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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-14155
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Unigraphics Solutions Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2728894
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13736 Riverport Drive, Maryland Heights, Missouri 63043
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(314) 344-5900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of November 10, 1999, there were outstanding 5,033,937 shares of the
registrant's Class A Common Stock, $.01 par value per share, and 31,265,000
shares of the registrant's Class B Common Stock, $.01 par value per share.
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I -- Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations....................................................................... 3
Consolidated Balance Sheets................................................................................. 4
Consolidated Statements of Cash Flows....................................................................... 5
Notes to Consolidated Financial Statements.................................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risks................................................. 17
Part II -- Other Information
Item 4. Submission of Matters to a Vote of Security Holders......................................................... 18
Item 6. Exhibits and Reports on Form 8-K............................................................................ 18
Signatures............................................................................................................. 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and shares amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software $ 47,776 $ 39,154 $ 136,031 $ 109,334
Services 59,990 45,416 169,153 129,680
Hardware 7,911 12,562 26,649 46,548
----------- ----------- ----------- -----------
Total revenue 115,677 97,132 331,833 285,562
----------- ----------- ----------- -----------
Cost of revenue:
Software
Amortization 6,205 6,018 18,484 16,164
Royalties, distribution and other 2,743 4,259 16,204 11,910
Services 27,000 16,376 66,272 50,939
Hardware 6,511 10,700 21,921 38,926
----------- ----------- ----------- -----------
Total cost of revenue 42,459 37,353 122,881 117,939
----------- ----------- ----------- -----------
Gross profit 73,218 59,779 208,952 167,623
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 43,267 36,564 120,330 98,679
Research and development 16,727 16,747 50,374 46,598
In-process research and development 2,386 - 2,386 39,440
----------- ----------- ----------- -----------
Total operating expenses 62,380 53,311 173,090 184,717
----------- ----------- ----------- -----------
Operating income (loss) 10,838 6,468 35,862 (17,094)
Other income, net 658 882 4,157 8,582
----------- ----------- ----------- -----------
Income (loss) before income taxes 11,496 7,350 40,019 (8,512)
Provision for income taxes 4,140 2,645 14,407 (4,509)
----------- ----------- ----------- -----------
Net income (loss) $ 7,356 $ 4,705 $ 25,612 $ (4,003)
=========== =========== =========== ===========
Earnings (loss) per share:
Basic $ 0.20 $ 0.13 $ 0.71 $ (0.12)
=========== =========== =========== ===========
Diluted $ 0.20 $ 0.13 $ 0.70 $ (0.12)
=========== =========== =========== ===========
Weighted average number of
Common shares outstanding:
Basic 36,278,182 36,265,000 36,269,491 33,195,147
=========== =========== =========== ===========
Diluted 36,636,755 36,265,000 36,441,643 33,195,147
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and shares amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 13,549 $ 20,740
Marketable securities 1,751 8,092
Accounts receivable, net 118,463 107,379
Prepaids and other 10,778 6,383
---------- --------
Total current assets 144,541 142,594
---------- --------
Property and equipment, net 30,857 26,467
---------- --------
Operating and other assets
Software, goodwill and other intangibles, net 67,893 72,443
Deferred income taxes 19,347 16,149
---------- --------
Total operating and other assets 87,240 88,592
---------- --------
Total assets $ 262,638 $257,653
========== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 62,340 $ 59,452
Deferred revenue 14,881 12,022
Income taxes payable 42,494 39,098
Deferred income taxes - 2,771
---------- --------
Total current liabilities 119,715 113,343
---------- --------
Intercompany borrowings 34,494 55,130
Stockholders' equity
Preferred stock, $.01 par value; authorized
20,000,000 shares, none issued - -
Class A common stock, $.01 par value, 168,735,000
shares authorized; 5,032,337 and 5,000,000 shares
issued and outstanding at September 30, 1999
and December 31, 1998, respectively 50 50
Class B common stock, $.01 par value, 31,265,000
shares authorized; 31,265,000 shares issued and
outstanding at September 30, 1999 and
December 31, 1998 313 313
Additional paid-in capital 148,979 148,676
Retained earnings (deficit) (41,151) (66,762)
Accumulated other comprehensive income 238 6,903
---------- --------
Total stockholders' equity 108,429 89,180
---------- --------
Total liabilities and stockholders' equity $ 262,638 $257,653
========== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Net Cash Provided By Operating Activities $ 36,257 $ 68,214
-------- ---------
Cash Flows From Investing Activities
Proceeds from sale of marketable securities 5,566 12,272
Payments related to acquisitions (9,498) (104,993)
Payments for purchases of property and equipment (11,215) (8,413)
Payments for purchases of software and other intangibles (8,149) (834)
Payments for purchases of marketable securities - (51)
-------- ---------
Net cash used in investing activities (23,296) (102,019)
-------- ---------
Cash Flows From Financing Activities
Borrowing under Intercompany Credit Agreement 18,885 113,687
Payments on Intercompany Credit Agreement (39,349) (118,163)
Proceeds from sale of stock - 65,100
-------- ---------
Net cash provided by (used in) financing activities (20,464) 60,624
-------- ---------
Effect of exchange rate changes on cash and cash equivalents 312 (58)
-------- ---------
Net increase (decrease) in cash and cash equivalents (7,191) 26,761
Cash and cash equivalents at beginning of period 20,740 11
-------- ---------
Cash and cash equivalents at end of period $ 13,549 $ 26,772
======== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
Notes to CONDENSED Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Unigraphics
Solutions Inc. ("Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. In the opinion
of management, all adjustments (consisting of only normal recurring items) which
are necessary for a fair presentation have been included. The results of interim
periods are not necessarily indicative of results which may be expected for any
other interim period or for the full year. For further information, refer to the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Note 2. Earnings Per Share
The Company presents both basic and diluted earnings per share. Basic
earnings per share of common stock is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is calculated in the same manner as basic earnings per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding, assuming the exercise of all
employee stock options that would have had a dilutive effect on earnings per
share. The following is the calculation for both basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months endeds Nine months ended
September 30 September 30
------------------- -----------------
1999 1998 1999 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Net income (loss) $ 7,356 $ 4,705 $25,612 $(4,003)
======= ======= ======= =======
Weighted-average shares outstanding 36,278 36,265 36,269 33,195
Dilutive effect of employee and director stock options 359 0 173 0
------- ------- ------- -------
Diluted shares outstanding 36,637 36,265 36,442 33,195
======= ======= ======= =======
Earnings (loss) per share:
Basic $ 0.20 $ 0.13 $ 0.71 $ (0.12)
======= ======= ======= =======
Diluted $ 0.20 $ 0.13 $ 0.70 $ (0.12)
======= ======= ======= =======
</TABLE>
Note 3. Comprehensive Income
Comprehensive income for the three months ended September 30, 1999 and 1998
was $5.9 million and $3.8 million, respectively. Comprehensive income for the
nine months ended September 30, 1999 and 1998 was $18.9 million and $1.1
million, respectively. The difference between comprehensive income and net
income for the three months and the nine months ended September 30, 1999 and
1998 arose from foreign currency translation adjustments and unrealized holding
gains on certain of the Company's investments.
6
<PAGE>
Note 4. Segment Information
Industry Segments
The Company's business involves operations principally in one industry
segment: providing mechanical design automation software and related services to
manufacturers for the design, engineering analysis, testing and manufacturing of
mechanical products.
Geographic Segments
The Company aggregates its operations by geographic location for management
reporting purposes. Reportable segments consist of the Americas, Europe, and
Asia Pacific. The Company uses operating income, exclusive of software
amortization costs and in-process research and development costs, to measure
segment profit or loss. The following is a summary of certain financial
information by reportable geographic segment for the three months and nine
months ended September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1999 September 30, 1998
------------------- --------------------
Operating Operating
Revenues Income Revenues Income
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Americas $ 58,900 $ 9,262 $ 50,298 $ 4,675
Europe 42,225 8,087 36,083 5,828
Asia Pacific 14,552 2,080 10,751 1,984
-------- ------- -------- --------
Total $115,677 $19,429 $ 97,132 $ 12,486
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, Nine months ended December 31,
September 30, 1999 1999 September 30, 1998 1998
------------------- ------------ -------------------- ------------
Operating Total Operating Total
Revenues Income Assets Revenues Income Assets
-------- --------- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Americas $171,451 $33,314 $162,057 $148,198 $ 20,992 $162,647
Europe 122,094 19,984 80,526 104,532 12,486 74,449
Asia Pacific 38,288 3,434 20,055 32,832 5,032 20,557
-------- ------- -------- -------- -------- --------
Total $331,833 $56,732 $262,638 $285,562 $ 38,510 $257,653
======== ======= ======== ======== ======== ========
</TABLE>
7
<PAGE>
Reconciliation of operating income/(loss) for the three and nine months
ended September 30, 1999 and 1998 follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
September 1999 September 1998
-------------- --------------
<S> <C> <C>
Total operating income for reportable segments $ 19,429 $ 12,486
Unallocated software amortization costs (6,205) (6,018)
Unallocated in-process R&D costs (2,386) -
-------------- --------------
Operating income $ 10,838 $ 6,468
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 1999 September 1998
-------------- --------------
<S> <C> <C>
Total operating income for reportable segments $ 56,732 $ 38,510
Unallocated software amortization costs (18,484) (16,164)
Unallocated in-process R&D costs (2,386) (39,440)
-------------- --------------
Operating income/(loss) $ 35,862 $ (17,094)
============== ==============
</TABLE>
There are no intercompany sales between geographic areas. All sales are
from external customers.
Note 5. Depreciation and Amortization
Property and equipment is stated net of accumulated depreciation of $34.1
million and $33.0 million at September 30, 1999 and December 31, 1998,
respectively. Additionally, software, goodwill and other intangibles are stated
net of accumulated amortization of $146.5 million and $127.8 million at
September 30, 1999 and December 31, 1998, respectively. Depreciation and
amortization expense for the three months ended September 30, 1999 and 1998 was
$9.1 million and $8.0 million, respectively. Depreciation and amortization
expense for the nine months ended September 30, 1999 and 1998 was $26.2 million
and $22.7 million, respectively.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company provides scalable, integrated, enterprise-level mechanical
computer-aided design solutions that are used for virtual product development
principally in the automotive and transportation, aerospace, consumer products,
equipment and machinery, and electronics industries. For further information,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
The Company generates revenue primarily from the licensing of mechanical
CAD/CAM/CAE and product data management (collectively "MCAD") software products,
and the provision of software consulting, support services and computer
equipment to users of the Company's products. The Company operates business
units in the United States and in 29 other countries. The Company's software
products are licensed to customers through the Company's direct sales force and
by specific arrangements with certain distributors, value-added resellers and
other marketing representatives.
Pursuant to a reorganization consummated as of January 1, 1998 (the
"Reorganization"), the Company became the successor to the MCAD business of
Electronic Data Systems Corporation, a Delaware corporation ("EDS"), which
business was formerly operated within several business units of EDS. The
Company's historical financial statements reflect the results of operations,
financial condition and cash flows of the Company as a component of EDS prior to
the Reorganization and may not be indicative of actual results of operations and
financial position of the Company subsequent to the Reorganization.
In 1996 EDS and GM signed the Unigraphics Software Corporate License
Agreement (the "EDS/GM Site License" or "Site License") for Unigraphics software
and related services. The Site License is a service agreement under the umbrella
EDS/GM Master Service Agreement pursuant to which EDS and its subsidiaries
(including the Company) provide information technology products and services to
GM. The Site License is a three-year arrangement that consists of three
elements: (1) a perpetual license of the Unigraphics software for up to 10,000
seats; (2) maintenance for the installed software; and (3) a specified upgrade
to be delivered by a non-Unigraphics business unit of EDS on a when-and-if
available basis. The contract did not require any significant modification or
customization of the software. The contract price was approximately $178
million, of which approximately $110.3 million was attributed to the software
license element, approximately $64.3 million was attributable to maintenance
support and approximately $3.7 million was attributed to the specified upgrade.
Revenue related to the specified upgrade was not recorded by the Company since
such upgrade was delivered to the customer by a non-Unigraphics business unit of
EDS. The license fee is payable over three years in monthly installments of
approximately $3.1 million. Maintenance revenue is recognized over the term of
the agreement based generally on the deployment schedule. The Company recognized
Site License software license revenue of approximately $110.3 million in 1996.
GM and the Company currently are in the process of negotiating a renewal of
the Site License ("Renewal"), which expired in June 1999. In the interim, the
current Site License has been extended on a month-to-month basis at monthly
maintenance fees in effect at the end of June 1999. The Renewal under
negotiation comprehends a three year agreement covering primarily software
maintenance services and iMAN software products and services. Also, because of
the spin-off of Delphi Automotive Systems, Inc. from GM, a separate agreement
between Delphi and the Company for similar on-going services is being
negotiated. In the interim, ongoing software maintenance and other services are
being provided by the Company to Delphi under the month-to-month extension of
the Site License. The inability of the parties to timely reach agreement on
acceptable financial terms could have a material adverse affect on the Company's
fourth quarter 1999 and fiscal year 2000 results of operations and financial
condition.
9
<PAGE>
In connection with the Reorganization, EDS and the Company entered into the
GM Subcontract pursuant to which the Company receives the revenue and performs
substantially all of EDS' obligations under the Site License subsequent to the
Reorganization. Less than 10% of the Company's revenues for the quarter ended
September 30, 1999 were attributable to the products and services provided to GM
and Delphi Automotive Systems, Inc. under the Site License and other agreements.
If the EDS/GM Master Service Agreement and a similar agreement between EDS and
Delphi Automotive Systems, Inc. were to be terminated, or if the Company (as a
subcontractor EDS or otherwise) and GM and Delphi do not enter into successor
agreements to the Site License, the Company's financial condition and results of
operations would be materially adversely affected.
In connection with the Reorganization, effective as of January 1, 1998, the
Company entered into a Management Services Agreement ("MSA") with EDS pursuant
to which EDS performs various management services for the Company, including
treasury, risk management, tax and similar administrative services. The
agreement provides for the payment of fees to EDS for such services, either on a
fixed price or usage basis, which fees are generally designed to approximate
EDS' cost of providing the services, as well as a fixed fee equal to .5% of the
Company's total revenues. MSA services to be provided and associated charges are
negotiated annually. The Management Services Agreement will expire on December
31, 2002 unless terminated earlier by either party if EDS and the Company are no
longer under common control. Except for certain tax and treasury management
services relating to consolidated operations or corporate policy of EDS, which
the Company is required to purchase during the term of the MSA, the Company or
EDS may terminate any service on or after January 1, 2000 with prior notice of
not less than five months, or earlier if the parties mutually agree. The Company
paid EDS $6.4 million for such services in 1998, and has concluded negotiations
with EDS relative to the 1999 services and charges. For the nine month period
ended September 30, 1999, EDS has invoiced the Company approximately $5.3
million for services provided during such period. There can be no assurances
that the charges the Company negotiates will, in the aggregate, be lower than
the aggregate of charges the Company might be able to negotiate with third party
suppliers of such services.
Pursuant to the Intercompany Credit Agreement dated January 1, 1998 between
the Company and EDS and similar credit agreements between EDS Finance, PLC and
certain non-U.S. subsidiaries of the Company entered into in connection with the
Reorganization (collectively, the "Intercompany Credit Agreement"), the Company
is required to borrow from EDS, and EDS is required to lend to the Company,
amounts required by the Company to fund its daily cash requirements. Since the
closing of the initial public offering of the Company's Class A Common Stock
referred to below, the maximum amount available to the Company under this
facility is $70 million. Effective as of March 6, 1998, the Company issued to
EDS as a dividend an Intercompany Note in the principal amount of $73 million
(the "Intercompany Note"). As of September 30, 1999 approximately $8.5 million
remains payable under the Intercompany Note and approximately $26.0 million is
payable under the Intercompany Credit Agreement. See "Liquidity and Capital
Resources" for further discussion.
On June 23, 1998, the Company completed the initial public offering of
5,000,000 shares of its Class A Common Stock. The net proceeds of the offering
were used to repay $65.1 million of indebtedness outstanding under the
Intercompany Credit Agreement.
Solid Edge Acquisition
On March 2, 1998, the Company completed the acquisition of the Solid
Edge/EMS software products (the "Solid Edge Acquisition") for a purchase price
of $105 million (excluding approximately $2 million of acquisition costs). The
Company borrowed $105 million from EDS pursuant to the Intercompany Credit
Agreement. The cost of the Solid Edge Acquisition was allocated to identifiable
assets based on estimated fair values. Costs allocated to identifiable
intangible assets will be amortized on a straight-line basis over the remaining
estimated useful lives of the assets. Costs allocated to in-process research and
development in the amount of $39.4 million were expensed in the three month
period ended March 31, 1998. The excess of purchase price over fair value of
identifiable assets acquired was recorded as goodwill and will be amortized on a
straight-line basis over its useful life of seven years. The Company has
allocated the purchase price as follows: $3.4 million to software; $4.0 million
to acquired workforce; $39.4 million to in-process research and development
costs; and $60.2 million to goodwill.
