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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 01-11779
ELECTRONIC DATA SYSTEMS CORPORATION
a Delaware corporation
IRS Employer Identification No. 75-2548221
5400 Legacy Drive, Plano, Texas 75024-3199
(972) 604-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
As of July 31, 1998, there were outstanding 492,174,511 shares of the regis-
trant's Common Stock, $.01 par value per share.
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<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I -- Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Operations.................. 3
Consolidated Balance Sheets............................ 4
Condensed Consolidated Statements of Cash Flows........ 5
Notes to Condensed Consolidated Financial Statements... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
Part II -- Other Information
Item 1. Legal Proceedings...................................... 15
Item 4. Submission of Matters to a Vote of Security Holders.... 15
Item 6. Exhibits and Reports on Form 8-K....................... 15
Signatures........................................................... 16
Exhibit 10(b) 1996 Incentive Plan of Electronic Data Systems Corporation.
Exhibit 10(d) Electronic Data Systems Corporation Deferred Compensation
Plan for Non-Employee Directors.
Exhibit 27 Financial Data Schedule (for SEC information only)
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Systems and other contracts revenues $4,186.1 $3,682.1 $8,128.1 $7,273.7
-------- -------- -------- --------
Costs and expenses
Cost of revenues 3,453.2 2,986.2 6,681.4 5,879.8
Selling, general and administrative 439.5 379.2 850.1 749.9
Restructuring charge -- 125.3 -- 125.3
Acquired in-process research and development -- -- 42.5 --
Asset write-downs 27.8 139.7 27.8 139.7
-------- -------- -------- --------
Total costs and expenses 3,920.5 3,630.4 7,601.8 6,894.7
-------- -------- -------- --------
Operating income 265.6 51.7 526.3 379.0
-------- -------- -------- --------
Other income (expense):
Gain on sale of stock of subsidiary 49.6 -- 49.6 --
Interest expense and other, net 3.7 (16.0) 30.7 (40.0)
-------- -------- -------- --------
Total other income (expense) 53.3 (16.0) 80.3 (40.0)
-------- -------- -------- --------
Income before income taxes 318.9 35.7 606.6 339.0
Provision for income taxes 97.0 12.8 200.5 122.0
-------- -------- -------- --------
Net income $ 221.9 $ 22.9 $ 406.1 $ 217.0
======== ======== ======== ========
Earnings per share
Basic $ 0.45 $ 0.05 $ 0.83 $ 0.44
======== ======== ======== ========
Diluted $ 0.45 $ 0.05 $ 0.82 $ 0.44
======== ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions except share and per share amounts)
June 30, December 31,
1998 1997
--------- ---------
Assets
Current assets
Cash and cash equivalents $ 447.0 $ 677.4
Marketable securities 279.1 347.5
Accounts receivable, net 3,709.9 3,736.8
Inventories 69.6 100.9
Prepaids and other 396.1 306.8
--------- ---------
Total current assets 4,901.7 5,169.4
--------- ---------
Property and equipment, net 2,832.0 2,868.4
Operating and other assets
Land held for development, at cost 88.4 87.2
Investments and other assets 1,697.8 1,501.2
Software, goodwill, and other intangibles, net 1,607.2 1,547.9
--------- ---------
Total operating and other assets 3,393.4 3,136.3
--------- ---------
Total Assets $11,127.1 $11,174.1
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 346.5 $ 372.4
Accrued liabilities 2,191.9 2,207.3
Deferred revenue 519.2 430.8
Income taxes 128.3 137.6
Current portion of long-term debt 87.7 109.5
--------- ---------
Total current liabilities 3,273.6 3,257.6
--------- ---------
Deferred income taxes 426.1 474.8
Long-term debt, less current portion 1,404.5 1,790.9
Redeemable preferred stock of subsidiaries and
minority interests 398.2 341.4
Stockholders' equity
Preferred stock, $.01 par value; authorized
200,000,000 shares, none issued -- --
Common stock, $.01 par value; 2,000,000,000 shares
authorized; 492,162,014 shares issued and outstanding
at June 30, 1998, and 491,567,240 shares issued and
outstanding at December 31, 1997 4.9 4.9
Additional paid-in capital 885.7 855.7
Retained earnings 4,860.2 4,601.6
Accumulated other comprehensive income (117.4) (152.8)
Treasury stock, at cost,
198,230 shares at June 30, 1998 (8.7) --
--------- ---------
Total stockholders' equity 5,624.7 5,309.4
--------- ---------
Total Liabilities and Stockholders' Equity $11,127.1 $11,174.1
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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<TABLE>
<CAPTION>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net cash provided by operating activities $ 235.6 $ 193.3 $ 859.2 $ 739.4
-------- -------- -------- --------
Cash Flows from Investing Activities
Proceeds from sale of marketable securities -- 20.2 39.6 47.4
Proceeds from investments and other assets 85.2 54.2 225.8 99.0
Proceeds from divestiture 23.0 -- 23.0 --
Payments for purchases of property and equipment (257.7) (174.0) (447.6) (371.7)
Payments for investments and other assets (96.5) (76.0) (206.6) (165.8)
Payments related to acquisitions, net of cash acquired (12.5) (66.8) (102.2) (73.2)
Payments for purchases of software and other intangibles (37.6) (58.7) (74.8) (59.8)
Payments for purchases of marketable securities (24.3) (15.2) (61.4) (30.1)
Other 16.1 28.2 38.2 45.1
-------- -------- -------- --------
Net cash used in investing activities (304.3) (288.1) (566.0) (509.1)
-------- -------- -------- --------
Cash Flows from Financing Activities
Proceeds from long-term debt 2,889.8 1,976.8 4,167.2 3,977.4
Payments on long-term debt (3,149.2) (2,103.3) (4,573.5) (4,700.3)
Proceeds from sale of stock of subsidiaries 65.1 73.8 66.5 412.8
Purchase of treasury stock -- -- (77.0) --
Employee stock transactions and related tax benefits 14.3 16.8 43.5 49.3
Dividends paid (73.8) (73.5) (147.6) (146.6)
-------- -------- -------- --------
Net cash used in financing activities (253.8) (109.4) (520.9) (407.4)
-------- -------- -------- --------
Effect of exchange rate changes on cash and cash equivalents 0.5 6.1 (2.7) (4.1)
-------- -------- -------- --------
Net decrease in cash and cash equivalents (322.0) (198.1) (230.4) (181.2)
Cash and cash equivalents at beginning of period 769.0 896.8 677.4 879.9
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 447.0 $ 698.7 $ 447.0 $ 698.7
======== ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Electronic Data Systems Corporation ("EDS" or the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of only normal recurring items) which are necessary for a fair presentation have
been included. The results for interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the full year.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's 1997 Annual Report on Form 10-K.
Certain reclassifications have been made to the 1997 unaudited condensed
consolidated financial statements to conform to the 1998 presentation.
Note 2. Earnings per Share
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share, in the fourth quarter of 1997.
It requires companies to present both basic and diluted earnings per share.
Basic earnings per share of common stock is computed by dividing net income by
the weighted-average number of EDS common shares outstanding during the period.
Diluted earnings per share is calculated in the same manner as basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding assuming the exercise
of all employee stock options and the vesting of restricted stock units that
would have had a dilutive effect on earnings per share. The weighted-average
number of shares outstanding used to compute basic and diluted earnings per
share for the three and six months ended June 30, 1998 and 1997 are as follows
(in millions):
1998 1997
---- ----
For the three months ended June 30:
Basic earnings per share 491.9 489.8
Diluted earnings per share 494.1 494.3
For the six months ended June 30:
Basic earnings per share 491.7 488.9
Diluted earnings per share 495.3 493.4
The Company has restated its earnings per share calculation for the
three and six months ended June 30, 1997 to reflect the adoption of SFAS No.
128. For further information, refer to the consolidated financial statements and
notes thereto included in the Company's 1997 Annual Report on Form 10-K.
Note 3. Depreciation and Amortization
Property and equipment is stated net of accumulated depreciation of
$4,144.9 million and $4,032.8 million at June 30, 1998 and December 31, 1997,
respectively. Additionally, software, goodwill, and other intangibles are stated
net of accumulated amortization of $1,256.0 million and $1,246.5 million at June
30, 1998 and December 31, 1997, respectively. Depreciation and amortization
expense for the three and six months ended June 30, 1998 was $358.4 million and
$679.7 million, respectively. Depreciation and amortization expense for the
three and six months ended June 30, 1997 was $294.7 million and $574.4 million,
respectively.
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Note 4. Restructuring Activities
The Company recorded restructuring charges and asset writedowns totaling
$329.6 million in 1997 and $27.8 million in the second quarter of 1998. During
the second quarter of 1997, the Company began implementation of an
enterprise-wide business transformation initiative to reduce its costs,
streamline its organizational structure, and align its strategy, services, and
delivery with market opportunities. This initiative involves the elimination of
approximately 8,500 positions through reassignment of personnel, elimination of
open personnel requisitions, normal attrition, and termination of employees.
Restructuring charges and asset writedowns consisted of $111.3 million relating
to the severance costs associated with the planned involuntary termination of
approximately 2,600 employees, asset writedowns of $99.7 million, and related
accruals of $14.0 million relating to operations that the Company plans to
discontinue. These operations primarily consist of several processing centers
which the Company is consolidating and certain product lines and related
services provided to certain industries. Asset writedowns relating to these
products lines include investments; software, goodwill, and other intangibles;
and buildings and computer equipment. In addition, the Company recorded asset
writedowns of $104.6 million in 1997 and $27.8 million in the second quarter of
1998 primarily relating to operating assets initially identified for sale in the
second quarter of 1997. As of June 30, 1998, all such assets have been sold. As
of June 30, 1998, approximately 1,980 employees have been involuntarily
terminated and approximately $75.1 million has been paid in termination benefits
and other accruals. The majority of the remaining accrual of $50.2 million is
expected to be paid in 1998.
Note 5. Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components. The statement also requires
the accumulated balance of other comprehensive income to be displayed separately
from retained earnings and additional paid-in capital in the equity section of
the statement of financial position.
Comprehensive income for the three and six months ended June 30, 1998
was $215.4 million and $441.5 million, respectively. Comprehensive income for
the three and six months ended June 30, 1997 was $34.8 million and $157.8
million, respectively. The primary differences between comprehensive income and
net income for the three and six months ended June 30, 1998 were related to
foreign currency translation adjustments and net unrealized holding gains on
certain of the Company's investments. The primary difference between
comprehensive income and net income for the three and six months ended June 30,
1997 was related to foreign currency translation adjustments.
