the Retirement Plan was converted to a "cash balance" plan eliminating the final
average earnings formula and replacing it with a career-average earnings
formula. The named executive officers are also eligible to participate in the
EDS Restoration Plan, which provides for a supplemental benefit equal to the
amount they would receive under the Retirement Plan if compensation and annual
accruals were not limited under the Internal Revenue Code.
The annual benefit payable under the Supplemental Plan for normal
retirement, together with the benefit payable under the Retirement Plan and the
Restoration Plan, will generally equal (i) 55% of the average of the
participant's total Compensation (based on the highest five consecutive years
within the last ten years of employment) less (ii) the maximum offset allowance
that can be deducted from final average earnings. Benefits are payable in the
form of a single or joint survivor life annuity, unless otherwise elected.
Benefits under the Supplemental Plan can be reduced, suspended or eliminated at
any time by the Compensation and Benefits Committee.
Employment Agreement with Richard H. Brown
The Board of Directors elected Mr. Brown Chairman and Chief Executive
Officer effective January 1, 1999. The Employment Agreement between EDS and Mr.
Brown provides for his employment through the later of December 31, 2003, or, if
notice by either party to terminate such employment is delivered at any time
after December 31, 2000, the third anniversary of such notice. Under that
agreement, Mr. Brown will receive an annual salary of $1,500,000, subject to
possible future increases after 1999, and have the opportunity to receive an
annual award under the company's Executive Bonus Plan targeted at 100% of base
salary with a maximum of 200% of base salary. It also provides for his
participation in EDS' employee benefit programs on terms not less favorable than
those offered to other senior executives of EDS.
The Employment Agreement provides for Mr. Brown to receive a supplemental
retirement benefit equal to the amount he would have earned under EDS'
Retirement Plan and Supplemental Plan, calculated crediting him with 16 years of
service in addition to the number of his actual years of service to EDS. For
purposes of such calculation, his final average earnings will not be less than
his 1999 salary and minimum bonus described above.
15
The retirement benefit will be offset by benefits provided to him under the
Retirement Plan and Supplemental Plan and will vest upon completion of five
years of service. Special provisions apply upon his retirement prior to age 62
or his death prior to commencement of benefits.
In the event of the termination of Mr. Brown's employment during the term
of his Employment Agreement by EDS without Cause (as defined), or by him for
Good Reason (as defined), he will be entitled to the following: a lump sum
payment equal to three times the sum of his annual salary and the greater of his
most recent target or actual annual bonus payment; immediate vesting of his
supplemental retirement benefit, restricted stock and stock options and
continued exercisability of the stock options until the earlier of five years
following termination of employment or expiration of the ten-year option term; a
pro-rated payment of the targeted performance bonus for the year of termination;
and continuation of benefits for a three-year period (or, if earlier, such time
as he attains age 65). In the event of a Change of Control (as defined in the
CoC Agreements referred to below), Mr. Brown will be entitled to the benefits
afforded to him under such CoC Agreements, which have been incorporated into his
Employment Agreement, all equity-based awards granted to him will fully vest
and, if his employment is terminated following such event, his supplemental
retirement benefit will vest.
Mr. Brown's Employment Agreement provides that if any payment to him
thereunder or under any other agreement is subject to federal excise taxes
imposed on golden parachute payments, EDS will make an additional payment to him
to cover any such tax payable by him, the taxes on such gross-up payment and any
interest or related penalties.
Pursuant to the terms of his offer of employment, on December 10, 1998, Mr.
Brown received as a sign-on bonus and incentive the following: a cash payment of
$4,450,000; 50,000 restricted stock units, scheduled to vest at the rate of
10,000 per year on the first five anniversaries of the date of grant commencing
December 10, 1999; and non-qualified options to purchase 1,000,000 shares of
Common Stock at an exercise price of $41.50 per share, with a ten-year term and
exercisable at the rate of 200,000 shares per year on the first five
anniversaries of the date of grant. Mr. Brown also was awarded 225,000
restricted stock units, all of which had vested by April 1, 2000.
Offer of Employment to James E. Daley
Mr. Daley was appointed Executive Vice President and Chief Financial
Officer effective March 8, 1999. Under the terms of his offer of employment, he
received a sign-on bonus of $150,000. Mr. Daley was also awarded non-qualified
options to purchase 250,000 shares of Common Stock at an exercise price of
$48.41 per share, exercisable at the rate of 20% per year commencing on March 1,
2000, and 25,000 restricted stock units, exercisable at the rate of one-third
per year (subject to the company's achievement of performance targets)
commencing on March 1, 2000. His agreement provides for an annual salary of
$500,000 subject to possible future increases after 1999, and participation in
EDS' Executive Bonus Plan with a targeted award of $400,000 for 1999 and 2000,
or 150% of that amount if bonuses are paid to other executive officers for those
years. The agreement also provides for his participation in EDS' employee
benefit programs on terms not less favorable than those offered to other senior
executives of EDS. In addition, he will be credited for two years of service
under EDS' Retirement Plan and Supplemental Plan for each of his first five
years of employment by EDS.
Offer of Employment to Troy W. Todd
Mr. Todd was appointed Executive Vice President - Leadership and Change
Management effective April 15, 1999. Under the terms of his offer of
employment, he was awarded non-qualified options to purchase 200,000 shares of
Common Stock at an exercise price of $51.375 per share, one-half of which became
exercisable on March 1, 2000, and the remainder on March 1, 2001, and 5,000
restricted stock units. His agreement provides for an annual salary of
$375,000, subject to possible future increases, and participation in EDS'
executive bonus plan with a targeted award of $375,000 for 1999 and 2000, or
200% of that amount if bonuses are paid to other executive officers for those
years. The agreement also provides for his participation in EDS' employee
benefit programs on terms not less favorable than those offered to other senior
executives of EDS. In the event of the termination of his employment by EDS
without Cause (as defined), EDS agreed to pay the costs of his relocation to the
Orlando, Florida, area, including the purchase of his residence in Plano, Texas.
In addition, Mr. Todd's agreement provides for him to be credited for all
benefit purposes, including the EDS Retirement Plan and Supplemental Plan, with
ten years of service in addition to the number of his actual years of service to
EDS.
16
Change of Control Employment Agreements
EDS has entered into a change of control employment agreement (a "CoC
Agreement") with each of the named executive officers (each, an "Executive"). In
the case of Mr. Brown, the provisions of the CoC Agreement have been
incorporated into his Employment Agreement. The CoC Agreements generally
provide that, upon the occurrence of certain triggering events involving an
actual or potential change of control of EDS, the employment of each Executive
will be continued for a period of five years (the "Employment Period").
The employment rights of an Executive under a CoC Agreement are triggered
by either a "Change of Control" or a "Potential Change of Control." Following a
Potential Change of Control, the employment period may terminate (but the
agreement will remain in full force and a new employment period will apply to
any future Change of Control or Potential Change of Control) if either (a) the
EDS Board determines that a Change of Control is not likely or (b) the Executive
elects to terminate his Employment Period as of any anniversary of the Potential
Change of Control. A "Change of Control" generally includes the occurrence of
any of the following: (i) any person, other than exempt persons (including
employee benefit plans), becomes a beneficial owner of 15% or more of EDS'
voting stock; (ii) a change in the identity of a majority of the persons serving
as members of the EDS Board, unless such change was approved by a majority of
the incumbent board members; (iii) the approval by shareholders of a
reorganization, merger or consolidation in which (x) existing EDS shareholders
would not own more than 85% of the common stock and voting stock of the
resulting company, (y) a person (other than exempt persons) would own 15% or
more of the common stock or voting stock of the resulting company or (z) less
than a majority of the board of the resulting company would consist of the then
incumbent members of the EDS Board; or (iv) the approval by shareholders of a
liquidation or dissolution of EDS, except as part of a plan involving a sale to
a company of which following such transaction (x) more than 85% of the common
stock and voting stock would be owned by existing EDS shareholders, (y) no
person (other than exempt persons) would own more than 15% of the common stock
or voting stock of such company and (z) at least a majority of its board of
directors would consist of the then incumbent members of the EDS Board. A
"Potential Change of Control" generally includes any of the following: (i) the
commencement of a tender or exchange offer for EDS stock that, if consummated,
would result in a Change of Control; (ii) EDS entering into an agreement which,
if consummated, would constitute a Change of Control; (iii) the commencement of
an election contest subject to certain proxy rules; or (iv) the occurrence of
any other event that the EDS Board determines could result in a Change of
Control.
Throughout the Employment Period, each Executive's position, authority and
responsibilities will not be diminished from the most significant held by him or
her at any time during the 90-day period immediately prior to the commencement
of the Employment Period, and his or her compensation will continue on a basis
no less favorable than it had been during that period.
The Employment Period will terminate (i) automatically upon the Executive's
death or after 180 days of continuing "Disability," (ii) at EDS' option if the
Executive is terminated for Cause (as defined) and (iii) at the Executive's
option at any time for Good Reason (as defined) or for any reason during the
180-day period beginning 60 days after a Change of Control (a "Window Period").