10
<PAGE>
Financial performance for the Solid Edge/EMS products since the Solid Edge
Acquisition has been consistent with the projections used in the allocation of
the purchase price for the acquisition.
Forward-looking Statements
All statements other than historical statements contained in this Quarterly
Report on Form 10-Q constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Without limitation,
these forward-looking statements include statements regarding expected future
declines in hardware revenues, future income gains to be realized from the
exercise of warrants and subsequent sale of related marketable securities, the
Company's Year 2000 exposure, the Company's exposure resulting from the
introduction in 1999 of a new currency (the "euro") in certain European
countries, the sufficiency of liquidity and capital resources over the next
twelve months, concerns regarding potential increased costs and the impact on
business operations due to the transition to the SAP systems, concerns regarding
a timely and financially acceptable agreement on the GM Site License Renewal,
and any other statements of Company's plans, objectives, expectations or
intentions. Any Form 10-K, Annual Report to Shareholders, Form 10-Q or Form 8-K
of the Company may include these and other forward-looking statements. In
addition, other written or oral statements which constitute forward-looking
statements have been made or may in the future be made by the Company, including
statements regarding future operating performance, short- and long-term revenue
and earnings growth, the value of new contract signings, and MCAD industry
growth rates and the Company's performance relative thereto.
These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside the Company's control, that could cause actual results
to differ materially from such statements. These include, but are not limited
to: vigorous competition in the MCAD industry and the impact of such competition
on pricing, revenues and margins; market acceptance of new Company product or
service offerings and costs associated with the development and marketing of
such offerings; the financial performance of current and future customer
contracts; the cost of attracting and retaining highly skilled personnel; the
ability of the Company to successfully integrate its operations into a single,
effective and efficient entity; and the significant quarterly fluctuations in
the Company's operating results caused by, among other factors, the timing of
orders and shipments. Such factors are described in more detail in the Company's
most recent Annual Report on Form 10-K beginning on page 21.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Results of Operations
Revenues. Revenues were $115.7 million during the three months ended
September 30, 1999, an increase of $18.6 million from $97.1 million for the
corresponding period in 1998. Revenues were $331.8 million during the nine
months ended September 30, 1999, an increase of $46.2 million from $285.6
million for the corresponding period in 1998.
Software revenues increased $8.6 million, or 22%, to $47.8 million for the
three month period ended September 30, 1999, from $39.2 million for the
corresponding period in 1998. Software revenues increased $26.7 million, or 24%,
to $136.0 million for the nine month period ended September 30, 1999, from
$109.3 million for the corresponding period in 1998. The increase for the three
month period resulted from strong sales performance in all geographic areas,
particularly Europe and Asia Pacific. The increase for the nine month period
resulted from strong sales performance, particularly in the Americas and Europe,
and the addition of the Solid Edge/EMS product line.
Services revenues increased $14.6 million, or 32%, to $60.0 million for the
three month period ended September 30, 1999, from $45.4 million for the
corresponding period in 1998. Services revenues increased $39.5 million, or 30%,
to $169.2 million for the nine month period ended September 30, 1999, from
$129.7 million for the corresponding period in 1998. The increase resulted from
professional services growth in the Americas and
11
<PAGE>
Europe, along with software maintenance growth in all geographic areas,
particularly Europe and Asia Pacific, corresponding with the higher software
sales activity.
As planned, hardware revenues decreased $4.7 million, or 37%, to $7.9
million for the three month period ended September 30, 1999, from $12.6 million
for the corresponding period in 1998. Hardware revenues decreased $19.9 million,
or 43%, to $26.6 million for the nine month period ended September 30, 1999,
from $46.5 million for the corresponding period in 1998. All geographic areas
experienced decreases for both the three month and nine month periods. The
Company expects hardware revenues to continue to decline and to become a smaller
portion of its business.
Revenues from international operations represented 53% of total revenues
for the three months ended September 30, 1999 and 1998. Revenues from
international operations represented 52% of total revenues for the nine months
ended September 30, 1999 and 1998.
Gross Profit. Gross profit was $73.2 million during the three months ended
September 30, 1999, an increase of $13.4 million from $59.8 million for the
corresponding period in 1998. Gross profit was $209.0 million during the nine
months ended September 30, 1999, an increase of $41.4 million from $167.6
million for the corresponding period in 1998. Gross profit margin was 63% and
62% for the three months ended September 30, 1999 and 1998, respectively, and
63% and 59% for the nine months ended September 30, 1999 and 1998, respectively.
Gross profit on software revenues increased $9.9 million, or 34%, to $38.8
million for the three month period ended September 30, 1999, from $28.9 million
for the corresponding period in 1998. Gross profit on software revenues
increased $20.1 million, or 25%, to $101.3 million for the nine month period
ended September 30, 1999, from $81.2 million for the corresponding period in
1998. The increases resulted primarily from strong revenue growth and lower
royalty costs. The lower royalty costs are the result of the Company favorably
renegotiating many of its third party royalty agreements and the streamlining of
the Company's third party royalty processes, which initiatives more than offset
the increase in amortization of goodwill and software intangibles arising from
the acquisitions of Solid Edge, Applicon, and dCADE.
Gross profit on services revenues increased $4.0 million, or 14%, to $33.0
million for the three month period ended September 30, 1999, from $29.0 million
for the corresponding period in 1998. Gross profit on services revenues
increased $24.2 million, or 31%, to $102.9 million for the nine month period
ended September 30, 1999, from $78.7 million for the corresponding period in
1998. The increases resulted from increased revenues related to professional
services.
Gross profit on hardware revenues decreased $0.5 million, or 26%, to $1.4
million for the three month period ended September 30, 1999, from $1.9 million
for the corresponding period in 1998. Gross profit on hardware revenues
decreased $2.9 million, or 38%, to $4.7 million for the nine month period ended
September 30, 1999, from $7.6 million for the corresponding period in 1998. This
is a continuation of the trends of lower finder's fees, a change in the mix of
hardware sales to lower margin computers and lower overall volume resulting from
reduced emphasis on selling hardware.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $43.3 million during the three months ended
September 30, 1999, an increase of $6.7 million from $36.6 million for the
corresponding period in 1998. Selling, general and administrative expenses were
$120.3 million during the nine months ended September 30, 1999, an increase of
$21.6 million from $98.7 million for the corresponding period in 1998. Selling,
general and administrative expenses represented 37% and 38% of total revenues
for the three months ended September 30, 1999 and 1998, respectively, and 36%
and 35% of total revenues for the nine months ended September 30, 1999 and 1998.
Selling costs comprise salesperson salaries, commissions and benefits, travel,
sales office occupancy and other related costs. The higher selling expenses
resulted from increases in commissions and bonuses because of continued strong
sales growth over 1998 and increased staffing to support higher revenue growth.
The higher general and administrative expenses resulted from the transition to
SAP and the rollout of the Company's new employee benefits plans.
12
<PAGE>
Research and Development Costs. Research and development costs were $16.7
million for the three months ended September 30, 1999 and 1998. Research and
development costs were $50.4 million and $46.6 million for the nine months ended
September 30, 1999 and 1998, respectively. Research and development costs as a
percentage of total revenues were 14% and 17% for the three months ended
September 30, 1999 and 1998, respectively, and 15% and 16% for the nine months
ended September 30, 1999 and 1998, respectively. The increase in research and
development costs resulted principally from the Solid Edge Acquisition and
support of initiatives related to the Company's iMAN and ProductVision software
products.
In-Process Research and Development Costs. In-process research and
development for the three months and nine months ended September 30, 1999
includes the write off of in-process research and development costs of $2.4
million associated with the acquisitions of Applicon and dCADE. In-process
research and development for the nine months ended September 30, 1998 includes
the write off of in-process research and development costs of $39.4 million
associated with the Solid Edge Acquisition in the first quarter of 1998.
Operating Income (Loss). Operating income was $10.8 million and $6.5
million for the three months ended September 30, 1999 and 1998, respectively.
Operating income (loss) was $35.9 million and $(17.1) million for the nine
months ended September 30, 1999 and 1998, respectively.
Other Income, Net. Other income, net was $0.7 million and $0.9 million for
the three months ended September 30, 1999 and 1998, respectively. Other income,
net was $4.2 million and $8.6 million for the nine months ended September 30,
1999 and 1998, respectively. The decrease for the three months and nine months
ended September 30, 1999 in other income, net resulted from differences in the
amounts of gain realized from the sale of marketable equity securities. These
securities were obtained through the exercise of warrants in the quarter ended
March 31, 1998. The warrants were received in exchange for reduced royalty fees
from a private software company that was acquired by a public company in 1997.
The Company anticipates that additional gains on similar transactions will
continue to be reflected in its results of operations in the fourth quarter of
1999. The amount of such gains will be dependent on existing market conditions
at the time of sale. Interest expense associated with the intercompany loan was
$0.4 million and $1.0 million for the three months and nine months ended
September 30, 1999, respectively.
Provision for Income Taxes. The provision for income taxes was $4.1 million
and $2.6 million for the three months ended September 30, 1999 and 1998,
respectively. The provision for income taxes was $14.4 million and $(4.5)
million for the nine months ended September 30, 1999 and 1998, respectively. The
Company's effective tax rate was 36.0% for the three months ended September 30,
1999 and 1998, and the nine months ended September 30, 1999 and 53.0% for the
nine months ended September 30, 1998. The Company's effective tax rate was
higher than normal in the first quarter of 1998 as a result of the write-off of
in-process research and development costs discussed above.
Net Income (Loss). Net income for the three months ended September 30,
1999, was $7.4 million compared to $4.7 million for the corresponding period in
1998. Net income (loss) for the nine months ended September 30, 1999, was $25.6
million and $(4.0) million for the corresponding period in 1998. Basic and
diluted earnings per share of common stock were $0.20 and $0.13 for the three
months ended September 30, 1999 and 1998, respectively. Basic and diluted
earnings per share of common stock were $.71 and $.70, respectively for the nine
months ended September 30, 1999. Basic and diluted earnings (loss) per share of
common stock was $(.12) for the nine months ended September 30, 1998.
Recent Accounting Pronouncements. Statement of Financial Accounting
Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging
Activities, which was issued in June 1998, establishes accounting and reporting
standards for derivative instruments and hedging activities. Under SFAS 133,
derivatives are recognized on the balance sheet at fair value as an asset or
liability. Changes in the fair value of derivatives are reported as a component
of other comprehensive income or recognized as earnings through the income
statement depending on the nature of the instrument. In June 1999, the FASB
issued SFAS 137 - Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of
13
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FASB Statement No. 133, which defers the effective date of SFAS 133 from fiscal
years beginning after June 15, 1999 to fiscal years beginning after June 15,
2000. Initial application should be as of the beginning of an entity's fiscal
quarter; on that date, hedging relationships must be designated and documented
pursuant to the provisions of SFAS 133, as amended. Earlier application of all
of the provisions is encouraged but is permitted only as of the beginning of any
fiscal quarter that begins after the issuance date of SFAS 133, as amended.
Additionally, SFAS 133, as amended, should not be applied retroactively to
financial statements of prior periods. The Company is currently evaluating the
requirements of SFAS 133, as amended, to determine its potential impact on the
consolidated financial statements.
Liquidity and Capital Resources
The Company's central cash management function is performed by EDS. The
Company has an Intercompany Credit Agreement with EDS under which the total
amount outstanding at September 30, 1999 was approximately $26 million. The
maximum amount that the Company may borrow at any time from EDS under the
Intercompany Credit Agreement (including certain other credit agreements between
EDS Finance PLC, a wholly-owned subsidiary of EDS, and certain non-U.S.
subsidiaries of the Company) is $70 million. Amounts outstanding under the
Intercompany Credit Agreement bear interest, payable quarterly at a rate equal
to one-month LIBOR plus 0.5%. The Intercompany Credit Agreement restricts the
Company from obtaining financing from any party other than EDS without written
consent from EDS, unless EDS fails to provide funding available to the Company
under the Intercompany Credit Agreement. The Intercompany Credit Agreement
terminates on December 31, 2002, unless terminated earlier at the election of
one of the parties upon occurrence of certain events, and requires that the
Company lend to EDS all excess cash of the Company at a rate of one-month LIBID
minus 0.5%.
The Company also has outstanding an Intercompany Note in the principal
amount of approximately $8.5 million payable to EDS on March 6, 2001. The
Intercompany Note bears interest, payable semiannually, at a rate equal to one-
month LIBID minus 0.5%.
The Company's net cash provided by operations for the nine months ended
September 30, 1999 decreased $31.9 million to $36.3 million from $68.2 million
in the comparable period in the prior year. The decrease resulted primarily from
increases in accounts receivable associated with the increasing revenues. The
Company's net cash used in investing activities for the nine months ended
September 30, 1999 decreased $78.7 million to $23.3 million from $102.0 million
in the same prior year period. The decrease resulted primarily from cash
payments made in the first quarter of 1998 in connection with the acquisition of
the Solid Edge product line. Cash flows provided by (used in) financing
activities decreased $81.1 million to $(20.5) million for the nine months ended
September 30, 1999 from $60.6 million in the nine months ended September 30,
1998. This reflects $65.1 million of proceeds received from the Company's
initial public offering of Class A Common Stock during 1998, as well as
decreases in cash borrowings from EDS. The Company believes currently available
sources of liquidity, including the Intercompany Credit Agreement and cash
generated from operations, should be sufficient for its operations for at least
the next twelve months.
Year 2000
The Year 2000 ("Y2K") problem refers to the concern that many existing
computer programs may fail to accurately process date information beyond the
year 1999 because such programs do not properly recognize and/or process years
that begin with "20" instead of the familiar "19."
With respect to the Company's current UGS software product offerings
(Unigraphics, Solid Edge, Parasolid, EMS and iMAN applications referred to as
"UGS Applications"), the Company believes that these product offerings are "Year
2000 compliant." The Company has conducted Y2K compliance reviews of Company-
developed code for the current versions of Unigraphics, iMAN, Parasolid, Solid
Edge and EMS software and believes this software to be compliant. Additionally,
regarding third-party-supplied software contained within, or offered in
conjunction with, UGS applications, the Company has either tested such code for
Y2K compliance or has received assurances from third party suppliers that such
code will be compliant prior to the Year 2000.
14
<PAGE>
Regarding software application products recently bought through the
acquisitions of Applicon and dCADE, the Company understands from inquiry and
representations that the currently-supported Applicon and dCADE application
products are Y2K compliant. The Company is conducting additional inquiries to
confirm this understanding.
Regarding the installed base of Company-supported software products,
customers using older software product versions which are found to be non-
compliant, in most cases, can purchase upgrades that are Y2K compliant. However,
customers who have written their own programs that manipulate, calculate, store
or display dates represented as two digits may need to modify such internal
programs to avoid Y2K problems.
Of note, older versions of computer hardware and operating systems being
used by UGS customers (including current Applicon and dCADE customers) may not
be Y2K compliant. However, based on Company's interpretation of its agreements,
the Company is not responsible for Y2K compliance of such hardware and operating
systems.
While there can be no assurances that the Company will not be exposed to
potential claims resulting from software product problems associated with the
Y2K problem, the Company does not currently believe that the effects of any Y2K
non-compliance in the Company's current software products or in the Company's
installed base of software will result in any material adverse impact on the
Company's business or results of operations.
The Company, in conjunction with its parent EDS and separately, is in the
process of reviewing, remediating, upgrading, and/or acquiring new internal
business systems and services, including the implementation of the SAP
enterprise resource planning software system. In accordance with the Management
Services Agreement between the Company and EDS, the Company will continue using
certain business systems of EDS in the near term. The business systems of EDS
utilized by the Company principally include those that EDS has identified as
"mission critical" systems, such as payroll, accounts receivable, accounts
payable, tax administration and corporate administration. The Company has been
advised by EDS that EDS has completed assessment, renovation, testing, and
implementation of all of its mission critical projects.
EDS and/or the Company have identified other projects related to the
Company which are deemed to be non-mission critical. Non-mission critical
systems include non-IT systems such as elevator operations, HVAC, and security
systems. The Company also is in the process of reviewing non-mission critical
systems of the Applicon and dCADE operations acquired by the Company. Based on
information currently available, the Company believes that such system failures
should not materially impact the business. Many of the non-mission critical
projects will not be remediated for Y2K compliance for one or more reasons
including retirement of the system and redundancy with other systems, among
other reasons. The Company plans to, and understands EDS plans to, complete the
remediation process for most non-mission critical projects identified for
remediation by the end of the fourth quarter of 1999.
Concurrently with EDS' remediation of mission-critical and other systems
used by the Company, the Company has implemented in the United States, Canada,
Germany, and the United Kingdom enterprise application software systems that
have replaced many EDS mission critical systems. Such Y2K compliant enterprise
application software packages, including general ledger, accounting, accounts
payable and receivable, payroll, and others, were implemented in April 1999 in
the United States. Certain new financial and other systems also were installed
in Canada, Germany and the United Kingdom. The Company plans to phase in new
enterprise systems in its other non-U.S. operations after 1999. If
implementation of any such new internal system were unsuccessful, the Company
would rely on remediated EDS or Y2K compliant previous Company systems until
such time as new systems can be successfully installed. The Company had planned
to install such new enterprise systems regardless of the Y2K problem; therefore,
costs associated with these new systems have not been reflected in the costs
associated with addressing the Company's Y2K issues.
