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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Unigraphics Solutions, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
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[LETTERHEAD OF UNIGRAPHICS]
13736 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1999
The Annual Meeting of Stockholders of Unigraphics Solutions Inc. ("UGS")
will be held at the Radisson Hotel - St. Louis Airport, 11228 Lone Eagle Drive,
Bridgeton, Missouri 63044, on May 19, 1999 at 11:00 a.m., Central Time. The
purpose of the meeting is to consider and act upon the following matters:
1. To elect two Class I directors for a three-year term;
2. To approve the Unigraphics Solutions Inc. Employee Stock Purchase
Plan;
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The record date for the annual meeting is March 24, 1999. Only stockholders
of record at the close of business on that date can vote at the meeting.
By Order of the Board of Directors
/s/ Douglas E. Barnett
-------------------------------------
Douglas E. Barnett
Vice President, Chief Financial Officer
and Secretary
April 8, 1999
Whether or not you intend to be present at the meeting, please promptly mark,
sign, date and return the accompanying proxy. A return envelope is enclosed for
your convenience.
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PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
The Board of Directors of Unigraphics Solutions Inc. is soliciting proxies
to be used at the 1999 Annual Meeting of Stockholders (the "Meeting"). This
Proxy Statement and the form of proxy will be mailed to stockholders on or
about April 8, 1999. References in this Proxy Statement to "UGS", the
"Company" or "we" are to Unigraphics Solutions Inc. References to "EDS" are to
Electronic Data Systems Corporation, our principal stockholder. The address of
UGS' principal executive offices is 13736 Riverport Drive, Maryland Heights,
Missouri 63043.
Who Can Vote
Record holders of UGS common stock at the close of business on March 24,
1999 may vote at the Meeting. On that date, 5,000,000 shares of Class A Common
Stock and 31,265,000 shares of Class B Common Stock were outstanding. Each
share of Class A Common Stock is entitled to cast one vote while each share of
Class B Common Stock is entitled to 10 votes on all matters submitted to a
vote of stockholders. Holders of Class A Common Stock are generally entitled
to vote with the holders of Class B Common Stock as one class on all matters
as to which the holders of Class B Common Stock are entitled to vote.
How You Can Vote
If you return your signed proxy before the Meeting, we will vote your
shares as you direct. You can specify whether your shares should be voted for
all, some, or none of the nominees for director.
If you do not specify on your proxy card how you want to vote your shares,
we will vote them "For" the election of all nominees for director as set forth
under "Election of Directors" below and we will vote them "For" the approval
of the Unigraphics Solutions Inc. Employee Stock Purchase Plan as set forth in
Proposal 2 below.
Revocation of Proxies
You can revoke your proxy at any time before it is exercised in any of the
following three ways:
1. by submitting written notice of revocation to the Secretary of UGS;
2. by submitting another proxy that is properly signed and later dated;
or
3. by voting in person at the Meeting.
Required Votes
The holders of a majority of the voting power of the outstanding shares of
UGS entitled to vote generally in the election of directors, who are either
present in person or represented by proxy at the Meeting, will constitute a
quorum for the transaction of business at the Meeting. The election of
directors requires a plurality of the votes cast. Abstentions and broker non-
votes are counted for purposes of determining whether a quorum is present at
the Meeting. Approval of the Unigraphics Solutions Inc. Employee Stock
Purchase Plan requires the affirmative vote of a majority of the voting power
of the shares present in person or represented by proxy at a meeting of the
stockholders of the Company and entitled to vote on the proposal. Accordingly,
abstentions and non-votes will have the effect of votes against this proposal.
EDS is the beneficial owner of approximately 98.4% of the outstanding
voting power of the UGS shares. As a result, EDS has the power to elect the
two nominees for director and to approve the Employee Stock Purchase Plan. EDS
has indicated that it will vote its shares in accordance with the
recommendations of the Board of Directors.
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Other Matters To Be Acted Upon At The Meeting
We do not know of any other matters to be presented or acted upon at the
Meeting. If any other matter is presented at the Meeting on which a vote may
properly be taken, the shares represented by proxies in the accompanying form
will be voted in accordance with the judgment of the person or persons voting
those shares.
Expenses of Solicitation
The cost of soliciting proxies will be paid by UGS. In addition to
solicitation by mail, proxies may be solicited in person or by telephone,
facsimile transmission or other means of electronic communication by
directors, officers or employees of UGS, without extra compensation. We have
retained Corporate Investor Communications, Inc. to assist in the distribution
of proxy materials to beneficial holders of shares held in street name. We may
also reimburse brokerage firms, nominees, custodians and fiduciaries for their
out-of-pocket expenses for forwarding proxy materials to beneficial owners and
obtaining their instructions.
PROPOSAL 1: ELECTION OF DIRECTORS
Our Certificate of Incorporation provides for three classes of directors to
be as equal in number as possible. Each class serves a three year term, with
one class elected each year. Currently, the Board of Directors is comprised of
seven members. The two Class I directors whose terms expire at this Meeting
are John J. Mazzola and John A. Adams. The Board of Directors has nominated
these persons for election as Class I directors. If elected, each director
will serve until the annual meeting in 2002 or until he is succeeded by
another qualified director who has been elected. All other directors will
continue in office until the expiration of the terms of their classes at the
annual meeting in 2000 or 2001, as the case may be.
We will vote your shares as you specify on the enclosed proxy form. If you
sign, date and return the proxy form but do not specify how you want your
shares voted, we will vote them FOR the election of the two nominees listed
below. If due to unforeseen circumstances (such as death or disability) a
nominee should become unavailable for election, the Board may either reduce
the number of directors or substitute another person for the nominee, in which
event your shares will be voted for that other person.
The Board of Directors held two meetings in 1998. All directors attended at
least 75% of the meetings of the Board of Directors and the committees thereof
of which they are members.
The following information regarding the nominees for director and each
current director continuing in office is as of March 1, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR.