If an Executive's employment is terminated by EDS other than for Cause or
Disability for any reason during a Window Period or for Good Reason at any time,
he or she will be entitled to receive the following: (i) the employee benefits
earned as of the date of termination; (ii) the then current salary and bonus
throughout the remainder of the Employment Period; (iii) the cash value of his
or her retirement and 401(k) benefits to the end of the Employment Period; (iv)
under certain circumstances, a pro rata portion of the options, restricted stock
and other compensatory awards the Executive would have received had his or her
employment continued; and (v) continued coverage under welfare benefit plans
until the end of the Employment Period. In addition, all unvested options,
restricted stock and other compensatory awards held by the Executive will
immediately vest and become exercisable and, subject to any longer exercise term
set forth in the award, their term will be extended for up to one year following
termination of employment. The Executive may also elect to cash out equity-
based awards at the highest price per share paid by specified persons during the
Employment Period or the prior six-months. In the event of the Executive's
death (other than during a Window Period), his or her legal representatives will
receive the following: (i) the employee benefits earned as of the date of
death, (ii) the Executive's then current salary for one year from the date of
death, and (iii) the continuation of welfare benefits until the end of the
Employment Period. In addition, all options, restricted stock and other
compensatory awards will immediately vest and become exercisable for up to one
year following death, subject to any longer exercise term set forth in the
award. The Executive's legal representatives may cash out equity-based awards
at the highest price per share of Common Stock paid by specified persons during
the Employment Period or the prior six-months. Upon termination due to
Disability, the Executive will be entitled to receive the same amounts and
benefits as
17
would be provided upon death. If an Executive's employment is terminated, other
than during a Window Period, by EDS for Cause or by the Executive other than for
Good Reason, the Executive will be entitled to receive only the compensation and
benefits earned as of the date of termination.
Retention Plan
Messrs. Heller and Chiapparone participated in the EDS Senior Management
Retention Plan, which provided for certain retention benefits that vary based on
the participant's position with EDS and eligibility for retirement during the
Retention Period. This discussion pertains to the terms of the Retention Plan
applicable to such persons, who are the only named executive officers who
participate in the plan, and does not pertain to other plan participants. The
Retention Period commenced on August 6, 1998, and ended on January 31, 2001.
The Retention Plan provided for the payment of a bonus to participants who
remained employed by EDS through the end of the Retention Period in an amount
equal to the greater of (i) two times the participant's targeted 1998 bonus or
(ii) the sum of the actual annual incentive bonuses awarded to the participant
in respect of 1998, 1999 and 2000. In addition, a participant who remained
employed until the end of the Retention Period will continue to vest in all pre-
1998 restricted stock awards in accordance with their scheduled vesting terms
and will continue to be eligible to exercise all pre-1998 stock options as if
his employment had continued for ten years from the date of grant, regardless of
termination for any reason. Such persons also are entitled to receive benefits
under the Supplemental Plan upon retirement computed without diminution by
reason of the fact that the participant is less than 62 years of age at the time
of retirement.
Pursuant to the Retention Plan, on February 1, 2001, Messrs. Heller and
Chiapparone received a cash payment of $2,761,219 and $1,873,450, respectively,
representing the sum of the actual annual incentive bonuses awarded to them for
1998, 1999 and 2000.
Certain Transactions
James A. Baker, III, a director of EDS, is a senior partner of the law firm
of Baker Botts LLP. EDS retained that firm to provide various legal services to
EDS during 2000.
Ray L. Hunt indirectly owns a 50% economic interest in Woodbine Development
I, Ltd. Under the terms of an agreement between EDS and Woodbine dated July 6,
1994, EDS retained Woodbine to market and develop certain land owned by EDS
surrounding its Plano, Texas, headquarters. During 2000, EDS paid Woodbine an
aggregate of $1,578,306 (excluding reimbursement for out-of-pocket expenses) for
real estate development and brokerage services under this agreement.
During 2000, EDS purchased an aggregate of 5,400,000 shares of Common Stock
from the General Motors Special Hourly Employees Pension Trust under the General
Motors Hourly Rate Employees Pension Plan (the "Hourly Plan") for an aggregate
purchase price of $332,250,000. These shares were purchased to source the
company's requirements for Common Stock under its equity based benefit plans and
as a hedge against future requirements. Under the terms of the registration
rights agreement between EDS and the Hourly Plan (which was assumed by EDS at
the time of its split-off from GM in 1996), prior to making any market purchases
of Common Stock to source its benefit plan needs, EDS must first offer to
purchase such shares from the Hourly Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Our directors and executive officers are required under the Exchange Act to
file with the SEC and the New York Stock Exchange reports of ownership and
changes in ownership in their holdings of Common Stock. Based on an examination
of these reports and on written representations provided to EDS, we believe that
all such reports were timely filed in 2000, except that Douglas Frederick,
President of EDS' Information Solutions line of business, did not timely report
the acquisition of 500 shares of Common Stock on July 31, 2000.
18
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed KPMG LLP as EDS' independent auditors for the year ending December 31,
2001. That firm has been EDS' auditors since 1984. Although not required to do
so, the Board of Directors is submitting the appointment of that firm for
ratification at the Meeting. If the appointment is not approved, the Board of
Directors will reconsider the appointment. A representative of KPMG LLP is
expected to be present at the Meeting, will be available to respond to questions
and will have the opportunity to make a statement, should he or she so desire.
Audit Fees
KPMG LLP billed an aggregate of $6,001,511 for professional services
rendered by that firm in respect of its audit of EDS' annual financial
statements for 2000 and its review of the financial statements for EDS'
Quarterly Reports on Form 10-Q for that year.
Financial Information Systems Design and Implementation Fees
No amounts were billed by KPMG LLP in respect of any financial information
systems design and implementation services for 2000, and no such services were
provided by KPMG LLP to EDS during such year.
All Other Fees
KPMG LLP billed an aggregate of $9,224,000 for all other professional
services rendered in 2000. These services principally relate to domestic and
international tax services. The Audit Committee has considered the
compatibility of these services with the auditors' independence.
The Board of Directors recommends a vote FOR the ratification of the
appointment of KPMG LLP as independent auditors for 2001.
PROPOSAL 3: APPROVAL OF AMENDED AND RESTATED
ELECTRONIC DATA SYSTEMS CORPORATION INCENTIVE PLAN
On February 6, 2001, the Board of Directors, upon recommendation of the
Compensation and Benefits Committee, unanimously approved the adoption of the
Amended and Restated Electronic Data Systems Corporation Incentive Plan (the
"Plan") and directed that it be submitted to shareholders for approval.
The Plan amends and restates the 1996 Incentive Plan of Electronic Data
Systems Corporation (the "1996 Plan") and increases the number of shares
available for awards thereunder by 17,500,000 shares. The Plan would increase
the number of shares that may be issued thereunder to 37,922,485, in addition to
the shares subject to awards outstanding as of December 31, 2000.
The Board of Directors believes that stock options and other stock-based
incentives play an important role in attracting and retaining the services of
outstanding employees and directors and in linking the interests and efforts of
such persons to the long-term interest of EDS' shareholders. Employees whose
performance or contributions, in the judgment of the Committee, benefit or will
benefit EDS will be eligible for awards under the Plan. Awards to employees may
be made in the form of grants of stock options, stock appreciation rights
("SARs"), restricted or non-restricted stock or units denominated in stock, cash
awards, performance awards, or any combination of the foregoing. As of March
15, 2001, approximately 3,000 employees were eligible to participate in the
Plan. In addition, automatic and elective awards under the Plan in the form of
stock options and restricted stock will be made to directors of EDS who are not
employees of EDS or any of its subsidiaries ("non-employee directors"). As of
March 15, 2001, there were eight non-employee directors.
In the event that the proposed Plan is not approved by shareholders, the
amendments to the 1996 Plan which (i) increase the number of shares available
for awards under the Plan; (ii) change the annual limits regarding
19
the number of shares or dollar amount covered by individual awards, and (iii)
amend the business criteria to which a performance award may be subject, shall
not become effective, but all other amendments to the 1996 Plan reflected in the
Plan would remain in effect.
The proposed Plan is set forth in Appendix B. The principal features of the
Plan are described below.
General Information
The Plan is administered by the Compensation and Benefits Committee of the
Board of Directors, which is comprised of non-employee directors. The Committee
establishes the terms and conditions of awards granted under the Plan, subject
to certain limitations in the Plan. The Committee may delegate to the Chief
Executive Officer and to other senior officers of EDS its duties under the Plan,
except that no such delegation may be made in the case of actions with respect
to participants who are subject to Section 16 of the Securities Exchange Act of
1934 or are "covered employees" under Section 162(m) of the Internal Revenue
Code.
The Plan provides for awards to be made with respect to a maximum of
37,922,485 shares of EDS common stock (in addition to the shares that are the
subject of awards outstanding as of December 31, 2000), of which 400,000 shares
will be available for awards to non-employee directors and the remainder will be
available for awards to employees. Of the shares of EDS common stock available
for stock-based employee awards, not more than 1,000,000 shares may be issued
under awards which are not in the form of stock options. As of December 31,
2000, there were 20,422,485 shares available for awards under the 1996 Plan and
42,035,548 shares subject to awards outstanding thereunder. The number of
shares of common stock subject to awards outstanding on or after December 31,
2000 that are forfeited or terminated, expire unexercised, are settled in cash
in lieu of common stock or in a manner such that all or some of the shares
covered thereby are not issued or are exchanged for awards that do not involve
common stock will again immediately become available for awards under the Plan.
In any one calendar year, no individual may receive awards under the Plan
consisting of options or SARs that are exercisable for more than 2,000,000
shares, or awards consisting of common stock or units denominated in common
stock covering more than 500,000 shares, or a cash award in excess of
$6,000,000.
The Board may amend, modify, suspend or terminate the Plan for the purpose
of addressing any changes in legal requirements or for any other purpose
permitted by law, except that no amendment that would impair the rights of any
participant with respect to any award may be made without the consent of such
participant.
No award or any other benefit under the Plan is transferable except by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order, provided that the Committee may authorize all or a portion of
any nonqualified stock option granted to a participant to be transferable for no
consideration to certain immediate family members, a trust solely for the
benefit of the participant and/or such immediate family members, or a
partnership in which the only partners are the participant and or such immediate
family members and/or trusts.
Employee Awards
The following types of awards may be made to employees under the Plan:
Stock Options. The Committee may grant either incentive stock options,
which comply with Section 422 of the Code, or nonqualified stock options. The
Committee will set option exercise prices and terms. Regardless of option type,
however, the exercise price of an option may not be less than the fair market
value of the EDS common stock on the date of grant. The fair market value of
the common stock on March 23, 2001 was $54.10.
