<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
[x] Definitive Proxy Statement BY RULE 14A-6(E)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
ELECTRONIC DATA SYSTEMS CORPORATION
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(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
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[EDS LOGO APPEARS HERE]
Richard H. Brown
Chairman of the Board and Chief Executive Officer
April 5, 2000
Dear fellow shareholder:
On behalf of your Board of Directors, it is my pleasure to invite you to
attend the 2000 Annual Meeting of Shareholders of EDS. The meeting will be held
on Tuesday, May 23, 2000, 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 1999
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 follow the instructions for internet voting
on your proxy card and, when voting, indicate when prompted that you agree to
access these documents electronically in future years. If you hold shares in
street name, follow the instructions for internet voting on your voting
instruction card and indicate when prompted that you agree to access these
documents electronically in future years.
<PAGE>
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.................................................................. 4
Proposal 1: Election Of Directors......................................................... 4
Directors Standing for Election............................................................ 5
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 1999.................................................................... 13
Option Values at December 31, 1999....................................................... 13
Retirement Plans......................................................................... 14
Employment Agreement with Richard H. Brown............................................... 14
Offer of Employment to James E. Daley.................................................... 15
Management Consulting Services Employment Agreement with Fred G. Steingraber............. 16
Change of Control Employment Agreements.................................................. 16
Retention Plan........................................................................... 17
Certain Transactions..................................................................... 18
Section 16(a) Beneficial Ownership Reporting Compliance.................................. 18
Proposal 2: Ratification Of Appointment Of Auditors........................................ 19
Proposal 3: Shareholder Proposal Relating To Rights Plans.................................. 19
Proposal 4: Shareholder Proposal Relating to Majority Vote................................. 21
Shareholder Proposals For 2001 Annual Meeting............................................... 23
</TABLE>
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 23, 2000
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 23, 2000, at 1:00 p.m. local time. The purpose of
the meeting is to vote on the following proposals (in the case of the
shareholder proposals, if presented at the meeting) described in the
accompanying Proxy Statement, and any other business that may properly be
presented at the meeting or any adjournment of the meeting:
PROPOSAL 1. Election of four directors for a three-year term;
PROPOSAL 2. Ratification of the appointment of KPMG LLP as independent
auditors;
PROPOSAL 3. Shareholder proposal relating to rights plans; and
PROPOSAL 4. Shareholder proposal relating to majority vote.
The record date for the annual meeting is March 24, 2000. 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 5, 2000
If you are a shareholder with a disability requiring special assistance and
would like to attend the Annual Meeting, please call EDS Investor Relations at
(972) 605-8933. We will make reasonable efforts to accommodate your needs.
<PAGE>
[EDS LOGO APPEARS HERE]
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2000
The Board of Directors of EDS is soliciting proxies to be used at the 2000
Annual Meeting of Shareholders (the "Meeting"). This proxy statement and the
form of proxy will be mailed to shareholders beginning April 5, 2000.
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 24, 2000, may vote at the Meeting. On that date, 468,066,282
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. Proposals 3 and 4 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 dividend
reinvestment program, 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" PROPOSALS 3 AND 4.
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.
<PAGE>
The affirmative vote of a plurality of the votes cast at the Meeting is
required for the election of directors. A proxy that has properly withheld
authority with respect to the election of one or more directors will not be
voted with respect to the director or directors indicated, although it will be
counted for purposes of determining whether there is a quorum.
For each other proposal, the affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote on the
proposal will be required for approval. An abstention with respect to any such
proposal will not be voted, although it will be counted for purposes of
determining whether there is a quorum. Accordingly, an abstention will have the
effect of a negative vote.
If you hold your shares in "street name" 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 solicited hereby are being solicited by EDS. The cost of
soliciting proxies will be paid by EDS. Our officers and employees may, but
without compensation other than their regular compensation, solicit proxies by
further mailing or personal conversations, or by telephone, facsimile or e-mail.
We will, upon request, reimburse brokerage firms and others for their reasonable
expenses in forwarding proxy materials to beneficial owners of Common Stock.
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 1999. 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 five times in 1999, is
composed of Ray J. Groves (Chairman), Roger A. Enrico and Ray L. Hunt. Mr.
Enrico was appointed to the Audit Committee in February 2000 upon the retirement
of Enrique J. Sosa, who had served on the committee since 1996. The Audit
Committee 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.
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Compensation and Benefits Committee. The Compensation and Benefits
Committee, which met five times in 1999, is composed of C. Robert Kidder
(Chairman), William H. Gray, III and Ray J. Groves. The committee establishes
the compensation of our executive officers and reviews recommendations made by
the Chief Executive Officer with respect to the long-term incentive compensation
of other corporate officers. It also oversees our employee benefit plans,
reviews new employee benefit plans and significant amendments to existing plans,
and administers all stock based plans.
Governance Committee. The Governance Committee, which met four times in
1999, is composed of James A. Baker, III (Chairman), Richard B. Cheney and
Judith Rodin. The Governance Committee reviews management succession and
development plans, recommends to the Board the election of the Chairman and the
Chief Executive Officer, and reviews the Chief Executive Officer's
recommendations regarding the election of other principal officers. It also
reviews Board processes and policies, makes recommendations regarding
shareholder proposals, determines the criteria for qualification of directors,
and recommends to the Board candidates for director and for committee
memberships. The procedures for submission by a shareholder of a director
nominee are described below under the heading "Shareholder Proposals for 2001
Annual Meeting."
Corporate Governance
The Board of Directors believes that sound governance practices and
policies provide an important framework to assist it in fulfilling its duty to
our shareholders. The current Board structure was established at the time of
our split-off from General Motors Corporation in June 1996. The structure was
established, and the Board's members selected, in a manner intended to implement
governance practices and policies appropriate for EDS and its business, culture
and challenges. This included the requirement that a substantial majority of
directors be outside, independent directors with no significant financial or
personal tie to EDS, that all Board committees be composed entirely of
independent directors, and that a significant portion of director compensation
be comprised of interests in Common Stock. Since its establishment in 1996, the
Board has continually reviewed and updated its practices and policies and
developed and adopted significant additional practices and policies that it
believes to be appropriate for EDS and in the best interest of its shareholders.
These include the following:
. Executive Sessions. The outside members of 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. This
evaluation, which was conducted again in 1999, is coordinated with the
activities of the Compensation and Benefits Committee in setting the Chief
Executive Officer's compensation.
. Board Evaluation. In 1998, the Board initiated a self-evaluation process that
identified and resulted in specific improvements to Board activities during
1999. Another Board evaluation is planned for 2000.
. Independence. In 1998, the Board adopted a formal definition of independence
for its 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 has annually reviewed the
independence of each outside director in connection with his or her
nomination for election to the Board using these guidelines. In December
1999, the Board amended its definition of independence for directors, and the
Governance Committee amended the guidelines for assessing independence, in
order to parallel recent changes in that definition adopted by the New York
Stock Exchange.
. Retirement/Resignation. In 1999, the Board amended its formal policy
regarding director retirement to provide that directors or candidates for
Board membership shall not be nominated or elected after reaching age 70,
unless the Board expressly determines to permit such service, in which case
the individual may be nominated or elected for not more than one term after
reaching age 70. The Board continues to maintain the policy that a director
should submit his or her resignation in the event of a significant change of
the job responsibility he or she held at the time of election to the Board.
The Board may elect to not accept such resignation.
. Charitable Contributions. In 1997, the Board adopted a policy that requires
charitable contributions by EDS to organizations of which a Board member is
an officer, director or trustee to be approved by the Board or the Governance
Committee, depending on the size of the contribution.
3
<PAGE>
. Written Committee Charters. All Committees of the Board operate under written
charters approved and adopted by the Board in 1996. In 2000, each Committee
plans to review its charter to determine if improvements or amendments are
appropriate and to make recommendations to the full Board for its approval of
any changes.