Note 6. Sale of Stock of Subsidiary
On June 23, 1998, Unigraphics Solutions Inc., a wholly-owned subsidiary
of the Company, sold five million shares of its Class A common stock
representing 13.8% of its total outstanding common stock in an initial public
offering. Net proceeds from the offering were $65.1 million. As a result of the
offering, the Company recognized a gain on the sale of stock of this subsidiary
of $49.6 million. Income taxes have not been provided for this gain as the
Company believes that it will recover its basis in this subsidiary in a tax-free
manner.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
EDS offers its clients a portfolio of related services worldwide within
the broad categories of systems and technology services, business process
management, management consulting, and electronic business. Services include the
management of computers, networks, information systems, information- processing
facilities, business operations, and related personnel.
Forward Looking Statements
All statements other than historical statements contained in this
report on Form 10-Q constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Without limitation,
these forward-looking statements include statements regarding the Company's Year
2000 exposure and opportunity, future revenues and operating margins from
contracts with General Motors Corporation ("GM") and other clients, the impact
on EDS' earnings of the recent United Auto Workers strike at GM, the Company's
ability to achieve cost reductions, future selling, general and administrative
expenses, and future interest income and expense. Any Form 10-K, Annual Report
to Stockholders, Form 10-Q or Form 8-K of EDS may include forward-looking
statements. In addition, other written or oral statements which constitute
forward-looking statements have been made or may be made in the future by EDS,
including statements regarding future operating performance, short- and
long-term revenue and earnings growth, backlog and the value of new contract
signings, and industry growth rates and EDS' performance relative thereto. These
forward-looking statements rely on a number of assumptions concerning future
events, and are subject to a number of uncertainties and other factors, many of
which are outside of EDS' control, that could cause actual results to differ
materially from such statements. These include, but are not limited to:
competition in the information technology industry and the impact of such
competition on pricing, revenues, and margins; the market acceptance of new
product or service offerings that offer higher margins than traditional product
or service offerings and costs associated with the development and marketing of
such offerings; the financial performance of current and future customer
contracts, including the financial performance of EDS' contracts with GM and
EDS' ability to effect cost reductions for services provided under such
contracts; with respect to client contracts accounted for under the
percentage-of-completion method of accounting, the performance of such contracts
in accordance with EDS' cost estimates; the degree to which EDS can improve
productivity; the degree to which business entities continue to outsource
information technology and business processes; the cost of attracting and
retaining highly skilled personnel; and, with respect to EDS' Year 2000 exposure
and opportunity, EDS' ability to capitalize on new business opportunities and
the interpretation of information technology contracts it has with its clients.
EDS disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future
events, or otherwise.
Restructuring Activities, Asset Writedowns, and Other Related Charges
The Company recorded restructuring charges and asset writedowns
totaling $329.6 million in 1997 and $27.8 million in the second quarter of 1998.
During the second quarter of 1997, the Company began implementation of an
enterprise-wide business transformation initiative to reduce its costs,
streamline its organizational structure, and align its strategy, services, and
delivery with market opportunities. This initiative involves the elimination of
approximately 8,500 positions through reassignment of personnel, elimination of
open personnel requisitions, normal attrition, and termination of employees.
Restructuring charges and asset writedowns consisted of $111.3 million relating
to the
8
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severance costs associated with the planned involuntary termination of
approximately 2,600 employees, asset writedowns of $99.7 million, and related
accruals of $14.0 million relating to operations that the Company plans to
discontinue. These operations primarily consist of several processing centers
which the Company is consolidating and certain product lines and related
services provided to certain industries. Asset writedowns relating to these
products lines include investments; software, goodwill, and other intangibles;
and buildings and computer equipment. In addition, the Company recorded asset
writedowns of $104.6 million in 1997 and $27.8 million in the second quarter of
1998 primarily relating to operating assets initially identified for sale in the
second quarter of 1997. As of June 30, 1998, all such assets have been sold. As
of June 30, 1998, approximately 1,980 employees have been involuntarily
terminated and approximately $75.1 million has been paid in termination benefits
and other accruals. The majority of the remaining accrual of $50.2 million is
expected to be paid in 1998.
New Accounting Standards
In June 1998, Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities, was issued.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The provisions of SFAS No. 133 are
effective for financial statements beginning after June 15, 1999, although early
adoption is allowed. The Company has not determined the financial impact of
adopting this SFAS and has not determined if it will adopt its provisions prior
to its effective date.
In March 1998, Statement of Position (SOP) 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, was issued.
This SOP requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. The provisions of SOP 98-1 are effective for financial
statements issued for fiscal years beginning after December 15, 1998, although
early adoption is allowed. Initial application of SOP 98-1 is not expected to
have a material impact on the Company's financial statements. The Company has
not determined if it will adopt the provisions of this SOP prior to its
effective date.
In April 1998, SOP 98-5, Reporting on the Costs of Start-up Activities,
was issued. This SOP provides guidance on the financial reporting of start-up
and organization costs and requires that these costs be expensed as incurred.
The provisions of SOP 98-5 are effective for financial statements for fiscal
years beginning after December 15, 1998, although early adoption is allowed.
Adoption of SOP 98-5 is not expected to have a material impact on the Company's
financial statements. The Company will adopt the provisions of this SOP on
January 1, 1999.
In June 1997, SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, was issued. This statement establishes standards for
reporting information about operating segments in annual and interim financial
statements, although this statement need not be applied to interim financial
statements in the initial year of its application. This statement is effective
for fiscal years beginning after December 15, 1997.
Year 2000 Issue
For EDS, the Year 2000 issue encompasses not only the cost of making
EDS' internal systems Year 2000 compliant but also the cost to EDS of making its
clients' systems Year 2000 compliant where it is obligated to do so. EDS has
developed processes, assembled tools, and created a business organization to
provide Year 2000 services to its customers and to assist in addressing EDS'
internal needs.
With respect to its centralized internal systems, EDS has completed the
assessment and planning stages and has commenced the renovation process. EDS
anticipates that this process and the subsequent testing and implementation of
the modified code will be completed in stages, from mid-1998 through mid-1999.
With respect to noncentralized internal systems, which are generally confined to
a particular location
9
<PAGE>
or business unit, EDS is inventorying and assessing such systems and expects to
be completed with the assessment and planning stages for the systems which EDS
deems to be significant during the third quarter of 1998. The total cost to EDS
of making all of its internal systems Year 2000 compliant is estimated at
approximately $60.0 million, almost all of which will be incurred during 1998
and 1999.
EDS has completed an assessment of its obligations to make clients'
systems Year 2000 compliant, including an estimate of the cost and revenues to
EDS for performing such work, and monitors this assessment on an ongoing basis.
Based on such assessment, EDS does not believe that its client obligations with
respect to the Year 2000 issue will have a material adverse impact on EDS. The
estimated cost associated with making clients' systems Year 2000 compliant where
EDS is obligated to do so has been treated as a contract cost and is included in
the estimate of total contract costs for the respective contract under the
Company's revenue recognition policy.
Although the failure to complete the Year 2000 conversion process for
EDS' internal systems on a timely basis would have a material adverse impact on
the Company, EDS believes that this process will be completed in accordance with
the current schedule and that the Year 2000 issue will not have a material
adverse effect on the Company's business or results of operations. Aside from
the cost to EDS discussed above, the Year 2000 issue presents opportunities for
revenue growth for the next several years for EDS' CIO Services unit, which
provides a full range of Year 2000 services.
Recent Announcement
On July 30, 1998, the Company announced that it expected the recent
United Auto Workers' strike at GM to negatively impact EDS' earnings for 1998 by
$0.04 to $0.08 per share, with most of the impact falling in the third quarter.
This estimate primarily reflects EDS' estimate of the strike's impact on
discretionary spending by GM over the remainder of the year and, accordingly,
this estimate could vary based on the extent of such impact.
Results of Operations
Revenues. Total systems and other contracts revenues for the quarter
ended June 30, 1998, rose $504.0 million, or 14%, over the corresponding quarter
in 1997 to $4,186.1 million. Revenues from non-GM clients for the quarter ended
June 30, 1998, rose $605.2 million, or 24%, to $3,153.7 million from $2,548.5
million for the same period in 1997. This increase in non-GM revenues was
primarily the result of new contracts signed in 1997 and was also due in part to
negative adjustments of $71.8 million in revenues in the second quarter of 1997
as a result of a limited number of contracts that had not performed as
anticipated or, in some instances, were terminated. Revenues from GM decreased
$101.2 million, or 9%, to $1,032.4 million compared with $1,133.6 million for
the corresponding period in 1997. The decline in revenues from GM resulted
primarily from the recognition of $90 million of additional revenue in the
second quarter of 1997 as a result of productivity improvements made on certain
contracts with GM and certain billing rate and price reductions for existing
services during 1998.
Revenues from non-GM clients for the six months ended June 30, 1998
rose $979.3 million, or 19%, to $6,100.4 million from $5,121.1 million in the
corresponding period of 1997 primarily as a result of new contracts signed in
1997. Revenues from GM for the six months ended June 30, 1998 declined $124.9
million, or 6%, to $2,027.7 million from $2,152.6 million in the comparable
period in 1997. Revenues from GM decreased due to the reasons discussed above.
This decline was largely offset by revenues from new contracts for products and
services, although the billings for such products and services were at rates
lower than historical levels. The decline in revenues from GM is expected to
continue during the remainder of 1998 when compared with 1997 as a result of
both pricing reductions and the impact on EDS' revenues of the recent United
Auto Workers' strike at GM. See "Recent Announcement" above.
Revenues from non-GM clients comprised 75% and 69% of total revenues
for the three months ended June 30, 1998
10
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and 1997, and 75% and 70% of total revenues for the six months ended June 30,
1998 and 1997, respectively. The Company expects this trend to continue. See
"Master Services Agreement with GM" below.
Costs and Expenses. Cost of revenues as a percentage of systems and
other contracts revenues increased to 82% for both the three and six month
periods ended June 30, 1998, compared with 81% for each of the corresponding
periods in 1997. This increase was due primarily to an increase in expenses and
a decrease in revenues on contracts with GM. During the three and six months
ended June 30, 1998, the Company incurred incremental costs deemed necessary for
the successful long-term support of its contracts with GM, including costs
associated with the Company's Future by Design initiative which is intended to
streamline the Company's processes, identify and implement other productivity
improvements, and position the Company for future growth. In addition, billing
rates for certain services provided to GM decreased during the three and six
month periods ended June 30, 1998 while commensurate cost reductions related to
these services were not realized during these periods. Although the Company
anticipates that cost reductions on contracts with GM will be achieved during
1998, there can be no assurance that the decrease in expenses will be
proportionate with the decrease in revenues. Cost of revenues for non-GM clients
grew more slowly than non-GM revenues during the three and six months ended June
30, 1998 when compared with the corresponding period in 1997, both before and
after taking into account the revenue adjustments made during the three months
ended June 30, 1997 discussed above.
