<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 23, 1996
ELECTRONIC DATA SYSTEMS HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 333-02543 75-2548221
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5400 Legacy Drive
Plano, Texas 75024-3105
(Address of principal executive offices,
including zip code)
Registrant's telephone number, including area code (214) 604-6000
================================================================================
<PAGE>
ITEM 5. OTHER EVENTS.
(a) Additional Information. The Registration Statement on Form S-4 (Commission
----------------------
File No. 333-02543) (the "Registration Statement") of Electronic Data Systems
Holding Corporation ("EDS") was declared effective under the Securities Act of
1933, as amended (the "Securities Act"), on April 23, 1996 (the "Effective
Date"). The Registration Statement includes the Solicitation
Statement/Prospectus, dated April 23, 1996 (the "Solicitation
Statement/Prospectus"), mailed to the common stockholders of General Motors
Corporation, a Delaware corporation ("General Motors" or "GM"), of record on
April 10, 1996 (the "Record Date"). The information included in this Current
Report on Form 8-K (this "Current Report") comprises a portion of the
information included in the Solicitation Statement/Prospectus. This Current
Report omits certain information contained in the Solicitation
Statement/Prospectus. The full Solicitation Statement/Prospectus can be
inspected at and obtained from the Securities and Exchange Commission (the
"Commission") and the New York Stock Exchange (the "NYSE"). This Current Report
speaks as of the Effective Date, and there can be no assurance as to the
accuracy, completeness or currency of such information subsequent to the
Effective Date. Except as otherwise may be legally required, EDS does not intend
to update this information.
INTRODUCTION
The Solicitation Statement/Prospectus was furnished to stockholders of
General Motors who hold shares of its Common Stock, $1 2//3 par value per share
(the "$1 2/3 Common Stock"), its Class E Common Stock, $0.10 par value per
share (the "Class E Common Stock"), or its Class H Common Stock, $0.10 par
value per share (the "Class H Common Stock"), in order to secure their consent
to a proposal by General Motors to effect a tax-free (for U.S. federal income
tax purposes) split-off (the "Split-Off") of General Motors' wholly owned
subsidiary, Electronic Data Systems Holding Corporation, a Delaware corporation
("EDS"), which indirectly owns all of the capital stock of Electronic Data
Systems Corporation and which will be renamed "Electronic Data Systems
Corporation" immediately prior to the consummation of the Split-Off. As a
result of the Split-Off, (i) EDS will become an independent, publicly held
company, with approximately 485 million shares of EDS Common Stock (as defined
below) traded on the New York Stock Exchange, (ii) holders of the Class E Common
Stock will become stockholders of EDS rather than of General Motors, and (iii)
Class E Common Stock will cease to exist.
The Split-Off will be accomplished through a merger (the "Merger") of GM
Mergeco Corporation ("Mergeco"), with and into General Motors pursuant to the
Agreement and Plan of Merger, dated April 19, 1996 (the "Merger Agreement"),
between General Motors and Mergeco. Mergeco is an indirect wholly owned
subsidiary of EDS organized for the purpose of effecting the Split-Off. In the
Merger, each outstanding share of Class E Common Stock will be converted into
one share of EDS common stock, $0.01 par value per share (the "EDS Common
Stock"). General Motors will be the surviving corporation of the Merger.
General Motors, not EDS, is the issuer of Class E Common Stock. EDS is the
issuer of the EDS Common Stock, and thus, following the Split-Off, former
holders of Class E Common Stock will no longer own an interest (incident to such
holdings) in General Motors' equity or assets, but will instead own an equity
interest in EDS. For a description of the EDS Common Stock, see "EDS Capital
Stock."
Immediately prior to and as a condition of the consummation of the Merger,
EDS will contribute to Mergeco $500 million in cash (the "Special Inter-Company
Payment"). As a result of the Merger, all of the assets of Mergeco, which will
consist entirely of the cash contributed by EDS, will become assets of General
Motors. General Motors has publicly stated that the Special Inter-Company
Payment was included as one of the terms of the Split-Off in order to enable the
General Motors Board of Directors (the "GM Board") to determine that the Split-
Off is fair to all classes of General Motors common stockholders.
2
<PAGE>
Immediately before the Merger, General Motors and EDS will enter into a new
Master Service Agreement (the "Master Services Agreement") and certain related
agreements pursuant to which EDS will continue to serve as General Motors'
principal supplier of information technology ("IT") services on a world-wide
basis for an initial term of 10 years following the Split-Off, which may be
extended by mutual agreement of the parties. The IT services to be provided by
EDS under the Master Services Agreement will generally be similar to those
provided to General Motors under the existing agreements and arrangements
between the parties. However, the Master Services Agreement provides that
certain significant changes will be made to the pricing and terms of services
currently provided by EDS to General Motors. See "Relationship Between General
Motors and EDS--Post-Split-Off Arrangements--IT Services Agreements."
Additionally, as a condition of the consummation of the Merger, General
Motors and EDS will enter into a Separation Agreement and certain related
agreements (collectively, the "Separation Agreement"), including an Amended
and Restated Agreement for the Allocation of United States Federal, State and
Local Income Tax (the "Tax Allocation Agreement"), establishing certain
arrangements between General Motors and EDS deemed necessary in order to deal
with various business, legal and regulatory issues following the Split-Off. See
"Relationship Between General Motors and EDS--Post-Split-Off Arrangements--
Separation Agreement."
The Split-Off and related transactions, including the consummation of the
Merger, the making of the Special Inter-Company Payment, the execution and
delivery of the Master Services Agreement (and certain other IT service
agreements to be entered into in connection therewith) and the Separation
Agreement and the consummation of the other transactions and events contemplated
by the Merger Agreement, are collectively referred to herein as the
"Transactions." See "Relationship Between General Motors and EDS--Post-Split-
Off Arrangements."
The Split-Off is intended to accomplish at least three business objectives
from the perspective of EDS and holders of Class E Common Stock: (i) to remove
limitations on EDS' ability to participate in major strategic alliances
(including mergers and acquisitions which can be effected using EDS Common
Stock); (ii) to remove limitations on EDS' ability to obtain additional business
from and establish new customer relationships with companies that compete with
General Motors or its subsidiaries; and (iii) to enhance EDS' access to the
capital necessary for investment in its future growth.
________________________
3
<PAGE>
RISK FACTORS REGARDING EDS AFTER THE SPLIT-OFF
DIVIDEND POLICY
Following the Split-Off, the dividend policy and practices with respect to
the EDS Common Stock will be as determined and as may be changed from time to
time by the EDS Board of Directors (the "EDS Board"), not the GM Board. Under
Delaware law and the Restated Certificate of Incorporation of EDS (after giving
effect to the Split-Off, the "EDS Certificate of Incorporation"), the EDS Board
is not required to declare dividends on the EDS Common Stock. EDS management
intends to recommend to the EDS Board at its first meeting following
consummation of the Split-Off that EDS continue to pay quarterly dividends
through 1996 in an amount equal to $0.15 per share. The EDS Board will not be
required to follow such recommendation by EDS management. The EDS Board will be
free to adopt such dividend policy as it deems appropriate and, during or after
1996, to change its dividend policies and practices from time to time and to
decrease or increase the dividends paid on the EDS Common Stock on the basis of
EDS' financial condition, earnings and capital requirements and other factors
the EDS Board may deem relevant.
INCREASED LEVERAGE; NO ASSURANCE OF ACCESS TO CAPITAL
After the Split-Off, it is expected that EDS may over time incur
substantially more debt than it has while a subsidiary of GM. EDS expects that
it will borrow approximately $500 million under its existing commercial paper
and committed credit facilities to finance the Special Inter-Company Payment. In
addition, EDS' financial leverage is expected to increase in the future as it
borrows additional funds to meet its growing capital needs. EDS management
believes that EDS' stable revenues should permit it to sustain a higher debt to
equity ratio than that which it currently maintains as a subsidiary of GM and
that such a higher level of debt will be necessary to provide EDS with the
capital it needs to fund future growth. The degree to which EDS is leveraged,
however, could under certain circumstances limit its financial and operating
flexibility. To the extent that EDS is more highly leveraged following the
Split-Off, EDS may also be required to pay higher interest rates on its
outstanding borrowings. Furthermore, although EDS believes that the Split-Off
will enhance EDS' access to the capital necessary for investment in its business
growth, there can be no assurance in this regard. See "Special Factors--
Purposes of the Split-Off" and "EDS Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
NO PRIOR PUBLIC MARKET FOR EDS COMMON STOCK; NO ASSURANCE AS TO MARKET PRICE
Although the Class E Common Stock (which is a stock of General Motors
designed to provide holders with financial returns based on the performance of
EDS) has been traded publicly since its initial issuance in 1984, there has been
no public market for the EDS Common Stock since such time. Because, among other
things, EDS Common Stock will be a security of EDS (rather than a security of
GM), with different terms than the Class E Common Stock (including no rights
comparable to the potential recapitalization of Class E Common Stock into
$1 2/3 Common Stock at a 120% exchange ratio under certain circumstances),
there can be no assurance that the public market for EDS Common Stock will be
similar to the public market for Class E Common Stock. See "EDS Capital Stock."
Based on the one-for-one exchange ratio for the Split-Off, approximately 485
million shares of EDS Common Stock will be issued and outstanding immediately
after the Split-Off, which shares have been approved for listing on the NYSE
subject to notice of issuance. Based on the ownership of Class E Common Stock on
the Record Date, immediately after the Split-Off, shares of EDS Common Stock
will be broadly distributed among numerous individual and institutional holders,
and approximately 149.5 million shares will be held by the General Motors
Special Hourly Employees Pension Trust (together with any sub-trusts thereunder,
the "GM Hourly Plan Special Trust") under the General Motors Hourly-Rate
Employees Pension Plan (the "GM Hourly Plan"). Ultimately, the value of each
share of EDS Common Stock will be principally determined in the trading markets
and could be influenced by many factors, including the terms and conditions of
the Split-Off, operations of EDS, the growth and expansion of EDS' business,
investors' expectations of
4
<PAGE>
EDS' prospects, trends and uncertainties affecting the IT industry as a whole,
issuances and repurchases of EDS Common Stock, and general economic and other
conditions. See "EDS Management's Discussion and Analysis of Financial
Condition and Results of Operations." There can be no assurance that the
trading value of each share of EDS Common Stock immediately after the Split-Off
will be consistent with the trading value of each share of Class E Common Stock
immediately before the Split-Off. The trading value of EDS Common Stock could be
higher or lower than the trading value of Class E Common Stock, and GM and EDS
are unable to estimate whether such difference (whether favorable or
unfavorable) will be material to holders of EDS Common Stock.
DEPENDENCE ON MAJOR CUSTOMER; CHANGES IN PRICING AND TERMS
Although the percentage of EDS' total revenues attributable to GM and its
affiliates has decreased significantly in recent years as a result of the
revenue growth of EDS' non-GM business, General Motors continues to account for
a substantial portion of EDS' revenues. During the year ended December 31, 1995,
the portion of EDS' revenues (excluding interest and other income) attributable
to the performance of IT and other services on behalf of General Motors and its
affiliates was approximately 31%. The loss of General Motors as an ongoing major
customer of EDS would have a material adverse effect on EDS.
Immediately prior to the Merger, General Motors and EDS will enter into the
Master Services Agreement and certain other service agreements between GM and
EDS related to certain "in scope" IT services to be provided by EDS to General
Motors on a worldwide basis after the Split-Off (collectively, together with the
Master Services Agreement, the"IT Services Agreements"). The IT services to be
provided by EDS under the IT Services Agreements will generally be similar to
those provided to General Motors under the existing Master Agreement ("the
Existing Master Services Agreement"), which currently serves as the framework
for individual services agreements between GM and EDS (collectively, together
with the Existing Master Services Agreement, the "Existing IT Services
Agreements"). However, unlike the Existing Master Services Agreement (which
does not have a fixed term, but provides that it may be terminated by either
party in the event of the sale of all or substantially all of the assets or
stock of EDS to a non-GM entity), the Master Services Agreement provides for an
initial term of 10 years from the date upon which the Split-Off is consummated,
which may be extended by agreement of the parties. Furthermore, the Master
Services Agreement will provide General Motors with termination rights under
certain circumstances, including upon the occurrence of certain changes in
control of EDS.
In addition, the IT Services Agreements provide that certain significant
changes will be made to the pricing and terms of services provided by EDS. Among
other things, the parties have agreed that the rates charged by EDS to General
Motors for certain information processing activities and communication services
will be reduced and that the parties will work together to achieve targets for
increased structural cost reductions. General Motors will also be given the
right to competitively bid and, subject to certain restrictions, outsource a
limited portion of its IT service requirements to third party providers. In
addition, commencing in 1997, the payment terms relating to IT services provided
by EDS will be revised over a two-year period to extend the due dates for
payments from General Motors. See "Relationship Between General Motors and EDS-
- -Post-Split-Off Arrangements--IT Services Agreements."
Based on currently available information and assuming that the IT Services
Agreements had been effective as of January 1, 1996, EDS believes that revenues
generated from services performed for General Motors in 1996 would be slightly
lower than those generated from such services in 1995. Additionally, EDS expects
that the changes reflected in the IT Services Agreements could reduce its 1996
earnings per share by as much as $0.07 to $0.14. The long-term impact of the
terms of the IT Services Agreements cannot be precisely quantified at present,
although such terms may have an adverse effect on operating margins unless EDS
is able to effect reductions in the costs of providing services to General
Motors. Although EDS plans to implement certain cost reduction measures, there
can be no assurance as to the extent, if any, to which such measures will
mitigate the possible adverse impact on its operating margins. In general, there
can be no assurance that the terms of the IT Services Agreements would not have
a material adverse effect in the
5
<PAGE>
long term on the results of operations of EDS. See "EDS Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business
of EDS--Revenues."
SIGNIFICANT STOCKHOLDER
As of the Record Date, the GM Hourly Plan Special Trust owned approximately
149.5 million shares of Class E Common Stock and, assuming none of such shares
are sold, upon consummation of the Split-Off, will own approximately 31% of the
outstanding EDS Common Stock. United States Trust Company of New York and its
affiliate, U.S. Trust Company of California, N.A. (together, "U.S. Trust" or the
"GM Hourly Plan Trustees"), as the independent trustees of the GM Hourly Plan
Special Trust, have the authority and discretion to cause the GM Hourly Plan
Special Trust to hold such shares of Class E Common Stock (and following the
Split-Off, of EDS Common Stock) or to sell all or any portion thereof from time
to time as they deem appropriate. The shares owned by the GM Hourly Plan Special
Trust are subject to certain agreements that restrict the transferability of
such shares and that provide certain registration rights with respect thereto.
EDS has been advised that, in order to discharge their fiduciary duties, the GM
Hourly Plan Trustees continually look for attractive opportunities to sell a
portion of their holdings of Class E Common Stock (and following the Split-Off,
EDS Common Stock). There can be no assurance as to the timing or size of any
offerings of shares owned by the GM Hourly Plan Special Trust since, subject to
the terms of the agreements referred to above, the GM Hourly Plan Trustees have
the right to sell such shares at any time. The sale of shares by the GM Hourly
Plan Special Trust will depend on, among other things, market conditions, the
price of such shares, the level of and any changes in the demand for such
shares, and other factors outside the control of EDS. Although the GM Hourly
Plan Trustees have notified EDS of their intent to manage the disposition of
shares of EDS Common Stock in a manner consistent with maintaining an orderly
market for the EDS Common Stock, there can be no assurance in this regard and
sales of substantial amounts of EDS Common Stock by the GM Hourly Plan Special
Trust could adversely affect the then prevailing market price for the EDS Common
Stock and could impair EDS' ability to raise additional capital through the sale
of equity securities.
The GM Hourly Plan Trustees have the authority and discretion to direct the
voting and exercise of all other rights relating to the shares of Class E Common
Stock (and after the Split-Off, of EDS Common Stock) held by the GM Hourly Plan
Special Trust. Although the GM Hourly Plan Trustees have stated that such stock
was not acquired for such purpose, the level of such ownership will give the GM
Hourly Plan Special Trust sufficient voting power to influence the direction and
policies of EDS, the election of the EDS Board and the outcome of any other
corporate action requiring stockholder approval. As described below under "--
Certain Limitations on Changes in Control of EDS," the GM Hourly Plan Special
Trust is a party to certain agreements which restrict its ability to transfer
shares of Class E Common Stock (and EDS Common Stock after the Split-Off) and to
vote in favor of certain business combinations involving EDS. See "Security
Ownership of Certain Beneficial Owners and Management of EDS--GM Hourly Plan
Special Trust."
NO ASSURANCE OF STRATEGIC ALLIANCES AND OTHER BUSINESS OPPORTUNITIES
The Split-Off is intended, among other things, to remove limitations on
EDS' ability to participate in major strategic alliances and to obtain
additional business that are believed to result from EDS' status as a subsidiary
of General Motors. EDS is not currently a party to any agreement or
understanding with respect to any material strategic alliance or business
combination. Although EDS believes that the Split-Off will enhance EDS' ability
to enter into major strategic alliances and take advantage of other growth
opportunities, no assurance can be given in this regard. Furthermore, there can
be no assurance as to whether and to what extent any of the business objectives
of the Split-Off will be achieved if the Split-Off is consummated. See "Special
Factors--Purposes of the Split-Off." The ability of EDS to enter into and
consummate business combinations will be limited by the matters described below
under "--Certain Limitations on Changes in Control of EDS."
6
<PAGE>
TERMINATION OF SUBSIDIARY RELATIONSHIP WITH GENERAL MOTORS
As a subsidiary of General Motors, EDS has been able to benefit since 1984
from General Motors' extensive network of business relationships with companies
and government contacts around the world. EDS has drawn on this resource in
developing its own contacts and relationships. After the Split-Off, EDS will be
a stand-alone, public company and thus will no longer be able to benefit from
General Motors' relationships to the same extent that it could as a wholly owned
subsidiary of GM.
CERTAIN LIMITATIONS ON CHANGES IN CONTROL OF EDS
The EDS Certificate of Incorporation and the EDS Bylaws (after giving
effect to the Split-Off, the "EDS Bylaws") contain certain provisions, such as a
"fair price" provision applicable to certain business combinations, a
provision prohibiting stockholder action by written consent unless such action
is unanimous, and provisions limiting the ability of stockholders to call
special stockholder meetings, which could have the effect of delaying, deferring
or preventing a change in control of EDS, even if such a change would be
favorable to the interests of EDS' stockholders, and of limiting any opportunity
to realize premiums over prevailing market prices for EDS Common Stock in
connection therewith. The Rights Agreement (the "EDS Rights Agreement") to which
EDS is a party could have the same effect. See "EDS Capital Stock."
As noted above, as of the Record Date, the GM Hourly Plan Special Trust
owned approximately 31% of the outstanding Class E Common Stock. The GM Hourly
Plan Special Trust is a party to the Registration Rights Agreement (as defined
herein), which contains certain restrictions on its ability to transfer the
shares of Class E Common Stock held by it (including by tendering into any
tender offer), which restrictions will continue to apply to its holdings of EDS
Common Stock after consummation of the Split-Off. General Motors and the GM
Hourly Plan Special Trust are also parties to the Transfer Agreement (as defined
herein), which is intended to preserve the tax-free status of the Split-Off and
which contains restrictions on the ability of the GM Hourly Plan Special Trust
to transfer Class E Common Stock and to vote in favor of certain business
combinations involving EDS, which restrictions will apply to the EDS Common
Stock for a period generally of two years after the Split-Off. The contractual
restrictions to which the shares of EDS Common Stock owned by the GM Hourly Plan
Special Trust are subject could have the effect of making more difficult or
discouraging certain change in control transactions involving EDS, including
tender offers for EDS Common Stock, that could give the holders of EDS Common
Stock the opportunity to realize a premium over the then prevailing market price
of such stock. See "Security Ownership of Certain Beneficial Owners and
Management of EDS--GM Hourly Plan Special Trust."
In addition, in order to preserve the tax-free status of the Split-Off,
under the Separation Agreement, EDS will be prohibited, until after the two-year
anniversary of the consummation of the Split-Off and unless certain conditions
are satisfied, from entering into (i) certain secondary capital stock
transactions whereby a person would acquire, from holders of outstanding shares
of EDS capital stock, a number of shares of EDS capital stock that would
comprise more than 15% of the number of issued and outstanding shares of EDS
Common Stock; or (ii) any other transaction that would be reasonably likely to
jeopardize the tax-free status of the Split-Off. In addition, the Separation
Agreement will prohibit EDS, until after the six-month anniversary of the
consummation of the Split-Off, from entering into any transaction that would
result in any person acquiring from EDS a number of shares of EDS capital stock
that, when aggregated with all other shares of EDS capital stock then owned by
such person, would constitute more than 20% of the total combined voting power
of EDS voting stock or 20% of the total number of outstanding shares of any
class or series of EDS non-voting stock. See "Relationship Between General
Motors and EDS--Post-Split-Off Arrangements--Separation Agreement." The Master
Services Agreement will also provide General Motors with certain termination
rights upon the occurrence of certain changes in control of EDS. See
"Relationship Between General Motors and EDS--Post-Split-Off Arrangements--IT
Services Agreements."
7
<PAGE>
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Current Report contains certain forward-looking statements and
information relating to EDS that are based on the beliefs of EDS management as
well as assumptions made by and information currently available to EDS
management. When used in this document, the words "anticipate," "believe,"
"estimate" and "expect" and similar expressions, as they relate to EDS or
EDS management, are intended to identify forward-looking statements. Such
statements reflect the current views of EDS with respect to future events and
are subject to certain risks, uncertainties and assumptions, including the risk
factors described in this Current Report. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. EDS does not intend to update these forward-
looking statements.
SPECIAL FACTORS
PURPOSES OF THE SPLIT-OFF
General Motors has publicly stated that the GM Board has determined that
ownership of EDS is not necessary for GM to execute its IT strategy or to ensure
the security of its computer data and other information. Furthermore, General
Motors has publicly stated that the GM Board has determined that there are
certain actual and potential conflicts between the business of EDS and the other
businesses of General Motors. The Split-Off is intended to address such
conflicts in a manner that is beneficial from the standpoint of all stockholders
of GM and to allow the boards and management of GM and EDS to increase their
focus on their respective business operations.
The Split-Off of EDS from General Motors is intended to accomplish at least
three business objectives from the perspective of EDS and the holders of Class E
Common Stock. First, converting EDS from a wholly owned subsidiary of GM into an
independent, publicly owned company is intended to remove limitations on EDS'
ability to participate in strategic alliances, particularly in the rapidly
growing and converging computing and software, communication, media and
entertainment, and electronic commerce industries, which are increasingly
important to EDS' continued competitiveness. Second, separating General Motors
and EDS is intended to remove limitations on EDS' ability to obtain additional
business and establish new customer relationships that result from GM's
ownership of EDS, its common ownership of EDS, Hughes Electronics Corporation
("Hughes") and General Motors Acceptance Corporation ("GMAC"), and the
increasing overlap between EDS and the telecommunications and certain other
businesses of Hughes. Finally, causing EDS to become a stand-alone, public
company is intended to better position EDS to meet its growing capital needs.
Each of these business objectives is described in more detail below.
Strategic Alliances. The first purpose of the Split-Off is to eliminate the
impediments arising from General Motors' ownership of EDS that have prevented
EDS from pursuing and consummating strategic transactions that are important to
its continued competitiveness. During the decade in which EDS has been a
subsidiary of General Motors, there has been an increasing convergence of the
computing and software, communication, media and entertainment, and electronic
commerce industries. Because the ability to offer integrated services within
these fields is widely viewed as necessary to remain competitive and grow,
strategic alliances among service providers in these industries have multiplied.
Consistent with this industry trend, EDS has engaged in discussions with leading
telecommunications providers regarding potential strategic combinations on
numerous occasions during the last decade. While some of these negotiations
reached advanced stages (most notably the discussions with Sprint Corporation in
1994), none has resulted in a significant strategic transaction. In each case,
the difficulties associated with EDS' status as a subsidiary of GM, including
the complexities and control issues created by the nature of the Class E Common
Stock, have prevented or hindered the consummation of a transaction. EDS
believes that these factors will continue to restrict EDS' ability to expand
into integrated worldwide markets so long as EDS remains a subsidiary of General
Motors.
8
<PAGE>
Certain Additional Growth Opportunities. A second purpose of the Split-Off
is to remove certain limitations on EDS' ability to obtain additional business
and establish new customer relationships that have arisen as a result of EDS'
status as a subsidiary of GM. These limitations have not been imposed by GM, but
rather are a result of certain reactions of potential EDS customers to EDS'
affiliation with GM. Such limitations have become increasingly significant
during the 1990s as the businesses of General Motors and GMAC and the
telecommunications and certain other businesses of Hughes have expanded either
to present conflicts that limit EDS' ability to obtain business from certain
parties or to overlap with EDS' activities. In some cases, competitors of
General Motors, Hughes or GMAC in industries that are important target markets
for EDS have been reluctant to become customers or partners of EDS due to
concerns relating to divulging confidential and proprietary information to an
affiliate of one of their competitors. For example, EDS believes that EDS'
affiliation with General Motors and GMAC has limited EDS' ability to expand its
business within the automotive, consumer finance and related industries, despite
EDS' extensive expertise in these important markets. Similarly, EDS believes
that common ownership of EDS and Hughes, which participates in the direct to
home satellite television services and wireless communications industries, has
caused EDS to lose or be disadvantaged in seeking certain business opportunities
with potential customers and partners, including in the cable television
industry, who are concerned by Hughes' competition in these areas. EDS expects
impediments and conflicts like these to intensify in future years if the Split-
Off does not occur.
Capital Needs. A third purpose of the Split-Off is to afford EDS more
flexible access to capital markets to meet its growing capital needs without
regard to competing considerations of GM and its affiliates. As a wholly owned
subsidiary of GM, EDS' ability to sell equity and debt securities to meet its
rising capital needs is limited by factors relating to GM. EDS and the remainder
of GM's operations are in industries with different characteristics, and each of
them has substantially different goals and needs with respect to incurrence of
debt and financial leverage. General Motors, which is engaged principally in the
highly cyclical automotive industry, places great importance on maintaining a
strong reserve of liquid assets and a high credit rating for itself and its
financial subsidiary, GMAC. In contrast, EDS has based its business on long-term
customer contracts, and as a result has experienced stable cash flow and
revenues that should permit it to sustain higher debt-to-equity ratios on a
stand-alone basis than those targeted by GM for GM and its consolidated
subsidiaries. These different business needs create conflicts that EDS believes
will continue to grow. In addition, as EDS' business has expanded and evolved in
recent years, its capital requirements have increased significantly. Driven in
large part by the convergence among hardware, software, communication,
information content and service providers, EDS has made tactical acquisitions
and capital intensive investments to expand its IT, hardware and
telecommunications capacities. In addition, EDS' customers have often insisted
that EDS expend its own capital to acquire their IT operations, hire their
employees and, in some cases, acquire an equity stake in the customers
themselves. Accordingly, EDS believes that its capital requirements are likely
to continue to increase in the future.
Achievement of each of the foregoing business objectives is dependent on
numerous factors in addition to consummation of the Split-Off, many of which are
beyond the control of EDS. Accordingly, there can be no assurance as to whether
and to what extent any of such objectives will in fact be achieved if the Split-
Off is consummated. Furthermore, there can be no assurance as to whether the
trading value of EDS Common Stock after the Split-Off will be equal to or
greater than the trading value of Class E Common Stock before the Split-Off or
in the absence of the Split-Off.
EFFECTS OF THE SPLIT-OFF
As a result of the Split-Off, EDS will become an independent, publicly
owned company rather than a wholly owned subsidiary of General Motors. In
connection with the Split-Off, each outstanding share of Class E Common Stock
(which is a security of General Motors designed to provide financial returns
based on the performance of EDS) will be converted into one share of EDS Common
Stock.
Immediately prior to the Split-Off and as a condition of the Merger whereby
the Split-Off is effected, EDS will contribute to Mergeco the Special Inter-
Company Payment. As a result of the Merger, all of Mergeco's assets, which
9
<PAGE>
will consist entirely of the cash contributed by EDS, will become assets of
General Motors. EDS expects to fund the Special Inter-Company Payment through
borrowings under its existing commercial paper and committed credit facilities.
See "EDS Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Immediately prior to and as a condition of the consummation of the Merger,
General Motors and EDS will enter into the Master Services Agreement. The IT
services to be provided by EDS under the IT Services Agreements will generally
be similar to those provided to General Motors under the Existing IT Services
Agreements. However, unlike the Existing Master Services Agreement (which does
not have a fixed term, but provides that it may be terminated by either party in
the event of the sale of all or substantially all of the assets or stock of EDS
to a non-GM entity), the Master Services Agreement provides for an initial term
of 10 years from the date upon which the Split-Off is consummated, which may be
extended by agreement of the parties. In addition, the IT Services Agreements
provide that certain significant changes will be made to the pricing and terms
of services provided by EDS to General Motors. Such changes were deemed
necessary (i) in light of the fact that, after the Split-Off, EDS will no longer
be a subsidiary of General Motors and the Capital Stock Committee of the GM
Board (the "Capital Stock Committee") will no longer be able to monitor the IT
service arrangements between the parties, (ii) to reflect the evolutionary
nature of the General Motors--EDS customer relationship and the IT services
industry and (iii) to provide additional assurances to General Motors, as EDS'
largest customer, that the IT services performed by EDS will remain competitive.
See "Relationship Between General Motors and EDS--Post-Split-Off Arrangements--
IT Services Agreements," "EDS Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business of EDS--Revenues."
THE SPLIT-OFF
STOCK EXCHANGE LISTINGS FOR EDS COMMON STOCK
Application has been made to list the EDS Common Stock on the NYSE, and
such application has been granted pending notice of issuance. The trading symbol
for the EDS Common Stock on the NYSE will be "EDS." EDS intends to seek to
list the EDS Common Stock on the London Stock Exchange, with such listing to be
effective upon the consummation of the Split-Off.
ACCOUNTING TREATMENT
For accounting purposes, the assets and liabilities of EDS will continue to
be accounted for by EDS at their existing carrying values after the consummation
of the Split-Off. EDS' Consolidated Financial Statements exclude the effects of
purchase accounting adjustments arising from the acquisition of EDS by GM in
1984, including GM's remaining carrying value of such purchase adjustments and
the accumulated amortization of all such adjustments. The remaining carrying
value of such adjustments would be immaterial to EDS' Consolidated Financial
Statements.
10
<PAGE>
RELATIONSHIP BETWEEN GENERAL MOTORS AND EDS
PRE-SPLIT-OFF RELATIONSHIP
General
EDS is currently a wholly owned subsidiary of General Motors, and the Class
E Common Stock, which is a security of General Motors, is designed to provide
financial returns based on the performance of EDS.
Existing IT Services Agreements
General Motors and EDS are currently parties to the Existing Master
Services Agreement under which EDS is responsible for substantially all of the
worldwide IT services activities of General Motors and certain of its
affiliates. The Existing Master Services Agreement, which was effective as of
September 1, 1985 and was amended on May 29, 1987, establishes standard
provisions that govern the contractual arrangements between EDS and General
Motors with respect to a substantial portion of the IT services required by
General Motors. In accordance with the framework established by the Existing
Master Services Agreement, each GM subsidiary, division, group or other
organization within the scope of such agreement negotiates and enters into a
service agreement (a "Service Agreement") with EDS for the provision of IT
services. Generally, each Service Agreement incorporates the standard provisions
contained in the Existing Master Services Agreement (except to the extent that
the contracting parties otherwise agree) and contains separately negotiated
provisions regarding term, services to be provided, and payment for services, as
well as other matters required to be addressed in connection with the applicable
service or project. The Existing Master Services Agreement does not have a fixed
term, but provides that it may be terminated by either party in the event of the
sale of all or substantially all of the assets or stock of EDS to a non-GM
entity. Each Service Agreement is effective for a fixed term, although in most
cases a Service Agreement may be terminated by either party in the event of the
termination of the Existing Master Services Agreement.
Under the Existing Master Services Agreement, General Motors and EDS have
generally utilized one of three alternative pricing methods, as appropriate for
a particular service or project. The pricing method for a particular service or
project is negotiated by the parties. First, General Motors and EDS have
utilized fixed-price arrangements for Service Agreements where the scope of work
can be defined. Second, the parties have utilized a cost-plus management fee
method of pricing for EDS' services where the scope of work is more difficult to
define. Third, the parties have utilized uniform published rates for the pricing
of off-the-shelf, commercially available products and services. The Existing
Master Services Agreement provides that, in the absence of separately negotiated
pricing terms set forth in a Service Agreement or as a default mechanism in the
event that the parties are not able to reach agreement, EDS will be compensated
for its services on a cost-plus management fee basis.
POST-SPLIT-OFF ARRANGEMENTS
General
General Motors will continue to have certain contractual relationships with
EDS after the Split-Off has been consummated. The Separation Agreement will
establish certain transitional and other arrangements deemed necessary in
connection with the Split-Off and the IT Services Agreements will provide for
the continuation of a long-term customer-supplier relationship, in each case as
described below. Additionally, GM will have a significant indirect stake in EDS'
financial performance for a substantial period of time following the Split-Off
as a result of the sizeable holdings of EDS Common Stock that the GM Hourly Plan
Special Trust will possess after the Split-Off. See "Security Ownership of
Certain Beneficial Owners and Management of EDS--GM Hourly Plan Special Trust."
11
<PAGE>
IT Services Agreements
Immediately prior to and as a condition of the consummation of the Merger,
General Motors and EDS will enter into the Master Services Agreement and certain
related agreements pursuant to which EDS will continue to serve as General
Motors' principal supplier of IT services on a worldwide basis for an initial
term of 10 years following the Split-Off, which term may be extended by mutual
agreement of the parties. In addition, GM and EDS will implement certain
contractual changes which modify or otherwise affect the provisions of several
existing Service Agreements. GM and EDS will also enter into agreements whereby
the rates charged by EDS for certain information processing activities and
communications services will be reduced.
The terms of the Master Services Agreement are applicable to all IT
Services Agreements between and among GM and its affiliates, on the one hand,
and EDS and its affiliates, on the other hand, which relate to certain "in-
scope" services as defined in the Master Services Agreement ("MSA Services").