. Executive Stock Ownership. As more fully described below in the Report of the
Compensation and Benefits Committee on Executive Compensation, requirements
for the ownership of Common Stock by senior executives were adopted in 1999.
Compensation of Directors
A director who is also an employee of EDS is not entitled to any additional
compensation for serving as a director. Each non-employee director receives
annual cash compensation of $35,000, as well as $5,000 for serving as a
committee chairman and $2,500 for attendance at each meeting of the Board or a
Board committee. In addition, each non-employee director receives, on an annual
basis, (i) options to purchase 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 that 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 composed of
10 members. The four Class I directors whose terms expire at this Meeting are
William H. Gray, III, Ray J. Groves, Jeffrey M. Heller and Ray L. Hunt. The
Board of Directors has nominated these persons for election as Class I
directors. If elected, each director will serve until the annual meeting in
2003 or until he 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 2001 or 2002, 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 four 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, 2000.
The Board of Directors recommends a vote FOR each of the nominees for director.
4
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Directors Standing for Election
William H. Gray, III, 58
[PHOTO] 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, 64
[PHOTO] 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
Technologies Incorporated, Boston Scientific Corporation,
Dominion Resources, Inc., Marsh & McLennan Companies, Inc.,
Nabisco Group Holdings Corp. and American Water Works Company,
Inc. Mr. Groves has been a director of EDS since June 1996.
Jeffrey M. Heller, 60
[PHOTO] 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
[PHOTO] 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. and Security Capital Group Incorporated. He has been a
director of EDS since June 1996.
Directors Continuing in Office
Term Expiring in 2001
Richard B. Cheney, 59
[PHOTO] Chief Executive Officer of Halliburton Company since 1995 and
Chairman since February 2000. 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. He has been a director of EDS since
June 1996.
5
<PAGE>
Roger A. Enrico, 55
[PHOTO] Chief Executive Officer of PepsiCo Inc. since April 1996,
Chairman of the Board since November 1996 and a director since
1987. Mr. Enrico was Vice Chairman of PepsiCo Inc. from 1993
to 1996. He joined PepsiCo Inc. in 1971, became President &
CEO of Pepsi-Cola USA in 1983, President & CEO of PepsiCo
Worldwide Beverages in 1986, Chairman & CEO of Frito-Lay, Inc.
in 1991, and Chairman & CEO of PepsiCo Worldwide Foods in
1992. Mr. Enrico was Chairman and CEO, PepsiCo Worldwide
Restaurants, from 1994 to 1997. He is a director of PepsiCo
Inc., Target Corporation, The Prudential Insurance Company of
America and A.H. Belo Corporation. Mr. Enrico has been a
director of EDS since February 2000.
C. Robert Kidder, 55
[PHOTO] 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.
Term Expiring in 2002
Richard H. Brown, 52
[PHOTO] Chairman and Chief Executive Officer of EDS since January
1999. Prior to joining EDS, Mr. Brown was Chief Executive
Officer of Cable & Wireless plc from July 1996 to December
1998. He was President and Chief Executive Officer of H&R
Block, Inc., and Chairman of its CompuServe subsidiary, from
May 1995 to July 1996. Mr. Brown was Vice Chairman of
Ameritech Corporation from January 1993 to May 1995 and
President of its Illinois Bell subsidiary from 1990 to 1993.
He held various executive positions with United
Telecommunications, Inc. from 1981 to 1990, most recently as
Executive Vice President, and was with Ohio Bell from 1969 to
1981. Mr. Brown is a director of The Seagram Company Ltd.
James A. Baker, III, 69
[PHOTO] Senior Partner of Baker Botts LLP since March 1993 and a
Senior Counselor of The Carlyle Group, a merchant banking
firm, since 1993. Mr. Baker served as Senior Counselor to the
President of the United States and White House Chief of Staff
from August 1992 to January 1993, as Secretary of State from
January 1989 to August 1992, as Secretary of the Treasury from
1985 to 1988, and as White House Chief of Staff from 1981 to
1985. He is a director of Reliant Energy Inc. as well as Rice
University and the Howard Hughes Medical Institute. Mr. Baker
has been a director of EDS since June 1996.
Judith Rodin, 55
[PHOTO] 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.
6
<PAGE>
Management Stock Ownership
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 6, 2000, 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>
Amount and Nature of Beneficial
Name Ownership (a) (b) (c)
<S> <C>
James A. Baker, III.............................................................. 12,211
Richard B. Cheney................................................................ 12,118
Roger A. Enrico.................................................................. 5,446
William H. Gray, III............................................................. 4,883
Ray J. Groves.................................................................... 14,885
Ray L. Hunt...................................................................... 33,391
C. Robert Kidder................................................................. 11,579
Judith Rodin..................................................................... 10,383
Richard H. Brown................................................................. 340,626 (d)
Jeffrey M. Heller................................................................ 476,448 (d) (e)
James E. Daley................................................................... 60,818 (d)
Paul J. Chiapparone.............................................................. 202,119 (d)
Fred G. Steingraber.............................................................. 76,559
Directors and executive officers as a group (17 persons)......................... 1,422,773 (d)
</TABLE>
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(a) Includes shares of Common Stock which may be acquired on or before May 14,
2000 through the exercise of stock options as follows: Mr. Baker--3,000
shares; Mr. Cheney--5,743 shares; Mr. Gray--2,100 shares; Mr. Groves--6,578
shares; Mr. Hunt--7,486 shares; Mr. Kidder--4,882 shares; Dr. Rodin--4,673
shares; Mr. Brown--200,000 shares; Mr. Heller--120,000 shares;
Mr. Daley--50,000 shares; Mr. Chiapparone--40,000 shares;
Mr. Steingraber--74,441 shares; and all directors and executive officers
as a group--630,881 shares.
(b) Includes compensation deferrals treated as invested in Common Stock under
the Non-Employee Director Deferred Compensation Plan as follows:
Mr. Baker--1,302 shares; Mr. Cheney--5,375 shares; Mr. Enrico--280 shares;
Mr. Gray--1,683 shares; Mr. Groves--6,269 shares; Mr. Hunt--2,805 shares;
Mr. Kidder--4,397 shares; Dr. Rodin--2,899 shares; and all directors as a
group--25,010 shares.
(c) Excludes unvested restricted stock units granted under the 1996 Incentive
Plan (and its predecessor) as follows: Mr. Brown--152,500 units; Mr.
Heller--425,000 units; Mr. Daley--16,666 units; Mr. Chiapparone--105,000
units; Mr. Steingraber--138,511 units; and all executive officers as a
group--862,777 units. The units are scheduled to vest (subject to earlier
vesting based on the achievement of performance goals by EDS) during the
period from 2001 through the earlier of normal retirement or 2009, subject
to earlier vesting under the terms of the Retention Plan or other
agreements with certain named executive officers as described below.
(d) Includes compensation deferrals treated as invested in Common Stock under
employee compensation deferral plans and agreements as follows:
Mr. Brown--139,755 shares; Mr. Heller--62,253 shares; Mr. Daley--4,069
shares; Mr. Chiapparone--80 shares; and all executive officers as a
group--214,614 shares.
(e) Amounts reported include 1,840 shares held by Mr. Heller's spouse as
custodian for their minor grandchildren. Mr. Heller disclaims beneficial
ownership of such shares.
As of March 6, 2000, 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 62,073,652 shares of Common Stock, or approximately 13.3% 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 composed 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 five times in 1999 and routinely
reported to the Board on its activities.
Compensation Philosophy. Our compensation philosophy is based on the
premise that executives should receive competitive compensation determined by
reference to both EDS' performance and the individual's contribution to that
performance. Compensation plans and programs are intended to motivate and
reward executives for long-term strategic management and the enhancement of
shareholder value, support a performance-oriented environment that rewards
achievement of internal business goals, and attract and retain executives whose
abilities are critical to the long-term success and competitiveness of EDS.