The Company also is in the process of reviewing for Y2K compliance other
unique, internal business systems not included in the EDS systems or the new
enterprise systems mentioned above, including internal systems used by Applicon
and dCADE. Systems being reviewed include certain end user hardware, operating
15
<PAGE>
systems and applications, server hardware and software, telecommunications
hardware, software and services, and other Company applications. Except for
Applicon systems, Y2K reviews and remediation of most of these systems and
services used in the United States have been completed. Y2K reviews of such
systems and services (including Applicon and dCADE systems) used at
international locations (and, in the case of Applicon systems, systems used in
the United States) are in progress. In many cases compliance has been achieved
by installing upgrades or revisions provided by third parties in accordance with
existing agreements. In other cases, compliance has been achieved through
Company remediation efforts or planned technology refresh purchases.
Finally, with respect to suppliers and vendors of key products and
services, in many cases the Company acquires such products and services using
existing EDS purchase arrangements. The Company understands that EDS has queried
its vendors regarding Y2K compliance. Using the results of its contacts with
suppliers, EDS has compiled a database listing thousands of products and
services and indicating which items are compliant. The Company has relied on
this information in an attempt to ensure that certain items acquired from third
party suppliers pursuant to EDS purchase agreements are Y2K ready. Although the
Company cannot be certain that all mission critical and non-mission critical
supplier products and services are Y2K ready, the Company plans to continue to
study and evaluate the Y2K compliance of key vendors.
The costs incurred by the Company to achieve Y2K compliance have been
expensed as incurred. Costs incurred to make EDS' systems Y2K compliant will be
paid by EDS; however such costs may be reflected in charges EDS bills to
internal users such as the Company. The Company does not expect to incur
significant additional costs to make its internal hardware and software systems
Y2K ready. At this time, the Company estimates the historical and future costs
of remediation and planned technology upgrades or replacements are not more than
$500,000.
The Company believes the worst case scenario would be the Company's
inability to effectively implement the enterprise application software coupled
with any unanticipated Y2K failure of EDS-remediated mission critical internal
systems upon which the Company would have to rely until the enterprise system or
a substitute is implemented. If these events were to occur, the Company would
have to rely, in part, on manual processes or reinstallation of older systems
resulting in increased costs and perhaps a material adverse impact on overall
financial performance.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the "euro" as their common legal currency and established fixed
conversion rates between their existing sovereign currencies and the euro. The
euro now trades on currency exchanges and is available for non-cash
transactions. The existing sovereign currencies will remain legal tender in the
participating countries during the transition period ending on January 1, 2002.
Beginning on that date, the participating countries will issue new euro-
denominated currency for use in cash transactions and the existing sovereign
currencies will no longer be legal tender. The Company operates in the countries
which have adopted the euro ("Eurozone") and in most of the other countries of
the European Union that initially are not participating in the euro conversion.
In the near term, EDS will continue to provide many internal systems
services to the Company (including purchasing, accounting, and billing system
services) throughout Europe under the Master Services Agreement between EDS and
the Company. Since January 1, 1999, EDS has been providing systems with the
capability to trade with customers and suppliers in the euro currency. The
Company has been informed that, by the fourth quarter of 1999, EDS' European
systems will be updated to provide for dual reporting in euro currency and to
allow migration from the existing currencies to the euro over the following two-
year period. Concurrently, the Company is in the process of replacing and
upgrading many of the internal systems currently provided by EDS. The new
Company systems are planned to be operational throughout Europe on or before
January 1, 2002, the end of the euro transition period, and will accommodate
business in euros. Assuming timely upgrade of current systems and implementation
of relevant replacement systems, the Company does not expect to incur any
material incremental costs to update current systems or to install new systems
having euro-related functionality. Although the Company currently has no reason
to believe that relevant system improvements will be not be timely
16
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implemented, a failure to timely install internal systems to handle business in
euros could have a material adverse affect on the Company's financial condition
or results of operation.
Within the Eurozone, the Company prices its products on an individual
country basis. Effective January 1, 1999 the Company established, and
periodically thereafter during the transition period the Company will establish,
product prices and has quoted and will quote such prices in both local
currencies and the euro. The pricing in euros for similar products and services
is not expected to be identical in the different countries; however the price
differentials are not expected to be significant, thereby minimizing any
negative competitive impact as a result of pricing transparency. At this time,
the Company does not believe the conversion will have a material adverse impact
on its competitiveness in Europe. However, the Company will continue to analyze
euro-related developments; and there can be no assurance that the euro-
conversion program will not have a material adverse effect on the Company's
financial condition or results of operations.
Impact of Changes in Exchange Rates
The Company's results of operations can be affected by changes in exchange
rates. Revenue received and expenses paid in currencies other than the U.S.
dollar are translated into U.S. dollars for financial reporting purposes based
on the average exchange rate for the period. During the nine months ended
September 30, 1999, international revenue represented 52% of total Company
revenue. The Company's most significant international operations are located in
Germany and the United Kingdom, which comprised 26% and 13%, respectively, of
total international revenue for the nine months ended September 30, 1999.
Foreign revenue and costs are generally received and paid in the local currency.
Historically, foreign currency transaction gains (losses) have not had a
material effect on the Company's operations.
Inflation
Historically, inflation has not had a material effect on the Company's
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has market risks primarily relating to changes in the value of
marketable securities and changes in foreign exchange rates. The Company has
entered into various agreements for the purpose of hedging against these risks.
The hedging agreements are in the form of puts and calls which establish the
lowest and highest prices that the Company may sell the securities. These
agreements expire at various dates through 1999. The Company does not enter into
financial instrument transactions for trading purposes. Additional information
about the Company's risk related to changes in foreign exchange rates is
contained in Item 2., "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under "Euro Conversion" and "Impact of
Changes in Exchange Rates."
17
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
---------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of Unigraphics Solutions Inc.,
incorporated herein by reference to Exhibit 3.1 to Amendment No. 1 to
the Registration Statement on Form S-1 of the Company (File No. 333-
48261).
3.2 Amended and Restated Bylaws of Unigraphics Solutions Inc., as
amended, incorporated herein by reference to Exhibit 3.2 to Amendment
No. 1 to the Registration Statement on Form S-1 of the Company (File
No. 333-48261).
10.1 First Amended Unigraphics Solutions 401(k) Plan
10.2 Form of Indemnification Agreement entered into between Unigraphics
Solutions Inc. and certain officers and directors of Unigraphics
Solutions Inc. (John A. Adams, Douglas E. Barnett, Michael L.
Desmond, J. Davis Hamlin, John J. Mazzola, Gary B. Moore, Leo J.
Thomas, J. Randall Walti, and William P. Weber) incorporated by
reference to Exhibit 10.11 to the Registration Statement on Form S-1
of the Company (File No. 333-48261).
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K
None.
18
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized and in his capacity as Chief Financial
Officer.
UNIGRAPHICS SOLUTIONS INC.
-------------------------------------
(Registrant)
By /s/ Douglas E. Barnett
-------------------------------------
Douglas E. Barnett, Vice President,
Date: November 10, 1999 Treasurer and Chief Financial Officer
19
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EXHIBIT 10.1
FIRST AMENDED
UNIGRAPHICS SOLUTIONS INC. 401(K) PLAN
WHEREAS, effective April 1, 1999, Unigraphics Solutions Inc. ("Company")
adopted the Unigraphics Solutions Inc. 401(k) Plan ("Plan") for the benefit of
its eligible employees; and
WHEREAS, the Company reserved the right to amend the Plan in Section 16.1
thereof; and
WHEREAS, the Company desires to make certain minor modifications to the
Plan to clarify certain provisions therein;
NOW, THEREFORE, effective April 1, 1999, the Plan is amended and restated
to read as follows:
<PAGE>
FIRST AMENDED
UNIGRAPHICS SOLUTIONS INC. 401(K) PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 - NAME OF PLAN.................................................... 1
SECTION 2 - DEFINITIONS..................................................... 2
2.1. Annuity Starting Date................................................ 2
2.2. Automatic Survivor Benefit........................................... 2
2.3. Board................................................................ 2
2.4. Break In Service..................................................... 2
2.5. Code................................................................. 2
2.6. Committee............................................................ 2
2.7. Company.............................................................. 2
2.8. Compensation......................................................... 2
2.9. Controlled Group..................................................... 3
2.10. Days Of Service...................................................... 3
2.11. Disability Retirement Date........................................... 3
2.12. Distribution Notice Period........................................... 3
2.13. EDS Stock............................................................ 4
2.14. EDS Stock Fund....................................................... 4
2.15. Employee............................................................. 4
2.16. Employer............................................................. 5
2.17. Employer Stock....................................................... 5
2.18. Five Percent Owner................................................... 5
2.19. Highly Compensated Employee.......................................... 5
2.20. Hours Of Employment.................................................. 5
2.21. Non-Highly Compensated Employee...................................... 5
2.22. Normal Retirement Date............................................... 5
2.23. Participant.......................................................... 6
2.24. Plan Administrator................................................... 6
2.25. Plan Year............................................................ 6
2.26. Qualified Plan....................................................... 6
2.27. Service Period....................................................... 6
2.28. Severance Date....................................................... 6
2.29. Severance Period..................................................... 6
2.30. Trustee.............................................................. 6
2.31. Unigraphics Solutions Inc. Stock Fund................................ 7
2.32. Valuation Date....................................................... 7
2.33. Year of Service...................................................... 7
</TABLE>
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<TABLE>
<S> <C>
SECTION 3 - ELIGIBILITY............................................................. 8
3.1. New Participants............................................................. 8
3.2. Former Participants.......................................................... 8
3.3. Cessation Of Participation................................................... 8
SECTION 4 - CONTRIBUTIONS........................................................... 9
4.1. Basic Payroll Reduction Contributions........................................ 9
4.2. Additional Payroll Reduction Contributions................................... 9
4.3. Maximum Payroll Reduction Contribution....................................... 9
4.4. Employer Matching Contributions.............................................. 9
4.5. Reserved..................................................................... 10
4.6. Elections.................................................................... 10
4.7. Changes In And Suspension Of Payroll Reductions.............................. 10
4.8. Tax Deductions............................................................... 10
4.9. Rollover Contributions And Transfers......................................... 10
4.10. Loans........................................................................ 11
4.11. Hardship Withdrawals......................................................... 13
4.12. Other Withdrawals............................................................ 15
4.13. Application for Withdrawal................................................... 15
4.14. Order Of Investment Liquidation.............................................. 15
4.15. Vesting After Withdrawals.................................................... 15
4.16. Spousal Consent.............................................................. 15
SECTION 5 - DISTRIBUTIONS OF EXCESS AMOUNTS
5.1. Distribution Of Excess Elective Deferrals..................................... 17
5.2. Limitations On And Distributions Of Pre-Tax Contributions For Highly
Compensated Employees......................................................... 17
5.3. Limitations On And Distributions Of Matching Contributions For Highly
Compensated Employees......................................................... 17
5.4. Limitations On Multiple Use Of Alternative Limitation......................... 18
5.5. Special Definitions........................................................... 18
SECTION 6 - ALLOCATION.............................................................. 20
6.1. Establishment Of Accounts..................................................... 20
6.2. Direction of Investments...................................................... 20
6.3. Transfers Between Investment Funds............................................ 20
6.4. Allocation Of Earnings Or Losses.............................................. 20
SECTION 7 - DISTRIBUTIONS AT RETIREMENT............................................. 21
7.1. Normal Retirement Distributions............................................... 21
7.2. Required Minimum Distributions................................................ 21
7.3. Required Beginning Date....................................................... 21
SECTION 8 - DISTRIBUTIONS AT DISABILITY............................................. 22
8.1. Distributions Upon Disability................................................. 22
</TABLE>
ii
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<TABLE>
<S> <C>
8.2. Determination Of Disability.................................................. 22
SECTION 9 - DISTRIBUTIONS AT TERMINATION OF EMPLOYMENT (VESTING)................... 23
9.1. Distributions Upon Termination Of Employment................................. 23
9.2. Determination Of Vested Portion.............................................. 23
9.3. Forfeitures.................................................................. 23
SECTION 10 - PAYMENT OF BENEFITS................................................... 25
10.1. Timing Of Distributions..................................................... 25
10.2. Form Of Distribution........................................................ 26
10.3. Spousal Consent To An Optional Form Of Benefit Or Beneficiary............... 28
10.4. Distribution Notice......................................................... 28
SECTION 11 - DISTRIBUTIONS AT DEATH................................................ 30
11.1. Distributions Upon Death.................................................... 30
11.2. Distribution To Spouse...................................................... 30
11.3. Designation Of Beneficiary.................................................. 30
11.4. Beneficiary Not Designated.................................................. 31
11.5. Spousal Consent to Designation of Alternate Beneficiary and Election of an
Optional Method of Distribution............................................. 31
SECTION 12 - LEAVES OF ABSENCE AND TRANSFERS....................................... 32
12.1. Military Leave Of Absence................................................... 32
12.2. Maternity Or Paternity Absence.............................................. 33
12.3. Family And Medical Leave Act................................................ 33
12.4. Other Leaves Of Absence..................................................... 34
12.5. Disability Leave of Absence................................................. 34
12.6. Transfers................................................................... 35
12.7. Acquisition Of Assets....................................................... 36
SECTION 13 - TRUSTEE............................................................... 37
SECTION 14 - ADMINISTRATION........................................................ 38
14.1. Appointment Of Committee.................................................... 38
14.2. Construction................................................................ 38
14.3. Decisions And Delegation.................................................... 38
14.4. Meetings.................................................................... 38
14.5. Duties Of The Committee..................................................... 38
14.6. Records Of The Committee.................................................... 39
14.7. Expenses.................................................................... 39
SECTION 15 - CLAIM PROCEDURE....................................................... 40
15.1. Claim....................................................................... 40
15.2. Claim Decision.............................................................. 40
15.3. Request For Review.......................................................... 40
</TABLE>
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<TABLE>
<S> <C>
15.4. Review On Appeal............................................................ 41
SECTION 16 - AMENDMENT AND TERMINATION............................................. 42
16.1. Amendment.................................................................. 42
16.2. Termination; Discontinuance Of Contributions............................... 42
SECTION 17 - MISCELLANEOUS......................................................... 43
17.1. Participants' Rights....................................................... 43
17.2. Spendthrift Clause......................................................... 43
17.3. Delegation Of Authority By Employer........................................ 43
17.4. Distributions To Minors.................................................... 43
17.5. Gender, Number And Headings................................................ 43
17.6. Separability Of Provisions................................................. 44
17.7. Diversion Of Assets........................................................ 44
17.8. Service Of Process......................................................... 44
17.9. Merger..................................................................... 44
17.10. Benefit Limitation......................................................... 44
17.11. Commencement Of Benefits................................................... 46
17.12. Qualified Domestic Relations Order......................................... 46
17.13. Written Explanation Of Rollover Treatment.................................. 48
17.14. Leased Employees........................................................... 49
17.15. Special Distribution Option................................................ 49
17.16. Limitations On Special Distribution Option................................. 50
17.17. Contribution On Behalf Of Controlled Group Member.......................... 50
17.18. Construction Of Plan....................................................... 50
SECTION 18 - TOP-HEAVY DEFINITIONS................................................. 51
18.1. Accrued Benefits........................................................... 51
18.2. Beneficiaries.............................................................. 51
18.3. Determination Date......................................................... 51
18.4. Former Key Employee........................................................ 51
18.5. Key Employee............................................................... 51
18.6. Non-Key Employee........................................................... 51
18.7. Permissive Aggregation Group............................................... 52
18.8. Required Aggregation Group................................................. 52
18.9. Super Top-Heavy Group...................................................... 52
18.10. Top-Heavy Compensation..................................................... 52
18.11. Top-Heavy Group............................................................ 53
SECTION 19 - TOP-HEAVY RULES....................................................... 54
19.1. Special Top-Heavy Rules.................................................... 54
19.2. Adjustments In Section 415 Limits.......................................... 54
</TABLE>
iv
<PAGE>
FIRST AMENDED
UNIGRAPHICS SOLUTIONS INC. 401(K) PLAN
SECTION 1 - NAME OF PLAN
This Plan shall be known as the "Unigraphics Solutions Inc. 401(k)
Plan." The Plan will be considered a profit sharing plan even though
contributions are not dependent on profits.
<PAGE>
SECTION 2 - DEFINITIONS
-----------------------
2.1. Annuity Starting Date.
---------------------
"Annuity Starting Date" means the first day for which a benefit is
paid as an annuity. In the case of a distribution in a form of benefit other
than an annuity, the Annuity Starting Date shall be the Valuation Date as of
which the distribution is made. A Participant's Annuity Starting Date must be no
less than 30 and no more than 90 days after the date the Participant receives
the notice described in Section 10.4.
