<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ELECTRONIC DATA SYSTEMS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
Richard H. Brown
Chairman of the Board and Chief Executive Officer
April 9, 1999
Dear Shareholder:
On behalf of your Board of Directors, it is my pleasure to invite you to
attend the 1999 Annual Meeting of Shareholders of EDS. The meeting will be held
on Tuesday, May 25, 1999 at 1:00 p.m. local time, at The Plano Centre, 2000 E.
Spring Creek Parkway, Plano, Texas 75074. You will find information regarding
the matters to be voted on at the meeting in the following pages. The 1998
Annual Report to Shareholders is also enclosed with these materials.
Please let us know whether you plan to attend the meeting by marking the
appropriate box on your proxy card or, if you vote by telephone or internet,
indicating your plans when prompted. If you are a shareholder of record, please
bring the top portion of the proxy card to the meeting as your admission ticket.
If you plan to attend the meeting and your shares are held in street name (by a
bank or broker, for example), you may bring a recent account statement to the
meeting in lieu of the admission ticket.
Your vote is important. Whether or not you plan to attend the meeting,
please either complete and return the enclosed proxy card in the accompanying
envelope or vote through the telephone or internet voting procedures described
on the proxy card (if you hold your shares in street name, telephone or internet
voting will be available to you only if offered by your bank or broker). Please
note that your completed proxy, or your telephone or internet vote, will not
prevent you from attending the meeting and voting in person should you so
choose.
I look forward to seeing you at the meeting.
Sincerely,
/s/ Richard H. Brown
--------------------
Richard H. Brown
OUR ANNUAL REPORT AND PROXY STATEMENT ARE AVAILABLE ELECTRONICALLY. AS AN
ALTERNATIVE TO RECEIVING PRINTED COPIES OF THESE DOCUMENTS IN FUTURE YEARS, YOU
MAY ELECT TO ACCESS THEM ELECTRONICALLY AND VOTE ON THE INTERNET. TO DO SO, IF
YOU ARE A REGISTERED HOLDER PLEASE CHECK THE APPROPRIATE BOX ON THE ENCLOSED
PROXY CARD OR, IF YOU ARE VOTING ON THE INTERNET THIS YEAR, INDICATE WHEN
PROMPTED THAT YOU AGREE TO RECEIVE THE ANNUAL REPORT AND PROXY STATEMENT
ELECTRONICALLY IN FUTURE YEARS. IF YOU HOLD YOUR SHARES IN STREET NAME, FOLLOW
THE INSTRUCTIONS FOR INTERNET VOTING ON YOUR VOTING INSTRUCTION CARD AND
INDICATE WHEN PROMPTED THAT YOU AGREE TO RECEIVE THE ANNUAL REPORT AND PROXY
STATEMENT ELECTRONICALLY IN FUTURE YEARS.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ABOUT THE MEETING........................................................................ 1
WHO CAN VOTE........................................................................... 1
HOW YOU CAN VOTE....................................................................... 1
REVOCATION OF PROXIES.................................................................. 1
REQUIRED VOTES......................................................................... 1
OTHER MATTERS TO BE ACTED UPON AT THE MEETING.......................................... 2
EXPENSES OF SOLICITATION............................................................... 2
BOARD OF DIRECTORS....................................................................... 2
COMMITTEES ESTABLISHED BY THE BOARD.................................................... 2
CORPORATE GOVERNANCE................................................................... 3
COMPENSATION OF DIRECTORS.............................................................. 3
PROPOSAL 1: ELECTION OF DIRECTORS....................................................... 4
DIRECTORS STANDING FOR ELECTION........................................................ 4
DIRECTORS CONTINUING IN OFFICE......................................................... 5
MANAGEMENT STOCK OWNERSHIP............................................................. 7
EXECUTIVE COMPENSATION................................................................. 8
REPORT OF COMPENSATION AND BENEFITS COMMITTEE ON EXECUTIVE COMPENSATION.............. 8
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............. 11
PERFORMANCE GRAPH.................................................................... 11
SUMMARY COMPENSATION TABLE........................................................... 12
OPTION GRANTS IN 1998................................................................ 13
OPTION VALUES AT DECEMBER 31, 1998................................................... 13
RETIREMENT PLANS..................................................................... 14
EMPLOYMENT AGREEMENT WITH RICHARD H. BROWN........................................... 15
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS.............................................. 16
RETENTION PLAN....................................................................... 17
AGREEMENTS WITH FORMER EXECUTIVE OFFICERS............................................ 18
CERTAIN TRANSACTIONS................................................................. 19
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.............................. 19
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS..................................... 20
PROPOSAL 3: SHAREHOLDER PROPOSAL RELATING TO DECLASSIFICATION OF BOARD OF DIRECTORS..... 20
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING............................................ 22
ANNUAL REPORT............................................................................ 23
</TABLE>
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 1999
The Annual Meeting of Shareholders of Electronic Data Systems Corporation
("EDS") will be held at The Plano Centre, 2000 E. Spring Creek Parkway, Plano,
Texas 75074 on Tuesday, May 25, 1999 at 1:00 p.m. local time. The purpose of
the meeting is to vote on the following proposals (in the case of the
shareholder proposal, if presented at the meeting) described in the accompanying
Proxy Statement, and any other business that may properly be presented at the
meeting or any adjournment of the meeting:
PROPOSAL 1. Election of three directors for a three-year term;
PROPOSAL 2. Ratification of the appointment of KPMG LLP as independent
auditors; and
PROPOSAL 3. A shareholder proposal relating to the declassification of the
Board of Directors.
The record date for the annual meeting is March 29, 1999. Only
shareholders of record at the close of business on that date can vote at the
meeting.
/s/ D. Gilbert Friedlander
D. Gilbert Friedlander
Senior Vice President, Secretary
and General Counsel
April 9, 1999
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ANY SHAREHOLDER HAVING A DISABILITY REQUIRING SPECIAL ASSISTANCE WHO WOULD
LIKE TO ATTEND THE ANNUAL MEETING SHOULD CALL EDS INVESTOR RELATIONS AT (972)
605-8933 AND REASONABLE EFFORTS WILL BE MADE TO ACCOMMODATE SUCH NEEDS.
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<PAGE>
[LOGO]
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 1999
The Board of Directors of Electronic Data Systems Corporation is soliciting
proxies to be used at the 1999 Annual Meeting of Shareholders (the "Meeting").
This proxy statement and the form of proxy will be mailed to shareholders
beginning April 9, 1999. References in this proxy statement to "EDS" or "we"
shall mean Electronic Data Systems Corporation. The mailing address of EDS'
principal executive offices is 5400 Legacy Drive, Plano, Texas 75024-3199.
ABOUT THE MEETING
WHO CAN VOTE
Record holders of EDS common stock (the "Common Stock") at the close of
business on March 29, 1999 may vote at the Meeting. On that date, 491,894,160
shares of Common Stock were outstanding. Each share is entitled to cast one
vote.
HOW YOU CAN VOTE
If you return your signed proxy, or vote by telephone or the internet,
before the Meeting, we will vote your shares as you direct. You can specify
whether your shares should be voted for all, some, or none of the nominees for
director. You can also specify whether you approve, disapprove, or abstain from
each of the other proposals. Proposals 1 and 2 will be presented at the Meeting
by management. Proposal 3 may be presented by a shareholder.
If you participate in the EDS Stock Purchase Plan, the Common Stock fund
under the EDS 401(k) Plan, the EDS 1996 Incentive Plan, or the EDS Dividend
Reinvestment Plan, you will receive one proxy with respect to all shares
registered in the same name. If your accounts are not registered in the same
name, you will receive a separate proxy with respect to your individual plan
shares. Generally, shares in these plans cannot be voted unless the proxy card
is signed and returned, although shares held in the 401(k) Plan may be voted in
the discretion of the plan trustee.
IF YOU DO NOT SPECIFY ON YOUR PROXY CARD HOW YOU WANT TO VOTE YOUR SHARES,
WE WILL VOTE THEM "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTOR AS SET FORTH
UNDER "ELECTION OF DIRECTORS" BELOW; "FOR" THE RATIFICATION OF KPMG LLP AS
INDEPENDENT AUDITORS, AND "AGAINST" PROPOSAL 3.
REVOCATION OF PROXIES
You can revoke your proxy at any time before it is exercised in any of the
following three ways: (1) by submitting written notice of revocation to the
Secretary of EDS; (2) by submitting another proxy that is properly signed and
later dated; or (3) by voting in person at the Meeting.
REQUIRED VOTES
The holders of a majority of the shares entitled to vote who are either
present in person or represented by proxy at the Meeting will constitute a
quorum for the transaction of business at the Meeting.
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The affirmative vote of a plurality of the votes cast at the Meeting is
required for the election of directors. A proxy which has properly withheld
authority with respect to the election of one or more directors will not be
voted with respect to the director or directors indicated, although it will be
counted for purposes of determining whether there is a quorum.
For each other proposal, the affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote on the
proposal will be required for approval. An abstention with respect to any such
proposal will not be voted, although it will be counted for purposes of
determining whether there is a quorum. Accordingly, an abstention will have the
effect of a negative vote.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
OTHER MATTERS TO BE ACTED UPON AT THE MEETING
We do not know of any other matters to be presented or acted upon at the
Meeting. Under our Bylaws, no business besides that stated in the meeting
notice may be transacted at any meeting of shareholders. If any other matter is
presented at the Meeting on which a vote may properly be taken, the shares
represented by proxies will be voted in accordance with the judgment of the
person or persons voting those shares.
EXPENSES OF SOLICITATION
The proxies being solicited hereby are being solicited by EDS. The cost
of soliciting proxies will be paid by EDS. Officers and employees of EDS may,
but without compensation other than their regular compensation, solicit proxies
by further mailing or personal conversations, or by telephone, facsimile
transmission or other means of electronic communication. We have retained D.F.
King & Co., Inc. to assist in the distribution of proxy materials to beneficial
owners who hold their shares in street name. We will, upon request, reimburse
brokerage firms and others for their reasonable expenses in forwarding proxy
materials to beneficial owners of Common Stock.
BOARD OF DIRECTORS
The Board of Directors provides guidance and strategic oversight to the
company's management with the objective of optimizing shareholders' returns on
their investment in EDS. The Board is designed to assure that there is
independent review and oversight as well as approval of significant strategic
and management decisions affecting the company. Regular meetings of the Board
are held six times per year and special meetings are scheduled when required.
The Board held eight meetings in 1998. All directors attended at least 75% of
the meetings of the Board and the Board Committees of which they are members.