In determining compensation levels, we evaluate 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 technology
and information technology (IT) services industries. Accordingly, our survey
data includes two separate comparator groups. One group consists of
approximately 25 large global corporations, which include several companies
outside the technology and IT services industries. The second group consists of
technology companies that are similar in revenues, market capitalization and net
income to EDS. These companies primarily represent firms that we believe compete
with EDS for executive talent. Our goal is to compensate executives above the
50th percentile of the comparator companies when EDS achieves its business
goals. EDS has retained an independent third party consultant to provide
comparator group data.
EDS implemented significant organizational changes in 1999 designed to
improve the company's performance. While our compensation philosophy remains
fundamentally unchanged, over the course of 1999 we implemented significant
modifications and additions to the company's compensation practices and programs
to support these organizational changes. The principal focus of the
modifications and additions to our compensation practices and programs in 1999
has been the adoption of policies and programs to encourage significant long-
term stock ownership by our executives, thereby further linking management and
shareholder interests. With that goal in mind, we recently adopted share
ownership guidelines to encourage, and eventually require, executives to own a
significant amount of EDS stock. These guidelines are expressed as a multiple
of an executive's base pay and executives will have three years to meet the
requirements. Furthermore, our compensation programs have been updated to
provide executives with multiple vehicles that will allow them to accumulate EDS
stock. These changes include the adoption of a non-qualified deferred
compensation plan that allows executives to defer base salary, annual incentive
compensation and restricted stock into EDS stock units and provides a matching
payment, in the form of EDS stock, with respect to cash compensation deferred
under the Plan. In addition, as described below, we implemented a requirement
that a portion of bonuses be paid in the form of EDS stock commencing in 2000
and authorized a long-term strategy for stock option grants to executive
officers.
In addition to benefit plans and programs generally available to all EDS
employees, executive compensation consists of the following three principal
components: base salary, annual incentive compensation and long-term incentive
compensation. The annual and long-term incentive compensation components enable
the Committee to subject executive compensation to substantial risk based on
achievement-oriented objectives. We have adopted the following approach to base
salary, annual incentive compensation and long-term incentive compensation.
Base Salary. Our goal is to target base salaries for executive officers at
the 50th percentile paid for similar positions by the comparator groups
described above. The Committee approves actual salary rates for all Section 16
executive officers, including the Chief Executive Officer. Individual
executives may be paid higher or lower than the
8
<PAGE>
targeted level depending on a combination of factors, including the executive's
performance, responsibilities and experience, as well as his or her opportunity
for annual and long-term incentive compensation.
We generally review salary levels for executive officers on an annual
basis.
Annual Incentive Compensation. Annual incentive compensation reflects our
policy that a significant portion of each executive's annual compensation be
contingent upon the company's current performance as well as the individual
executive's contribution to that performance. We review bonus targets used by
the comparator groups in setting executive bonus target levels. Annual bonuses
for executive officers are generally targeted within a range of 90% to 120% of
base salary when the company and the executive meet their financial, customer
and employee targets for the year. In 1999, we authorized an increase in the
maximum bonus to 190% of targeted bonus when such targets are significantly
exceeded. Actual bonuses are adjusted at year-end to reflect the performance
achieved by the individual executive. These amounts are established consistent
with the Committee's policy of compensating executive officers above average
levels of the comparator groups when EDS achieves its business goals.
We establish 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. Because we believe that
executives should be held accountable not only for the company's annual earnings
per share (EPS) but for other measures of performance as well, our financial
targets include both EPS and return on net assets (RONA) components. Sixty
percent of the earned award may be paid to an executive based on EDS' financial
performance, while forty percent is subject to achievement of individual
objectives established at the beginning of a year. If the financial target is
met with respect to a performance year, we 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, provided that the overall amount
payable in respect of bonuses for all executives is not increased from the
amount established at the beginning of the year.
Annual incentive compensation generally has taken the form of cash bonuses
awarded under the company's Executive Bonus Plan established pursuant to the
Incentive Plan. However, consistent with our goal of further aligning
management and shareholder interests, commencing with bonuses for 2000, a
portion will automatically be paid in the form of EDS stock rather than cash.
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 had 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 in
1996, we have utilized both stock options and restricted stock as long-term
incentive compensation, with a strong emphasis on stock options. All stock-
based awards to executives are made under the Incentive Plan, which authorizes
awards of stock options, stock appreciation rights, restricted stock and other
stock-based awards. In granting stock-based awards, the Committee considers the
long-term incentive compensation paid for similar executive positions by the
comparator groups, the number of shares of unvested restricted stock and stock
options subject to previously granted awards, and the executive's performance.
Restricted stock and stock options awarded to executive officers generally vest
ratably over a five or ten year period subject to the continued employment of
the executive and, with respect to 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 restricted stock
vesting otherwise scheduled for that year will generally be extended until the
end of the five or ten year period. Stock options granted under the Incentive
Plan have not been repriced, nor does the Committee intend to consider option
repricing in the future.
In 1999, we authorized a strategy to grant stock options to executives on
an annual basis beginning in 2001. Options will be issued at fair market value
and will generally have a ten-year term and vest ratably over five years.
Although we anticipate the total number of options granted to all executives
will approximate the 50th percentile of the comparator groups, individual grants
will vary by executive from the 50th percentile based upon achievement of
individual objectives established at the beginning of a year.
9
<PAGE>
The financial performance goals we established at the beginning of 1999 for
the vesting of restricted stock awards in respect of that year were achieved by
the company. Accordingly, all restricted stock units held by executive officers
and scheduled to vest for 1999 have vested.
Senior Management Retention Plan. In connection with the announcement of
the retirement of the company's former Chairman in August 1998, the Committee
approved a Senior Management Retention Plan for persons who were executive
officers at the time of the implementation of the plan (other than the company's
former Chairman and Vice Chairman). That plan provides for certain benefits to
be provided to participants if they remain employed by EDS through a transition
period ending on January 31, 2001. The plan also provides that certain benefits
be provided to participants if they are involuntarily separated from EDS without
"cause" prior to January 31, 2001. These benefits included 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. In 1999, as part of
our ongoing effort to further link management and shareholder interests, we
approved the modification of many participant agreements under that plan to
further motivate senior executives to remain with EDS, while eliminating the
incentives to trigger the original agreements. Specifically, the agreements were
modified to provide an enhanced bonus benefit in the form of EDS stock units.
Additional benefits included extended vesting, a deferral opportunity, extended
severance period and enhanced retirement benefits.
Chief Executive Officer Compensation. Richard H. Brown was appointed
Chairman and Chief Executive Officer of EDS effective as of January 1, 1999.
Mr. Brown's compensation is governed by his Employment Agreement, the principal
terms of which were approved by the Board of Directors, upon the recommendation
of the Committee, on December 9, 1998. The terms of that Agreement are
described under the heading "Employment Agreement with Richard H. Brown" on
pages 14-15 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.
Under EDS' annual incentive plan, the maximum award of 190% of the targeted
bonus may be exceeded by an individual executive as described above.
Accordingly, because both EDS and Mr. Brown significantly exceeded targets
established for 1999, his bonus for 1999 exceeded the amount provided for in his
Employment Agreement.
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. We intend 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. We anticipate that the $1 million level will be exceeded with
respect to the Chief Executive Officer and certain other executive officers.
Compensation and Benefits Committee
C. Robert Kidder, Chairman
William H. Gray, III
Ray J. Groves
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, 1995. As a result of our split-off from GM, each share of GM
Class E Common Stock was converted into one share of EDS Common Stock effective
June 7, 1996. Accordingly, the return on Common Stock in the following graph
assumes an investment of $100 in the GM Class E Common Stock on January 1, 1995.