2.2. Automatic Survivor Benefit.
--------------------------
"Automatic Survivor Benefit," in the case of a married Participant,
means a joint and survivor annuity payable to the Participant and his or her
spouse with the amount of the annuity of the surviving spouse to be 50% of the
amount of the annuity paid to the Participant. The term "Automatic Survivor
Benefit," in the case of a non-married Participant, means an annuity payable to
the Participant for the Participant's life. Determination of marital status and
who is the Participant's spouse is determined at the Annuity Starting Date.
2.3. Board.
-----
"Board" means the board of directors of the Company.
2.4. Break In Service.
----------------
"Break in Service" means any twelve consecutive month Severance
Period.
2.5. Code.
----
"Code" means the Internal Revenue Code of 1986, as amended.
2.6. Committee.
---------
"Committee" means the Committee appointed pursuant to Section 14.1.
2.7. Company.
-------
"Company" means Unigraphics Solutions Inc.
2.8. Compensation.
------------
"Compensation" means the gross amount of wages, as shown on Form W-2
provided by the Employer, received during the Plan Year by an Employee after he
or she becomes a Participant for services rendered with respect to the Employer.
Such amount shall include salary reduction amounts contributed through a
Qualified Plan which meets the requirements of Section 401(k) of the Code or a
cafeteria plan which meets the requirements of Section 125 of the Code.
Compensation shall exclude:
2
<PAGE>
(a) extraordinary items such as moving expenses, overseas living
allowances, and the imputed value of group life insurance or such similar
amounts; and
(b) any benefits provided through a welfare benefit fund.
The Compensation of each Participant taken into account under the Plan
for any Plan Year shall not exceed $160,000 (as adjusted in accordance with
Section 415(d) of the Code).
2.9. Controlled Group.
----------------
"Controlled Group" means the Company and all other entities required
to be aggregated with the Company under Sections 414(b), (c), or (m) of the Code
or regulations issued pursuant to Section 414(o) of the Code. For purposes of
Section 17.10, in determining which entities shall be aggregated under Section
414(b) or (c) of the Code, the modifications made by Section 415(h) of the Code
shall be applied.
2.10. Days Of Service.
---------------
"Days of Service" means the total number of days in a person's Service
Periods, whether or not such periods were completed consecutively. Days of
Service shall also include the number of days in all Severance Periods, if any,
in which:
(a) The Employee severs from service by reason of quit, discharge or
retirement and immediately prior to such quit, discharge or retirement was
not absent from service if the Employee performs an Hour of Employment
within twelve months of the date of such severance; or
(b) Notwithstanding (a) above, the Employee severs from service by
reason of quit, discharge or retirement during an absence from service of
twelve months or less for any reason other than a quit, discharge,
retirement or death if the Employee performs an Hour of Employment within
twelve months of the date on which the Employee was first absent from
service.
2.11. Disability Retirement Date.
--------------------------
"Disability Retirement Date" means the date on which a Participant is
determined by the Committee to be permanently and totally disabled in accordance
with Section 8.2 and has terminated his or her employment.
2.12. Distribution Notice Period.
--------------------------
"Distribution Notice Period" means the period beginning not more than
90 days and ending not less than 30 days before the Valuation Date as of which
distribution is made.
3
<PAGE>
2.13. EDS Stock.
---------
"EDS Stock" means the common stock, par value $0.01 per share, of EDS
and any other security of EDS which is a Qualifying Employer Security, as
defined in Section 4975(e)(8) of the Code.
2.14. EDS Stock Fund.
--------------
"EDS Stock Fund" means an investment fund made available under the
Plan solely for the purpose of permitting a Participant to retain his or her
investment as of March 31, 1999, in the EDS Stock Fund under the EDS 401(k)
Plan. Up to 100% of the assets of such fund may be held in EDS Stock. A
Participant will be allowed to transfer amounts out of the EDS Stock Fund, but
will not be allowed to transfer amounts into such fund.
2.15. Employee.
--------
"Employee" means any person classified as an employee by the Employer,
including an individual who is:
(a) (i) classified by the Employer as (1) an expatriate from the
United States to another country and (2) a full-time employee on the United
States payroll of the Employer and (ii) receives Compensation that is
subject to United States federal income taxation; or
(b) (i) classified by the Employer as (1) a foreign national on
the local United States payroll of the Employer and (2) a regular full-time
United States employee and (ii) receives Compensation that is subject to
United States federal income taxation;
but excluding an individual who is:
(1) classified by the Employer as an expatriate from another
country to the United States, regardless of whether such individual
receives Compensation that is subject to United States federal income
taxation;
(2) a leased employee or a person who performs services for the
Employer pursuant to an arrangement wherein the individual is designated by
the Employer as a consultant or independent contractor; or
(3) an individual (i) whose job position is classified by the
Employer as temporary, co-op, part-time working fewer than 15 hours per
week, or intern and (ii) who has not completed 1,000 Hours of Employment
within his or her first twelve months of employment or during a Plan Year.
4
<PAGE>
2.16. Employer.
--------
"Employer" means the Company or any other member of the Controlled
Group which has, with the consent of the Board, adopted the Plan.
2.17. Employer Stock.
--------------
"Employer Stock" means the common stock of Unigraphics Solutions Inc.
2.18. Five Percent Owner.
------------------
"Five Percent Owner" means any person who owns (or is considered as
owning within the meaning of Section 318 of the Code) more than five percent of
the outstanding stock of any corporation in the Controlled Group or stock
possessing more than five percent of the total combined voting power of all
stock of any corporation in the Controlled Group or who owns more than five
percent of the capital or profits interest of any unincorporated entity in the
Controlled Group.
2.19. Highly Compensated Employee.
---------------------------
Highly Compensated Employee means any Participant who (i) was a Five-
Percent Owner at any time during either the determination year or the look-back
year; or (ii) received compensation within the meaning of Code Section 415(c)(3)
from the Employer in excess of $80,000 (as adjusted pursuant to Code Section
415(d)) during the look-back year and, if the Employer so elects for the look-
back year, was in the top-paid group of Employees for such look-back year.
For purposes of this Section, the determination year shall be the Plan
Year, and the look-back year shall be the 12 month period immediately preceding
the determination year. The determination of who is a Highly Compensated
Employee, including the determination of the number and identity of Employees in
the top-paid group and the compensation that is considered, will be made in
accordance with Code Section 414(q) and the regulations thereunder.
2.20. Hours Of Employment.
-------------------
"Hours of Employment" means an hour for which a person is directly or
indirectly paid, or entitled to payment, by the Employer for the performance of
duties.
2.21. Non-Highly Compensated Employee.
-------------------------------
Non-Highly Compensated Employee means any Employee who is not a Highly
Compensated Employee but who is eligible to participate in the Plan.
2.22. Normal Retirement Date.
----------------------
"Normal Retirement Date" means the date on which a Participant
terminates his or her employment with the Employer (except by death or permanent
and total disability as defined in Section 8.2) provided such date is on or
after such Participant's attainment of age 65.
5
<PAGE>
2.23. Participant.
-----------
"Participant" means an Employee who has satisfied the eligibility
requirements of Section 3 and who has not become a former Participant under
Section 3.3.
2.24. Plan Administrator.
------------------
"Plan Administrator" means the Committee.
2.25. Plan Year.
---------
"Plan Year" means the period commencing on April 1, 1999 and ending on
December 31, 1999. Thereafter, Plan Year means the 12-month period commencing on
January 1 and ending on December 31.
2.26. Qualified Plan.
--------------
"Qualified Plan" means any plan qualified under Section 401 of the
Code. For purposes of Sections 18 and 19 only, the term "Qualified Plan" also
means a simplified employee pension described in Section 408(k) of the Code.
2.27. Service Period.
--------------
"Service Period" means the period of time commencing on the date on
which a person first performs an Hour of Employment with the Employer and ending
on the person's Severance Date.
2.28. Severance Date.
--------------
"Severance Date" means the date on which the earliest of the following
occurs:
(a) A person employed by the Employer quits, retires, is
discharged or dies or
(b) The first anniversary of the first date of a period in which
the person is not credited with Days of Service and remains absent from
service with the Employer (with or without pay) for any reason other than
quit, retirement, discharge or death.
2.29. Severance Period.
----------------
"Severance Period" means the period of time commencing the day after a
person's Severance Date and ending on the day before the person performs an Hour
of Employment.
2.30. Trustee.
-------
"Trustee" means the insurer or trustee or any successor trustee
appointed pursuant to Section 13 hereof.
6
<PAGE>
2.31. Unigraphics Solutions Inc. Stock Fund.
-------------------------------------
"Unigraphics Solutions Inc. Stock Fund" means an investment fund made
available under the Plan in accordance with Section 6.2.1. Up to 100% of the
assets of such fund may be invested in Employer Stock.
2.32. Valuation Date.
--------------
"Valuation Date" means each day that the New York Stock Exchange is
open for business.
2.33. Year of Service.
---------------
"Year of Service" means one Year of Service for each 365 Days of
Service (whether or not consecutive) accrued by a person. No more than one Year
of Service may be earned in any Plan Year for any purpose under the Plan.
7
<PAGE>
SECTION 3 - ELIGIBILITY
-----------------------
3.1. New Participants.
----------------
Each Employee shall become a Participant hereunder as of the later of
his or her date of hire and April 1, 1999.
3.2. Former Participants.
-------------------
A former Participant who is reemployed by the Employer shall become a
Participant on the date he or she is reemployed as an Employee.
3.3. Cessation Of Participation.
--------------------------
A person shall cease to be a Participant and shall become a former
Participant when he or she
(a) has ceased to be employed by the Employer, and
(b) has no undistributed account balances under the Plan.
8
<PAGE>
SECTION 4 - CONTRIBUTIONS
-------------------------
4.1. Basic Payroll Reduction Contributions.
-------------------------------------
A Participant may elect to have up to 6% of his or her Compensation
contributed by the Employer to the Plan on a pre-tax basis through payroll
reductions. Each Participant shall elect on forms provided by the Committee in
increments of 1% the percentage of his or her Compensation under this Section to
be credited to his or her Before-Tax Contribution Account.
4.2. Additional Payroll Reduction Contributions.
------------------------------------------
A Participant who has elected to have 6% of his or her Compensation
contributed by the Employer to the Plan under Section 4.1 may elect to have up
to an additional 14% of his or her Compensation contributed by the Employer to
the Plan on a pre-tax basis through payroll reductions. Each Participant shall
elect on forms provided by the Committee in increments of 1% the percentage of
his or her Compensation under this Section to be credited to his or her Before-
Tax Contribution Account.
4.3. Maximum Payroll Reduction Contribution.
--------------------------------------
The maximum amount which may be contributed to the Plan by a
Participant on a pre-tax basis under Sections 4.1 and 4.2 and any other
Qualified Plan maintained by the Employer in any calendar year is limited to
$10,000 (or such higher amount prescribed by applicable law). If a Participant's
pre-tax contributions reach this maximum, the Committee shall stop the
Participant's payroll reduction contributions for the remainder of the calendar
year.
4.4. Employer Matching Contributions.
-------------------------------
The Employer will contribute to the Plan an amount equal to 25% of the
amount by which each Participant elects to have his or her Compensation reduced
under Section 4.1. Any such contributions shall be paid to the Trustee as soon
as practicable following the end of each pay period. At the end of each Plan
Year, the Administrator shall contribute an amount, if any, under this Section
4.4 equal to:
(a) An amount equal to the maximum matching contribution the
Participant could have received under this Section 4.4 had his or her pre-
tax contributions been contributed ratably from the beginning of the
calendar year through the end of such calendar year, minus
(b) The amount of matching contributions previously made on behalf of
the Participant from the beginning of the calendar year through the end of
such calendar year.
9
<PAGE>
4.5. Reserved.
--------
4.6. Elections.
---------
Each election by a Participant under Sections 4.1 and 4.2 shall be
effective until suspended or amended. Each election shall be effective only when
made in accordance with the rules and procedures established by the Committee.
4.7. Changes In And Suspension Of Payroll Reductions.
-----------------------------------------------
4.7.1. Changes In Payroll Reductions.
-----------------------------
Each Participant's payroll reduction percentages under
Sections 4.1 and 4.2 shall continue in effect until the Participant shall
change such percentages. A Participant may at any time in his or her
discretion change such percentages in accordance with the rules and
procedures established by the Committee.
4.7.2. Suspension Of Payroll Reductions.
--------------------------------
A Participant may at any time suspend his or her
contributions in accordance with the rules and procedures established by
the Committee.
4.8. Tax Deductions.
--------------
All Employer contributions are made conditioned upon their
deductibility for Federal income tax purposes under Section 404 of the Code.
Amounts contributed by an Employer shall be returned to the Employer from the
Plan by the Trustee under the following circumstances:
(a) If a contribution was made by an Employer by a mistake of fact,
the excess of the amount of such contribution over the amount that would
have been contributed had there been no mistake of fact shall be returned
to the Employer within one year after the payment of the contribution; and
(b) If an Employer makes a contribution which is not deductible under
Section 404 of the Code, such contribution (but only to the extent
disallowed) shall be returned to the Employer within one year after the
disallowance of the deduction.
Earnings attributable to the contribution shall not be returned to the
Employer, but losses attributable to such excess contribution shall be deducted
from the amount to be returned. In the event (a) or (b) above apply, the
Employer will distribute any salary reduction amounts returned to the Employer
(less any losses) to the Employees who elected to reduce their salary by such
amounts.
4.9. Rollover Contributions And Transfers.
------------------------------------
The Committee may direct the Trustee to accept from or on behalf of an
Employee any cash or other assets the receipt of which would constitute a
rollover contribution
10
<PAGE>
as defined in Section 408(d)(3)(A)(ii) of the Code or an eligible rollover
contribution as defined in Section 402(c)(4) of the Code which is excludable
from income under Section 402(c)(1) of the Code. The Committee may also direct
the Trustee to accept from the trustee of another Qualified Plan a direct
transfer of cash or other assets which does not constitute an eligible rollover
contribution. Any contributions under this Section shall be segregated in a
separate account and shall be fully vested at all times. Unless accepted on a
Valuation Date, the assets of such account will be segregated from the other
assets of the Plan until the Valuation Date next following the date they are
accepted, and thereafter will share in the allocation of earnings and losses
under Section 6.4. Such amounts shall not be considered as a contribution by a
Participant for purposes of Sections 4.1 or 17.10.
4.10. Loans.
-----
The Committee, as administrator of the loan program, shall make loans
available to Participants who are employed with the Employer on the date the
loan is made (and subject to the terms of this Section 4.10, to an interested
party as defined in Section 3(14) of the Employee Retirement Income Security Act
of 1974, even if such interested party is no longer an Employee) pursuant to a
uniform and non-discriminatory policy. Notwithstanding anything in this Section
4.10 to the contrary, amounts in a Participant's Matching Contribution Account
of which the Participant may not direct the investment pursuant to Section 6.2
are not available for a loan under this Section 4.11. Notwithstanding the above,
loans shall not be made available to highly compensated employees (as defined in
section 414(q) of the Code) in an amount greater than the amount made available
to other employees. All loans shall comply with the following terms and
conditions.
4.10.1. Loan Applications.
-----------------
A Participant may apply to the Committee for a loan in
accordance with the rules and procedures established by the Committee and
subject to the spousal consent requirements set forth in Section 4.16.
4.10.2. Criteria For Approval.
---------------------
The Committee shall determine whether a Participant qualifies
for a loan, applying such criteria as a commercial lender of funds would
apply in like circumstances with respect to the Participant and his or her
general ability to repay the loan. To assist the Committee in making this
determination the Participant shall be required to provide such supporting
information deemed necessary by the Committee.
4.10.3. Loan Amount Limits.
------------------
No loan shall be made if immediately after the loan the
unpaid balance of all loans by this Plan and all other plans maintained by
the Controlled Group to the Participant would exceed the lesser of
(a) $50,000, or
11
<PAGE>
(b) 50% of the vested portion of the Participant's accounts
under this Plan.
Notwithstanding the foregoing, the $50,000 limitation in (1)
above shall be reduced by the highest outstanding loan balance for the one-
year period ending on the day before a new loan is made minus the
outstanding balance of existing loans to the Participant on the date of the
new loan.
4.10.4. Number of Loans Permitted.
-------------------------
The number of loans available to a Participant shall be
limited to (a) four (4) outstanding loans under the Plan as of each day
during the Plan Year and (b) two (2) new loans issued in each Plan Year.
4.10.5. Repayment Period.
----------------
A fixed period for repayment of the loan not in excess of
five years shall be specified in the loan agreement; provided, that if the
loan is used to acquire any dwelling unit which within a reasonable time is
used as a principal residence of the Participant, the specified repayment
period may be longer than five years.
4.10.6. Manner And Timing Of Repayments.
-------------------------------
Loans will be repaid (principal and interest) through
substantially equal payroll deductions; provided, that a Participant may at
any time prepay the entire amount due on the loan in one lump sum. Upon a
Participant's termination of employment, the entire loan balance shall
become due and payable immediately and shall be set off against any
distribution due to the Participant.