Nominees for Directors for Three Year Term Expiring in 2002
John A. Adams, 44
Mr. Adams has served as a director of UGS since June 1998. He has been Vice
President and Corporate Controller of EDS since August 1998 and prior to
that time had been Controller of its Financial Planning and Reporting
organization since 1994. As such he was responsible for corporate level
internal and external financial reporting and planning, as well as the
management of the Shared Financial Services Group and the financial
oversight of a number of EDS business units. Mr. Adams joined EDS in 1985
and his previous positions in EDS include Controller, the Americas, and
Controller, International Operations.
John J. Mazzola, 55
Mr. Mazzola was appointed President and Chief Executive Officer of UGS on
January 1, 1998. From 1992 to December 1997, he served as the President of
the Unigraphics division of EDS. Prior to 1992, Mr. Mazzola served as
President of McDonnell Douglas Systems Integration ("MDSI"), the
predecessor to the Unigraphics division of EDS, where he held numerous
positions, including Vice President of Manufacturing
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and Engineering, Director of Marketing, Vice President of Check Card
Systems and Vice President of Research and Development. Mr. Mazzola has
served as a director of UGS since June 1998.
Members of the Board Continuing in Office
Term Expiring in 2000
J. Davis Hamlin, 66
Mr. Hamlin retired from EDS as Senior Vice President and director in June
1994, which positions he held since 1987. He served as Chief Financial
Officer of EDS from April 1986 to November 1990 and continued to oversee
EDS' financial planning, administration and investor relations through
December 1991. Mr. Hamlin joined EDS in 1966 and served in numerous
management capacities. Mr. Hamlin has served as a director of UGS since
June 1998.
Gary B. Moore, 49
Mr. Moore has been a Senior Vice President of EDS since June 1996 and prior
to that time had been a Vice President since 1992. Since June 1996, Mr.
Moore has held responsibility for EDS' business units serving customers in
the manufacturing, retail and distribution industries. He served as
Chairman of EDS Japan from January 1993 to June 1996. Mr. Moore became a
director of UGS at its inception in October 1997 and has been Vice Chairman
since June 1998.
William P. Weber, 58
Mr. Weber served in various capacities with Texas Instruments Incorporated
from 1962 until his retirement in April 1998. From December 1986 until
December 1993, he served as the President of Texas Instrument's worldwide
semiconductor operations; and from December 1993 until his retirement in
April 1998, he served as Vice Chairman of Texas Instruments. He held a
number of executive positions in TI's semiconductor, international,
defense, digital systems, consumer, materials, and controls businesses. He
is a director of Kmart Corporation and Micron Technology, Inc. He has
served as a director of UGS since June 1998.
Term Expiring in 2001
Jeffrey M. Heller, 59
Mr. Heller has been President and Chief Operating Officer of EDS since June
1996 and was a Senior Vice President from 1984 until June 1996. He joined
EDS in 1968 and has served in numerous technical and management capacities.
Mr. Heller is a director of EDS and Mutual of Omaha. Mr. Heller has served
as Chairman of UGS since January 1999.
Leo J. Thomas, 62
Dr. Thomas retired in May 1996 from Eastman Kodak Company, a manufacturer
of imaging products. From September 1994 to May 1996, he held the position
of Executive Vice President and from September 1991 to September 1994 he
was Group Vice President of Eastman Kodak Company. He is a director of
Frontier Corporation. Dr. Thomas has been a director of UGS since June
1998.
Committees of the Board of Directors
Audit Committee: The Audit Committee is composed of Leo J. Thomas
(Chairman), J. Davis Hamlin and William P. Weber. It was formed in June 1998
in connection with the Company's initial public offering and met one time in
1998. Its function is to review and recommend the selection of independent
auditors, the fees to be paid to such auditors, the adequacy of the audit and
accounting procedures of UGS and such other matters as may be specifically
delegated to the Audit Committee by the Board of Directors.
Compensation Committee: The Compensation Committee is composed of William
P. Weber (Chairman) and Leo J. Thomas, none of whom are employees or officers
of UGS or EDS. It was formed in June 1998 in connection with the Company's
initial public offering and met two times in 1998. It administers management
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incentive compensation plans, including the 1998 Incentive Plan, and
establishes the management remuneration policies of UGS, including salary
rates and fringe benefits of elected officers, other remuneration plans such
as incentive compensation, deferred compensation and stock option plans,
directors' compensation and benefits and such other matters as may be
specifically delegated to it by the Board of Directors.
Executive Committee: The Executive Committee is composed of Jeffrey M.
Heller (Chairman), John J. Mazzola and Gary B. Moore. It was formed in June
1998 in connection with the Company's initial public offering and did not
formally meet in 1998. It has and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of UGS,
with the exception of such powers and authority as may be specifically
reserved to the Board by law or by resolution adopted by the Board of
Directors.
The Board of Directors does not have a nominating committee, but will
consider director nominee recommendations by stockholders who write to Douglas
E. Barnett, Secretary, providing the name and a detailed biography of each
prospective nominee. In January or February each year, the Board of Directors
expects to consider nominees for directors to be elected at the Company's next
Annual Meeting of Stockholders. Therefore, in order to be considered for
nomination by the Board of Directors and inclusion in the Company's proxy
statement, prospective nominee recommendations should be received by the
Secretary prior to the last week of December of the preceding calendar year.
See "Stockholder Proposals for 2000 Annual Meeting" for description of bylaw
procedures governing stockholder nominations.
Director Compensation
A director who is also an employee of UGS or EDS is not entitled to any
additional compensation for serving as a director. Each non-employee director
of UGS receives an annual retainer for Board of Directors and committee
service of $20,000, a fee of $3,500 for serving as a committee chairman, a fee
of $1,000 for attending each meeting of the Board of Directors or a Board
committee and reimbursement for reasonable out-of-pocket expenses incurred in
connection with attendance at any such meeting.
In addition, pursuant to the Unigraphics Solutions Inc. 1998 Incentive Plan
(the "Incentive Plan") each non-employee director receives, on an annual
basis, options to purchase 3,000 shares of Class A Common Stock with a ten
year term and an exercise price equal to the fair market value of the Class A
Common Stock on the date of grant. Such options become exercisable in
increments of one-third of the total number of shares subject thereto on the
first, second and third anniversaries of the date of grant. All unvested
options granted to a non-employee director will be forfeited if he or she
resigns from the Board of Directors without the consent of a majority of the
other directors.