This graph is presented in accordance with Securities and Exchange
Commission (SEC) requirements. You are cautioned against drawing any
conclusions from this information, as past results are not necessarily
indicative of future performance. This graph in no way reflects a forecast of
future financial performance.
Comparison of Five Year Cumulative Return
-------------------------------------------------------------------
1/1/95 1/1/96 6/7/96 1/1/97 1/1/98 1/1/99 1/1/00
-------------------------------------------------------------------
EDS 100 137 151 115 119 138 186
-------------------------------------------------------------------
GOLDMAN 100 137 152 161 186 233 293
-------------------------------------------------------------------
S&P 500 100 142 169 169 225 289 350
-------------------------------------------------------------------
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 1999
(the "named executive officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-----------------------------------------------------------------
Name and Other Restricted Number All Other
Principal Position Annual Stock Of Compensation
During 1999 Year Salary Bonus Compensation Awards (b) Options (c)
<S> <C> <C> <C> <C> <C> <C> <C>
Richard H. Brown 1999 $1,500,000 $3,636,000 -0- -0- 400,000 $ 2,400
Chairman of the Board
and Chief Executive Officer
Jeffrey M. Heller 1999 654,514 1,444,950 -0- -0- -0- 40,398
President and Chief 1998 562,500 -0- $ 2,202 $ 4,059,375 300,000 39,299
Operating Officer 1997 500,000 -0- 15,466 10,765,625 -0- 64,994
James E. Daley 1999 407,372 1,160,000 (a) -0- 1,210,156 250,000 2,400
Executive Vice President and
Chief Financial Officer
Paul J. Chiapparone 1999 475,000 921,500 101,065 -0- -0- 36,085
Executive Vice President 1998 445,833 -0- 111,485 -0- 100,000 35,679
1997 425,000 -0- 20,472 4,306,250 -0- 51,454
Fred G. Steingraber 1999 4,065,116 467,584 11,274 -0- -0- 490,961
Chairman and CEO of 1998 3,733,333 616,667 4,923 -0- 291,132 444,347
A.T. Kearney 1997 2,940,000 1,060,000 5,322 -0- 372,202 377,422
</TABLE>
(a) Includes $150,000 sign-on bonus.
(b) Amount for 1999 represents award of 25,000 restricted stock units to Mr.
Daley on March 8, scheduled to vest at the rate of one-third per year
commencing in 2000. Amount for 1998 represents award of 100,000 units to
Mr. Heller on August 10, scheduled to vest at the rate of 20% per year
commencing in 1999. Amount for 1997 represents award on January 3 of
250,000 units to Mr. Heller, scheduled to vest at the rate of 10% per year
commencing in 1998, and 100,000 units to Mr. Chiapparone, scheduled to vest
at the rate of 20% per year commencing in 1998. Vesting for each year is
subject to the company's achievement of performance targets and if such
targets are not achieved will be deferred until not later than the last
scheduled vesting date or normal retirement. Vesting may be accelerated
with respect to certain named executives under the Retention Plan or other
agreements described below. As of December 31, 1999, the number and fair
market value of unvested restricted stock units held by the named executive
officers were: Mr. Brown, 152,500 shares, $10,074,531; Mr. Heller, 482,000
shares, $31,842,125; Mr. Daley, 25,000 shares, $1,651,563; Mr. Chiapparone,
137,000 shares, $9,050,563; and Mr. Steingraber, 138,511 shares,
$9,150,383. Dividend equivalents are paid with respect to restricted stock
units in the amount and at the time of the payment of dividends on the
Common Stock.
(c) Amount reported for 1999 consists of (i) for each of the named executive
officers other than Mr. Steingraber, $2,400 in respect of the employer
matching contribution of Common Stock under the EDS 401(k) Plan, (ii) for
Messrs. Heller, Chiapparone and Steingraber, $37,998, $33,685 and $21,261,
respectively, for payments by EDS of premiums under life insurance policies
the proceeds of which may be applied toward the continuation of salary
payments for the benefit of their surviving spouse and (iii) for Mr.
Steingraber, $469,700 of contributions to his account under the A.T.
Kearney executive and supplemental executive retirement plans.
12
<PAGE>
Option Grants in 1999
The following table contains information regarding awards of stock options
to the named executive officers in 1999 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
Securities Stock Options
Underlying Granted to Exercise or Hypothetical
Options Employees in Base Price Expiration Value at Grant
Name Granted 1999 Per Share (a) Date Date (d)
<S> <C> <C> <C> <C> <C>
Richard H. Brown 400,000 3.6% $66.88 12/10/09(b) $10,228,000
Jeffrey M. Heller -0-
James E. Daley 250,000 2.2% $48.41 (c) $ 3,915,000
Paul J. Chiapparone -0-
Fred G. Steingraber -0-
</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
(December 10 for Mr. Brown and March 8 for Mr. Daley). The exercise price
may be paid in cash, shares of Common Stock or pursuant to a cashless
exercise procedure under which the holder provides irrevocable instructions
to a brokerage firm to sell the purchased shares and remit to EDS out of
the sales proceeds an amount equal to the exercise price plus applicable
withholding taxes.
(b) The options granted to Mr. Brown are exercisable at the rate of 20% per
year commencing December 10, 2000, and on each December 10 thereafter
through 2004.
(c) The options granted to Mr. Daley are exercisable at the rate of 20% per
year commencing March 1, 2000, and on each March 1 thereafter through 2004,
and will terminate with respect to each portion thereof on the five-year
anniversary of the date that portion became exercisable.
(d) Calculated using a variation of the Black-Scholes option pricing model
based upon the following assumptions: estimated time until exercise of four
years for the March 8 grant and six years for the December 10 grant;
volatility rate of 35.73% for the March 8 grant and 29.97% for the December
10 grant; risk-free interest rate of 5.33% for the March 8 grant and 6.13%
for the December 10 grant; and dividend yield of 1.24% for the March 8
grant and .90% for the December 10 grant.
Option Values at December 31, 1999
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, 1999, and the aggregate dollar value of the in-the-
money options at that date. In accordance with SEC rules, values are calculated
by subtracting the exercise price from the fair market value of the underlying
Common Stock, which is deemed to be $66.0625, the closing price of the Common
Stock on the New York Stock Exchange on December 31, 1999.
<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>
Richard H. Brown 200,000 1,200,000 $4,912,500 $19,650,000
Jeffrey M. Heller 60,000 740,000 $1,528,125 $16,613,750
James E. Daley -0- 250,000 -0- $ 4,414,063
Paul J. Chiapparone 20,000 280,000 $ 509,375 $ 6,238,000
Fred G. Steingraber 74,441 688,903 $1,737,732 $16,884,648
</TABLE>
13
<PAGE>
Retirement Plans
The following table indicates the estimated annual benefits payable to the
named executive officers (other than Mr. Steingraber, whose retirement benefits
are paid under the non-qualified A.T. Kearney executive and supplemental
executive retirement plans) 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
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings 5 10 15 20 25 30
$400,000 $35,592 $71,184 $106,777 $142,369 $177,961 $213,553
$600,000 $53,926 $107,851 $161,777 $215,702 $269,628 $323,553
$800,000 $72,259 $144,518 $216,777 $289,036 $361,294 $433,553
$1,000,000 $90,592 $181,184 $271,777 $362,369 $452,961 $543,553
$2,000,000 $182,259 $364,518 $546,777 $729,036 $911,294 $1,093,553
$3,000,000 $273,926 $547,851 $821,777 $1,095,702 $1,369,628 $1,643,553
</TABLE>
As of December 31, 1999, 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 (other than Mr. Steingraber)
were as follows: Mr. Brown, $3,000,000--17 years; Mr. Heller, $882,570--32
years; Mr. Daley $684,592--2 years; and Mr. Chiapparone, $768,069--33 years.