Selling, general and administrative expenses as a percentage of systems
and other contracts revenues remained at approximately 10% for both the three
and six month periods ended June 30, 1998 when compared with the corresponding
period in 1997. Although this percentage has remained constant for these
periods, the Company has shifted spending to areas that have been targeted for
aggressive growth. The Company expects to incur incremental selling, general and
administrative costs during the remainder of 1998 primarily for: the remediation
of the Company's internal systems to make them Year 2000 compliant, the
continued implementation of an enterprise resource process system, and increased
spending on employee development. This incremental spending is expected to cause
selling, general and administrative expenses as a percentage of systems and
other contracts revenues to increase to as much as 11% for the twelve months
ending December 31, 1998.
Costs and expenses for the three months ended June 30, 1998 include
asset writedowns of $27.8 million primarily relating to certain operating assets
initially identified as being held for sale in the second quarter of 1997 which
were sold during the second quarter of 1998. Costs and expenses for the three
months ended June 30, 1997 include asset writedowns of $139.7 million. See
"Restructuring Activities and Other Related Activities" above. Costs and
expenses for the six months ended June 30, 1998 also include a pre-tax charge of
$42.5 million related to amounts allocated to acquired in-process research and
development activities associated with the acquisition of Intergraph
Corporation's Mechanical CAD/CAM business by EDS' Unigraphics Solutions Inc.
subsidiary, which was completed in the first quarter.
Other Income (Expense) Other income (expense) increased $69.3 million
in the second quarter of 1998 to $53.3 million, compared with $(16.0) million in
the corresponding period in 1997. The primary reason for the increase was the
recognition of a $49.6 million gain on the sale of stock by Unigraphics
Solutions Inc. (USI), previously a wholly-owned subsidiary of EDS, that was
completed in the second quarter of 1998. Interest and other income (expense),
net, increased $19.7 million, to $3.7 million, in the second quarter of 1998
when compared to $(16.0) million in the same period in 1997. This increase was
due principally to the write-down of an investment in the second quarter of 1997
and an increase in gains on the sale of certain of the Company's assets in the
second quarter of 1998. The Company anticipates recording future gains, from
time to time, on sales of Company assets; the timing of which may be driven by
then existing market conditions. Interest expense for the three months ended
June 30, 1998 and 1997 was $34.5 million and $35.3 million, respectively.
For the six months ended June 30, 1998, other income (expense)
increased $120.3 million to $80.3 million compared with $(40.0) million in the
corresponding period in the previous year. This increase was due to the factors
discussed above and an increase of approximately $40 million resulting
11
<PAGE>
from the realization of gains on certain of the Company's assets in the first
quarter of 1998. Interest expense for the six months ended June 30, 1998 and
1997 was $68.9 million and $77.6 million, respectively. As a result of a
decreased level of debt, the Company anticipates that annual interest expense
for 1998 will decrease from 1997.
Net Income. For the three month period ended June 30, 1998, the
Company's net income increased $199.0 million to $221.9 million when compared
with $22.9 million during the corresponding period of the prior year. This
increase was primarily due to the expenses associated with the restructuring
activities and other related charges that were recorded in the second quarter of
1997. See "Restructuring Activities and Other Related Charges" above. For the
six months ended June 30, 1998, net income increased $189.1 million to $406.1
million from $217.0 million in the corresponding period in 1997. Both basic and
diluted earnings per share of common stock increased to $0.45 for the three
months ended June 30, 1998 from $0.05 in the comparable period of 1997. For the
six months ended June 30, 1998, basic and diluted earnings per share of common
stock increased to $0.83 and $0.82, respectively, compared with $0.44 in the
corresponding period of 1997.
Excluding the charges related to restructuring activities, asset
writedowns, and acquired in-process research and development discussed above,
net income for the three months ended June 30, 1998 and 1997 would have been
$239.7 million and $192.4 million, respectively. Net income for the six months
ended June 30, 1998 and 1997 would have been $451.1 million and $386.6 million,
respectively. Both basic and diluted earning per share for the three months
ended June 30, 1998 and 1997 would have been $0.49 and $0.39, respectively.
Basic and diluted earnings per share for the six months ended June 30, 1998
would have been $0.92 and $0.91, respectively. Basic and diluted earnings per
share for the six months ended June 30, 1997 would have been $0.79 and $0.78,
respectively.
Return on assets was 8.5% for the twelve-month period ended June 30,
1998, compared with 7.2% for the corresponding period ended June 30, 1997.
Return on stockholders' equity was 17.5% for the twelve-month period ended June
30, 1998, compared to 16.5% for the comparable period ended June 30, 1997. The
Company's effective tax rate decreased to 30% during the three months ended June
30, 1998, from 36% in the corresponding period of 1997, due to the effect of the
sale of stock of USI during the second quarter of 1998 for which no taxes were
provided, as the Company believes that it will recover its basis in USI in a
tax-free manner. The Company expects the effective tax rate to return to 36%
for the remaining six months of the year.
Excluding the charges related to restructuring activities, asset
writedowns, and acquired in-process research and development discussed above,
return on assets would have been 9.3% for the twelve-month period ended June 30,
1998, compared with 8.9% for the corresponding period ended June 30, 1997.
Return on stockholders' equity would have been 19.0% for the twelve-month period
ended June 30, 1998 compared to 19.8% for the comparable period ended June 30,
1997.
The Company and its clients may, from time to time, modify their
contractual arrangements. For client 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.
Master Services Agreement with GM. The Master Services Agreement with
GM entered into at the time of EDS' split-off from GM (the "MSA") and certain
related sector agreements (collectively, the "IT Service Agreements") provided
for certain significant changes to the pricing and terms under which EDS
provides information technology ("IT") services to GM. Among other things, the
IT Services Agreements reduced the rates charged by EDS to GM for certain
information processing activities and communications services. GM has 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,
the MSA established specified structural cost reduction targets of $100 million
for each of the years from 1996 through 1998 and $50 million for 1999. These
targets are not performance guarantees but represent firm
12
<PAGE>
good faith business commitments on the part of GM and EDS. These targets were
achieved in 1996 and 1997, and EDS anticipates that they will be achieved in
1998.
The terms of the MSA and the related IT Services Agreements have had
and may continue to have an adverse effect on the Company's revenues and
operating margins unless, among other things, EDS is able to effect
cost-reduction measures in the services provided to GM, retain a significant
portion of the operating income from business subject to the competitive bidding
provisions of the IT Services Agreements, and reach mutually acceptable
agreements with GM with respect to new or replacement services thereunder. Due
to these factors, EDS expects its revenues and operating income generated from
its contracts with GM and its affiliates to decline in 1998 compared to 1997.
EDS anticipates that this decline in revenues will be offset by additional
revenues from non-GM clients in 1998. However, there can be no assurance that
the operating income attributable to any such additional non-GM revenues will be
equivalent to the operating income attributable to the revenues from GM.
Seasonality and Inflation. The Company's revenues and net income vary
over the calendar year, with the fourth quarter generally reflecting the highest
revenues and net income for the year due to certain services that are purchased
more heavily in the fourth quarter as a result of the spending patterns of
several clients. Due to the factors identified above, the Company expects that
the fourth quarter of 1998 will be the strongest quarter of the year. The
Company believes that inflation generally had little effect on its results of
operations for the periods presented.
Liquidity and Capital Resources
At June 30, 1998, the Company held cash and cash equivalents of $447.0
million, had working capital of $1,628.1 million, and a current ratio of
1.5-to-1. This compares to cash equivalents of $677.4 million, $1,911.8 million
in working capital and a current ratio of 1.6-to-1 at December 31, 1997.
The Company's capitalization at June 30, 1998, consisted of $1,404.5
million in long-term debt, less current portion, and $5,624.7 million in
stockholders' equity. Total debt (which includes redeemable preferred stock of
subsidiaries) was $1,667.2 million at June 30, 1998, compared with total debt of
$2,075.3 million at December 31, 1997. The total debt-to-capital ratio (which
includes current portion of long-term debt and redeemable preferred stock of
subsidiaries as components of debt and capital) was 23% at June 30, 1998, and
28% at December 31, 1997. The ratio of long-term debt to capital was 22% at June
30, 1998 and 26% at December 31, 1997. At both June 30, 1998, and December 31,
1997, the Company had committed lines of credit of approximately $2,500.0
million, all unused, which serves as a backup facility for commercial paper
borrowings. The balance of commercial paper borrowings at June 30, 1998 was
approximately $510.0 million.
Cash flows provided by operating activities increased $119.8 million
during the first six months of 1998 to $859.2 million from $739.4 million in the
comparable period in the prior year. This increase was primarily due to
increased income prior to non-cash items such as depreciation, amortization,
asset writedowns, and gains on sales of assets, partially offset by increased
payments for current liabilities, including estimated tax payments, and
increased receivable balances. Cash used in investing activities during the six
months ended June 30, 1998 increased $56.9 million to $566.0 million compared to
$509.1 million in the comparable period in the prior year, primarily due to
increased payments for property and equipment, acquisitions and marketable
securities, partially offset by increased proceeds from sales of investments and
other assets. Cash flows used in financing activities increased $113.5 million
to $520.9 million in the second quarter of 1998 as compared to $407.4 million in
the second quarter of 1997 due to reductions in long-term debt, including
redeemable preferred stock of subsidiaries, as well as purchases of treasury
stock.
For the three month periods ended June 30, 1998 and 1997, the Company
paid cash dividends totaling $73.8 million and $73.5 million, respectively. For
the six month periods ended June 30, 1998 and 1997, the Company paid cash
dividends totaling $147.6 million and $146.6 million, respectively.
13
<PAGE>
The IT services agreements existing between GM and EDS prior to the
Split-Off provided 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 signed at the time of the Split-Off, there will be a
transition over a two-year period, which began in 1997, to payment on the 20th
day of the month following service for all agreements that do not already have
payment terms at least that favorable to GM. 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 through borrowings under its
existing commercial paper or bank credit facilities.
The Company expects that its principal uses of funds for the next 12
months will be for capital expenditures, debt repayment, and working capital.