SARs. SARs are rights to receive a payment, in cash or EDS common stock,
equal to the excess of the fair market value or other specified valuation of a
specified number of shares of EDS common stock on the date the rights are
exercised over a specified strike price. The Committee may grant SARs either
singly or in combination with an underlying stock option under the Plan. The
terms of a SAR will be established the Committee.
Stock Awards. The Committee may grant awards of EDS common stock or
denominated in units of common stock. The terms of any Stock Awards will be
established by the Committee. The Committee may decide to include dividends or
dividend equivalents as part of an award.
20
Cash Awards. Cash Awards consist of grants denominated in cash. The terms
of any Cash Awards will be established by the Committee.
Performance Awards. The Committee may elect to grant any of the foregoing
employee awards in the form of a Performance Award under which the grant may be
subject to the attainment of one or more performance goals. A Performance Award
will be paid, vested or otherwise deliverable solely upon the attainment of one
or more pre-established, objective performance goals established by the
Committee. A performance goal may be based upon one or more business criteria
that apply to the employee, one or more business units of EDS or EDS as a whole,
including the following: revenue, net income, stock price, stockholder return,
earnings per share, market performance, return on equity, return on assets or
new business contract values. A performance goal will be established by the
Committee prior to the earlier of (x) 90 days after the start of the period of
service to which the goal relates and (y) the lapse of 25% of the period of
service, but in any event while the outcome is substantially uncertain.
Non-employee Director Awards
The terms of the Plan as they relate to awards to non-employee directors do
not reflect any substantive amendments from the terms of the awards to such
persons as set forth in the 1996 Plan. Set forth below is a summary of such
terms.
Stock Options. Under the terms of the Plan, each non-employee director
automatically receives a nonqualified option to purchase 4,000 shares of EDS
common stock (or such other number as the Board or Committee shall from time to
time determine) on the first business day of the month following the date on
which the annual meeting of EDS shareholders is held. If a non-employee
director begins service on a date other than the date of the annual meeting of
EDS shareholders in any year, the number of shares subject to the option will be
prorated. The exercise price per share of all stock options granted to non-
employee directors under the Plan will be equal to the fair market value per
share of common stock on the grant date. The term of the options will be for a
period of ten years from the date of grant. The options will become exercisable
ratably in one-third increments on the first, second and third anniversaries of
the date of grant. All unvested options will be forfeited if the non-employee
director resigns from the EDS Board without the consent of a majority of the
other directors.
Restricted Stock. Under the terms of the Plan, each non-employee director
automatically receives a restricted stock award covering 500 shares of EDS
common stock (or such other number as the Board or Committee shall from time to
time determine) on the first business day of the month following the date on
which the annual meeting of EDS shareholders is held. If a non-employee
director begins service on a date other than the date of the annual meeting of
EDS shareholders in any year, the number of shares covered by the restricted
stock award will be prorated. The shares of EDS common stock covered by the
restricted Stock Award will vest ratably in one-third increments on the first,
second and third anniversaries of the date of grant. The shares would vest
fully upon the failure of the non-employee director to be re-elected as a
director of EDS, the death of the non-employee director or the resignation of
the non-employee director by reason of disability or at the request of a
majority of the other directors of EDS. All unvested shares covered by the
restricted stock award will be forfeited if the non-employee director resigns
from the EDS Board without the consent of a majority of the other directors.
Receipt of Restricted Stock or Options in Lieu of Fees. Each non-employee
director may also make annual election to receive all or a portion of his or her
director's fees (including annual retainer and meeting fees) in the form of
stock options or restricted stock awards. The number of shares of restricted
stock shall equal 110% of a fraction, the numerator of which is equal to the
dollar amount of fees the director elects to forego in the next year in exchange
for restricted stock and the denominator of which is equal to the fair market
value of EDS common stock on the date of the election. The number of stock
options granted would equal the product of (x) three times (y) a fraction, the
numerator of which is the amount of the fees the director elects to forego in
the next year in exchange for options and the denominator of which is the fair
market value of EDS common stock on the effective date of the election.
U.S. Federal Income Tax Consequences
We have been advised by counsel that the material U.S. federal income tax
consequences to EDS and our employees and non-employee directors of the grant
and exercise of awards under existing and applicable provisions
21
of the Code and regulations will generally be as set forth below. This summary
does not purport to be complete, and does not cover, among other things, state,
local and international tax treatment.
Stock Options. The grant of an incentive stock option or a nonqualified
stock option would not result in income for the grantee or in a deduction for
EDS.
The exercise of a nonqualified stock option would result in ordinary income
for the grantee and a deduction for EDS measured by the difference between the
option price and the fair market value of the shares received at the time of
exercise. Income tax withholding would be required for employees.
The exercise of an incentive stock option would not result in ordinary
income for the grantee if the grantee (i) does not dispose of the shares within
two years from the date of option grant or one year from the date of option
exercise, and (ii) is an employee of EDS or a subsidiary of EDS from the date of
grant and through and until three months before the exercise date. If these
requirements are met, the basis of the shares upon later disposition would be
the option price. Any gain will be taxed to the grantee as long-term capital
gain and EDS would not be entitled to a deduction. The excess of the market
value of the shares on the exercise date over the option price is an item of tax
preference, potentially subject to the alternative minimum tax.
If the grantee disposes of the shares prior to the expiration of either of
the holding periods, the grantee would recognize ordinary income and EDS would
be entitled to a deduction equal to the lesser of the fair market value of the
shares on the exercise date minus the option price or the amount realized on
disposition minus the option price. Any gain in excess of the ordinary income
portion would be taxable as long-term or short-term capital gain.
SARs. The grant of a SAR would not result in income for the grantee or in
a deduction for EDS. Upon the exercise of a SAR, the grantee would recognize
ordinary income and EDS would be entitled to a deduction measured by the fair
market value of the shares plus any cash received. Income tax withholding would
be required for employees.
Cash Awards; Stock Awards. A grantee will recognize ordinary income upon
receipt of cash pursuant to a Cash Award or Performance Award. A grantee will
not have taxable income upon the grant of a Stock Award in the form of units
denominated in EDS common stock, but rather will generally recognize ordinary
income at the time he or she receives EDS common stock or cash in satisfaction
of such award in an amount equal to the fair market value of the EDS common
stock or cash received. In general, a grantee will recognize ordinary income as
a result of the receipt of common stock pursuant to a Stock Award or Performance
Award in an amount equal to the fair market value of the common stock when it is
received, although if the stock is not transferable and is subject to a
substantial risk of forfeiture when received, the grantee will recognize
ordinary income in an amount equal to the fair market value of the common stock
when it first becomes transferable or is no longer subject to a substantial risk
of forfeiture. Income tax withholding would be required for employees.
Section 162(m). Compensation of the top five named executive officers of
EDS may be subject to the tax deduction limits of section 162(m) of the Internal
Revenue Code. Stock options, SARs, and Cash Awards that qualify as
"performance-based compensation" are excluded from the deduction limits under
section 162(m). If approved by EDS' shareholders, the Plan will enable the
Committee to grant stock options, SARs and annual incentive bonuses (in the form
of Cash Awards under the Plan) that will be fully tax deductible by the company.
The Board of Directors unanimously recommends a vote FOR approval of the
Incentive Plan.
22
PROPOSALS 4 AND 5:
STOCKHOLDERS' PROPOSALS
The following shareholder proposals contain assertions about EDS and its
management that, in the judgment of the Board, are incorrect. Rather than
refuting all these inaccuracies, however, the Board has recommended a vote
against these proposals for broader policy reasons as set forth following each
proposal.
PROPOSAL 4: STOCKHOLDER PROPOSAL RELATING TO RIGHTS PLANS
John Chevedden, as proxy for Ray T. Chevedden and Veronica G. Chevedden,
2215 Nelson Ave., Redondo Beach, CA 90278, the owner of 1,060 shares of Common
Stock, has advised EDS that he intends to present the following resolution at
the Meeting. In accordance with applicable proxy regulations, the proposed
resolution and supporting statement, for which EDS accepts no responsibility,
are set forth below.
ADOPT PROPOSAL THAT WON 61% SHAREHOLDER APPROVAL in 2000:
SHAREHOLDER VOTE ON POISON PILLS
Shareholders recommend that a shareholder vote be required to maintain or adopt
a poison pill. The company shall redeem or terminate any such plan or
agreement. Once enacted this proposal is not to be amended, modified or
repealed, except by a shareholder vote as a separate ballot item.
Why submit the EDS poison pill to a shareholder vote?
. 1) The poison pill injures shareholders by reducing management
accountability and adversely affects shareholder value.
. 2) Pills give directors absolute veto power over any proposed business
combination, no matter how beneficial it might be for the shareholders.
Nell Minow and Robert Monks in their book, Power and Accountability
. Shareholder right to vote on poison pill resolutions achieved 60% APPROVAL
from shareholders in 1999.
Investor Responsibility Research Center's Corporate Governance
Bulletin, April - June 1999
. The Council of Institutional Investors (http://www.cii.org &
http://www.cii.org/ciicentral/policies.htm) recommends in its Shareholder
Bill of Rights:
1) Shareholder approval of all poison pills.
2) Adoption of shareholder resolutions that receive a majority of votes cast.
EDS is 60%-owned by institutional investors.
This reform is necessary to promote board accountability. Particularly due to
the other EDS corporate governance practices -often criticized by institutional
investors - that were in place at the previous annual meeting:
. No annual election for all directors.
. No confidential voting.
. Management can telephone shareholders to change their vote.
. No cumulative voting.
. Director Mr. Baker's law firm collects substantial EDS fees.