Under the IT Services Agreements, EDS will provide to General Motors certain
plant floor automation services in North America which had previously been
provided by EDS and other vendors under a variety of agreements. IT services
that will be considered to be MSA Services after the Split-Off accounted for
approximately $3.4 billion of the approximately $3.9 billion of revenues in the
aggregate received by EDS from GM in 1995. The balance of EDS' 1995 revenues
from GM was attributable to goods and services provided to GM by EDS which would
have been outside the scope of the Master Services Agreement. Following the
Split-Off, the parties expect that EDS will continue to provide "out-of-scope"
goods and services to GM under various types of contractual agreements other
than the Master Services Agreement.
Set forth below is a summary description of certain of the principal
provisions of the IT Services Agreements. Such description does not purport to
be complete, and to the extent it relates to the Master Services Agreement, is
qualified in its entirety by reference to the Master Services Agreement, the
form of which has been filed as an exhibit to this Current Report. For a
discussion of certain financial effects on EDS of the terms of the IT Services
Agreements, see "EDS Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Term. The term of the Master Services Agreement will commence upon the
consummation of the Split-Off and will continue until the expiration of ten
years thereafter. The term of the Master Services Agreement may be extended for
an additional period or periods by mutual agreement between General Motors and
EDS. Prior to the Split-Off, the Existing Master Services Agreement remained in
effect indefinitely, subject to termination by either General Motors or EDS in
the event of the sale of all or substantially all of the assets or stock of EDS
to a non-GM entity. The change in the term of the Master Services Agreement was
deemed appropriate in connection with the Split-Off because GM and EDS desire to
continue the customer-supplier relationship after the Split-Off and independent
IT service providers generally do not have contracts with their customers for
indefinite terms. The length of EDS' largest customer contracts generally ranges
from 8 to 12 years. Although EDS has historically been able to achieve high
renewal rates with its customers upon the expiration of long-term contracts,
there can be no assurance as to whether or to what extent EDS will continue to
provide IT services to GM after the initial term of the Master Services
Agreement.
Service Agreements. As previously noted, pursuant to the Existing Master
Services Agreement, GM business units and EDS have entered into a number of
Service Agreements setting forth the terms and provisions applicable to specific
services or projects undertaken by EDS on behalf of various GM organizations.
See "--Pre-Split-Off Relationship--Existing IT Services Agreements." Such
Service Agreements will remain in effect after the Split-Off and, in many cases,
will be extended or otherwise modified as provided in the Master Services
Agreement. In addition, it is contemplated that, under the Master Services
Agreement, GM business units and EDS will continue to negotiate and enter into
additional Service Agreements after the Split-Off providing for the performance
of IT services on mutually agreed terms. Each future Service Agreement will set
forth provisions with respect to, among other things, (i) the period of time for
which EDS will perform services pursuant thereto, (ii) the nature and scope of
the respective obligations of the parties thereunder and (iii) the pricing
structure, method and amounts of payments to be made to EDS in accordance
therewith. In negotiating future Service Agreements, the parties will endeavor
to agree upon fixed-price service arrangements which meet the standards of
competitiveness described below. See "--Competitiveness" and "--Pricing
12
<PAGE>
of Services" below. The provisions of the Master Services Agreement will apply
to all Service Agreements, whether entered into prior to or after the
consummation of the Split-Off.
In connection with the execution of the Master Services Agreement, the
terms of the largest domestic Service Agreements (accounting for approximately
$2.4 billion in annual revenues in 1995) currently in effect will be extended
for additional terms of between one and three years. In particular, the Service
Agreement with Delphi Automotive Systems will be extended through December 31,
1998 and the Service Agreements with GM's North American Operations ("NAO"),
General Motors Acceptance Corporation (U.S. and Canada) and Motors Insurance
Corporation (U.S. and Canada) will each be extended through December 31, 1999.
Each other Service Agreement entered into prior to the Split-Off will continue
in effect for the duration of its agreed term.
Scope of Services. The Master Services Agreement will establish a
contractual framework for the provision on a worldwide basis of the MSA Services
by EDS to General Motors and all entities (i) in which General Motors owns 65%
or more of the outstanding equity and over which it exercises management control
(if EDS was providing services in support of the business operations of that
entity as of August 1, 1995) or (ii) in which General Motors owns 80% or more of
the outstanding equity (if EDS was not providing services in support of the
business operations of that entity as of August 1, 1995). The Master Services
Agreement will contain a flexible description of the MSA Services that is based
on functional service categories so as to take into account possible future
changes in business operations or technologies that result in the replacement of
existing processes and technologies. The MSA Services to be provided by EDS
include IT goods and services related to the following functional service
categories: (i) computing and communications infrastructure; (ii) development of
application software and implementation of commercial off-the-shelf application
software; (iii) data management; (iv) cross-functional IT-related services; and
(v) certain services related to specified plant floor operations.
Under the Master Services Agreement, services for certain GM units or
operations or in certain geographic areas will be specifically excluded from the
scope of work to be performed by EDS. In particular, such agreement will provide
that General Motors will not be required to obtain from EDS any MSA Services (i)
for Hughes, with the exception of its subsidiary, Delco Electronics Corporation
("Delco"), (ii) for any other business or entity acquired by General Motors
after January 1, 1985 (other than (x) GMAC Mortgage Corporation, with the
exception of its subsidiary, Residential Funding Corporation, and (y) any other
entity which executed a Service Agreement prior to August 1, 1995), (iii) in any
country where the provision of such services by EDS would violate any national
law of that country, (iv) in specified emerging geographic markets outside of
North America and Western Europe where, as of August 1, 1995, EDS has not
previously provided such services for the same GM business function and line of
business in that emerging market, and (v) with respect to any plant floor
services other than pursuant to the agreement described in "--Plant Floor
Agreement" below or certain other arrangements currently in effect between the
parties. Furthermore, the provisions of the Master Services Agreement relating
to the scope of services to be provided by EDS will be subject to General
Motors' right, under certain circumstances, to competitively bid and award a
portion of such services to third party service providers. See "--Market
Testing and Outsourcing" below.
IT Strategy and Direction. The Master Services Agreement will provide that
General Motors will be responsible for, and will decide and direct, its IT
strategies and requirements, including its computing and communications
architecture. EDS will be responsible for the performance of IT services
pursuant to the Master Services Agreement in furtherance of General Motors' IT
strategies and requirements.
Competitiveness. In accordance with the Master Services Agreement, the MSA
Services to be provided by EDS will be competitive with respect to quality,
service, price and technology giving due consideration to General Motors'
requirements and other relevant factors. The provisions of the Master Services
Agreement with respect to competitiveness will apply to the negotiation or
renegotiation of (i) new or replacement Service Agreements, (ii) the terms and
conditions applicable to new or replacement MSA Services and (iii) the pricing
of any MSA Services when such negotiation or renegotiation is contractually
provided for in a Service Agreement. When the applicable EDS and
13
<PAGE>
GM organizations reach a mutually acceptable agreement as to the competitiveness
of any services, the standards of competitiveness provided for in the Master
Services Agreement will be deemed satisfied for the term of such agreement.
In situations where the applicable GM and EDS organizations are unable to
reach a mutually acceptable agreement as to the competitiveness of any MSA
Services, the Master Services Agreement will provide a procedure whereby the
negotiating impasse will be escalated to senior management, the services of a
standing neutral mediator may (and, in some cases, must) be utilized, and, in
the absence of an agreement, (i) any impasse as to uniform published rates for
applicable items will be resolved by binding arbitration and (ii) any impasse as
to any other services will be resolved by EDS providing the services on the
basis of the standard terms and conditions provided in the Master Services
Agreement and a modified cost-plus pricing methodology.
Pricing of Services. In general, under the Master Services Agreement, the
same methods of pricing will be available as are provided for under the Existing
Master Services Agreement. See "--Pre-Split-Off Relationship--Existing IT
Services Agreements." As a result, depending on the type of services to be
provided by EDS, the parties may utilize (i) fixed-price arrangements, (ii)
cost-based pricing methods or (iii) uniform published rates for off-the-shelf,
commercially available products and services. However, the parties have agreed
to endeavor to incorporate fixed-price arrangements into new Service Agreements
entered into under the Master Services Agreement to the extent practicable.
With respect to certain information processing services to be performed by
EDS, the parties have agreed to annual reductions in the rates to be charged by
EDS to all GM organizations worldwide, which reduced rates will be applied
retroactively as of January 1, 1996 and will be in effect through December 31,
2000. In addition, with respect to certain communication services to be
performed by EDS, the parties have agreed to annual reductions in the rates to
be charged by EDS to all GM organizations in the United States, which reduced
rates will be applied retroactively as of January 1, 1996 and will be in effect
through December 31, 1998. During the respective periods that these reduced
rates are in effect, the information processing and communications services to
which the reduced charges apply will not be subject to the provisions of the
Master Services Agreement relating to market testing or outsourcing. See "--
Market Testing and Outsourcing" below.
Market Testing and Outsourcing. The Master Services Agreement will provide
for certain market testing procedures in order to test the competitiveness of
the MSA Services provided by EDS given that after the Split-Off the Capital
Stock Committee of GM's Board of Directors will no longer have the ability to
monitor and ensure the continued fairness of the arrangements between GM and
EDS. Under these procedures, EDS will have the opportunity to bid on any and all
MSA Services and any bid submitted by EDS will be evaluated on the same criteria
as bids submitted by other service providers. In each of 1996 and 1997, GM's
International Operations unit ("GMIO") may expose to competitive bidding MSA
Services that would otherwise be provided by EDS so long as the revenues that
would be reasonably paid to EDS by GM for such MSA Services during each such
year do not exceed $30 million. Following such competitive bidding, GMIO may
award contracts to one or more third party service providers with respect to any
or all of the MSA Services exposed to competitive bidding. Thereafter, during
each year beginning in 1998, GM will be permitted to expose to competitive
bidding specified percentages of the prior year's revenues paid to EDS for MSA
Services. In each year from 1998 through 2000, GM may expose to competitive
bidding and award to third parties contracts for MSA Services for which GM would
otherwise have reasonably paid EDS up to an average of approximately 6% of the
prior year's revenues paid to EDS for MSA Services. For the years 2001 through
2005, GM may expose to competitive bidding and award to third parties contracts
for MSA Services for which GM would otherwise have reasonably paid EDS up to an
average of approximately 2.4% of the prior year's revenues paid to EDS for MSA
Services. Subject to certain limitations, GM will select the MSA Services to be
exposed to competitive bidding after consultation with EDS. In addition to the
aforementioned annual limitations, the following aggregate limitations apply:
through the year 2000, in no single calendar year may the amount paid to third
parties for MSA Services exceed 15% of the aggregate amount of revenue paid to
EDS for MSA Services performed during the prior year; and after the year 2000,
in no single calendar year may the amount paid to third parties for MSA Services
exceed 25% of the aggregate amount of revenue paid to EDS for MSA Services
performed during the prior year. Although EDS may bid on any and all of such MSA
Services, it is expected that third party service providers will be awarded some
portion of
14
<PAGE>
the MSA Services exposed to competitive bidding. Accordingly, there can be no
assurance as to whether or to what extent EDS will be successful in bidding on
such MSA Services.
Structural Cost Reductions. The Master Services Agreement will establish
specified structural cost reduction targets for the first four years of the
Master Services Agreement. In each of the years 1996 through 1998, the annual
cost reduction targets will be $100 million. In 1999, the target will be $50
million. These cost reduction targets are generally somewhat higher than the
cost reduction targets set forth in the existing Service Agreements, which they
are intended to replace. Unlike the cost reduction targets in the existing
Service Agreements, however, the targets under the Master Services Agreement are
not intended to be performance guarantees, but rather simply represent firm good
faith business commitments on the part of General Motors and EDS. As such, the
Master Services Agreement does not provide for any gain sharing or similar
incentives in the event that the targets are exceeded and does not impose any
penalties or other liabilities in the event that they are not met. No assurance
can be given that any of the specific targets for structural cost reductions
will be achieved.
Payment Terms. The Existing IT Services Agreements provide for GM to pay
EDS on the 15th day of the month in which services are provided with respect to
a substantial portion of services, especially in North America. International
payment terms in the Existing IT Services Agreements are often more favorable to
GM and are generally governed by the commercial standards prevailing in each
particular country. Under the IT Services Agreements, there will be a transition
of payment terms to the 20th day of the month following service for all
agreements which do not have payment terms at least that favorable to GM
(principally in North America). The transition will be accomplished as follows:
(i) through 1996, no change; (ii) beginning in 1997, payment on the 30th day of
the month when services are provided; (iii) beginning in 1998, payment on the
20th day of the month following service for certain business units; and (iv)
beginning in 1999, payment on the 20th day of the month following service for
all remaining business units, including NAO.
Termination. The Master Services Agreement provides that it may be
terminated (i) by either party, if the other party defaults in any material
respect in the performance of its obligations thereunder and such default is not
cured as provided therein after notice thereof, (ii) by EDS, if General Motors
defaults in the payment when due of any material amount owing to EDS thereunder
and such default is not cured as provided therein after notice thereof, (iii) by
either party, if the other party becomes insolvent or (iv) by General Motors, if
there occurs a "change of control" of EDS and certain additional conditions
are met.
For purposes of the termination provisions of the Master Services
Agreement, a "change of control" means the occurrence of any of the following
events: (i) any person files (or is required to file) a Schedule 13D or 14D-1
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that such person has become the beneficial owner of EDS Common Stock
representing 50% or more of the aggregate voting power of the outstanding shares
of EDS Common Stock; (ii) any person files (or is required to file) a Schedule
13D or 14D-1 under the Exchange Act disclosing that such person has become the
beneficial owner of EDS Common Stock representing 30% or more of the aggregate
voting power of the outstanding shares of EDS Common Stock, or commences a proxy
solicitation subject to Rule 14a-11 of the Exchange Act with respect to the
election or removal of members of the EDS Board, and, within two years,
individuals who constituted a majority of the members of the EDS Board at the
time of such acquisition or solicitation (as applicable), together with certain
persons elected, recommended or nominated by such directors, cease to constitute
a majority of the EDS Board; or (iii) there is consummated any transaction (or
transactions) resulting in a number of shares of EDS Common Stock which
represents 50% or more of the aggregate voting power of the outstanding shares
of EDS Common Stock being beneficially owned by persons who did not either own
such securities as EDS Common Stock immediately prior to such transaction or
receive such securities in respect of the conversion or exchange of EDS Common
Stock in such transaction.
In the event of a change of control, GM may elect to terminate the Master
Services Agreement if the GM Board of Directors determines that there is
substantial uncertainty about EDS' ability to perform its obligations under the
IT Services Agreements in all material respects or any other significant threat
to the business relationship between EDS
15
<PAGE>
and the GM units that are provided MSA Services by EDS. GM may also terminate
the Master Services Agreement in the event of a change of control in which EDS
is acquired by a manufacturer of cars or trucks that competes with GM (a "core
competitor") and as a result of which GM determines that there is a reasonable
likelihood of a significant competitive threat to GM. In addition, if there is a
change of control in which EDS is acquired by a competitor of GM (other than a
core competitor) and there is a reasonable likelihood of a significant
competitive threat to one or more significant GM units that contract with EDS
for MSA Services under the Master Services Agreement, GM may terminate the
Service Agreements between EDS and such units; provided, that EDS may instead
elect to terminate the Master Services Agreement if the revenues associated with
those Service Agreements accounted for more than 60% of the revenues paid to EDS
for MSA Services during the preceding year.
In the event that General Motors elects to terminate the Master Services
Agreement or any Service Agreement as a result of a change in control of EDS,
then General Motors (i) will be obligated to pay EDS for transition services in
accordance with the provisions therefor in the Master Services Agreement, and
(ii) may, under certain circumstances, be obligated to pay for all or a portion
(depending on the status of the party acquiring control of EDS) of certain
cancellation charges intended to reimburse EDS for certain wind-down expenses,
losses relating to capital assets and long-term leases, and personnel expenses.
Plant Floor Agreement. GM and EDS will also enter into an agreement (the
"Plant Floor Agreement") which covers plant floor systems services for NAO and
Delphi North American entities (excluding Saturn) for an initial term of five
years and for additional renewal periods under the Master Services Agreement
(subject to possible termination at the end of a 2.5 year probationary period).
The Plant Floor Agreement, which will be subject to the Master Services
Agreement, is expected to account for approximately $200 million in revenue in
1997. Prior to the Plant Floor Agreement, GM procured plant floor services from
EDS and other vendors under a variety of agreements.
Separation Agreement
As a condition to the consummation of the Merger, General Motors and EDS
will enter into the Separation Agreement, which will establish certain
arrangements between General Motors and EDS deemed necessary in order to deal
with various business, legal and regulatory issues following the Split-Off, and
the Tax Allocation Agreement, which replaces both the Agreement for the
Allocation of United States Federal Income Taxes and the Agreement for the
Allocation of United States State and Local Income Taxes, between General Motors
and EDS, each entered into effective as of December 31, 1984. The Separation
Agreement will be entered into immediately prior to the consummation of the
Merger. Set forth below is a summary description of certain of the principal
provisions of the Separation Agreement and the Tax Allocation Agreement. Such
description does not purport to be complete and is qualified in its entirety by
reference to such agreements. The form of the Separation Agreement and a copy of
the Tax Allocation Agreement have been filed as exhibits to this Current Report.
The Separation Agreement will contain covenants intended to protect the
tax-free status of the Split-Off. EDS will agree with General Motors that, until
after the two-year anniversary of the time at which the Merger becomes effective
(the effective date of the Merger being referred to as the "Effective Time"),
EDS will not (i) enter into certain secondary capital stock transactions, or
permit such transactions to occur, whereby a person would acquire, from holders
of outstanding shares of EDS capital stock, a number of shares of EDS capital
stock that would comprise more than 15% of the number of issued and outstanding
shares of EDS Common Stock, unless either (a) General Motors has determined that
any such proposed transaction would constitute a tax-free reorganization under
the Internal Revenue Code of 1986, as amended (the "Code"), or would not
otherwise jeopardize the tax-free status of the Split-Off or (b) the Internal
Revenue Service ("IRS") has issued a ruling to the effect that any such proposed
transaction would constitute a tax-free reorganization under the Code; (ii) fail
to continue the active conduct of the trade or business conducted by EDS at the
Effective Time (or liquidate, dispose of, or otherwise discontinue the conduct
of any material portion of such trade or business); (iii) voluntarily dissolve
or liquidate or, except in the ordinary course of business, sell or otherwise
dispose of more than 60% of the gross assets of EDS or more than 60% of the
consolidated gross assets of EDS and its
16
<PAGE>
subsidiaries, unless General Motors determines that such transaction would not
jeopardize the tax-free status of the Split-Off; or (iv) take any other action
or enter into any transaction that would be reasonably likely to jeopardize the
tax-free status of the Split-Off, unless GM has determined that such action or
transaction would not jeopardize the tax-free status of the Split-Off. In
addition, EDS has agreed with General Motors that, until after the six-month
anniversary of the Effective Time, EDS will not enter into any transaction that
would result in any person acquiring from EDS a number of shares of EDS capital
stock that, when aggregated with all other shares of EDS capital stock then
owned by such person, would constitute more than 20% of the total combined
voting power of the voting stock of EDS or 20% of the total number of
outstanding shares of any class or series of non-voting stock of EDS. EDS will
indemnify General Motors and its affiliates from and against tax-related losses
incurred by General Motors to the extent caused by EDS' breach of any of the
representations, warranties or covenants made by EDS in the Separation Agreement
with respect to protecting the tax-free status of the Split-Off.
Under the Separation Agreement, each of General Motors and EDS will agree
to indemnify the other and its affiliates and their respective directors,
officers and employees from and against losses arising out of (i) breaches of
the provisions of the Separation Agreement (not including for such purpose the
Tax Allocation Agreement), (ii) certain misstatements or omissions, or alleged
misstatements or omissions, in certain filings under the securities laws, (iii)
certain administrative actions in connection with stock records and the exchange
of stock certificates by former holders of Class E Common Stock and (iv) the
conduct of its respective business. GM has agreed to indemnify the members of
the EDS Team, the officers and employees of EDS providing assistance to the EDS
Team, and the directors of EDS who granted any approval or authorization for EDS
in connection with the Split-Off, in each case, in their capacity as such,
against losses arising from the Split-Off in accordance with the GM Bylaws, to
the same extent as if such person were a director or officer of GM; provided
that such indemnification does not apply to losses relating to (i) the EDS
Certificate of Incorporation, the EDS Bylaws or the EDS Rights Agreement, (ii)
EDS employee and director compensation and indemnification arrangements or (iii)
EDS plans, proposals, intentions or policies applicable after the Effective
Time, including EDS' dividend policy. EDS will reimburse GM for all amounts paid
to or on behalf of the persons entitled to indemnification as referred to in the
preceding sentence.
Pursuant to the Separation Agreement, until the six-year anniversary of the
Effective Time, General Motors will provide EDS and its affiliates with
directors' and officers' liability, general liability and products liability
insurance, with respect to applicable incidents, acts or omissions occurring
before the Effective Time, no less favorable to any covered person in coverage
and amount than the lesser of (i) the coverage in effect at the Effective Time
and (ii) the coverage then in effect for General Motors. Such insurance will be
subject to the payment by EDS of certain deductibles and retention amounts, but
EDS will make no annual premium payments for such coverage. EDS may terminate
any of such coverage at any time, subject to applicable notice provisions.
The Separation Agreement allocates responsibility for the payment of fees
and expenses incurred by the parties in connection with the Split-Off. EDS will
pay the fees and expenses of the financial, accounting and legal advisors
retained by it or the EDS Team, including Lehman Brothers, Morgan Stanley, KPMG
Peat Marwick LLP, Baker & Botts, L.L.P., Prickett, Jones, Elliott, Kristol &
Schnee and Hughes & Luce, L.L.P. GM will pay the fees and expenses of the
financial, accounting, legal and other advisors retained by it or the GM Team,
including Merrill Lynch, Deloitte & Touche LLP, Kirkland & Ellis, Richards,
Layton & Finger, Milbank, Tweed, Hadley & McCloy, Weil, Gotshal & Manges LLP,
and McKinsey. Other than as provided in the preceding sentence, the fees and
expenses associated with the preparation, distribution to stockholders and
filing with the Commission of the materials associated with this consent
solicitation or associated with other securities law filings will be shared
equally by General Motors and EDS, except that GM shall pay the first $3.0
million of such fees and expenses. EDS will pay all costs of printing and
engraving the certificates representing the EDS Common Stock and the costs of
listing the EDS Common Stock on any stock exchange. All other costs and expenses
of either party incurred in connection with the Split-Off will be paid by such
party.
The Separation Agreement also provides that General Motors will not amend
or modify the Transfer Agreement between General Motors and the GM Hourly Plan
Trustee in any material respect, or waive the benefit of any material
17
<PAGE>
term of the Transfer Agreement, without the prior written consent of EDS. See
"Security Ownership of Certain Beneficial Owners and Management of EDS--GM
Hourly Plan Special Trust." The Separation Agreement provides that any employee
who transferred between General Motors, EDS and certain of their affiliates
during the period between September 1, 1985 and the Split-Off and continues in
employment until his or her retirement will receive certain reciprocal treatment
under his or her original employer's qualified retirement plan for service to
the company to which such employee transferred. Such employee's compensation and
service will be recognized for certain specific purposes under the qualified
retirement plan of the company from which he or she transferred. The reciprocal
treatment provided by the Separation Agreement will not apply to certain
employees who transferred to or from Hughes or certain other General Motors
subsidiaries. The Separation Agreement also includes certain agreements and
arrangements with respect to the provision of continuing access to certain
information, the treatment of confidential information and the establishment of
lease arrangements for space within certain GM facilities used or occupied by
EDS. In addition, the Separation Agreement contains representations and
warranties as to certain matters, including with respect to the Class E Common
Stock and EDS Common Stock to be outstanding immediately before the Effective
Time, and the absence of registration rights granted by GM that would apply to
EDS Common Stock after the Split-Off (other than those of the GM Hourly Plan
Special Trust as described under "Security Ownership of Certain Beneficial
Owners and Management of EDS--GM Hourly Plan Special Trust").
The Separation Agreement provides EDS a $50.0 million allowance relating to
the resolution of various uncertain, contingent or other matters arising out of
the separation of GM and EDS. As of the Effective Date, the parties have agreed
to the application of $40.7 million of the allowance, principally to various
tax, employee benefit and insurance matters. The remaining $9.3 million of the
allowance will be available to EDS for a period generally of two years after the
Effective Time for application against any amounts that are or may become
payable by EDS and its affiliates to GM and its affiliates in connection with
any uncertain, contingent or other matters arising prior to the Effective Time
and out of the separation of GM and EDS. Such allowance generally may not be
utilized for items provided for in the Separation Agreement or in the Tax
Allocation Agreement.
Pursuant to the Separation Agreement, GM and EDS shall attempt in good
faith to resolve any disputes thereunder through negotiation, and have agreed
that any such disputes that cannot be resolved through negotiation shall be
litigated in the Delaware state courts (except that disputes with respect to tax
matters shall be submitted to arbitration).
The Tax Allocation Agreement, which applies to tax periods during which EDS
and its consolidated or combined subsidiaries (the "EDS Group") are part of
GM's consolidated federal, state and local income tax returns, generally
requires EDS to pay to GM in a timely manner the amount of federal, state and
local income taxes that the EDS Group would have paid had the EDS Group been a
separate group of corporations during such periods, filing its own consolidated
income tax returns. Any tax attributes arising in the tax periods covered by the
Tax Allocation Agreement that carry over to periods following the Split-Off will
be apportioned between GM and EDS on the basis of applicable regulations or,
absent specific guidance, on the basis of the amount of such attributes that
would have carried over and been available to the EDS Group had it filed
separate returns as described above. The Tax Allocation Agreement also grants
EDS certain control and participation rights in any audit of GM by the Internal
Revenue Service or state and local tax authorities, and in any litigation
arising therefrom, to the extent EDS would be liable under the Tax Allocation
Agreement with respect to the issues in dispute.
18
<PAGE>
EDS UNAUDITED PRO FORMA CONSOLIDATED CAPITALIZATION
The following table sets forth the short-term debt and consolidated
capitalization of EDS as of December 31, 1995 and on a pro forma basis after
giving effect to the Transactions. This table should be read in conjunction with
EDS' Consolidated Financial Statements (including the notes thereto), which are
included as Appendix A to this Current Report, and with the financial data set
forth under "EDS Unaudited Pro Forma Condensed Consolidated Financial
Statements." The pro forma data are not necessarily indicative of EDS' future
short-term debt and consolidated capitalization or of what EDS' short-term debt
and consolidated capitalization would have been had the Transactions been
consummated as of December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
Pro
Historical Forma
---------- ----------
(In Millions)
<S> <C> <C>
Short-term debt:
Notes payable (current)...................................................... $ 247.8 $ 247.8
========== ==========
Long-term debt:
Notes payable................................................................ $ 1,852.8 $ 2,352.8
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value; 200 million shares authorized; no
shares issued and outstanding........................................... -- --
Common stock, without par value; one billion shares authorized;
483.7 million shares issued and outstanding............................. 517.7 --
Common stock, $.01 par value; two billion shares authorized;
483.7 shares issued and outstanding..................................... -- 4.8
Additional paid-in capital................................................... -- 512.9
Retained earnings............................................................ 4,460.8 3,912.5
---------- ----------
Total stockholders' equity......................................... 4,978.5 4,430.2
---------- ----------
Total capitalization............................................... $ 6,831.3 $ 6,783.0
========== ==========
</TABLE>
19
<PAGE>
EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements are based on EDS' Consolidated Financial Statements and give effect
to the Transactions as if they had been consummated as of January 1, 1995 (in
the case of income statement data) or as of December 31, 1995 (in the case of
balance sheet data). The pro forma condensed consolidated financial statements
are based on the assumptions set forth in the accompanying notes and should be
read in conjunction with EDS' Consolidated Financial Statements (including the
notes thereto), which are included as Appendix A to this Current Report. The pro
forma condensed consolidated financial statements are not necessarily indicative
of EDS' future consolidated financial position or results of operations or of
what EDS' consolidated financial position would have been had the Transactions
been consummated as of December 31, 1995 or what the results of operations would
have been had the Transactions been consummated as of January 1, 1995.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- -----------
<S> <C> <C> <C>
Systems and other contracts revenues
GM and affiliates.......................................... $ 3,891.1 $ (175.8)(a) $ 3,715.3
Outside customers.......................................... 8,531.0 -- 8,531.0
--------- ---------- ----------
Total revenues.......................................... 12,422.1 (175.8) 12,246.3
--------- ---------- ----------
Costs and expenses
Cost of revenues........................................... 9,601.6 3.0 (c) 9,604.6
Selling, general, and administrative....................... 1,291.5 7.5 (c) 1,299.0
--------- ---------- ----------
Total costs and expenses................................ 10,893.1 10.5 10,903.6
--------- ---------- ----------
Operating income.............................................. 1,529.0 (186.3) 1,342.7
Interest and other income, net................................ (62.0) (35.0)(b) (97.0)
--------- ---------- ----------
Income before income taxes.................................... 1,467.0 (221.3) 1,245.7
Provision for income taxes.................................... 528.1 2.3 (a) --
-- (79.7)(d) 450.7
--------- ---------- ----------
Separate Consolidated Net Income/Net Income................... $ 938.9 $ (143.9) $ 795.0(j)
========= ========== ==========
Available Separate Consolidated Net Income.................... $ 795.5 $ --
========= ==========
Average number of shares of Class E Common Stock outstanding.. 404.6 --
========= ==========
Earnings per share attributable to Class E Common Stock....... $ 1.96 $ --
========= ==========
Weighted average number of EDS common shares outstanding...... -- 483.6(e)
========= ==========
Net income per share.......................................... $ -- $ 1.64(e)
========= ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Consolidated Financial Statements.
20
<PAGE>
EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 548.9 $ $ 548.9
Accounts receivable.................................... 3,169.0 3,169.0
Other current assets................................... 663.6 (13.4)(h) 650.2
----------- ----------- ---------
Total current assets............................... 4,381.5 (13.4) 4,368.1
Property and equipment, net............................... 3,242.4 3,242.4
Investment in leases and other............................ 1,573.5 (33.2)(h) 1,540.3
Software, goodwill, and other intangibles, net............ 1,529.9 1,529.9
Other assets.............................................. 105.1 105.1
----------- ----------- ----------
Total assets....................................... $ 10,832.4 $ (46.6) $ 10,785.8
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities.................................... $ 1,704.5 $ 35.0(j) $ 1,739.5
Other current liabilities.............................. 1,556.9 1,556.9
----------- ----------- ----------
Total current liabilities.......................... 3,261.4 35.0 3,296.4
Deferred income taxes..................................... 739.7 (33.3)(g) 706.4
Notes payable............................................. 1,852.8 500.0 (f) 2,352.8
Stockholders' equity...................................... 4,978.5(i) (500.0)(f)
33.3 (g)
(46.6)(h)
(35.0)(j) 4,430.2
----------- ----------- ----------
Total liabilities and stockholders' equity............... $ 10,832.4 $ (46.6) $ 10,785.8
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Consolidated Financial Statements.
21
<PAGE>
EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONCLUDED)
NOTES TO EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Notes to EDS Unaudited Pro Forma Condensed Consolidated
Financial Statements relate to the individual adjustments required to reflect
the Transactions as if they had occurred on January 1, 1995 (in the case of
income statement data) or as of December 31, 1995 (in the case of balance sheet
data). Adjustments to EDS' consolidated balance sheet are based on EDS'
carryover basis as reported in EDS' Consolidated Financial Statements included
as Appendix A herein. EDS' Consolidated Financial Statements exclude the effects
of purchase accounting adjustments arising from the acquisition of EDS by GM in
1984, including GM's remaining carrying value of such purchase adjustments and
the accumulated amortization of all such adjustments. The remaining carrying
value of such adjustments would be immaterial to EDS' Consolidated Financial
Statements.
(a) Reflects the reductions in revenues from GM and its affiliates, which
represent the effects of reduced unit billings as provided for under the
terms of the IT Services Agreements as applied to actual usage for certain
communications and compute activities for the year ended December 31, 1995,
as well as certain reduced tax credits.
(b) Reflects additional interest expense attributable to $500.0 million of debt
incurred to make the Special Inter-Company Payment, calculated based on the
borrowing rate expected to be incurred for such debt, which approximates
EDS' 1995 average long-term borrowing rate.
(c) Reflects additional costs as a result of operating as a separate public
company, rather than a subsidiary of General Motors. These costs include,
among other items, additional insurance coverages, NYSE fees and transfer
agent fees.
(d) Reflects the tax impact of pretax income statement adjustments at EDS'
effective tax rate of 36%.
(e) Reflects the conversion of each outstanding share of Class E Common Stock
into one share of EDS Common Stock. Pro forma earnings per share have been
calculated based on the weighted average shares of Class E Common Stock
outstanding for the year ended December 31, 1995, adjusted for the
following: (i) GM's contribution of approximately 173.2 million shares of
Class E Common Stock to the GM Hourly Plan on March 13, 1995; and (ii) GM's
issuance of approximately 44.7 million shares of Class E Common Stock
between January 1 and February 22, 1996, to satisfy conversion privileges
associated with Series C Preference Stock. For purposes of computing pro
forma earnings per share for 1995, each of these transactions was treated as
if it occurred on January 1, 1995.
(f) Reflects payment of the Special Inter-Company Payment and incurrence of
additional debt for the financing thereof.
(g) Reflects the net deferred tax benefits previously allocated to GM.
(h) Reflects the reclassification to EDS treasury stock for GM Class E Common
Stock held by EDS as an asset prior to the Split-Off. These shares, which
are used to satisfy restricted stock awards as they vest, will be converted
to EDS Common Stock in the Merger.
(i) General Motors' equity in its indirect wholly owned subsidiary, EDS
(excluding the effects of purchase accounting adjustments relating to
General Motors' 1984 acquisition of EDS).
22
<PAGE>
(j) The pro forma balance sheet includes, and the pro forma income statement
excludes, the one-time charges of approximately $35.0 million associated
with the formulation and implementation of the Split-Off. These charges will
be included in EDS' consolidated financial statements for the year ended
December 31, 1996. These expenses could impact EDS' effective tax rate to
the extent that they are non-deductible for tax purposes.