COMMITTEES ESTABLISHED BY THE BOARD
The Board of Directors has established the following Committees to assist
it in discharging its responsibilities:
Audit Committee. The Audit Committee, which met six times in 1998, is
composed of Ray J. Groves (Chairman), Ray L. Hunt, and Enrique J. Sosa. It
recommends to the Board the appointment of independent auditors and reviews the
scope and cost of proposed audit and non-audit services as well as the
qualifications and independence of the independent auditors. The committee
reviews with the independent auditors and internal audit staff the results of
audits, any recommendations therefrom and the status of management's actions for
implementing such recommendations, as well as the quality and adequacy of our
internal financial controls and internal audit staff. It also reviews our
annual financial reports, programs established to monitor compliance with our
Code of Conduct, and the status of material pending litigation and regulatory
proceedings.
2
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Compensation and Benefits Committee. The Compensation and Benefits
Committee, which met six times in 1998, is comprised of William H. Gray, III,
Ray J. Groves, and C. Robert Kidder (Chairman). The committee establishes the
compensation of our executive officers and reviews recommendations made by the
Chief Executive Officer with respect to the long-term incentive compensation of
other corporate officers. It also oversees our employee benefit plans, reviews
new employee benefit plans and significant amendments to existing plans, and
administers all stock based plans.
Governance Committee. The Governance Committee, which met ten times in
1998, is comprised of James A. Baker, III (Chairman), Richard B. Cheney, and
Judith Rodin. During 1998, this committee led the search for a new Chairman and
Chief Executive Officer following the retirement of Mr. Alberthal. The
Governance Committee reviews management succession and development plans,
recommends to the Board the election of the Chairman and the Chief Executive
Officer, and reviews the Chief Executive Officer's recommendations regarding the
election of other principal officers. It also reviews Board processes and
policies, makes recommendations regarding shareholder proposals, determines the
criteria for qualification of directors, and recommends to the Board candidates
for director and for committee memberships. The procedures for submission by a
shareholder of a director nominee are described below under the heading
"Shareholder Proposals for 2000 Annual Meeting."
CORPORATE GOVERNANCE
The Board of Directors believes that sound governance practices and
policies provide an important framework to assist it in fulfilling its duty to
our shareholders. The current Board structure was established at the time of
our split-off from General Motors Corporation ("GM") in June 1996. The
structure was established, and the Board's members selected, in a manner
intended to implement governance practices and policies appropriate for EDS and
its business, culture and challenges. This included the requirement that a
substantial majority of directors be outside, independent directors with no
significant financial or personal tie to EDS, that all Board committees be
composed entirely of independent directors, and that a significant portion of
director compensation be comprised of interests in Common Stock. Since its
establishment in 1996, the Board has continually reviewed and updated its
practices and policies and developed and adopted significant additional
practices and policies which it believes to be appropriate for EDS and in the
best interest of its shareholders. These include the following:
. Executive Sessions. The outside members of EDS' Board have established a
practice of holding periodic executive sessions without the Chief Executive
Officer or any other inside director.
. CEO Evaluation. In 1997, the outside directors established a process for the
regular evaluation of the performance of the Chief Executive Officer which is
coordinated with the activities of the Compensation and Benefits Committee in
setting the compensation of the Chief Executive Officer.
. Board Evaluation. In 1998, the Board initiated a process to evaluate the
Board which will continue during 1999.
. Independence. In 1998, the Board adopted a formal definition of independence
for Board members and the Governance Committee adopted specific guidelines
for assessing the independence of outside directors. During 1998, the
independence of all outside Board members was reviewed by the Governance
Committee, and the Governance Committee will annually review the independence
of each outside director in connection with his or her nomination for
election to the Board using the guidelines.
. Retirement/Resignation. The Board has adopted formal policies under which a
director is expected to offer to submit his or her resignation when the
director reaches the age of 70 or in the event of a significant change of the
job responsibility he or she held at the time of election to the Board. The
Board may elect to not accept such resignation.
COMPENSATION OF DIRECTORS
A director who is also an employee of EDS is not entitled to any additional
compensation for serving as a director. Each non-employee director receives
annual cash compensation in the amount of $35,000, as well as $5,000 for serving
as a committee chairman and $2,500 for attendance at each meeting of the Board
or a Board committee. In addition, pursuant to EDS' 1996 Incentive Plan (the
"Incentive Plan") each non-employee director
3
<PAGE>
receives, on an annual basis, (i) options to purchase 1,500 shares of Common
Stock at an exercise price equal to the fair market value of the shares at the
date of grant and (ii) 500 shares of Common Stock. Such options and stock are
subject to restrictions on sale which generally expire ratably over a three-year
period. A non-employee director may elect each year to receive, in lieu of all
or part of the cash fees he or she would otherwise receive in the next year, (i)
additional stock options and/or (ii) additional shares of restricted stock.
Under the Deferred Compensation Plan for Non-employee Directors, a director
may elect annually to defer all or a portion of his or her director's fees and
to have such deferred fees treated as if they had been invested either in cash
or Common Stock. Fees deferred in cash earn interest at a rate, adjusted as of
January 1 of each year, equal to 120% of the applicable federal long-term rate
published by the Internal Revenue Service, compounded monthly. Fees deferred
and treated as if they had been invested in Common Stock are deemed to have
purchased shares of Common Stock on the effective date of the deferral at the
then fair market value of the stock. All amounts accumulated in the account,
including any interest or deemed dividends, are paid to the director in either a
lump sum or in annual installments commencing upon (i) the date of termination
of his or her status as a director or (ii) five years after such date. All non-
employee directors currently participate in this plan.
PROPOSAL 1: ELECTION OF DIRECTORS
Our Certificate of Incorporation provides for three classes of directors to
be as equal in number as possible. Each class serves a three year term, with
one class elected each year. Currently, the Board of Directors is comprised of
10 members. The three Class III directors whose terms expire at this Meeting
are Richard H. Brown, James A. Baker, III, and Judith Rodin. The Board of
Directors has nominated these persons for election as Class III directors. If
elected, each director will serve until the annual meeting in 2002 or until he
or she is succeeded by another qualified director who has been elected. All
other directors will continue in office until the expiration of the terms of
their classes at the annual meeting in 2000 or 2001, as the case may be.
We will vote your shares as you specify in your proxy. If you sign, date
and return your proxy but do not specify how you want your shares voted, we will
vote them FOR the election of the three nominees listed below. If due to
unforeseen circumstances (such as death or disability) a nominee should become
unavailable for election, the Board may either reduce the number of directors or
substitute another person for the nominee, in which event your shares will be
voted for that other person.
The following information regarding the nominees for director and each
current director continuing in office is as of March 15, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR DIRECTOR.
DIRECTORS STANDING FOR ELECTION
RICHARD H. BROWN, 51
Chairman and Chief Executive Officer of EDS since January
1999. Prior to joining EDS, Mr. Brown was Chief Executive
Officer of Cable & Wireless plc from July 1996 to December
1998. He was President and Chief Executive Officer of H&R
Block, Inc., and Chairman of its CompuServe subsidiary, from
May 1995 to July 1996. Mr. Brown was Vice Chairman of
Ameritech Corporation from January 1993 to May 1995 and
President of its Illinois Bell subsidiary from 1990 to 1993.
He held various executive positions with United
Telecommunications, Inc. from 1981 to 1990, most recently as
Executive Vice President, and was with Ohio Bell from 1969 to
1981. Mr. Brown is a director of Pharmacia & Upjohn, Inc. and
The Seagram Company Ltd.
4
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JAMES A. BAKER, III, 68
Senior Partner of Baker & Botts, L.L.P. since March 1993 and a
Senior Counselor of The Carlyle Group, a merchant banking
firm, since 1993. Mr. Baker served as Senior Counselor to the
President of the United States and White House Chief of Staff
from August 1992 to January 1993, as Secretary of State from
January 1989 to August 1992, as Secretary of the Treasury from
1985 to 1988, and as White House Chief of Staff from 1981 to
1985. He is a director of Houston Industries Incorporated as
well as Princeton University, Rice University, Howard Hughes
Medical Institute and The Woodrow Wilson International Center
for Scholars. Mr. Baker has been a director of EDS since June
1996.
JUDITH RODIN, 54
President of the University of Pennsylvania, as well as a
professor of psychology and of medicine and psychiatry at the
university, since 1994. Dr. Rodin was Provost of Yale
University from 1992 to 1994 and held various professorial and
other positions at Yale from 1972 to 1994, including Dean of
the Graduate School of Arts and Sciences and Chair of the
Department of Psychology. She is a director of AMR
Corporation and AETNA, Inc. Dr. Rodin has been a director of
EDS since June 1996.
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 2000
WILLIAM H. GRAY, III, 57
President and Chief Executive Officer of The College Fund/UNCF
since September 1991. Mr. Gray has also served as the Senior
Minister of the Bright Hope Baptist Church in Philadelphia
since 1972. He served as a Congressman from Pennsylvania from
1979 to 1991. During his tenure, he was Chairman of the House
Budget Committee, a member of the Appropriations Committee,
Chairman of the House Democratic Caucus and Majority Whip. Mr.
Gray is a director of The Chase Manhattan Corporation, The
Prudential Insurance Company of America, Municipal Bond
Investors Assurance Corporation, Rockwell International
Corporation, Union Pacific Corporation, CBS Corporation and
Warner-Lambert Company. He has been a director of EDS since
February 1997.
RAY J. GROVES, 63
Chairman of Legg Mason Merchant Banking, Inc. since March
1995. Mr. Groves retired as Chairman and Chief Executive
Officer of Ernst & Young LLP in September 1994, which position
he had held since 1977. He is a director of Allegheny
Teledyne Incorporated, Consolidated Natural Gas Company, Marsh
& McLennan Companies, Inc., RJR Nabisco Holdings Corp., RJR
Nabisco, Inc., LAI Inc. and American Water Works Company, Inc.
Mr. Groves has been a director of EDS since June 1996.
5
<PAGE>
JEFFREY M. HELLER, 59
President and Chief Operating Officer of EDS since June 1996
and a director of EDS since 1983. Mr. Heller was a Senior
Vice President of EDS from 1984 until June 1996. He joined
EDS in 1968 and has served in numerous technical and
management capacities. Mr. Heller is a director of
Unigraphics Solutions Inc., Trammell Crow Company and Mutual
of Omaha.