. EDS fails to disclose the fees collected by Mr. Baker's law firm.
. The American Bar Association discourages directors from sitting on boards of
companies from which they collect additional legal fees.
. Paradoxically Mr. Baker also sits on the key Nominating Committee that
requires a greater level of independence.
. Mr. Gray and Mr. Groves, directors with full-time outside employment, are
over-extended with 6 outside board seats each.
. Mr. Cheney and Mr. Hunt, directors with full-time outside employment, are
over-extended with 3 outside board seats each.
. An 80% super-majority shareholder vote is required to change certain key EDS
governing rules.
. This equals a 100% vote requirement when 80% of shares vote.
23
. An 80% vote requirement gives a small minority the veto power over certain
transactions that can benefit the vast majority of shareholders.
In its response to this proposal, EDS was asked to name the steps it has taken
in the last year to improve corporate practices at the highest level of the
company.
To increase shareholder value vote yes: ADOPT PROPOSAL THAT WON 61% SHAREHOLDER
APPROVAL in 2000: SHAREHOLDER VOTE ON POISON PILLS.
YES ON 4
_______________
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING REASONS:
The EDS shareholder rights plan was adopted in 1996 to protect EDS
shareholders against abusive takeover tactics and to ensure that each
shareholder would be treated fairly in the event of an unsolicited offer to
acquire the company. The rights plan is designed to provide the Board with the
ability to take what it believes are the most effective steps to protect and
maximize the value of your investment in EDS. It is designed to encourage
potential acquirors to negotiate directly with the Board of Directors, which we
believe is in the best position to negotiate on behalf of all shareholders,
evaluate the adequacy of any potential offer, and protect shareholders against
potential abuses during the takeover process, such as an offer which would not
treat all shareholders fairly and equally. The rights plan allows the Board to
redeem the rights to permit an acquisition that it determines, in the exercise
of its fiduciary duties, adequately reflects the value of EDS and is in the best
interest of its shareholders.
The economic benefits of a rights plan to stockholders have been validated
in several studies. A study released in November 1997 by Georgeson & Company, a
nationally recognized proxy solicitation and investor relations firm, found that
companies with shareholder rights plans received takeover premiums that were on
average eight percentage points higher than premiums paid for target companies
without rights plans. The report also noted that the existence of a shareholder
rights plan at a target company did not increase the likelihood of the defeat of
a hostile takeover bid, nor the withdrawal of a friendly bid, and that the
takeover rate was similar for companies with and without rights plans. It is
for these reasons that companies continue to adopt new rights plans, and renew
existing ones, in large numbers.
The Board is firmly committed to maximizing shareholder value. In light of
the shareholder vote at EDS' 2000 Annual Meeting regarding this proposal, the
Board of Directors and its Governance Committee reviewed the company's rights
plan at meetings in 2000 and early 2001. After careful consideration, the Board
continues to believe that the EDS rights plan protects value for all
shareholders and should be maintained. However, the Board concluded that it is
desirable to periodically review the rights plan and, in February 2001, upon
recommendation of the Governance Committee, directed that such Committee
undertake a review and evaluation of the appropriateness of maintaining the
rights plan, the terms of the plan and any other matters related to the plan
deemed appropriate by that Committee on a periodic basis, but not less
frequently than every three years. The first such evaluation will take place in
2003.
This proposal requires the approval of holders of a majority of the shares
voting at the Meeting. Because the proposal is only a recommendation, however,
its approval would not effectuate the changes it references. Redemption of the
existing rights under the rights plan would require Board action.
Implementation of a requirement for shareholder approval of future shareholder
rights plans would require either Board action or a shareholder amendment of
EDS' By-laws, which in turn requires approval by holders of at least two-thirds
of EDS' common stock.
The Board of Directors unanimously recommends a vote AGAINST this proposal.
24
PROPOSAL 5: SHAREHOLDER PROPOSAL RELATING TO MAJORITY VOTE
John Chevedden, as proxy for Nick Rossi, PO Box 249, Boonville, CA 95415,
the owner of 120 shares of Common Stock, has advised EDS that he intends to
present the following resolution at the Meeting. In accordance with applicable
proxy regulations, the proposed resolution and supporting statement, for which
EDS accepts no responsibility, are set forth below.
RESOLVED: REINSTATE SIMPLE-MAJORITY VOTE
ADOPT PROPOSAL THAT WON 60% SHAREHOLDER APPROVAL in 2000
EDS shareholders recommend to reinstate simple-majority vote on each issue
submitted to shareholder vote to the fullest extent possible. Delete EDS
requirements for greater than a majority shareholder vote. This includes the
75% vote requirement to improve certain charter provisions. Also, require that
any change on this proposal topic be put to shareholder vote - as a separate
proposal.
SUPPORTING STATEMENT: Why return to simple-majority vote?
. Under the existing EDS rule, if 75% of shares vote to improve certain charter
provisions and 25% vote no - only 25% of shares could force their will on the
overwhelming 75% majority.
. Simple-majority proposals like this proposal won 54% APPROVAL from
shareholders at major companies in both 1999 and 2000 - Investor
Responsibility Research Center.
. Major institutional investors, including those holding substantial EDS stock,
declare that super majority rules may devaluate the stock.
What incentive is there for good corporate governance - including simple-
majority vote?
A recent survey by the international management consultant McKinsey & Co.
shows that institutional investors would pay an 18% premium for good corporate
governance.
Wall Street Journal June 19, 2000
EDS Board's comatose response.
The Board has taken no action in response to this 60%-plus shareholder vote
and another 60%-plus vote at the 2000 annual meeting for: Subjecting poison
pills to shareholder approval. The Board has failed to respond to a formal
request to provide details and/or evidence of the Board's review of the two 60%-
plus votes.
In reaction to the Board's comatose response to the two 60%-plus
shareholder votes in 2000: Institutional shareholders may receive
recommendations from independent proxy analysts to vote no on the directors'
reelection at the 2001 annual meeting.
Simple majority vote is particularly important when management needs greater
accountability to avoid another bumpy ride:
Money magazine said,
EDS shares got clobbered after the company warned that its 2nd-quarter sales
would not meet analyst's expectations. EDS gets 75% of its annual revenue from
a relatively lackluster business - information solutions.
EDS badly disappointed investors.
The stock shed a quarter of its value in hours - skidding to $43. All told, the
stock is down nearly 40% from its February high.
CEO Richard Brown canned 15,000 employees. Now he has to boost sales.
EDS, owned by General Motors from 1984 to 1996, has long had a reputation for
being lumbering and bureaucratic.
As the firm's recent sales disappointment shows, it isn't easy to turn around an
old behemoth like EDS. Wall Street remains skeptical. Nevin Chitkara, MFS
Investment Management, said EDS "is still proving itself."
To improve corporate governance and increase shareholder value: ADOPT PROPOSAL
THAT WON 60% SHAREHOLDER APPROVAL IN 2000. REINSTATE SIMPLE-MAJORITY VOTE.
YES ON 5
_______________
25
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING REASONS:
Most proposals submitted to a vote of EDS' shareholders, whether by
management or the shareholders, currently require a vote of a majority of the
shares represented at a meeting, whether in person or by proxy. Consistent with
applicable Delaware law, the company's Certificate of Incorporation contains
provisions requiring the vote of 80% of the outstanding shares for certain
actions. These limited provisions relate to the approval of certain business
combination transactions with a significant shareholder, removal of directors,
elimination of the classified board, and the requirement that shareholder action
be taken at a meeting. In addition, the company's By-laws require the vote of
holders of two-thirds of the outstanding stock to amend its terms.
These super-majority vote provisions are intended to preserve and maximize
the value of EDS for all shareholders by protecting against self-interested
actions by one or a few large shareholders. Similar provisions are included in
the governing documents of many public corporations. These provisions are
intended to encourage a person making an unsolicited bid for the company to
negotiate with the Board of Directors to reach terms that are fair and provide
the best results for all shareholders. Without these provisions, it may be
possible for the holders of a majority of the shares represented at a meeting to
take actions that would give them effective control of EDS without negotiating
with the Board to achieve the best results for other shareholders. These
provisions are not intended to, and do not, preclude unsolicited offers to
acquire EDS at a fair price. In fact, the super-majority vote requirement for
business combinations with a significant shareholder do not apply if that
shareholder is paying fair market value, or at least the amount previously paid
by it for shares in any tender offer, for any additional shares to be acquired
by it in the proposed transaction.
The Board is firmly committed to maximizing shareholder value. In light of
the shareholder vote at EDS' 2000 Annual Meeting regarding this proposal, the
Board of Directors and its Governance Committee reviewed the super-majority vote
provisions in the company's Certificate of Incorporation and by-laws at meetings
in 2000 and early 2001. After careful consideration, the Board continues to
believe that such provisions help to preserve and maximize the value of EDS for
all shareholders and should be maintained.
Adoption of this proposal would not in itself effectuate the changes
contemplated by the proposal. Further action by the shareholders would be
required to amend the Certificate of Incorporation and By-laws. Under these
documents, an 80% vote of the outstanding shares would be required for approval.
Under Delaware law, amendments to the Certificate of Incorporation require a
recommendation from the Board of Directors prior to submission to shareholders.
The Board of Directors unanimously recommends a vote AGAINST this proposal.
SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Under SEC rules, shareholder proposals intended to be presented at the 2002
Annual Meeting and included in the proxy materials for that meeting must be
received no later than October 31, 2001, and must comply with applicable SEC
rules. Proposals may be mailed to the Secretary of EDS at 5400 Legacy Drive,
Plano, Texas 75024.
Our Bylaws provide for certain procedures that shareholders must follow to
nominate persons for election as directors or to introduce an item of business
at an annual meeting. These procedures are applicable whether or not the
proposal is intended to be included in our proxy materials for that meeting.