23
<PAGE>
EDS SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following EDS selected consolidated historical financial data have been
derived from EDS' Consolidated Financial Statements. Such data should be read in
conjunction with the EDS Consolidated Financial Statements (including the notes
thereto), which are included as Appendix A to this Current Report, and "EDS
Management's Discussion and Analysis of Financial Condition and Results of
Operations." The EDS selected consolidated historical financial data as of and
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 have been
derived from EDS' Consolidated Financial Statements, which have been audited by
KPMG Peat Marwick LLP, independent auditors.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Systems and other contracts revenues
General Motors and affiliates.................................. $ 3,891.1 $3,547.2 $3,323.7 $3,348.5 $3,362.2
Outside customers.............................................. 8,531.0 6,412.9 5,183.6 4,806.7 3,666.3
--------- -------- -------- -------- --------
Total revenues............................................... 12,422.1 9,960.1 8,507.3 8,155.2 7,028.5
--------- -------- -------- -------- --------
Costs and expenses
Cost of revenues............................................... 9,601.6 7,529.4 6,390.6 6,205.8 5,415.1
Selling, general, and administrative........................... 1,291.5 1,187.1 1,005.4 969.3 761.9
--------- -------- -------- -------- --------
Total costs and expenses..................................... 10,893.1 8,716.5 7,396.0 7,175.1 6,177.0
--------- -------- -------- -------- --------
Operating income................................................. 1,529.0 1,243.6 1,111.3 980.1 851.5
Interest and other income, net................................... (62.0) 40.6 20.0 20.7 42.2
--------- -------- -------- -------- --------
Income before income taxes....................................... 1,467.0 1,284.2 1,131.3 1,000.8 893.7
Provision for income taxes....................................... 528.1 462.3 407.3 365.3 330.7
Cumulative effect of accounting change(a)........................ -- -- -- -- (15.5)
--------- -------- -------- -------- --------
Separate Consolidated Net Income (b)............................. $ 938.9 $ 821.9 $ 724.0 $ 635.5 $ 547.5
========= ======== ======== ======== ========
Average number of shares of Class E Common Stock outstanding
(Numerator) (b)................................................ 404.6 260.3 243.0 209.1 195.3
Class E Dividend Base (Denominator) (b).......................... 483.7 481.7 480.6 479.3 478.1
Available Separate Consolidated Net Income (b)................... $ 795.5 $ 444.4 $ 367.2 $ 278.4 $ 223.6
Earnings per share attributable to Class E Common Stock (b)...... 1.96 1.71 1.51 1.33 1.14
Dividends per share of Class E Common Stock (b).................. 0.52 0.48 0.40 0.36 0.32
BALANCE SHEET DATA
Cash and marketable securities................................... $ 638.6 $ 757.8 $ 607.5 $ 587.9 $ 415.8
Current assets................................................... 4,381.5 3,354.1 2,506.8 2,157.0 1,945.6
Total assets (c)................................................. 10,832.4 8,786.5 6,942.1 6,123.5 5,703.2
Current liabilities.............................................. 3,261.4 2,873.2 2,160.4 1,903.1 2,396.7
Long-term debt................................................... 1,852.8 1,021.0 522.8 561.1 281.9
Stockholder's equity (c)(d)...................................... 4,978.5 4,232.5 3,617.4 3,063.4 2,610.3
OTHER DATA
Depreciation and amortization.................................... $ 1,107.8 $ 771.1 $ 626.8 $ 603.2 $ 524.4
Expenditures for property and equipment.......................... 1,261.5 1,186.0 816.4 639.0 673.2
</TABLE>
_________
(a) Effective January 1, 1991, General Motors and its subsidiaries (including
EDS) adopted SFAS No. 109, "Accounting for Income Taxes." The cumulative
effect of this accounting change at January 1, 1991 was a charge of $15.5
million, of which $6.1 million, or $0.03 per share, was attributable to
Class E Common Stock.
24
<PAGE>
(b) Calculated for purposes related to the Class E Common Stock, which will be
converted into EDS Common Stock on a one-for-one basis pursuant to the
Split-Off.
(c) Holders of Class E Common Stock have no direct rights in the equity or
assets of EDS, but rather have rights in the equity and assets of General
Motors (which include 100% of the stock of EDS).
(d) General Motors' equity in its indirect wholly owned subsidiary, EDS
(excluding the effects of purchase accounting adjustments relating to
General Motors' 1984 acquisition of EDS).
25
<PAGE>
EDS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
EDS is a provider of IT services using computer and communication
technologies to meet the business needs of its clients. EDS offers its clients a
continuum of services, including the management and operation of computers,
networks, information systems, information processing facilities, business
operations, and related personnel, as well as management consulting services.
EFFECT OF THE SPLIT-OFF
In connection with the Split-Off, the Master Services Agreement will be
entered into between EDS and General Motors with respect to IT services to be
provided after the Split-Off and the Special Inter-Company Payment will be made
by EDS.
The IT Services Agreements contemplate that EDS will continue to serve as
General Motors' principal supplier of IT services for an initial term of ten
years, which may be extended by agreement of the parties, and that the IT
services to be provided by EDS after the Split-Off will generally be similar to
those provided to General Motors under the Existing IT Services Agreements.
Under the terms of the IT Services Agreements, certain of the Existing IT
Services Agreements applicable to particular units, sectors or other
organizations within General Motors will be extended for additional terms of
between approximately one and three years beyond their current expiration dates.
In addition, EDS will provide certain plant floor automation services in North
America to GM that it has not previously provided. The IT Services Agreements
also provide that certain significant changes will be made to the pricing and
terms under which EDS will provide IT services to General Motors after the
Split-Off. Among other things, the IT Services Agreements provide that the rates
charged by EDS to General Motors for certain information processing activities
and communications services will be reduced and that the parties will work
together to achieve increased targets for structural cost reductions. General
Motors will also be given the right to competitively bid and, subject to certain
restrictions, outsource a limited portion of its IT service requirements to
third party providers. In addition, beginning in 1997, the payment terms
relating to IT services provided by EDS will be revised over a two-year period
to extend the due dates for payments from General Motors. See "Relationship
between General Motors and EDS--Post Split-Off Arrangements--IT Services
Agreements."
Based on currently available information and assuming that the IT Services
Agreements had been effective as of January 1, 1996, EDS believes that revenues
generated from services performed for General Motors in 1996 would be slightly
lower than those generated from such services in 1995. In addition, EDS expects
that the contemplated changes in its arrangements with GM could reduce its 1996
earnings per share by as much as $0.07 to $0.14 (including $0.03 in the first
quarter of 1996). The long-term impact of the terms of the IT Services
Agreements cannot be precisely quantified at present, although such terms may
have an adverse effect on operating margins unless EDS is able to effect
reductions in the costs of providing services to General Motors. Although EDS
plans to implement certain cost reduction measures, there can be no assurance as
to the extent, if any, to which such measures will mitigate the possible adverse
impact on its operating margins. In general, there can be no assurance that the
terms of the IT Services Agreements would not have a material adverse effect in
the long term on the results of operations of EDS. For additional information
regarding the IT Services Agreements, see "Relationship Between General Motors
and EDS--Post-Split-Off Arrangements--IT Services Agreements" and "Business of
EDS--Revenues."
The Special Inter-Company Payment will be paid by EDS to GM at such time,
if any, as the Split-Off occurs. The amount of the Special Inter-Company Payment
will be $500.0 million. Interest costs related to the Special Inter-Company
Payment are expected to be approximately $.03 per share in 1996. In addition to
the Special Inter-Company Payment, EDS expects to incur approximately $35.0
million, or approximately $.05 per share in 1996, of one-time costs
26
<PAGE>
in connection with the formulation and implementation of the Split-Off. Certain
of these costs will be incurred only if the Split-Off is consummated. In
arriving at the amount of the $500.0 million Special Inter-Company Payment, the
parties took into account the fact that in the Separation Agreement GM would
provide EDS an allowance of $50 million relating to the resolution of various
uncertain, contingent or other matters arising out of the separation of GM and
EDS.
Statements about the effect of the Transactions and the impact of the IT
Services Agreements after the Split-Off are forward-looking statements which by
their nature are subject to numerous uncertainties that could cause actual
results to vary.
RESTRUCTURING ACTIVITIES
On April 1, 1996, EDS announced that it is taking certain actions and
considering others to maintain and improve operating efficiencies and accelerate
EDS' move towards ''user-centered'' computing. In connection therewith, EDS also
announced the implementation of a voluntary early retirement offer and
involuntary severance arrangements affecting between 4,000 and 5,000 employees
and designed to both reduce labor costs and change the skill mix of EDS'
workforce. Communication of terms of these arrangements to employees began on
April 1 and will continue during the second quarter of 1996. It is expected that
substantially all of these workforce reductions would be completed by December
1996.
As part of its overall goal to improve operating efficiencies, EDS is also
in the process of evaluating certain aspects of its business to identify any
redundant facilities and related assets which may no longer fit its long-term
strategic objectives. Accordingly, the actions under consideration could include
the elimination by EDS of certain business functions and consolidation of
certain related facilities.
EDS will incur a pre-tax non-recurring charge in the second quarter of 1996
in connection with the restructuring actions discussed above. The amount of the
aggregate charge (including the employee related actions, asset writedowns, and
other actions being considered) will depend on the number of employees who elect
to accept early retirement offers and the determination of which EDS business
functions and related facilities would be eliminated or consolidated. EDS
estimates that all such actions could result in an aggregate pre-tax non-
recurring charge in the second quarter of 1996 in the range of $500.0 million to
$750.0 million (between $.66 and $.99 per share, after tax). A portion of the
contemplated charge will be of a non-cash nature, the amount of which has not
yet been determined. EDS expects that any restructuring actions implemented by
it will result in savings commencing in the second half of 1996. The
restructuring activities discussed above are not contingent upon approval or
consummation of the Split-Off.
Statements about the effect of EDS' actions and the possible amount of a
non-recurring charge are forward-looking statements which by their nature are
subject to numerous uncertainties that could cause actual results to vary.
RESULTS OF OPERATIONS
Three Years Ended December 31, 1995, 1994 and 1993
Revenues. EDS conducts its sales, marketing and service activities on a
global basis through business units that focus both geographically and
vertically along the lines of specified industries. The following table
summarizes EDS' systems and other contracts revenues in each geographic
operating segment for each of the years ended December 31, 1995, 1994 and 1993:
27
<PAGE>
SYSTEMS AND OTHER CONTRACTS REVENUES
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Outside Customers:
United States............................. $ 5,794.9 $4,611.2 $4,004.5
Europe.................................... 2,001.5 1,308.1 911.6
Other..................................... 734.6 493.6 267.5
--------- -------- --------
Total Outside Customers............... 8,531.0 6,412.9 5,183.6
--------- -------- --------
GM and Affiliates:
United States............................. 2,926.1 2,764.4 2,574.5
Europe.................................... 659.2 523.4 511.2
Other..................................... 305.8 259.4 238.0
--------- -------- --------
Total GM and Affiliates............... 3,891.1 3,547.2 3,323.7
--------- -------- --------
Total Systems and Other Contracts Revenues.... $12,422.1 $9,960.1 $8,507.3
========= ======== ========
Percentage of Total Revenues:
Outside Customers......................... 69% 64% 61%
GM and Affiliates......................... 31 36 39
--- --- ---
Total................................. 100% 100% 100%
=== === ===
</TABLE>
Total revenues increased 25% in 1995 to $12,422.1 million from $9,960.1
million in 1994, which represented a 17% increase over 1993 total revenues of
$8,507.3 million. Revenues from customers other than General Motors and its
affiliates (outside customers) grew 33% in 1995 to $8,531.0 million, compared to
a 24% increase in 1994 from $5,183.6 million in 1993. Total revenues related to
GM and its affiliates were $3,891.1 million, $3,547.2 million, and $3,323.7
million in 1995, 1994 and 1993, respectively. The percentage of EDS' total
revenues generated from GM and its affiliates declined to 31% in 1995 from 36%
in 1994 and 39% in 1993. EDS expects this trend to continue as revenues from
outside customers continue to grow.
Total domestic revenues from outside customers increased 26% from $4,611.2
million in 1994 to $5,794.9 million for 1995. This compares with growth rates of
15% in 1994 and 8% in 1993. The increase in 1995 was attributable to full-year
revenues on contracts which began in late 1994 and to revenues related to
acquisitions, primarily the A.T. Kearney acquisition in August 1995. Domestic
revenues from outside customers in 1994 increased over 1993 results due to
revenues associated with new contracts signed in 1993 and 1994.
During 1995, non-U.S. revenues from outside customers increased $934.4
million compared with an increase of $622.6 million in 1994 from $1,179.1
million in 1993. Growth in revenues from outside customers in Europe increased
$693.4 million in 1995 from revenues associated with new contracts signed during
1994 and 1995, as well as certain acquisitions which occurred in late 1994 or
1995. In 1994, non-U.S. revenues from outside customers in Europe increased
$396.5 million, or 43%, to $1,308.1 million.
Other non-U.S. revenues from outside customers grew $241.0 million over
1994, to $734.6 million due to new contracts signed in Asia/Pacific and Canada,
as well as full-year revenues from acquisitions in New Zealand which occurred in
1994. Other non-U.S. revenues from outside customers in 1994 was up $226.1
million over 1993 due in part to business in Japan and New Zealand.
28
<PAGE>
The following summary table sets forth the percentage of revenues for each
of the years in the three-year period ended December 31, 1995, derived from EDS'
principal industry areas.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR THE YEARS ENDED
INDUSTRY AREA DECEMBER 31,
------------- -------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Manufacturing....................................... 47% 49% 51%
Financial Services.................................. 14 14 15
Government.......................................... 12 10 10
All others individually less than 10%............... 27 27 24
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Other than General Motors, no one client accounted for more than 5% of
EDS' total revenues in 1995, 1994, or 1993. GM business, which has historically
grown at a slower rate than business from outside customers, is included in the
Manufacturing industry area. The Government industry area has grown due to,
among other reasons, EDS' success in selling to newly privatized sectors in
Europe.
Costs and Expenses. Cost of revenues as a percentage of systems and
other contracts revenues was 77% in 1995, compared with 76% in 1994 and 75% in
1993. Cost as a percentage of revenues has increased due to higher labor costs
for skilled workforce and pricing pressures as a result of the increasingly
competitive environment in which EDS operates. The increasingly competitive
environment in which EDS operates results in part from a long-term trend of
convergence occurring in the computing, communications and media/entertainment
sectors of the information industry. EDS is addressing this environment in part
through expected efficiencies to be gained from its restructuring activities
described above and its value-added business approach. See "--Restructuring
Activities" and "Business of EDS." Selling, general and administrative
expenses increased 9% in 1995 to $1,291.5 million from $1,187.1 million in 1994,
which increased 18% from 1993. Selling, general and administrative expenses were
10% of systems and other contracts revenues in 1995, down from 12% in 1994 and
1993 due to the fixed nature of certain of these costs.
Operating Income. Operating income increased $285.4 million to $1,529.0
million in 1995. Operating income was $1,243.6 million and $1,111.3 million for
1994 and 1993, respectively. Operating margins declined from 12.5% in 1994 to
12.3% in 1995 due to the aforementioned changes in costs and expenses, as well
as increased reserves for certain customer receivables. The 1993 operating
margin was 13.1%.
Interest and Other Income, net. Interest and other income, net, decreased
$102.6 million in 1995 to $(62.0) million, compared with $40.6 million in 1994
and $20.0 million in 1993. The primary reason for the decrease in 1995 was due
to increased interest expense. Interest expense increased to $120.8 million in
1995, compared with $51.7 million in 1994 and $34.5 million in 1993. The
increase in 1995 resulted from interest associated with the issuance of $350.0
million of 6.85% notes due May 15, 2000 (the "Five-year Notes") and $300.0
million of 7.125% notes due May 15, 2005 (the "Ten-year Notes"), as well as
from other borrowings. These borrowings were used for general corporate
purposes, including the repayment of outstanding commercial paper borrowings,
property and equipment expenditures, acquisitions, and other contract-related
investments to support business growth. Interest and other income decreased from
$92.3 million in 1994 to $58.8 million in 1995 primarily due to lower interest
income on notes receivable and the recognition of other than temporary declines
in the fair value of certain investment securities.
Income Taxes. The effective income tax rate was 36% in 1995, 1994 and 1993.
Net Income. EDS' Separate Consolidated Net Income increased 14% to $938.9
million in 1995, compared with $821.9 million for 1994 and $724.0 million in
1993. Earnings per share attributable to Class E Common Stock increased
29
<PAGE>
15% to $1.96 per share in 1995 and 13% to $1.71 per share in 1994, based on EDS'
Available Separate Consolidated Net Income as described in Note 1 to EDS'
Consolidated Financial Statements.
EDS and its customers may, from time to time, modify their contractual
arrangements. For customer contracts accounted for under the percentage of
completion method, such changes would be reflected in results of operations as a
cumulative change in accounting estimate in the period the revisions are
determined.
Seasonality and Inflation. EDS' revenues vary over the calendar year, with
the fourth quarter generally reflecting the highest revenues for the year due to
certain EDS services that are purchased more heavily in the fourth quarter as a
result of the spending patterns of several customers. In addition, revenues have
generally increased from quarter to quarter as a result of new business added
throughout the year. EDS believes that inflation generally had little effect on
its results of operations for each of the years ended December 31, 1995, 1994,
and 1993.
FINANCIAL POSITION
Assets. In 1995, EDS' total assets increased to $10,832.4 million, a 23%
increase over total assets of $8,786.5 million at December 31, 1994. This change
represents increases in accounts receivable and property and equipment for
contract-related investments and an increase in intangible assets related to
acquisitions, primarily the acquisition of A.T. Kearney. Accounts receivable
from outside customers increased $789.9 million due to more competitive contract
terms, receivables acquired in the A.T. Kearney acquisition ($149.3 million),
and an increase in unbilled receivables on newer contracts.
At December 31, 1995, EDS held cash and cash equivalents of $548.9 million,
had working capital of $1,120.1 million, and a current ratio of 1.3-to-1. This
compares to $480.9 million in working capital and a 1.2-to-1 current ratio at
December 31, 1994.
On August 31, 1995, EDS acquired A.T. Kearney, a Chicago-based
international management consulting firm. At the acquisition date, EDS paid
approximately $113 million in cash and $162 million in short and long-term notes
to A.T. Kearney shareholders in connection with this acquisition. Additionally,
the terms included restricted stock grants of approximately 6.6 million shares
of Class E Common Stock, which will vest over a ten-year period for certain A.T.
Kearney personnel remaining with EDS. Prior to December 31, 1995, EDS retired
$80.9 million of short-term notes related to the acquisition. After the
acquisition, EDS' Management Consulting Services unit was combined with A.T.
Kearney to create a new wholly owned subsidiary operating under the A.T. Kearney
brand.
Return on assets was 9.6% in 1995, compared with 10.5% for 1994 and 11.1%
for 1993. Return on assets has declined due to the increasing capital intensity
of EDS' business and increased contract-related investments in computers and
telecommunications equipment, software, and other property and equipment.
Additionally, EDS' results for the year ended December 31, 1995, include the
results of A.T. Kearney's operations only since the acquisition date.
Liabilities and Stockholder's Equity. Total liabilities increased in 1995
to support business growth and as a result of the issuance of EDS' Five-year and
Ten-year Notes. Additionally, EDS revised its agreement with a syndicate of
banks, which increased EDS' committed lines of credit to $2,500.0 million. Total
debt was $2,100.6 million and $1,224.4 million at December 31, 1995 and 1994,
respectively, which consisted of long- and short-term notes payable. The total
debt-to-capital ratio (which includes current notes payable as a component of
capital) was 29.7% at December 31, 1995, and 22.4% at December 31, 1994. The
ratio of noncurrent debt-to-capital was 27% at December 31, 1995, and 19% at
December 31, 1994. At December 31, 1995, EDS had unused uncommitted short-term
lines of credit totaling $728.2 million and unused committed lines of credit of
$2,500.0 million. The unused committed lines of credit of $2,500.0 million serve
as a backup facility for EDS' commercial paper borrowings. At December 31, 1995,
EDS had total committed lines of credit of $2,515.5 million.
30
<PAGE>
Stockholder's equity was $4,978.5 million at December 31, 1995, and
$4,232.5 million at December 31, 1994. Return on stockholder's equity was 20.4%
in 1995, compared with 20.9% in 1994 and 21.7% in 1993.
New Accounting Standards. The Financial Accounting Standards Board (FASB)
has issued Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which will become effective for fiscal years beginning in 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, and for the measurement of loss to be based on the fair value of
the asset. In addition, long-lived assets and certain identifiable intangibles
to be disposed of are generally to be reported at the lower of the carrying
amount or fair value less selling costs.
As discussed above, EDS is in the process of evaluating certain aspects of
its business to identify any redundant facilities and related assets which may
no longer fit its long-term strategic objectives. Since this evaluation is not
expected to be completed until the second quarter of 1996, EDS believes the
effects of initially adopting SFAS No. 121 as of January 1, 1996 will be
immaterial to its consolidated financial statements.
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation,
which will become effective for fiscal years beginning in 1996. EDS intends to
remain on Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, for the preparation of its basic consolidated financial
statements and provide pro forma disclosures as if the SFAS No. 123 fair value
method had been applied. Accordingly, EDS expects no impact on the basic
consolidated financial statements upon adoption of this Statement.
Foreign Exchange Risk Management. The translation effects of changes in
exchange rates on EDS' Consolidated Financial Statements can be found in the
consolidated stockholder's equity currency translation adjustment in Note 10 and
in the effect of exchange rate changes on cash and cash equivalents in the EDS
consolidated statements of cash flows. The disclosure of nonfunctional currency
transactions gains (losses) is contained in the "Summary of Significant
Accounting Policies" in Note 1. All other effects of changes in exchange rates
on EDS' consolidated financial statements are immaterial due to the general
nature of EDS' business and its risk management strategies described below. EDS'
foreign subsidiaries conduct nearly all aspects of their respective operations
using their respective functional currencies. Accordingly, such operations are
not expected to yield significant currency risks.
EDS hedges predominantly all its transaction risk associated with material
monetary assets and liabilities denominated in currencies other than the U.S.
dollar. EDS does not hedge the foreign exchange risk related to either the
translation of foreign earnings into U.S. dollars or the translation of its net
investment in foreign subsidiaries into U.S. dollars. EDS has no material
unhedged monetary assets or liabilities denominated in currencies other than its
foreign operations' functional currencies.
EDS conducts business in the United States and approximately 40 other
countries. EDS' most significant foreign currency transaction exposures relate
to Canada, Western European countries (primarily Germany, the United Kingdom,
Italy, the Netherlands and Switzerland) and New Zealand. EDS manages the foreign
exchange transaction exposure resulting from its multinational operations
primarily by utilizing short-term forward contracts which are used to hedge the
aggregate net exposure in each currency. Derivatives involve, to varying
degrees, elements of credit risk in the event a counterparty should default and
market risk as the instruments are subject to rate and price fluctuations.
Credit risk is managed by dealing solely with major commercial banks with high
quality credit and, therefore, EDS management does not expect to incur any cost
due to counterparty default. Market risk is inherently limited by the fact that
EDS holds offsetting asset or liability positions. Pursuant to its prescribed
policies, EDS does not hold or issue financial instruments for trading purposes.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, net cash provided by operating
activities was $1,259.0 million, down $273.5 million from the same period in
1994 due to increases in accounts receivable, including an increase in
receivables from GM and its affiliates. For the year ended December 31, 1994,
net cash provided by operating activities was $1,532.5 million, up $111.5
million from 1993, due in part to increases in accounts payable and accrued
liabilities. Net cash provided by operating activities for 1993 consisted of
depreciation and amortization as well as increases in working capital items.
For the year ended December 31, 1995, net cash used in investing activities
increased $241.8 million, to $1,781.5 million when compared to the same period
for 1994. Net cash used in investing activities increased $472.0 million, to
$1,539.7 million in 1994, from $1,067.7 million in 1993. Consistent with the
increasing capital intensity of EDS' business, cash used in investing activities
consisted largely of payments for purchases of property and equipment of
$1,261.5 million, $1,186.0 million, and $816.4 million in 1995, 1994, and 1993,
respectively. Additionally, EDS used cash for investments in leases and other
assets and for payments related to acquisitions.
Net cash provided by financing activities was $465.1 million for the year
ended December 31, 1995, up $258.6 million from the corresponding period in 1994
due in part to the issuance of long-term debt and notes payable, particularly
the issuance of the Five-year Notes and the Ten-year Notes. For the year ended
December 31, 1994, net cash provided by financing activities was $206.5 million,
compared with cash used in financing activities of $378.2 million in 1993. EDS
paid cash dividends to GM totaling $251.3 million, $231.1 million, and $192.1
million in 1995, 1994, and 1993, respectively.
EDS expects that its principal uses of funds for the foreseeable future
will be for capital expenditures, debt repayment, working capital and costs
associated with the Split-Off, as well as the payment of the Special Inter-
Company Payment to General Motors. Capital expenditures may consist of purchases
of computer and telecommunications equipment, buildings and facilities, land,
and software, as well as acquisitions. EDS' projected capital expenditures for
1996 are approximately $1,400.0 to $1,700.0 million. However, actual capital
expenditures will depend to a significant extent on the level of acquisition and
joint venture activities by EDS, as well as capital requirements for new
business. EDS anticipates that cash flows from operations and unused borrowing
capacity under its existing lines of credit will provide sufficient funds to
meet its needs for at least the next year.
The Existing IT Services Agreements provide for GM to pay EDS on the 15th
day of the month in which services are provided with respect to a substantial
portion of services. Under the IT Services Agreements, there will be a
transition over a two-year period, beginning in 1997, to payment on the 20th day
of the month following service for all agreements which do not already have
payment terms at least that favorable to GM. See "Relationship Between General
Motors and EDS-Post-Split-Off Arrangements-IT Services Agreements-Payment
Terms." These revised payment terms are expected to result in an increase in
EDS' working capital requirements. EDS will obtain the funds for this working
capital impact and for the Special Inter-Company Payment through borrowings
under its existing commercial paper or bank credit facilities. EDS currently
anticipates that it may seek to refinance such commercial paper or bank
borrowings as part of its general plan to extend maturities of its indebtedness.
The competitive environment and changing market forces are increasing the
capital intensity of EDS' business. Increasing amounts of capital will be
required by EDS in order to make investments in acquisitions, joint ventures and
strategic alliances in other parts of the information industry and in new
product development. In addition, information technology customer contracts
frequently require investments in computers and telecommunications equipment,
software, and other property, plant and equipment. For these reasons, EDS'
ability to continue to access the capital markets on an efficient basis will
become increasingly important to its ability to compete effectively.
The Split-Off is intended, among other things, to afford EDS more flexible
access to capital markets to meet its growing needs without regard to competing
considerations of GM and its affiliates. Following the Split-Off, EDS may
32
<PAGE>
over time incur substantially more debt than it has while a subsidiary of GM. As
a result, EDS' financial leverage may increase in the future. To the extent that
EDS would become more highly leveraged following the Split-Off, EDS may be
required to pay higher interest rates on its outstanding borrowings. In order to
provide the funds necessary for EDS' future acquisition and expansion goals, EDS
expects that it might incur, from time to time, additional bank financing and/or
issue equity or debt securities, depending on market and other conditions.
BUSINESS OF EDS
GENERAL
EDS is a world leader in applying IT, with over 30 years of experience in
using advanced computer and communications technologies to meet the business
needs of its clients.
Electronic Data Systems Holding Corporation was incorporated in Delaware in
1994 for the purpose of holding the capital stock of Electronic Data Systems
Corporation, which was incorporated in Texas in 1962. General Motors acquired
all of the capital stock of Electronic Data Systems Corporation in October 1984.
Prior to that time, Electronic Data Systems Corporation had been an independent,
publicly held corporation. In December 1995, Electronic Data Systems Holding
Corporation formed a new wholly owned subsidiary, Electronic Data Systems
Intermediate Corporation, a Delaware corporation, to which it contributed all of
the capital stock of Electronic Data Systems Corporation.
Thus, as of the date hereof, Electronic Data Systems Holding Corporation
owns all of the capital stock of Electronic Data Systems Intermediate
Corporation, which in turn owns all of the capital stock of Electronic Data
Systems Corporation. Immediately prior to the Split-Off, (i) Electronic Data
Systems Intermediate Corporation will be merged with and into Electronic Data
Systems Holding Corporation and (ii) Electronic Data Systems Corporation will be
merged with and into Electronic Data Systems Holding Corporation and, pursuant
to such merger, Electronic Data Systems Holding Corporation will be renamed
"Electronic Data Systems Corporation." Unless the context otherwise requires,
references herein to EDS give effect to the transactions described in the
preceding sentence and include Electronic Data Systems Corporation and its
subsidiaries.
EDS' principal executive offices are located at 5400 Legacy Drive, Plano,
Texas 75024-3105 (telephone number (214) 604-6000).
STRATEGY
EDS' strategy is to offer a full range of IT services to enterprises,
government entities and individuals worldwide. These services include management
consulting, systems development, systems integration, systems management and
process management. EDS' organizational structure is designed to offer the full
range of services on a global basis through business units that focus along the
lines of specified industries, such as manufacturing, financial services,
government, communications, health, travel and transportation, and energy, as
well as geographically, such as on the Americas, Europe, and Asia/Pacific and
Japan. Each business unit is further organized into separate, more focused
business units within the relevant industry or geography. EDS seeks to leverage
its knowledge and resources for its individual customers by drawing from the
many industries and skill sets available across a wide range of geographies. EDS
believes its organizational structure enables it to better focus on and use the
knowledge gained from the industries and geographies in which its customers
operate and therefore better serve its customers and its customers' customers.
EDS seeks to continue its leadership position in the IT industry through
increased globalization and expanded product and service offerings. The
percentage of EDS' revenues outside the United States has increased from 18% in
1990 to 30% in 1995, and the number of countries in which EDS operates has
increased from 28 in 1990 to 40 in 1995.
33
<PAGE>
EDS believes that corporations are becoming increasingly globalized because
other companies enter their markets from other geographies or they desire to
expand into additional geographies. This trend is fostered by advancements in
communications technology which compress time and distance. EDS intends to
continue to capitalize on the general trend toward convergence of the world's
markets by enhancing its capability through expanded service offerings as well
as through strategic alliances with global partners and distributors. The
acquisition of A.T. Kearney in 1995, which expanded EDS' capabilities along a
range of industries, skill sets and regions, is an example of such strategic
growth.
EDS seeks to create value by imbedding more information content into the
products and services it delivers. By creating "smart" systems, or systems
with built-in flexibility, EDS can enhance the quantity and type of information
available to a customer, increase the value of that information to the customer
and better enable the customer to take full advantage of that information for
its business needs.
EDS believes that as the trend toward the individualization of products and
services accelerates, the ability to customize the delivery of information to
the individual consumer will become increasingly important. This trend is
evidenced by the growth of the internet and electronic commerce markets. EDS
anticipates building the tools, capabilities and offerings to be a significant
participant in the internet and electronic commerce markets. EDS' delivery of
services to these markets, which include the home banking and home shopping
markets, is generally to the consumer through EDS' customer.
SERVICES
EDS offers its clients a continuum of services worldwide, including the
management of computers, networks, information systems, information processing
facilities, business operations and related personnel, providing to its clients
advantages in cost-effectiveness, speed of implementation and state-of-the-art
technology. In delivering this continuum of services, EDS generally performs one
or more of five basic functions:
. MANAGEMENT CONSULTING SERVICES. Through its A.T. Kearney subsidiary, EDS
offers management consulting services, including business and market
strategy, benchmarking and best practices analysis, business process
reengineering, manufacturing and operations improvement, organizational
effectiveness, global sourcing and logistics and supply change
management.
. CREATION OF IT SYSTEMS-SYSTEMS DEVELOPMENT. EDS designs, develops and
implements information systems or adds features that may increase the
capabilities of existing systems.
. ASSEMBLY OF IT PLATFORMS-SYSTEMS INTEGRATION. EDS selects technologies
and assembles integrated systems that may include software, hardware,
telecommunications and systems support and maintenance.
. MANAGEMENT OF IT OPERATIONS-SYSTEMS MANAGEMENT. EDS assumes and manages
the operation of part or all of a client's IT operations, which may
include equipment, personnel, information processing systems and
communications networks.
. MANAGEMENT OF BUSINESS OPERATIONS-PROCESS MANAGEMENT. EDS manages an
entire business function within the client's enterprise, which may
include IT operations as well as other activities such as remittance
processing, marketing, sales, customer service and training.
EDS is able to leverage its extensive technical infrastructure and other
numerous resources to offer IT services at clients' sites or through large scale
information processing centers or specialized distributed service centers
located worldwide. EDS' digital telecommunications network, EDSNET(R), is
capable of worldwide transmission of clients' voice, digital and video data
using the integrated fiber optic, microwave and satellite facilities of what EDS
believes is one of the world's largest digital telecommunications networks,
excluding government networks and common carriers.
34
<PAGE>
EDS constantly examines and tests computer hardware and software offered by
suppliers worldwide as part of its efforts to assess and use in its operations,
and offer to EDS' clients, the technological changes that continuously occur
within the computer industry, including developments in distributed computing
and client/server architecture. EDS has developed computer-aided software
engineering ("CASE") tools to assist in generating new software to keep pace
with rapidly evolving strategies involving hardware technologies and information
processing theories and to facilitate the rapid deployment of its products and
services to the market.
BUSINESS AREAS
EDS conducts its sales, marketing and service activities on a global basis
through business units that focus both geographically and vertically along the
lines of specified industries. By combining the skills of an industry-focused
business unit with a geographic business unit, EDS is able to respond to a
client's requirements with people who are knowledgeable about a specific
industry and the client's business.
Additionally, certain services provided by EDS to all clients are
concentrated in specific service units. These service units provide electronic
transfer, microcomputer technology, computer assisted design, manufacturing and
engineering ("CAD," "CAM" and "CAE") and other services to EDS' clients in
coordination with the business units having primary responsibility for a
particular client.
The industry areas to which EDS provides IT services can be broadly
categorized as follows:
. MANUFACTURING. EDS assists numerous manufacturing companies in their
worldwide operations and in their implementation of global competitive
strategies, providing them with advanced capabilities in information
processing, information management and telecommunications. EDS offers
manufacturing clients expertise in electronic data interchange,
engineering information systems, integrated document processing,
inventory control, materials handling, process control, synchronous
manufacturing, artificial intelligence techniques and capabilities in
CAD/CAM/CAE on an integrated basis.