Capital expenditures are expected to consist of purchases of computer and
telecommunications equipment, buildings and facilities, land, and software, as
well as acquisitions. Capital expenditures for 1998 are expected to be
approximately $1,200.0 million to $1,700.0 million. However, actual capital
expenditures are somewhat dependent on acquisition and joint venture activities,
as well as capital requirements for new business. The Company 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.
14
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Reference is made to EDS' Annual Report on Form 10-K for the year ended
December 31, 1997 for information regarding certain litigation in connection
with the split-off of EDS from GM.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
EDS' 1998 Annual Meeting of Stockholders was held on May 20, 1998 in Plano,
Texas. A total of 434,173,561 shares (approximately 88.3% of all shares entitled
to vote at the meeting) were represented by proxy or ballot at the meeting. The
matters voted upon at the meeting, and the votes cast with respect to each,
were:
(i) Election of four Class II directors for a term expiring at the 2001
Annual Meeting of Stockholders: Richard B. Cheney - 399,548,449 shares cast for
election and 35,065,156 shares withheld; Gary J. Fernandes - 399,020,165 shares
cast for election and 35,593,440 shares withheld; C. Robert Kidder - 399,672,626
shares cast for election and 34,940,979 shares withheld; and Enrique J. Sosa -
399,653,635 shares cast for election and 34,959,970 shares withheld.
(ii) Ratification of the appointment of KPMG Peat Marwick LLP as auditors
to audit the accounts for EDS for 1998: 431,986,281 shares cast for the
ratification, 1,670,190 shares cast against the ratification and 957,134 shares
abstained.
(iii) Stockholder proposal regarding appointment of independent chairman:
83,760,820 shares cast for the proposal, 305,576,560 shares cast against the
proposal and 4,935,804 shares abstained. There were 40,340,421 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
----------------------------------------------------------------------
10(b) 1996 Incentive Plan of Electronic Data Systems Corporation.
10(d) Electronic Data Systems Corporation Deferred Compensation Plan
for Non-Employee Directors.
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K
none
15
<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 CORPORATION
-----------------------------------
(Registrant)
Date: August 5, 1998 By: /s/ Gary J. Fernandes
-------------------------------
(Gary J. Fernandes, Vice Chairman)
Date: August 5, 1998 By: /s/ H. Paulett Eberhart
-------------------------------
(H. Paulett Eberhart, Vice President
and Controller)
16
EXHIBIT 10(b)
1996 Incentive Plan
of
Electronic Data Systems Corporation
[7/21/98 amended and restated]
1. Plan. This 1996 Incentive Plan of Electronic Data Systems Corporation (the
"Plan") is a continuation of the 1984 Electronic Data Systems Corporation
Stock Incentive Plan (the "Existing Plan"), which was adopted by General
Motors Corporation, a Delaware corporation ("General Motors"), to reward
certain corporate officers and key employees of the predecessor of
Electronic Data Systems Holding Corporation (to be renamed "Electronic Data
Systems Corporation" upon the consummation of the Reincorporation (as
hereinafter defined)), a Delaware corporation (the "Company"), and its
subsidiaries by enabling them to acquire shares of Class E Common Stock,
par value $.10 per share ("GM Class E Common Stock"), of General Motors.
Upon the Amendment Effective Date (as hereinafter defined), the Existing
Plan shall be amended and restated in its entirety as set forth herein and
shall be assumed by the Company and neither General Motors nor the
committee appointed by General Motors to administer the Existing Plan (the
"Predecessor Committee") shall have any further rights or responsibilities
hereunder.
2. Objectives. This Plan is designed to attract and retain key employees of
the Company and its Subsidiaries (as hereinafter defined), to attract and
retain qualified directors of the Company, to encourage the sense of
proprietorship of such employees and Directors, and to stimulate the active
interest of such persons in the development and financial success of the
Company and its Subsidiaries. These objectives are to be accomplished by
making Awards (as hereinafter defined) under this Plan and thereby
providing Participants (as hereinafter defined) with a proprietary interest
in the growth and performance of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Amendment Effective Date" has the meaning set forth in paragraph 19
hereof.
"Annual Director Award Date" means, for each year beginning on or
after the Amendment Effective Date, the first business day of the month
next succeeding the date upon which the annual meeting of stockholders of
the Company is held in such year.
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the
Company to whom either of them shall delegate the authority to execute any
Award Agreement).
"Award" means an Employee Award or a Director Award.
"Award Agreement" means any Employee Award Agreement or Director Award
Agreement.
<PAGE>
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation and Benefits Committee of the
Board or such other committee of the Board as is designated by the Board
to administer the Plan.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option or Director
Restricted Stock.
"Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director setting forth the
terms, conditions and limitations applicable to a Director Award.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations
specified in paragraph 9(a) hereof.
"Director Restricted Stock" means Common Stock granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations
specified in paragraph 9(b) hereof.
"Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a Director for a continuous period of
more than three months by reason of any medically determinable physical or
mental impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) which are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its Sub-
sidiaries.
"Employee Award" means the grant of any Option, SAR, Stock Award, Cash
Award or Performance Award, whether granted singly, in combination or in
tandem, to a Participant who is an Employee pursuant to such applicable
terms, conditions and limitations as the Committee may establish in order
to fulfill the objectives of the Plan.
"Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee setting forth the terms,
conditions and limitations applicable to an Employee Award.
2
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price
per share of Common Stock on the consolidated transaction reporting system
for the principal national securities exchange on which shares of Common
Stock are listed on that date, or, if there shall have been no such sale so
reported on that date, on the last preceding date on which such a sale was
so reported, (ii) if shares of Common Stock are not so listed but are
quoted on the Nasdaq National Market, the mean between the highest and
lowest sales price per share of Common Stock reported by the Nasdaq
National Market on that date, or, if there shall have been no such sale so
reported on that date, on the last preceding date on which such a sale was
so reported or (iii) if the Common Stock is not so listed or quoted but are
traded in the over-the-counter market, the mean between the closing bid and
asked price on that date, or, if there are no quotations available for such
date, on the last preceding date on which such quotations shall be
available, as reported by the Nasdaq Stock Market, or, if not reported by
the Nasdaq Stock Market, by the National Quotation Bureau Incorporated;
provided, however, that, in the case of Awards made on the Amendment
Effective Date, if as of such date trading in shares of Common Stock shall
not have commenced on the New York Stock Exchange, the "Fair Market Value"
of a share of Common Stock for purposes of such Awards shall be deemed to
be equal to the average of the closing prices of a share of GM Class E
Common Stock on the Amendment Effective Date and the four consecutive
trading days immediately preceding such date, in each case as reported on
the consolidated transaction reporting system for the New York Stock
Exchange on such date.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Noncompetition Provisions" has the meaning set forth in paragraph
8(c) hereof.
"Nonemployee Director" has the meaning set forth in paragraph 4(b)
hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.
"Participant" means an Employee or Director to whom an Award has been
made under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee that is subject to the attainment of one or
more Performance Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
3
<PAGE>
"Reincorporation" means (i) the merger of Electronic Data Systems
Intermediate Corporation, a Delaware corporation and direct wholly owned
subsidiary of the Company, with and into the Company and (ii) the merger of
Electronic Data Systems Corporation, a Texas corporation and indirect
wholly owned subsidiary of the Company, with and into the Company.
"Restricted Stock" means any Common Stock that is restricted or sub-
ject to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and
ending as of the date upon which the Common Stock subject to such Award is
no longer restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation
of a specified number of shares of Common Stock on the date the right is
exercised over a specified strike price (in each case, as determined by the
Committee).
"Split-Off" means the issuance or delivery of shares of Common Stock
upon conversion of all of the outstanding shares of GM Class E Common Stock
as a result of the merger of GM Mergeco Corporation, a Delaware corporation
and indirect wholly owned subsidiary of the Company, with and into General
Motors in accordance with the terms of the Merger Agreement to be entered
into between General Motors and GM Mergeco Corporation.
"Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing more
than 50% of the combined voting power of the shares of all classes or
series of capital stock of such corporation which have the right to vote
generally on matters submitted to a vote of the stockholders of such
corporation and (ii) in the case of a partnership or other business entity
not organized as a corporation, any such business entity of which the
Company directly or indirectly owns more than 50% of the voting, capital or
profits interests (whether in the form of partnership interests, membership
interests or otherwise).
"Transactions" has the meaning set forth in paragraph 19 hereof.
4. Eligibility.
(a) Employees. Key Employees eligible for Employee Awards under this Plan
are those who hold positions of responsibility and whose performance,
in the judgment of the
4
<PAGE>
Committee, can have a significant effect on the success of the Company
and its Subsidiaries.
(b) Directors. Directors eligible for Director Awards under this Plan are
those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
5. Common Stock Available for Awards. Subject to the provisions of paragraph
15 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options which may be
exercised for or settled in Common Stock) an aggregate of 60,000,000 shares
of Common Stock (in addition to any shares that are the subject of Awards
outstanding as of the Amendment Effective Date), of which an aggregate of
not more than 400,000 shares shall be available for Director Awards and the
remainder shall be available for Employee Awards. The number of shares of
Common Stock that are the subject of Awards under this Plan, that are
forfeited or terminated, expire unexercised, are settled in cash in lieu of
Common Stock or in a manner such that all or some of the shares covered by
an Award are not issued to a Participant or are exchanged for Awards that
do not involve Common Stock, shall again immediately become available for
Awards hereunder; provided, however, that in the case of shares of Common
Stock that are the subject of Awards made under the Existing Plan prior to
the Amendment Effective Date, such shares shall in no event become
available for Awards hereunder at any time after such date. The Committee
may from time to time adopt and observe such procedures concerning the
counting of shares against the Plan maximum as it may deem appropriate. The
Board and the appropriate officers of the Company shall from time to time
take whatever actions are necessary to file any required documents with
governmental authorities, stock exchanges and transaction reporting systems
to ensure that shares of Common Stock are available for issuance pursuant
to Awards.
6. Administration.
(a) This Plan, as it applies to Participants who are Employees but not
with respect to Participants who are Nonemployee Directors, shall be
administered by the Committee. To the extent required in order for
Employee Awards to be exempt from Section 16 of the Exchange Act by
virtue of the provisions of Rule 16b-3, the Committee shall consist of
at least two members of the Board who meet the requirements of the
definition of "disinterested person" set forth in Rule 16b-3(c)(2)(i)
promulgated under the Exchange Act.