Generally, the shareholder must notify the Secretary of EDS of the proposal not
less than 90 days nor more than 270 days before the scheduled meeting date. The
notice must include the name and address of the shareholder and of any other
shareholders known by such shareholder to be in favor of the proposal. If the
notice relates to a nomination for director, it must also set forth the name,
age, principal occupation and business and residence address of any nominee(s),
the number of shares of Common Stock beneficially owned by the nominee(s), and
such other information regarding each nominee as would have been required to be
included in a proxy statement filed pursuant to the SEC's proxy rules (including
the written consent of each nominee). Notice of an item of business shall
include a description of the proposed business and the reason for conducting the
proposed business at the annual meeting. Copies of the Bylaws are available
from the Secretary of EDS. We currently expect that the 2002 Annual Meeting
will be held on April 19, 2002, in which event any advance notice of nominations
for directors and items of business (other than proposals to be included in the
proxy materials, which as noted above must be received by October 31, 2001) must
be given by shareholders by January 19, 2002.
26
Appendix A
ELECTRONIC DATA SYSTEMS CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
--------------------------------------------------------------------------------
The primary purpose of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") in fulfilling its responsibility to oversee
management's conduct of the Company's financial reporting process. This
responsibility is focused primarily on:
. financial reports and other financial information provided by the Company
to the Securities and Exchange Commission ("SEC") and the public;
. the Company's systems of internal accounting and financial controls; and
. the annual independent audit of the Company's financial statements.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company, including the right to retain
external counsel, auditors or other experts for this purpose. The external
auditor is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual basis
and shall make recommendations to the Board concerning any amendments to this
Charter. Amendments to this Charter shall be subject to Board approval.
MEMBERSHIP
--------------------------------------------------------------------------------
The Committee's composition shall meet the requirements of the Audit
Committee Policy of the New York Stock Exchange ("NYSE"). Accordingly:
. the Committee shall consist of at least three directors, all of whom have
no relationship to the Company that may interfere with the exercise of
their independence from management and the Company;
. each member of the Committee shall be financially literate, as such
qualification is interpreted by the Board in its business judgment, or must
become financially literate within a reasonable period of time after
appointment to the Committee; and
. at least one member of the Committee must have accounting or related
financial management expertise, as the Board interprets such qualification
in its business judgment.
A-1
KEY RESPONSIBILITIES AND ACTIVITIES
--------------------------------------------------------------------------------
The Committee's role is one of oversight. The Company's management is
responsible for preparing the Company's financial statements and the external
auditors are responsible for auditing those financial statements. In carrying
out its oversight responsibilities, the Committee is not providing any expert or
special assurance as to the Company's financial statements or any professional
certification as to the external auditor's work.
The following functions shall be periodic recurring activities of the
Committee in carrying out its oversight responsibilities. In carrying out these
functions, the Committee shall comply with all applicable requirements of the
NYSE and the SEC in such manner and under such guidelines as the Committee shall
determine from time to time to be most appropriate. The Committee may engage in
such other activities, as it shall from time to time deem necessary, advisable
or appropriate to carry out its purpose and responsibilities.
. The Committee shall evaluate the external auditor and shall make
recommendations to the Board for its approval regarding the selection and,
where appropriate, replacement of the external auditor.
. The Committee shall:
. request from the external auditors, annually, a formal written
statement delineating all relationships between the external auditor
and the Company consistent with Independence Standards Board Standard
No.1;
. discuss with the external auditors any such disclosed relationships
and their impact on the external auditor's independence;
. recommend that the Board take appropriate action in response to the
external auditor's report to satisfy itself of the external auditor's
independence; and
. consider the compatibility of non-audit services with the external
auditors' independence.
. The Committee shall review the overall control environment with the Director
of Internal Audit on an annual basis. The Committee shall discuss with the
internal auditor and the external auditor the overall scope and plans for
their respective audits.
. As a whole, or through the Committee chair, the Committee shall review with
management and the external auditors the Company's interim financial results
to be included in the Company's quarterly reports to be filed with the SEC
and the matters required to be discussed by Statement of Auditing Standards
("SAS") No. 61. This review will occur prior to the Company's filing of Form
10-Q.
. The Committee shall review with management and the external auditors
financial statements to be included in the Company's Annual Report on Form
10-K and review and consider with the external auditors the matters to be
discussed by SAS No. 61. This review will occur prior to the Company's filing
of Form 10-K.
. The Committee shall provide an Audit Committee Report for inclusion in the
Company's annual proxy statement that complies with the requirements for such
reports established from time to time by the SEC.
A-2
Appendix B
AMENDED AND RESTATED
ELECTRONIC DATA SYSTEMS CORPORATION
INCENTIVE PLAN
1. Plan. This Amended and Restated Incentive Plan of Electronic Data
Systems Corporation (the "Plan") is a further amendment and restatement of the
Amended and Restated 1996 Incentive Plan of Electronic Data Systems Corporation
and, subject to approval by the stockholders of Electronic Data Systems
Corporation (the "Company"), shall be effective as of February 6, 2001.
2. Objectives. This Plan is designed to attract and retain key employees
of the Company and its Subsidiaries (as hereinafter defined), to attract and
retain qualified directors of the Company, to encourage the sense of
proprietorship of such employees and Directors, and to stimulate the active
interest of such persons in the development and financial success of the Company
and its Subsidiaries. These objectives are to be accomplished by making Awards
(as hereinafter defined) under this Plan and thereby providing Participants (as
hereinafter defined) with a proprietary interest in the growth and performance
of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Annual Director Award Date" means, for each year, the first business day
of the month next succeeding the date upon which the annual meeting of
stockholders of the Company is held in such year.
"Authorized Officer" means the Chairman of the Board or the Chief Executive
Officer of the Company (or any other senior officer of the Company to whom
either of them shall delegate the authority to execute any Award Agreement).
"Award" means an Employee Award or a Director Award.
"Award Agreement" means any Employee Award Agreement or Director Award
Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation and Benefits Committee of the Board or
such other committee of the Board as is designated by the Board to administer
the Plan.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of an Award to a Nonemployee Director,
including, but not limited to, the grant of a Director Option or Director
Restricted Stock.
"Director Award Agreement" means a written agreement between the Company
and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations specified
in paragraph 9(a) hereof.
"Director Restricted Stock" means Common Stock granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations specified
in paragraph 9(b) hereof.
B-1
"Disability" means, with respect to a Nonemployee Director, the inability
to perform the duties of a Director for a continuous period of more than three
months by reason of any medically determinable physical or mental impairment.
"Dividend Equivalents" means, with respect to shares of Restricted Stock
that are to be issued at the end of the Restriction Period, an amount equal to
all dividends and other distributions (or the economic equivalent thereof) which
are payable to stockholders of record during the Restriction Period on a like
number of shares of Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries.
"Employee Award" means the grant of any Option, SAR, Stock Award, Cash
Award or Performance Award, whether granted singly, in combination or in tandem,
to a Participant who is an Employee pursuant to such applicable terms,
conditions and limitations as the Committee may establish in order to fulfill
the objectives of the Plan.
"Employee Award Agreement" means a written agreement between the Company
and a Participant who is an Employee setting forth the terms, conditions and
limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" of a share of Common Stock means, as of a particular
date, (i) if shares of Common Stock are listed on a national securities
exchange, the mean between the highest and lowest sales price per share of
Common Stock on the consolidated transaction reporting system for the principal
national securities exchange on which shares of Common Stock are listed on that
date, or, if there shall have been no such sale so reported on that date, on the
last preceding date on which such a sale was so reported, (ii) if shares of
Common Stock are not so listed but are quoted on the Nasdaq Stock Market, the
mean between the highest and lowest sales price per share of Common Stock
reported by the Nasdaq Stock Market on that date, or, if there shall have been
no such sale so reported on that date, on the last preceding date on which such
a sale was so reported or (iii) if the Common Stock is not so listed or quoted
but are traded in the over-the-counter market, the mean between the closing bid
and asked price on that date, or, if there are no quotations available for such
date, on the last preceding date on which such quotations shall be available, as
reported by the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock
Market, by the National Quotation Bureau Incorporated.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Noncompetition Provisions" has the meaning set forth in paragraph 8(c)
hereof.
"Nonemployee Director" has the meaning set forth in paragraph 4(b) hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of Common
Stock at a specified price.
"Participant" means an Employee or Director to whom an Award has been made
under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee that is subject to the attainment of one or more
Performance Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means any Common Stock that is restricted or subject to
forfeiture provisions.
B-2
"Restriction Period" means a period of time beginning as of the date upon
which an Award of Restricted Stock is made pursuant to this Plan and ending as
of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock, equal to
the excess of the Fair Market Value or other specified valuation of a specified
number of shares of Common Stock on the date the right is exercised over a
specified strike price (in each case, as determined by the Committee).
"Split-Off" means the split-off of the Company from General Motors
Corporation ("GM") on June 7, 1996 pursuant to which each outstanding share of
Class E Common Stock of GM was converted into one share of Common Stock, and the
Company became an independent publicly-traded corporation.
"Stock Award" means an award in the form of shares of Common Stock or units
denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than 50%
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business entity of which the Company directly or indirectly owns more than
50% of the voting, capital or profits interests (whether in the form of
partnership interests, membership interests or otherwise).
4. Eligibility.
(a) Employees. Employees eligible for Employee Awards under this Plan
shall consist of those Employees whose performance or contribution, in the
judgment of the Committee, benefits or will benefit the Company.