. GOVERNMENT. EDS performs IT services for national, state and local
governments in the U.S. and around the world. At the national level, EDS
targets its services at both civil and defense organizations with
complex, large-scale information needs. Within state and local
governments, key markets of EDS include human services, transportation,
public safety and administration and finance. EDS' core competency for
managing complexity and its proven ability to leverage process
performance improvement techniques and technologies from the private
sector into the public sector has allowed EDS to expand its government
presence worldwide.
. FINANCIAL SERVICES. EDS offers a full range of IT services to the global
financial services industry. The industry's expansion of products and
services has led to an unprecedented dependence on IT and its integration
with a financial institution's business processes and strategy. Through
strategic alliances and acquisitions, EDS has positioned itself to
support a wide range of industry segments, including commercial banks,
consumer finance companies, commercial insurance companies, investment
banks, regional and community banks, credit unions, brokerage and
securities firms, thrifts and mortgage lenders. EDS' services are
augmented by a full range of industry-specific products and services,
including data processing, automated teller machines ("ATMs"), debit
and credit card services, voice and teller automation, item and
remittance processing, crossborder funds transfer and currency exchange,
consumer asset management, customer service technology, remote/home
banking and business-process improvement.
. COMMUNICATIONS. EDS offers a full spectrum of IT services to the global
communications market in addition to industry specific technology
platforms tailored to the information needs of each industry segment.
These services include clearinghouse, roaming and billing services and
systems for the wireless industry, information management and billing
systems for the cable television industry, and operational support
systems and billing
35
<PAGE>
systems for the telecommunications industry. EDS also offers multimedia-
based services designed to satisfy the predicted demand of emerging full
service network operators within the interactive multimedia segment.
. HEALTH. EDS offers IT services to companies in the health care industry,
providing the management of information required in this highly regulated
industry in a rapidly-changing, record-intensive environment. EDS'
services go beyond traditional outsourcing and include solution sets to
improve specific business areas, including sales and marketing, customer
service and claims management.
. TRAVEL AND TRANSPORTATION. EDS' travel and transportation group offers IT
services to customers worldwide in the air transportation, freight,
computer reservation system, vehicle rental, travel agency, cruise line
and hospitality industries. EDS' IT services to these industries are
designed to meet customer requirements for reducing operating costs,
improving quality and increasing responsiveness to rapidly changing
market conditions.
. ENERGY. EDS provides IT services on a global basis to companies in the
petroleum, natural gas, chemical, pharmaceutical, mining and utility
industries. EDS' services in the energy industry are intended to improve
inventory control, reduce time to market, lower product cost, improve
rate case approval, improve capacity planning and increase efficiency in
regulatory and environmental compliance.
In certain of these markets, EDS provides services, such as ATM and travel
related services, directly to individual consumers.
ACQUISITIONS AND STRATEGIC ALLIANCES
From time to time EDS has made acquisitions and entered into strategic
alliances in an effort to obtain a competitive advantage or a new or expanded
presence in targeted geographic or service markets. For example, EDS acquired
the domestic and international management consulting business of A.T. Kearney in
August 1995. A.T. Kearney is one of the world's leading international management
consulting and executive search firms serving clients throughout the world.
EDS believes that a convergence of the computing and software,
communication, media and entertainment and electronic commerce industries is
occurring and will continue. As a result, acquisitions, joint ventures and
strategic alliances are expected to be increasingly important to EDS' ability to
compete effectively. See "Risk Factors Regarding EDS after the Split-Off-No
Assurance of Strategic Alliances and Other Business Opportunities," "Special
Factors-Purposes of the Split-Off" and "-Competition."
REVENUES
EDS receives fees for all aspects of its continuum of services. The fees
are generally paid pursuant to predetermined rates set forth in contracts.
Contracts with respect to non-General Motors business generally have terms of
one to 10 years.
EDS' total revenues grew from $786 million in its 1984 fiscal year (the
last full fiscal year before General Motors' acquisition of EDS) to $12.4
billion in 1995. Although revenues attributable to General Motors and its
affiliates have increased from 1985 to 1995, they have decreased as a percentage
of total revenues from approximately 70% in 1985 to approximately 31% in 1995 as
a result of the rapid revenue growth of EDS' outside (non-General Motors)
business. As a percentage of total revenues, revenues attributable to EDS'
outside business have increased from approximately 30% in 1985 to approximately
69% in 1995.
36
<PAGE>
The following table sets forth the percentage of revenues for each of the
years in the three-year period ended December 31, 1995 derived by EDS from the
identified principal business areas.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
BUSINESS AREA FOR THE YEARS ENDED DECEMBER 31,
------------- ---------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Manufacturing ......................... 47% 49% 51%
Financial Services..................... 14 14 15
Government............................. 12 10 10
Communications......................... 8 7 6
Health................................. 7 8 8
Travel and Transportation.............. 4 4 5
Energy................................. 3 4 4
Other.................................. 5 4 1
---- ---- ----
Total......................... 100% 100% 100%
==== ==== ====
</TABLE>
Other than General Motors, no one client accounted for more than 5% of EDS'
total revenues in 1995, 1994 or 1993. See "EDS Management's Discussion and
Analysis of Financial Condition and Results of Operations-Revenues."
SERVICES FOR GENERAL MOTORS
Approximately 31% of EDS' total revenues in 1995 was attributable to
General Motors and its affiliates. EDS provides substantially all of the
worldwide data processing and telecommunications activities for General Motors
and its affiliates (other than Hughes, with the exception of its subsidiary,
Delco), including integrated information systems for payroll, health and
benefits, office automation, communications and plant automation functions. The
loss of General Motors as an ongoing major customer of EDS would have a material
adverse effect on EDS. See "Risk Factors Regarding EDS after the Split-Off-
Dependence on Major Customer; Changes in Pricing and Terms." The IT services to
be provided by EDS under the IT Services Agreements will generally be similar to
those provided to General Motors under the Existing IT Services Agreements. See
"Relationship Between General Motors and EDS-Post-Split-Off Arrangements-IT
Services Agreements."
BACKLOG
EDS' backlog represents an estimate of the remaining future revenue from
existing signed contracts. Using the best available information, EDS determines
this estimate on an annual basis as of December 31 of each year. The estimate
includes contracts with non-GM customers which have a term of 12 months or
longer and is calculated for each of the next ten years plus a summary amount
for contracts with terms extending beyond such ten-year period. EDS historically
has not included estimates for future revenues from General Motors and its
subsidiaries because of the intercompany relationships with these entities as
well as the ongoing nature of the Existing IT Services Agreements. The EDS
backlog estimate includes revenues expected under current terms of executed
contracts, revenues from government contracts in which quantities are not
definite but estimable, and a risk-adjusted estimate of renewals and extensions
for those contracts which contain renewal or extension provisions.
Changes in the backlog calculation from year to year result from (i)
additional revenue from the signing of new contracts, (ii) reduction in revenue
from fulfilling contracts during the most recent year, (iii) reduction in
revenue from early termination of contracts, and (iv) adjustments to estimates
of previously included contracts. On an annual basis, EDS reviews each contract
included in the calculation and adjusts estimates for those contracts based on
the latest available information.
37
<PAGE>
At December 31, 1995 and 1994, EDS' firm backlog for services was
approximately $39.8 billion and $34.5 billion, respectively.
COMPETITION
EDS experiences competition in the IT industry and in the broader
information industry, which includes the computing, communications and
media/entertainment industries. Today, EDS' principal competitors in the IT
services industry include International Business Machines Corporation, Andersen
Consulting LLP, Computer Sciences Corporation, AT&T Corp. ("AT&T"), MCI
Communications Corporation/SHL Systemhouse Inc. ("MCI") and Cap Gemini Sogeti
S.A.
EDS has historically faced competition principally from other companies
providing information technology systems and services. As the markets for IT
services have grown and as the services demanded by customers have expanded and
increased in complexity, EDS' competitors have expanded from niche-oriented,
geographically-focused companies to include broader-based, global competitors.
EDS believes that a long-term trend of convergence is occurring in the
computing, communications and media/entertainment sectors of the information
industry. As this trend continues, companies historically involved in the
communications and media/entertainment sectors of the information industry, as
well as companies principally involved in other portions of the IT industry,
will increasingly seek to compete in the businesses in which EDS has
traditionally operated. For example, AT&T and MCI now offer services that
combine computing with communications. Similarly, EDS' strategy includes
continuing to leverage its expertise into other parts of the information
industry. The ability of EDS to remain competitive will depend in part upon its
continued ability to finance and acquire the resources necessary to offer broad-
based services and products on an efficient basis. See "Special Factors-
Purposes of the Split-Off."
In addition, technology in the IT industry is in a rapid and continuing
state of change as new technologies continue to be developed, introduced and
implemented. EDS management believes that its ability to continue to compete
effectively also will depend upon its ability to develop and market services and
products that meet changing user needs and respond to technological changes on a
timely and cost-effective basis.
EMPLOYEES
As of December 31, 1995, EDS employed approximately 96,000 persons located
in the United States and approximately 40 other countries. None of EDS' United
States or Canadian employees is currently employed under an agreement with a
collective bargaining unit, and EDS believes that its relations with employees
are good. To maintain its technical expertise and its responsiveness to evolving
client needs, EDS provides its employees with extensive continuing education and
training, as well as leadership and professional development programs.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
EDS holds a number of patents and pending patent applications in the United
States and in foreign countries. EDS' policy generally is to pursue patent
protection that it considers necessary or advisable for the patentable
inventions and technological improvements of its business. EDS also relies
significantly on trade secrets, copyrights, technical expertise and know-how,
continuing technological innovations and other means, such as confidentiality
agreements with employees, consultants and customers, to protect and enhance its
competitive position.
Some of the business areas in which EDS is engaged are highly patent-
intensive. Many of EDS' competitors have obtained, and may be expected to obtain
in the future, patents that cover or affect services or products directly or
38
<PAGE>
indirectly related to those offered by EDS. EDS routinely receives
communications from third parties asserting patent or other rights covering EDS'
services or products. There can be no assurance that EDS is aware of all patents
containing claims that may post a risk of infringement by its services or
products. In addition, patent applications in the United States are confidential
until a patent is issued and, accordingly, EDS cannot evaluate the extent to
which its services or products may infringe claims contained in pending patent
applications. In general, if it were determined that one or more of the services
or products offered by EDS infringe patents held by others, EDS would be
required to cease developing or marketing such services or products, to obtain
licenses to develop or market such services from the holders of the patents or
to redesign such services or products in such a way as to avoid infringing the
patent claims. The extent to which EDS may be required in the future to obtain
licenses with respect to patents held by others and the availability and cost of
any such licenses are currently unknown. There can be no assurance that EDS
would be able to obtain such licenses on commercially reasonable terms or, if it
were unable to obtain such licenses, that it would be able to redesign its
services or products to avoid infringement or that litigation would not ensue.
EDS management is not aware of any pending patent or proprietary right
disputes against EDS that would have a material adverse effect on EDS'
consolidated financial position or results of operations.
REGULATION
Various aspects of EDS' business are subject to federal and state
regulation noncompliance with which, depending upon the nature of the
noncompliance, may result in the suspension or revocation of any license or
registration at issue, the termination or loss of any contract at issue or the
imposition of contractual damages, civil fines or criminal penalties. EDS has
experienced no material difficulties in complying with the various laws and
regulations affecting its business.
REAL PROPERTY
As of December 31, 1995, EDS had approximately 442 locations operating in
41 states and 221 cities in the United States and approximately 257 additional
locations in 130 cities in approximately 40 countries outside the United States.
At such date, approximately 6.1 million square feet of space was owned by EDS
and an additional 13.8 million square feet of space was leased. EDS' worldwide
headquarters, which is owned by EDS and located on a 363 acre campus in Plano,
Texas, contains approximately 3.5 million square feet of office and data center
space. EDS' two information management centers, which monitor the EDSNET/(R)/
global telecommunications network, are located in Plano, Texas and Stockley
Park, United Kingdom. EDS' large scale information processing centers ("IPCs")
are located throughout the United States and in each of Canada, Brazil, France,
Germany, the Netherlands, Spain and the United Kingdom. In addition, EDS
operates distributed service centers ("DSCs") at customer owned sites or EDS
owned or leased facilities throughout the world. DSCs generally support a single
or small number of customers with more specialized requirements than those
supported at the large scale, multiple customer IPCs.
Leased properties consist primarily of office, warehouse, DSC and non-U.S.
IPC facilities. Lease terms are generally five years or, with respect to leases
related to a specific customer contract, have a term concurrent with that
contract. Upon expiration of its leases, EDS does not anticipate any difficulty
in obtaining renewals or alternative space. In addition to the leased property
referred to above, EDS occupies office space at customer locations throughout
the world. Such space is generally occupied pursuant to the terms of the
respective customer contracts.
EDS management believes that its facilities are suitable and adequate for
its business; however, EDS periodically reviews its space requirements to
consolidate and dispose of or sublet facilities which are no longer required in
connection with its business and to acquire new space to meet the needs of its
business.
39
<PAGE>
LEGAL PROCEEDINGS
From time to time EDS is involved in various litigation matters arising in
the ordinary course of its business. EDS management does not believe that
disposition of any current matter will have a material adverse effect on EDS'
consolidated financial position or results of operations.
EDS MANAGEMENT AND EXECUTIVE COMPENSATION
DIRECTORS AND EXECUTIVE OFFICERS
The EDS Board currently has five members, all of whom are executive
officers of EDS. Effective as of the date of consummation of the Split-Off,
three of the current members of the EDS Board will resign as directors. In
addition, effective as of the same date, the total number of directors will be
increased to 10 and eight additional persons will commence to serve as
directors. When such persons commence to serve as directors, a majority of the
members of the EDS Board will consist of independent directors.
Set forth below are the names, ages and positions with EDS upon
consummation of the Split-Off of the persons expected to be directors and
executive officers of EDS immediately after such consummation.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Lester M. Alberthal, Jr................... 52 Chairman of the Board and Chief Executive Officer
Gary J. Fernandes......................... 52 Vice Chairman and Director
Jeffrey M. Heller......................... 56 President, Chief Operating Officer and Director*
John R. Castle, Jr........................ 53 Senior Vice President
Paul J. Chiapparone....................... 56 Senior Vice President
Joseph M. Grant........................... 57 Senior Vice President and Chief Financial Officer
Dean Linderman............................ 52 Senior Vice President
G. Stuart Reeves.......................... 56 Senior Vice President
James A. Baker, III....................... 65 Director*
Richard B. Cheney......................... 55 Director*
Ray J. Groves............................. 60 Director*
Ray L. Hunt............................... 53 Director*
C. Robert Kidder.......................... 51 Director*
Judith Rodin.............................. 51 Director*
Enrique J. Sosa........................... 56 Director*
</TABLE>
__________
*Election as director to be effective immediately after consummation of the
Split-Off.
The EDS Board will be divided into three classes serving staggered
terms. Directors in each class will be elected to serve for three-year terms and
until their successors are elected and qualified. Each year, the directors of
one class will stand for election as their terms of office expire. Messrs.
Groves, Heller and Hunt will be designated as Class I directors, with their
terms of office expiring in 1997; Messrs. Cheney, Fernandes, Kidder and Sosa
will be designated as Class II directors, with their terms of office expiring in
1998; and Messrs. Alberthal and Baker and Dr. Rodin will be designated as Class
III directors, with their terms of office expiring in 1999.
The EDS Board has established three standing committees, an Audit
Committee, a Compensation and Benefits Committee and a Governance Committee. The
Audit Committee will initially consist of Messrs. Groves, Hunt and Sosa. The
Compensation and Benefits Committee will initially consist of Messrs. Groves and
Kidder, who are "disinterested
40
<PAGE>
persons" within the meaning of Rule 16b-3 under the Exchange Act. The
Governance Committee will initially consist of Messrs. Baker and Cheney and Dr.
Rodin, with the Chairman of the Board being an ex-officio, non-voting member.
The Audit Committee will recommend to the EDS Board the independent public
accountants to be selected to audit EDS' annual financial statements. The Audit
Committee will also review the planned scope of the annual external and internal
audits, the independent accountants' and internal auditors' reports to
management and management's responses thereto, possible violations of EDS'
business ethics and conflicts of interest policies and the effectiveness of EDS'
internal audit staff.
The Compensation and Benefits Committee will establish remuneration levels
for senior executives of EDS, review the performance of the Chief Executive
Officer, review significant employee benefit programs and establish and
administer executive compensation programs, including bonus plans, stock option
and other equity-based programs, deferred compensation plans and any other cash
or stock incentive programs.
The Governance Committee will recommend to the EDS Board the slate of
nominees to be elected to the EDS Board and to be selected for membership on the
various EDS Board committees and will recommend a successor to the Chief
Executive Officer when a vacancy occurs through retirement or otherwise.
The EDS Board may, from time to time, establish other committees to
facilitate the management of EDS or for other purposes it may deem appropriate.
Executive officers serve at the discretion of the EDS Board.
Set forth below is a description of the backgrounds of the persons expected
to be directors and executive officers of EDS upon the consummation of the
Split-Off.
Mr. Alberthal has been President of EDS since April 1986, Chief Executive
Officer since December 1986 and Chairman of the Board since June 1989. Mr.
Alberthal joined EDS in 1968. He became responsible for EDS' health care
division in 1974 and was named Senior Vice President with responsibility for
EDS' insurance group in 1979. Following the acquisition of EDS by General Motors
in 1984, Mr. Alberthal led all non-General Motors North American operating
groups. Mr. Alberthal is on the Board of Directors of Baker Hughes Incorporated.
Mr. Fernandes has been a Senior Vice President of EDS since October 1984
and a director of EDS since October 1981. Mr. Fernandes has been elected as the
Vice Chairman of EDS effective upon consummation of the Split-Off. Mr. Fernandes
has oversight responsibility for EDS' worldwide business development and
corporate development (including marketing and strategic planning) and is
Chairman of its A.T. Kearney management consulting services subsidiary. Mr.
Fernandes joined EDS in 1969 and has served in numerous management capacities in
the United States, Europe and Japan. Mr. Fernandes is a director of The
Southland Corporation, Westcott Communications, Inc., Amtech Corporation and
John Wiley & Sons, Inc.
Mr. Heller has been a Senior Vice President of EDS since October 1984 and a
director of Electronic Data Systems Corporation since April 1983. Mr. Heller has
been elected as the President and Chief Operating Officer and a director of EDS
effective upon consummation of the Split-Off. Mr. Heller has oversight
responsibility for EDS' Asia/Pacific operations, global communications business
units and technical services groups. Mr. Heller joined EDS in 1968 and has
served in numerous technical management positions. Mr. Heller is a director of
Westcott Communications, Inc.
Mr. Castle has been a Senior Vice President of EDS since October 1988. He
has oversight responsibility for EDS' government affairs, communications and
public relations groups and EDS' legal department. Prior to joining EDS in 1988,
Mr. Castle was a partner in the Dallas law firm of Hughes & Luce.
41
<PAGE>
Mr. Chiapparone has been a Senior Vice President of EDS since April 1986.
He has oversight responsibility for EDS' business units serving General Motors
and other customers in the manufacturing industry. Mr. Chiapparone joined EDS in
1966 and has served in numerous management capacities. Mr. Chiapparone is a
director of St. Jude Medical, Inc.
Mr. Grant has been Chief Financial Officer of EDS since December 1990 and a
Senior Vice President since February 1992. Mr. Grant has oversight
responsibility for EDS' administration and corporate finance groups. Prior to
joining EDS in December 1990, Mr. Grant served as executive vice president and
chief systems officer for American General Corporation from 1989 to 1990 and as
chairman of the board and chief executive officer of Texas American Bancshares
Inc. from 1986 to 1989. Mr. Grant is a director of Heritage Media Corporation,
American Eagle Group, Inc. and NorAm Energy Corp.
Mr. Linderman has been a Senior Vice President of EDS since April 1986. He
has oversight for EDS' business units serving customers in the financial,
energy, travel and transportation, health care and insurance industries, as well
as EDS' operations in Canada, Mexico and Central and South America and its
employee development units. Mr. Linderman joined EDS in 1970 and has served in
numerous management positions.
Mr. Reeves has been a Senior Vice President since February 1987. Mr. Reeves
has oversight responsibilities for EDS' European operations. Mr. Reeves joined
EDS in 1967, and has held numerous technical and management positions.
Mr. Baker has been elected as a director of EDS effective upon consummation
of the Split-Off. Mr. Baker has been a Senior Partner of Baker & Botts, L.L.P.
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 United States Secretary of State from January 1989 to August 1992, as United
States Secretary of the Treasury from 1985 to 1988, and as White House Chief of
Staff from 1981 to 1985.
Mr. Cheney has been elected as a director of EDS effective upon
consummation of the Split-Off. Mr. Cheney has been the President and Chief
Executive Officer of Halliburton Company since October 1995 and its Chairman of
the Board since January 1996. Mr. Cheney was a Senior Fellow at the American
Enterprise Institute, a policy think tank, from January 1993 to October 1995.
Mr. Cheney served as United States Secretary of Defense from January 1989 to
January 1993. Mr. Cheney is a director of Halliburton Company, Union Pacific
Corporation and The Procter & Gamble Company.
Mr. Groves has been elected as a director of EDS effective upon
consummation of the Split-Off. Mr. Groves retired as Chairman and Chief
Executive Officer of Ernst & Young L.L.P. in September 1994, which position he
had held since October 1977, and has served as part-time Chairman of Legg Mason
Merchant Banking, Inc. since March 1995. Mr. Groves is a director of
Consolidated Natural Gas Company, Marsh & McLennan Companies, Inc., RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc.
Mr. Hunt has been elected as a director of EDS effective upon consummation
of the Split-Off. Mr. Hunt has been the Chairman of the Board, President and
Chief Executive Officer of Hunt Consolidated Inc. and the Chairman of the Board
and Chief Executive Officer of Hunt Oil Company for more than five years. Mr.
Hunt is a director of Dresser Industries, Inc., Pepsico, Inc., and Ergo Science
Corporation.
Mr. Kidder has been elected as a director of EDS effective upon
consummation of the Split-Off. Mr. Kidder has been 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. Mr. Kidder is a director of Borden, Inc., Duracell International,
Inc., and Dean Witter, Discover & Co.
42
<PAGE>
Dr. Rodin has been elected as a director of EDS effective upon consummation
of the Split-Off. Dr. Rodin has been 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. Dr. Rodin is a director of
AETNA Life and Casualty Company and Air Products and Chemicals, Inc.
Mr. Sosa has been elected as a director of EDS effective upon consummation
of the Split-Off. Since October 1995, Mr. Sosa has been an Executive Vice
President of Amoco Corporation, heading its chemicals sector. For greater than
five years prior to that time, Mr. Sosa was with The Dow Chemical Company, most
recently serving as a Senior Vice President and a director, as well as President
of Dow North America.
DIRECTOR COMPENSATION
Each non-employee director of EDS will receive annual cash compensation in
the amount of $35,000, and will also receive annual cash compensation in the
amount of $5,000 for serving as a committee chairman and $2,500 for attendance
at each meeting of the EDS Board and each committee thereof. Any director who is
also an employee of EDS or its affiliates will not be entitled to any
compensation for serving as a director of EDS.
Amended EDS Incentive Plan
In addition, each nonemployee director will receive, on an annual basis
pursuant to the 1996 Long-Term Incentive Plan of EDS (the "Amended EDS Incentive
Plan"), (i) options to purchase 1,500 shares of EDS Common Stock at an exercise
price equal to the fair market value of such shares at the date of grant and
(ii) 500 restricted shares of EDS Common Stock, which options and restricted
stock will vest ratably over a three-year period. 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 receive in the next year, (i)
non-qualified stock options to purchase EDS Common Stock and/or (ii) a
restricted stock award covering shares of EDS Common Stock, in each case in
accordance with the terms of the Amended EDS Incentive Plan.
EDS Nonemployee Director Deferred Compensation Plan
The EDS Deferred Compensation Plan for Nonemployee Directors (the "EDS
Nonemployee Director Deferred Compensation Plan"), which has been adopted by
the EDS Board and approved and ratified by General Motors, permits nonemployee
directors to elect annually to defer all or a portion of their director's fees
and to have such deferred fees treated as if they had been, at the election of
the director, invested either in an interest bearing account or in units
denominated in EDS Common Stock. The EDS Nonemployee Director Deferred
Compensation Plan will be administered by a committee consisting of at least two
members of the EDS Board. Such committee shall initially be the Compensation and
Benefits Committee.
Fees deferred and treated as invested in an interest bearing account earn
interest from the effective date of the deferral until paid 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 pursuant to Section 1274(d) of
the Code, compounded annually. Fees deferred and treated as invested in EDS
Common Stock shall be deemed to have purchased whole and fractional shares of
such stock on the effective date of the deferral at the then fair market value
of EDS Common Stock. At such time as dividends are paid on EDS Common Stock, the
interest bearing account established for a nonemployee director who has elected
to invest his or her fees in units denominated in EDS Common Stock will be
credited with an amount equal
43
<PAGE>
to the deemed dividends thereon. Interest accrued on amounts accumulated in a
nonemployee director's interest bearing account will be credited to such account
on an annual basis.
All amounts accumulated in the account of a nonemployee director pursuant
to the EDS Nonemployee Director Deferred Compensation Plan, including any
interest or deemed dividends, will be paid to such nonemployee director
commencing upon (i) the date of termination of his or her status as a director
of EDS or (ii) the expiration of five years after such date. Any payments made
pursuant to the plan shall be in the form of cash, and a nonemployee director
may elect to receive the cash payments to which he or she is entitled (a) in a
lump sum, (b) in three equal consecutive annual installments or (c) in five
equal consecutive annual installments.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information on
compensation earned in 1995 by Mr. Alberthal and the four other most highly
compensated executive officers of EDS.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
RESTRICTED ALL
NAME AND OTHER ANNUAL STOCK OTHER
PRINCIPAL POSITION DURING 1995 YEAR SALARY BONUS(a) COMPENSATION AWARDS(b) COMPENSATION(c)
- -------------------------------- ---- -------- ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Lester M. Alberthal, Jr.,
Chairman of the Board,
President and Chief
Executive Officer............ 1995 $675,000 $1,000,000 $10,902 -- $33,126
Jeffrey M. Heller,
Senior Vice President........ 1995 385,000 550,000 11,498 - 48,588
Gary J. Fernandes,
Senior Vice President........ 1995 330,000 575,000 2,113 - 9,026
John R. Castle, Jr.,
Senior Vice President........ 1995 370,000 450,000 1,592 - 8,048
Dean Linderman,
Senior Vice President........ 1995 335,000 450,000 2,766 - 10,591
</TABLE>
________________
(a) Represents bonuses earned by the named executives with respect to the year
ended December 31, 1995. 50%, 25% and 25% of the amount reported with
respect to each named executive will be paid during 1996, 1997 and 1998,
respectively, subject to certain conditions regarding the continuation of
the named executive's employment.
(b) As of December 31, 1995, the number and fair market value of the aggregate
units representing shares of unvested restricted Class E Common Stock held
by the named executive officers is: Mr. Alberthal, 480,000 shares,
$24,960,000; Mr. Heller, 340,000 shares, $17,680,000; Mr. Fernandes, 260,000
shares, $13,520,000; Mr. Castle, 155,000 shares, $8,060,000; and Mr.
Linderman, 290,000 shares, $15,080,000. All such restricted stock units have
been granted pursuant to the existing 1984 EDS Stock Incentive Plan (the
"Existing EDS Incentive Plan") and are scheduled to vest (subject to earlier
vesting based on the achievement of performance goals by EDS) during the
period from 1996 through the earlier of normal retirement age or 2009.
Certificates for the shares underlying such
44
<PAGE>
units are issuable upon vesting. Dividend equivalents are paid to the named
executive officers with respect to such restricted stock units in the
amounts and at the time of the payment of dividends on the Class E Common
Stock.
(c) Consists of (i) payments by EDS of premiums under certain life insurance
policies the proceeds of which would be applied by EDS for the benefit of
the named executives' estates and (ii) the imputed value of outstanding non-
interest bearing loans to the named executives during 1995 for the payment
of withholding taxes required as a result of the vesting of units
representing restricted Class E Common Stock under the Existing EDS
Incentive Plan. See "-Existing EDS Incentive Plan-Advancement of
Withholding Tax Payments."
AMENDED EDS INCENTIVE PLAN
The description set forth below represents a summary of the principal terms
and conditions of the Amended EDS Incentive Plan in the form approved by the GM
Board and its Executive Compensation Committee and does not purport to be
complete. Such description is qualified in its entirety by reference to the
Amended EDS Incentive Plan, a copy of which is filed as an exhibit to this
Current Report.
General
The Amended EDS Incentive Plan is intended to amend and restate the
Existing EDS Incentive Plan. On March 31, 1996, the GM Board and its Executive
Compensation Committee approved the Amended EDS Incentive Plan. The Amended EDS
Incentive Plan has also been ratified and approved by the EDS Board. If the
Amended EDS Incentive Plan is approved by the requisite votes of the common
stockholders of General Motors, it will become effective in its entirety upon
consummation of the Split-Off. If the Plan is not approved by the requisite
stockholder votes, it will nonetheless become effective upon consummation of the
Split-Off insofar as it relates to Nonemployee Directors (as defined below) but
will not become effective insofar as it relates to Employees (as defined below).
Furthermore, if the Amended EDS Incentive Plan is not approved by the common
stockholders of General Motors, the Existing EDS Incentive Plan will remain in
effect (with certain modifications intended, among other things, to reflect the
assumption of such plan by EDS upon the consummation of the Split-Off) and an
aggregate of 60,000,000 shares of EDS Common Stock will be available for future
awards to Employees thereunder. A description of the terms and provisions of the
Existing EDS Incentive Plan is provided below under "-Existing EDS Incentive
Plan."
The objectives of the Amended EDS Incentive Plan are to attract and retain
key employees of EDS and its subsidiaries, to attract and retain qualified
directors of EDS, 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 EDS and its subsidiaries. These objectives
are to be accomplished by making awards ("Awards") under the Amended EDS
Incentive Plan and thereby providing participants with a proprietary interest in
the growth and performance of EDS and its subsidiaries.
Key employees eligible for Awards under the Amended EDS Incentive Plan (the
"Employees") are those that hold positions of responsibility and whose
performance can have a significant effect on the success of EDS and its
subsidiaries. Directors eligible for automatic or elective Awards under the
Amended EDS Incentive Plan are those who are not employees of EDS or any of its
subsidiaries (the "Nonemployee Directors").
Awards to Employees under the Amended EDS Incentive Plan ("Employee
Awards") may be made in the form of grants of stock options ("Options"), stock
appreciation rights ("SARs"), restricted or non-restricted stock or units
denominated in stock ("Stock Awards"), cash awards ("Cash Awards"), performance
awards ("Performance Awards") or any combination of the foregoing. Awards to
Nonemployee Directors under the Amended EDS Incentive Plan ("Director Awards")
will be in the form of grants of Options and restricted Stock Awards.
45
<PAGE>
The Amended EDS Incentive Plan provides for Awards to be made in respect of
a maximum of 60,000,000 shares of EDS Common Stock (in addition to the shares
that are the subject of awards outstanding as of the date upon which the Amended
EDS Incentive Plan becomes effective), of which 400,000 shares will be available
for Director Awards and the remainder will be available for Employee Awards.
Shares of EDS Common Stock which are the subject of Awards that are forfeited or
terminated, expire unexercised, are settled in cash in lieu of EDS 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 EDS Common Stock will
again immediately become available for Awards under the Amended EDS Incentive
Plan; provided, however, that in the case of shares of EDS Common Stock that are
the subject of Awards made prior to the date upon which the Amended EDS
Incentive Plan becomes effective, such shares shall in no event become available
for Awards thereunder at any time after such date.
The Amended EDS Incentive Plan, as it applies to Employee Awards but not
with respect to Nonemployee Directors, will be administered by the Compensation
and Benefits Committee of the EDS Board, or such other committee as may in the
future be appointed by the EDS Board (the "Committee"). To the extent required
pursuant to Rule 16b-3 under the Exchange Act in order for the grant of Employee
Awards to be exempt under Section 16, the Committee will at all times consist of
at least two members of the EDS Board of Directors who meet the requirements of
the definition of "disinterested person" set forth in Rule 16b-3(c)(2)(i).
Insofar as the Amended EDS Incentive Plan relates to Employee Awards, the
Committee will have the exclusive power to administer the Amended EDS Incentive
Plan and to take all actions which are specifically contemplated thereby or are
necessary or appropriate in connection with the administration thereof. Insofar
as the Amended EDS Incentive Plan relates to Employee Awards, the Committee will
also have the exclusive power to interpret the Amended EDS Incentive Plan and to
adopt such rules, regulations and guidelines for carrying out the purposes of
the Amended EDS Incentive Plan as it may deem necessary or proper in keeping
with the objectives thereof. The Committee may, in its discretion, provide for
the extension of the exercisability of an Employee Award, accelerate the vesting
or exercisability of an Employee Award, eliminate or make less restrictive any
restrictions contained in an Employee Award, waive any restriction or other
provision of the Amended EDS Incentive Plan or in any Employee Award or
otherwise amend or modify an Employee Award in any manner that is either (i) not
adverse to the Employee holding the Employee Award or (ii) consented to by such
Employee.
The Committee may delegate to the Chief Executive Officer and to other
senior officers of EDS its duties under the Amended EDS Incentive 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 Exchange Act.
Employee Awards
The Committee will determine the type or types of Employee Awards made
under the Amended EDS Incentive Plan and will designate the Employees who are to
be recipients of such Awards. Each Employee Award may be embodied in an
agreement, which will contain such terms, conditions and limitations as are
determined by the Committee. Employee Awards 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
the Amended EDS Incentive Plan or any other employee plan of EDS or any of its
subsidiaries, including any acquired entity; provided, however, that no Option
may be issued in exchange for the cancellation of an Option with a lower
exercise price. All or part of an Employee Award may be subject to conditions
established by the Committee, which may include continuous service with EDS and
its subsidiaries, achievement of specific business objectives, increases in
specified indices, attainment of specified growth rates and other comparable
measurements of performance.