The salary and bonus for the most recent year considered in the calculation of
final average earnings is found in the Summary Compensation Table above. The
eligible years of credited service listed above for Messrs. Daley and Brown
reflect extra years of service pursuant to their agreements with EDS described
below.
"Compensation" under the Retirement Plan generally refers to total annual
cash compensation (up to $160,000 for 1999 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, other than Mr. Steingraber, are also
eligible to participate in the EDS Restoration Plan, which provides for a
supplemental benefit equal to the amount they would receive under the Retirement
Plan if compensation and annual accruals were not limited under the Internal
Revenue Code.
The annual benefit payable under the Supplemental Plan for normal
retirement, together with the benefit payable under the Retirement Plan and the
Restoration Plan, will generally equal (i) 55% of the average of the
participant's total Compensation (based on the highest five consecutive years
within the last ten years of employment) less (ii) the maximum offset allowance
that can be deducted from final average earnings. Benefits are payable in the
form of a single or joint survivor life annuity, unless otherwise elected.
Benefits under the Supplemental Plan can be reduced, suspended or eliminated at
any time by the Compensation and Benefits Committee, 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 participants in that plan, which include Messrs. Heller and
Chiapparone.
Employment Agreement with Richard H. Brown
The Board of Directors elected Mr. Brown Chairman and Chief Executive
Officer effective January 1, 1999. The Employment Agreement between EDS and Mr.
Brown provides for his employment through the later of December 31, 2003 or, if
notice by either party to terminate such employment is delivered at any time
after December 31, 2000, the third anniversary of such notice. Under that
agreement, Mr. Brown will receive an annual salary of $1,500,000, subject to
possible future increases after 1999, and 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. It also provides for his participation in EDS' employee
benefit programs on terms not less favorable than those offered to other senior
executives of EDS, the
14
<PAGE>
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 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 his Employment Agreement by EDS without Cause (as defined), or by him for
Good Reason (as defined), he will be entitled to the following: a lump sum
payment equal to three times the sum of his annual salary and the greater of his
most recent target or actual annual bonus payment; immediate vesting of his
supplemental retirement benefit, restricted stock and stock options and
continued exercisability of the stock options until the earlier of five years
following termination of employment or expiration of the ten-year option term; a
pro-rated payment of the targeted performance bonus for the year of termination;
and continuation of benefits for a three-year period (or, if earlier, such time
as he attains age 65). In the event of a Change of Control (as defined in the
CoC Agreements referred to below), Mr. Brown will be entitled to the benefits
afforded to him under such CoC Agreements, which have been incorporated into his
Employment Agreement, all equity-based awards granted to him will fully vest
and, if his employment is terminated following such event, his supplemental
retirement benefit will vest.
Mr. Brown's Employment Agreement provides that if any payment to him
thereunder or under any other agreement is subject to federal excise taxes
imposed on golden parachute payments, EDS will make an additional payment to him
to cover any such tax payable by him, the taxes on such gross-up payment and any
interest or related penalties.
Pursuant to the terms of his offer of employment, on December 10, 1998, Mr.
Brown received as a sign-on bonus and incentive the following: a cash payment of
$4,450,000; 50,000 restricted stock units, scheduled to vest at the rate of
10,000 per year on the first five anniversaries of the date of grant commencing
December 10, 1999; and non-qualified options to purchase 1,000,000 shares of
Common Stock at an exercise price of $41.50 per share, with a ten-year term and
exercisable at the rate of 200,000 shares per year on the first five
anniversaries of the date of grant. Mr. Brown also was awarded 225,000
restricted stock units, all of which had vested by April 1, 2000.
Offer of Employment to James E. Daley
Mr. Daley was appointed Executive Vice President and Chief Financial
Officer effective March 8, 1999. Under the terms of his offer of employment, he
received a sign-on bonus of $150,000. Mr. Daley was also awarded non-qualified
options to purchase 250,000 shares of Common Stock at an exercise price of
$48.41 per share, exercisable at the rate of 20% per year commencing on March 1,
2000, and 25,000 restricted stock units, exercisable at the rate of one-third
per year (subject to the company's achievement of performance targets)
commencing on March 1, 2000. His agreement provides for an annual salary of
$500,000 subject to possible future increases after 1999, and participation in
EDS' Executive Bonus Plan with a targeted award of $400,000 for 1999 and 2000,
or 150% of that amount if bonuses are paid to other executive officers for those
years. The agreement also provides for his participation in EDS' employee
benefit programs on terms not less favorable than those offered to other senior
executives of EDS and the reimbursement of certain costs incurred by him in
connection with his relocation to the Dallas area. In addition, he will be
credited for two years of service under EDS' Retirement Plan and Supplemental
Plan for each of his first five years of employment by the company.
In the event of the termination of Mr. Daley's employment prior to March 1,
2001, by EDS without Cause (as defined), or by Mr. Daley for Good Reason (as
defined), he will be entitled to receive the following: a lump sum payment equal
to two times the sum of his annual salary and most recent annual performance
bonus target; a pro-rated payment of the targeted performance bonus for the year
of termination; and continuation of benefits for a two-year period.
15
<PAGE>
Management Consulting Services Employment Agreement with Fred G. Steingraber
In connection with the acquisition of A.T. Kearney ("ATK") by EDS, ATK
entered into a Management Consulting Services Employment Agreement with Mr.
Steingraber dated August 31, 1995. That agreement provides for Mr. Steingraber's
employment as Chief Executive Officer of ATK for a five-year term, expiring on
August 31, 2000, at an annual base salary of not less than $887,500, with annual
increases in salary of not less than the average increase for those persons who
were shareholders of ATK prior to the acquisition by EDS. In addition, Mr.
Steingraber is entitled to an annual bonus as well as participation in benefit
plans generally provided to full-time employees of ATK. In the event of the
termination of Mr. Steingraber's employment during the term of this agreement by
ATK for Cause (as defined), or by Mr. Steingraber for Good Reason (as defined),
he will be entitled to the following: continuation of his salary through the
earlier of 24 months or August 31, 2000; an accrued bonus for the year of
termination, pro-rated through his termination date, based on the average of his
1996 and 1997 bonus (the "Average Bonus"); an additional bonus equal to the
product of 1/12 of his Average Bonus multiplied by the number of months from his
termination date through the earlier of 24 months thereafter or August 31, 2000;
and, under the terms of his 1995 restricted stock award issued in connection
with the acquisition of ATK, continued vesting of such 1995 award (but not
subsequent awards).
The terms of the foregoing agreement remain in effect through August 31,
2000. Following that date, Mr. Steingraber's employment by ATK will be governed
by the terms of a subsequent Management Consulting Services Employment Agreement
entered into on February 28, 1998, to be effective September 1, 2000. Under that
agreement, Mr. Steingraber shall be considered an "at will" employee from and
after September 1, 2000. Accordingly, such agreement does not provide for the
aforementioned payments to Mr. Steingraber in the event of the termination of
his employment, although he may be entitled to continued vesting of his 1995
restricted stock award under its terms as described above and, depending on the
date of termination, to any amounts required to be paid under the retention
agreement described in the following paragraph.
In addition to the foregoing agreements, under the terms of a Management
Consulting Services Special Retention Employment Agreement dated December 1,
1998, among ATK, EDS and Mr. Steingraber, in the event of a sale by EDS of a 50%
or greater interest in ATK during the period from December 1, 1998 through
January 31, 2001 (the "retention period"), he will be entitled to a bonus equal
to twice his highest annual performance bonus during the retention period (but
not less than twice his 1997 bonus) and, if he remains employed by ATK or its
purchaser following such sale, he shall not be deemed to have terminated his
employment with ATK for purposes of his prior option and restricted stock
awards. Under that retention agreement, in the event his employment is
terminated without Cause during the retention period, regardless of a sale of
ATK, he will be entitled to the continuation of his salary and bonus for a
period of 24 months following the date of termination, and if there is no sale
of ATK during the retention period, he will receive an additional bonus equal to
twice his highest annual performance bonus during the retention period (but not
less than twice his 1997 bonus).