4.10.7. Security.
--------
Each loan shall be secured by assignment of the Participant's
accounts in the Plan and by the Participant's collateral promissory note
for the amount of the loan, including interest thereon, payable to the
order of the Trustee. However, in no event shall more than 50% of a
Participant's vested interest in the Plan (determined immediately after
origination of the loan) be used as security for the loan.
4.10.8. Interest.
--------
Each loan shall bear a reasonable rate of interest
commensurate with the prevailing interest rate charged on similar
commercial loans under like circumstances by persons in the business of
lending money.
4.10.9. Minimum Loan.
------------
The minimum amount of any loan shall be $500.00.
12
<PAGE>
4.10.10. Order Of Investment Liquidation.
-------------------------------
A Participant's loan amount shall be made by liquidating the
Participant's investments in the order determined by the Employer.
4.10.11. Loan Fees.
---------
The Trustee shall deduct a processing fee in the amount of
$40.00 from loan proceeds before paying such amount to a Participant. In
addition, a $25.00 annual fee shall be deducted from the accounts of a
Participant who has an outstanding balance. The annual fee shall be
deducted from the Participant's accounts in accordance with rules and
procedures adopted by the Employer.
4.10.12. Loans Limited To Employees.
--------------------------
Except as otherwise provided in this Section 4.10, no loan
shall be made to any Participant who has terminated employment with the
Employer.
4.10.13. Default.
-------
Generally, a default shall occur upon the failure of a
Participant to timely remit payments under the loan when due. In such
event, the Committee shall take such reasonable actions which a prudent
fiduciary in like circumstances would take to protect and preserve Plan
assets, including foreclosing on any collateral and commencing such other
legal action for collection which the Committee deems necessary and
advisable. However, the Committee shall not be required to commence such
actions immediately upon a default. Instead, the Committee may grant the
Participant reasonable rights to cure any default, provided such actions
would constitute a prudent and reasonable course of conduct for a
professional lender in like circumstances. In addition, if no risk of loss
of principal or income would result to the Plan, the Committee may choose,
in its discretion, to defer enforcement proceedings. If the qualified
status of the Plan is not jeopardized, the Committee may treat a loan that
has been defaulted upon and not cured within a reasonable period of time as
a deemed distribution from the Plan.
4.11. Hardship Withdrawals.
--------------------
A Participant in the employment of the Employer may withdraw as of any
date up to an amount equal to his or her pre-tax contributions to the Plan (but
not the earnings thereon), the Participant's Rollover Account, and the vested
portion of his or her Matching Contribution Account (but not the amounts
invested in the EDS Stock Fund which are subject to Section 6.2.2) if the
Participant demonstrates a substantial hardship to the Committee and, if the
Participant is married, obtains his or her spouse's consent in accordance with
Section 4.16. The Committee will grant a distribution on account of hardship
only if the distribution is made on account of an immediate and heavy financial
need of the Participant and is necessary to satisfy such financial need.
13
<PAGE>
4.11.1. Determination of Immediate and Heavy Financial Need.
---------------------------------------------------
A distribution will be deemed to be made on account of an
immediate and heavy financial need of the Participant only if the
distribution is on account of:
(a) expenses for medical care described in Section 213(d) of
the Code previously incurred by the Participant, the Participant's
spouse or any of the Participant's dependents (as defined in Section
152 of the Code) or necessary for these persons to obtain medical care
described in Section 213(d) of the Code;
(b) costs directly related to the purchase (excluding
mortgage payments) of a principal residence of the Participant;
(c) the payment of tuition, related educational fees, and
room and board expenses for the next 12 months of post-secondary
education for the Participant, the Participant's spouse, or the
Participant's children or dependents (as defined in Section 152 of the
Code); or
(d) payments necessary to prevent the eviction of the
Participant from his or her principal residence or foreclosure on the
mortgage of the Participant's principal residence.
4.11.2. Amount Necessary To Satisfy Financial Need.
------------------------------------------
A distribution will be deemed to be necessary to satisfy an
immediate and heavy financial need of a Participant if the following
requirements are satisfied:
(a) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant (which may
include any amounts necessary to pay any federal, state or local
income tax or penalties reasonably anticipated to result from the
distribution); and
(b) The Participant has obtained all distributions, other
than hardship distributions, and all nontaxable (at the time of the
loan) loans currently available under all plans maintained by the
Controlled Group.
In addition a Participant who receives a hardship withdrawal will be
unable to make pre-tax contributions to the Plan or any other qualified or
nonqualified plan of deferred compensation maintained by the Controlled Group,
including stock option and stock purchase plans and a cash or deferred
arrangement that is part of a cafeteria plan within the meaning of Section 125
of the Code (but not the cafeteria plan itself), for a period of twelve months
after the Valuation Date as of which the hardship distribution is made.
Moreover, the maximum amount of a Participant's pre-tax contributions to the
Plan or any other plan maintained by the Controlled Group for the calendar year
following the calendar year of the hardship withdrawal may not exceed $10,000
(or such higher amount prescribed by applicable law) reduced by the amount of
such Participant's pre-tax contributions for the calendar year of the hardship
withdrawal.
14
<PAGE>
4.12. Other Withdrawals.
-----------------
If a Participant is in the employment of the Employer and has reached
age 59-1/2, he or she may, as of any date, upon written request, withdraw all or
any part of his or her vested account balances (except the portion of such
Participant's Matching Contribution Account invested in the EDS Stock Fund which
is subject to Section 6.2.2).
4.13. Application for Withdrawal.
--------------------------
An application for a withdrawal must be received by the Committee in
accordance with the rules and procedures established by the Committee.
4.14. Order Of Investment Liquidation.
-------------------------------
The Employer shall establish rules for determining the portion of each
fund in which the Participant's accounts are invested which shall be liquidated
to provide the proceeds for any withdrawal to the Participant.
4.15. Vesting After Withdrawals.
-------------------------
If a withdrawal under Section 4.11 or 4.12 is made by a Participant
whose Matching Contribution Account was not 100% vested at the time of such
withdrawal, then the Employer shall separately record the portion of his or her
Matching Contribution Account which was not vested at the time of the
withdrawal, and the vested amount of such portion from time to time shall equal
an amount ("X") determined by the following formula:
X = P(AB + (R X D)) - (R X D)
For purposes of applying such formula: "P" is the vested percentage at the
relevant time; "AB" is the account balance at the relevant time; "D" is the
amount previously withdrawn by the Participant; and "R" is the ratio of the
account balance at the relevant time to the account balance after the
withdrawal. If a person who has received a withdrawal hereunder is subsequently
entitled to an allocation of Employer contributions, the Employer shall
separately record such contributions and vesting with respect to such
contributions shall be in accordance with Section 9.2.
4.16. Spousal Consent.
---------------
Within the 90-day period before any loan to or withdrawal by a
Participant, the spouse of the Participant must consent in writing to the
withdrawal or to the use of the Participant's accounts as security for the loan.
The spouse's consent must acknowledge the effect of the loan or withdrawal and
must be witnessed by a notary public or plan representative. In the case of a
loan, no consent need be obtained if the total of the Participant's accounts
subject to the security is not in excess of $5,000. In the event the Participant
has no spouse or the Participant's spouse cannot be located, no consent is
necessary for a loan or a withdrawal. In the event the Participant has no spouse
or the Participant's spouse cannot be located, the Participant must certify a
statement to
15
<PAGE>
that effect on a form provided by the Committee in order for his or
her loan application or withdrawal request to be effective.
SECTION 5 - DISTRIBUTIONS OF EXCESS AMOUNTS
-------------------------------------------
5.1. Distribution Of Excess Elective Deferrals.
-----------------------------------------
If a Participant's elective deferrals for any calendar year exceed
$10,000 (or such higher amount prescribed by applicable law), then the
Participant may file an election form prescribed by the Committee with the
Employer designating in writing the amount of such excess elective deferrals to
be distributed from this Plan. Any such election form must be filed with the
Employer no later than the first March 1 following the close of such calendar
year in order for the Employer to act on it. If such an election form is timely
filed, the Trustee shall distribute to the Participant the amount of such excess
elective deferrals which the Participant has allocated to this Plan together
with any income or less any loss allocable to such amount on or before the first
April 15 following the close of such calendar year. In the case of a Highly
Compensated Employee, any matching contributions which were contributed on
account of the elective deferrals being distributed will be forfeited, even if
such matching contributions are vested. For purposes of the preceding, the
income or loss allocable to such excess amount will be determined under such
reasonable method as the Committee shall establish, provided the method does not
discriminate in favor of Highly Compensated Employees, is used consistently for
all Participants and for all corrective distributions under the Plan for the
Plan Year, and is used by the Plan for allocating income to Participants'
accounts.
5.2. Limitations On And Distributions Of Pre-Tax Contributions For Highly
--------------------------------------------------------------------
Compensated Employees.
---------------------
The Committee is authorized to reduce to the extent necessary the
maximum contributions under Sections 4.1 and 4.2 for Highly Compensated
Employees prior to the close of the Plan Year if the Committee reasonably
believes that the reduction is necessary to prevent the Plan from failing Code
Section 401(k)(3). Such adjustments shall be made in accordance with rules
prescribed by the Employer.
If the Plan fails to satisfy Code Section 401(k)(3), the Plan shall
correct the failure within 12 months after the last day of such Plan Year under
any method or combination of methods allowed under Code Section 401(k)(8) or
Treasury Regulation Section 1.401(k)-1(f), taking into account any adjustments
necessary due to changes to Code Section 401(k)(8)(C) that are not reflected in
the regulations. For purposes of this Section 5.2, the actual deferral
percentage of Non-Highly Compensated Employees shall be determined as of the
Plan Year preceding the Plan Year for which the Plan must satisfy one of the
tests in Code Section 401(k)(3), unless the Employer elects to determine such
actual deferral percentage as of the Plan Year for which the Plan must satisfy
one of the tests in Code Section 401(k)(3). Any such election shall not be
changed except as provided by the Secretary of the Treasury. In the case of the
first Plan Year for which the Plan must satisfy one of the tests in Code Section
401(k)(3), the actual deferral percentage for Non-Highly Compensated Employees
as of the Plan Year preceding such first Plan Year shall be deemed to be 3%,
unless the Employer elects to determine such actual deferral percentage for Non-
Highly Compensated Employees as of such first Plan Year.
16
<PAGE>
5.3. Limitations On And Distributions Of Matching Contributions For Highly
Compensated Employees.
The Committee is authorized to reduce to the extent necessary the
maximum amount of matching contributions under Section 4.4 contributed on behalf
of any Highly Compensated Employee prior to the close of the Plan Year if the
Committee reasonably believes that such adjustment is necessary to prevent the
Plan from failing Code Section 401(m)(2). Such reduction shall be made in
accordance with rules prescribed by the Employer.
If the Plan fails to satisfy Code Section 401(m)(2), the Plan shall
correct the failure within 12 months after the last day of such Plan Year under
any method or combination of methods allowed under Treasury Regulation 1.401(m)-
1(e), taking into account any adjustments necessary due to changes to Code
Section 401(m)(6)(c) that are not reflected in the regulations. For purposes of
this Section 5.3, the actual contribution percentage of Non-Highly Compensated
Employees shall be determined as of the Plan Year preceding the Plan Year for
which the Plan must satisfy one of the tests in Code Section 401(m)(2), unless
the Employer elects to determine such actual contribution percentage as of the
Plan Year for which the Plan must satisfy one of the tests in Code Section
401(m)(2). Any such election shall not be changed except as provided by the
Secretary of the Treasury. In the case of the first Plan Year for which the Plan
must satisfy one of the tests in Code Section 401(m)(2), the actual contribution
percentage for Non-Highly Compensated Employees as of the Plan Year preceding
such first Plan Year shall be deemed to be 3%, unless the Employer elects to
determine such actual contribution percentage for Non-Highly Compensated
Employees as of such first Plan Year.
5.4. Limitations On Multiple Use Of Alternative Limitation.
5.4.1. Determination Of Multiple Use.
The Committee will determine whether or not multiple use of
the alternative limitation has occurred. Such determination will be made in
accordance with Section 401(m)(9) of the Code.
5.4.2. Correction Of Multiple Use.
If a multiple use of the alternative limitation occurs, the
Committee shall correct such multiple use by reducing the actual
contribution percentages of Highly Compensated Employees in the manner set
forth in Section 5.3 so that there is no multiple use of the alternative
limitation.
5.5. Special Definitions.
All terms used in this Section 5 shall have the meaning given such
terms in Code Sections 401(k) and 401(m) and the regulations thereunder.
18
<PAGE>
5.5.1. Plan Restructuring.
The Plan may be disaggregated under Section 1.410(b)-6(b)(3)
and Section 1.410(b)-7(c)(3) of the Treasury Regulations for any Plan Year
in order to pass the actual contribution percentage and actual deferral
percentages tests set forth in this Section.
19
<PAGE>
SECTION 6 - ALLOCATION
----------------------
6.1. Establishment Of Accounts.
The Committee shall establish and maintain for each Participant a
Before-Tax Contribution Account, a Matching Contribution Account, and a Rollover
Account. All amounts by which an Employee elects to have his or her salary
reduced under Sections 4.1 and 4.2 shall be credited to his or her Before-Tax
Contribution Account, and all Employer contributions under Section 4.4 shall be
credited to his or her Matching Contribution Account. All direct transfer and
rollover amounts received on behalf of a Participant under Section 4.9 shall be
credited to his or her Rollover Account; provided that, amounts transferred from
the EDS 401(k) Plan held in a Participant's Elective Contribution Account and
Employer Matching Contribution Account under such plan shall be allocated to a
Participant's Before-Tax Contribution Account and Matching Contribution Account,
respectively.
6.2. Direction of Investments.
6.2.1. Participant's Selection of Investment Fund.
Subject to Sections 6.2.2, each Participant shall designate
in 1% increments the percentages of contributions under Section 4 for such
Plan Year allocable to his or her accounts which are to be invested in such
investment funds as are made available by the Company. Such a designation
shall be made in accordance with the rules and procedures established by
the Plan Administrator. Any such designation shall continue in effect
unless changed in the same manner by the Participant.
6.2.2. EDS Stock Fund.
Notwithstanding any other provision of the Plan to the
contrary, amounts transferred to the Plan to a Participant's Matching
Contribution Account from the EDS 401(k) Plan which are allocated to the
EDS Stock Fund shall not be subject to Participant direction under Section
6.2.1 until the second anniversary of the date such amounts were
contributed by EDS to such Participant's EDS Stock Fund under the EDS
401(k) Plan.
6.3. Transfers Between Investment Funds.
Subject to Sections 2.14 and 6.2.2, as of any date, a Participant
may, in accordance with the rules and procedures established by the Committee,
elect to transfer all or any portion of his or her accounts in an investment
fund to any other investment fund. Such transfers shall be subject to such
reasonable requirements as may be established by the Trustee or recordkeeper.
6.4. Allocation Of Earnings Or Losses.
All appreciation or depreciation in the fair market value of the
investment funds shall be allocated to accounts based on account balances on a
daily basis.
20
<PAGE>
SECTION 7 - DISTRIBUTIONS AT RETIREMENT
---------------------------------------
7.1. Normal Retirement Distributions.
Upon a Participant's Normal Retirement Date, the Participant's
accounts shall become fully vested (if not already fully vested) and shall be
distributed to him or her in accordance with Section 10.1.2.
7.2. Required Minimum Distributions.
Notwithstanding anything to the contrary contained in the Plan, the
entire interest of a Participant will be distributed in accordance with Section
401(a)(9) of the Code and the regulations thereunder beginning no later than the
Participant's Required Beginning Date as determined under Section 7.3 below.
7.3. Required Beginning Date.
The Required Beginning Date of a Participant shall be:
(a) in the case of a Participant who is not a Five Percent Owner with
respect to the Plan Year ending in the calendar year in which the
Participant attains age 70-1/2, the April 1 following the calendar year in
which occurs the later of the date the Participant attains age 70-1/2 and
the date on which the Participant terminates employment; or
(b) in the case of a Participant who is a Five Percent Owner with
respect to the Plan Year ending in the calendar year in which the
Participant attains age 70-1/2, the April 1 following the calendar year in
which the Participant attains age 70-1/2.
21
<PAGE>
SECTION 8 - DISTRIBUTIONS AT DISABILITY
---------------------------------------
8.1. Distributions Upon Disability.
If a Participant becomes permanently and totally disabled while in
the employment of the Employer, his or her accounts shall become fully vested
(if not already fully vested), and shall be distributed to him or her in
accordance with Section 10.1.
8.1.1. Deemed Termination.
A Participant who is permanently and totally disabled as
described in Section 8.2 while in the employment of the Employer shall be
deemed to have terminated such employment on the date the Committee
determines that he or she is permanently and totally disabled.
8.2. Determination Of Disability.
A Participant shall be considered permanently and totally disabled
only if he or she is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which
can be expected to result in death or to be of long-continued and
indefinite duration. Whether a Participant is permanently and totally
disabled shall be determined by the Committee, in its sole discretion,
based upon an independent opinion considered acceptable to the Committee.