RAY L. HUNT, 56
Chairman of the Board, President and Chief Executive Officer
of Hunt Consolidated Inc. and the Chairman of the Board and
Chief Executive Officer of Hunt Oil Company for more than five
years. Mr. Hunt is a director of Halliburton Company, Pepsico,
Inc., Security Capital Group Incorporated and Ergo Science
Corporation. He has been a director of EDS since June 1996.
TERM EXPIRING IN 2001
RICHARD B. CHENEY, 58
Chief Executive Officer of Halliburton Company since 1995.
Mr. Cheney was a Senior Fellow at the American Enterprise
Institute, a policy think tank, from January 1993 to October
1995. He served as United States Secretary of Defense from
January 1989 to January 1993. Mr. Cheney was a Member of
Congress from Wyoming from 1978 to 1989 and served as
Assistant to the President and Chief of Staff for President
Gerald Ford from 1975 to 1977. He is a director of
Halliburton Company, Union Pacific Corporation and The Procter
& Gamble Company. Mr. Cheney has been a director of EDS since
June 1996.
C. ROBERT KIDDER, 54
Chairman and Chief Executive Officer of Borden, Inc. since
January 1995. Mr. Kidder was Chairman and Chief Executive
Officer of Duracell International, Inc. from August 1991
through October 1994 and its President and Chief Executive
Officer from June 1988 to August 1991. He is a director of
Borden, Inc., Morgan Stanley Dean Witter & Co. and AEP
Industries Inc. Mr. Kidder has been a director of EDS since
June 1996.
ENRIQUE J. SOSA, 59
Resigned as President, Chemicals, of BP Amoco p.l.c. effective
April 1999. Mr. Sosa had served in that position since
January 1999 and was Executive Vice President of Amoco
Corporation, heading its chemicals sector, from October 1995
to December 1998. For greater than five years prior to that
time, he was with The Dow Chemical Company, most recently
serving as a Senior Vice President and a director, as well as
President of Dow North America. Mr. Sosa has been a director
of EDS since June 1996.
6
<PAGE>
MANAGEMENT STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 22, 1999 by each director and nominee for
director, the Chief Executive Officer, the executive officers named in the
Summary Compensation Table in this Proxy Statement, and all current directors
and executive officers as a group. Each of the individuals/groups listed below
is the owner of less than one percent of the outstanding Common Stock.
<TABLE>
<CAPTION>
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Amount and Nature of Beneficial
Name Ownership (a) (b) (c)
<S> <C>
James A. Baker, III.............................................................. 8,925
Richard B. Cheney................................................................ 7,322
William H. Gray, III............................................................. 2,945
Ray J. Groves.................................................................... 10,142
Ray L. Hunt...................................................................... 28,164
C. Robert Kidder................................................................. 7,529
Judith Rodin..................................................................... 5,192
Enrique J. Sosa.................................................................. 7,874
Richard H. Brown................................................................. 387 (d)
Jeffrey M. Heller................................................................ 382,985 (d) (e)
John R. Castle, Jr............................................................... 65,207 (d)
Lester M. Alberthal, Jr.......................................................... 1,255,302 (d)
Gary J. Fernandes................................................................ 56,640
Robert B. Mintz.................................................................. 47,677 (d)
Directors and executive officers as a group (20 persons)......................... 1,216,245 (d) (e)
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</TABLE>
___________________
(a) Amounts reported include shares of Common Stock which may be acquired on or
before May 21, 1999 through the exercise of stock options as follows: Mr.
Baker--1,500 shares; Mr. Cheney--2,872 shares; Mr. Gray--900 shares; Mr.
Groves--3,289 shares; Mr. Hunt--2,872 shares; Mr. Kidder--1,500 shares; Dr.
Rodin--1,500 shares; Mr. Sosa--1,500 shares; Mr. Heller--60,000 shares; Mr.
Castle--20,000 shares; Mr. Alberthal--950,000 shares; and all directors and
executive officers as a group--320,933 shares.
(b) Amounts reported include compensation deferrals treated as invested in
Common Stock pursuant to the Non-Employee Director Deferred Compensation
Plan as follows: Mr. Baker--1,291 shares; Mr. Cheney--3,450 shares; Mr.
Gray--945 shares; Mr. Groves--4,828 shares; Mr. Hunt--2,192 shares; Mr.
Kidder--3,729 shares; Dr. Rodin--2,063 shares; Mr. Sosa--1,948 shares; and
all directors as a group--20,446 shares.
(c) Amounts reported exclude unvested restricted stock units granted under the
Incentive Plan (and its predecessor) as follows: Mr. Brown--275,000 units;
Mr. Heller--482,000 units; Mr. Castle--157,000 units; Mr. Alberthal--
362,500 units; Mr. Fernandes--352,000 units; and all executive officers as
a group--2,114,400 units. The units are scheduled to vest (subject to
earlier vesting based on the achievement of performance goals by EDS)
during the period from 2000 through the earlier of normal retirement or
2009, subject to earlier vesting under the terms of the Retention Plan
described below, provided that the vesting of Mr. Brown's units is governed
by the terms of his employment agreement described below and the vesting of
Mr. Alberthal's and Mr. Fernandes' units are governed by the terms of their
respective retirement agreements described below.
(d) Amounts reported include Common Stock allocated to accounts under EDS'
401(k) Plan as follows: Mr. Brown--209 shares; Mr. Heller--500 shares; Mr.
Castle--49 shares; Mr. Alberthal--12,771 shares; Mr. Mintz--25 shares; and
all executive officers as a group--8,041 shares.
(e) Amounts reported include 1,840 shares held by Mr. Heller's spouse as
custodian for their minor grandchildren, with respect to which shares he
disclaims beneficial ownership, and an aggregate of 2,090 shares for which
all directors and executive officers as a group disclaim beneficial
ownership.
As of March 22, 1999, the General Motors Special Hourly Employees
Pension Trust under the General Motors Hourly Rate Employees Pension Plan, c/o
United States Trust Company of New York, 114 West 47th Street, New York, NY
10036, owned 112,037,219 shares of Common Stock, or approximately 22.8% of the
outstanding Common Stock.
7
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION AND BENEFITS COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors (the
"Committee"), which is comprised entirely of non-employee directors, is
responsible for the establishment and administration of the compensation
programs for EDS' executive officers, including the Chief Executive Officer. In
fulfilling these responsibilities, the Committee establishes and administers the
compensation for the company's executive officers, including setting targets for
the payment of cash bonuses and the vesting of stock-based awards under the
company's incentive plan. The Committee met six times in 1998 and routinely
reported to the Board on its activities.
Compensation Philosophy. The Committee's compensation philosophy is based
on the premise that executives should receive competitive compensation
determined by reference to both EDS' performance and the individual's
contribution to that performance. Compensation plans and programs are intended
by the Committee to motivate and reward executives for long-term strategic
management and the enhancement of shareholder value, support a performance-
oriented environment that rewards achievement of internal business goals, and
attract and retain executives whose abilities are critical to the long-term
success and competitiveness of EDS.
In determining compensation levels, the Committee evaluates executive
compensation against independent survey data of comparator companies with a key
determinant being the comparative compensation levels and pay practices in the
technology industry. The market for EDS' executive talent is broader than the
information technology services industry. Accordingly, the group of comparator
companies reviewed by the Committee, which consists of approximately 25 large
global corporations, includes several companies outside the information
technology services industry. The Committee's goal is to compensate executives
above the 50th percentile of the comparator group when EDS achieves its business
goals. EDS has retained an independent third party consultant to provide
comparator group data.
In addition to benefit plans and programs generally available to all EDS
employees, executive compensation consists of the following three principal
components: base salary, annual incentive compensation and long-term incentive
compensation. The annual and long-term incentive compensation components enable
the Committee to subject executive compensation to substantial risk based on
achievement-oriented objectives. The Committee has adopted the following
approach to base salary, annual incentive compensation and long-term incentive
compensation.
Base Salary. The Committee's goal is to set base salaries for executive
officers at average levels paid for similar executive positions by the
comparator group described above. The Committee approves actual salary rates
for all executive officers, including the Chief Executive Officer. Salary
levels are based on a combination of factors, including the executive's
performance, responsibilities and experience and his or her opportunity for
annual and long-term compensation, as well as the salaries for similar positions
paid by the comparator group.
While salary levels for executive officers are reviewed by the Committee on
an annual basis, they will not ordinarily be adjusted each year. In 1998, the
Committee increased salaries for all executive officers, other than the Chief
Executive Officer and the Vice Chairman.
Annual Incentive Compensation. Annual incentive compensation reflects the
Committee's policy that a significant portion of each executive's annual
compensation be contingent upon the company's current performance as well as the
individual executive's contribution to that performance. Annual incentive
compensation generally takes the form of cash bonuses awarded under the
company's Executive Bonus Plan established by the Committee pursuant to the
Incentive Plan. Target annual bonuses for executive officers range from
approximately 90% to 120% of salary in effect for that year, and are adjusted at
year end to reflect the performance achieved by the company and the individual
executive. These amounts are established consistent with the Committee's policy
of compensating executive officers above average levels of the comparator group
when EDS achieves its business goals.
8
<PAGE>
The Committee establishes financial targets for EDS at the beginning of
each fiscal year and only if such targets are met will an executive officer be
eligible to receive a cash bonus in respect of that year. Historically, such
targets have been based on the company's earnings per share. If the financial
target is met with respect to a performance year, the Committee may increase the
amount of the executive's bonus above the targeted amount, or reduce it below
the targeted amount, based on the executive's achievement of his or her
financial, customer and employee performance goals for the year.
Other than with respect to one executive officer whose offer of employment
provided for a guaranteed bonus for 1998 and 1999, cash bonuses for 1998 were
not paid to executive officers because the financial targets established by the
Committee were not met. Limited bonuses were paid to certain officers other
than executive officers based upon individual performance; however, the amount
of such bonuses was significantly reduced because the company did not meet its
financial targets.
Long-Term Incentive Compensation. Long-term incentive opportunities are an
important element of the total compensation package for executive officers. The
Committee believes this approach links management and shareholder interests and
motivates executives to make long-term decisions in the best interest of EDS and
its shareholders.