Change of Control Employment Agreements
EDS has entered into a change of control employment agreement (a "CoC
Agreement") with each of the named executive officers other than Mr. Steingraber
(each, an "Executive"). In the case of Mr. Brown, the provisions of the CoC
Agreement have been incorporated into his Employment Agreement. The CoC
Agreements generally provide that, upon the occurrence of certain triggering
events involving an actual or potential change of control of EDS, the employment
of each Executive will be continued for a period of five years (the "Employment
Period").
The employment rights of an Executive under a CoC Agreement are triggered
by either a "Change of Control" or a "Potential Change of Control." Following a
Potential Change of Control, the employment period may terminate (but the
agreement will remain in full force and a new employment period will apply to
any future Change of Control or Potential Change of Control) if either (a) the
EDS Board determines that a Change of Control is not likely or (b) the Executive
elects to terminate his Employment Period as of any anniversary of the Potential
Change of Control. A "Change of Control" generally includes the occurrence of
any of the following: (i) any person, other than exempt persons (including
employee benefit plans), becomes a beneficial owner of 15% or more of EDS'
voting stock; (ii) a change in the identity of a majority of the persons serving
as members of the EDS Board, unless such change was approved by a majority of
the incumbent board members; (iii) the approval by shareholders of a
reorganization, merger or consolidation in which (x) existing EDS shareholders
would not own more than 85% of the common stock and voting stock of the
resulting company, (y) a person (other than exempt persons) would own 15%
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or more of the common stock or voting stock of the resulting company or (z) less
than a majority of the board of the resulting company would consist of the then
incumbent members of the EDS Board; or (iv) the approval by shareholders of a
liquidation or dissolution of EDS, except as part of a plan involving a sale to
a company of which following such transaction (x) more than 85% of the common
stock and voting stock would be owned by existing EDS shareholders, (y) no
person (other than exempt persons) would own more than 15% of the common stock
or voting stock of such company and (z) at least a majority of its board of
directors would consist of the then incumbent members of the EDS Board. A
"Potential Change of Control" generally includes any of the following: (i) the
commencement of a tender or exchange offer for EDS stock that, if consummated,
would result in a Change of Control; (ii) EDS entering into an agreement which,
if consummated, would constitute a Change of Control; (iii) the commencement of
an election contest subject to certain proxy rules; or (iv) the occurrence of
any other event that the EDS Board determines could result in a Change of
Control.
Throughout the Employment Period, each Executive's position, authority and
responsibilities will not be diminished from the most significant held by him or
her at any time during the 90-day period immediately prior to the commencement
of the Employment Period, and his or her compensation will continue on a basis
no less favorable than it had been during that period.
The Employment Period will terminate (i) automatically upon the Executive's
death or after 180 days of continuing "Disability," (ii) at EDS' option if the
Executive is terminated for Cause (as defined) and (iii) at the Executive's
option at any time for Good Reason (as defined) or for any reason during the
180-day period beginning 60 days after a Change of Control (a "Window Period").
If an Executive's employment is terminated by EDS other than for Cause or
Disability for any reason during a Window Period or for Good Reason at any time,
he or she will be entitled to receive the following: (i) the employee benefits
earned as of the date of termination; (ii) the then current salary and bonus
throughout the remainder of the Employment Period; (iii) the cash value of his
or her retirement and 401(k) benefits to the end of the Employment Period; (iv)
under certain circumstances, a pro rata portion of the options, restricted stock
and other compensatory awards the Executive would have received had his or her
employment continued; and (v) continued coverage under welfare benefit plans
until the end of the Employment Period. In addition, all unvested options,
restricted stock and other compensatory awards held by the Executive will
immediately vest and become exercisable and, subject to any longer exercise term
set forth in the award, their term will be extended for up to one year following
termination of employment. The Executive may also elect to cash out equity-
based awards at the highest price per share paid by specified persons during the
Employment Period or the prior six-months. In the event of the Executive's
death (other than during a Window Period), his or her legal representatives will
receive the following: (i) the employee benefits earned as of the date of
death, (ii) the Executive's then current salary for one year from the date of
death, and (iii) the continuation of welfare benefits until the end of the
Employment Period. In addition, all options, restricted stock and other
compensatory awards will immediately vest and become exercisable for up to one
year following death, subject to any longer exercise term set forth in the
award. The Executive's legal representatives may cash out equity-based awards
at the highest price per share of Common Stock paid by specified persons during
the Employment Period or the prior six-months. Upon termination due to
Disability, the Executive will be entitled to receive the same amounts and
benefits as would be provided upon death. If an Executive's employment is
terminated, other than during a Window Period, by EDS for Cause or by the
Executive other than for Good Reason, the Executive will be entitled to receive
only the compensation and benefits earned as of the date of termination.
Retention Plan
Messrs. Heller and Chiapparone participate 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 eligibility
for retirement during the Retention Period. The following discussion of the
Retention Plan pertains to the terms thereof applicable to Messrs. Heller and
Chiapparone, who are the only named executive officers who participate in the
plan, and does not pertain to other plan participants who will not have reached
Retirement Age (as defined) by the end of the Retention Period. For purposes of
this plan, the Retention Period commenced on August 6, 1998, and will end on
January 31, 2001.
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 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
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will continue to vest in all pre-1998 restricted stock awards in accordance with
their scheduled vesting terms prior to the end of that period) and will continue
to be eligible to exercise all pre-1998 stock options as if his employment had
continued for ten years from the date of grant, in each case regardless of
termination for any reason. Participants who remain employed through the end of
the Retention Period will be entitled to receive benefits under the Supplemental
Plan upon retirement computed without diminution by reason of the fact that the
participant is less than 62 years of age at the time of retirement.
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 a bonus payment equal to the greater of
(i) two times the executive's targeted 1998 bonus 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 his 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 participant 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 participants will continue to be exercisable in accordance with the schedule
set forth in the participant's option award agreement. Participants whose
employment is terminated during the Retention Period by EDS without Cause or by
the participant for Good Reason, will also be entitled to receive benefits under
the Supplemental Plan upon retirement computed without diminution by reason of
the fact that the participant is less than 62 years of age at the time of
retirement.
If a participant should become entitled to benefits under a CoC Agreement
prior to the end of the Retention Period, he 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 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.
Certain Transactions
James A. Baker, III, a director of EDS, is a senior partner of the law firm
of Baker Botts LLP. EDS retained that firm to provide various legal services to
EDS during 1999.
During 1999, EDS purchased an aggregate of 13,540,306 shares of Common
Stock from the General Motors Special Hourly Employees Pension Trust under the
General Motors Hourly Rate Employees Pension Plan (the "Hourly Plan") for an
aggregate purchase price of $774,429,106. These shares were purchased to source
the company's requirements for Common Stock under its equity based benefit plans
and as a hedge against future requirements. Under the terms of the registration
rights agreement between EDS and the Hourly Plan (which was assumed by EDS at
the time of its split-off from GM in 1996), prior to making any market purchases
of Common Stock to source its benefit plan needs EDS must first give the Hourly
Plan the opportunity to sell such shares to EDS.
Section 16(a) Beneficial Ownership Reporting Compliance
Our directors and executive officers are required under the Exchange Act to
file with the SEC and the New York Stock Exchange reports of ownership and
changes in ownership in their holdings of Common Stock. Based on an examination
of these reports and on written representations provided to EDS, we believe that
all such reports were timely filed in 1999, except that (i) Troy W. Todd, an
executive officer of EDS, did not timely report the ownership of 5,000 shares of
Common Stock acquired by a self-employment IRA on May 12, 1999, and (ii) James
A. Baker, III, a director of EDS, did not timely report the acquisition of 250
shares of Common Stock on February 9, 1999, by a managed investment account of
which he is the beneficiary but does not have investment control. All of the
foregoing purchases have been reflected in subsequent filings by such
individuals.