The types of Employee Awards that may be made under the Amended EDS
Incentive Plan are as follows:
46
<PAGE>
Options. Options are rights to purchase a specified number of shares of EDS
Common Stock at a specified price. An option granted pursuant to the Amended EDS
Incentive Plan may consist of either an incentive stock option ("ISO") that
complies with the requirements of Section 422 of the Code or a non-qualified
stock option ("NQSO") that does not comply with such requirements. ISOs must
have an exercise price per share that is not less than the fair market value of
the EDS Common Stock on the date of grant. NQSOs must have an exercise price per
share that is not less than, but may exceed, the fair market value of the EDS
Common Stock on the date of grant. In either case, the exercise price must be
paid in full at the time an Option is exercised in cash or, if the Employee so
elects, by means of tendering EDS Common Stock or surrendering another Award.
The Committee will determine acceptable methods for tendering EDS Common Stock
or other Awards by an Employee to exercise an Option; provided, however, that
any EDS Common Stock or other Employee Award may be so tendered only if it has
been held by the Employee for at least six months. Subject to the foregoing, the
terms, conditions and limitations applicable to any Options, including the term
of any Options and the date or dates upon which they become exercisable, will be
determined by the Committee.
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. An SAR may be granted under the Amended
EDS Incentive Plan to the holder of an Option with respect to all or a portion
of the shares of EDS Common Stock subject to such Option or may be granted
separately. The terms, conditions and limitations applicable to any SARs,
including the term of any SARs and the date or dates upon which they become
exercisable, will be determined by the Committee.
Stock Awards. Stock Awards consist of restricted and non-restricted grants
of EDS Common Stock or units denominated in EDS Common Stock. The terms,
conditions and limitations applicable to any Stock Awards will be determined by
the Committee. Without limiting the foregoing, rights to dividends or dividend
equivalents may be extended to and made part of any Stock Award in the
discretion of the Committee.
Cash Awards. Cash Awards consist of grants denominated in cash. The terms,
conditions and limitations applicable to any Cash Awards will be determined by
the Committee.
Performance Awards. Performance Awards consist of grants made to an
Employee 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 prior to the earlier of (i) 90 days after the
commencement of the period of service to which the performance goals relate and
(ii) the elapse of 25% of the period of service, and in any event while the
outcome is substantially uncertain. 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, and may include any of the following: increased revenue,
net income, stock price, market share, earnings per share, return on equity,
return on assets or decrease in costs. Subject to the foregoing, the terms,
conditions and limitations applicable to any Performance Awards will be
determined by the Committee.
EDS management intends to recommend to the Committee that Employee Awards
granted under the Amended EDS Incentive Plan be distributed among a significant
number of Employees and that the Committee balance the use of Options and Stock
Awards and include the use of a significant number of Options.
The Amended EDS Incentive Plan contains certain limitations with respect to
Awards that may be made thereunder. In particular, the Amended EDS Incentive
Plan provides that the following limitations shall apply to any Employee Awards
made thereunder:
(i) no Participant may be granted, during any one-year period,
Employee Awards consisting of Options or SARs that are exercisable for more
than 1,500,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year period,
Employee Awards consisting of shares of Common Stock or units denominated
in such shares (other than any Employee Awards consisting of Options or
47
<PAGE>
SARs) covering or relating to more than 300,000 shares of Common Stock (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 granted Employee Awards consisting of cash
or in any other form permitted under the Amended EDS Incentive 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 one-year period having a value determined on the date of grant in
excess of $5,000,000.
Under the Existing EDS Incentive Plan, there are currently outstanding
restricted Stock Awards covering an aggregate of approximately 17,100,000 shares
of Class E Common Stock. Upon the effectiveness of the Amended EDS Incentive
Plan insofar as it relates to Employees, such outstanding restricted Stock
Awards will be adjusted to reflect the Split-Off and prevent any dilution or
enlargement of the rights of the holders thereof. By virtue of this adjustment
and without necessity of any action on the part of the participants, each
outstanding restricted Stock Award will be modified so that, effective as of the
date of consummation of the Split-Off, the securities to which each such Stock
Award relates will be a number of shares of EDS Common Stock equal to the number
of shares of Class E Common Stock subject to such Stock Award immediately prior
to the consummation thereof. Such adjustment will not have any effect on the
vesting of, or restrictions on resale applicable to, any outstanding restricted
Stock Award. Furthermore, the holder of each restricted Stock Award shall
continue to be subject to any non-competition restrictions provided for in the
Existing EDS Incentive Plan which were applicable thereto prior to the
effectiveness of the Amended EDS Incentive Plan.
Director Awards
Under the Amended EDS Incentive Plan, each Nonemployee Director will
receive the Awards described below, which will be granted either automatically
or at the option of the Nonemployee Director in lieu of director's fees.
Nonemployee Director Options. On the date of the consummation of the
Split-Off, each Nonemployee Director will automatically receive a grant of NQSOs
that provide for the purchase of 1,500 shares of EDS Common Stock. In addition,
on the first business day of the month following the date on which each annual
meeting of the stockholders of EDS is held (each, an "Annual Director Award
Date"), each Nonemployee Director will automatically receive a grant of NQSOs
that provide for the purchase of 1,500 shares of EDS Common Stock. A Nonemployee
Director who is elected after the date of the consummation of the Split-Off
otherwise than by election at an annual meeting of stockholders of the Company
will automatically receive, on the date of his or her election, a grant of NQSOs
that provides for the purchase of a number of shares of EDS Common Stock equal
to the product of (i) 1,500 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 and the denominator of which is 365. The
term of the NQSOs granted to Nonemployee Directors will be for a period of ten
years from the date of grant. The exercise price of such NQSOs will be equal to
the fair market value of the EDS Common Stock on the date of grant. Such
exercise price must be paid in full in cash at the time a NQSO is exercised. All
NQSOs granted to Nonemployee Directors under the Amended EDS Incentive Plan will
become exercisable in increments of one-third of the total number of shares of
EDS Common Stock that are subject thereto on the first, second and third
anniversaries of the date of grant. All unvested NQSOs granted to a Nonemployee
Director will be forfeited if the Nonemployee Director resigns from the EDS
Board without the consent of a majority of the other directors.
In addition 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
receive in the next year (including both annual retainer and meeting fees), a
number of NQSOs 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 NQSOs and the
denominator of which is equal to the fair market value of EDS Common Stock on
the date of the election. The terms of the NQSOs
48
<PAGE>
received by a Nonemployee Director pursuant to such election will be the same as
those of the NQSOs automatically granted as described above.
Nonemployee Director Restricted Stock Grants. On the date of the
consummation of the Split-Off, each Nonemployee Director will automatically
receive a restricted Stock Award covering 500 shares of EDS Common Stock. In
addition, on each Annual Director Award Date, each Nonemployee Director will
automatically receive a restricted Stock Award covering 500 shares of EDS Common
Stock. A Nonemployee Director who is elected after the date of the consummation
of the Split-Off otherwise than by election at an annual meeting of stockholders
of the Company will automatically receive, on the date of his or her election, a
restricted Stock Award covering a number of shares of EDS Common Stock 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 and the denominator of which is 365. The shares of
EDS Common Stock that are the subject of any such restricted Stock Award (i)
will vest ratably in increments equal to one-third of the total number of shares
of EDS Common Stock subject thereto on the first, second and third anniversaries
of the date of grant and (ii) will vest fully upon the failure of the
Nonemployee Director to be reelected as a director of EDS, the death of the
Nonemployee Director or the resignation of the Nonemployee Director by reason of
disability or at the request of a majority of the other directors of EDS. All
unvested shares of EDS Common Stock that are the subject of such restricted
Stock Award will be forfeited if the Nonemployee Director resigns from the EDS
Board without the consent of a majority of the other directors.
In addition, 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
receive in the next year (including both annual retainer and meeting fees), a
restricted Stock Award covering a number of shares of EDS Common Stock 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 restricted Stock Awards and the denominator of which is
equal to the fair market value of EDS Common Stock on the date of the election.
The terms of the restricted Stock Awards received by a Nonemployee Director
pursuant to such election will be the same as those of the restricted Stock
Awards automatically granted as described above.
Other Provisions
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, by any Employee. At the discretion of the Committee, an Employee may be
offered an election to substitute an Award for another Award or Awards of the
same or different type.
EDS will 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
EDS Common Stock under the Amended EDS Incentive Plan, an appropriate amount of
cash or number of shares of EDS Common Stock, or combination thereof, for the
payment of taxes. The Committee may also permit withholding to be satisfied by
the transfer to EDS of shares of EDS Common Stock previously owned by the holder
of the Employee Award for which withholding is required. The Committee may
provide for loans, on either a short term or demand basis, from EDS to an
Employee or Nonemployee Director to permit the payment of taxes required by law.
The EDS Board may amend, modify, suspend or terminate the Amended EDS
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other purpose permitted by law, except that (i) no amendment that
would impair the rights of any Employee or Nonemployee Director with respect to
any Award may be made without the consent of such Employee or Nonemployee
Director and (ii) no amendment requiring stockholder approval in accordance with
Rule 16b-3 under the Exchange Act will be effective until such approval has been
obtained.
No Award or any other benefit under the Amended EDS Incentive Plan
constituting a "derivative security" within the meaning of Rule 16a-1(c) under
the Exchange Act will be assignable or otherwise transferable except by will or
the
49
<PAGE>
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.
In the event of any subdivision or consolidation of outstanding shares of
EDS Common Stock, declaration of a stock dividend payable in shares of EDS
Common Stock or other stock split, the Amended EDS Incentive Plan provides for
the Committee to make appropriate adjustments to (i) the number of shares of EDS
Common Stock reserved under the Amended EDS Incentive Plan, (ii) the number of
shares of EDS Common Stock covered by outstanding Awards in the form of EDS
Common Stock or units denominated in EDS Common Stock, (iii) the exercise or
other price in respect of such Awards, (iv) the appropriate fair market value
and other price determinations for Awards in order to reflect such transactions,
(v) the number of shares of Common Stock covered by Options automatically
granted to Nonemployee Directors, (vi) the number of shares covered by
restricted Stock Awards automatically granted to Nonemployee Directors and (vii)
the Stock Based Awards Limitations. Furthermore, in the event of any other
recapitalization or capital reorganization of EDS, any consolidation or merger
of EDS with another corporation or entity, the adoption by EDS of any plan of
exchange affecting the EDS Common Stock or any distribution to holders of EDS
Common Stock of securities or property (other than normal cash dividends or
stock dividends), the EDS Board will make appropriate adjustments to the amounts
or other items referred to in clauses (ii), (iii), (iv), (v), (vi) and (vii)
above to give effect to such transactions, but only to the extent necessary to
maintain the proportionate interest of the holders of the Awards and to
preserve, without exceeding, the value thereof.
Tax Implications of Awards
Set forth below is a summary of the federal income tax consequences to
Employees, Nonemployee Directors and EDS as a result of the grant and exercise
of Awards under the Amended EDS Incentive Plan. This summary is based on
statutory provisions, Treasury regulations thereunder, judicial decisions, and
IRS rulings in effect on the date hereof. The foregoing discussion does not
address the consequences of the Amended EDS Incentive Plan under U.S. state or
local or non U.S. tax laws.
Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Employees and Nonemployee Directors will not realize taxable income
upon the grant of a NQSO or an SAR. Upon the exercise of an SAR or NQSO, the
Employee or Nonemployee Director will recognize ordinary income (subject, in the
case of Employees, to withholding by EDS) in an amount equal to the excess of
(i) the amount of cash and the fair market value of the EDS Common Stock
received, over (ii) the exercise price (if any) paid therefor. The Employee or
Nonemployee Director will generally have a tax basis in any shares of EDS Common
Stock received pursuant to the exercise of an SAR, or pursuant to the cash
exercise of an NQSO, that equals the fair market value of such shares on the
date of exercise. Subject to the discussion under "-Certain Tax Code Limitations
on Deductibility" below, EDS (or a subsidiary) will generally be entitled to a
deduction for U.S. federal income tax purposes that corresponds as to timing and
amount with the compensation income recognized by the Employee or Nonemployee
Director under the foregoing rules.
Employees will not have taxable income upon the grant of an ISO. Upon the
exercise of an ISO, the Employee will not have taxable income, although the
excess of the fair market value of the shares of EDS Common Stock received upon
exercise of the ISO ("ISO Stock") over the exercise price will increase the
alternative minimum taxable income of the Employee, which may cause such
Employee to incur alternative minimum tax. The payment of any alternative
minimum tax attributable to the exercise of an ISO would be allowed as a credit
against the Employee's regular tax liability in a later year to the extent the
Employee's regular tax liability is in excess of the alternative minimum tax for
that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee will generally
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for the
ISO Stock. However, if an Employee disposes of ISO Stock that has not been held
for the requisite
50
<PAGE>
holding period (a "disqualifying disposition"), the Employee will recognize
ordinary income in the year of the disqualifying disposition to the extent that
the fair market value of the ISO Stock at the time of exercise of the ISO (or,
if less, the amount realized in the case of an arm's-length disqualifying
disposition to an unrelated party) exceeds the exercise price paid by the
Employee for such ISO Stock. The Employee would also recognize capital gain to
the extent the amount realized in the disqualifying disposition exceeds the fair
market value of the ISO stock on the exercise date. If the exercise price paid
for the ISO Stock exceeds the amount realized in the disqualifying disposition
(in the case of an arm's-length disposition to an unrelated party), such excess
would generally constitute a capital loss.
EDS and its subsidiaries will generally not be entitled to any federal
income tax deduction upon the grant or exercise of an ISO, unless the Employee
makes a disqualifying disposition of the ISO Stock. If an Employee makes such a
disqualifying disposition, EDS (or a subsidiary) will then, subject to the
discussion below under "-Certain Tax Code Limitations on Deductibility," be
entitled to a tax deduction that corresponds as to timing and amount with the
compensation income recognized by the Employee under the rules described in the
preceding paragraph.
Under current rulings, if an Employee or Nonemployee Director transfers
previously held shares of EDS Common Stock (other than ISO Stock that has not
been held for the requisite holding period) in satisfaction of part or all of
the exercise price of an NQSO or ISO, the Employee or Nonemployee Director will
recognize income with respect to the EDS Common Stock received in the manner
described above, but no additional gain will be recognized as a result of the
transfer of such previously held shares in satisfaction of the NQSO or ISO
exercise price. Moreover, that number of shares of EDS Common Stock received
upon exercise which equals the number of shares of previously held EDS Common
Stock surrendered therefor in satisfaction of the NQSO or ISO exercise price
will have a tax basis that equals, and a holding period that includes, the tax
basis and holding period of the previously held shares of EDS Common Stock
surrendered in satisfaction of the NQSO or ISO exercise price. Any additional
shares of EDS Common Stock received upon exercise will have a tax basis that
equals the amount of cash (if any) paid by the Employee or Nonemployee Director.
Cash Awards; Stock Unit Awards; Stock Awards. An Employee will recognize
ordinary compensation income upon receipt of cash pursuant to a Cash Award or
Performance Award or, if earlier, at the time such cash is otherwise made
available for the Employee to draw upon it. An Employee will not have taxable
income upon the grant of a Stock Award in the form of units denominated in EDS
Common Stock ("Stock Unit Award"), but rather will generally recognize ordinary
compensation income at the time the Employee receives EDS Common Stock or cash
in satisfaction of such Stock Unit Award in an amount equal to the fair market
value of the EDS Common Stock or cash received. In general, an Employee or
Nonemployee Director will recognize ordinary compensation income as a result of
the receipt of EDS Common Stock pursuant to a Stock Award or Performance Award
in an amount equal to the fair market value of the EDS Common Stock when such
stock is received; provided, however, that if the stock is not transferable and
is subject to a substantial risk of forfeiture when received, the Employee or
Nonemployee Director will recognize ordinary compensation income in an amount
equal to the fair market value of the EDS Common Stock when it first becomes
transferable or is no longer subject to a substantial risk of forfeiture, unless
the Employee or Nonemployee Director makes an election to be taxed on the fair
market value of the EDS Common Stock when such stock is received.
An Employee will be subject to withholding for federal, and generally for
state and local, income taxes at the time the Employee recognizes income under
the rules described above with respect to EDS Common Stock or cash received
pursuant to a Cash Award, Performance Award, Stock Award or Stock Unit Award.
Dividends that are received by an Employee or Nonemployee Director prior to the
time that the EDS Common Stock is taxed to the Employee or Nonemployee Director
under the rules described in the preceding paragraph are taxed as additional
compensation, not as dividend income. The tax basis of an Employee or
Nonemployee Director in the EDS Common Stock received will equal the amount
recognized by the Employee as compensation income under the rules described in
the preceding paragraph, and the Employee's holding period in such shares will
commence on the date income is so recognized.
Certain Tax Code Limitations on Deductibility. In order for the amounts
described above to be deductible by EDS (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
51
<PAGE>
must be ordinary and necessary business expenses. The ability of EDS (or a
subsidiary) to obtain a deduction for future payments under the Amended EDS
Incentive Plan could also be limited by Section 280G of the Code, which prevents
the deductibility of certain excess parachute payments made in connection with a
change in control of an employer. The ability of EDS (or a subsidiary) to obtain
a deduction for amounts paid under the Amended EDS Incentive Plan could also be
affected by Section 162(m) of the Code, which limits the deductibility, for U.S.
federal income tax purposes, of compensation paid to certain employees of EDS to
$1 million with respect to any such employee during any taxable year of EDS.
However, certain exceptions apply to this limitation in the case of performance-
based compensation. It is intended that the approval of the Amended EDS
Incentive Plan by the common stockholders of General Motors and the description
of the Amended EDS Incentive Plan contained herein will satisfy certain of the
requirements for the performance-based exception, and after the consummation of
the Split-Off, EDS will be able to comply with the requirements of the Code and
the Treasury Regulation Section 1.162-27 with respect to the grant and payment
of certain performance-based awards (including certain options and SARs) under
the Amended EDS Incentive Plan so as to be eligible for the performance-based
exception. However, it may not be possible in all cases to satisfy all of the
requirements for the exception and EDS may, in its sole discretion, determine
that in one or more cases it is in its best interests to not satisfy all of the
requirements for the performance-based exception.
EXISTING EDS INCENTIVE PLAN
The description set forth below represents a summary of the principal terms
and conditions of the Existing EDS Incentive Plan. The following description,
which gives effect to the EDS Assumption Amendments (as hereinafter defined),
does not purport to be complete and is qualified in its entirety by reference to
the Existing EDS Incentive Plan, a copy of which is filed as an exhibit to this
Current Report.
General
If the Amended EDS Incentive Plan is not approved by the stockholders of
General Motors, the Existing EDS Incentive Plan will continue in effect after
the Split-Off and will not be amended and restated as described above under "-
Amended EDS Incentive Plan." However, the committee charged with administering
the Existing EDS Incentive Plan will adopt certain amendments to the Existing
EDS Incentive Plan (the "EDS Assumption Amendments") which are intended to
reflect the assumption of the Existing EDS Incentive Plan by EDS upon
consummation of the Split-Off. Among other things, the EDS Assumption Amendments
provide that, effective upon the consummation of the Split-Off, (i) the Existing
EDS Incentive Plan will be administered by the Compensation and Benefits
Committee of EDS, or such other committee as may in the future be appointed by
the EDS Board, (ii) each outstanding award under the Existing EDS Incentive Plan
will be adjusted so that, effective as of the date of consummation of the Split-
Off, the securities to which each such award relates will be a number of shares
of EDS Common Stock equal to the number of shares of Class E Common Stock
subject to such award immediately prior to the consummation thereof, (iii)
future awards made under the Existing EDS Incentive Plan will be in the form of
EDS Common Stock rather than Class E Common Stock, (iv) future awards may be
made under the Existing EDS Incentive Plan in respect of a maximum of 60,000,000
shares of EDS Common Stock and (v) all references to General Motors contained in
the Existing EDS Incentive Plan will be deleted.
The purpose of the Existing EDS Incentive Plan is to provide corporate
officers and key employees of EDS and its subsidiaries with a strong incentive
for individual creativity and contribution to ensure the future growth of EDS.
The Existing EDS Incentive Plan is designed to reward employees making important
contributions to the success of EDS by enabling such persons to acquire shares
of EDS Common Stock.
Key employees, including officers and directors, of EDS are eligible to
participate in the Existing EDS Incentive Plan. However, (i) no member of the
EDS Board is entitled to participate in the Existing EDS Incentive Plan unless
he or she is also a full time employee of EDS; (ii) no member of the
Compensation and Benefits Committee of EDS is
52
<PAGE>
eligible to participate in the Existing EDS Incentive Plan; (iii) no person is
eligible to participate in the Existing EDS Incentive Plan if he or she owns,
directly or indirectly, more than 5% of the total combined voting power of all
classes of stock of EDS and (iv) not more than 32,000,000 shares of EDS Common
Stock may be sold, awarded or covered by rights or options granted under the
Existing EDS Incentive Plan to any one participant.
The Existing EDS Incentive Plan covers (i) the sale of shares subject to
restrictions ("Restricted Stock"), (ii) the grant of rights, subject to
restrictions ("Restricted Stock Units"), to acquire shares which may or may not
be subject to restrictions ("Unit Stock"), (iii) the award of bonus shares that
may or may not be subject to restrictions ("Bonus Stock") and (iv) the grant of
options (including ISOs) to acquire shares which may or may not be subject to
restrictions ("Option Stock").
An aggregate of 60,000,000 shares of EDS Common Stock (in addition to the
shares that are the subject of awards outstanding as of the date upon which the
EDS Assumption Amendments become effective) will be available for awards under
the Existing EDS Incentive Plan after giving effect to the EDS Assumption
Amendments. If shares of Restricted Stock, Unit Stock, Bonus Stock or Option
Stock issued pursuant to the Existing EDS Incentive Plan are repurchased by or
redelivered to EDS in connection with the restrictions imposed on such shares
pursuant to the Existing EDS Incentive Plan, such repurchased and redelivered
shares shall again become available for sale, award or grant under the Existing
EDS Incentive Plan. To the extent that any Restricted Stock Units terminate in
connection with the restrictions imposed on such units (other than pursuant to
the delivery of shares in respect thereof) or any options granted under the
Existing EDS Incentive Plan terminate or expire unexercised in whole or in part,
the shares of EDS Common Stock then so covered will again become available for
sale, award or grant under the Existing EDS Incentive Plan.
Upon the effectiveness of the EDS Assumption Amendments, the Existing EDS
Incentive Plan will be administered and interpreted by the Benefits and
Compensation Committee of the EDS Board. No member of such committee shall be
eligible, or shall have been eligible at any time within one year prior to his
appointment to the Committee, for selection as a person to whom EDS Common Stock
may be sold or awarded or to whom either rights to acquire shares or options may
be granted pursuant to the Existing EDS Incentive Plan.
The committee charged with administering the Existing EDS Incentive Plan
has full authority, in its discretion, to determine those corporate officers and
key employees who shall participate in the Existing EDS Incentive Plan and the
number of shares of EDS Common Stock to be sold or awarded to each participant
and the number of shares of EDS Common Stock to be covered by either rights to
acquire shares or options granted to each participant. Recommendations for
individual awards are made to such committee by the President of EDS. Such
committee may adopt rules and regulations for the administration of the Existing
EDS Incentive Plan to the extent it deems advisable and has full discretionary
authority to amend such rules and regulations. All determinations made by such
committee are conclusive except that, to the extent required by law or by the
EDS Certificate of Incorporation or Bylaws, the terms of any sale or award of
shares or any grant of either rights to acquire shares or options under the
Existing EDS Incentive Plan and the sufficiency of the consideration therefor
are subject to ratification by the EDS Board prior to such sale, award or grant.
Awards
The types of awards that may be made under the Existing EDS Incentive Plan
are as follows:
Restricted Stock. Shares of Restricted Stock may be sold pursuant to the
Existing EDS Incentive Plan at a nominal price which does not exceed 10% of the
fair market value of the shares at the time of grant. All shares of Restricted
Stock sold pursuant to the Existing EDS Incentive Plan are subject to specified
restrictions, certain of which may be modified in the applicable award
agreement.
53
<PAGE>
Restricted Stock Units. Restricted Stock Units may be granted pursuant to
the Existing EDS Incentive Plan without cash consideration. Each Restricted
Stock Unit entitles the holder thereof to receive the shares covered by such
unit at such time, in such amounts and subject to such conditions as specified
in the applicable award agreement.
Bonus Stock. Shares of Bonus Stock may be awarded pursuant to the Existing
EDS Incentive Plan without cash consideration. The committee administering the
Existing EDS Incentive Plan is authorized to determine, and set forth in the
applicable award agreement, whether such shares of Bonus Stock are awarded free
of, or subject to, any restrictions.
Stock Options. Stock options may be granted pursuant to the Existing EDS
Incentive Plan and shall have such terms and conditions as the committee
administering such plan in its sole discretion shall determine, including the
period during which they may be exercised and the conditions under which they
may be terminated. The exercise price of a stock option shall not be less than
100% of the fair market value of the underlying shares of EDS Common Stock on
the date the option is granted.
Each Award made pursuant to the Existing EDS Incentive Plan is subject to
certain non-competition restrictions that apply for such period of time and in
such geographic area as is specified in the applicable award agreement. Such
non-competition restrictions generally provide that if within the specified
period of time and geographic areas a participant engages in certain competitive
activities (such as (i) participating in any activity as or for a competitor of
EDS, which is the same or similar to the activities in which the participant was
involved as an employee of EDS, (ii) hiring or attempting to hire any employee
of EDS, (iii) soliciting the business of any customer of EDS or (iv)
participating in any activity for a customer of EDS, which is the same or
similar to the activities in which the participant was involved as an employee
of EDS), the participant may be obligated to (a) immediately resell and deliver
to EDS, upon demand, all shares of Restricted Stock, Unit Stock, Bonus Stock or
Option Stock sold or awarded to the participant as to which the participant is
still the direct or indirect beneficial owner at the cash price per share, if
any, paid by the participant; and (b) pay to EDS an amount in cash with respect
to each share of Restricted Stock, Unit Stock, Bonus Stock and Option Stock not
still so held equal to the fair market value of each such share on the first
date on which such share is no longer held less the price paid by him for such
share. Additionally, if a participant engages in such activities, any option
outstanding under the Existing EDS Incentive Plan that is held by such
participant shall automatically terminate and shall no longer be exercisable,
and all Restricted Stock Units then held shall automatically terminate.
Other Provisions
The EDS Board or the committee administering the Existing EDS Incentive
Plan may amend such plan at any time, provided that, without the approval of the
stockholders of EDS entitled to vote thereon, no such amendment shall become
effective if it would (i) increase the number of shares of EDS Common Stock
which may be sold or awarded under the Existing EDS Incentive Plan; or (ii)
modify the requirements as to eligibility for participation in such plan.
Unless earlier terminated by the EDS Board or the committee administering
the Existing EDS Incentive Plan, such plan shall terminate on October 17, 2004.
Although no shares of EDS Common Stock may be sold or issued (except to the
extent issued in connection with rights or options previously granted under such
plan) or rights or options granted after such date, such termination shall not
affect any restrictions previously imposed on shares issued, or alter the rights
of participants with respect to rights or options granted or shares issued,
pursuant to the Existing EDS Incentive Plan.
In the event of any change in the number, class or rights of shares subject
to the Existing EDS Incentive Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination of
shares, exchange of shares, issuance of rights to subscribe or other change in
capital structure), the Existing EDS Incentive Plan provides for the committee
administering such plan to make appropriate adjustments to the maximum number of
shares subject to the Existing EDS Incentive Plan and the number of shares and
price per share subject to any outstanding award or grant as the committee shall
find to be equitable to prevent dilution or enlargement of such rights.
54
<PAGE>
Advancement of Withholding Tax Payments
Under current EDS policy, holders of Restricted Stock Units granted under
the Existing Incentive Plan are required to reimburse EDS for the applicable
withholding taxes paid by EDS in respect of the vesting of such units within 60
days of such payment by EDS. In the event that such holder is restricted from
selling shares of Class E Common Stock (or, following the Split-Off, EDS Common
Stock) by virtue of such holder's being in possession of material non-public
information regarding EDS, EDS has historically extended the date for the
reimbursement of such payment until such restriction is terminated. As of March
15, 1996, the indebtedness of Messrs. Alberthal, Castle, Chiapparone, Fernandes,
Grant, Heller, Linderman and Reeves in respect of such advancement of payments
for withholding taxes was $964,009, $365,659, $698,075, $531,867, $299,175,
$698,075, $971,929, and $598,350, respectively, and the largest amount of such
indebtedness outstanding at any time since January 1, 1995 for such executive
officers was $964,009, $365,659, $698,075, $531,867, $299,175, $938,601,
$971,929, and $598,350, respectively.
Tax Implications to EDS
EDS would generally be entitled to a deduction with respect to awards
granted under the Existing EDS Incentive Plan in the manner, and subject to the
limitations, described above under "Amended EDS Incentive Plan-Tax Implications
of Awards." However, notwithstanding the fact that approval of the Amended EDS
Incentive Plan by the common stockholders of General Motors is not obtained, the
deduction limitations set forth in Section 162(m) of the Code would not apply to
shares of Restricted Stock, shares of Bonus Stock, Restricted Stock Units or
options which are granted on or prior to the date of the first regularly
scheduled stockholder meeting of EDS that occurs after December 2, 1995.
EDS RETIREMENT PLAN
The following table indicates the estimated annual benefits payable upon
retirement to Messrs. Alberthal, Castle, Fernandes, Heller and Linderman, for
the specified compensation and years of service classifications, under the
combined formulas of the Amended and Restated EDS Retirement Plan (the "EDS
Retirement Plan") and the EDS Supplemental Executive Retirement Plan (the "EDS
Supplemental Plan"). The EDS Supplemental Plan is a non-qualified, unfunded
retirement plan intended to pay benefits to certain executive level employees
whose benefits under the EDS Retirement Plan are limited under the Code.
Benefits under the EDS Supplemental Plan can be reduced, suspended or eliminated
at any time by the EDS Compensation and Benefits Committee.
55
<PAGE>
PROJECTED TOTAL ANNUAL RETIREMENT BENEFITS
UNDER THE EDS RETIREMENT PLAN AND THE
EDS SUPPLEMENTAL PLAN
<TABLE>
<CAPTION>
YEARS OF SERVICE
- ----------------------------------------------------------------------------
FINAL AVERAGE
EARNINGS 5 10 15 20 25 30
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 32,428 $ 64,856 $ 97,284 $129,712 $162,140 $194,568
$ 600,000 $ 49,128 $ 98,256 $147,384 $196,512 $245,640 $294,768
$ 800,000 $ 65,828 $131,656 $197,484 $263,312 $329,140 $394,968
$1,000,000 $ 82,528 $165,056 $247,584 $330,112 $412,640 $495,168
$1,200,000 $ 99,228 $198,456 $297,684 $396,912 $496,140 $595,368
$1,400,000 $115,928 $231,856 $347,784 $463,712 $579,640 $695,568
</TABLE>
As of December 31, 1995, the average annual base salary for the highest
five years over the last 10-year period and the eligible years of credited
service for each of the named executive officers was as follows: Mr. Alberthal,
$1,277,167-28 years; Mr. Castle, $682,667-seven years; Mr. Fernandes, $635, 250-
27 years; Mr. Heller, $729,334-28 years; and Mr. Linderman, $643,167-25 years.
The annual base salary for the most recent year considered in the calculation of
such average annual base salary is set forth in the Summary Compensation Table
set forth above under the column labeled "Salary."
"Earnings" under the EDS Retirement Plan generally refer to total annual
cash compensation (up to $150,000 for 1995 as limited by the Code) for services
rendered to EDS and its participating subsidiaries, together with any salary
reduction contributions to the EDS Deferred Compensation Plan, and shall exclude
extraordinary compensation (such as overseas living allowances, relocation
allowances and benefits under any employee benefit plan, such as the Stock
Incentive Plan). Benefits under the EDS Retirement Plan generally equal (i) 55%
of the participant's final average earnings (based on the highest five
consecutive years of includible earnings within the last ten years of
employment), less the maximum offset allowance that can be deducted from final
average earnings as determined under the Code, multiplied by (ii) the
participant's years of credited benefit service (not to exceed 30), divided by
30. Benefits are payable in the form of a single or joint survivor life annuity,
unless otherwise elected.
To be eligible to participate in the EDS Supplemental Plan, an executive
level employee must, among other requirements, be a participant in EDS'
executive bonus plan and a participant in the EDS Retirement Plan and have met
the eligibility requirements for the receipt of benefits thereunder. The benefit
payable under the EDS Supplemental Plan for normal retirement, together with the
benefit payable under the EDS Retirement Plan, will generally equal (i) 50% 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 as determined
under the Code. Such benefits are payable in the form of a single or joint
survivor life annuity.
STOCK PURCHASE PLAN
The EDS Board has adopted, and General Motors as the sole stockholder of
EDS has approved, the 1996 Electronic Data Systems Corporation Stock Purchase
Plan (the "EDS Stock Purchase Plan"), subject to consummation of the Split-Off.
The EDS Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. All full-time employees of EDS and
certain subsidiaries are eligible to participate in the EDS Stock Purchase Plan.
An aggregate of approximately 57,500,000 shares of EDS Common Stock would be
reserved for issuance under
56
<PAGE>
the EDS Stock Purchase Plan following consummation of the Split-Off, subject to
adjustment in accordance with the terms of the EDS Stock Purchase Plan.
Under the EDS Stock Purchase Plan, the EDS Board and/or the Compensation
and Benefits Committee may determine the effective date of an offering and the
purchase period thereunder and establish the purchase price and the maximum
number of shares that each eligible employee may purchase, which number will be
based on a percentage of the employee's compensation with a maximum individual
investment as specified in the Code.
All eligible employees who enroll in an offering receive options to
purchase shares of EDS Common Stock at a price that is not less than the lesser
of (i) 85% of the fair market value of the stock on the offering date or (ii) an
amount which under the terms of the offering is not less than 85% of such fair
market value at the time the right to purchase is exercised. Shares of EDS
Common Stock purchased under the Plan may not be sold or transferred within two
years of the date of purchase unless they are first offered to EDS at the lesser
of (i) the price originally paid for the shares or (ii) the fair market value
per share of EDS Common Stock on the date the shares are offered to EDS.
EDS will make no cash contributions to the EDS Stock Purchase Plan, but
will bear the expenses of administration. The EDS Stock Purchase Plan will be
administered by the Compensation and Benefits Committee, which will have
authority to resolve all questions relating to the administration of the Plan.