A non-employee director may make an annual election to receive, in lieu of
all or any portion of the director's fees he or she would otherwise receive in
the next year (including both annual retainer and meeting fees), a number of
options equal to the product of (x) three times (y) a fraction the numerator
of which is equal to the dollar amount of fees the director elects to forego
in the next year in exchange for options and the denominator of which is equal
to the fair market value of Class A Common Stock on the date of the election.
The terms of the options received by a non-employee director pursuant to such
election will be the same as for options automatically granted. All non-
employee directors have elected to participate in this plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires UGS'
directors and executive officers, and persons who own beneficially more than
ten percent (10%) of the common stock of UGS, to file reports of ownership and
changes of ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Copies of all filed reports are required to be furnished
to UGS pursuant to Section 16(a). Based solely on the reports received by UGS
and on written representations from reporting persons, UGS believes that the
directors, executive officers, and greater than ten percent (10%) beneficial
owners complied with all applicable filing requirements during the fiscal year
ended December 31, 1998.
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OWNERSHIP OF COMMON STOCK
The table below sets forth certain information with respect to the
beneficial ownership as of February 19, 1999, to the extent known to UGS, of
(1) the Class A Common Stock and Class B Common Stock of UGS by each
beneficial owner of more than 5% of the outstanding shares of either the Class
A Common Stock or the Class B Common Stock of UGS and (2) the outstanding
shares of Class A Common Stock and Class B Common Stock of UGS and the common
stock of EDS by (i) each director of UGS, (ii) each executive officer named in
the Summary Compensation Table and (iii) all executive officers and directors
of UGS as a group. Unless otherwise noted, the persons named below have sole
voting and investment power with respect to the shares shown as beneficially
owned by them.
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------------
UGS Class A Common Stock UGS Class B Common Stock EDS Common Stock
------------------------- -------------------------- --------------------
Percent Percent Percent
Number of Percent of UGS Number Percent of UGS Number of of EDS
Shares of UGS Voting of of UGS Voting Shares Common
Name of Beneficial Owner (f) Class A Power Shares Class B Power (g)(h)(i)(j) Stock
- ------------------------ --------- ------- ------- ---------- ------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electronic Data Systems
Corporation (a)........ -- -- -- 31,265,000 100% 98.4%
Wellington Management
Company,
LLP (b)................ 769,300 15.4% .24% -- -- --
FMR Corp. (c)........... 609,800 12.2% .19% -- -- --
The Hartford Mutual
Funds, Inc. (d)........ 605,200 12.1% .19% -- -- --
J & W Seligman & Co.
Incorporated (e)....... 602,700 12.1% .19% -- -- --
John A. Adams........... 1,000 * * -- -- -- 23,620 *
Anthony J. Affuso....... 31,350 * * -- -- -- 6,427 *
Douglas E. Barnett...... 25,000 * * -- -- -- 55 *
James Duncan............ 13,333 * * -- -- -- 625 *
J. Davis Hamlin......... 2,000 * * -- -- -- 28,723 *
Jeffrey M. Heller....... -0- * * -- -- -- 325,130 *
Dennis P. Kruse......... 14,333 * * -- -- -- 670 *
John J. Mazzola......... 40,833 * * -- -- -- 3,861 *
Gary B. Moore........... 4,000 * * -- -- -- 57,586 *
Dr. Leo J. Thomas....... 5,000 * * -- -- -- -0- *
William P. Weber........ 8,000 * * -- -- -- -0- *
All directors and
executive officers as a
group (13 persons)..... 172,349 3.4% * -- -- -- 454,195 *
</TABLE>
- --------
(a) EDS exercises sole voting and dispositive power over the shares of Class B
Common Stock held by it. The address of EDS is 5400 Legacy Drive, Plano,
Texas 75024. Mr. Heller is also a director and executive officer of EDS.
Messrs. Adams and Moore are also executive officers of EDS. Mr. Hamlin is
a former director and executive officer of EDS. These individuals disclaim
beneficial ownership of the shares of Class B Common Stock beneficially
owned by EDS.
(b) Based on Amendment No. 1 to Schedule 13G dated January 1, 1999. Wellington
Management Company, LLP reports shared voting and dispositive power over
769,300 shares of Class A Common Stock, in its capacity as investment
advisor to various clients. No such client was known to have the right or
power to direct the receipt of dividends or sale proceeds with respect to
more than 5% of the class except Hartford Capital Appreciation HLS Fund,
Inc. See note (d). The address of Wellington Management Company, LLP is 75
State Street, Boston, Massachusetts 02109.
(c) Based on Amendment No. 1 to Schedule 13G dated February 1, 1999. FMR Corp.
reports sole voting power over 36,300 shares and sole dispositive power
over 609,800 shares. Fidelity Management & Research Company ("Fidelity"),
a wholly-owned subsidiary of FMR Corp., is the beneficial owner of 573,500
shares of the Class A Common Stock as a result of acting as an investment
adviser to various investment companies. The ownership of one investment
company, Fidelity Low-Priced Stock Fund, amounted to 573,500 shares or
11.5% of the Class A Common Stock. Edward C. Johnson 3rd, FMR Corp.,
through its control of Fidelity, and the funds have sole power to dispose
of 573,500 shares. Voting power resides with the Board of Trustees of the
various funds. Fidelity Management Trust Company, a wholly-owned
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subsidiary of FMR Corp., is the beneficial owner of 36,300 shares as a
result of serving as investment manager of institutional account(s). The
address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts 02109.
(d) See note (b). Based on Schedule 13G dated February 9, 1999. The Hartford
Mutual Funds, Inc. reports on behalf of The Hartford Capital Appreciation
Fund shared voting and dispositive power over 605,200 shares of Class A
Common Stock. The address of The Hartford Mutual Funds, Inc. is 200
Hopmeadow Street, Simsbury, CT 06070.