Historically, EDS has used restricted stock grants as the principal
component of its long-term incentive program, with such grants made from time to
time at two or three year intervals. However, since the company's split off
from GM, the Committee has utilized both stock options and restricted stock as
long-term incentive compensation. All stock-based awards to executives are made
under the Incentive Plan, which authorizes awards of stock options, stock
appreciation rights, restricted stock and other stock-based awards. In granting
stock-based awards, the Committee considers the long-term incentive compensation
paid for similar executive positions by the comparator group, the number of
shares of unvested restricted stock and stock options subject to previously
granted awards, and the executive's performance. Restricted stock and stock
options awarded to executive officers generally vest ratably over a five or ten
year period subject to the continued employment of the executive and, with
respect to restricted stock awards, based on the company's achievement of
performance goals established prior to the year of vesting. In the event such
performance goals are not met, the vesting otherwise scheduled for that year
will generally be extended until the end of the five or ten year period. No
stock options granted under the Incentive Plan have ever been repriced, nor does
the Committee intend to consider option repricing in the future.
In August 1998, the Committee approved a grant of stock options and, for
certain executives, restricted stock in connection with the company's senior
management retention program designed to retain key executives during the
company's transition to a new Chief Executive Officer. All executive officers,
other than the Chief Executive Officer, Vice Chairman and Executive Vice
President - Human Resources, were included in this grant. In taking this
action, the Committee accelerated a grant planned for 1999. Accordingly, none
of such executive officers is expected to be included within any stock-based
award grant in 1999.
The Committee has approved the scheduled vesting of restricted stock in
respect of 1998 because the company met the performance goals established for
such vesting at the beginning of the year. In determining that such goals were
met, the Committee considered the company's operating earnings as well as
certain non-operating earnings and charges. The vesting of stock-based awards
for the company's former Chief Executive Officer and Vice Chairman is governed
by the terms of their retirement agreements with the company described under the
heading "Agreements with Former Executive Officers" on pages 18-19 of this Proxy
Statement.
Senior Management Retention Plan. In August 1998, the Committee approved a
Senior Management Retention Plan providing certain benefits to executive
officers (other than the Chief Executive Officer and Vice Chairman) if they
remain with EDS through a transition period ending on January 31, 2001. These
benefits include a minimum cash bonus which can be increased based upon
corporate performance, the right to continued vesting of previously granted
stock-based awards, and certain supplemental retirement benefits depending on
the age of the executive. The terms of this plan are described under the
heading "Retention Plan" on pages 17-18 of this Proxy Statement.
9
<PAGE>
Chief Executive Officer Compensation. As noted elsewhere in this Proxy
Statement, Mr. Alberthal retired as Chairman and Chief Executive Officer of EDS
effective December 31, 1998. Because he was Chief Executive Officer for the
entire fiscal year, this report discusses the Committee's determination of his
compensation for the year. In establishing Mr. Alberthal's 1998 compensation,
the Committee considered the same factors used for other executive officers
outlined above, although a greater percentage of his potential compensation was
in the form of long-term incentive compensation. In addition, the Committee
based its determination on an evaluation of the Chief Executive Officer's
performance undertaken in 1997 by the Committee and the Governance Committee,
with the assistance of the full Board of Directors. Mr. Alberthal did not
receive any increase in salary in 1997 or 1998 and, because the company did not
achieve the performance goals established by the Committee for 1998, he did not
receive a bonus in respect of 1998 performance.
To recognize Mr. Alberthal's long service and contributions to EDS'
financial success over 30 years and to acknowledge the additional restrictive
covenants he entered into in connection with his retirement, in August 1998 the
Committee approved the terms of a retirement agreement with Mr. Alberthal. The
terms of that agreement are described under the heading "Agreements with Former
Executive Officers" below.
Richard H. Brown was appointed Chairman and Chief Executive Officer of EDS
effective as of January 1, 1999. Mr. Brown's compensation is governed by his
Employment Agreement, the principal terms of which were approved by the Board of
Directors, upon the recommendation of the Committee, on December 9, 1998. The
terms of that Agreement are described under the heading "Employment Agreement
with Richard H. Brown" on pages 15-16 of this Proxy Statement. In approving the
terms of Mr. Brown's compensation, the Committee considered the compensation
packages for competitive positions, the need to hire an executive with the
strategic, financial, and leadership skills to improve the company's
performance, Mr. Brown's compensation at his former employer, and the benefits
he would forfeit upon his resignation from that employer.
Section 162(m). Section 162(m) of the Internal Revenue Code generally
limits the deductibility of compensation to the Chief Executive Officer and the
four other most highly compensated officers in excess of $1 million per year,
provided, however, that certain "performance-based" compensation may be excluded
from such $1 million limitation. The Committee intends to structure annual cash
bonus awards and stock option grants under the Incentive Plan in a manner
designed to make such awards "performance-based" compensation to the extent
practicable, although restricted stock awards under the Incentive Plan will not
qualify as "performance-based compensation" and will therefore be subject to the
$1 million limitation. The Committee anticipates that the $1 million level will
be exceeded in every year with respect to the Chief Executive Officer and other
executive officers.
COMPENSATION AND BENEFITS COMMITTEE
C. Robert Kidder, Chairman
William H. Gray, III
Ray J. Groves
10
<PAGE>
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Benefits Committee is composed of C. Robert Kidder,
William H. Gray, III, and Ray J. Groves, none of whom are employees or current
or former officers of EDS.
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
Common Stock, including reinvestment of dividends, for the last five fiscal
years with the cumulative total return of the Standard & Poor's 500 Stock Index
and the Goldman Sachs Technology Services Index assuming an investment of $100
on January 1, 1994. As a result of the split-off of EDS from GM, each share of
GM Class E Common Stock was converted into one share of EDS Common Stock
effective June 7, 1996. Accordingly, the return on Common Stock in the
following graph assumes an investment of $100 in the GM Class E Common Stock on
January 1, 1994.
THIS GRAPH IS PRESENTED IN ACCORDANCE WITH SECURITIES AND EXCHANGE
COMMISSION ("SEC") REQUIREMENTS. YOU ARE CAUTIONED AGAINST DRAWING ANY
CONCLUSIONS FROM THIS INFORMATION, AS PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE PERFORMANCE. THIS GRAPH IN NO WAY REFLECTS A FORECAST OF
FUTURE FINANCIAL PERFORMANCE.
Comparison of Five Year Cumulative Total Return
----------------------------------------------------------------------
1/1/94 1/1/95 1/1/96 6/7/96 1/1/97 1/1/98 1/1/99
----------------------------------------------------------------------
EDS 100 134 184 206 155 159 185
----------------------------------------------------------------------
GOLDMAN 100 122 173 203 197 228 283
----------------------------------------------------------------------
S&P 500 100 101 139 154 171 226 293
----------------------------------------------------------------------
Notwithstanding any statement in any of our filings with the SEC that might
incorporate part or all of any future filings with the SEC by reference,
including this Proxy Statement, the foregoing Report of the Compensation and
Benefits Committee on Executive Compensation and Performance Graph are not
incorporated by reference into any such filings.
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation
for the last three years of the Chief Executive Officer and each of the four
other most highly compensated executive officers of EDS as of the end of 1998
(the "named executive officers").
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------------------------------
NAME AND OTHER ANNUAL RESTRICTED STOCK NUMBER ALL OTHER
PRINCIPAL POSITION COMPENSATION AWARDS (C) OF COMPENSATION (D)
DURING 1998 YEAR SALARY BONUS (A) (B) OPTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Lester M. Alberthal, Jr. 1998 $850,000 -0- $ 3,646 -0- -0- $ 20,244
Chairman of the Board 1997 850,000 -0- 19,318 $ 12,918,750 -0- 56,107
and Chief Executive Officer 1996 733,333 $1,000,000 297,298 6,750,000 950,000 33,785
(retired December 31, 1998)
Gary J. Fernandes 1998 500,000 -0- 2,526 -0- -0- 11,906
Vice Chairman 1997 500,000 -0- 11,919 10,765,625 -0- 33,732
(retired December 31, 1998) 1996 386,667 575,000 67,064 -0- 500,000 17,935
Jeffrey M. Heller 1998 562,500 -0- 2,202 4,059,375 300,000 38,099
President and Chief 1997 500,000 -0- 15,466 10,765,625 -0- 64,994
Operating Officer 1996 423,333 550,000 66,523 -0- 500,000 39,282
John R. Castle, Jr. 1998 467,917 -0- 945 -0- 100,000 8,643
Executive Vice President 1997 445,000 -0- 5,822 4,306,250 -0- 19,532
1996 386,667 300,000 64,803 -0- 160,000 20,468
Robert B. Mintz (e) 1998 273,987 750,000 57,188 6,150,000 200,000 -0-
Executive Vice President
(resigned March 19, 1999)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents bonuses earned by the named executives with respect to the year
indicated. Of the amount reported for Mr. Mintz, $400,000 represents a
sign-on bonus and the remainder a guaranteed minimum bonus for 1998 as
provided under the terms of his offer of employment as described below. Of
the bonus reported for any year (other than the sign-on bonus for Mr.
Mintz), 50% is paid during the following year and 25% is paid during each
of the next two following years, subject to certain conditions regarding
the continuation of the named executive's employment; however, pursuant to
their retirement agreements, Messrs. Alberthal and Fernandes received the
unpaid portion of all previously awarded bonuses in January 1999.
(b) Amount for 1996 includes for Mr. Alberthal $53,096 for personal use of
corporate aircraft and $83,845 for security services and equipment provided
at his residence, and for each of the named executive officers
approximately $42,000 in value of one-time awards.
(c) Amount for 1998 represents awards of 100,000 restricted stock units to Mr.
Heller on August 10, 1998 and 150,000 units to Mr. Mintz on April 24, 1998.
Other than 70,000 of the units granted to Mr. Mintz which had vested prior
to his resignation in March 1999, all of such units were forfeited upon his
resignation. Amounts for 1997 represent the following awards of restricted
stock units on January 3, 1997: Mr. Alberthal, 300,000 shares; Mr.
Fernandes, 250,000 shares; Mr. Heller, 250,000 shares; and Mr. Castle,
100,000 shares. As of December 31, 1998, the number and fair market value
of unvested restricted stock units held by the named executive officers
were: Mr. Alberthal, 741,000 shares, $37,188,938; Mr. Fernandes, 414,000
shares, $20,777,625; Mr. Heller, 564,000 shares, $28,405,750; Mr. Castle,
189,000 shares, $9,485,438; and Mr. Mintz, 125,000 shares, $6,273,438. Such
awards will vest (subject to earlier vesting based on the achievement of
performance goals) through the earlier of normal retirement or 2009,
provided that the units held by Messrs. Alberthal and Fernandes will vest
in accordance with the terms of their retirement agreements described below
and the unvested units held by Mr. Mintz were forfeited upon his
resignation from EDS. The vesting of all pre-1998 awards may be accelerated
by the terms of the Retention Plan described below. Dividend equivalents
are paid with respect to restricted stock units in the amount and at the
time of the payment of dividends on the Common Stock.