Such determinations shall be made in a uniform manner pursuant to the
policies established by the Committee and shall be final and conclusive.
22
<PAGE>
SECTION 9 - DISTRIBUTIONS AT TERMINATION OF EMPLOYMENT (VESTING)
----------------------------------------------------------------
9.1. Distributions Upon Termination Of Employment.
--------------------------------------------
A Participant whose employment with the Employer is terminated prior
to the earliest of his or her death, Disability Retirement Date or Normal
Retirement Date shall receive the vested portion of his or her accounts in
accordance with Section 10.1.1.
9.2. Determination Of Vested Portion.
-------------------------------
(a) A Participant's Rollover Account and Before-Tax Contribution
Account shall be 100% vested and nonforfeitable at all times.
(b) The portion of a Participant's Matching Contribution Account which
shall be vested and nonforfeitable shall be determined in accordance with
the following schedule:
<TABLE>
<CAPTION>
Years of Service Percentage of Account Vested
---------------- ----------------------------
<S> <C>
1 0%
2 40%
3 60%
4 80%
5 100%
</TABLE>
(c) Notwithstanding any provision herein to the contrary, a
Participant's accounts shall be 100% vested and nonforfeitable upon such
Participant's Normal Retirement Date.
9.3. Forfeitures.
-----------
The nonvested portion of the Matching Contribution Account of a
Participant whose employment with the Employer is terminated prior to the
earliest of his or her death, Disability Retirement Date, or Normal Retirement
Date shall be forfeited immediately when such Participant has both terminated
employment and received a distribution of his or her entire vested account
balances or when such Participant incurs five consecutive one-year Breaks in
Service, whichever first occurs. The nonvested amounts shall be placed in a
separate account until forfeited and shall be credited with an allocation of
earnings and losses pursuant to Section 6.4. If the Participant is not employed
again by the Employer on the date a forfeiture occurs under this Section, any
forfeited amounts plus earnings and losses thereon shall be used to reduce
future Employer contributions. Following such forfeiture, the Participant shall
be 100% vested in the balance, if any, of his or her accounts. If a Participant
terminates employment with no vested interest in his or her Matching
Contribution Account, such Participant shall be treated as receiving a
distribution of the vested portion of his or her Matching Contribution Account
on the
23
<PAGE>
last day of the Plan Year in which his or her termination occurs, provided he or
she is not employed by the Employer on such date.
If a person who has incurred a forfeiture hereunder is reemployed by
the Employer during a Plan Year before he or she has incurred five consecutive
Breaks in Service, such individual's previously forfeited amounts shall be
restored. Restoration will first be made out of any unallocated forfeitures and,
if such forfeitures are insufficient to restore such person's account balance,
restoration shall be made through an Employer contribution.
24
<PAGE>
SECTION 10 - PAYMENT OF BENEFITS
--------------------------------
10. Payment Of Benefits.
-------------------
10.1. Timing Of Distributions.
-----------------------
10.1.1. Termination Before Normal Retirement Date.
-----------------------------------------
If a Participant's employment is terminated prior to his or her
Normal Retirement Date for any reason other than his or her death, and if
the Participant's vested accounts exceed $5,000, the Participant shall
receive the notice described in Section 10.4 as well as benefit election
forms during the Distribution Notice Period coinciding with or next
following the date he or she terminates employment. If the Participant
properly completes his or her benefit election forms and returns them in
accordance with the rules and procedures established by the Employer,
distribution of his or her vested accounts will commence in the form
elected by the Participant. If a Participant fails to properly complete and
timely return his or her election forms when he or she is first eligible to
receive a distribution, distribution of his or her accounts will commence
in the form of an Automatic Survivor Benefit on his or her Required
Beginning Date, which shall be his or her Annuity Starting Date.
Notwithstanding the preceding, the Participant may notify the Employer at
any time after his or her termination of employment but prior to his or her
Required Beginning Date that he or she wants to receive the notice
described in Section 10.4. The Committee shall distribute such notice and
benefit election forms during the first Distribution Notice Period
following such request.
10.1.2. Distributions To Participants Terminating Employment On
-------------------------------------------------------
Or After Normal Retirement Date.
-------------------------------
If a Participant's employment is terminated on or after his or
her Normal Retirement Date but before his or her Required Beginning Date
for any reason other than his or her death, and if the Participant's
accounts exceed $5,000 as of his or her termination date, the Participant
shall receive the notice described in Section 10.4 as well as benefit
election forms during the Distribution Notice Period coinciding with or
next following the date he or she terminates employment. If the Participant
properly completes his or her benefit election forms and returns them in
accordance with the rules and procedures established by the Employer, the
Participant's benefits will commence in the form elected by the
Participant. If the Participant fails to properly complete and return his
or her benefit election forms when he or she is first eligible to receive a
distribution, distribution of his or her accounts will be made in the form
of an Automatic Survivor Benefit commencing on his or her Required
Beginning Date.
25
<PAGE>
10.1.3. Distributions To Participants Remaining Employed At
---------------------------------------------------
Required Beginning Date.
------------------------
If a Participant remains employed by the Employer until the
Distribution Notice Period immediately preceding the Valuation Date
coinciding with or immediately preceding his or her Required Beginning
Date, the Participant shall receive the notice described in Section 10.4 as
well as benefit election forms during such Distribution Notice Period. If
the Participant completes his or her benefit election forms and returns
them before the Valuation Date immediately following such Distribution
Notice Period, the Participant's benefits will commence in the form elected
by the Participant as of such Valuation Date. If the Participant fails to
properly complete and return his or her benefit election forms on or before
the Valuation Date immediately following such Distribution Notice Period,
distribution of his or her accounts will be made in the form of an
Automatic Survivor Benefit commencing on his or her Required Beginning
Date.
10.2. Form Of Distribution.
--------------------
10.2.1. Automatic Survivor Benefit.
--------------------------
In the case of a Participant whose employment with the Employer
is terminated for a reason other than his or her death, unless such
Participant has elected to the contrary in accordance with Sections 10.1
and 10.3 before his or her Annuity Starting Date, the Participant shall be
deemed to have elected an Automatic Survivor Benefit, and the Committee
shall direct the Trustee to apply the Participant's vested accounts to
purchase an Automatic Survivor Benefit from a legal reserve life insurance
company which uses unisex actuarial tables with such Automatic Survivor
Benefit commencing as of the Participant's Annuity Starting Date. The
Participant's accounts shall be closed after the purchase of such Automatic
Survivor Benefit and the benefits to such Participant or his or her spouse
shall be solely the benefits provided under the Automatic Survivor Benefit.
10.2.2. Optional Methods Of Distribution.
--------------------------------
In lieu of the distribution of his or her accounts in the form of
an Automatic Survivor Benefit, a Participant may elect, in accordance with
Sections 10.2.3, 10.2.4 and 10.2.5 below, on a form furnished by the
Committee for that purpose, to have his or her accounts distributed in one
of the following forms:
(a) a lump sum.
(b) in the case of a married Participant, an annuity contract
payable for the Participant's life issued by a legal reserve life
insurance company which uses unisex actuarial tables to calculate the
cost of annuities.
(c) payments over a period of time not to exceed the joint life
expectancy of the Participant and his or her surviving spouse, if any,
or designated beneficiary. In the event that a Participant who elects
this optional form of benefit
26
<PAGE>
dies before the entire amount in his or her accounts have been
distributed, distribution will continue to be made to such
Participant's surviving spouse, if any, or designated beneficiary,
unless such Participant's surviving spouse or beneficiary elects to
receive such remaining amounts in a lump sum.
If the Participant is married and wishes to elect an optional
form of benefit under this Section, he or she must secure the consent of
his or her spouse as provided in Section 10.3.
10.2.3. Timely Election.
---------------
An option set forth in 10.2.2 above must be elected on a form
furnished by the Committee for that purpose within the 90 day period ending
on the Annuity Starting Date, but not before the Participant receives the
notice described in Section 10.4.
10.2.4. Effective Date Of Option.
------------------------
An option selected under 10.2.2 above shall become effective on
the Annuity Starting Date.
10.2.5. Change Or Revocation.
--------------------
An election made under this Section may not be validly changed or
revoked except as follows:
(a) Any election made by the Participant may be changed or
revoked without limitation if the Participant files with the Employer
a written request before the Annuity Starting Date as of which
benefits are to commence. A married Participant who wishes to change
his or her form of benefit to a benefit other than the Automatic
Survivor Benefit must secure the consent of his or her spouse as
provided in Section 10.3.
(b) If the Participant dies before the date an option becomes
effective, any election made under Section 10.2 shall be considered
void.
10.2.6. Small Benefits.
--------------
Notwithstanding the foregoing, if a Participant terminates
employment prior to his or her Required Beginning Date, and if the
Participant's vested accounts are less than or equal to $5,000 as of the
date he or she terminates employment, his or her accounts shall be
distributed in a lump sum as soon as practicable following the Valuation
Date coinciding with or next following his or her termination of
employment.
10.2.7. Valuation Of Accounts.
---------------------
Any distribution under this Plan shall be based on the value of
the Participant's accounts on the Valuation Date which coincides with or
immediately
27
<PAGE>
precedes the date as of which authorized distribution directions are
received by the Trustee from the Committee or its designee.
10.2.8. Special Distribution Form.
-------------------------
Upon distribution of benefits under this Section 10, any portion
of a Participant's accounts invested in the EDS Stock Fund or the
Unigraphics Solutions Inc. Stock Fund may, at the Participant's election,
be distributed in whole shares of EDS Stock or Employer Stock, as
applicable. Fractional shares shall be distributed in cash.
10.3. Spousal Consent To An Optional Form Of Benefit Or Beneficiary.
-------------------------------------------------------------
The spouse of a Participant may consent to the designation of a
beneficiary other than the spouse or to a change in the designation of a
beneficiary other than the spouse or to the election of an optional form of
benefit. The designation of a beneficiary other than the spouse or a change in
the designation of a beneficiary other than the spouse or election of an
optional form of benefit by a married Participant will be effective only if the
spouse of the Participant consents to such designation or election in writing.
Consent to an optional benefit form must be provided within the 90 day period
ending on the Participant's Annuity Starting Date. The spouse's consent must:
(a) designate a form of benefits which may not be changed without
further spousal consent;
(b) be irrevocable and acknowledge the effect of such designation or
election; and
(c) be witnessed by a Plan representative or a notary public.
Any such consent must be filed with the Employer in order to be
effective. No consent need be obtained in the event the Participant has no
spouse or the Participant's spouse cannot be located. In this event, the
Participant must certify on a form provided by the Committee that he or she has
no spouse or that his or her spouse cannot be located in order for his or her
beneficiary designation or election of an optional form of benefit to be
effective.
10.4. Distribution Notice.
-------------------
During the Distribution Notice Periods specified in Section 10.1, the
Committee shall give to the Participant a written notification in nontechnical
terms of:
(a) the material features and the relative values of the optional
forms of benefits under the Plan,
(b) the terms and conditions of the Automatic Survivor Benefit and the
financial effect upon the Participant's benefit in terms of dollars per
benefit payment,
28
<PAGE>
(c) the Participant's right to make, and the effect of, an election
out of the Automatic Survivor Benefit,
(d) in the case of a married Participant, the rights of the
Participant's spouse with respect to any such election,
(e) the right of the Participant to make, and the effect of, a
revocation of any such election before the commencement of benefits, and
(f) the right, if any, of the Participant to defer receipt of a
distribution.
29
<PAGE>
SECTION 11 - DISTRIBUTIONS AT DEATH
11.1. Distributions Upon Death.
Upon the death of a Participant while in the employment of the
Employer, the Participant's accounts shall become fully vested (if not already
fully vested) and shall be distributed to his or her spouse or beneficiary in
accordance with Sections 11.2, 11.3 and 11.4. Upon the death of a Participant
after termination of his or her employment with the Employer, the vested portion
of the Participant's remaining account balances shall be distributed to his or
her spouse or beneficiary in accordance with Sections 11.2, 11.3 and 11.4. As
soon as administratively practicable following the death of a Participant, the
Committee shall distribute benefit election forms to his or her spouse or
beneficiary. Such spouse or beneficiary may elect distribution of the vested
portion of the Participant's accounts in one of the following forms:
(a) a lump sum.
(b) an annuity contract payable for the life of the spouse or
beneficiary issued by a legal reserve life insurance company which uses
unisex actuarial tables to calculate the cost of annuities.
(c) payments over a period of time not to exceed the life
expectancy of the spouse or beneficiary. In the event that a spouse or
beneficiary who elects this form of distribution dies before the entire
amount in his or her accounts have been distributed, distribution will
continue to be made to the designated beneficiary of the spouse or
beneficiary, unless such individual elects to receive such remaining
amounts in a lump sum.
Any distribution hereunder shall be based on the value of the
Participant's accounts as of the date such distribution is made.
Notwithstanding anything in this Plan contrary, distribution of a Participant's
accounts to a surviving spouse or beneficiary shall comply with the requirements
of Section 401(a)(9) of the Code.
11.2. Distribution To Spouse.
Upon the death of a Participant, the entire balance of his or her
accounts shall be distributed to his or her surviving spouse, if any, unless the
surviving spouse has consented in the manner required under Section 11.5 to a
designated beneficiary and one or more designated beneficiaries survives the
Participant.
11.3. Designation Of Beneficiary.
Each Participant shall have the right to name and change primary and
contingent beneficiaries under the Plan in accordance with the rules and
procedures established by the Committee. If upon the death of the Participant,
the Participant has no surviving spouse or the Participant's surviving spouse
has consented to the designation of a beneficiary in the manner
30
<PAGE>
required under Section 11.5, the vested balance of his or her accounts shall be
divided among the primary or contingent beneficiaries designated by such
Participant who survive the Participant.
11.4. Beneficiary Not Designated.
In the event the Participant has no surviving spouse and has either
failed to designate a beneficiary or no designated beneficiary survives him or
her, the amounts otherwise payable to a beneficiary under the provisions of this
Section shall be paid to the children of such Participant in equal shares. If
the Participant has no children, the amounts otherwise payable to a beneficiary
under the provisions of this Section shall be paid to the Participant's executor
or administrator.
11.5. Spousal Consent to Designation of Alternate Beneficiary and Election
of an Optional Method of Distribution.
The spouse of the Participant must consent to the designation of an
alternate beneficiary or to the election of an optional form of benefit in
accordance with this Section in order for such designation to be effective. The
spousal consent must be in writing and:
(a) must designate a beneficiary which may not be changed without
spousal consent,
(b) must be irrevocable and acknowledge the effect of such designation
as being a waiver of the spouse's right to the death benefit described in
Section 11 and
(c) must be witnessed by a Plan representative or notary public.
Any such consent must be filed with the Committee in order to be
effective. No consent need be obtained in the event the Participant has no
spouse or the Participant's spouse cannot be located. In this event, the
Participant must certify on a form provided by the Committee for that purpose
that he or she has no spouse or that his or her spouse cannot be located in
order for his or her designation of an alternate beneficiary to be effective.
31
<PAGE>
SECTION 12 - LEAVES OF ABSENCE AND TRANSFERS
12.1. Military Leave Of Absence.
So long as The Uniformed Services Employment and Reemployment Rights
Act of 1994 ("USERRA") or any similar law shall remain in force, providing for
reemployment rights for all persons in military service, as therein defined, an
Employee who leaves the employment of the Employer for military service in the
Armed Forces of the United States, as defined in such Act from time to time in
force, shall, for all purposes of this Plan, be considered as having been in the
employment of the Employer, with the time of his or her service in the military
credited to his or her Service; provided that upon such Employee being
discharged from the military service of the United States he or she applies for
re-employment with the Employer and takes all other necessary action to be
entitled to, and to be otherwise eligible for, reemployment rights, as provided
by USERRA, or any similar law from time to time in force.
12.1.1. Payroll Reduction Contributions.
Any Employee who is reemployed while entitled to veterans'
reemployment rights under USERRA and who has either (i) suspended his or
her contributions during military service, or (ii) made less than the
maximum amount of contributions permitted by Sections 4.1 and 4.2 during
his or her period of military service, shall be permitted to make the
contributions described in Sections 4.1 and 4.2 to the Plan with respect to
the period of his or her military service during the period which begins on
the Employee's date of reemployment with the Employer and ends upon the
earlier of:
(a) the period equal to three times the Employee's period of
military service; and
(b) five years.
The maximum amount of contributions which the Employee can make
during this period shall be the maximum amount of contributions that he or
she would have been permitted to make to the Plan during the period of
military service if the individual had continued to be employed by the
Employer during such period and received Compensation during such period
equal to the Compensation the Employee would have received during the
period of military service had the Employee worked for the Employer during
such period. If the Compensation the Employee would have received during
the period was not reasonably certain, the Employee's average Compensation
from the Employer during the 12 month period immediately preceding the
period of military service shall be deemed to be such Compensation.
12.1.2. Matching Contributions.
If the Employer makes a contribution under Section 4.4 during a
period when an Employee was on military leave of absence and if the
Employee later returns to
32
<PAGE>
employment and makes the contributions described in Section 4.1 for this
period, the Employer shall make such matching contributions on behalf of
the Employee as would have been made had the Employee's contributions
actually been made during the period of his or her military service.