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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,
2000. 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 2000.
PROPOSAL 3: SHAREHOLDER PROPOSAL RELATING TO RIGHTS PLANS
John Chevedden, as proxy for the Ray T. Chevedden and Veronica G. Chevedden
Trust, 2215 Nelson Ave., Redondo Beach, CA 90278, the owner of 1,060 shares of
Common Stock, has advised EDS that he intends to present the following
resolution at the Meeting. In accordance with applicable proxy regulations, the
proposed resolution and supporting statement, for which EDS accepts no
responsibility, are set forth below.
RESOLVED: SHAREHOLDER RIGHT TO VOTE ON POISON PILLS
Recommend the company shall not adopt or maintain any poison pill designed to
block the acquisition of stock in excess of a specified amount:
UNLESS such plan or agreement has been previously approved by a majority
shareholder vote at a shareholder meeting.
After adoption this Resolution is not to be amended, modified or repealed,
except as a separate resolution by a majority shareholder vote.
SUPPORTING STATEMENT:
Why submit the EDS poison pill to a shareholder vote?
. The poison pill injures shareholders by reducing management accountability
and adversely affecting shareholder value.
. Pills give directors absolute veto power over any proposed business
combination, no matter how beneficial it might be for the shareholders.
Nell Minow and Robert Monks in their book, Power and Accountability
. Shareholder right to vote on poison pill resolutions achieved 60% APPROVAL
from shareholders in 1999.
Investor Responsibility Research Center's Corporate Governance Bulletin,
April-June 1999
. The Council of Institutional Investors (www.ciicentral.com) recommends
------------------
shareholder approval of all poison pills in its Shareholder Bill of Rights.
The adoption of this resolution could be a step towards management changing
the following company core-practices that are not competitive - according to
many institutional shareholders:
. No annual election of all directors.
. Director James Baker's law firm bills EDS substantial fees.
. EDS does not disclose the fees billed by Baker's law firm.
. The American Bar Association discourages directors from sitting on boards of
companies from which they take additional legal fees.
. Directors with financial links to the company sit on the key Audit and key
Nominating Committees.
. Director Brown owns only 387 shares.
. Director Gray owns only 1100 shares.
. Director Gray is over-extended with 7 outside board seats.
. Director Groves is also over-extended with 7 outside board seats.
. No confidential voting.
. Management can telephone shareholders to change their vote.
. No cumulative voting.
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. An 80% shareholder vote is required on certain key items.
. This equals a 100% vote requirement when 80% of shares vote.
. An 80% vote requirement gives a small minority the veto power over certain
transactions that benefit the vast majority of shareholders.
What issues highlight concern about improving EDS performance at the highest
corporate level:
EDS takes a $379 million write-off and $20 million quarterly loss.
New York Times April 30, 1999
EDS takes a $236 million write-off for job cuts. EDS also announces it will
take an additional $380 million write-off in the 4th quarter.
Wall Street Journal Oct. 29, 1999
In its response to this resolution, EDS was asked to name the steps it has
taken in the last year to improve corporate governance at the highest level of
the company. Improvement at the highest corporate level can be a cost-free
alternative to repeated write-offs of:
. $379 million
. $236 million
. $380 million
To increase shareholder value vote yes: SHAREHOLDER RIGHT TO VOTE ON POISON
PILLS
YES ON 3
_______________
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING REASONS:
In 1996, prior to EDS' split-off from General Motors, the Board of
Directors of EDS adopted a shareholder rights plan to protect EDS shareholders
against abusive takeover tactics and to ensure that each shareholder would be
treated fairly in the event of an unsolicited offer to acquire the company.
Without commenting on the inaccuracy of various factual assertions made by the
proponent, the Board believes that the continuation of EDS' shareholder rights
plan is in the best interest of EDS and its shareholders.
The EDS shareholder rights plan is designed to provide the Board of
Directors with the ability to take what it believes are the most effective steps
to protect and maximize the value of your investment in EDS. It is designed to
encourage potential acquirors to negotiate directly with the Board of Directors,
which we believe is in the best position to negotiate on behalf of all
stockholders, evaluate the adequacy of any potential offer and protect
stockholders against potential abuses during the takeover process, such as an
offer which would not treat all shareholders fairly and equally. The rights plan
allows the Board to redeem the rights to permit an acquisition that it
determines, in the exercise of its fiduciary duties, adequately reflects the
value of EDS and is in the best interest of its shareholders.
The economic benefits of a shareholder rights plan to stockholders have
been validated in several studies. A study released in November 1997 by
Georgeson & Company, a nationally recognized proxy solicitation and investor
relations firm, found that companies with shareholder rights plans received
takeover premiums that were on average eight percentage points higher than
premiums paid for target companies without rights plans. The report also noted
that the existence of a shareholder rights plan at a target company did not
increase the likelihood of the defeat of a hostile takeover bid, nor the
withdrawal of a friendly bid, and that the takeover rate was similar for
companies with and without rights plans. It is for these reasons that companies
continue to adopt new rights plans, and renew existing ones, in large numbers.
In 1998 alone, over 500 companies adopted or renewed rights plans. By 1999,
over 2,400 companies had adopted rights plans.
This proposal requires the approval of holders of a majority of the shares
voting at the Meeting. Because the proposal is only a recommendation, however,
its approval would not effectuate the changes it references. Redemption of the
existing rights under the rights plan would require Board action.
Implementation of a requirement for shareholder approval of future shareholder
rights plans would require either Board action or a
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shareholder amendment of EDS' By-laws, which in turn requires approval by
holders of at least two-thirds of EDS' common stock.
The Board of Directors unanimously recommends a vote AGAINST this proposal.
PROPOSAL 4: SHAREHOLDER PROPOSAL RELATING TO MAJORITY VOTE
John Chevedden, 2215 Nelson Ave., Redondo Beach, CA 90278, as proxy for
Nick Rossi, the owner of 120 shares of Common Stock, has advised EDS that he
intends to present the following resolution at the Meeting. In accordance with
applicable proxy regulations, the proposed resolution and supporting statement,
for which EDS accepts no responsibility, are set forth below.
RESOLVED: ADOPT SIMPLE-MAJORITY VOTE
Reinstate simple-majority vote on all issues that are submitted to shareholder
vote (a recommendation). Delete requirements for greater than a majority
shareholder vote to the fullest extent permissible. This resolution includes the
requirement that once adopted, a change of this resolution shall have a majority
of shareholder votes cast as a separate resolution.
SUPPORTING STATEMENT:
Why adopt simple-majority vote?
. Simple-majority resolutions won 54% APPROVAL from shareholders in 1999 -
Investor Responsibility Research Center's Corporate Governance Bulletin,
April-June 1999.
. Super-majority requirements are widely opposed.
. The bi-partisan National Conference of State Legislatures urged States to ban
super-majority rules.
. Major professionally-managed funds, including those holding substantial EDS
stock, declare that super-majority rules are not in the best interest of
shareholders.
. Proponents of the simple-majority vote said that super-majority vote
requirements may devaluate the stock.
. A competitive management does not need the power to override a majority of
its shareholders.
. At EDS an 80% super-majority shareholder vote is required on certain key
items.
. This equals a 100% shareholder vote requirement when 80% of shares vote.
. An 80% vote requirement gives a small minority the veto power over certain
actions that can benefit the vast majority of shareholders.
What incentive is there for good corporate governance - highlighted by simple-
majority vote?
50 institutional investors, managing $840-million, told McKinsey & Co. they
would pay an 11%-average stock premium for companies with good governance
practices.
Why the big jump? Some investors said that good governance will boost long-term
performance. Others said good governance decreases the risk of bad news--and
when trouble occurs, good-governance companies rebound faster.