(b) Directors. Directors eligible for Director Awards under this Plan are
those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
5. Common Stock Available for Awards. Subject to the provisions of
paragraph 15 hereof, the aggregate number of shares of Common Stock that may be
issued under the Plan for Awards granted wholly or partly in Common Stock
(including rights or options which may be exercised for or settled in Common
Stock) is 37,922,485 (in addition to any shares that are the subject of Awards
outstanding as of December 31, 2000), of which an aggregate of not more than
400,000 shares shall be available for Director Awards (in addition to any shares
subject to Director Awards as of December 31, 2000) and the remainder shall be
available for Employee Awards, including Incentive Options (provided, that no
Award of an Incentive Option with respect to such shares shall be made on or
after February 6, 2011, the date which is ten years after the Board's approval
of this amended and restated Plan), and of which an aggregate of not more than
1,000,000 shares shall be available for issuance under Awards which do not
constitute Options hereunder (including any shares subject to such Awards as of
December 31, 2000). The number of shares of Common Stock that are the subject
of any Awards outstanding on or after December 31, 2000 that are forfeited or
terminated, expire unexercised, are settled in cash in lieu of Common Stock or
in a manner such that all or some of the shares covered by the Award are not
issued to a Participant or are exchanged for Awards that do not involve Common
Stock, shall again immediately become available for issuance under Awards
hereunder. The Committee may from time to time adopt and observe such
procedures concerning the counting of shares against the Plan maximum as it may
deem appropriate. The Board and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file any required
documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that shares of Common Stock are available for
issuance pursuant to Awards.
B-3
6. Administration.
(a) This Plan shall be administered by the Committee. The Board, in its
sole discretion may exercise any authority of the Committee under the Plan in
lieu of the Committee's exercise thereof, in which instances references to the
Committee shall refer to the Board. To the extent required (i) in order for
Employee Awards to be exempt from Section 16 of the Exchange Act by virtue of
the provisions of Rule 16b-3, the Committee shall be the Board or shall consist
of at least two members of the Board who meet the requirements of the definition
of "non-employee director" set forth in Rule 16b-3 promulgated under the
Exchange Act, and (ii) with respect to any Award that is intended to qualify as
"performance-based compensation" under Section 162(m) of the Code, the Committee
shall consist of two or more directors, each of whom meets the definition of
"outside director" under said Section 162(m).
(b) Subject to the provisions hereof, the Committee shall have full and
exclusive power and authority to administer this Plan and to take all actions
which are specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. The Committee shall also have full
and exclusive power to interpret this Plan and to adopt, amend and rescind such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. The
Committee may, in its discretion, provide for the extension of the
exercisability of an Award, accelerate the vesting or exercisability of an
Award, eliminate or make less restrictive any restrictions contained in an
Award, waive any restriction or other provision of this Plan or an Award or
otherwise amend or modify an Award in any manner that is either (i) not adverse
to the Participant to whom such Award was granted or (ii) consented to by such
Participant. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in this Plan or in any Award in the manner and to
the extent the Committee deems necessary or desirable to carry it into effect.
Any decision of the Committee in the interpretation and administration of this
Plan shall lie within its sole and absolute discretion and shall be final,
conclusive and binding on all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of paragraph
7 of this Plan shall be liable for anything done or omitted to be done by him or
her, by any member of the Committee or by any officer of the Company in
connection with the performance of any duties under this Plan, except for his or
her own willful misconduct or as expressly provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to, Participants
who at the time of such awards or action are subject to Section 16 of the
Exchange Act or are "covered employees" as defined in Section 162(m) of the
Code.
8. Employee Awards.
(a) The Committee shall determine the type or types of Employee Awards to
be made under this Plan and shall designate from time to time the Employees who
are to be the recipients of such Awards. Each Employee Award may be embodied in
an Employee Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant to whom the Employee Award is made and by an
Authorized Officer for and on behalf of the Company. Employee Awards may
consist of those listed in this paragraph 8(a) hereof and may be granted singly,
in combination or in tandem. Employee Awards may also be made in combination or
in tandem with, in replacement of, or as alternatives to, grants or rights under
this Plan or any other employee plan of the Company or any of its Subsidiaries,
including the plan of any acquired entity; provided that no Option may be issued
in exchange for the cancellation of an Option with a lower exercise price. An
Employee Award may provide for the grant or issuance of additional, replacement
or alternative Employee Awards upon the occurrence of specified events,
including the exercise of the original Employee Award granted to a Participant.
All or part of an Employee Award may be subject to conditions established by the
Committee, which may include, but are not limited to, continuous service with
the Company and its Subsidiaries, achievement of specific business objectives,
increases in specified indices, attainment of specified growth rates and other
comparable measurements of performance. Upon the termination of
B-4
employment by a Participant who is an Employee, any unexercised, deferred,
unvested or unpaid Employee Awards shall be treated as set forth in the
applicable Employee Award Agreement.
(i) Stock Option. An Employee Award may be in the form of an Option.
An Option awarded pursuant to this Plan may consist of an Incentive Option
or a Nonqualified Option. The price at which shares of Common Stock may be
purchased upon the exercise of an Incentive Option shall be not less than
the Fair Market Value of the Common Stock on the date of grant. The price
at which shares of Common Stock may be purchased upon the exercise of a
Nonqualified Option shall be not less than, but may exceed, the Fair Market
Value of the Common Stock on the date of grant. Subject to the foregoing
provisions, the terms, conditions and limitations applicable to any Options
awarded pursuant to this Plan, including the term of any Options and the
date or dates upon which they become exercisable, shall be determined by
the Committee.
(ii) Stock Appreciation Right. An Employee Award may be in the form
of an SAR. The terms, conditions and limitations applicable to any SARs
awarded pursuant to this Plan, including the term of any SARs and the date
or dates upon which they become exercisable, shall be determined by the
Committee.
(iii) Stock Award. An Employee Award may be in the form of a Stock
Award. The terms, conditions and limitations applicable to any Stock
Awards granted pursuant to this Plan shall be determined by the Committee.
(iv) Cash Award. An Employee Award may be in the form of a Cash
Award. The terms, conditions and limitations applicable to any Cash Awards
granted pursuant to this Plan shall be determined by the Committee.
(v) Performance Award. Without limiting the type or number of
Employee Awards that may be made under the other provisions of this Plan,
an Employee Award may be in the form of a Performance Award. A Performance
Award shall be paid, vested or otherwise deliverable solely on account of
the attainment of one or more pre-established, objective Performance Goals
established by the Committee prior to the earlier to occur of (x) 90 days
after the commencement of the period of service to which the Performance
Goal relates and (y) the elapse of 25% of the period of service (as
scheduled in good faith at the time the goal is established), and in any
event while the outcome is substantially uncertain. A Performance Goal is
objective if a third party having knowledge of the relevant facts could
determine whether the goal is met. A Performance Goal may be based on one
or more of business criteria that apply to the individual, one or more
business units of the Company, or the Company as a whole, and may include
one or more of the following criteria: revenue, net income, Common Stock
price, stockholder return, stockholder value, economic value, earnings per
share, market performance, return on assets, return on equity, earnings,
operating profits, cash flow, working capital, costs, new business contract
values, and/or such other financial, accounting or quantitative metric
determined by the Committee. A Performance Goal may, but need not be,
based upon a change or an increase or positive result under a particular
business criterion and could include, for example, maintaining the status
quo, limiting economic losses, or a relative comparison of performance to
the performance of a peer group or other external or internal measure
(measured, in each case, by reference to specific business criteria). A
Performance Goal may include or exclude items to measure specific
objectives, including, without limitation, extraordinary or other non-
recurring items, acquisitions and divestitures, internal restructuring and
reorganizations, accounting charges and effects of accounting changes. In
interpreting Plan provisions applicable to Performance Goals and
Performance Awards applicable to Awards to Employees who are "covered
employees" under Section 162(m) of the Code, it is the intent of the Plan
to conform with the standards of Section 162(m) of the Code and Treasury
Regulations Section 1.162-27(e)(2)(i), and the Committee in establishing
such goals and interpreting the Plan shall be guided by such provisions.
Prior to the payment of any compensation based on the achievement of
Performance Goals to any such "covered employee", the Committee must
certify in writing that applicable Performance Goals and any of the
material terms thereof were, in fact, satisfied. Subject to the foregoing
provisions, the terms, conditions and limitations applicable to any
Performance Awards made pursuant to this Plan shall be determined by the
Committee.
B-5
(b) Notwithstanding anything to the contrary contained in this Plan, the
following limitations shall apply to any Employee Awards made hereunder:
(i) No Participant may be granted, during any calendar year period,
Employee Awards consisting of Options or SARs that are exercisable for more
than 2,000,000 shares of Common Stock, subject to adjustment pursuant to
the provisions of paragraph 15 hereof;
(ii) No Participant may be granted, during any calendar period,
Employee Awards consisting of shares of Common Stock or units denominated
in such shares (other than any Employee Awards consisting of Options or
SARs) covering or relating to more than 500,000 shares of Common Stock,
subject to adjustment pursuant to the provisions of paragraph 15 hereof
(the limitation set forth in this clause (ii), together with the limitation
set forth in clause (i) above, being hereinafter collectively referred to
as the "Stock Based Awards Limitations"); and
(iii) No Participant may be paid under any Employee Awards consisting
of Cash Awards or any other form permitted under this Plan (other than
Employee Awards consisting of Options or SARs or otherwise consisting of
shares of Common Stock or units denominated in such shares) in respect of
any calendar-year period an amount in excess of $6,000,000.
(c) Prior to the Split-Off, certain awards consisting of shares of GM
Class E Common Stock or units denominated in such shares (the "Existing Stock
Awards") had been made to Employees under the Plan as in effect from time to
time prior to the Split-Off. As of the Split-Off, each Existing Stock Award was
adjusted so that such award consisted of or related to a number of shares of
Common Stock equal to the number of shares of GM Class E Common Stock that were
the subject of such Existing Stock Award immediately prior to such date, without
any alteration or enlargement of the rights of the holders thereof.