12
<PAGE>
(d) Consists of (i) payments by EDS of premiums under certain life insurance
policies the proceeds of which may be applied toward the continuation of
salary payments for the benefit of the named executives' surviving spouse
and (ii) the imputed value of non-interest bearing advances in respect of
withholding taxes upon the vesting of restricted stock units. See "Certain
Transactions."
(e) Employment commenced April 20, 1998. Of the amount reported as Other
Annual Compensation, $52,055 represents reimbursement for travel and
temporary living expenses.
OPTION GRANTS IN 1998
The following table contains information regarding awards of stock options
to the named executive officers in 1998 and the potential realizable value of
such options. The hypothetical value of the options as of their grant date has
been calculated using the Black-Scholes option pricing model based on the
assumptions identified in footnote (d) below. This model is only one method of
valuing options and the use of this model should not be interpreted as an
endorsement of its accuracy or a forecast of possible future appreciation, if
any, in the price of the Common Stock. The actual value of the options may be
significantly different, and the value actually realized, if any, will depend
upon the excess of the market value of the Common Stock over the option exercise
price at the time of exercise.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL STOCK
SECURITIES OPTIONS GRANTED TO EXERCISE OR HYPOTHETICAL
UNDERLYING OPTIONS EMPLOYEES BASE PRICE EXPIRATION VALUE AT
NAME GRANTED (A) IN 1998 (B) PER SHARE DATE GRANT DATE (D)
<S> <C> <C> <C> <C> <C>
Lester M. Alberthal, Jr. -0-
Gary J. Fernandes -0-
Jeffrey M. Heller 300,000 2.7% $ 40.59 (c) $ 3,888,000
John R. Castle, Jr. 100,000 0.9% 40.59 (c) 1,296,000
Robert B. Mintz (e) 200,000 1.8% 41.00 (c) 3,002,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) All options were granted under the Incentive Plan. The exercise price
equals the fair market value of the Common Stock on the date of grant
(April 24, 1998 for Mr. Mintz and August 10, 1998 for all others). The
exercise price may be paid in cash, shares of Common Stock or pursuant to a
cashless exercise procedure under which the holder provides irrevocable
instructions to a brokerage firm to sell the purchased shares and remit to
EDS out of the sales proceeds an amount equal to the exercise price plus
applicable withholding taxes.
(b) For purposes of this calculation, the grant to Mr. Brown in December 1998
of options to purchase 1,000,000 shares as described below is included in
the total number of options granted to employees in 1998.
(c) The options granted to Mr. Mintz, which terminated upon his resignation in
March 1999, were to have been exercisable for a five-year period commencing
upon the earlier of (i) ten years from the grant date or (ii) the date on
which the closing price of the Common Stock is at least 200% of the
exercise price. The options granted to Messrs. Heller and Castle are
exercisable at the rate of 20% per year commencing on March 1, 1999 and on
each March 1 thereafter through 2003, and will terminate with respect to
each portion thereof on the five-year anniversary of the date that portion
became exercisable.
(d) The estimated present value at grant date of options granted during 1998
has been calculated using the Black-Scholes option pricing model based upon
the following assumptions: estimated time until exercise of five years
(seven years with respect to Mr. Mintz); a volatility rate of 30.8% (28.8%
with respect to Mr. Mintz); a risk-free interest rate of 5.4% (5.7% with
respect to Mr. Mintz); and a dividend yield of 1.48% (1.46% with respect to
Mr. Mintz).
(e) All of these options terminated upon Mr. Mintz's resignation in March 1999.
OPTION VALUES AT DECEMBER 31, 1998
The following table contains information regarding the total number of
exercisable and non-exercisable stock options held by the named executive
officers at December 31, 1998 and the aggregate dollar value of the in-the-money
options at that date. In accordance with SEC rules, values are calculated by
subtracting the exercise
13
<PAGE>
price from the fair market value of the underlying Common Stock. For purposes of
this table, the fair market value is deemed to be $50.1875, the closing price of
the Common Stock on the New York Stock Exchange on December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS
--------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Lester M. Alberthal, Jr.(a) 950,000 -0- $4,871,125 -0-
Gary J. Fernandes -0- 500,000 -0- $2,563,750
Jeffrey M. Heller -0- 800,000 -0- 5,441,875
John R. Castle, Jr. -0- 260,000 -0- 1,779,775
Robert B. Mintz (b) -0- 200,000 -0- 1,837,500
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) Mr. Alberthal's options became immediately exercisable under the terms of
his retirement agreement with EDS described below.
(b) All of Mr. Mintz's options were forfeited upon his resignation in March
1999.
RETIREMENT PLANS
The following table indicates the estimated annual benefits payable to
the named executive officers upon normal retirement for the specified
compensation and years of service classifications under the combined formulas of
the Amended and Restated EDS Retirement Plan (the "Retirement Plan") and the EDS
1998 Supplemental Executive Retirement Plan (the "Supplemental Plan"). The
Supplemental Plan is a non-qualified, unfunded retirement plan intended to pay
benefits to certain executive level employees whose benefits under the
Retirement Plan are limited under the Internal Revenue Code.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FINAL AVERAGE YEARS OF SERVICE
-------------------------------------------------------------------------------------------
EARNINGS 5 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 35,655 $ 71,310 $106,965 $142,620 $178,275 $213,930
$ 600,000 $ 53,988 $107,976 $161,964 $215,952 $269,940 $323,928
$ 800,000 $ 72,322 $144,644 $216,966 $289,288 $361,610 $433,932
$1,000,000 $ 90,655 $181,310 $271,965 $362,620 $453,275 $543,930
$1,200,000 $108,988 $217,976 $326,964 $435,952 $544,940 $653,928
$1,400,000 $127,322 $254,644 $381,966 $509,288 $636,610 $763,932
$1,600,000 $145,655 $291,310 $436,965 $582,620 $728,275 $873,930
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the final average earnings for the highest five
consecutive years over the last 10-year period and the eligible years of
credited service for the named executive officers were as follows: Mr.
Alberthal, $1,451,167--31 years; Mr. Fernandes, $766,750--30 years; Mr. Heller,
$819,083--31 years; Mr. Mintz, $967,485--2 years; and Mr. Castle, $727,333--26
years. The salary for the most recent year considered in the calculation of
final average earnings is found in the Summary Compensation Table under "Salary"
and the bonus received for the most recent year considered in such calculation
is as follows: Mr. Alberthal--$500,000; Mr. Fernandes--$287,500; Mr. Heller--
$275,000; Mr. Castle--$187,500; and Mr. Mintz--$400,000. The eligible years of
credited service listed above for Mr. Castle reflect extra years of service
pursuant to his agreement with EDS described below. The retirement benefits for
Messrs. Alberthal and Fernandes were supplemented by the terms of their
retirement agreements described below.
"Compensation" under the Retirement Plan generally refers to total annual
cash compensation (up to $160,000 for 1998 as limited by the Internal Revenue
Code), together with any salary reduction contributions to the EDS 401(k) Plan
and EDS Flexible Benefits Plan, and excludes benefits under the Incentive Plan
and extraordinary compensation (such as moving allowances). Effective July 1,
1998, the Retirement Plan was converted to a "cash balance" plan eliminating the
final average earnings formula and replacing it with a career-average earnings
formula. The named executive officers are also eligible to participate in the
EDS Restoration Plan ("Restoration
14
<PAGE>
Plan") which provides for a supplemental benefit equal to the amount they would
receive under the Retirement Plan if compensation and annual accruals were not
limited under the Internal Revenue Code.
The benefit payable under the Supplemental Plan for normal retirement,
together with the benefit payable under the Retirement Plan and the Restoration
Plan, will generally equal (i) 55% of the average of the participant's total
Compensation (based on the highest five consecutive years within the last ten
years of employment) less (ii) the maximum offset allowance that can be deducted
from final average earnings. Benefits are payable in the form of a single or
joint survivor life annuity, unless otherwise elected. Benefits under the
Supplemental Plan can be reduced, suspended or eliminated at any time by the
Compensation and Benefits Committee, although pursuant to the EDS Senior
Management Retention Plan described below any such reduction, suspension or
elimination may not adversely impact the retirement benefits payable to the
named executive officers.
EMPLOYMENT AGREEMENT WITH RICHARD H. BROWN
The Board of Directors elected Mr. Brown Chairman and Chief Executive
Officer effective January 1, 1999. Pursuant to the terms of his offer of
employment, on December 10, 1998, Mr. Brown received as a sign-on bonus and
incentive a cash payment of $4,450,000 and a grant of 50,000 restricted stock
units under the Incentive Plan. These units will vest at the rate of 10,000 per
year on the first five anniversaries of the date of grant commencing December
10, 1999. On December 10, 1998, EDS also granted to Mr. Brown under the
Incentive Plan non-qualified stock options to purchase 1,000,000 shares of
Common Stock at an exercise price of $41.50 per share. That option will become
exercisable at the rate of 200,000 shares per year on the first five
anniversaries of the date of grant and will terminate ten years from the date of
grant. Mr. Brown also was awarded 225,000 restricted stock units (in addition to
the units received as a sign-on bonus referred to above), one-half of which
vested on April 1, 1999 and the remainder of which will vest on April 1, 2000.
He may receive future grants under EDS' stock incentive programs consistent with
competitive pay practices generally and with awards made to other senior
executives of EDS.
Effective as of January 1, 1999, EDS and Mr. Brown entered into an
Employment Agreement (the "Employment Agreement") regarding his employment with
EDS. That agreement provides for his employment through the later of December
31, 2003 or, if notice by either party to terminate such employment is delivered
at any time after December 31, 2000, the third anniversary of such notice. Under
the Employment Agreement, Mr. Brown will receive an annual salary of $1,500,000,
subject to possible future increases after 1999, and will have the opportunity
to receive an annual award under the company's Executive Bonus Plan targeted at
100% of base salary with a maximum of 200% of base salary, and a minimum award
for 1999 of 100% of base salary. The agreement also provides for his
participation in EDS' employee benefit programs on terms not less favorable than
those offered to other senior executives of EDS, the reimbursement of certain
costs incurred by him in connection with his relocation to the Dallas area, and
the payment of reasonable professional fees incurred by him in connection with
the preparation of the Employment Agreement.