(e) Based on Schedule 13G dated March 16, 1999. J & W Seligman & Co.
Incorporated ("JWS") reports shared voting power over 599,500 shares of
Class A Common Stock and shared dispositive power over 602,700 shares of
Class A Common Stock, including 377,000 shares (or 7.54% of the Class A
Common Stock) over which Seligman Frontier Fund, Inc. had shared voting
and dispositive power. JWS serves as investment advisor for Seligman
Frontier Fund, Inc. William C. Morris was reported to be the majority
shareholder of JWS and therefore may be deemed to beneficially own the
shares reported by JWS. The address of JWS is 100 Park Avenue, New York,
NY 10017.
(f) Amounts reported include shares of UGS Class A Common Stock which may be
acquired on or before April 20, 1999 through the exercise of stock options
as follows: Mr. Affuso--25,000 shares; Mr. Barnett--15,000 shares; Mr.
Duncan--13,333 shares; Mr. Kruse--13,333 shares; and Mr. Mazzola--33,333
shares; and all directors and executive officers as a group--119,999
shares.
(g) Excludes unvested restricted stock units granted under the EDS Incentive
Plan (and its predecessor) as follows: Mr. Adams--48,500 units; Mr.
Affuso--9,300 units; Mr. Duncan--5,250 units; Mr. Heller--564,000 units;
Mr. Kruse--5,250 units; Mr. Mazzola--12,800 units; Mr. Moore--148,000
units and all directors and executive officers as a group--802,450 units.
(h) Amounts reported include EDS Common Stock allocated to accounts under EDS'
401(k) Plan as follows: Mr. Affuso--5,336 shares; Mr. Barnett--55 shares;
Mr. Heller--496 shares; Mr. Kruse--45 shares; Mr. Mazzola--39 shares; Mr.
Moore--3,658 shares; and all directors and executive officers as a group--
9,705 shares.
(i) Excludes unvested stock units granted under the EDS Performance Share Plan
as follows: Mr. Adams--1,318 units; Mr. Affuso--726 units; Mr. Duncan--682
units; Mr. Kruse--1,100 units; Mr. Mazzola--1,566 units; and all directors
and executive officers as a group--6,956 units.
(j) Amounts reported include shares of EDS Common Stock which may be acquired
on or before April 20, 1999 through the exercise of 1998 EDS Stock
Incentive Plan option shares awarded to EDS Senior Executives as follows:
Mr. Adams--15,000 shares; Mr. Heller--60,000 shares; Mr. Moore--20,000
shares.
*None of the persons listed above beneficially own in excess of 1% of the
common stock of UGS or EDS.
EXECUTIVE COMPENSATION
Report of Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of the two non-employee directors of the Company. Among other
duties, the Committee is responsible for establishing and administering
compensation programs for UGS' executive officers, including the Chief
Executive Officer. In fulfilling these responsibilities, the Committee
administers all compensation and benefit components for executive officers,
including setting base salaries, establishing performance targets, determining
the payment of cash incentives and setting equity awards under executive short
term and long term incentive plans. The Committee was established in June 1998
at the time of the Company's initial public offering. Prior to that time, the
compensation of the executive officers was administered by EDS.
Compensation Philosophy. The Committee's compensation philosophy is based
on the premise that executive officers should receive competitive compensation
determined by reference to competitive market rates among companies with which
the Company competes for talented executives and the Company's and the
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individual executive's performance in relation to identified targets and
goals. Compensation plans and programs are intended (i) to motivate and reward
executive officers for achievement of long term goals and enhancement of
stockholder value, and (ii) to attract and retain executives whose abilities
are critical to the long-term success and competitiveness of the Company.
The Committee decided that in determining compensation levels it should
first evaluate executive officer compensation against independent, published
survey data of comparator companies, with a key determinant being the
compensation levels and pay practices in the technology industry. Different
comparator groups and data sources are used to determine targeted compensation
amounts for each of the three components of executive compensation to better
determine then-current competitive compensation levels and practices. Overall,
the Committee's policy is to provide total compensation to executive officers
that is above the 50th percentile of comparator companies when the Company
achieves its performance goals. Performance goals are intended to represent
performance that is likewise above the 50th percentile of competitors.
Executive Officer Compensation. The Committee has established three
principal components of the Company's executive compensation structure: base
salary, annual incentive compensation, and long-term incentive compensation.
By allocating a significant portion of the total executive officer
compensation package to annual and long-term incentive compensation, which is
at-risk and varies based on Company and individual performance, the Committee
seeks to tie executive officer compensation to the Company's performance and
link the executive officers' goals with the interests of the Company's
stockholders. In order to achieve the goal of compensating the executive
officers above the 50th percentile of the comparator groups when the Company
achieves its goals, the Committee has adopted the following approaches to base
salary, annual incentive compensation and long-term incentive compensation.
Base Salaries. The Committee's policy for establishing and adjusting base
salaries for Company executive officers is to maintain base salaries at levels
that are competitive with the median level for executives with similar roles
and responsibilities in the comparator group. The Committee considers base
salaries and adjustments through a process of first identifying competitive
ranges for base salaries for similar positions in the comparator group, then
evaluating the responsibility, performance, experience and future potential of
each executive. In 1998, the Committee did not increase the base salaries of
the CEO or any executive officer. However, based on EDS' assessment of
competitive factors and an intent to begin aligning Company executive base
salaries with the market, EDS increased the base salaries of the CEO and all
executive officers (except for the CFO whose hire date was March 2, 1998) at
the time of the Company's initial public offering in June 1998. Based on
comparator group information, the 1998 base salaries for most of the Company
executives, including the Chief Executive Officer, were below the median level
for comparable positions in the comparator group.