12.1.3. Treatment Of Contributions.
Contributions under this Section will be taken into account for
purposes of the limitations of Sections 402(g) or 415 in the year to which
the contributions relate, not the year in which the contributions are made.
In addition, such contributions will not cause the Plan to be treated as
failing to meet the requirements of Code Sections 401(a)(4), 401(a)(26),
401(k)(3), 401(m), 410(b) or 416.
Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Code Section 414(u).
Loan repayments will be suspended under this Plan during a period of
qualified military service as permitted under Code Section 414(u)(4).
12.2. Maternity Or Paternity Absence.
In the case of any Employee who is absent from work
(a) by reason of the pregnancy of the individual,
(b) by reason of the birth of a child of the individual,
(c) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement,
the Employee shall be credited with Days of Service following the date such
absence begins until the first anniversary of such date solely for purposes of
determining whether a Break in Service has occurred. In order to receive credit
under this Section, an Employee must furnish to the Employer information
establishing (i) that the absence from work is for one of the reasons described
in this Section and (ii) the number of days for which the Employee was absent.
12.3. Family And Medical Leave Act.
Solely for purposes of determining whether a Break in Service has
occurred, an Employee shall be credited with the number of Days of Service
during a leave of absence taken pursuant to the Family and Medical Leave Act of
1993.
33
<PAGE>
12.4. Other Leaves Of Absence.
An Employee on an Employer-approved leave of absence not described in
Section 12.1 above shall for all purposes of this Plan be considered as having
continued in the employment of the Employer for the period of such leave,
provided that the Employee returns to the active employment of the Employer
before or at the expiration of such leave. Such approved leaves of absence
shall be given on a uniform, non-discriminatory basis in similar fact
situations.
Notwithstanding any other provision of the Plan, a Participant who is
on an Employer-approved leave of absence will share in the allocation of
Employer contributions under Sections 4.4 for the Plan Year in which such leave
of absence begins but will not share in such allocation for any subsequent Plan
Year ending before the Participant's return from such leave of absence.
12.5. Disability Leave of Absence.
An Employee who is absent from employment with the Employer and who is
receiving benefits under a long term disability plan maintained by the Employer
will be credited with Days of Service during such absence until the earlier of
the date as of which (i) the Employee is fully vested in his or her Matching
Contribution Account, or (ii) the Employee's attainment of Normal Retirement
Age.
Notwithstanding any other provision of the Plan to the contrary, a
Participant who is on a Disability Leave of Absence will share in the allocation
of Employer contributions under Sections 4.4 for the Plan Year in which such
leave begins but will not share in such allocation for any subsequent Plan Year
ending before the Participant's return from such leave.
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12.6. Transfers.
In the event that:
(a) a Participant is transferred to employment with a member of the
Controlled Group in a status as a non-Employee; or
(b) a person is transferred from employment with a member of the
Controlled Group in a status as a non-Employee to employment with the
Employer under circumstances making such person an Employee; or
(c) a person was employed by a member of the Controlled Group in a
status as a non-Employee, terminated his or her employment and was
subsequently employed by the Employer as an Employee; or
(d) a Participant was employed by the Employer as an Employee,
terminated his or her employment and was subsequently employed by a member
of the Controlled Group in a status as a non-Employee;
then the following provisions of this Subsection shall apply:
(a) transfer to employment with a member of the Controlled Group as a
non-Employee shall not be considered termination of employment with the
Employer, and such transferred person shall continue to be entitled to the
benefits provided in the Plan, as modified by this Section;
(b) employment with a member of the Controlled Group by a non-Employee
will be deemed to be employment by the Employer, but only with respect to
employment during any period that such member of the Controlled Group is
required to be aggregated with the Company pursuant to Code Sections
414(b), (c) or (m);
(c) amounts earned from a member of the Controlled Group by a non-
Employee shall not constitute Compensation hereunder;
(d) termination of employment with a member of the Controlled Group
which has not adopted the Plan by a person entitled to benefits under this
Plan (other than to transfer to employment with another member of the
Controlled Group) shall be considered as termination of employment with the
Employer;
(e) all other terms and provisions of this Plan shall fully apply to
such person and to any benefits to which he or she may be entitled
hereunder.
Notwithstanding anything in this Plan to the contrary, a Participant
who is no longer employed by a member of the Controlled Group which includes the
Company as a member shall be considered a terminated Employee.
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12.7. Acquisition Of Assets.
If the Employer acquires the assets (through purchase, merger or
otherwise) of any other entity and hires persons who had been employed by such
entity, the division or other subgroup in which such persons are employed shall
be excluded from the groups included in the definition of "Employee" unless the
Employer communicates to such division or subgroup that such division or
subgroup is accruing benefits under the Plan.
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SECTION 13 - TRUSTEE
The Company shall select a Trustee or insurance company to hold and
administer the assets of the Plan and shall enter into a trust agreement or
insurance contract with such Trustee or insurance company. The Company may
change the Trustee or insurance company from time to time subject to the terms
of the trust agreement or insurance contract.
37
<PAGE>
SECTION 14 - ADMINISTRATION
14.1. Appointment Of Committee.
The Board shall appoint a Committee of one (1) or more persons who
shall serve without remuneration at the pleasure of the Board. Upon death,
resignation, removal or inability of a member of the Committee to continue, the
Board shall appoint a successor. The Committee shall appoint its own Chairman
and Secretary. If, at any time, the Board has not appointed a Committee, or
there is no Committee, then the Company shall have all of the duties,
responsibilities, powers and authorities given to the Committee.
14.2. Construction.
The Committee shall have the discretionary authority to construe,
interpret and administer all provisions of the Plan and to determine a
Participant's eligibility for benefits on a uniform, non-discriminatory basis in
similar fact situations. Any decision of a majority of the then members of the
Committee shall govern.
14.3. Decisions And Delegation.
A decision of the Committee may be made by a written document signed
by a majority of the members of the Committee or by majority vote at a meeting
of the Committee. The Secretary of the Committee shall keep all records of
meetings and of any action by the Committee and any and all other records
desired by the Committee. The Committee may appoint such agents, who need not
be members of the Committee, as it may deem necessary for the effective exercise
of its duties, and may, to the extent not inconsistent herewith, delegate to
such agents any powers and duties, both ministerial and discretionary, as the
Committee may deem expedient or appropriate.
No member of the Committee shall make any decision or take any action
covering exclusively his or her own benefits under the Plan. All such matters
shall be decided by a majority of the remaining members of the Committee or, in
the event of inability to obtain a majority, by the Board.
14.4. Meetings.
The Committee shall hold meetings upon such notice, at such place or
places and at such times as the Committee may determine. Meetings may be called
by the Chairman or any member of the Committee. A majority of the Committee
shall constitute a quorum for the transaction of business.
14.5. Duties Of The Committee.
The Committee shall, as part of its general duty to supervise and
administer the Plan, direct the Trustee specifically in regard to:
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(a) distribution payments, including the names of the payees, the
amounts to be paid and the time or times when payments shall be made;
(b) any other payments which the Trustee is not authorized to make
without direction in writing by the Committee;
(c) the purchase of annuity contracts, giving the names of the persons
for whose benefit they shall be purchased and the purchase price; and
(d) preparation of an annual report for the Company, as of the end of
each Plan Year, in such form as the Company may require.
14.6. Records Of The Committee.
All acts and determinations of the Committee shall be duly recorded by
the Secretary thereof (or under his or her supervision), and all such records,
together with such other documents as may be necessary for the proper
administration of the Plan, shall be preserved in the custody of such Secretary.
Such records and documents shall at all times be open for inspection and copying
by any person designated by the Board.
14.7. Expenses.
Any expense incurred by the Committee or the Trustee with respect to
employment of agents, attorneys or other persons, including expenses incurred in
maintaining the qualified status of the Plan and the exempt status of the
related trust shall be paid from the assets of such trust unless paid by the
Employer.
39
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SECTION 15 - CLAIM PROCEDURE
15.1. Claim.
A Participant or beneficiary or other person who believes that he or
she is being denied a benefit to which he or she is entitled (hereinafter
referred to as "Claimant") may file a written request for such benefit with the
Committee, setting forth his or her claim. The request must be addressed to:
Committee, Unigraphics Solutions Inc. 401(k) Plan, Unigraphics Solutions Inc.,
13736 Riverport Drive, Maryland Heights, Missouri 63043.
15.2. Claim Decision.
Upon receipt of a claim, the Committee shall advise the Claimant that
a reply will be forthcoming within 90 days and shall in fact deliver such reply
in writing within such period. The Committee may, however, extend the reply
period for an additional 90 days for reasonable cause. If the claim is denied
in whole or in part, the Committee will render a written opinion using language
calculated to be understood by the Claimant setting forth:
(a) the specific reason or reasons for the denial;
(b) specific references to pertinent Plan provisions on which the
denial is based;
(c) a description of any additional material or information necessary
for the Claimant to perfect the claim and an explanation why such material
or such information is necessary;
(d) appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review under Section 15.3 and a
review under Section 15.4.
15.3. Request For Review.
Within 60 days after the receipt by the Claimant of the written
opinion described above, the Claimant may request in writing that the Committee
reconsider its determination. Such request must be addressed to: Committee,
Unigraphics Solutions Inc. 401(k) Plan, Unigraphics Solutions Inc., 13736
Riverport Drive, Maryland Heights, Missouri 63043. The Claimant or his or her
duly authorized representative may, but need not, review the pertinent documents
and submit issues and comments in writing for consideration by the Committee.
If the Claimant does not request a review of the Committee's determination
within such 60-day period, he or she shall be barred and estopped from
challenging its determination.
40
<PAGE>
15.4. Review On Appeal.
Within 60 days after the Committee's receipt of a request for review,
it will review its determination. After considering all materials presented by
the Claimant, the Committee will render a written opinion, written in a manner
calculated to be understood by the Claimant, setting forth the specific reasons
for the decision and containing specific references to the pertinent Plan
provisions on which the decision is based. If special circumstances require
that the 60-day time period be extended, the Committee will so notify the
Claimant and will render the decision as soon as possible but not later than 120
days after receipt of the request for review. The Committee shall possess and
exercise discretionary authority to make determinations as to a Participant's
eligibility for benefits and to construe the terms of the Plan. Any decision of
a majority of the members of the Committee shall govern. The decision of the
Committee shall be final and non-reviewable unless found to be arbitrary and
capricious by a court of competent review. Such decision will be binding upon
the Employer and the Claimant.
41
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SECTION 16 - AMENDMENT AND TERMINATION
16.1. Amendment.
The Company shall have the right, by a resolution adopted by action of
the Board or anyone to whom corporate authority to amend the Plan has been
delegated by the Board, at any time and from time to time to amend, in whole or
in part, any or all of the provisions of the Plan. No such amendment, however,
shall authorize or permit any part of the assets of the Plan (other than such
part as is required to pay taxes and administration expenses of the Plan) to be
used for or diverted to purposes other than for the exclusive benefit of the
Participants or their beneficiaries; no such amendment shall cause any reduction
in the amount credited to any Participant's account or cause or permit any
portion of the assets of the Plan to revert to or become the property of the
Employer; provided, however, that if a favorable determination letter shall not
be received upon the initial submission to the Internal Revenue Service that the
Plan as herein set forth or as amended meets the requirements of Sections
401(a), 401(k) and 501(a) of the Code, the Company may, at its option, amend the
Plan in any manner which will result in a favorable determination letter being
issued by the Internal Revenue Service or the Company may withdraw all
contributions made by it and the Plan shall then terminate with the same effect
as if it had never been adopted.
16.2. Termination; Discontinuance Of Contributions.
The Company shall have the right at any time to terminate this Plan.
Upon termination, partial termination, or complete discontinuance of
contributions, all Participants' accounts (or, in the case of a partial
termination, the accounts of all affected Participants) shall become fully
vested, and shall not thereafter be subject to forfeiture.
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SECTION 17 - MISCELLANEOUS
17.1. Participants' Rights.
Neither the establishment of the Plan hereby created, nor any
modification thereof, nor the creation of any fund or account, nor the payment
of any benefits, shall be construed as giving to any Participant or other person
any legal or equitable right against the Employer, any officer or Employee
thereof, the Trustee or the Board except as herein provided. Under no
circumstances shall the terms of employment of any Participant be modified or in
any way affected hereby.
17.2. Spendthrift Clause.
Except as provided in Section 4.10, no benefit or beneficial interest
provided under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, either
voluntary or involuntary, and any attempt to so alienate, anticipate, sell,
transfer, assign, pledge, encumber or charge the same shall be null and void.
No such benefit or beneficial interest shall be liable for or subject to the
debts, contracts, liabilities, engagements, or torts of any person to whom such
benefits or funds are or may be payable.
Notwithstanding the above, a Participant's benefit will be offset
against any amount he or she is ordered or required to pay to the Plan pursuant
to an order or requirement which arises under a judgment of conviction for a
crime involving the Plan, under a civil judgment entered by a court in an action
involving a fiduciary breach, or pursuant to a settlement agreement between the
Participant and the Department of Labor or the Pension Benefit Guaranty
Corporation. Any such offset shall be made pursuant to Section 206(d) of ERISA.
17.3. Delegation Of Authority By Employer.
Whenever the Employer, under the terms of this Plan, is permitted or
required to do or perform any act, it shall be done and performed by any officer
duly authorized by the Board of Directors of the Employer.
17.4. Distributions To Minors.
In the event that any portion of the Plan becomes distributable to a
minor or other person under legal disability (as determined by the laws of the
jurisdiction in which he or she then resides), the Committee shall direct that
such distribution be made to the legal representative of such minor or other
person.
17.5. Gender, Number And Headings.
Whenever any words are used herein in the masculine gender, they shall
be construed as though they were also used in the feminine gender in all cases
where they would so apply, and wherever any words are used herein in the
singular form, they shall be construed as
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<PAGE>
though they were also used in the plural form in all cases where they would so
apply. Headings of Sections and Subsections are inserted for convenience of
reference, constitute no part of the Plan and are not to be considered in the
construction of the Plan.
17.6. Separability Of Provisions.
If any provision of this Plan shall be for any reason invalid or
unenforceable, the remaining provisions shall nevertheless be carried into
effect.
17.7. Diversion Of Assets.
No part of the assets of the Plan shall be used for, or diverted to,
purposes other than the exclusive benefit of Participants or their
beneficiaries. Except as provided in Section 4.8 and Section 16.1, the Employer
shall have no beneficial interest in the assets of the Plan and no part of the
assets of the Plan shall revert or be repaid to the Employer, directly or
indirectly.
17.8. Service Of Process.
The Vice President of Human Resources shall constitute the Plan's
agent for service of process.
17.9. Merger.
In the event of any merger or consolidation with, or transfer of
assets or liabilities to, any other plan, each Participant shall (as if the Plan
had then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he or
she would have been entitled to receive immediately before the merger,
consolidation or transfer (if the Plan had then terminated).
17.10. Benefit Limitation.
(a) Notwithstanding any other provision hereof, and except as provided
in Section 12.1, the amounts allocated to a Participant during the
Limitation Year under the Plan and allocated to the Participant under any
other defined contribution plan to which the Company or any other member of
the Controlled Group has contributed shall be proportionately reduced, to
the extent necessary, so that the Annual Addition does not exceed the least
of:
(1) $30,000; or
(2) 25% of the Participant's remuneration from the Company or any
member of the Controlled Group during the Limitation Year; or
(3) such other limits set forth in Section 415 of the Code.
The amount set forth in subparagraph (1) above shall automatically be adjusted
to reflect adjustments made by applicable law. Remuneration for purposes of
this Section means
44
<PAGE>
remuneration as defined in Treasury Regulation Section 1.415-2(d) and shall also
include the deferrals described in Code Section 415(c)(3)(D).
(b) For purposes of this Section, Limitation Year means the 12 month
period commencing on January 1 and ending on December 31.
(c) Prior to January 1, 2000, the amounts allocated to a Participant
during the Limitation Year under this Plan, and allocated to such
Participant under any other defined contribution plan to which the Company
or any member of the Controlled Group has contributed and which has the
same Limitation Year as the Plan, shall be proportionately reduced to the
extent necessary, so that the sum of the defined benefit plan fraction and
the defined contribution plan fraction does not exceed the limits set forth
in Section 415(e) of the Code.
(d) If as a result of the allocation of forfeitures, a reasonable
error in estimating a Participant's remuneration, a reasonable error in
determining the amount of elective deferrals (within the meaning of Section
402(g)(3) of the Code) that may be made with respect to a Participant under
the limits of Section 415 of the Code or other limited facts and
circumstances, the Annual Additions under the Plan for a particular
Participant exceed the limitations in this Section, the excess amounts will
not be deemed Annual Additions for the Limitation Year and will be treated
as follows:
(1) First, the portion of the excess attributable to amounts by
which a Participant elected to have his or her salary reduced under
Sections 4.1 and 4.2 (together with any income or less any loss
allocable to such amounts) shall be returned to such Participant to
the extent that the return would reduce the excess amount in the
Participant's accounts, such amount to be returned on or before the
April 15 following the close of such Limitation Year.