The Employment Agreement provides for Mr. Brown to receive a supplemental
retirement benefit equal to the amount he would have earned under EDS'
Retirement Plan and Supplemental Plan, calculated crediting him with 16 years of
service in addition to the number of his actual years of service to EDS. For
purposes of such calculation, his final average earnings will not be less than
his 1999 salary and minimum bonus described above. The retirement benefit will
be offset by benefits provided to him under the Retirement Plan and Supplemental
Plan and will vest upon completion of five years of service. Special provisions
apply upon his retirement prior to age 62 or his death prior to commencement of
benefits.
In the event of the termination of Mr. Brown's employment during the term
of the Employment Agreement by EDS without Cause (as defined), or by him for
Good Reason (as defined), he will be entitled to the following: a lump sum
payment equal to three times the sum of his annual salary and the greater of his
most recent target or actual annual bonus payment; immediate vesting of his
supplemental retirement benefit, restricted stock and stock options and
continued exercisability of the stock options until the earlier of five years
following termination of employment or expiration of the ten year option term; a
pro-rated payment of the targeted performance bonus for the year of termination;
and continuation of benefits for a three-year period (or, if earlier, such time
as he attains age 65). In the event of a Change of Control (as defined in the
COC Employment Agreements referred to below), Mr.
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Brown will be entitled to the benefits afforded to him under the COC Employment
Agreements described below, which have been incorporated into his Employment
Agreement, all equity-based awards granted to him will fully vest and, if his
employment is terminated following such event, his supplemental retirement
benefit will vest.
The Employment Agreement provides that if any payment to Mr. Brown
thereunder or under any other agreement would be subject to federal excise taxes
imposed on golden parachute payments, EDS will make an additional payment to him
to cover any such tax payable by him, the taxes on such gross-up payment and any
interest or related penalties.
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
EDS has entered into a change of control employment agreement (a "COC
Agreement") with each of its executive officers (each, an "Executive") and
certain other management personnel. In the case of Mr. Brown, the provisions of
the COC Agreement have been incorporated into his Employment Agreement. The COC
Agreements generally provide that, upon the occurrence of certain triggering
events involving an actual or potential change of control of EDS, the employment
of each Executive will be continued for a period of five years (the "Employment
Period").
The employment rights of an Executive under a COC Agreement are triggered
by either a "Change of Control" or a "Potential Change of Control." Following a
Potential Change of Control, the employment period may terminate (but the
agreement will remain in full force and a new employment period will apply to
any future Change of Control or Potential Change of Control) if either (a) the
EDS Board determines that a Change of Control is not likely or (b) the Executive
elects to terminate his Employment Period as of any anniversary of the Potential
Change of Control. A "Change of Control" generally includes the occurrence of
any of the following: (i) any person, other than exempt persons (including
employee benefit plans), becomes a beneficial owner of 15% or more of EDS'
voting stock; (ii) a change in the identity of a majority of the persons serving
as members of the EDS Board, unless such change was approved by a majority of
the incumbent board members; (iii) the approval by shareholders of a
reorganization, merger or consolidation in which (x) existing EDS shareholders
would not own more than 85% of the common stock and voting stock of the
resulting company, (y) a person (other than exempt persons) would own 15% or
more of the common stock or voting stock of the resulting company or (z) less
than a majority of the board of the resulting company would consist of the then
incumbent members of the EDS Board; or (iv) the approval by shareholders of a
liquidation or dissolution of EDS, except as part of a plan involving a sale to
a company of which following such transaction (x) more than 85% of the common
stock and voting stock would be owned by existing EDS shareholders, (y) no
person (other than exempt persons) would own more than 15% of the common stock
or voting stock of such company and (z) at least a majority of its board of
directors would consist of the then incumbent members of the EDS Board. A
"Potential Change of Control" generally includes any of the following: (i) the
commencement of a tender or exchange offer for EDS stock that, if consummated,
would result in a Change of Control; (ii) EDS entering into an agreement which,
if consummated, would constitute a Change of Control; (iii) the commencement of
an election contest subject to certain proxy rules; or (iv) the occurrence of
any other event that the EDS Board determines could result in a Change of
Control.
Throughout the Employment Period, each Executive's position, authority
and responsibilities will not be diminished from the most significant held by
him or her at any time during the 90-day period immediately prior to the
commencement of the Employment Period, and his or her compensation will continue
on a basis no less favorable than it had been during that period.
The Employment Period will terminate (i) automatically upon the
Executive's death or after 180 days of continuing "Disability," (ii) at EDS'
option if the Executive is terminated for Cause (as defined) and (iii) at the
Executive's option at any time for Good Reason (as defined) or for any reason
during the 180-day period beginning 60 days after a Change of Control (a "Window
Period"). If an Executive's employment is terminated by EDS other than for Cause
or Disability for any reason during a Window Period or for Good Reason at any
time, he or she will be entitled to receive the following: (i) the employee
benefits earned as of the date of termination; (ii) the then current salary and
bonus throughout the remainder of the Employment Period; (iii) the cash value of
his or her retirement and 401(k) benefits to the end of the Employment Period;
(iv) under certain circumstances, a pro rata portion of the options, restricted
stock and other compensatory awards the Executive would have received had his or
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her employment continued; and (v) continued coverage under welfare benefit plans
until the end of the Employment Period. In addition, all unvested options,
restricted stock and other compensatory awards held by the Executive will
immediately vest and become exercisable and, subject to any longer exercise term
set forth in the award, their term will be extended for up to one year following
termination of employment. The Executive may also elect to cash out equity-based
awards at the highest price per share paid by specified persons during the
Employment Period or the prior six-months. In the event of the Executive's death
(other than during a Window Period), his or her legal representatives will
receive the following: (i) the employee benefits earned as of the date of death,
(ii) the Executive's then current salary for one year from the date of death,
and (iii) the continuation of welfare benefits until the end of the Employment
Period. In addition, all options, restricted stock and other compensatory awards
will immediately vest and become exercisable for up to one year following death,
subject to any longer exercise term set forth in the award. The Executive's
legal representatives may cash out equity-based awards at the highest price per
share of Common Stock paid by specified persons during the Employment Period or
the prior six-months. Upon termination due to Disability, the Executive will be
entitled to receive the same amounts and benefits as would be provided upon
death. If an Executive's employment is terminated, other than during a Window
Period, by EDS for Cause or by the Executive other than for Good Reason, the
Executive will be entitled to receive only the compensation and benefits earned
as of the date of termination.
RETENTION PLAN
The named executive officers, other than Messrs. Alberthal and Fernandes,
and other management personnel, excluding Mr. Brown, are participants in the EDS
Senior Management Retention Plan (the "Retention Plan"), which provides for
certain retention benefits that vary based on the participant's position with
EDS and his or her eligibility for retirement during the Retention Period. For
purposes of this plan, the Retention Period commenced on August 6, 1998 and will
terminate on January 31, 2001. These benefits are evidenced by a Retention
Agreement between EDS and each participant under the plan.
The Retention Plan provides for the payment of a bonus to participants
who remain employed by EDS through the end of the Retention Period in an amount
equal to the greater of (i) two times the participant's targeted 1998 bonus as
designated by the Committee or (ii) the sum of the actual annual incentive
bonuses awarded to the participant in respect of calendar years 1998, 1999 and
2000. In addition, a participant who remains employed until the end of the
Retention Period will continue to vest in all pre-1998 restricted stock awards
in accordance with their scheduled vesting terms (provided the participant has
reached Retirement Age (as defined) prior to the end of that period) and will
continue to be eligible to exercise all pre-1998 stock options as if his or her
employment had continued for ten years from the date of grant, in each case
regardless of termination for any reason. Participants who attain Retirement Age
prior to the end of the Retention Period and who remain employed through the end
of the Retention Period will be entitled to receive benefits under the
Supplemental Plan upon retirement computed, with respect to the named executive
officers, without dimunition by reason of the fact that the participant is less
than 62 years of age at the time of retirement.
If the participant's employment is terminated by EDS prior to the end of
the Retention Period for any reason other than Cause (as defined) or if the
participant terminates employment for Good Reason (as defined), then the
participant shall be entitled to receive within 15 days of termination a bonus
payment equal to the greater of (i) two times the executive's targeted 1998
bonus as designated by the Committee or (ii) the sum of the annual incentive
bonuses actually awarded to the participant during the Retention Period prior to
termination. In addition, such participant will be entitled to receive a
severance payment equal to 18 times the participant's monthly salary rate (or,
for those participants entitled to receive specially computed benefits under the
Supplemental Plan as described below, equal to the salary the participant would
have received through the end of the Retention Period had the participant
remained employed through such date). In addition, all pre-1998 unvested
restricted stock awards granted to the named executive officers will continue to
vest at the times and in the amounts set forth in the participant's stock award
agreement, without regard to performance targets, and all pre-1998 stock options
awarded to the named executive officers will continue to be exercisable in
accordance with the schedule set forth in the participant's option award
agreement. Participants who attain Retirement Age prior to the end of the
Retention Period and whose employment is terminated during the Retention Period
by EDS without Cause or by the participant for Good Reason, will be entitled to
receive benefits under the Supplemental Plan upon retirement
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computed, with respect to the named executive officers, without dimunition by
reason of the fact that the participant is less than 62 years of age at the time
of retirement.
If a participant should become entitled to benefits under a COC Agreement
prior to the end of the Retention Period, the participant will not be entitled
to benefits under both the Retention Plan and the COC Agreement but may elect to
receive benefits under the Retention Plan or the COC Agreement, provided that he
or she may elect to receive benefits under the Retention Plan as well as the
benefit of the provisions under the COC Agreement providing for certain tax
gross-up payments with respect to certain excise taxes under Federal tax laws.
AGREEMENTS WITH FORMER EXECUTIVE OFFICERS
Retirement Agreement with Lester M. Alberthal, Jr. Effective as of
December 31, 1998, Mr. Alberthal retired as Chairman of the Board and Chief
Executive Officer and resigned as a director of EDS. In connection with his
retirement and resignation, Mr. Alberthal and EDS entered into an agreement
pursuant to which he agreed to certain restrictions on his ability to compete
with EDS, to hire employees of EDS, and to consult with prospective customers
with whom EDS is seeking to negotiate a business relationship for as long as he
is receiving benefits under that agreement (up to 20 years). In addition, Mr.