Annual Cash Incentive Bonuses. Annual incentive compensation, payable in
the form of cash bonuses, reflects the Committee's policy that a significant
portion of each executive officer's annual compensation be contingent upon the
current performance of the Company. The Committee has approved an executive
bonus plan under which demanding performance goals for the Company and each
executive are established by the Committee at the beginning of each fiscal
year, and payments will be based on the extent to which such targets are
achieved. Each year, the Committee will determine the maximum amount of all
bonuses under the executive bonus plan for that year and establish the
performance objectives that must be achieved in order for all or part of
bonuses to be paid. The Committee also determines the maximum amount of bonus
for each executive. These amounts are established consistent with the
Committee's policy of compensating executive officers above median levels of
the comparator group when the Company achieves performance goals established
by the Committee. In establishing the amount of bonus, if any, which will be
paid to an executive officer at the end of each year, the Committee considers
not only whether the Company has achieved the performance goals established by
the Committee at the beginning of the year, but also the individual's
performance for that year as well as the performance of competitor companies.
Except with respect to the CFO, annual cash bonus targets and award
criteria were established by EDS prior to the formation of the Committee, and
1998 bonuses were paid in accordance with the plan and performance criteria
set by EDS. The CFO's 1998 cash bonus amount was paid in accordance with his
Employment
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Agreement and the Company's performance. Generally, the 1998 cash bonus awards
paid to Company executives were lower than amounts paid by comparator
companies for executives similarly situated. The 1999 plan is designed to
close the gap between the Company and comparator companies with respect to
annual cash bonuses paid if the Company and the executives meet Committee
established objectives.
Long Term Incentive Compensation. The Company's 1998 Incentive Plan
authorized the award to directors, executive officers and other key employees
of up to 1,300,000 shares of Class A Common Stock in the form of stock
options, stock appreciation rights, restricted or non-restricted stock or
units denominated in stock, cash awards, performance awards or any combination
of the foregoing. 1,200,000 shares are available for employee awards and
100,000 shares are available for director awards. Stock options and other
Company equity-based awards are designed to align the long term interests of
the Company's executive officers and employees with those of its stockholders
by linking compensation to increases in shareholder value. In 1998, the Board
of Directors authorized the award of 710,000 stock options to executive
officers and key employees.
The number of stock options or other equity-based awards granted to
executive officers is based upon the value of long-term awards for similar
roles and responsibilities made by comparator group companies, level of
responsibility, performance during the previous year, and expected future
contributions as determined by the Committee. Generally, the Committee expects
to grant stock options at an exercise price equal to the fair market value of
the Company stock on the date of grant. Option shares vest over a three-year
period. Similar to the other forms of compensation paid to executive officers,
the value of stock options granted to executives in 1998 was generally lower
than the value of such options granted by comparator companies.
The Committee also will take into consideration the value of shares of
restricted EDS Common Stock granted to certain executives prior to the
Company's initial public offering.
Chief Executive Officer Compensation. The process of setting and
administering the compensation of the Chief Executive Officer generally takes
into consideration the same factors used for other executive officers. The CEO
has a higher percentage of compensation at-risk compared to other executive
officers. EDS increased the CEO's annual base salary by 24% to $210,000
annually at the time of the initial public offering in order to begin moving
his base salary into alignment with comparator group CEO base salaries. The
1998 base salary for the CEO was below the median base salary for comparator
group CEOs. With respect to annual and long term incentive compensation, 1998
amounts were paid or awarded in accordance with plans established by EDS.
Using criteria established by EDS senior management prior to the beginning of
1998, the CEO was awarded a cash bonus of $278,100 for 1998. In 1998, the CEO
received a grant of 100,000 options to purchase shares of the Company's Class
A Common stock in anticipation of the significant contributions expected to be
made by the CEO in the future. In addition, he became vested in 3,200 shares
of restricted EDS Common Stock previously granted to him under the EDS 1996
Incentive Plan (and predecessor plans).
Internal Revenue Code Section 162(m) Compliance. Section 162(m) of the
Internal Revenue Code generally limits the deductibility of compensation to
the Chief Executive Officer and the four other most highly compensated
officers in excess of $1 million per year, except that so-called "performance-
based" compensation may be excluded from the $1 million limitation. The
Committee intends to structure annual cash bonus awards and option grants in a
manner designed to make such awards "performance-based" to the extent
practicable while at the same time maintaining competitive compensation
levels.
Compensation Committee
William P. Weber, Chairman
Leo J. Thomas
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of William P. Weber and Leo J.
Thomas, neither of whom are employees or current or former officers of UGS or
EDS.
8
<PAGE>
Stock Performance Graph
The following graph compares the cumulative total stockholder return on
Class A Common Stock since the Company's initial public offering on June 23,
1998 with the cumulative total return of the S&P 500 Stock Index and the S&P
Midcap Computer Software Index.
This graph is presented in accordance with SEC requirements. You are
cautioned against drawing any conclusions from this information, as past
results are not necessarily indicative of future performance. This graph in no
way reflects a forecast of future financial performance.
Comparison of Six-Month Cumulative Total Return
UGS Common Stock S&P 500 Index S&P Midcap Common
6/30/98 100 100 100
7/31/98 74 99 99
8/31/98 57 85 75
9/30/98 67 90 92
10/30/98 61 97 96
11/31/98 106 103 116
12/31/98 104 109 169
Summary Compensation Table
Pursuant to a reorganization consummated effective as of January 1, 1998
(the "Reorganization"), UGS became the successor to the mechanical computer-
aided design, manufacturing and engineering ("MCAD") businesses of EDS. Prior
to the Reorganization, all employees of the Company, including the executive
officers, were compensated by EDS and participated in various EDS welfare and
benefit plans, including the EDS Retirement Plan. Since the Reorganization, the
executive officers and all other employees of the Company have been compensated
solely by the Company and through 1998 participated in EDS welfare and benefit
plans. The Company currently is in the process of transitioning to new UGS
welfare and benefit plans.
9
<PAGE>
The following table sets forth information with respect to the compensation
for the last two years of the Chief Executive Officer and each of the four
other most highly compensated executive officers of UGS as of the end of 1998.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------------------- ------------------
Name and Number
Principal Other Annual Restricted of All Other
Position Salary Bonus Compensation Stock Options Compensation
During 1998 Year (a) (b) (c) Awards (d) (e) (f)
- ----------- ---- -------- -------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John J.