Notwithstanding anything to the contrary contained in this Plan, all Existing
Stock Awards that were subject to the restrictions and other provisions relating
to competition by participants and related matters set forth in Section 10 of
the Plan as in effect immediately prior to the Split-Off (the "Noncompetition
Provisions") continue to be subject to the Noncompetition Provisions, as fully
and to the same extent as if such Section 10 were set forth herein in its
entirety. Awards made after the Split-Off shall be subject to such restrictions
and other provisions relating to competition or other conduct detrimental to the
Company as determined by the Committee.
9. Director Awards. Each Nonemployee Director of the Company shall be
granted Director Awards in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. In addition, each Nonemployee Director
shall be entitled to any other Award as the Board or Committee may determine,
which Award shall be embodied in a Director Award Agreement which shall contain
such terms, conditions and limitations (including, but not limited to, terms,
conditions and limitations which may be similar to those applicable to Employee
Awards) as shall be determined by the Board or Committee in its discretion.
Notwithstanding anything to the contrary contained herein, Director Awards shall
not be made in any year in which a sufficient number of shares of Common Stock
are not available to make such Awards under this Plan.
(a) Director Options. On each Annual Director Award Date occurring on or
after June 1, 2000, each Nonemployee Director shall automatically be granted a
Director Option that provides for the purchase of 4,000 shares of Common Stock
(or such other number of shares as the Board or Committee shall from time to
time determine). In the event that after June 1, 2000, a Nonemployee Director
is elected otherwise than by election at an annual meeting of stockholders of
the Company, on the date of his or her election, such Nonemployee Director shall
automatically be granted a Director Option that provides for the purchase of a
number of shares of Common Stock (rounded up to the nearest whole number) equal
to the product of (i) 4,000 and (ii) a fraction the numerator of which is the
number of days between the election of such Nonemployee Director and the next
scheduled Annual Director Award Date (or, if no such date has been scheduled,
the first anniversary of the immediately preceding Annual Director Award Date)
and the denominator of which is 365. Each Director Option shall have a term of
ten years from the date of grant, notwithstanding any earlier termination of the
status of the holder as a Nonemployee Director. The purchase price of each
share of Common Stock subject to a Director Option shall be equal to the Fair
Market Value of the Common Stock on the date of grant. All Director Options
shall vest and become exercisable in increments of one-third of the total number
of shares of Common Stock that are subject thereto (rounded up to the
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nearest whole number) on the first and second anniversaries of the date of grant
and of all remaining shares of Common Stock that are subject thereto on the
third anniversary of the date of grant. All unvested Director Options shall be
forfeited if the Nonemployee Director resigns as a Director without the consent
of a majority of the other Directors.
In addition to the Director Options automatically awarded pursuant to the
immediately preceding paragraph, a Nonemployee Director may make an annual
election to receive, in lieu of all or any portion of the Director's fees he or
she would otherwise be entitled to receive in cash during the next year
(including both annual retainer and meeting fees), Director Options that provide
for the purchase of a number of shares of Common Stock (rounded up to the
nearest whole number) equal to the product of (x) three times (y) a fraction the
numerator of which is equal to the dollar amount of fees the Nonemployee
Director elects to forego in the next year in exchange for Director Options and
the denominator of which is equal to the Fair Market Value of the Common Stock
on the effective date of the election. Each annual election made by a
Nonemployee Director pursuant to this paragraph 9(a) (i) shall take the form of
a written document signed by such Nonemployee Director and filed with the
Secretary of the Company, (ii) shall designate the dollar amount of the fees the
Nonemployee Director elects to forego in the next year in exchange for Director
Options and (iii) to the extent provided by the Committee in order to ensure
that the Award of the Director Options is exempt from Section 16 by virtue of
Rule 16b-3, shall be irrevocable and shall be made prior to the date as of which
such Award of Director Options is to be effective. An Award of Director Options
at the election of a Nonemployee Director shall be effective on the next Annual
Director Award Date.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations set forth
above and shall be signed by the Participant to whom the Director Options are
granted and by an Authorized Officer for and on behalf of the Company.
(b) Director Restricted Stock. On each Annual Director Award Date
occurring on or after June 1, 2000, each Nonemployee Director shall
automatically be granted 500 shares of Director Restricted Stock (or such other
number of shares as the Board or Committee shall from time to time determine).
In the event that after June 1, 2000, a Nonemployee Director is elected
otherwise than by election at an annual meeting of stockholders of the Company,
on the date of his or her election, such Nonemployee Director shall
automatically be granted a number of shares of Director Restricted Stock
(rounded up to the nearest whole number) equal to the product of (i) 500 and
(ii) a fraction the numerator of which is the number of days between the
election of such Nonemployee Director and the next scheduled Annual Director
Award Date (or, if no such date has been scheduled, the first anniversary of the
immediately preceding Annual Director Award Date) and the denominator of which
is 365. Shares of Director Restricted Stock awarded to a Nonemployee Director
(i) shall vest in increments of one-third of the total number of shares of
Director Restricted Stock (rounded up to the nearest whole number) that are the
subject of such Award on the first and second anniversaries of the date of grant
and all remaining shares of Director Restricted Stock that are the subject of
such Award on the third anniversary of the date of grant and (ii) shall fully
vest (to the extent not previously vested pursuant to clause (i) above) upon a
failure to reelect the Nonemployee Director as Director, the death of the
Director or the resignation of the Director by reason of Disability or at the
request of a majority of the other Directors. All unvested shares of Director
Restricted Stock granted to a Nonemployee Director shall be forfeited if the
Nonemployee Director resigns as a Director without the consent of a majority of
the other Directors. Under such terms and conditions as may be established by
the Committee and, in lieu of Restricted Stock to be automatically awarded as of
an Annual Award Date, a Nonemployee Director may irrevocably elect to receive an
equivalent amount of Phantom Stock Units under the Company's Deferred
Compensation Plan for Nonemployee Directors in which event no Restricted Stock
shall be automatically awarded to a Nonemployee Director on such date.
In addition to the Director Restricted Stock automatically awarded pursuant
to the immediately preceding paragraph, a Nonemployee Director may make an
annual election to receive, in lieu of all or any portion of the Director's fees
he or she would otherwise be entitled to receive in cash during the next year
(including both annual retainer and meeting fees), a number of shares of
Director Restricted Stock (rounded up to the nearest whole number) having a Fair
Market Value equal to 110% of a fraction the numerator of which is equal to the
dollar amount of fees the Nonemployee Director elects to forego in the next year
in exchange for Director Restricted Stock and the denominator of which is equal
to the Fair Market Value of the Common Stock on the effective date of the
election. Each annual election made by a Nonemployee Director pursuant to this
paragraph 9(b) (i) shall take the
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form of a written document signed by such Nonemployee Director and filed with
the Secretary of the Company, (ii) shall designate the dollar amount of the fees
the Nonemployee Director elects to forego in the next year in exchange for
Director Restricted Stock and (iii) to the extent provided by the Committee in
order to ensure that the Award of the Director Restricted Stock is exempt from
Section 16 by virtue of Rule 16b-3, shall be irrevocable and shall be made prior
to the date as of which such Award of Director Restricted Stock is to be
effective. An Award of Director Restricted Stock at the election of a
Nonemployee Director shall be effective on the next Annual Director Award Date.
Any Award of Director Restricted Stock shall be embodied in a Director
Award Agreement, which shall contain the terms, conditions and limitations set
forth above and shall be signed by the Participant to whom the Director
Restricted Stock is granted and by an Authorized Officer for and on behalf of
the Company.
10. Payment of Awards.
(a) General. Payment of Employee Awards may be made in the form of cash
or Common Stock, or a combination thereof, and may include such restrictions as
the Committee shall determine, including, in the case of Common Stock,
restrictions on transfer and forfeiture provisions. If payment of an Employee
Award is made in the form of Restricted Stock, the Employee Award Agreement
relating to such shares shall specify whether they are to be issued at the
beginning or end of the Restriction Period. In the event that shares of
Restricted Stock are to be issued at the beginning of the Restriction Period,
the certificates evidencing such shares (to the extent that such shares are so
evidenced) shall contain appropriate legends and restrictions that describe the
terms and conditions of the restrictions applicable thereto. In the event that
shares of Restricted Stock are to be issued at the end of the Restricted Period,
the right to receive such shares shall be evidenced by book entry registration
or in such other manner as the Committee may determine.
(b) Deferral. With the approval of the Committee, payments in respect of
Employee Awards may be deferred, either in the form of installments or a future
lump sum payment. The Committee may permit selected Participants to elect to
defer payments of some or all types of Employee Awards in accordance with
procedures established by the Committee. Any deferred payment of an Employee
Award, whether elected by the Participant or specified by the Employee Award
Agreement or by the Committee, may be forfeited if and to the extent that the
Employee Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award consisting of shares of
Common Stock or units denominated in shares of Common Stock, subject to such
terms, conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of interest
on deferred cash payments and Dividend Equivalents for Employee Awards
consisting of shares of Common Stock or units denominated in shares of Common
Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee may be offered an election to substitute an
Employee Award for another Employee Award or Employee Awards of the same or
different type.
11. Stock Option Exercise. The price at which shares of Common Stock may
be purchased under an Option shall be paid in full at the time of exercise in
cash or, if elected by the optionee, the optionee may purchase such shares by
means of tendering Common Stock or surrendering another Award, including
Restricted Stock or Director Restricted Stock, valued at Fair Market Value on
the date of exercise, or any combination thereof. The Committee shall determine
acceptable methods for Participants who are Employees to tender Common Stock
(including by attestation of ownership) or other Employee Awards; provided that
any Common Stock that is or was the subject of an Employee Award may be so
tendered only if it has been held by the Participant for six months. The
Committee may provide for procedures to permit the exercise or purchase of such
Awards by use of the proceeds to be received from the sale of Common Stock
issuable pursuant to an Employee Award. Unless otherwise provided in the
applicable Award Agreement, in the event shares of Restricted Stock are tendered
as consideration for the exercise of an Option, a number of the shares issued
upon the exercise of the Option, equal to the number of shares of Restricted
Stock or Director Restricted Stock used as consideration therefor, shall be
subject to the same restrictions as the Restricted Stock or Director Restricted
Stock so submitted as well as any additional restrictions that may be imposed by
the Committee.