(b) Subject to the provisions hereof, insofar as this Plan relates to the
Employee Awards, the Committee shall have full and exclusive power and
authority to administer this Plan and to take all actions which are
specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. Insofar as this Plan
relates to Employee Awards, the Committee shall also have full and
exclusive power to interpret this Plan and to adopt such rules,
regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the
best interests of the Company and in keeping with the objectives of
this Plan. The Committee may, in its discretion, provide for the
extension of the exercisability of an Employee Award, accelerate the
vesting or exercisability of an Employee Award,
5
<PAGE>
eliminate or make less restrictive any restrictions contained in an
Employee Award, waive any restriction or other provision of this Plan
or an Employee Award or otherwise amend or modify an Employee Award in
any manner that is either (i) not adverse to the Participant to whom
such Employee Award was granted or (ii) consented to by such
Participant. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in this Plan or in any
Employee Award in the manner and to the extent the Committee deems
necessary or desirable to carry it into effect. Any decision of the
Committee in the interpretation and administration of this Plan shall
lie within its sole and absolute discretion and shall be final,
conclusive and binding on all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted
to be done by him or her, by any member of the Committee or by any
officer of the Company in connection with the performance of any
duties under this Plan, except for his or her own willful misconduct
or as expressly provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chief Executive
Officer and to other senior officers of the Company its duties under this
Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to,
Participants who are subject to Section 16 of the Exchange Act.
8. Employee Awards.
(a) The Committee shall determine the type or types of Employee Awards to
be made under this Plan and shall designate from time to time the
Employees who are to be the recipients of such Awards. Each Employee
Award may be embodied in an Employee Award Agreement, which shall
contain such terms, conditions and limitations as shall be determined
by the Committee in its sole discretion and shall be signed by the
Participant to whom the Employee Award is made and by an Authorized
Officer for and on behalf of the Company. Employee Awards may consist
of those listed in this paragraph 8(a) hereof and may be granted
singly, in combination or in tandem. Employee Awards may also be made
in combination or in tandem with, in replacement of, or as
alternatives to, grants or rights under this Plan or any other
employee plan of the Company or any of its Subsidiaries, including the
plan of any acquired entity; provided that no Option may be issued in
exchange for the cancellation of an Option with a lower exercise
price. An Employee Award may provide for the grant or issuance of
additional, replacement or alternative Employee Awards upon the
occurrence of specified events, including the exercise of the original
Employee Award granted to a Participant. All or part of an Employee
Award may be subject to conditions established by the Committee, which
may include, but are not limited to, continuous service with the
Company and its Subsidiaries, achievement of specific business
objectives, increases in specified indices, attainment of specified
growth rates and other comparable measurements of performance. Upon
the termination of employment by a Participant who is an Employee, any
unexercised, deferred, unvested or unpaid
6
<PAGE>
Employee Awards shall be treated as set forth in the applicable
Employee Award Agreement.
(i) Stock Option. An Employee Award may be in the form of an Option.
An Option awarded pursuant to this Plan may consist of an
Incentive Option or a Nonqualified Option. The price at which
shares of Common Stock may be purchased upon the exercise of an
Incentive Option shall be not less than the Fair Market Value of
the Common Stock on the date of grant. The price at which shares
of Common Stock may be purchased upon the exercise of a
Nonqualified Option shall be not less than, but may exceed, the
Fair Market Value of the Common Stock on the date of grant.
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Options awarded pursuant to this
Plan, including the term of any Options and the date or dates
upon which they become exercisable, shall be determined by the
Committee.
(ii) Stock Appreciation Right. An Employee Award may be in the form of
an SAR. The terms, conditions and limitations applicable to any
SARs awarded pursuant to this Plan, including the term of any
SARs and the date or dates upon which they become exercisable,
shall be determined by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a Stock
Award. The terms, conditions and limitations applicable to any
StockAwards granted pursuant to this Plan shall be determined by
the Committee.
(iv) Cash Award. An Employee Award may be in the form of a Cash Award.
The terms, conditions and limitations applicable to any Cash
Awards granted pursuant to this Plan shall be determined by the
Committee.
(v) Performance Award. Without limiting the type or number of
Employee Awards that may be made under the other provisions of
this Plan, an Employee Award may be in the form of a Performance
Award. A Performance Award shall be paid, vested or otherwise
deliverable solely on account of the attainment of one or more
pre-established, objective Performance Goals established by the
Committee prior to the earlier to occur of (x) 90 days after the
commencement of the period of service to which the Performance
Goal relates and (y) the elapse of 25% of the period of service
(as scheduled in good faith at the time the goal is established),
and in any event while the outcome is substantially uncertain. A
Performance Goal is objective if a third party having knowledge
of the relevant facts could determine whether the goal is met.
Such a Performance Goal may be based on one or more of business
criteria that apply to the individual, one or more business units
of the Company, or the Company as a whole, and may include one or
more of the following: increased revenue, net income, stock
price, market share, earnings per share, return on equity, return
on assets or decrease in costs. Unless otherwise stated, such a
Performance Goal need not be based upon an increase or positive
result under a particular business criterion and could include,
for example, maintaining the status quo or limiting economic
losses (measured, in each case, by reference to specific business
criteria). In interpreting Plan provisions applicable
7
<PAGE>
to Performance Goals and Performance Awards, it is the intent of
the Plan to conform with the standards of Section 162(m) of the
Code and Treasury Regulations (beta) 1.162-27(e)(2)(i), and the
Committee in establishing such goals and interpreting the Plan
shall be guided by such provisions. Prior to the payment of any
compensation based on the achievement of Performance Goals, the
Committee must certify in writing that applicable Performance
Goals and any of the material terms thereof were, in fact,
satisfied. Subject to the foregoing provisions, the terms,
conditions and limitations applicable to any Performance Awards
made pursuant to this Plan shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan, the
following limitations shall apply to any Employee Awards made
hereunder:
(i) no Participant may be granted, during any 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 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 this Plan (other than
Employee Awards consisting of Options or SARs or otherwise
consisting of shares of Common Stock or units denominated in such
shares) in respect of any one-year period having a value
determined on the date of grant in excess of $5,000,000.
(c) Prior to the Amendment Effective Date, certain awards consisting of
shares of GM Class E Common Stock or units denominated in such shares
(the "Existing Stock Awards") have been made to Employees under the
Existing Plan as in effect from time to time. As of the Amendment
Effective Date, each Existing Stock Award shall be adjusted so that
such award shall consist of or relate to a number of shares of Common
Stock equal to the number of shares of GM Class E Common Stock that
are the subject of such Existing Stock Award immediately prior to such
date, without any alteration or enlargement of the rights of the
holders thereof. Notwithstanding anything to the contrary contained in
this Plan, all Existing Stock Awards that are subject to the
restrictions and other provisions relating to competition by
participants and related matters that are set forth in Section 10 of
the Existing Plan (the "Noncompetition Provisions") shall continue to
be subject to the Noncompetition Provisions after the Amendment
Effective Date, as fully and to the same extent as if Section 10 of
the Existing Plan were set forth herein in its entirety. The
Noncompetition Provisions shall apply to all Existing Awards, but
shall not apply to any Awards made after the Amendment Effective Date
unless otherwise determined by the Committee.
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<PAGE>
9. Director Awards. Each Nonemployee Director of the Company shall be granted
Director Awards in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the
contrary contained herein, Director Awards shall not be made in any year in
which a sufficient number of shares of Common Stock are not available to
make such Awards under this Plan.
(a) Director Options. On the Amendment Effective Date, each Nonemployee
Director shall be automatically awarded a Director Option that
provides for the purchase of 1,500 shares of Common Stock. In
addition, on each Annual Director Award Date, each Nonemployee
Director shall automatically be granted a Director Option that
provides for the purchase of 1,500 shares of Common Stock. In the
event that a Nonemployee Director is elected after the Amendment
Effective Date otherwise than by election at an annual meeting of
stockholders of the Company, on the date of his or her election, such
Nonemployee Director shall automatically be granted a Director Option
that provides for the purchase of a number of shares of Common Stock
(rounded up to the nearest whole number) equal to the product of (i)
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 (or, if no such date has been
scheduled, the first anniversary of the immediately preceding Annual
Director Award Date) and the denominator of which is 365. Each
Director Option shall have a term of ten years from the date of grant,
notwithstanding any earlier termination of the status of the holder as
a Nonemployee Director. The purchase price of each share of Common
Stock subject to a Director Option shall be equal to the Fair Market
Value of the Common Stock on the date of grant. All Director Options
shall vest and become exercisable in increments of one-third of the
total number of shares of Common Stock that are subject thereto
(rounded up to the nearest whole number) on the first and second
anniversaries of the date of grant and of all remaining shares of
Common Stock that are subject thereto on the third anniversary of the
date of grant. All unvested Director Options shall be forfeited if the
Nonemployee Director resigns as a Director without the consent of a
majority of the other Directors.
In addition to the Director Options automatically awarded pursuant to
the immediately preceding paragraph, a Nonemployee Director may make
an annual election to receive, in lieu of all or any portion of the
Director's fees he would otherwise be entitled to receive in cash
during the next year (including both annual retainer and meeting
fees), Director Options that provide for the purchase of a number of
shares of Common Stock (rounded up to the nearest whole number) equal
to the product of (x) three times (y) a fraction the numerator of
which is equal to the dollar amount of fees the Nonemployee Director
elects to forego in the next year in exchange for Director Options and
the denominator of which is equal to the Fair Market Value of the
Common Stock on the effective date of the election. Each annual
election made by a Nonemployee Director pursuant to this paragraph
9(a)(i) shall take the form of a written document signed by such
Nonemployee Director and filed with the Secretary of the Company, (ii)
shall designate the dollar amount of the fees the Nonemployee Director
elects to forego in the next year in exchange for Director Options and
(iii) to the extent provided by the Committee in order to ensure that
the Award of the Director Options is exempt from
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Section 16 by virtue of Rule 16b-3, shall be irrevocable and shall be
made prior to the date as of which such Award of Director Options is
to be effective. An Award of Director Options at the election of a
Nonemployee Director shall be effective on the next Annual Director
Award Date.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations
set forth above and shall be signed by the Participant to whom the
Director Options are granted and by an Authorized Officer for and on
behalf of the Company.