Mazzola 1998 $204,375 $278,554 $-0- $ -0- 100,000 $1,200
President
and Chief 1997 170,000 60,000 204 516,750 -0- 424
Executive
Officer
Anthony J.
Affuso 1998 180,208 227,951 -0- -0- 75,000 1,200
Vice
President--
Products 1997 152,500 35,000 295 215,313 -0- 295
And
Operations
Douglas E.
Barnett (g) 1998 150,000 154,470 -0- -0- 45,000 1,438
Vice
President,
Chief
Financial
Officer,
Secretary
James Duncan
(h) 1998 167,153 172,538 -0- -0- 40,000 -0-
Vice
President--
Europe 1997 122,320 128,722 -0- 107,656 -0- -0-
Dennis P.
Kruse 1998 142,592 205,180 -0- -0- 40,000 1,200
Vice
President--
Americas 1997 118,220 128,696 -0- 107,656 -0- -0-
</TABLE>
- --------
(a) Salary includes amounts deferred pursuant to the EDS 401(k) Plan.
(b) Represents bonuses earned by the named executives with respect to the year
indicated. Amounts for Messrs. Duncan and Kruse in 1997 include
commissions or new business bonuses of $59,812 and $106,198, respectively.
(c) For Messrs. Affuso and Mazzola, amounts represent payments in respect of
taxes due on imputed interest for non-interest bearing loans.
(d) Represents awards of the following number of shares of restricted EDS
Common Stock granted pursuant to the EDS 1996 Incentive Plan to the named
executive officers on January 3, 1997: Mr. Mazzola, 12,000 shares; Mr.
Affuso, 5,000 shares; Mr. Duncan, 2,500 shares; and Mr. Kruse, 2,500
shares. Such shares will vest ratably over each of the following 10 years
subject to the achievement by EDS of performance goals. Shares which do
not vest in any year due to failure to achieve such goals will vest in
2007. As of December 31, 1998, the number and fair market value of the
aggregate units representing unvested restricted EDS Common Stock held by
the named executive officers were: Mr. Mazzola, 12,800 shares, $642,432;
Mr. Affuso, 9,300 shares, $466,767; Mr. Duncan, 5,250 shares, $263,498;
and Mr. Kruse, 5,250 shares, $263,498.
(e) Represents UGS Class A Common Stock options awarded in 1998 under the UGS
1998 Incentive Plan.
(f) The 1997 amounts represent the imputed value of outstanding non-interest
bearing loans for the payment of withholding taxes required as a result of
the vesting of restricted stock under the EDS 1996 Incentive Plan. The
1998 amounts represent EDS' matching contributions made under the EDS
401(k) Plan.
(g) Mr. Barnett joined the Company on March 2, 1998.
(h) Mr. Duncan's 1998 Salary and Bonus represent U.S. dollar equivalent
calculated at the U.S. dollar--British pound sterling exchange rate on
December 31, 1998.
10
<PAGE>
Option Grants In Last Fiscal Year
The following table contains information regarding awards of stock options
to the named executive officers in 1998.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants (a) Option Term
-------------------------------------------- -----------------
Percent of
Number of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Option/SARs Employees in Price Expiration
Name Granted (b) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ------------ -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
John J. Mazzola......... 100,000 14.08% 14 3/1/2008 880,452 2,231,239
Anthony J. Affuso....... 75,000 10.56% 14 3/1/2008 660,339 1,673,430
Douglas E. Barnett...... 45,000 6.34% 14 3/1/2008 396,204 1,004,058
James Duncan............ 40,000 5.63% 14 3/1/2008 352,181 892,496
Dennis P. Kruse......... 40,000 5.63% 14 3/1/2008 352,181 892,496
</TABLE>
- --------
(a) The options become exercisable one-third after one year from the date of
the grant, an additional one-third after two years from the date of the
grant, and are exercisable in full after three years from the date of
grant. The Board is obligated to make proportionate adjustments in the
event of any other recapitalization or capital reorganization of the
Company, merger, plan of exchange affecting Company common stock, or
similar reorganization. Also, the Board is authorized to issue or assume
awards by means of a substitution of new awards, as appropriate, for
previously issued awards or an assumption of previously issued awards in
the case of a merger, consolidation, acquisition of stock or property,
reorganization or liquidation.
(b) Represents UGS Class A Common Stock options.
Option Values at Fiscal Year End
The following table presents (i) the unexercised UGS Class A Common Stock
options held by each named executive officer and (ii) the value of all in-the-
money options as of December 31, 1998, as if all such in-the-money options
were vested and exercisable as of December 31, 1998.
<TABLE>
<CAPTION>
Option Values at December 31, 1998
---------------------------------------------------
Number of Shares
Underlying Unexercised Value of Unexercised
Options Held In-the-Money Options (a)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John J. Mazzola............. -0- 100,000 -0- $50,000
Anthony J. Affuso........... -0- 75,000 -0- 37,500
Douglas E. Barnett.......... -0- 45,000 -0- 22,500
James Duncan................ -0- 40,000 -0- 20,000
Dennis P. Kruse............. -0- 40,000 -0- 20,000
</TABLE>
- --------
(a) Calculated as the aggregate closing market price per share of the
Company's Class A Common Stock on December 31, 1998, for the total number
of in-the-money shares under option, net of the aggregate value of all
option exercise proceeds.
The EDS Retirement Plan
During 1998 the named executive officers participated in the EDS Retirement
Plan which, effective July 1, 1998, was converted from a final average pay
plan to a career average pay "cash balance" plan. Benefits under the EDS
Retirement Plan provide for annual credits which are added to individual
participant's "personal pension accounts" ("PPA"). The PPA is established with
an opening balance equal to the present value of the
11
<PAGE>
participant's accrued benefit as of June 30, 1998, under the final average
earnings formula. Annual credits under the career average pay formula are
based on a participant's credited years of service together with age which are
divided by 12 where the resulting quotient becomes the annual allocation
percentage which is then multiplied by the participant's Earnings to determine
the annual accrual amount to be credited to the participant's PPA.