B-8
12. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Employee Award payment and withhold, at the time of
delivery or vesting of cash or shares of Common Stock under this Plan, or if
later, the date of income recognition, an appropriate amount of cash or number
of shares of Common Stock or a combination thereof for payment of taxes required
by law or to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for withholding of such taxes. The Committee
may also permit withholding to be satisfied by the transfer to the Company of
shares of Common Stock theretofore owned by the holder of the Employee Award
with respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made. The Committee may
provide for loans, on either a short term or demand basis, from the Company to a
Participant who is an Employee to permit the payment of taxes required by law.
13. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment or alteration that would adversely affect the
rights of any Participant under any Award previously granted to such Participant
shall be made without the consent of such Participant.
14. Assignability. Except as provided below, no Award or any other
benefit under this Plan shall be assignable or otherwise transferable except by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. Notwithstanding the foregoing,
the Committee may, in its discretion, authorize all or a portion of the
Nonqualified Stock Options granted to a Participant to be transferable to:
(a) the spouse, parents, children, stepchildren, grandchildren or legal
dependents of the Participant ("Immediate Family Members");
(b) a trust or trusts solely for the benefit of the Participant and/or
such Immediate Family Members, or;
(c) a partnership in which the only partners are the Participant, such
Immediate Family Members and/or a trust or trusts solely for the
benefit of the Participant and/or such Immediate Family Members,
provided that:
(i) there may be no consideration for any such transfer;
(ii) the Employee Award Agreement pursuant to which such Options
are granted expressly provides for transferability in a
manner consistent with this paragraph 14, and
(iii) subsequent transfers of transferred Options shall be
prohibited except those to the Participant or individuals
or entities described in clauses (a), (b) or (c) above, or
by the laws of descent or distribution.
Following transfer, any such Options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, including
but not limited to, (i) restrictions or other provisions relating to competition
or other conduct detrimental to the Company, and (ii) the obligation of the
Participant for payment of taxes with respect to the exercise of such Options
and the rights of the Company to withhold such taxes from the Participant or to
otherwise require the Participant to satisfy all obligations for the withholding
of such taxes as contemplated by paragraph 12 above. The provisions relating to
the period of exercisability and expiration of the Option shall continue to be
applied with respect to the original Participant, and the Options shall be
exercisable by the transferee only to the extent, and for the periods, set forth
in the Employee Award Agreement.
The Committee may prescribe and include in applicable Award Agreements
other restrictions on transfer. Any attempted assignment of an Award or any
other benefit under this Plan in violation of this paragraph 14 shall be null
and void.
B-9
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock, declaration of a dividend payable in shares of Common Stock or
other stock split, then (i) the number of shares of Common Stock reserved under
this Plan, (ii) the number of shares of Common Stock covered by outstanding
Awards in the form of Common Stock or units denominated in Common Stock, (iii)
the exercise or other price in respect of such Awards, (iv) the appropriate Fair
Market Value and other price determinations for such Awards, (v) the number of
shares of Common Stock covered by Director Options automatically granted
pursuant to paragraph 9(a) hereof, (vi) the number of shares of Director
Restricted Stock automatically granted pursuant to paragraph 9(b) hereof and
(vii) the Stock Based Awards Limitations shall each be proportionately adjusted
by the Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any consolidation or
merger of the Company with another corporation or entity, the adoption by the
Company of any plan of exchange affecting the Common Stock or any distribution
to holders of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board or Committee shall
make appropriate adjustments to (i) the number of shares of Common Stock covered
by Awards in the form of Common Stock or units denominated in Common Stock, (ii)
the exercise or other price in respect of such Awards, (iii) the appropriate
Fair Market Value and other price determinations for such Awards, (iv) the
number of shares of Common Stock covered by Director Options automatically
granted pursuant to paragraph 9(a) hereof, (v) the number of shares of Director
Restricted Stock automatically granted pursuant to paragraph 9(b) hereof and
(vi) the Stock Based Awards Limitations to give effect to such transaction shall
each be proportionately adjusted by the Board to reflect such transaction;
provided that such adjustments shall only be such as are necessary to maintain
the proportionate interest of the holders of the Awards and preserve, without
exceeding, the value of such Awards. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to issue or assume Awards by means of
substitution of new Awards, as appropriate, for previously issued Awards or an
assumption of previously issued Awards as part of such adjustment.
16. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the Company
that this Plan comply with Rule 16b-3 with respect to persons subject to Section
16 of the Exchange Act unless otherwise provided herein or in an Award
Agreement, that any ambiguities or inconsistencies in the construction of this
Plan be interpreted to give effect to such intention, and that if any provision
of this Plan is found not to be in compliance with Rule 16b-3, such provision
shall be null and void to the extent required to permit this Plan to comply with
Rule 16b-3. Certificates evidencing shares of Common Stock certificates
delivered under this Plan (to the extent that such shares are so evidenced) may
be subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or transaction
reporting system upon which the Common Stock is then listed or to which it is
admitted for quotation and any applicable federal or state securities law. The
Committee may cause a legend or legends to be placed upon such certificates (if
any) to make appropriate reference to such restrictions.
17. Unfunded Plan. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with
respect to an Award
B-10
of cash, Common Stock or rights thereto under this Plan shall be based solely
upon any contractual obligations that may be created by this Plan and any Award
Agreement, and no such liability or obligation of the Company shall be deemed to
be secured by any pledge or other encumbrance on any property of the Company.
Neither the Company nor the Board or the Committee shall be required to give any
security or bond for the performance of any obligation that may be created by
this Plan.
18. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
B-11
--------------------------------
WHEN PROXY IS OKAYED PLEASE SIGN
& DATE IT ABOVE
ADMISSION TICKET
[EDS LOGO]
2001 ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 2001, 1:00 P.M.
The Plano Centre
2000 E. Spring Creek Parkway
Plano, Texas 75074
[MAP WITH INSTRUCTIONS]
--------------------------------------------------------------------------------
PROXY/VOTING INSTRUCTION CARD
This Proxy is solicited on behalf of the Board of Directors of
ELECTRONIC DATA SYSTEMS CORPORATION
for the Annual Meeting of Shareholders on May 22, 2001
The undersigned hereby authorizes Richard H. Brown, Jeffrey M. Heller, and D.
Gilbert Friedlander, and each or any of them with power to appoint his
substitute, to vote as Proxy for the undersigned at the Annual Meeting of
Shareholders to be held at The Plano Centre, 2000 E. Spring Creek Parkway,
Plano, TX 75074 on May 22, 2001, at 1:00 p.m., or any adjournment or
postponement thereof, the number of shares which the undersigned would be
entitled to vote if personally present. The Proxies shall vote subject to the
directions indicated on the reverse side of this card and proxies are authorized
to vote in their discretion upon such other business as may properly come before
the meeting and any adjournments or postponements thereof. The proxies will vote
as the Board of Directors recommends where the undersigned does not specify a
choice.
This card also constitutes your voting instructions for shares held in the EDS
401(k) Plan, the EDS Stock Purchase Plan, the EDS Puerto Rico Savings Plan, the
GM Savings Stock Purchase Program, the GM Personal Savings Plan, the Delphi
Automotive Savings Stock Purchase Plan and the Delphi Automotive Personal
Savings Plan, and the undersigned hereby authorizes the respective
trustees/administrators of such plans to vote the shares held in the
undersigned's accounts. Generally, shares in any of these plans will NOT be
voted unless this proxy (which constitutes your voting instructions) is
returned, although unvoted shares in the EDS 401(k) Plan may, and unvoted shares
in the GM Savings Stock Purchase Program and the Delphi Automotive Savings Stock
Purchase Plan will, be voted in the discretion of the plans' trustees.
Address Change/Comments:________________________________________________________
(SEE OTHER SIDE)
ANNUAL MEETING OF SHAREHOLDERS OF
ELECTRONIC DATA SYSTEMS CORPORATION
MAY 22, 2001
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
---------------
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
--------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
-------------------
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS ===========================> _________________________
Please Detach and Mail in the Envelope Provided
A [X] Please mark your
vote as in this
example
FOR all nominees WITHHOLD (The Board of Directors recommends a vote "FOR" Items 1, 2 and 3.)
listed at right (except AUTHORITY (The Board of Directors recommends a vote "AGAINST" Items 4 and 5.)
as marked to the to vote for all nominees
contrary below) listed at right
1. Election of Nominees: William M. Daley
Directors [__] [__] Roger A. Enrico
C. Robert Kidder
(INSTRUCTIONS: To withhold authority to vote for
any individual nominee(s), strike a line through the
nominee's name in the list at right.)
FOR AGAINST ABSTAIN
2. Ratification of appointment of auditors [__] [__] [__]
3. Approval of the Amended and Restated EDS
Incentive Plan. [__] [__] [__]
4. Shareholder proposal regarding rights plan. [__] [__] [__]
5. Shareholder proposal regarding majority
vote. [__] [__] [__]
To include any comments or change of address,
mark this box and use the reverse side. [__]
Please mark
If you do not want to receive an Annual Report for this box if you
this account, please mark this box. [__] plan to attend [__]
the Annual
Meeting.
SIGNATURE(S):_________________________________________________________ Dated: ___________2001
NOTE: Please sign exactly as name appears on this card. When signing as attorney, executor,
administrator, trustee, guardian, or corporation official, please give full title. Each joint
owner must sign the proxy.