Business Week Sept. 15, 1997
Simple-Majority vote is particularly important when management needs greater
accountability for performance:
After 6-months of intense negotiations Connecticut has terminated a tentative
$1.3 billion contract with EDS.
Washington Post June 30, 1999
EDS offered another 8,000 employees early retirement, incurring a sizable write-
off.
ValueLine Sept. 3, 1999
Sluggish revenue gains and a big restructuring write-off drove EDS quarterly
earnings down 19%.
Wall Street Journal Oct. 29, 1999
EDS growth is restricted by lower GM revenues, which are 20% of EDS sales.
Declining GM business has lower margins.
Standard & Poor's Nov. 20, 1999
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Institutional Shareholders Services said the super-majority votes serve to
lock in provisions that are harmful to shareholders. ISS said that super-
majority requirements may entrench management by preventing action that may
benefit shareholders.
To increase shareholder value: ADOPT SIMPLE-MAJORITY VOTE
Yes on 4
_______________
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING REASONS:
Most proposals submitted to a vote of EDS' shareholders, whether by
management or the shareholders, currently require a vote of a majority of the
shares represented at a meeting, whether in person or by proxy. Consistent with
applicable Delaware law, the company's Certificate of Incorporation contains
provisions requiring the vote of 80% of the outstanding shares for certain
actions. These limited provisions relate to the approval of certain business
combination transactions with a significant shareholder, removal of directors,
elimination of the classified board, and the requirement that shareholder action
be taken at a meeting. In addition, the company's by-laws require the vote of
holders of two-thirds of the outstanding stock to amend its terms.
These super-majority vote provisions are intended to preserve and maximize
the value of EDS for all shareholders by protecting against self-interested
actions by one or a few large shareholders. Similar provisions are included in
the governing documents of many public corporations. These provisions are
intended to encourage a person making an unsolicited bid for the company to
negotiate with the Board of Directors to reach terms that are fair and provide
the best results for all shareholders. Without these provisions, it may be
possible for the holders of a majority of the shares represented at a meeting to
take actions that would give them effective control of EDS without negotiating
with the Board to achieve the best results for other shareholders. These
provisions are not intended to, and do not, preclude unsolicited offers to
acquire EDS at a fair price. In fact, the super-majority vote requirement for
business combinations with a significant shareholder do not apply if that
shareholder is paying fair market value, or at least the amount previously paid
by it for shares in any tender offer, for any additional shares to be acquired
by it in the proposed transaction.
Adoption of this proposal would not in itself effectuate the changes
contemplated by the proposal. Further action by the shareholders would be
required to amend the Certificate of Incorporation and By-laws. Under these
documents, an 80% vote of the outstanding shares would be required for approval.
Under Delaware law, amendments to the Certificate of Incorporation require a
recommendation from the Board of Directors prior to submission to shareholders.
The Board of Directors unanimously recommends a vote AGAINST this proposal.
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SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Under SEC rules, shareholder proposals intended to be presented at the 2001
Annual Meeting and included in the proxy materials for that meeting must be
received no later than December 7, 2000, 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 that shareholders must follow to
nominate persons for election as directors or to introduce an item of business
at an annual meeting. These procedures are applicable whether or not the
proposal is intended to be included in our proxy materials for that meeting.
Generally, the shareholder must notify the Secretary of EDS of the proposal not
less than 90 days nor more than 270 days before the scheduled meeting date. The
notice must include the name and address of the shareholder and of any other
shareholders known by such shareholder to be in favor of the proposal. If the
notice relates to a nomination for director, it must also set forth the name,
age, principal occupation and business and residence address of any nominee(s),
the number of shares of Common Stock beneficially owned by the nominee(s), and
such other information regarding each nominee as would have been required to be
included in a proxy statement filed pursuant to the SEC's proxy rules (including
the written consent of each nominee). Notice of an item of business shall
include a description of the proposed business and the reason for conducting the
proposed business at the annual meeting. Copies of the Bylaws are available
from the Secretary of EDS.
We currently expect that the 2000 Annual Meeting of Shareholders will be
held on May 22, 2001, 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 7, 2000)
must be given by shareholders by February 21, 2001.
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ADMISSION TICKET
[EDS LOGO]
2000 ANNUAL MEETING OF SHAREHOLDERS
MAY 23, 2000, 1:00 P.M.
The Plano Centre
2000 E. Spring Creek Parkway
Plano, Texas 75074
Take Central Expressway
(U.S. Highway 75) to Exit 31
(Spring Creek Parkway).
Head east on Spring Creek Parkway
[MAP] 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 23, 2000
The undersigned hereby authorizes Richard H. Brown, Jeffrey M. Heller,
and D. Gilbert Friediander, and each or any of them with power to appoint his
substitute, to vote as Proxy for the undersigned at the Annual Meeting of
Shareholders to be held at The Plano Centre, 2000 E. Spring Creek Parkway,
Plano, TX 75074 on May 23, 2000, at 1:00 p.m., or any adjournment or
postponement thereof, the number of shares which the undersigned would be
entitled to vote if personally present. The Proxies shall vote subject to the
directions indicated on the reverse side of this card and proxies are authorized
to vote in their discretion upon such other business as may properly come before
the meeting and any adjournments or postponements thereof. The proxies will vote
as the Board of Directors recommends where the undersigned does not specify a
choice.
This card also constitutes your voting instructions for shares held in
the EDS 401(k) Plan, the EDS Stock Purchase Plan, the EDS Puerto Rico Savings
Plan, the GM Savings Stock Purchase Program, the GM Personal Savings Plan, the
Delphi Automotive Savings Stock Purchase Plan and the Delphi Automotive Personal
Savings Plan, and the undersigned hereby authorizes the respective
trustees/administrators of such plans to vote the shares held in the
undersigned's accounts. Generally, shares in any of these plans will NOT be
voted unless this proxy (which constitutes your voting instructions) is
returned, although shares in the EDS 401(k) Plan may, and shares in the GM SSPP
and Delphi SSPP will, be voted in the discretion of the respective plan trustee.
Address Change/Comments:
-------------------------------------------------------
(SEE OTHER SIDE)
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS of
ELECTRONIC DATA SYSTEMS CORPORATION
May 23, 2000
------------------------------------------
PROXY VOTING INSTRUCTIONS
------------------------------------------
TO VOTE BY MAIL
- ---------------
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
- --------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
- -------------------
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
------------------------------
YOUR CONTROL NUMBER IS ----
------------------------------
<TABLE>
<CAPTION>
Please Detach and Mail in the Envelope Provided
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
A [X] Please mark your
votes as in this
example.
FOR all nominees WITHHOLD (The Board of Directors recommends a vote "FOR" Items 1 and 2.)
listed at right (except AUTHORITY (The Board of Directors recommends a vote "AGAINST" Items 3 and 4.)
as marked to the to vote for all nominees
contrary below) listed at right
1. Election of [ ] [ ] Nominees: William H. Gray, III
Directors. Ray J. Groves
Jeffrey M. Heller
INSTRUCTIONS: To withhold authority to vote for Ray L. Hunt
any individual nominee(s), strike a line through the
nominee's name in the list at right.)
FOR AGAINST ABSTAIN
2. Directors' Proposal. Ratification of appointment of auditors. [ ] [ ] [ ]
3. Shareholder proposal regarding rights plan. [ ] [ ] [ ]
4. Shareholder proposal regarding majority vote. [ ] [ ] [ ]
To include any comments or change of address, mark this box and use the reverse side. [ ]
If you do not want to receive an Annual Report for this account, please mark this box. [ ] Please mark this [ ]
box if you plan
to attend the
Annual Meeting.
SIGNATURE(S): Dated: , 2000.
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NOTE: Please sign exactly as name appears on this card. When signing as attorney, executor, administrator, trustee, guardian, or
corporation official, please give full title. Each joint owner must sign the proxy.
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