Participants' annual allocation percentage is increased for credits (i) if
annual compensation in 1998 exceeded $64,800, (ii) if they were hired or
rehired by EDS at or after they were age 35 or (iii) if they were age 43 or
older on June 30, 1998. Effective April 1, 1999, all UGS employees, including
the named executive officers will no longer be eligible to participate in the
EDS Retirement Plan and will not be credited with additional accruals.
However, each Participant will continue to receive interest credits on the
annual balance of their PPA, which will be earned until the earlier of the
commencement of distributions or age 65. Effective April 1, 1999, the named
executive officers will participate in the newly adopted Unigraphics Solutions
Inc. 401(k) Plan, which is a defined contribution plan rather than a final
average earnings based formula defined benefit plan.
"Earnings" under the EDS Retirement Plan generally refer to total annual
cash compensation (up to $160,000 for 1998 as limited by the Internal Revenue
Code) for services rendered to the Company and its participating subsidiaries,
together with any salary reduction contributions to the EDS 401(k) Plan, and
shall exclude extraordinary compensation (such as overseas living allowances,
relocation allowances and benefits under any employee benefit plan, such as
the UGS 1998 Stock Incentive Plan).
The following table indicates the estimated annual benefits payable upon
retirement to the named executive officers for the specified compensation and
years of service classifications under the EDS Retirement Plan. The table
shows the July 1, 1998 opening account balance for each named executive which
includes accruals under the previous final average earnings formula through
June 30, 1998. The table provides the account credits, including the mid-
career adjustment credits, and the transition credits added to each named
executive's PPA from July 1, 1998 through December. Because Mr. Barnett was
not an EDS Retirement Plan participant on June 30, 1998, he had no previous
accruals under the plan to convert into an opening PPA balance. Mr. Duncan is
not a United States employee and consequently is not eligible to participate
in the EDS Retirement Plan.
<TABLE>
<CAPTION>
Total Estimated EDS Total Estimated PPA Total
Retirement Plan (PPA) and RA credits for Estimated
and EDS Restoration the period Total Estimated Annual Single
Account (RA) Balance as ending December 31, PPA and RA as of Life Annuity
Name of July 1, 1998 1998 December 31, 1998 at Age 65
- ---- ----------------------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C>
John Mazzola............ $150,127 $23,096 $173,223 $40,481
Anthony Affuso.......... $174,748 $20,500 $195,248 $52,575
Douglas Barnett......... $ 0 $ 5,010 $ 5,010 $ 3,124
Dennis Kruse............ $ 72,373 $13,970 $ 86,343 $28,232
</TABLE>
Employment Agreements
Effective March 1998, the Company entered into employment agreements
("Employment Agreements") with Messrs. Mazzola, Affuso, Barnett, Duncan and
Kruse (each an "Executive") which provide for a term of two years, subject to
automatic, annual renewals, unless the Executive or the Company provides
written notice of termination at least 50 days prior to the expiration or
renewal date, as applicable, of the agreement. The Employment Agreements
provide for minimum annual base salaries as follows: Mr. Mazzola, $210,000;
Mr. Affuso, $200,000; Mr. Barnett, $180,000; Mr. Duncan, $160,000; and Mr.
Kruse, $160,000. The Employment Agreements provided for the following targeted
bonuses in respect of 1998, subject to UGS' performance: Mr. Mazzola,
$175,000; Mr. Affuso, $100,000; Mr. Duncan, $90,000; and Mr. Kruse, $90,000.
Mr. Barnett's agreement provided for a guaranteed bonus of $90,000 to be paid
on or before the first anniversary of his employment. The Employment
Agreements also provided for the grant of stock options described in the table
above under "Option Grants in Last Fiscal Year." In addition, Messrs. Mazzola,
Affuso, Duncan and Kruse were permitted to continue to vest in any previously
outstanding awards under the EDS 1996 Incentive Plan as long as such
individuals remained employees of UGS. In the event any Executive terminates
his employment with UGS for "Cause" (as defined in the Employment Agreements)
or UGS terminates any Executive without
12
<PAGE>
Cause, then such Executive will be entitled to receive the equivalent of one
year of his then annual salary and bonus and all unvested stock options will
vest. The Employment Agreements also include non-competition and non-
solicitation obligations which cover the period the Executive is employed by
the Company and for twelve months thereafter.
RELATIONSHIP WITH EDS AND CERTAIN TRANSACTIONS
The Company was formed on October 2, 1997 and, pursuant to the
Reorganization, became the successor to the Unigraphics MCAD business of EDS
effective as of January 1, 1998. In connection with the Reorganization and
subsequent initial public offering, the Company entered into the agreements
with EDS described below.
Capital Stock. In connection with its formation on October 2, 1997, the
Company issued 500 shares of common stock to EDS in consideration for a cash
payment of $1,000. Effective January 1, 1998, the Company issued an additional
500 shares of common stock to EDS in consideration for the assets transferred
to the Company in connection with the Reorganization. On May 21, 1998, the
1,000 shares of common stock were reclassified into 31,265,000 shares of Class
B Common Stock.
Intercompany Agreement. At the time of the Reorganization, the Company and
EDS entered into an Intercompany Agreement (the "Intercompany Agreement")
pursuant to which each party indemnified the other for certain obligations
relating to the Reorganization. Pursuant to that agreement, the Company
indemnified EDS for liabilities assumed in the Reorganization and against
third party claims asserted against EDS as a result of EDS' prior ownership of
assets or operation of businesses contributed to the Company and for losses
arising from or in connection with the Company's lease of property from EDS.
In exchange, EDS indemnified the Company for specified liabilities retained by
it in the Reorganization, against third party claims against the Company
relating to EDS' businesses and asserted against the Company as a result of
the ownership or possession by EDS prior to the Reorganization of any asset
contributed to the Company in the Reorganization.