(b) Director Restricted Stock. On the Amendment Effective Date, each
Nonemployee Director shall automatically be awarded 500 shares of
Director Restricted Stock. In addition, on each Annual Director Award
Date, each Nonemployee Director shall automatically be granted 500
shares of Director Restricted Stock. In the event that a Nonemployee
Director is elected after the Amendment Effective Date otherwise than
by election at an annual meeting of stockholders of the Company, on
the date of his or her election, such Nonemployee Director shall
automatically be granted a number of shares of Director Restricted
Stock (rounded up to the nearest whole number) equal to the product of
(i) 500 and (ii) a fraction the numerator of which is the number of
days between the election of such Nonemployee Director and the next
scheduled Annual Director Award Date (or, if no such date has been
scheduled, the first anniversary of the immediately preceding Annual
Director Award Date) and the denominator of which is 365. Shares of
Director Restricted Stock awarded to a Nonemployee Director (i) shall
vest in increments of one-third of the total number of shares of
Director Restricted Stock (rounded up to the nearest whole number)
that are the subject of such Award on the first and second
anniversaries of the date of grant and all remaining shares of
Director Restricted Stock that are the subject of such Award on the
third anniversary of the date of grant and (ii) shall fully vest (to
the extent not previously vested pursuant to clause (i) above) upon a
failure to reelect the Nonemployee Director as Director, the death of
the Director or the resignation of the Director by reason of
Disability or at the request of a majority of the other Directors. All
unvested shares of Director Restricted Stock granted to a Nonemployee
Director shall be forfeited if the Nonemployee Director resigns as a
Director without the consent of a majority of the other Directors.
Effective May 29, 1998, under such terms and conditions as may be
established by the Committee, in lieu of Restricted Stock to be
automatically awarded as of an Annual Award Date, a Nonemployee
Director may irrevocably elect to receive an equivalent amount of
Phantom Stock Units under the Company's Deferred Compensation Plan for
Nonemployee Directors in which event no Restricted Stock shall be
automatically awarded to Nonemployee Director on such date.
In addition to the Director Restricted Stock automatically awarded
pursuant to the immediately preceding paragraph, a Nonemployee
Director may make an annual election to receive, in lieu of all or any
portion of the Director's fees he would otherwise be entitled to
receive in cash during the next year (including both annual retainer
and meeting fees), a number of shares of Director Restricted Stock
(rounded up to the nearest whole number) having a Fair Market Value
equal to 110% of a fraction the numerator of which is equal to the
dollar amount of fees the Nonemployee Director
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elects to forego in the next year in exchange for Director Restricted
Stock and the denominator of which is equal to the Fair Market Value
of the Common Stock on the effective date of the election. Each annual
election made by a Nonemployee Director pursuant to this paragraph
9(b)(i) shall take the form of a written document signed by such
Nonemployee Director and filed with the Secretary of the Company, (ii)
shall designate the dollar amount of the fees the Nonemployee Director
elects to forego in the next year in exchange for Director Restricted
Stock and (iii) to the extent provided by the Committee in order to
ensure that the Award of the Director Restricted Stock is exempt from
Section 16 by virtue of Rule 16b-3, shall be irrevocable and shall be
made prior to the date as of which such Award of Director Restricted
Stock is to be effective. An Award of Director Restricted Stock at the
election of a Nonemployee Director shall be effective on the next
Annual Director Award Date.
Any Award of Director Restricted Stock shall be embodied in a Director
Award Agreement, which shall contain the terms, conditions and
limitations set forth above and shall be signed by the Participant to
whom the Director Restricted Stock is granted and by an Authorized
Officer for and on behalf of the Company.
10. Payment of Awards.
(a) General. Payment of Employee Awards may be made in the form of cash or
Common Stock, or a combination thereof, and may include such
restrictions as the Committee shall determine, including, in the case
of Common Stock, restrictions on transfer and forfeiture provisions.
If payment of an Employee Award is made in the form of Restricted
Stock, the Employee Award Agreement relating to such shares shall
specify whether they are to be issued at the beginning or end of the
Restriction Period. In the event that shares of Restricted Stock are
to be issued at the beginning of the Restriction Period, the
certificates evidencing such shares (to the extent that such shares
are so evidenced) shall contain appropriate legends and restrictions
that describe the terms and conditions of the restrictions applicable
thereto. In the event that shares of Restricted Stock are to be issued
at the end of the Restricted Period, the right to receive such shares
shall be evidenced by book entry registration or in such other manner
as the Committee may determine.
(b) Deferral. With the approval of the Committee, payments in respect of
Employee Awards may be deferred, either in the form of installments or
a future lump sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of
Employee Awards in accordance with procedures established by the
Committee. Any deferred payment of an Employee Award, whether elected
by the Participant or specified by the Employee Award Agreement or by
the Committee, may be forfeited if and to the extent that the Employee
Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award consisting of
shares of Common Stock or units denominated in shares of Common Stock,
subject to such terms, conditions and restrictions as the Committee
may establish. The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments and Dividend
11
<PAGE>
Equivalents for Employee Awards consisting of shares of Common Stock
or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee may be offered an election to
substitute an Employee Award for another Employee Award or Employee
Awards of the same or different type.
11. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under an Option shall be paid in full at the time of exercise in
cash or, if elected by the optionee, the optionee may purchase such shares
by means of tendering Common Stock or surrendering another Award, including
Restricted Stock or Director Restricted Stock, valued at Fair Market Value
on the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for Participants who are Employees to tender
Common Stock or other Employee Awards; provided that any Common Stock that
is or was the subject of an Employee Award may be so tendered only if it
has been held by the Participant for six months. The Committee may provide
for procedures to permit the exercise or purchase of such Awards by use of
the proceeds to be received from the sale of Common Stock issuable pursuant
to an Employee Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as
consideration for the exercise of an Option, a number of the shares issued
upon the exercise of the Option, equal to the number of shares of
Restricted Stock or Director Restricted Stock used as consideration
therefor, shall be subject to the same restrictions as the Restricted Stock
or Director Restricted Stock so submitted as well as any additional
restrictions that may be imposed by the Committee.
12. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Employee Award payment and withhold, at the time of delivery
or vesting of cash or shares of Common Stock under this Plan, an
appropriate amount of cash or number of shares of Common Stock or a
combination thereof for payment of taxesrequired by law or to take such
other action as may be necessary in the opinion of the Company to satisfy
all obligations for withholding of such taxes. The Committee may also
permit withholding to be satisfied by the transfer to the Company of shares
of Common Stock theretofore owned by the holder of the Employee Award with
respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the
Fair Market Value when the tax withholding is required to be made. The
Committee may provide for loans, on either a short term or demand basis,
from the Company to a Participant who is an Employee to permit the payment
of taxes required by law.
13. Amendment, Modification, Suspension or Termination. The Board may amend,
modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant, (ii) no amendment or alteration shall be effective prior to
approval by the stockholders of the Company to the extent such approval is
then required pursuant to Rule 16b-3 in order to preserve the applicability
of any exemption provided by such rule to any Award then
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<PAGE>
outstanding (unless the holder of such Award consents) or to the extent
stockholder approval is otherwise required by applicable legal requirements
and (iii) the Plan shall not be amended more than once every six months to
the extent such limitation is required by Rule 16b-3(c)(2)(ii) (or any
successor provision) under the Exchange Act as then in effect.
14. Assignability. Unless otherwise determined by the Committee and provided in
the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c)
under the Exchange Act shall be assignable or otherwise transferable except
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. The Committee may
prescribe and include in applicable Award Agreements other restrictions on
transfer. Any attempted assignment of an Award or any other benefit under
this Plan in violation of this paragraph 14 shall be null and void.
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other
changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock) or
the dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar
to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock, declaration of a dividend payable in shares of Common
Stock or other stock split, then (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common
Stock covered by outstanding Awards in the form of Common Stock or
units denominated in Common Stock, (iii) the exercise or other price
in respect of such Awards, (iv) the appropriate Fair Market Value and
other price determinations for such Awards, (v) the number of shares
of Common Stock covered by Director Options automatically granted
pursuant to paragraph 9(a) hereof, (vi) the number of shares of
Director Restricted Stock automatically granted pursuant to paragraph
9(b) hereof and (vii) the Stock Based Awards Limitations shall each be
proportionately adjusted by the Board to reflect such transaction. In
the event of any other recapitalization or capital reorganization of
the Company, any consolidation or merger of the Company with another
corporation or entity, the adoption by the Company of any plan of
exchange affecting the Common Stock or any distribution to holders of
Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board shall make
appropriate adjustments to (i) the number of shares of Common Stock
covered by Awards in the form of Common Stock or units denominated in
Common Stock, (ii) the exercise or other price in respect of such
Awards, (iii) the appropriate Fair Market Value and other price
determinations for such Awards, (iv) the number of shares of Common
Stock covered
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<PAGE>
by Director Options automatically granted pursuant to paragraph 9(a)
hereof, (v) the number of shares of Director Restricted Stock
automatically granted pursuant to paragraph 9(b) hereof and (vi) the
Stock Based Awards Limitations to give effect to such transaction
shall each be proportionately adjusted by the Board to reflect such
transaction; provided that such adjustments shall only be such as are
necessary to maintain the proportionate interest of the holders of the
Awards and preserve, without exceeding, the value of such Awards. In
the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the
Board shall be authorized to issue or assume Awards by means of
substitution of new Awards, as appropriate, for previously issued
Awards or an assumption of previously issued Awards as part of such
adjustment.
16. Restrictions. No Common Stock or other form of payment shall be issued with
respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the
Company that this Plan comply with Rule 16b-3 with respect to persons
subject to Section 16 of the Exchange Act unless otherwise provided herein
or in an Award Agreement, that any ambiguities or inconsistencies in the
construction of this Plan be interpreted to give effect to such intention,
and that if any provision of this Plan is found not to be in compliance
with Rule 16b-3, such provision shall be null and void to the extent
required to permit this Plan to comply with Rule 16b-3. Certificates
evidencing shares of Common Stock certificates delivered under this Plan
(to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or transaction
reporting system upon which the Common Stock is then listed or to which it
is admitted for quotation and any applicable federal or state securities
law. The Committee may cause a legend or legends to be placed upon such
certificates (if any) to make appropriate reference to such restrictions.
17. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or
rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash,
Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by cash, Common
Stock or rights thereto, nor shall this Plan be construed as providing for
such segregation, nor shall the Company, the Board or the Committee be
deemed to be a trustee of any cash, Common Stock or rights thereto to be
granted under this Plan. Any liability or obligation of the Company to any
Participant with respect to an Award of cash, Common Stock or rights
thereto under this Plan shall be based solely upon any contractual
obligations that may be created by this Plan and any Award Agreement, and
no such liability or obligation of the Company shall be deemed to be
secured by any pledge or other encumbrance on any property of the Company.