A participating employee will not recognize income at the time rights to
purchase shares are granted to him or her or when the employee exercises such
rights and purchases shares of EDS Common Stock at the end of an offering. If an
employee sells or otherwise disposes of the shares acquired under the Plan (i)
more than two years after the date of purchase and (ii) more than two years
after the date of the grant and more than one year after the date of exercise,
or if the employee dies before disposing of the shares, ordinary income
(compensation) should be included in the employee's gross income, limited to the
lesser of (a) the excess of the fair market value at the time of sale or other
disposition or at death over the amount paid for the shares under the option or
(b) the excess of the fair market value of the shares at the time the option was
granted over the purchase price (determined as if the option were exercised on
the date of grant). Any gain upon sale or other disposition in excess of the
lesser of the amounts in (a) or (b) above would be treated as a long-term
capital gain. If the employee meets requirement (ii) above but not (i), he or
she should recognize ordinary income (compensation) as described in the first
sentence of this paragraph, if any, and, in addition, long-term capital loss
equal to the difference between the amount paid by EDS to repurchase the stock
and the sum of the price paid by the employee for the stock plus the amount of
ordinary income, if any, recognized by the employee on the disposition.
EDS will recognize no income, gain, deduction or loss with respect to the
grant or exercise of rights to purchase shares under the EDS Stock Purchase
Plan.
In the event of a disqualifying disposition (the sale or disposition of a
share prior to the expiration of the two-year period after the date of grant or
the one year period after the date of exercise), the employee should recognize
ordinary income (compensation) in the year of the disqualifying disposition to
the extent of the excess, if any, of the fair market value of the stock at the
date the option was exercised over the price paid for the stock under the option
with the difference between the amount paid by EDS for repurchase of the stock
and the sum of the price paid by the employee for the stock plus the amount of
ordinary income, if any, recognized by the employee on the disposition treated
as a long-term or short-term capital loss depending on the length of the holding
period. In the event of such a disqualifying disposition, EDS would be accorded
a deduction, assuming certain compliance requirements are met, equal to the
amount of the compensation includible by the employee. The foregoing discussion
does not address the consequences of the Stock Purchase Plan under U.S. state or
local or non U.S. tax laws.
57
<PAGE>
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
EDS management intends to recommend to the EDS Board at its first meeting
following consummation of the Split-Off that EDS enter into certain change of
control employment agreements ("Employment Agreements") with each of its
executive officers and certain of its other officers (each, an "Executive").
EDS management expects that the Employment Agreements to be recommended to the
EDS Board will 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 with EDS will be continued for specified period of time
ranging from three to five years (the "Employment Period") and will contain
the other terms and provisions described below.
The employment rights of the Executives under the Employment Agreements
would be triggered by either a "Change of Control" or a "Potential Change of
Control" (as such terms are defined in the Employment Agreements). Following a
Potential Change of Control, the employment period may terminate (but the
Employment Agreement will remain in 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, upon proper notice to EDS, elects to terminate his Employment Period
as of any anniversary of the Potential Change of Control. A "Change of Control"
generally includes the occurrence on or after the date of the Split-Off of any
of the following: (i) any person, other than an exempt person (including EDS and
its subsidiaries and employee benefit plans), becoming a beneficial owner of 15%
or more of the shares of EDS Common Stock or voting stock of EDS then
outstanding (including as a result of the Split-Off); (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 members of the
EDS Board; (iii) the approval by the EDS stockholders of a reorganization,
merger or consolidation in which (x) existing EDS stockholders would not own
more than 85% of the common stock and voting stock of the resulting company, (y)
a person (other than certain 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 the EDS stockholders of a liquidation
or dissolution of EDS, unless such liquidation or dissolution is part of a plan
of liquidation or dissolution 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 stockholders, (y) no person (other than certain exempt
persons) would own 15% or more of the common stock or voting stock of such
company and (z) at least a majority of the board of directors of such company
would consist of the then incumbent members of the EDS Board. The acquisition of
EDS Common Stock in the Split-Off by the GM Hourly Plan is an exempt transaction
that will not constitute a Change of Control. A "Potential Change in 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 a contested 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.
Under the Employment Agreements, EDS would agree that throughout the
Employment Period, each Executive's position, authority, duties and
responsibilities will not be diminished from the most significant held or
exercised by, or assigned to, such Executive at any time during the 90-day
period immediately prior to the commencement of the Employment Period.
Additionally, all forms of the Executive's compensation, including salary,
bonus, regular salaried employee plans, stock options, restricted stock and
other awards, will continue on a basis no less favorable than as the same exist
during the same period.
The Employment Agreements would provide that an Executive's Employment
Period terminates (i) automatically upon the Executive's death or after 180 days
of the Executive's continuing Disability (as defined in the Employment
Agreements), (ii) at EDS' option if the Executive is terminated for "Cause" (as
defined in the Employment Agreements) and (iii) at the Executive's option at any
time for "Good Reason" or for any reason during the 180-day period beginning 60
days (or 180 days in the case of agreements with less than a five-year term)
after a Change of Control (a "Window Period"). For purposes of EDS' option to
terminate the Employment Period, "Cause" is defined in the Employment Agreement
to mean (i) dishonesty by the Executive which results in substantial personal
enrichment at the expense of
58
<PAGE>
EDS or (ii) demonstratively willful repeated violations of the Executive's
obligations under the Employment Agreement, which violations are intended to
result and do result in material injury to EDS. For purposes of an Executive's
option to terminate the Employment Period, "Good Reason" generally means (i) a
diminution of the executive officer's job duties; (ii) EDS' failure to comply
with the requirements of the Employment Agreement; (iii) the transfer of an
Executive's work location; (iv) a purported termination of the Executive's
employment by EDS which is not in compliance with the Employment Agreement; (v)
the failure of a successor to honor the Employment Agreement or (vi) a failure
to reelect the Executive to the EDS Board if such Executive was a member of the
EDS Board immediately prior to the commencement of the Employment Period.
If an Executive's employment is terminated for any reason during a Window
Period, by reason of death or Disability during a Window Period, or for Good
Reason at any time, the Executive (or the Executive's legal representatives)
will be entitled to receive the following: (i) the employee benefits the
Executive has earned as of the date of termination; (ii) the Executive's then
current salary and bonus throughout the remainder of the Employment Period;
(iii) the cash value of the Executive's retirement and 401(k) benefits to the
end of the Employment Period; (iv) under certain circumstances, a pro rata
portion of the grants of options, restricted stock and other compensatory awards
the Executive would have received had his employment continued; and (v)
continued coverage under employee welfare benefit plans until the end of the
Employment Period. In addition, all options, restricted stock and other
compensatory awards held by the Executive will immediately vest and become
exercisable and the term thereof will be extended for up to one year following
termination of employment. The Executive may also elect to cash out equity-based
compensatory awards at the highest price per share paid by specified persons
during the Employment Period or the six-month period prior to the date upon
which the Employment Period commences. Upon the death of an Executive (other
than during a Window Period), the Executive's legal representatives will be
entitled to receive the following: (i) the employee benefits earned by the
Executive 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
and the term thereof will be extended for up to one year following death. The
Executive's legal representatives may elect to cash out equity-based
compensatory awards at the highest price per share of common stock paid by
specified persons during the Employment Period or the six-month period prior to
the date upon which the Employment Period commences. Upon termination of an
Executive's employment with EDS due to Disability, the Executive will be
entitled to receive the same amounts and benefits as would be provided upon the
termination of the Executive's employment by reason of death. If an Executive's
employment is terminated, other than during a Window Period, (i) by EDS for
Cause or (ii) by the Executive other than for Good Reason, the Executive will be
entitled to receive only the compensation and benefits the Executive has earned
as of the date of termination of the Executive's employment with EDS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation information with respect to the named executives for 1995
reflects compensation earned while EDS was a wholly owned subsidiary of General
Motors. During that period, EDS' compensation committee was composed of John F.
Smith, Jr., Harry J. Pearce and J. Michael Losh, all of whom are officers of
General Motors. In connection with the Split-Off, such persons will resign from
such positions and it is anticipated that Ray J. Groves and C. Robert Kidder
will be appointed to the Compensation and Benefits Committee of EDS.
INDEMNIFICATION AGREEMENTS
EDS has entered into Indemnification Agreements (the "Indemnification
Agreements") with its directors, nominees for director and certain of its
officers (the "Indemnitees"), a form of which is filed as an exhibit to this
Current Report. Under the terms of the Indemnification Agreements, EDS has
generally agreed to indemnify, and advance expenses to, each Indemnitee to the
fullest extent permitted by applicable law on the date of such agreements and to
such greater extent as applicable law may thereafter permit. In addition, the
Indemnification Agreements contain specific provisions
59
<PAGE>
pursuant to which EDS has agreed to indemnify each Indemnitee (i) if such person
is, by reason of his or her status as a director, nominee for director, officer,
agent or fiduciary of EDS or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise with which such person
was serving at the request of EDS (any such status being hereinafter referred to
as a "Corporate Status"), made or threatened to be made a party to any
threatened, pending or completed action, suit, arbitration, alternative dispute
resolution mechanism, investigation or other proceeding (each, a "Proceeding"),
other than a Proceeding by or in the right of EDS, (ii) if such person is, by
reason of his or her Corporate Status, made or threatened to be made a party to
any Proceeding brought by or in the right of EDS to procure a judgment in its
favor, except that no indemnification shall be made in respect of any claim,
issue or matter in such Proceeding as to which such Indemnitee shall have been
adjudged to be liable to EDS if applicable law prohibits such indemnification
(unless and only to the extent that a court shall otherwise determine), (iii)
against expenses actually and reasonably incurred by such person or on his or
her behalf in connection with any Proceeding to which such Indemnitee was or is
a party by reason of his or her Corporate Status and in which such Indemnitee is
successful, on the merits or otherwise, (iv) against expenses actually and
reasonably incurred by such person or on his or her behalf in connection with a
Proceeding to the extent that such Indemnitee is, by reason of his or her
Corporate Status, a witness or otherwise participates in any Proceeding at a
time when such person is not a party in the Proceeding, and (v) against expenses
actually and reasonably incurred by such person in any judicial adjudication of
or any award in arbitration to enforce his or her rights under the
Indemnification Agreements.
Furthermore, under the terms of the Indemnification Agreements, EDS has
agreed to pay all reasonable expenses incurred by or on behalf of an Indemnitee
in connection with any Proceeding, whether brought by or in the right of EDS or
otherwise, in advance of any determination with respect to entitlement to
indemnification and within 15 days after the receipt by EDS of a written request
from such Indemnitee for such payment. In the Indemnification Agreements, each
Indemnitee has agreed that he or she will reimburse and repay EDS for any
expenses so advanced to the extent that it shall ultimately be determined that
he or she is not entitled to be indemnified by EDS against such expenses.
The Indemnification Agreements also include provisions that specify the
procedures and presumptions which are to be employed to determine whether an
Indemnitee is entitled to indemnification thereunder. In some cases, the nature
of the procedures specified in the Indemnification Agreements varies depending
on whether there has occurred a "Change in Control" (as defined in the
Indemnification Agreements) of EDS.
60
<PAGE>
EDS CAPITAL STOCK
Under the EDS Certificate of Incorporation, the authorized capital stock of
EDS is 2,200,000,000 shares, of which 2,000,000,000 shares are EDS Common Stock,
par value $0.01 per share, and 200,000,000 shares are preferred stock, par value
$0.01 per share (the "EDS Preferred Stock").
The following descriptions (i) are summaries and do not purport to be
complete and (ii) give effect to the consummation of the Split-Off. Reference is
also made to the more detailed provisions of, and such descriptions are
qualified in their entirety by reference to, the EDS Certificate of
Incorporation and the EDS Bylaws, copies of which are filed as exhibits to this
Current Report.
EDS COMMON STOCK
Holders of EDS Common Stock will be entitled to one vote per share with
respect to each matter submitted to a vote of stockholders of EDS, subject to
voting rights that may be established for shares of EDS Preferred Stock, if any.
Except as may be provided in connection with any EDS Preferred Stock or as may
otherwise be required by law or the EDS Certificate of Incorporation, the EDS
Common Stock will be the only capital stock of EDS entitled to vote in the
election of directors. The EDS Common Stock will not have cumulative voting
rights. Immediately prior to the consummation of the Split-Off, General Motors
was the only holder of record of EDS Common Stock.
Subject to the prior rights of holders of EDS Preferred Stock, if any,
holders of the EDS Common Stock are entitled to receive such dividends as may be
lawfully declared from time to time by the EDS Board. Upon any liquidation,
dissolution or winding up of EDS, whether voluntary or involuntary, holders of
the EDS Common Stock will be entitled to receive such assets as are available
for distribution to stockholders after there shall have been paid or set apart
for payment the full amounts necessary to satisfy any preferential or
participating rights to which the holders of each outstanding series of EDS
Preferred Stock are entitled by the express terms of such series.
The outstanding shares of EDS Common Stock are fully paid and
nonassessable. The EDS Common Stock will not have any preemptive, subscription
or conversion rights. Additional shares of authorized EDS Common Stock may be
issued, as authorized by the EDS Board from time to time, without stockholder
approval, except as may be required by applicable stock exchange requirements.
EDS PREFERRED STOCK
The EDS Board is empowered, without approval of the stockholders, to cause
shares of EDS Preferred Stock to be issued in one or more series, with the
numbers of shares of each series and the powers, preferences, rights and
limitations of each series to be determined by it. Among the specific matters
that may be determined by the EDS Board are the rate of dividends, if any;
rights and terms of conversion or exchange, if any; the terms of redemption, if
any; the amount payable in the event of any voluntary liquidation, dissolution
or winding up of the affairs of EDS; the terms of a sinking or purchase fund, if
any; and voting rights, if any. The Series A EDS Preferred Stock described under
"EDS Rights Agreement" below is a series of EDS Preferred Stock that has been
authorized by the EDS Board.
Although EDS has no current plans to issue EDS Preferred Stock, the
issuance of shares of EDS Preferred Stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal.
For example, a business combination could be impeded by the issuance of a series
of EDS Preferred Stock containing class voting rights that would enable the
holder or holders of such series to block any such transaction. Alternatively, a
business combination could be facilitated by the issuance of a series of EDS
Preferred Stock having sufficient voting rights to provide a required percentage
vote of the stockholders. In addition, under certain circumstances, the issuance
61
<PAGE>
of EDS Preferred Stock could adversely affect the voting power of the holders of
the EDS Common Stock. Although the EDS Board is required to make any
determination to issue any such stock based on its judgment as to the best
interests of the stockholders of EDS, the EDS Board could act in a manner that
would discourage an acquisition attempt or other transaction that some, or a
majority, of the stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over prevailing
market prices of such stock. The EDS Board does not at present intend to seek
stockholder approval prior to any issuance of currently authorized stock, unless
otherwise required by law or applicable stock exchange requirements.
EDS RIGHTS AGREEMENT
There will be attached to each share of EDS Common Stock offered hereby one
right (a "Right") to purchase from EDS a unit consisting of one one-hundredth of
a share (a "Unit") of Series A Junior Participating Preferred Stock, par value
$0.01 per share (the "Series A EDS Preferred Stock"), at a purchase price of
$200 per Unit, subject to adjustment in certain events (the "Purchase Price").
The following description of the Rights (i) is a summary and does not purport to
be complete and (ii) gives effect to the consummation of the Split-Off.
Reference is also made to the more detailed provisions of, and such description
is qualified in its entirety by reference to, the EDS Rights Agreement, a copy
of which is filed as an exhibit to this Current Report.
Initially, the Rights will be attached to all certificates representing
outstanding shares of EDS Common Stock, including the shares of EDS Common Stock
issued in the Split-Off, and no separate certificates for the Rights ("Rights
Certificates") will be distributed. The Rights will separate from the EDS Common
Stock and a "Distribution Date" will occur upon the earlier of (i) ten days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 10% or more of the outstanding shares of EDS
Common Stock (the date of the announcement being the "Stock Acquisition Date"),
or (ii) ten business days (or such later date as may be determined by the EDS
Board before the Distribution Date occurs) following the commencement of a
tender offer or exchange offer that would result in a person's becoming an
Acquiring Person. The GM Hourly Plan, and any trustee of or other fiduciary with
respect to such plan (when acting in such capacity), will not be an Acquiring
Person solely as a result of its acquiring EDS Common Stock in the Split-Off but
may thereafter become an Acquiring Person if it shall purchase or otherwise
become the beneficial owner of additional shares of EDS Common Stock
constituting 1% or more of the then outstanding shares of EDS Common Stock
unless the Hourly Plan is not then the beneficial owner of 10% or more of the
then outstanding shares of EDS Common Stock. Until the Distribution Date, (a)
the Rights will be evidenced by the certificates representing EDS Common Stock
and will be transferred with and only with such certificates, (b) certificates
representing EDS Common Stock will contain a notation incorporating the EDS
Rights Agreement by reference and (c) the surrender for transfer of any
certificate for EDS Common Stock will also constitute the transfer of the Rights
associated with the stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on March 12, 2006, unless earlier redeemed or exchanged
by EDS as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of EDS Common Stock as of the close of
business on the Distribution Date and, from and after the Distribution Date, the
separate Rights Certificates alone will represent the Rights. All shares of EDS
Common Stock issued prior to the Distribution Date will be issued with Rights.
Shares of EDS Common Stock issued after the Distribution Date in connection with
certain employee benefit plans or upon conversion of certain securities will be
issued with Rights. Except as otherwise determined by the EDS Board, no other
shares of EDS Common Stock issued after the Distribution Date will be issued
with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or exchange offer for all outstanding shares of EDS
Common Stock at a price and on terms that a majority of the directors of EDS
62
<PAGE>
who are not officers or employees of EDS and who are not representatives,
nominees, affiliates or associates of the Acquiring Person determines to be fair
to and otherwise in the best interests of EDS and its stockholders (a "Permitted
Offer")), each holder of a Right will thereafter have the right to receive, upon
exercise of such Right, a number of shares of EDS Common Stock (or, in certain
circumstances, cash, property or other securities of EDS) having a Current
Market Price (as defined in the EDS Rights Agreement) equal to two times the
Purchase Price of the Right. Notwithstanding the foregoing, following the
occurrence of any Flip-In Event, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person (or by certain related parties) will be null and void in the
circumstances set forth in the EDS Rights Agreement. However, the Rights are not
exercisable following the occurrence of any Flip-In Event until such time as the
Rights are no longer redeemable by EDS as set forth below.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) EDS is acquired in a merger or other business combination
transaction (other than certain mergers that follow a Permitted Offer), or (ii)
50% or more of EDS' assets or earning power is sold or transferred, each holder
of a Right (except Rights that previously have become void as set forth above)
shall thereafter have the right to receive, upon exercise, a number of shares of
common stock of the acquiring company having a Current Market Price equal to two
times the Purchase Price of the Right. Flip-In Events and Flip-Over Events are
collectively referred to as "Triggering Events."
The Purchase Price payable, and the number of Units of Series A EDS
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A EDS Preferred Stock, (ii) if holders of the
Series A EDS Preferred Stock are granted certain rights or warrants to subscribe
for Series A EDS Preferred Stock or certain convertible securities at less than
the current market price of the Series A EDS Preferred Stock, or (iii) upon the
distribution to holders of the Series A EDS Preferred Stock of evidences of
indebtedness, cash or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A EDS Preferred Stock
on the last trading date prior to the date of exercise. Pursuant to the EDS
Rights Agreement, EDS reserves the right to require prior to the occurrence of a
Triggering Event that, upon any exercise of Rights, a number of Rights be
exercised so that only whole shares of Series A EDS Preferred Stock will be
issued.
At any time until ten days following the Stock Acquisition Date, EDS may
redeem the Rights in whole, but not in part, at a price of $.01 per Right,
payable, at the option of EDS, in cash, shares of EDS Common Stock or such other
consideration as the EDS Board may determine. Immediately upon the effectiveness
of the action of the EDS Board ordering redemption of the Rights, the Rights
will terminate and the only right of the holders of Rights will be to receive
the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more or the shares of EDS Common Stock
then outstanding, EDS may, at its option, exchange the Rights (other than Rights
owned by an Acquiring Person or an affiliate or an associate of an Acquiring
Person, which will have become void), in whole or in part, at an exchange ratio
of one share of EDS Common Stock and/or other equity securities deemed to have
the same value as one share of EDS Common Stock, per Right, subject to
adjustment.
Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the EDS Rights Agreement may be amended by
the EDS Board prior to the Distribution Date. Thereafter, the provisions of the
EDS Rights Agreement may be amended by the EDS Board in order to cure any
ambiguity, defect or inconsistency, to make changes that do not materially
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person), or to shorten or lengthen any time period under the EDS
Rights Agreement;
63
<PAGE>
provided, however, that no amendment to lengthen the time period governing
redemption shall be made at such time as the Rights are not redeemable. Until a
Right is exercised, the holder thereof, as such, will have no rights as a
stockholder of EDS, including, without limitation, the right to vote or to
receive dividends.
Any shares of Series A EDS Preferred Stock that may be issued upon exercise
of the Rights will be entitled to receive, when, as and if declared,
preferential quarterly dividends in cash in an amount per share equal to the
greater of $1.00 per quarter and 100 times the aggregate per share cash dividend
paid on the EDS Common Stock, and noncash dividends payable in kind in an amount
per share equal to 100 times any noncash dividend or other distribution declared
on the EDS Common Stock. In the event of the liquidation, dissolution or winding
up of EDS, holders of any such Series A EDS Preferred Stock will be entitled to
receive (after satisfaction of or provision for liabilities and any preferential
amounts payable with respect to any EDS Preferred Stock ranking senior to the
Series A EDS Preferred Stock) liquidation payments per share in an amount equal
to accrued but unpaid dividends plus the greater of $100.00 or 100 times the per
share amount distributed to holders of EDS Common Stock. In the event of any
merger, consolidation or other transaction in which shares of EDS Common Stock
are exchanged, holders of shares of Series A EDS Preferred Stock will be
entitled to receive a per share amount and type of consideration equal to 100
times the per share amount received by holders of EDS Common Stock. Any Series A
EDS Preferred Stock will be redeemable at the option of EDS in whole at any time
or in part from time to time, for cash in an amount per share equal to 100 times
the market price of the EDS Common Stock (determined on the basis of an average
closing price over a specified ten trading day period). Holders of Series A EDS
Preferred Stock will have 100 votes per share and, except as otherwise provided
in the EDS Certificate of Incorporation or required by law, shall vote together
with holders of EDS Common Stock as a single class. The rights of the Series A
EDS Preferred Stock as to dividends, liquidation and voting are protected by
anti-dilution provisions. Whenever dividend payments on the Series A EDS
Preferred Stock are in arrears, EDS will not (i) purchase or redeem any shares
of Series A Preferred Stock or shares ranking on a parity with the Series A EDS
Preferred Stock except in accordance with a purchase offer to all holders, (ii)
declare or pay dividends on or purchase or redeem any shares of stock ranking
junior to the Series A EDS Preferred Stock or (iii) declare or pay dividends on
or purchase or redeem any shares of stock ranking on a parity with the Series A
EDS Preferred Stock except dividends paid ratably on the Series A EDS Preferred
Stock and all such parity stock and except purchases or redemptions of such
parity stock in exchange for junior stock. If dividend payments on any Series A
EDS Preferred Stock are in arrears for six quarters, the holders of the Series A
EDS Preferred Stock (together with holders of any other Preferred Stock with
similar rights) will have the right to elect two directors of EDS.
The Rights will have certain antitakeover effects. The Rights will cause
substantial dilution to any person or group that attempts to acquire EDS without
the approval of the EDS Board. As a result, the overall effect of the Rights may
be to render more difficult or discourage any attempt to acquire EDS even if
such acquisition may be favorable to the interests of EDS' stockholders. Because
the EDS Board can redeem the Rights or approve a Permitted Offer, the Rights
should not interfere with a merger or other business combination approved by the
EDS Board. The Rights have been distributed prior to the consummation of the
Split-Off to protect EDS' stockholders from coercive or abusive takeover tactics
and to give the EDS Board more negotiating leverage in dealing with prospective
acquirors.
LIMITATION ON EDS DIRECTORS' LIABILITY
The EDS Certificate of Incorporation provides, as authorized by Section
102(b)(7) of the Delaware General Corporation Law, as amended ("the DGCL"), that
a director of EDS will not be personally liable to EDS or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to EDS or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
64
<PAGE>
The inclusion of this provision in the EDS Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited EDS and its
stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
EDS is a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time such stockholder became an interested
stockholder, unless (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. A "business combination" includes (a) any merger or
consolidation of the corporation with the interested stockholder, (b) any sale,
lease, exchange or other disposition, except proportionately as a stockholder of
such corporation, to or with the interested stockholder of assets of the
corporation having an aggregate market value equal to 10% or more of either the
aggregate market value of all the assets of the corporation or the aggregate
market value of all the outstanding stock of the corporation, (c) certain
transactions resulting in the issuance or transfer by the corporation of stock
of the corporation to the interested stockholder, (d) certain transactions
involving the corporation which have the effect of increasing the proportionate
share of the stock of any class or series of the corporation which is owned by
the interested stockholder or (e) certain transactions in which the interested
stockholder receives financial benefits provided by the corporation. An
"interested stockholder" generally is (i) any person that owns 15% or more of
the outstanding voting stock of the corporation, (ii) any person that is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the three-
year period prior to the date on which it is sought to be determined whether
such person is an interested stockholder and (iii) the affiliates or associates
of any such person. The EDS Board has approved the distribution of EDS Common
Stock to the GM Hourly Plan Special Trust pursuant to the Merger for purposes of
Section 203 so long as the GM Hourly Plan Special Trust does not purchase or
otherwise become the owner of additional shares of capital stock constituting 1%
or more of the aggregate voting power of the outstanding capital stock of EDS at
any time that it is the owner of 15% or more of the outstanding voting stock of
EDS. The EDS Board further provided that such approval would not apply to any
transferee of EDS capital stock from the GM Hourly Plan Special Trust.
LIMITATIONS ON CHANGES IN CONTROL
The EDS Bylaws contain provisions requiring that advance notice be
delivered to EDS of any business to be brought by a stockholder before an annual
meeting of stockholders and providing for certain procedures to be followed by
stockholders in nominating persons for election to the EDS Board. Generally,
such advance notice provisions provide that the stockholder must give written
notice to the Secretary of EDS not less than 90 days nor more than 270 days
before the scheduled date of the annual meeting of stockholders of EDS. The
notice must set forth specific information regarding such stockholder and such
business or director nominee, as described in the EDS Bylaws. It is currently
anticipated that the deadline for receipt of such notices with respect to EDS'
1997 Annual Meeting of Stockholders will be on March 6, 1997.
The EDS Certificate of Incorporation provides that, except as may be
provided by the EDS Certificate of Incorporation or in the resolution or
resolutions providing for the issuance of any series of EDS Preferred Stock, the
number of directors shall not be fewer than three nor more than fifteen and
provides for a classified Board of Directors,
65
<PAGE>
consisting of three classes as nearly equal in size as practicable. Each class
holds office until the third annual stockholders' meeting for election of
directors following the most recent election of such class, except that the
initial terms of the three classes expire in 1997, 1998 and 1999, respectively.
See "EDS Management and Executive Compensation-Directors and Executive
Officers." A director of EDS may be removed only for cause.
The EDS Certificate of Incorporation provides that stockholders may not act
by written consent in lieu of a meeting, unless such written consent is
unanimous. Special meetings of the stockholders may be called by the Chairman of
the EDS Board or by the EDS Board, but may not be called by stockholders. The
EDS Bylaws may be amended by the EDS Board or by the affirmative vote of the
holders of at least 66 2/3% of the aggregate voting power of the outstanding
capital stock of EDS entitled to vote in the election of directors.
The EDS Certificate of Incorporation also contains a "fair price" provision
that applies to certain business combination transactions involving any person
or group that beneficially owns at least 10% of the aggregate voting power of
the outstanding capital stock of EDS (a "Related Person"). The "fair price"
provision requires the affirmative vote of the holders of (i) at least 80% of
the voting stock of EDS and (ii) at least 66 2/3% of the voting stock of EDS not
beneficially owned by the Related Person, to approve certain transactions
between the Related Person and EDS or its subsidiaries, including any merger,
consolidation or share exchange, any sale, lease, exchange, pledge or other
disposition of assets of EDS or its subsidiaries having a fair market value of
at least $10 million, any transfer or issuance of securities of EDS or any of
its subsidiaries, any adoption of a plan or proposal by EDS of voluntary
liquidation or dissolution of EDS, certain reclassifications of securities or
recapitalizations of EDS or certain other transactions, in each case involving
the Related Person. This voting requirement will not apply to certain
transactions, including (a) any transaction in which the consideration to be
received by the holders of each class of capital stock of EDS is (x) the same in
form and amount as that paid in a tender offer in which the Related Person
acquired at least 50% of the outstanding shares of such class and which was
consummated not more than one year earlier or (y) not less in amount than the
highest per share price paid by the Related Person for shares of such class or
(b) any transaction approved by EDS' continuing directors (as defined in the EDS
Certificate of Incorporation). The GM Hourly Plan, and any trustee of or other
fiduciary with respect to such plan (when acting in such capacity), will not be
a Related Person solely as a result of its acquiring EDS Common Stock in the
Split-Off but may thereafter become a Related Person if it shall purchase or
otherwise become the beneficial owner of additional shares of capital stock
constituting 1% or more of the aggregate voting power of the outstanding capital
stock of EDS unless the GM Hourly Plan is not then the beneficial owner of 10%
or more of the aggregate voting power of the outstanding capital stock of EDS.
This provision could have the effect of delaying or preventing a change in
control of EDS in a transaction or series of transactions that did not satisfy
the "fair price" criteria.
The provisions of the EDS Certificate of Incorporation relating to the EDS
Board, the limitation of actions taken by written consent, the calling of
special meetings, the amendment of the EDS Bylaws and the "fair price" provision
may be amended only by the affirmative vote of the holders of at least 80% of
the aggregate voting power of the outstanding capital stock of EDS entitled to
vote for the election of directors.
The foregoing provisions of the EDS Certificate of Incorporation and the
EDS Bylaws, together with the EDS Rights Agreement and the provisions of Section
203 of the DGCL, could have the effect of delaying, deferring or preventing a
change in control of EDS or the removal of existing management, of deterring
potential acquirors from making an offer to stockholders of EDS and of limiting
any opportunity to realize premiums over prevailing market prices for EDS Common
Stock in connection therewith. For a description of certain other factors that
could limit such changes in control and offers, see "Risk Factors Regarding EDS
after the Split-Off-Certain Limitations on Changes in Control of EDS." This
could be the case notwithstanding that a majority of EDS' stockholders might
benefit from such a change in control or offer.
66
<PAGE>
EDS TRANSFER AGENT AND REGISTRAR
The Bank of New York will serve as the Transfer Agent and Registrar for the
EDS Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF EDS
EDS
The following table sets forth certain information regarding the beneficial
ownership of Class E Common Stock as of March 15, 1996, by each of the persons
expected to be a director of EDS immediately after consummation of the Split-
Off, by each other executive officer identified under the Executive Compensation
table above and by all persons expected to be directors and executive officers
of EDS upon consummation of the Split-Off as a group. Upon consummation of the
Split-Off, each outstanding share of Class E Common Stock will be automatically
converted into one share of EDS Common Stock, and the persons shown herein as
holding Class E Common Stock will own an identical number of shares of EDS
Common Stock and approximately the same percentage of the outstanding shares of
such class. Each of the individuals/groups listed below is the owner of less
than one percent of the outstanding shares and voting power of the Class E
Common Stock (based on the number of shares of Class E Common Stock outstanding
on the Record Date).
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(a)
------------------------ --------
<S> <C>
Lester M. Alberthal, Jr............................ 109,062
Gary J. Fernandes.................................. 52,000
Jeffrey M. Heller.................................. 321,092
John R. Castle, Jr................................. 35,394
Dean Linderman..................................... 79,856
James A. Baker, III................................ -0-
Richard B. Cheney.................................. -0-
Ray J. Groves...................................... -0-
Ray L. Hunt........................................ -0-
C. Robert Kidder................................... 2,300
Judith Rodin....................................... -0-
Enrique J. Sosa.................................... -0-
Directors and executive officers of EDS as a group
(15 persons)................................. 788,851
</TABLE>
(a) Excludes units granted under the Existing EDS Incentive Plan to Messrs.
Alberthal, Fernandes, Heller, Castle and Linderman and all officers and
directors as a group representing 422,000, 228,000, 298,000, 133,000,
248,000 and 1,743,000 shares of unvested restricted Class E Common Stock,
respectively. All such units are scheduled to vest (subject to earlier
vesting based on the achievement of performance goals by EDS) during the
period from 1997 through the earlier of normal retirement age or 2009.
GM HOURLY PLAN SPECIAL TRUST
Of the approximately 485.7 million shares of Class E Common Stock
outstanding as of the Record Date, EDS has been advised that approximately
149.5 million shares, or approximately 31%, were owned by the GM Hourly Plan
67
<PAGE>
Special Trust. The GM Hourly Plan Special Trust acquired the substantial
majority of such shares pursuant to General Motors' contribution to the GM
Hourly Plan, on March 13, 1995, of 173.2 million shares of Class E Common Stock.