Alberthal agreed to restrictions on the disclosure of confidential information
regarding EDS. Under the terms of this agreement, Mr. Alberthal will provide
consulting services to EDS until March 31, 2004 and will receive cash payments
of $1,700,000 per year through that date, commencing on January 1, 1999. In
addition, the agreement provides for the payment of the $250,000 unpaid portion
of previously awarded bonuses in respect of prior years' service, the vesting of
741,000 shares of restricted Common Stock previously granted under the Incentive
Plan, of which 378,500 shares vested on January 1, 1999 and the remainder will
vest at the rate of 72,500 shares per year from 2000 through 2004 (or upon the
occurrence of a change of control of EDS), and the vesting of a previously
granted option to purchase 950,000 shares of Common Stock at $45.06 per share,
exercisable at any time prior to March 31, 2004. The agreement also provides for
the payment of supplemental pension benefits sufficient to provide Mr. Alberthal
with total annual retirement benefits of $1,000,000 per year (including benefits
under EDS' existing pension plans) commencing on his sixtieth birthday and,
following his death, to provide his wife annual benefits of $500,000 per year
until her death. Amounts required to fund this retirement benefit have been
deposited in a trust under the Supplemental Plan. In addition, EDS will provide
him with certain fringe benefits, including benefits under EDS' welfare benefit
plans and the provision of secretarial support and financial and tax planning
services, until March 31, 2004. The agreement provides for Mr. Alberthal's
release of EDS from any claims relating to his employment or retirement.
Retirement Agreement with Gary J. Fernandes. Effective as of December 31,
1998, Mr. Fernandes retired as Vice Chairman and resigned as a director of EDS.
In connection with his retirement and resignation, Mr. Fernandes and EDS entered
into an agreement pursuant to which he agreed to serve as a consultant to EDS
until December 31, 2000 and further agreed to certain restrictions on his
ability to engage in certain activities as or for a competitor of EDS, to
consult with or advise any current or prospective EDS customer, to assist any
entity involved in negotiations with EDS for services to be rendered by EDS, and
to solicit employees of EDS for as long as he is receiving benefits under that
agreement. In addition, Mr. Fernandes agreed to restrictions on the disclosure
of confidential information regarding EDS. Under the terms of the agreement, Mr.
Fernandes will receive 24 monthly payments of $41,667, commencing on January 1,
1999. The agreement further provides for the payment of the $143,750 unpaid
portion of previously awarded bonuses in respect of prior years' service; the
vesting of 414,000 shares of restricted Common Stock previously awarded to him,
of which 37,000 shares will vest annually from 1999 through 2005, 25,000 shares
will vest in 2006, 50,000 shares will vest in 2007, and 80,000 shares will vest
in 2008 (or upon the occurrence of a change of control of EDS); and the vesting
of a previously granted option to purchase 500,000 shares of Common Stock at
$45.06 per share. The agreement provides that he may participate in the
Supplemental Plan and that his benefit thereunder will be calculated without
regard to any early retirement reduction factors. Pursuant to the agreement, Mr.
Fernandes released EDS from any claims relating to his employment or retirement.
Employment Agreement with Robert B. Mintz. Mr. Mintz was appointed
Executive Vice President responsible for Human Resources effective April 20,
1998. He resigned from EDS effective March 19, 1999. Under the terms of his
offer of employment, on April 24, 1998 Mr. Mintz received as a sign-on bonus
$400,000 and 50,000 restricted stock units, one-half of which vested immediately
and the remaining half of which vested on
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March 2, 1999. His agreement provided for an initial annual salary of $380,000
and a targeted bonus of 110% of salary, with a minimum bonus of $350,000 in
respect of the first two years of his employment. On April 24, 1998 Mr. Mintz
was awarded under the Incentive Plan 100,000 restricted stock units (in addition
to the units received as a sign-on bonus). Of such award, 20,000 units vested on
March 2, 1999 and the remainder, which had been scheduled to vest at the rate of
20,000 units per year, terminated upon his resignation. In addition, he was
awarded options to purchase 200,000 shares of Common Stock at an exercise price
of $41.00 per share, exercisable for a five-year period commencing upon the
earlier of (i) April 24, 2008 or (ii) the date on which the closing price of the
Common Stock equals or exceeds 200% of the exercise price. Such options
terminated upon his resignation from EDS. EDS provided certain additional
benefits to Mr. Mintz, including the reimbursement of certain costs incurred by
him in connection with his commute to the Dallas area, life insurance and other
benefits generally available to executive officers.
CERTAIN TRANSACTIONS
In connection with the relocation of the company's Asia/Pacific
headquarters from Hong Kong to Hawaii, on June 26, 1998 EDS provided Edward V.
Yang, Senior Vice President Asia/Pacific, with a $1 million relocation loan. The
loan, which does not bear interest, will be forgiven over a five year period
commencing June 26, 1999 at the rate of $200,000 per year, provided that any
amount outstanding upon the earlier of the termination of Mr. Yang's employment
with EDS for any reason or the sale by Mr. Yang of the property purchased with
the proceeds of such loan shall be due and payable immediately.
Prior to 1998, EDS had advanced on behalf of its executive officers an
amount equal to the withholding taxes payable upon the vesting of restricted
stock units granted under the Incentive Plan. The advanced amounts, which did
not bear interest, were required to be repaid within 60 days, although that
period was extended for as long as the executive was restricted from trading in
EDS stock due to the possession of material non-public information. This policy
has been discontinued and all outstanding advances were repaid not later than
June 1998. The largest amount outstanding at any time during 1998 in respect of
such advances was as follows: Lester M. Alberthal, Jr.--$959,371; John A.
Bateman--$128,542; Hartmut Burger--$183,989; John R. Castle, Jr.--$289,125; Paul
J. Chiapparone--$551,967; J. Coley Clark--$264,304; H. Paulett Eberhart--
$148,505; Gary J. Fernandes--$591,907; Joseph M. Grant--$236,557; Jeffrey M.
Heller--$768,064; Dean Linderman--$551,967; Gary B. Moore--$151,134; G. Stuart
Reeves--$473,114; and Edward V. Yang--$190,942. Messrs. Alberthal, Fernandes,
Grant and Linderman retired as executive officers of EDS during 1998.
At the time of the implementation of the Retention Plan described above,
EDS agreed to credit Mr. Castle with 14.75 years of service to EDS, in addition
to his actual years of service, for purposes of the calculation of his
retirement benefits under the Retirement Plan, the Supplemental Plan and the
Retention Plan.
Ray L. Hunt, a director of EDS, indirectly owns a 50% economic interest
in Woodbine Development I, Ltd. ("Woodbine"). Pursuant to an agreement between
EDS and Woodbine effective May 1995, EDS retained Woodbine to market and develop
certain land owned by EDS surrounding its Plano, Texas headquarters. During
1998, EDS paid Woodbine approximately $1,215,000 (excluding reimbursement for
out-of-pocket expenses) for real estate development and brokerage services
provided under this agreement.
James A. Baker, III, a director of EDS, is a senior partner of the law
firm of Baker & Botts, L.L.P. EDS retained that firm to provide various legal
services to EDS during 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
EDS' directors and executive officers are required under the Exchange Act
to file with the SEC and the New York Stock Exchange reports of ownership and
changes in ownership in their holdings of Common Stock. Copies of these reports
must also be furnished to EDS. Based on an examination of these reports and on
written representations provided to EDS, EDS believes that all such reports were
timely filed in 1998.
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PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has appointed KPMG LLP as EDS' independent auditors for the year ending December
31, 1999. That firm has been EDS' auditors since 1984. Although not required to
do so, the Board of Directors is submitting the appointment of that firm for
ratification at the Meeting. If the appointment is not approved, the Board of
Directors will reconsider the appointment. A representative of KPMG LLP is
expected to be present at the Meeting, will be available to respond to questions
and will have the opportunity to make a statement, should he or she so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR 1999.
PROPOSAL 3: SHAREHOLDER PROPOSAL RELATING TO
DECLASSIFICATION OF BOARD OF DIRECTORS
The Ray T. Chevedden and Veronica G. Chevedden Family Trust, c/o John
Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, the owner of
1,060 shares of Common Stock, has advised EDS that it intends to present the
following resolution at the Meeting. In accordance with applicable proxy
regulations, the proposed resolution and supporting statement, for which the
Board of Directors and EDS accept no responsibility, are set forth below.
RESOLVED: ELECT THE ENTIRE BOARD OF DIRECTORS EACH YEAR.
EDS shareholders request the Board of Directors take all necessary steps to
enact this resolution today. This includes that less frequent than annual
election of the entire board requires a majority of shareholder votes cast, as a
separate issue.
WHY ELECT THE ENTIRE BOARD OF DIRECTORS EACH YEAR?
To make EDS more competitive at the highest level of the company:
EDS landed on California Public Employees Retirement System (CalPERS) list of
worst corporate performers due to:
1) Poor financial showings
2) Poor shareholder returns
3) Poor corporate governance
New York Times March 15, 1999
CalPERS (www.calpers.ca.gov) has a $100-million stake in EDS stock. CalPERS is a
$130-billion institutional shareholder and leader in developing competitive
corporate governance principles.
From CBS:
. EDS reported 1998 third-quarter net income fell 15%.
. Both down: EDS margins and 1999 EDS growth outlook.
. Stock falls 7%.
. EDS is a classic turnaround possibility but it's got a huge sea anchor - GM,
said one analyst.
. EDS pays a whopping $36-million to retire CEO Mr. Lester Alberthal - equals
14% of EDS 3rd quarter profit.
. EDS will take a $13-million charge to retire No. 2 executive Mr. Gary
Fernandes.
. Taking a charge to retire an executive is an unusual company move.
www.cbs.marketwatch.com Oct. to Dec. 1998.
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EDS' nominating and audit committees include insiders. CalPERS believes that EDS
must change its corporate governance, or it will continue poor shareholder
returns.
CalPERS EDS Profile
Thirteen (13) EDS executives and officers sell $22 million of EDS stock from
Feb. 2 to March 12, 1998. EDS insiders had good timing earlier. Two 30% stock
price drops followed previous waves of insider sales, said Bob Gabele, President
of CDA/Investnet.
Wall Street Journal May 6, 1998
WHAT BUILT-IN CONFLICTS DOES THE EDS BOARD HAVE?
1) EDS Director James Baker is senior partner in the EDS outside law firm Baker
& Botts ($171-Million revenue).
2) Mr. Baker was the ultimate boss at EDS during the search for Mr. Alberthal's
successor (New York Times, Aug. 17, 1998).
3) Baker faces divided loyalty in promoting Baker & Botts and also EDS.
4) Baker could have limited his CEO search to candidates that will hire Baker &
Botts. Also:
5) The 11-member EDS board has 2 inside directors.
6) EDS paid $939,000 to a company 50%-owned by director Ray Hunt.