Neither the Company nor the Board nor the Committee shall be required to
give any security or bond for the performance of any obligation that may be
created by this Plan.
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<PAGE>
18. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall
be governed by and construed in accordance with the laws of the State of
Delaware.
19. Effectiveness. The Existing Plan shall be amended and restated in its
entirety as set forth herein as of the earliest date (the "Amendment
Effective Date") upon which both the Reincorporation and the Split-Off
(collectively, the "Transactions") have been consummated; provided,
however, that (i) the amendment and restatement of the Existing Plan and
the assumption of the Existing Plan by the Company as contemplated hereby
are expressly conditioned upon the approval of this Plan by the Board of
Directors and the Executive Compensation Committee of General Motors and
the ratification and approval of this Plan by the Board (the "Corporate
Approvals Condition") and (ii) insofar as this Plan relates to Employees
and Employee Awards, the amendment and restatement of the Existing Plan and
the assumption of the Existing Plan by the Company as contemplated hereby
are expressly conditioned upon the ratification and approval of this Plan
by (a) a majority of the voting power of the holders of common stock of
General Motors of all classes, voting together as a single class in
accordance with their respective voting rights and (b) a majority of the
holders of Class E Common Stock, voting together as a separate class (the
"Stockholder Approval Condition"). If the Transactions are not consummated
prior to December 31, 1996 or if at the date upon which the Transactions
are consummated the Corporate Approvals Condition shall not have been
satisfied, the Existing Plan shall not be amended and restated as set forth
herein and the awards granted under the Existing Plan as then in effect
shall not be affected and shall continue in full force and effect in
accordance with the Existing Plan as then in effect and any award
agreements hereunder. If the Transactions are consummated prior to December
31, 1996 but at the date upon which the Transactions are consummated the
Stockholder Approval Condition shall not have been satisfied, (a) the
Existing Plan shall not be amended and restated as set forth herein and all
awards granted under the Existing Plan as then in effect shall not be
affected and shall continue in full force and effect in accordance with the
Existing Plan as then in effect (or as the same may be amended from time to
time) and any award agreements hereunder and (b) a new plan (the "Separate
Director Stock Incentive Plan") shall be deemed to have been adopted by the
Company and approved by General Motors as the sole stockholder of the
Company, which plan shall be referred to as the "1996 Nonemployee Director
Stock Incentive Plan" and shall include all of the terms and conditions set
forth herein that relate to Directors and Director Awards but not the terms
and conditions that relate to Employees and Employee Awards (it being
understood that the Board shall be authorized to cause the Separate
Director Stock Incentive Plan to be embodied in a separate document by
eliminating all references to Employees and Employee Awards contained
herein and making other appropriate changes to the text hereof, none of
which shall result in any alteration or enlargement of the rights granted
to Directors hereunder).
15
EXHIBIT 10(d)
ELECTRONIC DATA SYSTEMS CORPORATION
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(As Amended and Restated Effective May 29, 1998)
ARTICLE I
PURPOSES OF PLAN AND DEFINITIONS
1.1 Purpose. Electronic Data Systems Corporation, a Delaware corporation
(the "Company"), previously established the Electronic Data Systems Corporation
Deferred Compensation Plan for Non-Employee Directors (the "Plan"), which is
herein amended and restated effective as of May 29, 1998, for the purpose of
providing non-employee directors ("Directors") of the Company the opportunity to
defer a portion of their compensation and to provide greater incentives for
those Directors to attain and maintain the highest standards of performance, to
attract and retain Directors of outstanding competence and ability, to stimulate
the active interest of such persons in the development and financial success of
the Company, to further the identity of interests of such Directors with those
of the Company's stockholders generally, and to reward such Directors for
outstanding performance.
1.2. Definitions.
(a) "Applicable Annual Rate" will initially be 7.45% and will be
adjusted as of January 1 of each year to that rate which is equal to 120%
of the applicable federal long-term rate for the month of January of such
year as published by the Internal Revenue Service pursuant to Section
1274(d) of The Code.
(b) "Beneficiary" means the person or persons designated by the
Participant, as provided in Section 4.5, to receive any payments otherwise
due the Participant under this Plan in the event of the Participant's
death.
(c) "Board of Directors" or "Board" means the Board of the Directors
of the Company.
(d) "Cash Compensation" means all of the cash compensation payable to
a Participant, including annual, meeting and other fees.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
(f) "Committee" means such committee of the Board as is designated by
the Board to administer the Plan in accordance with Article II, but which
shall initially be the Compensation and Benefits Committee of the Board.
(g) "Common Stock" means the Common Stock, par value $.01 per share,
of the Company.
(h) "Company" means Electronic Data Systems Corporation.
(i) "Deferred Compensation Period" means such period of 365 days (or
such longer or shorter period) as shall from time to time be prescribed by
the Committee for which Participants shall be entitled to defer receipt of
all or any part of their Cash Compensation and/or not to receive Restricted
Stock.
(j) "Deferred Interest Bearing Account" means the bookkeeping account
maintained for each Participant to record certain amounts deferred by the
Participant in accordance with Article III hereof.
(k) "Determination Date" means the date on which payment of a
Participant's deferred compensation is made or commences, as determined in
accordance with Section 4. 1.
(l) "Effective Date" means June 7, 1996.
(m) "Election Effective Date" means the date upon which a
Participant's deferred compensation is credited to his Deferred Interest
Bearing Account or his Phantom Stock Account pursuant to Section 3.3 of
this Plan.
(n) "Eligible Director" means each director of the Company who is not
a full-time employee of the Company but who receives compensation for
services as a director.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(p) "Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price
per share of common Stock on the consolidated transaction reporting system
for the principal national securities exchange on which shares of Common
Stock are listed on that date, or, if there shall have been no such sale so
reported on that date, on the last preceding date on which such a sale was
so reported, (ii) if shares of Common Stock are not so listed but are
quoted on the Nasdaq National Market, the mean between the highest and
lowest
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sales price per share of Common Stock reported by the Nasdaq National
Market on that date, or, if there shall have been no such sale so reported
on that date, on the last preceding date on which such a sale was so
reported or (iii) if the Common Stock is not so listed or quoted, the mean
between the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the last preceding date on which
such quotations shall be available, as reported by the NASDAQ Stock Market,
or, if not reported by the NASDAQ Stock Market, by the National Quotation
Bureau Incorporated. "Fair Market Value" of a Phantom Stock Unit means, as
of a particular date, the Fair Market Value of a share of Common Stock on
such date.
(q) "1996 Incentive Plan" means the 1996 Incentive Plan of Electronic
Data Systems Corporation, as amended from time to time.
(r) "Participant" means an Eligible Director of the Company who elects
to participate in the Plan.
(s) "Phantom Stock Account" means the bookkeeping account maintained
for each Participant to record certain amounts deferred by the Participant
in accordance with Article III hereof.
(t) "Phantom Stock Unit" means a unit equal to one share of Common
Stock issued and outstanding as of the Effective Date (as adjusted pursuant
to Section 3.6), utilized for the purpose of measuring the benefits payable
under Section 4.3.
(u) "Restricted Stock" means awards automatically made periodically to
Eligible Directors under paragraph 9(b) of the 1996 Incentive Plan.
(v) "Valuation Date" means the Effective Date and the first day of
each month thereafter, or in the event the Common Stock is traded or quoted
on a national securities exchange or in the over-the-counter market, each
day on which a sale or sales of the Common Stock is reported or a quotation
for the Common Stock is available (as the case may be).
ARTICLE II
ADMINISTRATION OF THE PLAN
2.1 Committee. This Plan shall be administered by the Committee. The
Committee shall consist of at least two members of the Board.
2.2 Committee's Power. Subject to the provisions hereof, the Committee
shall have full and exclusive power and authority to administer this Plan and
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to take all actions which are specifically contemplated hereby or are necessary
or appropriate in connection with administration hereof. The Committee shall
also have full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. The
Committee may, in its discretion, determine the eligibility of individuals to
participate herein, determine the amount of Cash Compensation and Restricted
Stock a Participant may elect to defer or not to receive, or waive any
restriction or other provision of this Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in this Plan in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect.
2.3 Committee Determinations Conclusive. Any decision of the Committee in
the interpretation and administration of this Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned.
2.4 Committee Liability. No member of the Committee or officer of the
Company to whom the Committee has delegated authority in accordance with the
provisions of Section 2.5 of this Plan shall be liable for anything done or
omitted to be done by him or her, by any member of the Committee or by an
officer of the Company in connection with the performance of any duties under
this Plan, except for his or her own willful misconduct or as expressly provided
by statute.
2.5 Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish.
ARTICLE III
ACCOUNTS
3.1 Establishment of Accounts. The Company shall set up an appropriate
record (hereinafter called the "Deferred Interest Bearing Account") which will
from time to time reflect the name of each Participant and the amounts deferred
by such Participant to an interest bearing account pursuant to Section 3.2. The
Company shall also set up an appropriate record (hereinafter called the "Phantom
Stock Account") which will from time to time reflect the name of each
Participant, the number of Phantom Stock Units credited to such Participant
pursuant to Section 3.2. and the Fair Market Value of that number of Phantom
Stock Units credited to the Participant.
3.2 Deferral.
(a) A Participant may elect to defer receipt of all or any part of the
Cash Compensation payable to the Participant for serving on the Company's
Board of
4
<PAGE>
Directors for any Deferred Compensation Period. At the election of the
Participant, the amount deferred shall be: (i) credited to his Deferred
Interest Bearing Account; (ii) credited to his Phantom Stock Account; or
(iii) a combination of both. If a Participant chooses to receive a credit
to his Phantom Stock Account, a number of Phantom Stock Units (rounded up
to the nearest whole number) having a Fair Market Value on the Election
Effective Date equal to the dollar amount of fees the Participant elects to
forego in the applicable Deferred Compensation Period in exchange for
Phantom Stock Units shall be credited to such account. A Participant may
only elect to defer Cash Compensation which is otherwise payable after an
election to defer compensation is made pursuant to Section 5.1 hereof.
(b) A Participant may elect not to receive the Restricted Stock that
would otherwise have been automatically awarded to the Participant for
serving on the Company's Board of Directors for any Deferred Compensation
Period. At the election of the Participant (i) such Restricted Stock will
not be issued and (ii) a number of Phantom Stock Units equal to the number
of shares of Restricted Stock that would have been awarded shall be
credited to his Phantom Stock Account. A Participant may only elect not to
receive Restricted Stock which would otherwise be automatically awarded
after an election not to receive Restricted Stock is made pursuant to
Section 5.1 hereof.