All of the contributed shares, together with an additional approximately
16.9 million shares of Class E Common Stock held by the GM Hourly Plan Special
Trust at the time of the contribution, are subject to the restrictions on
transfer in and other terms of a Registration Rights Agreement, dated March 12,
1995 (the "Registration Rights Agreement"), between General Motors and the GM
Hourly Plan Trustees. Upon consummation of the Split-Off, EDS will succeed to
all of the rights and obligations of General Motors under the Registration
Rights Agreement (with the exception of certain indemnification provisions
relating to prior offerings under the Registration Rights Agreement), and all of
the provisions of the Registration Rights Agreement applicable to the Class E
Common Stock held by the GM Hourly Plan Special Trust will apply to the EDS
Common Stock into which such Class E Common Stock is converted (for purposes of
this discussion, the "Registrable Securities"). Under the Registration Rights
Agreement, the GM Hourly Plan Special Trust may only transfer Registrable
Securities in certain types of transactions and under certain circumstances,
including "demand transfers" (which are defined under the Registration Rights
Agreement to include public offerings and negotiated transactions, whether
registered or not) and certain transfers to employee benefit plans maintained by
General Motors and its subsidiaries. The Registration Rights Agreement provides
that any underwritten public offering to be effected thereunder by the GM Hourly
Plan Special Trust must be reasonably designed to achieve a broad public
distribution of the securities being offered. Subject to certain limitations,
the issuer of the Registrable Securities may postpone the filing or
effectiveness of any registration statement requested by the GM Hourly Plan
Special Trust or the making of any demand transfer at any time the issuer
determines that such action would interfere with any proposal or plan by the
issuer to engage in any material acquisition, merger, tender offer, securities
offering or other material transaction or would require such issuer to make a
public disclosure of previously non-public material information. The
Registration Rights Agreement prohibits the GM Hourly Plan Special Trust from
making a negotiated transfer (i) of more than 2% of the Registrable Securities
then outstanding to any person and (ii) to any person who is then required to
file or has filed a Schedule 13D under the Exchange Act with respect to the
Registrable Securities. Following the consummation of the Split-Off, the GM
Hourly Plan Special Trust will be permitted two demand transfers in any twelve-
month period. Restrictions on the GM Hourly Plan Special Trust's transfer of
Registrable Securities under the Registration Rights Agreement will terminate
when the GM Hourly Plan Special Trust owns less than 2% of the EDS Common Stock
then outstanding.
The Registration Rights Agreement also imposes certain restrictions on the
ability of the GM Hourly Plan Special Trust to tender its shares of Registrable
Securities in a third-party tender offer until such Trust owns 7.5% or less of
the EDS Common Stock on a fully diluted basis (after which time it may freely
tender into any tender offer for EDS Common Stock). Until such time, in the
event of a tender offer for EDS Common Stock, the right of the GM Hourly Plan
Special Trust to tender its Registrable Securities will depend on whether EDS
has in effect a stockholders rights plan (such as the EDS Rights Agreement). In
general, the GM Hourly Plan Special Trust may tender its shares in a tender
offer if a stockholders rights plan is in effect during the pendency of such
tender offer, but the rights thereunder have been redeemed, revoked or
invalidated by the EDS Board, or by a final and non-appealable court order, in
connection with such tender offer. The GM Hourly Plan Special Trust will also be
able to tender its shares in a tender offer if both (i) a stockholders rights
plan is in effect during the pendency of such tender offer, but the rights
thereunder have been redeemed, revoked or invalidated for any other reason, and
(ii) either the EDS Board, or a majority of EDS' Independent Directors (as
defined in the Registration Rights Agreement), has not recommended rejection of
the tender offer, or there are then fewer than two Independent Directors on the
EDS Board. Additionally, if (i) a stockholders rights plan is in effect during
the pendency of a tender offer, but the rights thereunder have been redeemed,
revoked or invalidated for any reason other than that described above and other
than as a result of a proposal publicly or privately initiated, recommended,
endorsed, supported or voted for by the GM Hourly Plan Special Trust, and (ii)
the GM Hourly Plan Special Trust makes a good faith determination that the
tender offer will likely result in the purchase of shares representing more than
50% of EDS' total voting power (without giving effect to any securities tendered
or to be tendered by the GM Hourly Plan Special Trust), then the GM Hourly Plan
Special Trust may tender shares in such tender offer, unless EDS gives notice to
the GM Hourly Plan Special Trust. If EDS gives any such notice and the tender
offer then results in the purchase of shares constituting more than 50% of the
total voting power of EDS, then the GM
68
<PAGE>
Hourly Plan Special Trust will have the option to cause EDS to purchase the
number of shares that would have been purchased from the GM Hourly Plan Special
Trust in the tender offer if the GM Hourly Plan Special Trust had been permitted
to tender, at the price per share, payable in cash, offered in the tender offer.
Pursuant to the Registration Rights Agreement, on June 12, 1995, General
Motors registered under the Securities Act an underwritten public offering of
40,550,000 shares (including an over-allotment option of 5,550,000 shares, which
was exercised in full) of Class E Common Stock owned by the GM Hourly Plan
Special Trust. All such shares were sold to the public.
The GM Hourly Plan Special Trust has also agreed, pursuant to a Transfer
Agreement dated as of March 12, 1995 (the "Transfer Agreement") between General
Motors and the GM Hourly Plan Trustees, that for a period that generally
terminates on the second anniversary of the Split-Off, it will vote against any
merger of EDS that would not be a tax-free reorganization under Section 368 of
the Code. In the Transfer Agreement, the GM Hourly Plan Special Trust
additionally agreed to certain transfer restrictions intended to preserve the
tax-free status of the Split-Off. Such restrictions generally terminate on the
second anniversary of the Merger and do not apply to sales pursuant to public
offerings meeting certain criteria. The Transfer Agreement could have the effect
of delaying, deterring or preventing a change in control of EDS. The Separation
Agreement provides that General Motors will not (i) amend or modify the Transfer
Agreement in any material respect or (ii) waive the benefit of any material term
of the Transfer Agreement, without the prior written consent of EDS. See
"Relationship Between General Motors and EDS-Post Split-Off Arrangements-
Separation Agreement."
The GM Hourly Plan Trustees have been appointed, as fiduciaries within the
meaning of ERISA, to manage the shares of Registrable Securities owned by the GM
Hourly Plan Special Trust. The GM Hourly Plan Trustees have responsibility to
manage prudently the shares of Registrable Securities held by the GM Hourly Plan
Special Trust, in a manner consistent with maximizing the value of the GM Hourly
Plan Special Trust's investment in Registrable Securities and in accordance with
the GM Hourly Plan Trustees' determination of the extent to which the GM Hourly
Plan Special Trust may prudently continue to hold such shares consistent with
the diversification and related fiduciary requirements of ERISA. In accordance
with the foregoing and in a manner consistent with the limitations and terms of
the Registration Rights Agreement, the GM Hourly Plan Trustees have the
authority and discretion to cause the GM Hourly Plan Special Trust to hold such
shares or sell all or any portion thereof from time to time as they may deem
appropriate, and to direct the voting of and the exercise of all other rights
relating to such shares. The GM Hourly Plan Trustees have also notified EDS of
their intent to manage the disposition of shares of EDS Common Stock in a manner
consistent with maintaining an orderly market for the EDS Common Stock, although
there can be no assurance in this regard. EDS has been advised that, in order to
discharge their fiduciary duties, the GM Hourly Plan Trustees continually look
for attractive opportunities to sell a portion of their holdings of Class E
Common Stock (and following the Split-Off, EDS Common Stock) consistent with
their stated objectives of maximizing value for the GM Hourly Plan and
maintaining an orderly market for such stock. There can be no assurance as to
the timing or size of any offerings of shares owned by the GM Hourly Plan
Special Trust since, subject to the terms of the Registration Rights Agreement
and the Transfer Agreement, the GM Hourly Plan Trustees have the right to sell
such shares at any time. The sale of shares by the GM Hourly Plan Special Trust
will depend on, among other things, market conditions, the price of such shares,
the level of and any changes in the demand for such shares, and other factors
outside the control of EDS. The Department of Labor exemption obtained at the
time of the contribution of the shares of Registrable Securities to the GM
Hourly Plan Special Trust does not impose any time constraints on the GM Hourly
Plan Special Trust for any dispositions of such shares. The compensation of the
GM Hourly Plan Trustees is not contingent in any way on the sale or continued
holding of shares of Registrable Securities by the GM Hourly Plan Special Trust.
69
<PAGE>
APPENDIX A
EDS CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
Independent Auditors' Report............................................. A-1
Consolidated Statements of Income........................................ A-2
Consolidated Balance Sheets.............................................. A-3
Consolidated Statements of Cash Flows.................................... A-4
Notes to Consolidated Financial Statements............................... A-5
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Electronic Data Systems Corporation:
We have audited the accompanying consolidated balance sheets of Electronic
Data Systems Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Electronic
Data Systems Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
January 24, 1996
A-1
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
---------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Systems and other contracts revenues............................. $ 12,422.1 $ 9,960.1 $ 8,507.3
---------- --------- ---------
Costs and expenses
Cost of revenues............................................ 9,601.6 7,529.4 6,390.6
Selling, general, and administrative........................ 1,291.5 1,187.1 1,005.4
---------- --------- ---------
Total costs and expenses............................... 10,893.1 8,716.5 7,396.0
---------- --------- ---------
Operating income................................................. 1,529.0 1,243.6 1,111.3
Interest and other income, net (Note 20)......................... (62.0) 40.6 20.0
---------- --------- ---------
Income before income taxes....................................... 1,467.0 1,284.2 1,131.3
Provision for income taxes (Note 11)............................. 528.1 462.3 407.3
---------- --------- ---------
Separate Consolidated Net Income................................. $ 938.9 $ 821.9 $ 724.0
========== ========= =========
Earnings Per Share Attributable to GM Class E Common Stock....... $ 1.96 $ 1.71 $ 1.51
========== ========= =========
</TABLE>
Revenues related to GM and affiliates amounted to $3,891.1 million,
$3,547.2 million, and $3,323.7 million for 1995, 1994, and 1993, respectively.
See accompanying notes to consolidated financial statements.
A-2
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
--------- --------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................... $ 548.9 $ 608.2
Marketable securities (Note 3).......................................... 89.7 149.6
Accounts receivable, net................................................ 2,872.0 2,082.1
Accounts receivable from GM and affiliates.............................. 297.0 65.4
Inventories............................................................. 181.2 137.8
Prepaids and other...................................................... 392.7 311.0
--------- --------
Total current assets............................................... 4,381.5 3,354.1
--------- --------
Property and equipment, at cost less accumulated depreciation (Note 4)....... 3,242.4 2,756.6
--------- --------
Operating and other assets
Land held for development, at cost (Note 5)............................. 105.1 97.4
Investment in leases and other (Note 6)................................. 1,573.5 1,308.8
Software, goodwill, and other intangibles, net (Notes 7 and 19)......... 1,529.9 1,269.6
--------- --------
Total operating and other assets................................... 3,208.5 2,675.8
--------- --------
Total Assets....................................................... $10,832.4 $8,786.5
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable........................................................ $ 603.9 $ 571.1
Accrued liabilities (Note 8)............................................ 1,704.5 1,451.0
Deferred revenue........................................................ 629.3 536.7
Income taxes (Note 11).................................................. 75.9 111.0
Notes payable (Note 9).................................................. 247.8 203.4
--------- --------
Total current liabilities.......................................... 3,261.4 2,873.2
--------- --------
Deferred income taxes (Note 11).............................................. 739.7 659.8
--------- --------
Notes payable (Note 9)....................................................... 1,852.8 1,021.0
--------- --------
Commitments and contingent liabilities (Notes 17 and 18)
Stockholder's equity (Notes 10 and 12)
Common stock, without par value; authorized 1,000.0 shares. Issued and
outstanding 483.7 and 481.7 shares at December 31, 1995 and 1994,
respectively.......................................................... 517.7 455.1
Retained earnings....................................................... 4,460.8 3,777.4
--------- --------
Total stockholder's equity......................................... 4,978.5 4,232.5
--------- --------
Total Liabilities and Stockholder's Equity......................... $10,832.4 $8,786.5
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 938.9 $ 821.9 $ 724.0
--------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................................................... 1,107.8 771.1 626.8
Deferred compensation.................................................................. 58.8 62.0 33.8
Other.................................................................................. 33.0 30.9 (17.7)
Changes in assets and liabilities, net of effects of acquired companies:
(Increase) in accounts receivable.................................................. (611.5) (605.4) (200.8)
(Increase) decrease in accounts receivable from GM and affiliates.................. (227.8) 51.1 (56.0)
(Increase) in inventories.......................................................... (41.9) (1.9) (15.5)
(Increase) in prepaids and other................................................... (59.7) (57.0) (26.8)
Increase (decrease) in accounts payable and accrued liabilities.................... (76.0) 453.2 27.4
Increase in deferred revenue....................................................... 81.0 79.1 137.1
Increase (decrease) in taxes payable............................................... 56.4 (72.5) 188.7
--------- ---------- ---------
Total adjustments.............................................................. 320.1 710.6 697.0
--------- ---------- ---------
Net cash provided by operating activities................................................. 1,259.0 1,532.5 1,421.0
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of marketable securities............................................. 163.6 370.0 234.2
Proceeds from investments in leases and other assets..................................... 87.8 134.6 217.3
Payments for purchases of property and equipment......................................... (1,261.5) (1,186.0) (816.4)
Payments for investments in leases and other assets...................................... (356.3) (395.7) (170.6)
Payments related to acquisitions, net of cash acquired................................... (234.9) (186.6) (122.1)
Payments for purchases of software and other intangibles................................. (92.0) (77.0) (119.0)
Payments for purchases of marketable securities.......................................... (100.9) (248.9) (292.5)
Other.................................................................................... 12.7 49.9 1.4
--------- ---------- ---------
Net cash used in investing activities.................................................... (1,781.5) (1,539.7) (1,067.7)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable............................................................... 7,466.7 10,821.0 2,527.7
Payments on notes payable................................................................. (6,776.3) (10,300.7) (2,648.7)
Net decrease in current notes payable with maturities less than 90 days................... -- (102.9) (99.0)
Employee stock transactions and related tax benefit....................................... 26.0 20.2 33.9
Dividends paid to GM...................................................................... (251.3) (231.1) (192.1)
--------- ---------- ---------
Net cash provided by (used in) financing activities....................................... 465.1 206.5 (378.2)
--------- ---------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents................................ (1.9) 25.5 (13.6)
--------- ---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........................................ (59.3) 224.8 (38.5)
Cash and Cash Equivalents at Beginning of Year.............................................. 608.2 383.4 421.9
--------- ---------- ---------
Cash and Cash Equivalents at End of Year.................................................... $ 548.9 $ 608.2 $ 383.4
========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Electronic Data Systems Corporation is a provider of information technology
using advanced computer and communications technologies to meet the business
needs of its clients. As used herein, the terms "EDS" and "the Company"
refer to Electronic Data Systems Corporation and its consolidated subsidiaries.
EDS offers its clients a continuum of services in over 40 countries worldwide.
This continuum includes the management of computers, networks, information
systems, information processing facilities, business operations, and related
personnel, as well as management consulting services. (See Note 14 for
geographic segment information.)
General Motors Corporation (GM) acquired all of the capital stock of EDS in
October 1984. Prior to that time, EDS had been an independent, publicly held
corporation. Electronic Data Systems Holding Corporation was incorporated in
Delaware in 1994 for the purpose of holding the capital stock of EDS, which was
incorporated in Texas in 1962. Accordingly, EDS is an indirect wholly owned
subsidiary of GM.
Principles of Consolidation
The consolidated financial statements include the accounts of EDS and all
majority-owned subsidiaries. The Company's investments in companies in which it
has the ability to exercise significant influence over operating and financial
policies are accounted for under the equity method, with the remaining
investments carried at cost.
Earnings Attributable to GM Class E Common Stock on a Per Share Basis have
been determined based on the relative amounts available for the payment of
dividends to holders of GM Class E common stock. Holders of GM Class E common
stock have no direct rights in the equity or assets of EDS, but rather have
rights in the equity and assets of GM (which includes 100 percent of the stock
of EDS). Dividends on the GM Class E common stock are declared out of the
Available Separate Consolidated Net Income of EDS earned since the acquisition
of EDS by GM. The Available Separate Consolidated Net Income of EDS is
determined quarterly and is equal to the Separate Consolidated Net Income of
EDS, excluding the effects of purchase accounting adjustments arising from the
acquisition of EDS, which are not reflected in the accompanying consolidated
financial statements, multiplied by a fraction, the numerator of which is the
weighted average number of shares of GM Class E common stock outstanding during
the quarter, and the denominator of which was 483.7 million EDS common shares at
December 31, 1995 (the Class E Dividend Base). The effects of purchase
accounting adjustments reflected in General Motors Consolidated Financial
Statements that are applicable to EDS were not material to EDS' Consolidated
Statements of Income for each of the three years in the period ended December
31, 1995. At December 31, 1995, the remaining carrying value of such purchase
accounting adjustments would not be material to EDS' Consolidated Financial
Statements.
GM Series C depositary shares represent ownership of one-tenth of a share of
GM Series C convertible preference stock. GM Series C depositary shares and GM
Series C preference stock are convertible into GM Class E common stock and are
common stock equivalents for purposes of computing Earnings Attributable to GM
Class E Common Stock on a Per Share Basis. On November 2, 1992, GM Series E-II
and E-III preference stocks, previously held by the GM pension plans, were
converted to GM Class E common stock. In 1993 and 1992, GM Series E-I preference
stock was converted to GM Class E common stock, or redeemed by GM. The issuances
and conversions of such preference stocks have no dilutive effect on the GM
Class E common stock because, to the extent that shares of GM Class E common
stock deemed to be outstanding would increase, such increased shares would
increase the numerator of the fraction used to determine Available Separate
Consolidated Net Income, but would have no effect on the denominator.
Additionally, unvested units in the Company's stock incentive plan would have no
material dilutive effect on the denominator.
A-5
<PAGE>
The denominator used in determining the Available Separate Consolidated Net
Income of EDS is adjusted as deemed appropriate by the GM Board of Directors to
reflect subdivisions or combinations of the GM Class E common stock and to
reflect certain transfers of capital to or from EDS. The GM Board's discretion
to make such adjustments is limited by criteria set forth in GM's Certificate of
Incorporation. In 1988, EDS initiated a program to purchase 11.0 million shares
of GM Class E common stock in order to meet certain future requirements of the
Company's employee benefit plans. As of December 31, 1989, the Company had
purchased 11.0 million shares of GM Class E common stock to be distributed to
key employees under the provisions of the 1984 Plan. The GM Board has generally
caused the denominator used in calculating the Available Separate Consolidated
Net Income of EDS to decrease as shares are purchased and to increase as shares
are used for the employee benefit plans.
In March 1995, GM contributed 173 million newly issued shares of GM Class E
Common Stock to the General Motors Hourly-Rate Employees Pension Plan.
The current GM Board policy is that the cash dividends on the GM Class E
Common Stock, when, as, and if declared by the GM Board in its sole discretion,
will equal approximately 30 percent of the prior year's Available Separate
Consolidated Net Income of EDS.
The following table summarizes certain amounts discussed above (in millions,
except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Separate Consolidated Net Income.............................................. $ 938.9 $ 821.9 $ 724.0
Available Separate Consolidated Net Income.................................... $ 795.5 $ 444.4 $ 367.2
Average Number of Shares of GM Class E Common Stock Outstanding (Numerator)... 404.6 260.3 243.0
Class E Dividend Base (Denominator)........................................... 483.7 481.7 480.6
Earnings Attributable to GM Class E Common Stock on a Per Share Basis......... $ 1.96 $ 1.71 $ 1.51
Cash Dividends Per Share of GM Class E Common Stock........................... $ 0.52 $ 0.48 $ 0.40
</TABLE>
Debt and Marketable Equity Securities
Marketable securities at December 31, 1995 and 1994, consist of securities
issued by the U.S. Treasury, states, and political subdivisions, as well as
mortgage-backed debt, corporate debt and corporate equity securities. The
Company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, effective January 1, 1994. Pursuant to SFAS No. 115, the provisions
of the Statement were not applied retroactively. The change had no material
cumulative effect on the Company's financial position or results of operations.
Under SFAS No. 115, the Company classifies all of its debt and marketable equity
securities as available-for-sale. Management determines the appropriate
classification of all securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Noncurrent available-for-sale
securities are reported within the balance sheet classification ''Investment in
Leases and Other.'' The Company's available-for-sale securities are recorded at
fair value. Unrealized holding gains and losses, net of the related tax effect,
are excluded from earnings and are reported as a separate component of
stockholder's equity until realized. A decline in the fair value of any
available-for-sale security below cost that is deemed other than temporary is
charged to earnings, resulting in the establishment of a new cost basis for the
security (see Note 3).
Inventory Valuation
Inventories are stated principally at the lower of cost or market using the
first-in, first-out method.
A-6
<PAGE>
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is calculated using the straight-line method over the lesser of the
asset's estimated useful life, the life of the related customer contract or the
term of the lease in the case of leasehold improvements. The ranges of estimated
useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings......................... 20--40
Facilities........................ 5--20
Computer equipment................ 3--7
Other equipment and furniture..... 3--15
</TABLE>
Software, Goodwill, and Other Intangibles
Software purchased by the Company and utilized in designing, installing, and
operating business information and communications systems is capitalized and
amortized on a straight-line basis over a five- to eight-year period. Costs of
developing and maintaining software systems are incurred primarily in connection
with customer contracts and are considered contract costs. Software development
costs that meet the capitalization and recoverability requirements of SFAS No.
86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, are capitalized and generally amortized on a straight-line
basis over three years. Such amounts were not significant.
The cost of acquired companies is allocated first to identifiable assets
based on estimated fair values. The excess of the purchase price over the fair
value of identifiable assets acquired, net of liabilities assumed, is recorded
as goodwill and amortized on a straight-line basis over the useful life which is
determined based on the individual characteristics of the acquired entity,
generally five to 40 years. Costs allocated to identifiable intangible assets
are amortized on a straight-line basis over the remaining estimated useful lives
of the assets as determined by underlying contract terms or independent
appraisals. Such lives range from five to ten years.
The Company periodically evaluates the carrying amounts of goodwill and other
intangibles, as well as the related amortization periods, to determine whether
adjustments to these amounts or useful lives are required based on current
events and circumstances. The evaluation is based on the Company's projection of
the undiscounted future operating cash flows of the acquired operation over the
remaining useful lives of the related intangible assets. To the extent such
projections indicate that future undiscounted cash flows are not sufficient to
recover the carrying amounts of related intangibles, the underlying assets are
written down by charges to expense so that the carrying amount is equal to
future undiscounted cash flows. The assessment of the recoverability of goodwill
will be impacted if estimated future operating cash flows are not achieved.
Revenue Recognition
The Company provides services under level-of-effort and fixed-price
contracts, with the length of the Company's contracts ranging up to ten years.
For level-of-effort types of contracts, revenue is earned based on the agreed-
upon billing amounts as services are provided to the customer. For certain fixed
- -price contracts, revenue is recognized on the percentage-of-completion method.
Revenue earned is based on the percentage that incurred contract costs to date
bear to total estimated contract costs after giving effect to the most recent
estimates of total cost. Changes to total estimated contract costs, if any, are
recognized in the period they are determined. Deferred revenue of $629.3 million
and $536.7 million at December 31, 1995 and 1994, respectively, represents
billings in excess of costs and related profits on certain contracts. Included
in accounts receivable are unbilled receivables of $622.2 million and $448.5
million at December 31, 1995 and 1994, respectively. Such unbilled receivables
for certain contracts in progress represent costs and related profits in excess
of billings, and such amounts were not billable at the balance sheet date but
are recoverable over the
A-7
<PAGE>
remaining life of the contract. These billings on fixed-price contracts will be
made in the future in accordance with contractual agreements. Of the unbilled
receivables at December 31, 1995, billings to such customers amounting to $108.3
million are expected to be collected in 1997 and thereafter.
Currency Translation
Assets and liabilities of non-U.S. subsidiaries whose functional currency is
not the U.S. dollar are translated at current exchange rates. Revenue and
expense accounts are translated using an average rate for the period.
Translation gains (losses) are not included in determining net income but are
reflected as a separate component of stockholder's equity. Nonfunctional
currency transaction gains (losses) are included in determining net income and
were $(3.8) million, $4.5 million, and $(3.7) million, net of income taxes, for
the years ended December 31, 1995, 1994, and 1993, respectively.
Income Taxes
The Company provides for deferred taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered. The Company is included in the
consolidated federal tax returns filed by GM. Current federal income taxes are
calculated on a separate return basis and remitted to GM. The deferral method is
used to account for investment tax credits.
Statement of Cash Flows
The Company uses the indirect method to present cash flows from operating
activities and considers certificates of deposit, as well as the following items
with original maturities of three months or less, to be cash equivalents:
commercial paper, repurchase agreements, and money market funds. (See Note 20.)
Financial Instruments
The following table presents the carrying amounts and fair values of the
Company's financial instruments as defined under SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, at December 31, 1995 and 1994 (in
millions):
A-8
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Available-for-sale marketable securities (Notes 3 and 6).......................... $ 93.5 $ 93.5 $ 153.6 $ 153.6
Investment in joint ventures and partnerships, under the
cost method of accounting (Note 6)................................................ 215.1 271.4 149.6 172.0
Other long-term securities (Note 6)............................................... 263.2 307.4 201.2 192.6
Non-current notes receivable (Note 6)............................................. 89.6 86.0 158.1 154.4
Notes payable (Note 9)............................................................ 2,100.6 2,168.4 1,224.4 1,230.3
Foreign exchange forward contracts, net liability (Note 15)....................... (5.4) (5.4) (0.9) (0.9)
</TABLE>
The carrying value of other financial instruments such as cash equivalents,
accounts receivable, and accounts payable approximate their fair value.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers comprising the Company's customer base and
their dispersion across different industry and geographic areas. Accounts
receivable are shown net of allowances of $99.5 million and $57.9 million as of
December 31, 1995 and 1994, respectively.
Derivatives
Derivative financial instruments are used by the Company in the management of
its interest rate and foreign currency exposures. Net payments or receipts under
the Company's interest rate swap agreements are recorded as adjustments to
interest expense. Foreign exchange forward contracts are recorded in the
Company's Consolidated Balance Sheets at fair value at the reporting date.
Realized and unrealized changes in fair value are recognized in income, as other
income (expense), in the period in which the changes occur.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
Significant Customers
The percentage of EDS' total revenues attributable to GM and its affiliates
has decreased significantly since GM's acquisition of EDS in 1984 as a result of
the revenue growth of EDS' non-GM business. During the year ended December 31,
1995, the portion of EDS' revenues attributable to GM was approximately 31%. On
August 7, 1995, GM announced that it intends to pursue a split-off (the ''Split-
Off'') of EDS to its GM Class E stockholders in a tax-free exchange. Immediately
before the Split-Off, GM and EDS will enter into a new master services agreement
and certain related agreements which would significantly change the pricing and
terms of the services currently provided by EDS. In addition, it is also
expected that at the time of the Split-Off, a Special Inter-Company Payment will
be made to GM by EDS to ensure the fairness of the Split-Off to all classes of
GM common stock. Therefore, EDS does not anticipate the loss of GM as an ongoing
major customer in the near future.
A-9
<PAGE>
Other than General Motors, no single customer accounted for more than 5% of
the Company's revenues in 1995, 1994, or 1993.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 consolidated
financial statements to conform to the 1995 presentation.
NOTE 2: NATIONAL HERITAGE INSURANCE COMPANY
National Heritage Insurance Company (NHIC), a wholly owned subsidiary of EDS,
acts as underwriter for claims benefit payments for the Medicaid welfare program
contract for the state of Texas.
The contract provides that payments from the state be deposited in trust
accounts that are not included in the consolidated financial statements. In
accordance with contractual provisions, these funds will be returned to the
state if total benefit claims are less than the amounts received. Of such
payments received for the years ended December 31, 1995, 1994, and 1993,
$3,440.1 million, $4,188.7 million, and $4,453.4 million, respectively, were
designated for the payment of benefit claims or to be returned to the state. At
December 31, 1995 and 1994, $664.7 million and $983.5 million, respectively, of
such designated funds at amortized cost remained in the trust accounts.
Approximate market values of these invested funds at December 31, 1995 and 1994
were $663.3 million and $975.2 million, respectively. These investments
primarily consist of corporate and government bonds. NHIC has the ability and
intent to hold these investments until their full face value can be realized.
Gains and losses from the sale of these investments held in trust accounts are
combined with gains and losses from the Company's other investments.
NOTE 3: DEBT AND MARKETABLE EQUITY SECURITIES
Following is a summary of available-for-sale securities (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
Current:
U.S. government and agency obligations........................ $ 33.2 $ 0.1 $ 0.1 $ 33.2
Other debt securities......................................... 35.6 0.1 1.8 33.9
-------- --------- --------- ---------
Total debt securities......................................... 68.8 0.2 1.9 67.1
Equity securities............................................. 23.4 -- 0.8 22.6
-------- --------- --------- ---------
Total current available-for-sale securities................... $ 92.2 $ 0.2 $ 2.7 $ 89.7
======== ========= ========= =========
Noncurrent (Note 6):
Other debt securities......................................... $ 0.6 $ -- $ -- $ 0.6
Equity securities............................................. 5.7 -- 2.5 3.2
-------- --------- --------- ---------
Total noncurrent available-for-sale securities................ $ 6.3 $ -- $ 2.5 $ 3.8
======== ========= ========= =========
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
U.S. government and agency obligations....................................... $ 31.9 $ -- $ 0.6 $ 31.3
Other debt securities........................................................ 94.9 0.2 4.7 90.4
------- -------- ------- --------
Total debt securities........................................................ 126.8 0.2 5.3 121.7
Equity securities............................................................ 29.2 -- 1.3 27.9
------- -------- ------- --------
Total current available-for-sale securities................................. $ 156.0 $ 0.2 $ 6.6 $ 149.6
======= ======== ======= ========
Noncurrent (Note 6):
Other debt securities........................................................ $ 0.6 $ -- $ -- $ 0.6
Equity securities............................................................ 5.8 -- 2.4 3.4
------- -------- ------- --------
Total noncurrent available-for-sale securities.............................. $ 6.4 $ -- $ 2.4 $ 4.0
======= ======== ======= ========
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below (in millions). Expected
maturities will differ from contractual maturities because the issuers of the
securities may have the right to repay obligations without prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------
AMORTIZED FAIR
COST VALUE
-------------- -----------
<S> <C> <C>
Debt securities
Due in one year or less.......................................... $ 18.1 $ 18.1
Due after one year through five years............................ 30.7 30.7
Due after five years through ten years........................... 2.0 2.0
Due after ten years.............................................. 0.7 0.7
Mortgage-backed securities....................................... 17.9 16.2
------- -------
Total debt securities......................................... $ 69.4 $ 67.7
======= =======
</TABLE>
The following table summarizes sales of available-for-sale securities (in
millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1995 1994
--------- ----------
<S> <C> <C>
Proceeds from sales............................................... $162.5 $374.4
Gross realized gains.............................................. $ 0.7 $ 17.4
Gross realized losses............................................. $ (1.1) $ (4.1)
</TABLE>
Specific identification was used to determine cost in computing realized gain
or loss.
A-11
<PAGE>
NOTE 4: PROPERTY AND EQUIPMENT (IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
-------- ------------ --------
<S> <C> <C> <C>
Land.................................. $ 136.9 $ -- $ 136.9
Buildings and facilities.............. 925.1 383.5 541.6
Computer equipment.................... 4,836.2 2,571.3 2,264.9
Other equipment and furniture......... 663.6 364.6 299.0
-------- ----------- --------
Total............................. $6,561.8 $ 3,319.4 $3,242.4
======== =========== ========
DECEMBER 31, 1994
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
-------- ------------ --------
<S> <C> <C> <C>
Land.................................. $ 125.3 $ -- $ 125.3
Buildings and facilities.............. 878.7 319.5 559.2
Computer equipment.................... 3,967.6 2,096.6 1,871.0
Other equipment and furniture......... 465.9 264.8 201.1
-------- ----------- --------
Total............................. $5,437.5 $2,680.9 $2,756.6
======== =========== ========
</TABLE>
NOTE 5: LAND HELD FOR DEVELOPMENT
Land held for development at December 31, 1995, consists of approximately
2,260 acres located throughout the Dallas metropolitan area. Approximately 1,590
acres of land, site of a commercial real estate development, are located in
Plano, Texas. The carrying value of land is periodically compared to current
sales, market analysis and appraisals to determine whether an adjustment is
required.
NOTE 6: INVESTMENT IN LEASES AND OTHER (IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Lease contracts receivable (net of principal and interest on nonrecourse debt).............. $ 385.9 $ 384.5
Estimated residual values of leased assets (not guaranteed)................................. 335.3 339.0
Unearned income, including deferred investment tax credits.................................. (246.8) (260.6)
-------- --------
Investment in leveraged leases (excluding deferred taxes of $303.0 and $284.7 at
December 31, 1995 and 1994, respectively)................................................ 474.4 462.9
Investment in securities, joint ventures and partnerships................................... 602.8 357.2
Investment in direct financing leases, net of unearned income............................... 148.2 153.8
Noncurrent notes receivable................................................................. 89.6 158.1
GM Class E common stock held for benefit plans.............................................. 33.2 54.7
Investment in tax benefit transfers......................................................... 36.2 38.6
Long-term prepaid software license fees..................................................... 43.4 16.6
Other....................................................................................... 145.7 66.9
-------- --------
Total................................................................................... $1,573.5 $1,308.8
======== ========
</TABLE>
A-12
<PAGE>
The fair values of certain long-term investments are estimated based on
quoted market prices for these or similar investments. For other investments, a
variety of methods are used to estimate fair value, including external
valuations and discounted cash flows. At December 31, 1995, the fair values of
investments in joint ventures and partnerships (accounted for using the cost
method), long-term securities, and noncurrent notes receivable were estimated to
be $271.4 million, $307.4 million, and $86.0 million, respectively, with
carrying amounts of $215.1 million, $263.2 million, and $89.6 million,
respectively. At December 31, 1994, the fair values of investments in joint
ventures and partnerships (accounted for using the cost method), long-term
securities, and noncurrent notes receivable were estimated to be $172.0 million,
$192.6 million, and $154.4 million, respectively, with carrying amounts of
$149.6 million, $201.2 million, and $158.1 million, respectively. The carrying
amount of securities, joint ventures and partnerships also includes investments
accounted for under the equity method, none of which are material to the
Company's consolidated financial statements. A decline in the market value of
any of these investments which is deemed to be other than temporary would be
charged to earnings. At December 31, 1995 and 1994, "Investment in Leases and
Other" was net of an allowance of $26.6 million and $17.5 million, respectively.
Long-term securities include GM Class E common stock and other securities. The
carrying value of the GM Class E common stock, which was less than the market
value, was utilized as the investment's fair value shown above, because the
stock will be used to satisfy future benefit plan obligations.