(2) Second, any Employer contributions under Section 4.4 which
are attributable to the contributions returned in (1) above shall be
held in a suspense account and used to reduce Employer contributions
otherwise due under Section 4.
(3) Third, to the extent required to reduce the excess amount,
other Employer contributions under Section 4 shall be held in a
suspense account and used to reduce Employer contributions otherwise
due under Section 4.
(e) For purposes of this Section, Annual Additions means the sum for
the Limitation Year of Employer contributions, Employee contributions
(determined without regard to any rollover contributions as defined in
Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3) of the Code and
without regard to Employee contributions to a simplified employee pension
plan which are excludable from gross income under Section 408(k)(6) of the
Code) and forfeitures.
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17.11. Commencement Of Benefits.
(a) Notwithstanding any other Section of the Plan, the payment of
benefits under the Plan to the Participant will begin not later than the
60th day after the close of the Plan Year in which the last of the
following occurs:
(1) the date on which the Participant attains age 65; or
(2) the 10th anniversary of the date on which the Participant
commenced participation in the Plan; or
(3) the Participant's termination of employment with the
Employer.
(b) Notwithstanding Subsection (a) or any other provision of the Plan,
if the amount of payment cannot be ascertained, or if it is not possible to
make payment because the Committee cannot locate the Participant after
making reasonable efforts to do so, a retroactive payment may be made no
later than 60 days after the earliest date on which the amount of such
payment can be ascertained or the date on which the Participant is located,
whichever is applicable.
(c) If the Committee is unable to locate any person entitled to
receive distribution from an account hereunder, such account shall be
forfeited and used to reduce Employer contributions on the date two years
after
(1) the date the Committee sends by certified mail a notice
concerning the benefits to such person at his or her last known
address or
(2) the Committee determines that there is no last known address.
If an account is forfeited under this Section and a person
otherwise entitled to the account subsequently files a claim with the
Committee during any Plan Year, before any allocations for such Plan Year
are made under Sections 4.4, the account will be restored to the amount
which was forfeited without regard to any earnings or losses that would
have been allocated. Such restoration shall first be taken out of
forfeitures which have not been allocated and if such forfeitures are
insufficient to restore such person's account balance, restoration shall be
made by an Employer contribution to the Plan.
17.12. Qualified Domestic Relations Order.
Notwithstanding anything in the Plan to the contrary, benefits may be
distributed in accordance with the terms of a Qualified Domestic Relations Order
("QDRO"). For this purpose a QDRO is any Domestic Relations Order determined by
the Employer to be a Qualified Domestic Relations Order within the meaning of
Section 414(p) of the Code pursuant to this Section.
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(a) A Domestic Relations Order means a judgment, decree, or order
(including the approval of a property settlement agreement) which
(1) relates to the provision of child support, alimony payments,
or marital property rights to a spouse, former spouse, child or other
dependent of a Participant,
(2) is made pursuant to a state domestic relations law, and
(3) creates or recognizes the existence of an Alternate Payee's
right, or assigns to the Alternate Payee the right, to receive all or
a portion of the benefits of the Participant under the Plan.
An "Alternate Payee" includes any spouse, former spouse, child,
or other dependent of a Participant who is designated by the Domestic
Relations Order as having a right to receive all or a portion of the
benefits payable under the Plan with respect to the concerned Participant.
(b) To be a QDRO, the Domestic Relations Order must meet the
specifications set forth in Section 414(p) of the Code and must clearly
specify the following:
(1) Name and last known mailing address of the Participant.
(2) Name and last known mailing address of each Alternate Payee
covered by the Domestic Relations Order.
(3) The amount or the percentage of the Participant's benefit to
be paid to each Alternate Payee, or the manner in which such amount or
percentage is to be determined.
(4) The number of payments or period to which the Domestic
Relations Order applies.
(5) Each plan to which the Domestic Relations Order applies.
(c) The status of any Domestic Relations Order as a QDRO shall be
determined under the following procedures:
(1) Promptly upon receiving a Domestic Relations Order, the
Employer will
(A) refer the Domestic Relations Order to legal counsel for
the Plan to render an opinion within 90 days (or such earlier
period as shall be provided by applicable law) whether the
Domestic Relations Order is a QDRO, and
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(B) notify the affected Participant and any Alternate Payee
of the receipt by the Plan of the Domestic Relations Order and of
this procedure.
(2) Promptly upon receiving the determination made by the Plan's
legal counsel of the status of the Domestic Relations Order, the
affected Participant and each Alternate Payee (or any representative
designated by an Alternate Payee by written notice to the Employer)
shall be furnished a copy of such determination. The notice of
determination shall state
(A) whether the Plan's legal counsel has determined that the
Domestic Relations Order is a QDRO, and
(B) once such legal counsel determines whether the Domestic
Relations Order constitutes a QDRO, that the Employer will
commence any payments currently due under the Plan to the person
or persons entitled thereto after the expiration of a period of
60 days commencing on the date of the mailing of the notice
unless prior thereto the Employer receives notice of the
institution of legal proceedings disputing the determination.
The Employer shall, as soon as practical after such 60 day
period, ascertain the dollar amount currently payable to each
payee pursuant to the Plan and the QDRO, and any such amounts
shall be disbursed by the Plan.
(3) If there is a dispute on the status of a Domestic Relations
Order as a QDRO, there shall be a delay in making payments. The
Employer shall direct that the amounts otherwise payable be held in a
separate account within the Plan. If within 18 months thereafter, the
Domestic Relations Order is determined not to be a valid QDRO, or the
status of the Domestic Relations Order has not been finally
determined, the segregated or escrow amounts (including interest
thereon) shall be paid to the person or persons who would have been
entitled to such amounts if there had been no Domestic Relations
Order. Any determination thereafter that the Domestic Relations Order
is a QDRO shall be applied prospectively only.
(d) If a Domestic Relations Order requires payment to an Alternate
Payee in an immediate lump sum, the order shall not lose its status as a
Qualified Domestic Relations Order merely because of the immediate lump sum
provision.
17.13. Written Explanation Of Rollover Treatment.
The Employer shall, when making an eligible rollover distribution,
provide a written explanation to the recipient of such distribution of his or
her right to roll over such distribution to an eligible retirement plan and, if
applicable, his or her right to the special five or ten-year averaging and
capital gains tax treatment in the Code. Such written explanation will be
provided to the recipient in accordance with rules prescribed by the Internal
Revenue Service.
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17.14. Leased Employees.
----------------
Any person who is a leased employee (within the meaning of Section
414(n) of the Code) of any member of the Controlled Group shall be treated for
all purposes of the Plan as if he or she were employed by a member of the
Controlled Group which has not adopted the Plan.
17.15. Special Distribution Option.
---------------------------
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's (as hereinafter defined) election under this
Section, a Distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of an Eligible Rollover Distribution (as
hereinafter defined) paid directly to an Eligible Retirement Plan (as
hereinafter defined) specified by the Distributee in a Direct Rollover.
(a) An Eligible Rollover Distribution is any distribution of all or
any portion of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include:
(1) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint lives
(or joint life expectancies) of the Distributee and the Distributee's
designated beneficiary, or for a specified period of ten years or
more;
(2) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code;
(3) the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to Employer securities); and
(4) on or after January 1, 2000, the portion of any distribution
attributed to elective deferrals that is a Hardship Withdrawal made
pursuant to Section 4.11.
(b) An Eligible Retirement Plan is
(1) an individual retirement account described in Section 408(a)
of the Code,
(2) an individual retirement annuity described in Section 408(b)
of the Code,
(3) an annuity plan described in Section 403(a) of the Code, or
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(4) a qualified trust described in Section 401(a) of the Code
that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to a
surviving spouse, an Eligible Retirement Plan is only an individual
retirement account or individual retirement annuity.
(c) A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
Alternate Payee under a Qualified Domestic Relations Order, as defined in
Section 414(p) of the Code, are Distributees with regard to the interest of
the spouse or former spouse.
(d) A Direct Rollover payment is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
17.16. Limitations On Special Distribution Option.
------------------------------------------
The Employer shall provide notice of the special distribution option
described in the preceding Section to the Participant in accordance with
rules prescribed by the Internal Revenue Service.
17.17. Contribution On Behalf Of Controlled Group Member.
-------------------------------------------------
If a member of the Controlled Group contributes to the Plan and the
contribution is accepted by the Plan with the consent of the Employer, the
Controlled Group member will be deemed to have adopted the Plan with the consent
of the Employer with respect to the category of employees on behalf of whom the
contribution was made.
17.18. Construction Of Plan.
--------------------
Except as provided in ERISA, this Plan shall be construed according to
the laws of the State of Missouri, and all provisions of the Plan shall be
administered according to the laws of such state.
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SECTION 18 - TOP-HEAVY DEFINITIONS
----------------------------------
18.1. Accrued Benefits.
----------------
"Accrued Benefits" means "the present value of accrued benefits" as
that phrase is defined under regulations issued under Section 416 of the Code.
For purposes of Sections 18 and 19 hereof, the Accrued Benefits of any
Participant (other than a Key Employee) shall be determined under the single
accrual rate used by all Qualified Plans of the Employer which are defined
benefit plans, or if there is no single accrual rate, Accrued Benefits shall be
determined as accruing no more rapidly than the slowest rate permitted under
Section 411(b)(1)(C) of the Code.
18.2. Beneficiaries.
-------------
"Beneficiaries" means the person or persons to whom the share of a
deceased Participant's accounts are payable.
18.3. Determination Date.
------------------
"Determination Date" means for a Plan Year the last day of the
preceding Plan Year; provided, however, that in the case of the Plan Year of the
Plan beginning April 1, 1999, the Determination Date shall be December 31, 1999.
18.4. Former Key Employee.
-------------------
"Former Key Employee" means any person presently or formerly employed
by the Controlled Group (and the Beneficiaries of such person) who during the
Plan Year is not classified as a Key Employee but who was classified as a Key
Employee in a previous Plan Year; provided, however, that a person who has not
performed any services for the Controlled Group at any time during the five year
period ending on the Determination Date (and the Beneficiaries of any such
person) shall not be considered a Former Key Employee.
18.5. Key Employee.
------------
"Key Employee" means any person presently or formerly employed by the
Controlled Group (and the Beneficiaries of such person) who is a "key employee"
as that term is defined in Section 416(i) of the Code and the regulations
thereunder; provided, however, that a person who has not performed any services
for the Controlled Group at any time during the five year period ending on the
Determination Date (and the Beneficiaries of any such person) shall not be
considered a Key Employee. For purposes of determining whether a person is a Key
Employee, the definition of Top Heavy Compensation shall be applied.
18.6. Non-Key Employee.
----------------
"Non-Key Employee" means any person presently or formerly employed by
the Controlled Group (and the Beneficiaries of such person) who is not a Key
Employee or a Former
51
<PAGE>
Key Employee; provided, however, that a person who has not performed any
services for the Controlled Group at any time during the five year period ending
on the Determination Date (and the Beneficiaries of any such person) shall not
be considered a Non-Key Employee.
18.7. Permissive Aggregation Group.
----------------------------
"Permissive Aggregation Group" means each Qualified Plan of the
Controlled Group in the Required Aggregation Group plus each other Qualified
Plan which is not part of the Required Aggregation Group but which satisfies the
requirements of Sections 401(a)(4) and 410 of the Code when considered together
with the Required Aggregation Group.
18.8. Required Aggregation Group.
--------------------------
"Required Aggregation Group" means each Qualified Plan (including any
terminated Qualified Plan) of the Controlled Group in which a Key Employee
participates during the Plan Year containing the Determination Date or any of
the four preceding Plan Years and each other Qualified Plan (including any
terminated Qualified Plan) of the Controlled Group which during this period
enables any Qualified Plan (including any terminated Qualified Plan) in which a
Key Employee participates to meet the requirements of Section 401(a)(4) or 410
of the Code.
18.9. Super Top-Heavy Group.
---------------------
"Super Top-Heavy Group" means, for a Plan Year, the Required
Aggregation Group if, and only if, the sum of the Accrued Benefits (valued as of
the Determination Date for such Plan Year) under all Qualified Plans (including
any terminated Qualified Plans) in the Required Aggregation Group for Key
Employees exceeds 90% of the sum of the Accrued Benefits (valued as of such
Determination Date) under all Qualified Plans (including any terminated
Qualified Plans) in the Required Aggregation Group for all Key Employees and
Non-Key Employees; provided, however, that the Required Aggregation Group will
not be a Super Top-Heavy Group for a Plan Year if the sum of the Accrued
Benefits (valued as of the Determination Date for such Plan Year) under all
Qualified Plans (including any terminated Qualified Plans) in the Required
Aggregation Group for Key Employees does not exceed 90% of the sum of the
Accrued Benefits (valued as of such Determination Date) under all Qualified
Plans in the Permissive Aggregation Group for all Key Employees and Non-Key
Employees. If the Qualified Plans in the Required or Permissive Aggregation
Group have different Determination Dates, the Accrued Benefits under each such
Plan shall be calculated separately, and the Accrued Benefits as of
Determination Dates for such Plans that fall within the same calendar year shall
be aggregated.
18.10. Top-Heavy Compensation.
----------------------
"Top-Heavy Compensation" means compensation within the meaning of
Section 415 of the Code.
52
<PAGE>
18.11. Top-Heavy Group.
---------------
"Top-Heavy Group" means, for a Plan Year, the Required Aggregation
Group if, and only if, the sum of the Accrued Benefits (valued as of the
Determination Date for such Plan Year) under all Qualified Plans (including any
terminated Qualified Plans) in the Required Aggregation Group for Key Employees
exceeds 60% of the sum of the Accrued Benefits (valued as of such Determination
Date) under all Qualified Plans (including any terminated Qualified Plans) in
the Required Aggregation Group for all Key Employees and Non-Key Employees;
provided, however, that the Required Aggregation Group will not be a Top-Heavy
Group for a Plan Year if the sum of the Accrued Benefits (valued as of the
Determination Date for such Plan Year) under all Qualified Plans (including any
terminated Qualified Plans) in the Required Aggregation Group for Key Employees
does not exceed 60% of the sum of the Accrued Benefits (valued as of such
Determination Date) under all Qualified Plans in the Permissive Aggregation
Group for all Key Employees and Non-Key Employees. If the Qualified Plans in the
Required or Permissive Aggregation Group have different Determination Dates, the
Accrued Benefits under each such Plan shall be calculated separately, and the
Accrued Benefits as of Determination Dates for such Plans that fall within the
same calendar year shall be aggregated.
53
<PAGE>
SECTION 19 - TOP-HEAVY RULES
----------------------------
19.1. Special Top-Heavy Rules.
-----------------------
If for any Plan Year the Plan is part of a Top-Heavy Group, then,
effective as of the first day of such Plan Year the following provision shall
apply to Participants who accrue an Hour of Employment on or after the first day
of such Plan Year:
A new Section 6.5 is added as follows:
6.5 Minimum Allocation if Plan is Part of Top-Heavy Group.
-----------------------------------------------------
Notwithstanding the foregoing, for each Plan Year in which the
Plan is part of a Top-Heavy Group, the sum of the Employer contributions
and forfeitures allocated under the Plan to the account of each Non-Key
Employee who is both a Participant and Employee on the last day of such
Plan Year shall be at least equal to the lesser of three percent of such
Non-Key Employee's Top-Heavy Compensation for such Plan Year or the largest
percentage of Top-Heavy Compensation allocated to the account of any Key
Employee; provided, however, that if for any Plan Year a Non-Key Employee
is a Participant in both this Plan and one or more defined contribution
plans, the Employer need not provide the minimum allocation described in
the preceding sentence for such Non-Key Employee if the Employer satisfies
the minimum allocation requirement of Section 416(c)(2)(B) of the Code for
the Non-Key Employee in such other defined contribution plans. Amounts
which a Non-Key Employee or Key Employee elects to contribute on a pre-tax
basis to a Qualified Plan which meets the requirements of Section 401(k) of
the Code shall be considered an Employer contribution for purposes of
Section 18.11; provided, however, that such pre-tax contributions made by
Non-Key Employees may not be taken into account in determining the minimum
allocation provided under this Section 6.5. In addition, matching
contributions made on behalf of Non-Key Employees may not be taken into
account in determining the minimum allocation provided under this Section
6.5.
19.2. Adjustments In Section 415 Limits.
---------------------------------
If for any Plan Year the Plan is part of a Super Top-Heavy Group, or
the Plan is part of a Top-Heavy Group and fails to provide an allocation of
Employer contributions and forfeitures on behalf of each Non-Key Employee who is
both a Participant and Employee on the last day of such Plan Year equal to at
least the lesser of four percent of each such Non-Key Employee's Top-Heavy
Compensation or the largest percentage of Top-Heavy Compensation allocated on
behalf of any Key Employee for the Plan Year, effective as of the first day of
such Plan Year the adjustments to the limits in Section 17.10 set forth in
Section 416(h) of the Code shall be applied.
54
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<PAGE>
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