3.3 Crediting of Deferred Amounts.
(a) Any Cash Compensation credited to a Participant's Deferred
Interest Bearing Account or Phantom Stock Account shall be credited to such
account on the last day of the month in which the deferred Cash
Compensation would otherwise have been paid (the "'Election Effective
Date"). For example, if a Participant effectively elects to defer Cash
Compensation to his Deferred Interest Bearing Account for a Deferred
Compensation Period of 365 days beginning January 1 by notifying the
Company in the manner provided in Section 5.1, the Cash Compensation which
accrues for the month of January shall be credited to such Participant's
Deferred Interest Bearing Account on January 31.
(b) Any amounts in respect of Restricted Stock which a Participant has
elected not to receive shall be credited to the Participant' s Phantom
Stock Account as of the date such Restricted Stock would otherwise have
been awarded.
3.4 Interest on Deferred Interest Bearing Accounts. The amount of deferred
compensation credited to a Participant's Deferred Interest Bearing Account will
bear interest from but excluding the date so credited, to and including the
Determination Date, at a rate per annum equal to the Applicable Annual Rate in
effect from time to time, compounded monthly, and such interest shall be
credited to the Deferred Interest Bearing Account as of the last day of each
calendar month during the applicable Deferred Compensation Period and the last
day of the calendar month in which such period ends (or, if applicable, the
Determination Date).
5
<PAGE>
Thereafter, interest so credited shall similarly bear interest from but
excluding the date so credited, to and including the Determination Date, at a
rate per annum equal to the Applicable Annual Rate in effect from time to time,
compounded monthly and credited as of the last day of each calendar month during
the applicable Deferred Compensation Period and the last day of the calendar
month in which such period ends (or, if applicable, the Determination Date).
3.5 Dividends. As of each date that dividends are paid with respect to
Common Stock, a Participant who has any outstanding Phantom Stock Units credited
to his Phantom Stock Account shall have a number of Phantom Stock Units credited
to his Phantom Stock Account with respect to such dividends. The Phantom Stock
Units (rounded up to the nearest whole number) credited in respect of dividends
shall have a Fair Market Value equal to the dollar amount of the dividend per
share of Common Stock multiplied by the number of Phantom Stock Units credited
to the Participant's Phantom Stock Account immediately prior to the payment date
of such dividend.
3.6 Adjustments.
(a) Exercise of Corporate Powers. The existence of this Plan and any
outstanding Phantom Stock Units credited hereunder shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds. debentures,
preferred or prior preference stock (whether or not such issue is prior to,
on a parity with or junior to the Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated- above.
(b) Recapitalizations, Reorganizations and Other Activities. In the
event of any subdivision or consolidation of outstanding shares of Common
Stock, declaration of a dividend payable in shares of Common Stock or other
stock split, then (i) the number of Phantom Stock Units and (ii) the
appropriate Fair Market Value and other price determinations for such
Phantom Stock Units shall each be proportionately adjusted by the Board to
reflect such transaction. In the event of any other recapitalization or
capital reorganization of the Company, any consolidation or merger of the
Company with another corporation or entity, the adoption by the Company of
any plan of exchange affecting the Common Stock or any distribution to
holders of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board shall make
appropriate adjustments to (i) the number of Phantom Stock Units and (ii)
the appropriate Fair Market Value and other price determinations for such
Phantom Stock Units to give effect to such transaction; provided that such
adjustments shall only be such as are necessary to preserve, without
increasing, the value of such units. In the event of a corporate merger,
consolidation,
6
<PAGE>
acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to issue or assume units by
means of substitution of new units, as appropriate, for previously issued
units or an assumption of previously issued units as part of such
adjustment.
ARTICLE IV
PAYMENTS
4.1 Period of Deferral. A Participant may elect that payment of the
compensation deferred under the Plan be made or commence at (a) a date that is
five years following the date of the termination of the Participant's status as
a Director of the Company, or (b) the date of the termination of the
Participant's status as a Director of the Company (either of such dates elected
by the Participant to be known as the "Determination Date"). If alternative (a)
is elected by the Participant, payment will be made or will commence within
sixty (60) days after the date that is five years after termination of the
Participant's status as a Director of the Company. If alternative (b) is elected
by the Participant, payment will be made or will commence within sixty (60) days
after termination of the Participant's status as a Director of the Company.
4.2 Payment of Amounts in Deferred Interest Bearing Account. As of the
Determination Date, the sum of the amounts theretofore credited to a
Participant's Deferred Interest Bearing Account for each Deferred Compensation
Period plus all interest accrued thereon to, and including, the Determination
Date (the "Total Deferred Compensation Amount") shall be calculated. A
Participant shall receive payment of his Total Deferred Compensation Amount with
respect to each Deferred Compensation Period in the form he has previously
elected under Section 4.4.
4.3 Payment of Amounts in Phantom Stock Account. As of the Determination
Date, the aggregate Fair Market Value on the Valuation Date coinciding with or
immediately preceding the Determination Date of that number of Phantom Stock
Units then credited to a Participant's Phantom Stock Account with respect to
each Deferred Compensation Period shall be calculated. The result is the "Total
Deferred Unit Amount." A Participant shall receive payment of his Total Deferred
Unit Amount with respect to each Deferred Compensation Period in the form he has
previously elected under Section 4.4.
4.4 Form of Payment. Payment to a Participant of amounts in his Deferred
Interest Bearing Account and his Phantom Stock Account shall be made in cash.
Payment to a Participant of amounts in both accounts shall be made by one of the
following methods: (a) a lump sum, (b) three substantially equal consecutive
annual installments, or (c) five substantially equal consecutive annual
installments. The Total Deferred Compensation Amount and the Total Deferred Unit
Amount shall then bear interest from, but excluding, the Determination Date to,
and including, the date paid at the Applicable Annual Rate as in effect from
time to
7
<PAGE>
time, compounded monthly, and the payment of each annual installment shall be
accompanied by payment of the amount of interest accrued thereon.
4.5 Death Prior to Payment. In the event that a Participant dies prior to
payment of all of the amounts payable pursuant to the Plan, any remaining
amounts together with all interest accrued thereon, shall be paid to the
Participant's designated Beneficiary in a lump sum within sixty (60) days
following the Company's notification of the Participant's death. If no
Beneficiary has been designated, such payment shall be made to the Participant's
estate. A beneficiary designation, or revocation of a prior beneficiary
designation, shall be effective only if it is made in writing on a form provided
by the Company, signed by the Participant and received by the Committee. In the
event that a Participant dies prior to payment of all of the amounts payable
pursuant to the Plan, and the designated Beneficiary dies prior to payment of
all the amounts payable pursuant to the Plan, payment shall be made to the
Participant's estate in a lump sum within sixty (60) days of notification of the
Beneficiary's death.
4.6 Payments to Minors and Incompetents. Should the Participant become
incompetent or should the Participant designate a Beneficiary who is a minor or
incompetent, the Company shall be authorized to pay such funds to a parent or
guardian of such minor or incompetent, or directly to such minor or incompetent,
whichever manner the Committee shall determine in its sole discretion.
ARTICLE V
ELECTING DEFERRALS
5.1 Manner of Electing Deferral. Each election made by a Participant to
defer compensation under the Plan (i) shall take the form of a written document
(provided by the Company) signed by the Participant and filed with the
Committee, (ii) shall designate the Deferred Compensation Period for which
deferral is elected, the account to which such deferral shall be credited (in
the case of Cash Compensation), the period of deferral and the form and manner
of payment, (iii) shall only apply to Cash Compensation payable or Restricted
Stock otherwise to be awarded after the date of such election and (iv) may not
be revoked or modified without the prior written approval of the Committee if
the proposed revocation or modification applies to amounts deferred with respect
to a Deferred Compensation Period which has already commenced at the time such
revocation or modification is proposed to be effected. The Committee shall be
authorized to adopt such rules and limitations as it shall determine are
necessary or appropriate with respect to the timing of elections to defer
compensation under the Plan.
ARTICLE VI
MISCELLANEOUS
8
<PAGE>
6.1 Unfunded Plan. Nothing contained herein shall be deemed to create a
trust of any kind or create any fiduciary relationship. Insofar as it provides
for rights to cash or Common Stock, this Plan shall be unfunded. Funds invested
hereunder shall continue for all purposes to be part of the general funds of the
Company. To the extent that a Participant acquires a right to receive payments
from the Company under the Plan, such right shall not be greater than the night
of any unsecured general creditor of the Company and such right shall be an
unsecured claim against the general assets of the Company. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash or rights thereto under this Plan, any such accounts shall be used merely
as a bookkeeping convenience. The Company shall not be required to segregate any
assets that may at my time be represented by cash or rights thereto, nor shall
this Plan be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash or rights
thereto to be granted under this Plan. Any liability or obligation of the
Company to any Participant with respect to cash or rights thereto under this
Plan shall be based solely upon any contractual obligations that may be created
by this Plan, and no such liability or obligation of the Company shall be deemed
to be secured by any pledge or other encumbrance on any property of the Comp
any. Neither the Company nor the Board nor the Committee shall be required to
give any security or bond for the performance of any obligation that may be
created by this Plan.
6.2 Title to Funds Remains with Company. Amounts credited to each
Participant's Deferred Interest Bearing Account and Phantom Stock Account shall
not be specifically set aside or otherwise segregated, but will be combined with
corporate assets. Title to such funds will remain with the Company and the
Company's only obligation will be to make timely payments to Participants in
accordance with the Plan.
6.3 Statement of Account. A statement will be furnished to each Participant
annually on such date as may be determined by the Committee stating the balance
of the Participants Deferred Interest Bearing Account and Phantom Stock Account
and accrued interest thereon as of a recent date designated by the Committee.
6.4 Assignability. Except as provided in Section 4.5, no right to receive
payment hereunder shall be transferable or assignable by a Participant except by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. Any attempted
assignment of any benefit under this Plan in violation of this Section 6.4 shall
be null and void.
6.5 Amendment, Modification. Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment, modification or termination shall, without the
consent of the Participant, impair the
9
<PAGE>
rights of any Participant to the balance in such Participant's Deferred Interest
Bearing Account or Phantom Stock Account or the amount of interest accrued
thereon as of the date of such amendment, modification or termination. The Board
may at any time and from time to time delegate to the Committee any or all of
this authority under this Section 6.5.
6.6 Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of Delaware.
10
<PAGE>
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<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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0
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