Financing leases that are financed with nonrecourse borrowings at lease
inception are accounted for as leveraged leases. Such borrowings are secured by
substantially all of the lessor's rights under the lease plus the residual value
of the asset. For federal income tax purposes, the Company receives the
investment tax credit (if available) at lease inception and has the benefit of
tax deductions for depreciation on the leased asset and for interest on the
nonrecourse debt. A portion of the Company's leveraged lease portfolio is
concentrated within the airline industry. The Company historically has not
experienced credit losses from these transactions, and the portfolio is
diversified among unrelated lessees.
NOTE 7: SOFTWARE, GOODWILL, AND OTHER INTANGIBLES (IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------
ACCUMULATED
COST AMORTIZATION NET
-------- ------------ --------
<S> <C> <C> <C>
Software.............................. $ 966.6 $606.8 $ 359.8
Goodwill.............................. 1,225.6 129.6 1,096.0
Other intangibles..................... 245.8 171.7 74.1
-------- ------ --------
Total.......................... $2,438.0 $908.1 $1,529.9
======== ====== ========
DECEMBER 31, 1994
--------------------------------
ACCUMULATED
COST AMORTIZATION NET
-------- ------------ --------
Software.............................. $ 876.0 $462.1 $ 413.9
Goodwill.............................. 833.9 80.4 753.5
Other intangibles..................... 312.8 210.6 102.2
-------- ------ --------
Total.......................... $2,022.7 $753.1 $1,269.6
======== ====== ========
</TABLE>
A-13
<PAGE>
NOTE 8: ACCRUED LIABILITIES (IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Contract related............................................................... $1,044.8 $ 880.9
Payroll related................................................................ 291.4 196.4
Operating expenses............................................................. 157.7 196.1
Property, sales, and franchise taxes........................................... 135.1 100.1
Other.......................................................................... 75.5 77.5
-------- --------
Total...................................................................... $1,704.5 $1,451.0
======== ========
</TABLE>
NOTE 9: NOTES PAYABLE (IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
--------- --------
<S> <C> <C>
Commercial paper, 5.6% to 5.9%................................................. $1,078.0 $ 933.0
Lines of credit, variable rate 5.9% to 9.6%, due 1996.......................... 118.9 48.7
Notes, variable rate, 3.0% to 11.2%, due 1996 to 2006.......................... 9.3 91.1
Notes to Banks, fixed rate, 4.9% to 11.7%, due 1996 to 2003.................... 121.6 107.2
Notes Payable, fixed rate, 6.85% to 7.125%, due 2000 to 2005, net of discount.. 645.8 --
Notes Payable, fixed rate, 1.2% to 10.4%, due 1996 to 2004..................... 127.0 44.4
-------- --------
Total...................................................................... 2,100.6 1,224.4
Less current maturities classified as notes payable........................ (247.8) (203.4)
-------- --------
Noncurrent notes payable................................................... $1,852.8 $1,021.0
======== ========
</TABLE>
Commercial paper is classified as noncurrent debt, as it is intended to be
maintained on a long-term basis with ongoing credit availability provided by the
Company's revolving, committed lines of credit. During 1995, the Company revised
its agreement with a syndicate of banks, which increased to $2,500.0 million its
committed lines of credit, of which $1,250.0 million expires in 1996 with the
option to convert any outstanding amounts under these lines into term loans that
mature in 1998. The remaining $1,250.0 million expires in 2000. Upon expiration
of the commitment periods, the lenders and EDS have the option to extend the
commitment.
In addition, as of December 31, 1995, the Company had available and had
used another $15.5 million in committed lines of credit. The Company also had
available $831.6 million in uncommitted short-term lines of credit, of which
$728.2 million remained unused at December 31, 1995.
In May 1995, EDS issued $350.0 million of its 6.85%, five-year notes and
$300.0 million of its 7.125% ten-year notes in a private placement to investment
banks.
Notes payable relate to land held for development, property and equipment,
acquisitions, and other items. Notes payable are generally unsecured, with
certain notes secured by assets of a majority-owned subsidiary.
A-14
<PAGE>
Maturities of notes payable for years subsequent to December 31, 1995, are
as follows (in millions):
<TABLE>
<S> <C>
1996............................ $ 247.8
1997............................ 60.6
1998............................ 35.5
1999............................ 6.9
2000............................ 1,433.1
Thereafter...................... 316.7
--------
$2,100.6
========
</TABLE>
The Company's credit facilities and the indenture governing its medium term
notes contain certain financial and other covenants, including the maintenance
of a minimum net worth and restrictions on mergers, consolidations and sales of
substantially all of the assets of the Company. As of December 31, 1995, the
Company was in compliance with all of these covenants.
For the years ended December 31, 1994 and 1993, interest costs of $1.2
million and $5.4 million, respectively, were capitalized, which, if charged to
expense, would have resulted in reductions in net income of $0.7 million and
$3.5 million, respectively. During 1995, the Company capitalized no interest
costs.
The fair value of notes payable is estimated based on the current rates
offered to the Company for the same remaining maturities. At December 31, 1995
and 1994, the estimated fair value was $2,168.4 million and $1,230.3 million,
respectively.
NOTE 10: CONSOLIDATED STOCKHOLDER'S EQUITY (IN MILLIONS)
<TABLE>
<CAPTION>
COMMON STOCK CURRENCY MARKET CONSOLIDATED
-------------------- TRANSLATION VALUE RETAINED STOCKHOLDER'S
SHARES AMOUNT ADJUSTMENT ADJUSTMENT EARNINGS EQUITY
------- ------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992....................... 479.3 $ 365.9 $ (52.7) $ -- $2,750.2 $3,063.4
Net income...................................... -- -- -- -- 724.0 724.0
Dividends declared.............................. -- -- -- -- (192.1) (192.1)
Stock award transactions........................ 1.6 55.3 -- -- -- 55.3
Currency translation adjustment................. -- -- (33.2) -- -- (33.2)
------ ------- ---------- -------- -------- ---------
Balance at December 31, 1993....................... 480.9 421.2 (85.9) -- 3,282.1 3,617.4
Net income...................................... -- -- -- -- 821.9 821.9
Dividends declared.............................. -- -- -- -- (231.1) (231.1)
Stock award transactions........................ 0.8 33.9 -- -- -- 33.9
Currency translation adjustment................. -- -- (3.0) -- -- (3.0)
Unrealized loss on securities, net (Note 3)..... -- -- -- (6.6) -- (6.6)
------ ------- ---------- -------- -------- ---------
Balance at December 31, 1994....................... 481.7 455.1 (88.9) (6.6) 3,872.9 4,232.5
Net income...................................... -- -- -- -- 938.9 938.9
Dividends declared.............................. -- -- -- -- (251.3) (251.3)
Stock award transactions........................ 2.0 62.6 -- -- -- 62.6
Currency translation adjustment................. -- -- (6.6) -- -- (6.6)
Unrealized gain on securities, net
(Note 3)........................................ -- -- -- 2.4 -- 2.4
------ ------- ---------- -------- -------- --------
Balance at December 31, 1995....................... 483.7 $ 517.7 $ (95.5) $ (4.2) $4,560.5 $4,978.5
====== ======= ========== ======== ======== ========
</TABLE>
A-15
<PAGE>
NOTE 11: INCOME TAXES
The current and deferred income tax liabilities (assets) are summarized as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- ---------
<S> <C> <C>
Current payable............................................ $ 4.3 $ 49.3
Current deferred........................................... 71.6 61.7
-------- --------
Total income taxes--current............................ 75.9 111.0
Noncurrent deferred........................................ 739.7 659.8
-------- --------
Total current and noncurrent income taxes.............. $ 815.6 $ 770.8
======== ========
</TABLE>
The provision for income tax expense is summarized as follows (in
millions):
<TABLE>
<CAPTION>
U.S. NON-
FEDERAL U.S. STATE TOTAL
------- -------- -------- --------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Current ......................... $310.3 $ 117.3 $ 35.4 $ 463.0
Deferred ........................ 44.5 20.6 -- 65.1
------ -------- -------- --------
Total ...................... $354.8 $ 137.9 $ 35.4 $ 528.1
====== ======== ======== ========
Year Ended December 31, 1994
Current ......................... $279.0 $ 167.9 $ 32.6 $ 479.5
Deferred ........................ 15.8 (33.0) -- (17.2)
------ -------- -------- --------
Total ...................... $294.8 $ 134.9 $ 32.6 $ 462.3
====== ======== ======== ========
Year Ended December 31, 1993
Current ......................... $130.1 $ 77.8 $ 17.0 $ 224.9
Deferred ........................ 161.0 21.4 -- 182.4
------ -------- -------- --------
Total ...................... $291.1 $ 99.2 $ 17.0 $ 407.3
====== ======== ======== ========
</TABLE>
Income before income taxes included the following components (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U.S. income ........................................... $1,131.6 $ 963.5 $ 886.1
Non-U.S. income ....................................... 335.4 320.7 245.2
-------- -------- --------
Total ............................................. $1,467.0 $1,284.2 $1,131.3
======== ======== ========
</TABLE>
A-16
<PAGE>
A reconciliation of income tax expense using the statutory federal income
tax rate of 35.0 percent for 1995, 1994, and 1993 to the actual income tax
expense follows (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes................................. $1,467.0 $1,284.2 $1,131.3
Statutory federal income tax............................... 513.4 449.5 395.9
Non-U.S. taxes, net of credit.............................. 4.1 18.9 13.4
State income tax, net...................................... 23.0 21.2 11.1
Investment tax credit-leveraged leases..................... (3.0) (3.1) (4.4)
Research and experimentation credits....................... (7.5) (11.3) (8.8)
Other...................................................... (1.9) (12.9) 0.1
-------- -------- --------
Total.................................................. $ 528.1 $ 462.3 $ 407.3
======== ======== ========
Effective income tax rate.................................. 36.0% 36.0% 36.0%
======== ======== ========
</TABLE>
The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities, are as follows
(in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Basis differences attributable to leasing
activities............................................... $ 1.6 $ 488.4 $ 2.5 $ 504.8
Adjustments necessary to convert accruals to
a tax basis.............................................. 129.9 246.8 111.9 215.1
Employee benefit plans..................................... 27.1 57.8 32.0 25.9
Accumulated tax depreciation/amortization
versus accumulated financial statement
depreciation/amortization................................ 12.0 259.5 18.7 211.2
Effect on deferred taxes of carryforwards.................. 122.3 -- 102.9 --
Unpaid claims and unearned premiums
related to NHIC.......................................... 12.1 72.8 27.6 52.7
Employee related compensation.............................. 94.0 -- 69.5 --
Allowance for doubtful accounts............................ 19.3 -- 4.8 --
Adjustments from conversion from cash to
accrual basis on open tax years.......................... 43.5 -- 43.5 --
Book to tax differences on securities...................... 17.0 -- 15.0 --
Effect of lower tax rate on distributable
foreign earnings......................................... 31.7 -- 29.6 --
Other...................................................... 87.6 157.8 42.1 100.8
------- -------- ------- --------
Subtotal............................................... 598.1 1,283.1 500.1 1,110.5
Less valuation allowance............................... (126.3) -- (111.1) --
------- -------- ------- --------
Total deferred taxes................................... $ 471.8 $1,283.1 $ 389.0 $1,110.5
======= ======== ======= =========
</TABLE>
A-17
<PAGE>
The net changes in the total valuation allowance for the years ended
December 31, 1995 and 1994 were increases of $15.2 million and $18.8 million,
respectively. Certain of the Company's foreign subsidiaries have net operating
loss carryforwards which expire over an indefinite period. A majority of such
carryforwards are included in the valuation allowance. In assessing the
realizability of deferred tax assets, the Company considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
NOTE 12: STOCK PURCHASE AND INCENTIVE PLANS
The 1984 Electronic Data Systems Corporation Employee Stock Purchase Plan
(Purchase Plan) enables EDS employees to purchase up to 80.0 million shares of
GM Class E common stock at 85 percent of the quoted market price through payroll
deductions of up to 10 percent of their compensation. Shares of GM Class E
common stock purchased under the Purchase Plan may not be sold or transferred
within two years of the date of purchase unless they are first offered to GM or
EDS at the lesser of the original purchase price or the fair market value on the
date of sale. The number of shares available for future sale under the Purchase
Plan was 58.1 million shares at December 31, 1995.
The 1984 Electronic Data Systems Corporation Stock Incentive Plan (1984
Plan) covers up to 160.0 million shares of GM Class E common stock and expires
on October 17, 2004. The 1984 Plan permits shares and rights or options to
acquire shares, which may be subject to restrictions, to be granted or sold. The
maximum number of shares for which additional shares, rights or options may be
granted or sold under the provisions of the 1984 Plan was 93.3 million shares at
December 31, 1995.
The EDS Incentive and Compensation Committee (the Committee) granted the
right to purchase a total of 27.6 million shares of GM Class E common stock, at
prices of $0.0125 and $0.025 per share, to key employees under the provisions of
the 1984 Plan. As of December 31, 1995, substantially all of these shares have
vested. The difference between the quoted market price as of the date of grant
and the purchase price of shares granted has been charged to operations over the
vesting period. Expense for these awards amounted to $1.6 million, $13.3 million
and $16.3 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
In 1995, 1994, 1991 and 1988, the Committee approved restricted stock unit
grants. The 1995 grant, related to the acquisition of A. T. Kearney (see Note
19), totals 6.6 million shares of GM Class E common stock. The 1995 grant and
the 1994 grant, which totaled 9.5 million shares, will be distributed to key
employees under the provisions of the 1984 Plan. The right to receive shares is
a restricted stock unit. All units granted are generally scheduled to vest over
a period of 10 years. The 1995 units are scheduled to vest beginning September
1996. The 1994, 1991, and 1988 grants began vesting in March 1995, March 1992,
and March 1989, respectively. The quoted market price as of the date of grant is
charged to operations over the vesting period. The total unvested number of
units as of December 31, 1995 was 19.8 million.
The Company has a bonus plan under which awards are granted to key
executives and employees. Bonus expense amounted to $96.9 million, $86.6 million
and $49.8 million for the years ended December 31, 1995, 1994, and 1993,
respectively. Included in bonus expense is $57.2 million, $48.7 million and
$17.5 million relating to the restricted stock unit grants for the years ended
December 31, 1995, 1994, and 1993, respectively.
NOTE 13: DEFERRED COMPENSATION PLAN
The EDS Deferred Compensation Plan (Plan) provides a long-term savings
program for participants. The Plan allows eligible employees to contribute a
percentage of their compensation to a savings program and to defer income taxes
until the time of distribution.
A-18
<PAGE>
NOTE 14: SEGMENT INFORMATION
Industry Segments
The Company's business involves operations in principally one industry
segment: designing, installing, and operating business information and
communications systems. Revenues from GM contributed approximately 31 percent,
36 percent, and 39 percent of total revenues for the years ended December 31,
1995, 1994, and 1993, respectively.
Geographic Segments
The following presents information about the Company's operations in
different geographic areas (in millions):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995
-----------------------------------
U.S. EUROPE OTHER TOTAL
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Systems and other contracts revenues
Outside customers................................. $5,794.9 $2,001.5 $ 734.6 $ 8,531.0
GM and affiliates................................. 2,926.1 659.2 305.8 3,891.1
-------- -------- -------- ---------
Total systems and other contracts
revenues.................................... $8,721.0 $2,660.7 $1,040.4 $12,422.1
======== ======== ======== =========
Operating income...................................... $1,164.0 $ 271.5 $ 93.5 $ 1,529.0
======== ======== ======== =========
Identifiable assets................................... $7,566.8 $2,490.1 $ 775.5 $10,832.4
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1994
-------------------------------------
U.S. Europe Other Total
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Systems and other contracts revenues
Outside customers................................. $4,611.2 $1,308.1 $ 493.6 $ 6,412.9
GM and affiliates................................. 2,764.4 523.4 259.4 3,547.2
-------- -------- -------- ---------
Total systems and other contracts
revenues.................................... $7,375.6 $1,831.5 $ 753.0 $ 9,960.1
======== ======== ======== =========
Operating income...................................... $1,008.6 $ 168.3 $ 66.7 $ 1,243.6
======== ======== ======== =========
Identifiable assets................................... $6,618.0 $1,573.8 $ 594.7 $ 8,786.5
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1993
-------------------------------------
U.S. EUROPE OTHER TOTAL
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Systems and other contracts revenues
Outside customers................................. $4,004.5 $ 911.6 $ 267.5 $ 5,183.6
GM and affiliates................................. 2,574.5 511.2 238.0 3,323.7
-------- -------- -------- ---------
Total systems and other contracts
revenues.................................... $6,579.0 $1,422.8 $ 505.5 $ 8,507.3
======== ======== ======== =========
Operating income....................................... $ 906.5 $ 148.7 $ 56.1 $ 1,111.3
======== ======== ======== =========
Identifiable assets.................................... $5,350.6 $1,185.9 $ 405.6 $ 6,942.1
======== ======== ======== =========
</TABLE>
A-19
<PAGE>
NOTE 15: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates on a global basis receiving revenues and incurring
expenses in many different countries. As a result of these activities, the
Company has exposure to market risks arising from changes in interest rates and
foreign exchange rates. Derivative financial instruments are used by the Company
for the purpose of hedging against these risks, to which the Company is exposed
in the normal course of business, by creating offsetting market exposures. The
Company's use of such instruments in relation to such risks is explained below.
The Company does not hold or issue financial instruments for trading purposes.
The notional amounts of derivatives contracts are summarized below as part
of the description of the instruments utilized. The notional amounts do not
represent the amounts exchanged by the parties, and thus are not a measure of
the exposure of the Company through its use of derivatives. The amounts
exchanged by the parties are normally based upon the notional amounts and the
other terms of the derivatives. The Company is not a party to leveraged
derivatives.
Interest Risk Management
The Company has historically entered into interest rate swap agreements in
order to reduce the impact of changes in interest rates upon its floating-rate
debt. As of December 31, 1995 and 1994, the Company had no outstanding interest
rate swap agreements.
Foreign Exchange Risk Management
The Company uses derivative financial instruments, particularly foreign
exchange forward contracts, to hedge transactions denominated in different
currencies on a continuing basis. The purpose of the Company's hedging
activities is to reduce the levels of risk to which it is exposed resulting from
exchange-rate movements. At December 31, 1995 and 1994, the Company had forward
exchange contracts maturing in the following year to purchase various foreign
currencies in the amount of $651.9 million and $289.0 million, respectively, and
to sell $1,380.1 million and $766.5 million, respectively. The estimated fair
value of forward exchange contracts is based on quoted market prices. At
December 31, 1995, the estimated fair value of outstanding contracts in a gain
position was $5.5 million and the estimated fair value of outstanding contracts
in a loss position was $(10.9) million. At December 31, 1994, the estimated fair
value of outstanding contracts in a gain position was $3.3 million and the
estimated fair value of outstanding contracts in a loss position was $(4.2)
million. The Company recognizes realized and unrealized gains and losses on
foreign exchange contracts by marking to market all outstanding forward exchange
contracts. Fair value represents the cash required to settle foreign exchange
forward contracts.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to foreign exchange contracts, but because the Company deals only
with major commercial banks with high quality credit, the Company does not
anticipate nonperformance by any of these counterparties.
NOTE 16: RETIREMENT PLANS
The Company has pension plans (the Plans) covering substantially all of its
employees, the majority of which are noncontributory. In general, employees
become fully vested upon attaining five years of service, and benefits are based
on years of service and earnings. The actuarial cost method currently used is
the projected unit credit cost method. The Company's U.S. funding policy is to
contribute amounts that fall within the range of deductible contributions for
federal income tax purposes.
A-20
<PAGE>
The weighted average assumptions used for the Plans using a measurement
date of October 1 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate .................................... 8.0% 8.9% 7.7%
Rate of increase in compensation levels .......... 5.4% 5.7% 5.9%
Long-term rate of return on assets ............... 9.9% 10.0% 9.8%
</TABLE>
Net pension cost consisted of the following components (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost of the current period............. $ 87.6 $ 96.1 $ 72.6
Interest cost on projected benefit obligation.. 97.5 82.3 69.8
Actual return on assets........................ (158.6) (22.3) (121.3)
Net amortization and deferral.................. 59.9 (37.9) 75.2
------- ------ -------
Net pension cost............................... $ 86.4 $118.2 $ 96.3
======= ======= =======
</TABLE>
At December 31, 1995 and 1994, the Plans' assets consisted primarily of
equity and fixed income securities, commingled pension trust funds, and U.S.
Government obligations. Accrued and/or prepaid pension cost is included in
Accrued Liabilities or Investment in Leases and Other in the Company's
Consolidated Balance Sheets.
The following is a reconciliation of the funded status of the Plans (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Plans' assets at fair value............................................. $1,242.0 $ 8.2 $918.3 $ --
-------- ------- ------ -------
Actuarial present value of benefit obligation
Vested benefits..................................................... 750.7 81.2 485.9 56.1
Nonvested benefits.................................................. 78.4 13.3 57.6 11.2
-------- ------- ------ -------
Accumulated benefit obligation.......................................... 829.1 94.5 543.5 67.3
Effect of projected future salary increases............................. 462.9 57.9 326.4 25.5
-------- ------- ------ -------
Projected benefit obligation............................................ 1,292.0 152.4 869.9 92.8
-------- ------- ------ -------
Excess (deficiency) of Plans' assets over projected benefit obligation.. (50.0) (144.2) 48.4 (92.8)
Unrecognized net (gain) loss............................................ 126.7 (19.7) (28.3) (35.3)
Unrecognized net (asset) obligation at date of adoption................. (3.1) 26.0 (9.6) 23.4
Unrecognized prior service cost......................................... 11.4 (0.8) 12.8 (1.0)
Additional minimum liability............................................ -- (0.1) -- --
-------- ------- ------ -------
Net prepaid (accrued) pension cost...................................... $ 85.0 $(138.8) $ 23.3 $(105.7)
======== ======= ====== =======
</TABLE>
A-21
<PAGE>
NOTE 17: COMMITMENTS AND RENTAL EXPENSE
Commitments for rental payments under noncancelable operating leases for
each of the next five years ending December 31 and thereafter for computer
equipment, software and facilities are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1996............... $371.5
1997............... 273.7
1998............... 193.1
1999............... 168.7
2000............... 142.9
Thereafter......... 646.5
</TABLE>
Total rentals under cancelable and noncancelable leases, principally
computer equipment, leased facilities, and other leased assets, included in
costs and charged to expenses were $676.1 million, $524.3 million, and $564.9
million for the years ended December 31, 1995, 1994, and 1993, respectively.
Total rentals under cancelable and noncancelable leases for software included in
costs and charged to expenses were $306.8 million, $220.2 million, and $129.3
million for the years ended December 31, 1995, 1994, and 1993, respectively.
At December 31, 1995 and 1994, the Company had $43.9 million and $51.5
million, respectively, outstanding under standby letters of credit related to
payment and performance guarantees.
NOTE 18: CONTINGENT LIABILITIES
There are various claims and pending actions against the Company arising in
the ordinary course of the conduct of its business. Certain of these actions
seek damages in significant amounts. The amount of liability on these claims and
actions at December 31, 1995 was not determinable, but in the opinion of
management, the ultimate liability, if any, will not have a material adverse
effect on the Company's consolidated results of operations or financial
position.
NOTE 19: ACQUISITIONS
On August 31, 1995, the Company acquired A.T. Kearney, a Chicago-based
international management consulting firm. At the acquisition date, the Company
paid approximately $112.7 million in cash and issued $162.3 million in short and
long-term notes to A.T. Kearney shareholders and principals. The terms of the
acquisition agreement also include a restricted stock grant of approximately 6.6
million shares of GM Class E common stock, which will vest over a ten-year
period for certain A.T. Kearney personnel remaining with the Company (see Note
12). Prior to December 31, 1995, $80.9 million of short-term notes related to
the acquisition were retired.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the excess purchase price over net assets acquired, based upon the
fair value of such assets and liabilities at the date of acquisition, was $252.1
million and is being amortized to expense over a ten-year period. The
Consolidated Statements of Income include the operations of A.T. Kearney since
the date of acquisition. Pro forma disclosure relating to A.T. Kearney's results
of operations is not presented, as the impact is immaterial to EDS.
A-22
<PAGE>
In conjunction with acquisitions made during the years ended December 31,
1995 and 1994, assets were acquired and liabilities were assumed as follows (in
millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1994
------ ------
<S> <C> <C>
Fair value of assets acquired............................. $674.7 $427.8
Less:
Cash paid for stock and assets, net of cash acquired... (234.9) (186.6)
Debt issued for stock and assets....................... (184.9) (94.9)
------ ------
Liabilities assumed....................................... $254.9 $146.3
====== ======
</TABLE>
NOTE 20: SUPPLEMENTARY FINANCIAL INFORMATION
The following summarizes certain costs charged to expense for the years
indicated (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Depreciation of property and equipment.............. $ 808.1 $577.5 $465.6
======= ====== ======
Amortization........................................ $ 299.7 $193.6 $161.2
======= ====== ======
</TABLE>
The components of Interest and other income, net, are presented below (in
millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Interest and other income........................... $ 58.8 $92.3 $54.5
Interest expense.................................... (120.8) (51.7) (34.5)
------- ------ ------
Total.......................................... $(62.0) $40.6 $20.0
======= ====== ======
</TABLE>
Supplemental cash flow information is presented below (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Cash paid for:
Income taxes, net of refunds................... $ 407.8 $465.6 $183.8
======= ====== ======
Interest, net of amount capitalized............ $ 108.3 $ 49.7 $ 40.2
======= ====== ======
</TABLE>
A-23
<PAGE>
NOTE 21: QUARTERLY FINANCIAL DATA (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Systems and other contracts revenues.............. $2,776.3 $2,950.1 $3,073.7 $3,622.0 $12,422.1
Gross profit from operations...................... 600.2 654.9 687.6 877.8 2,820.5
Income before income taxes........................ 307.5 354.5 384.0 421.0 1,467.0
Separate Consolidated Net Income.................. 196.8 226.9 245.7 269.5 938.9
Earnings Attributable to GM Class E Common Stock
on a Per Share Basis............................ 0.42 0.47 0.51 0.56 1.96
Stock price range of GM Class E common
High.......................................... 41.38 45.25 47.50 52.63 52.63
Low........................................... 36.88 38.38 41.50 43.88 36.88
Cash dividends per share of GM Class E common..... 0.13 0.13 0.13 0.13 0.52
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Systems and other contracts revenues.............. $2,217.2 $2,309.5 $2,522.8 $2,910.6 $ 9,960.1
Gross profit from operations...................... 506.6 584.1 602.1 737.9 2,430.7
Income before income taxes........................ 268.3 308.2 338.1 369.6 1,284.2
Separate Consolidated Net Income.................. 171.7 197.3 216.4 236.5 821.9
Earnings Attributable to GM Class E Common Stock
on a Per Share Basis............................ 0.36 0.41 0.45 0.49 1.71
Stock price range of GM Class E common
High......................................... 36.88 38.00 38.50 39.50 39.50
Low.......................................... 27.50 32.88 33.00 34.75 27.50
Cash dividends per share of GM Class E common..... 0.12 0.12 0.12 0.12 0.48
</TABLE>
A-24
<PAGE>
SCHEDULE II
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCES AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
- ----------- ------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995
Allowances Deducted from Assets
Lease contracts receivable.................. $288.7 $ 0.3 $ 31.3 $ 44.2(a) $276.1
Accounts and notes receivable............... 57.9 124.6 -- 83.0(b) 99.5
Inventories................................. 13.7 19.1 -- 13.3(c) 19.5
Valuation allowance for deferred taxes...... 111.1 20.8 -- 5.6 126.3
------ ------ ------ ------ ------
Total Allowances Deducted from Assets... $471.4 $164.8 $31.3 $146.1 $521.4
====== ====== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1994
Allowances Deducted from Assets
Lease contracts receivable.................. $301.8 $ -- $21.4 $ 34.5(a) $288.7
Accounts and notes receivable............... 53.0 50.6 -- 45.7(b) 57.9
Inventories................................. 15.0 28.2 -- 29.5(c) 13.7
Valuation allowance for deferred taxes...... 92.3 18.8 -- -- 111.1
------ ------ ------ ------- ------
Total Allowances Deducted from Assets... $462.1 $ 97.6 $21.4 $109.7 $471.4
====== ====== ====== ======= ======
FOR THE YEAR ENDED DECEMBER 31, 1993
Allowances Deducted from Assets
Lease contracts receivable.................. $331.6 $ -- $15.1 $ 44.9(a) $301.8
Accounts and notes receivable............... 51.9 74.7 -- 73.6(b) 53.0
Inventories................................. 9.7 20.0 -- 14.7(c) 15.0
Valuation allowance for deferred taxes...... 48.6 50.2 -- 6.5 92.3
------ ------ ------ ------- ------
Total Allowances Deducted from Assets... $441.8 $144.9 $15.1 $139.7 $462.1
====== ====== ====== ======= ======
</TABLE>
________________
(a) Recognition of lease income
(b) Accounts written off
(c) Obsolete parts disposed of, etc.
A-25
<PAGE>
(b) Exhibit List.
-------------
The following documents are exhibits to this Current Report on Form 8-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3(a) Restated Certificate of Incorporation of EDS (incorporated herein by reference to Exhibit 3(a) to
the Registration Statement on Form S-4 of Electronic Data Systems Holding Corporation filed with
the Commission on April 16, 1996 (File No. 333-02543)).
3(b) Amended and Restated Bylaws of EDS (incorporated herein by reference to Exhibit 3(b) to the
Registration Statement on Form S-4 of Electronic Data Systems Holding Corporation filed with
the Commission on April 16, 1996 (File No. 333-02543)).
4 Rights Agreement, dated as of March 12, 1996, by and between EDS and The Bank of New York,
as Rights Agent (incorporated herein by reference to Exhibit 4(c) to the Registration Statement on
Form S-4 of Electronic Data Systems Holding Corporation filed with the Commission on April
16, 1996 (File No. 333-02543)).
10(a) Form of Master Service Agreement between General Motors and EDS (portions of which are
subject to confidential treatment granted by the Commission) (incorporated herein by reference
to Exhibit 10(a) to the Registration Statement on Form S-4 of Electronic Data Systems Holding
Corporation filed with the Commission on April 16, 1996 (File No. 333-02543)).
10(b) 1996 Incentive Plan of EDS (incorporated herein by reference to Exhibit 10(b) to the Registration
Statement on Form S-4 of Electronic Data Systems Holding Corporation filed with the
Commission on April 16, 1996 (File No. 333-02543)).
10(c) 1996 Electronic Data Systems Corporation Stock Purchase Plan (incorporated herein by reference
to Exhibit 10(c) to the Registration Statement on Form S-4 of Electronic Data Systems Holding
Corporation filed with the Commission on April 16, 1996 (File No. 333-02543)).
10(d) EDS Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10(d)
to the Registration Statement on Form S-4 of Electronic Data Systems Holding Corporation filed
with the Commission on April 16, 1996 (File No. 333-02543)).
10(e) Electronic Data Systems Corporation Deferred Compensation Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 10(e) to the Registration Statement on Form S-4 of
Electronic Data Systems Holding Corporation filed with the Commission on April 16, 1996 (File
No. 333-02543)).
10(f) Form of Indemnification Agreement entered into by EDS and each of its executive officers and
director nominees (incorporated herein by reference to Exhibit 10(f) to the Registration Statement
on Form S-4 of Electronic Data Systems Holding Corporation filed with the Commission on April
16, 1996 (File No. 333-02543)).
10(g) Indenture dated as of May 15, 1995 between EDS, a Texas corporation, and Texas Commerce
Bank National Association, as trustee (incorporated herein by reference to Exhibit 10(g) to the
Registration Statement on Form S-4 of Electronic Data Systems Holding Corporation filed with
the Commission on April 16, 1996 (File No. 333-02543)).
10(h) Revolving Credit and Term Loan Agreement dated as of October 4, 1995 among EDS, Citibank,
N.A., as Administrative Agent, and the other financial institutions identified therein as Arrangers,
Managers and Lenders (incorporated herein by reference to Exhibit 10(h) to the Registration
Statement on Form S-4 of Electronic Data Systems Holding Corporation filed with the
Commission on April 16, 1996 (File No. 333-02543)).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10(i) Mullti-Currency Revolving Credit Agreement dated as of October 4, 1995 among EDS, Citibank,
N.A., as Administrative Agent, and the other financial institutions identified therein as Arrangers,
Managers and Lenders (incorporated herein by reference to Exhibit 10(i) to the Registration
Statement on Form S-4 of Electronic Data Systems Holding Corporation filed with the
Commission on April 16, 1996 (File No. 333-02543)).
10(j) Registration Rights Agreement dated March 12, 1995 between General Motors and United States
Trust Company of New York, as trustee of the General Motors Hourly-Rate Pension Plan
(incorporated herein by reference to Exhibit 10(j) to the Registration Statement on Form S-4 of
Electronic Data Systems Holding Corporation filed with the Commission on April 16, 1996 (File
No. 333-02543)).
10(k) Form of Succession Agreement among General Motors, United States Trust Company of New
York and EDS (incorporated herein by reference to Exhibit 10(k) to the Registration Statement
on Form S-4 of Electronic Data Systems Holding Corporation filed with the Commission on April
16, 1996 (File No. 333-02543)).
10(l) 1984 EDS Stock Incentive Plan (incorporated herein by reference to Exhibit 10(l) to the
Registration Statement on Form S-4 of Electronic Data Systems Holding Corporation filed with the
Commission on April 16, 1996 (File No. 333-02543)).
10(m) Form of Separation Agreement between General Motors and EDS (incorporated herein by
reference to Exhibit 2(b) to the Registration Statement on Form S-4 of Electronic Data Systems
Holding Corporation filed with the Commission on April 16, 1996 (File No. 333-02543)).
10(n) Amended and Restated Agreement for the Allocation of United States Federal, State and Local
Income Taxes dated as of April 2, 1996 between General Motors and EDS (incorporated herein
by reference to Exhibit 2(c) to the Registration Statement on Form S-4 of Electronic Data Systems
Holding Corporation filed with the Commission on April 16, 1996 (File No. 333-02543)).
21 Subsidiaries of EDS (incorporated herein by reference to Exhibit 21 to the Registration Statement
on Form S-4 of Electronic Data Systems Holding Corporation filed with the Commission on April
16, 1996 (File No. 333-02543)).
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC DATA SYSTEMS
HOLDING CORPORATION
By: /s/ Joseph M. Grant
-----------------------------
Name: Joseph M. Grant
---------------------------
Title: Chief Financial Officer
--------------------------
May 17, 1996