7) Three EDS directors have a small stake in EDS - 700 to 1300 shares.
8) EDS Director William Gray is "stretched thin" - sitting on 8 boards.
Institutional Shareholder Services (www.cda.com/iss), a proxy advisory
firm for institutional shareholders, recommends electing the entire board each
year.
The best boards continue to raise the bar, said Business Week. Business
Week, citing a number of factors, said for the Best Board: PLACE THE ENTIRE
BOARD UP FOR ELECTION EVERY YEAR.
YES ON 3
_________________
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING REASONS:
The Board believes that the staggered system for electing directors
provides important benefits to EDS and its shareholders:
. It affords continuity and stability in the business and affairs of a
company by ensuring that a sudden and disruptive change in the
composition of its board of directors will not occur, with the potential
sudden changes in strategy, policies, and business relations that might
accompany such a change. Continuity and stability provide a competitive
advantage to a professional services business such as EDS, whose
customers and potential customers enter into long-term contracts for the
critical business services the company provides, and are particularly
important to the company at this time due to the recent transition in our
senior executive ranks.
. The classified board is a widely used safeguard to protect against
unsolicited attempts to gain control of a company. It maximizes
shareholder value by encouraging a person seeking to obtain control of a
company to negotiate with the Board. Because at least two annual meetings
will generally be required to effect a change in control of the Board,
the classified board gives the incumbent directors the time and leverage
necessary to review any takeover proposal, negotiate more favorable terms
for shareholders, and consider alternate proposals and strategies.
. It provides a strong balance in EDS' governance by ensuring that a
majority of directors at any given time will have experience in the
business and affairs of the company while at the same time affording
shareholders the opportunity to review corporate decision-making and
change up to one-third of the board annually if they are not satisfied.
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Eliminating the classified board would require an amendment to EDS'
Certificate of Incorporation. Approval of this proposal would not automatically
eliminate the classified board, but would be a recommendation to the board that
it propose to shareholders an amendment to EDS' Certificate of Incorporation to
eliminate the classified board. Under EDS' Certificate of Incorporation, an
elimination of the classified board would require the approval of at least 80%
of the outstanding shares of Common Stock. This proposal, however, requires the
approval of only a majority of the votes cast at the Meeting.
Without attempting to comment on the inaccuracy of various statements
cited by the proponent, the Board believes the record amply demonstrates its
independence of action, and that eliminating the classified Board would have no
effect on that independence.
The Board believes that this proposal is not in the best interest of EDS
or its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Under SEC rules, shareholder proposals intended to be presented at the
2000 Annual Meeting and included in the proxy materials for that meeting must be
received no later than December 10, 1999 and must comply with applicable SEC
rules. Proposals may be mailed to the Secretary of EDS at 5400 Legacy Drive,
Plano, Texas 75024-3199.
Our Bylaws provide for certain procedures which shareholders must follow
to nominate persons for election as directors or to introduce an item of
business at an annual meeting. These procedures are applicable whether or not
the proposal is intended to be included in our proxy materials for that meeting.
Generally, the shareholder must notify the Secretary of EDS of the proposal not
less than 90 days nor more than 270 days before the scheduled meeting date. The
notice must include the name and address of the shareholder and of any other
shareholders known by such shareholder to be in favor of the proposal. If the
notice relates to a nomination for director, it must also set forth the name,
age, principal occupation and business and residence address of any nominee(s),
the number of shares of Common Stock beneficially owned by the nominee(s), and
such other information regarding each nominee as would have been required to be
included in a proxy statement filed pursuant to the SEC's proxy rules (including
the written consent of each nominee). Notice of an item of business shall
include a description of the proposed business and the reason for conducting the
proposed business at the annual meeting. Copies of the Bylaws are available from
the Secretary of EDS.
We currently expect that the 2000 Annual Meeting of Shareholders will be
held on May 23, 2000, in which event any advance notice of nominations for
directors and items of business (other than proposals intended to be included in
the proxy materials, which as noted above must be received by December 10, 1999)
must be given by shareholders by February 23, 2000.
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ANNUAL REPORT
A COPY OF EDS' ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) AS FILED
WITH THE SEC WILL BE SENT TO ANY SHAREHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST
TO EDS INVESTOR RELATIONS, 5400 LEGACY DRIVE, MAIL STOP H1-2D-05, PLANO, TEXAS
75024-3199. THE ANNUAL REPORT ON FORM 10-K IS ALSO AVAILABLE ELECTRONICALLY ON
EDS' INTERNET WEB SITE AT WWW.EDS.COM.
By order of the Board of Directors,
/s/ D. Gilbert Friedlander
D. Gilbert Friedlander
Senior Vice President, Secretary
and General Counsel
April 9, 1999
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VOTE BY TELEPHONE OR INTERNET
24 HOURS A DAY, 7 DAYS A WEEK EDS
UNTIL 1:00 P.M. CENTRAL TIME ON MAY 25, 1999
TELEPHONE
800-575-6655
Use any touch tone telephone to vote your proxy. Have your proxy card with you
when you call. You will be prompted to enter your control number, located in the
box below, and then follow the simple directions.
INTERNET
http://proxy.shareholder.com/eds
Use the internet to vote your proxy. Have your proxy card with you when you
access the above website. You will be prompted to enter your control number,
located in the box below, to create an electronic ballot.
MAIL
Complete, sign and date this proxy card and return it in the postage-paid
envelope we have provided.
Your telephone or internet vote authorizes the named proxies to vote your shares
in the same manner as if your marked, signed and returned this proxy card.
If you submit your proxy by telephone on the Internet, there is no need for you
to mail back this proxy card.
Call Toll-Free To Vote - It's Fast, Convenient, and Your Vote is Important!
800-575-6656
- --------------------------------------------
CONTROL NUMBER FOR TELEPHONE/INTERNET VOTING
- --------------------------------------------
IF YOU SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET, THERE IS NO NEED FOR YOU
TO MAIL BACK THIS PROXY CARD.
- --------------------------------------------------------------------------------
PLEASE DETACH HERE
You Must Detach This Portion of the Proxy Card
Before Returning It in the Enclosed Envelope
[ ]
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.)
- --------------------------------------------------------------------------------
1. Election of Directors. The Board of Directors recommends a vote "FOR" the
nominees listed: nominees 01 - Richard H. Brown 02 - James A. Baker, III
03 - Judith Rodin
FOR WITHHOLD
ALL [X] FOR ALL [X] EXCEPTIONS [X]
Exceptions__________________________________________
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark
the "exceptions" box and write the name(s) in the space provided above.
FOR AGAINST ABSTAIN
2. Directors' Proposal
Ratification of appointment of auditors [X] [X] [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEM 3.)
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. Proposal by a shareholder
regarding declassification of the [X] [X] [X]
Board of Directors
- --------------------------------------------------------------------------------
To include any comments If you do not want to
or change of address, receive an Annual Report
mark this box and use the [X] for this account, please [X]
reverse side. mark this box.
If you agree to access our
Annual Report and Proxy [X] Please mark this box if [X]
Statement electronically you plan to attend the
in the future, please mark Annual Meeting.
this box.
Please sign exactly as name or names appear on this proxy.
When signing as attorney, executor, administrator, trustee,
custodian, guardian or corporate officer, give full title.
If more than one trustee, all should sign.
Dated _____________________________________________, 1999
_________________________________________________________
Signature
__________________________________________________________
Signature
If you do not vote by telephone or internet, Votes MUST be indicated (x) in
please sign, date and return this proxy card Black or Blue ink.
immediately using the enclosed envelope.
<PAGE>
ADMISSION TICKET
EDS
1999 ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 1999, 1:00 P.M.
THE PLANO CONVENTION CENTRE
2000 E. SPRING CREEK PARKWAY
PLANO, TEXAS 75074
[MAP APPEARS HERE]
Take Central Expressway
(U.S. Highway 75) to Exit 21
(Spring Creek Parkway).
Head east on Spring Creek Parkway
to Plano Convention Centre,
located on the southwest
corner of Spring Creek
Parkway and Jupiter Road.
- --------------------------------------------------------------------------------
PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ELECTRONIC DATA
SYSTEMS CORPORATION FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 25, 1999
The undersigned hereby authorizes Richard H. Brown, Jeffrey M. Heller, and
D. Gilbert Friedlander, and each or any of them with power to appoint his
substitute, to vote as Proxy for the undersigned at the Annual Meeting of
Stockholders to be held at The Plano Convention Centre, 2000 E. Spring Creek
Parkway, Plano, TX 75074 on May 25, 1999 at 1:00 p.m., or any adjournment or
postponement thereof, the number of shares which the undersigned would be
entitled to vote if personally present. The proxies shall vote subject to the
directions indicated on the reverse side of this card and proxies are authorized
to vote in their discretion upon such other business as may properly come before
the meeting and any adjournments or postponements thereof. The proxies will vote
as the Board of Directors recommends where the undersigned does not specify a
choice.
THIS CARD ALSO CONSTITUTES YOUR VOTING INSTRUCTIONS FOR SHARES HELD IN THE
EDS 401(K) PLAN, THE EDS STOCK PURCHASE PLAN, THE EDS PUERTO RICO SAVINGS PLAN,
THE GM SAVINGS STOCK PURCHASE PROGRAM, AND THE GM PERSONAL SAVINGS PLAN, AND THE
UNDERSIGNED HEREBY AUTHORIZES THE RESPECTIVE TRUSTEES/ADMINISTRATORS OF SUCH
PLANS TO VOTE THE SHARES HELD IN THE UNDERSIGNED'S ACCOUNTS. GENERALLY, SHARES
IN THESE PLANS CANNOT BE VOTED UNLESS A VALID PROXY IS RETURNED, ALTHOUGH SHARES
IN THE EDS 401(K) PLAN MAY, AND SHARES HELD IN THE GM PERSONAL SAVINGS PLAN
WILL, BE VOTED IN THE DISCRETION OF THE TRUSTEE.
ELECTRONIC DATA SYSTEMS CORPORATION
P.O. BOX 11464
NEW YORK, N.Y. 10203-0484
Address Change/Comments:________________________________________________________
- --------------------------------------------------------------------------------
(IF YOU HAVE WRITTEN IN THE ABOVE SPACE, PLEASE MARK THE BOXES FOR
"COMMENTS/CHANGE OF ADDRESS" ON THE REVERSE SIDE OF THIS CARD SO THAT YOUR
COMMENTS CAN BE DIRECTED TO THE APPROPRIATE GROUP FOR REVIEW.) (Continued
and please sign on reverse side.)