Management Services Agreement. The Company and EDS have entered into a
Management Services Agreement dated January 1, 1998 (the "Management Services
Agreement") pursuant to which EDS performs various management services for the
Company, including treasury, risk management, tax and similar administrative
services. The Company paid EDS approximately $6.4 million for such services in
1998. This agreement provides for the payments 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 0.5% of the Company's total revenues. 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 Management Services Agreement, the
Company or EDS may terminate any service on or after January 1, 2000 with
prior notice of not less than five months.
Tax Sharing Agreement. The Company and EDS have entered into a Tax Sharing
Agreement dated January 1, 1998 (the "Tax Sharing Agreement") which provides
for the allocation of tax liabilities during the tax periods the Company is
part of consolidated federal, state and local income tax returns filed by EDS.
In addition, the Tax Sharing Agreement sets out certain benefits and
obligations of the Company and EDS for tax matters relating to periods before
the Reorganization and for certain benefits and obligations that would affect
the Company or EDS in the future if the Company ceased to be a member of EDS'
consolidated group for federal income tax purposes. The Tax Sharing Agreement
generally requires the Company to pay to EDS the amount of federal, state and
local income taxes that the Company would have been required to pay had it and
its subsidiaries filed their own tax return or returns and not been included
in the EDS consolidated group. The Company is jointly and severally liable for
the federal income tax of EDS and the other companies included in the
consolidated
13
<PAGE>
return for all periods in which the Company is included in the EDS
consolidated group. EDS has agreed, however, to indemnify the Company for any
liability for taxes reported or required to be reported on a consolidated
return. Except for certain items specified in the Tax Sharing Agreement, EDS
generally retains any potential tax benefit carry forwards, and remains
obligated to pay all taxes, attributable to periods before the Reorganization.
Intercompany Credit Agreements and Intercompany Note. The Company and EDS
are parties to domestic and foreign Intercompany Credit Agreements dated
January 1, 1998 (the "Intercompany Credit Agreements") pursuant to which 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.
The maximum amount that the Company may borrow at any time from EDS under the
Intercompany Credit Agreements (together with the other non-U.S. credit
agreements referred to below) is $70 million. There were no amounts borrowed
by UGS under the Intercompany Credit Agreements as of December 31, 1998. Also,
under the Intercompany Credit Agreements, the Company is required to lend to
EDS all excess cash of the Company. As of December 31, 1998, the amount
borrowed by EDS was $20.7 million; and the largest amount of indebtedness
outstanding borrowed by EDS at any time since January 1, 1998 was $26.8
million. The interest rate to be charged to the Company is the sum of the one-
month London Bank Interbank Offered Rate plus 0.5%. The interest rate to be
charged to EDS is the one-month London Interbank Bid Rate minus 0.5%. On any
business day that the Company has excess cash available, it must use that cash
to repay any outstanding loans it has under the Intercompany Credit Agreements
or make an advance to EDS if no loans are outstanding. The Intercompany Credit
Agreements will terminate on December 31, 2002, unless earlier terminated at
the election of one of the parties upon the occurrence of certain events,
including the termination of the Management Services Agreement or the
cessation of EDS' beneficial ownership of 50% or more of the capital stock of
the Company. The net interest paid to EDS under the Intercompany Credit
Agreements was $4.5 million in 1998.
In connection with the acquisition (the "Solid Edge Acquisition") of the
MCAD business of Intergraph Corporation on March 2, 1998, the Company borrowed
$107 million from EDS pursuant to the Intercompany Credit Agreements. In
addition, effective March 6, 1998, the Company issued to EDS, as a dividend, a
note in the principal amount of $73 million (the "Intercompany Note"). The
Intercompany Note bears interest, payable semiannually, at the one-month
London Interbank Bid Rate minus 0.5%, and matures on March 6, 2001. The
amounts advanced by EDS to the Company under the Intercompany Credit
Agreements in respect of the Solid Edge Acquisition, as well as a portion of
the amount outstanding under the Intercompany Note, were repaid to EDS with
the net proceeds of the Company's initial public offering and cash generated
from operations. The amount outstanding under the Intercompany Note as of
December 31, 1998 was $55.1 million.
GM Subcontract. In connection with the split-off of EDS from General Motors
Corporation ("GM") in June 1996, EDS entered into a Master Service Agreement
(the "EDS/GM MSA") and certain related agreements pursuant to which EDS serves
as GM's principal, supplier of information technology on a worldwide basis for
an initial term of 10 years. The EDS/GM MSA serves as the framework for the
negotiation and operation of service agreements between GM and EDS related to
certain "in scope" services (as defined in the EDS/GM MSA). EDS and GM entered
into a Unigraphics Software Corporate License Agreement, effective as of July
1, 1996 (the "EDS/GM Site License Agreement"), which provided for the sale of
GM of a perpetual license of up to 10,000 seats of Unigraphics, including
IMAN, and the provision of three years of maintenance services for such
products. These products and services are "in scope" services under the EDS/GM
MSA. The EDS/GM Site License Agreement terminates on June 30, 1999. In
connection with the Reorganization, EDS and the Company entered into a
Memorandum of Understanding, effective January 1, 1998 (the "GM Subcontract"),
pursuant to which the Company receives all revenues and performs EDS'
obligations under the EDS/GM Site License Agreement and agrees to cooperate
with EDS in providing additional products and services to GM under the EDS/GM
MSA. The GM Subcontract further provides that the Company may provide directly
to GM products and services that are outside of the scope of the EDS/GM MSA.
Approximately 34%, or $139.4 million, of the Company's 1996 revenue was
attributable to products and services provided to GM. Although only
14
<PAGE>
approximately 9% of the Company's 1998 revenue was attributable to the
products and services provided to GM, approximately 17% of the Company's
accounts receivable balance at December 31, 1998 was related to products and
services provided to GM.
Registration Rights Agreement. In connection with the Company's initial
public offering it entered into a Registration Rights Agreement with EDS (the
"Registration Rights Agreement") pursuant to which EDS may demand registration
under the Securities Act of 1933 shares of the Company's capital stock held by
it at any time. So long as EDS owns capital stock of the Company representing
more than 20% of the total voting power of all classes of stock of the Company
outstanding, EDS may exercise this "demand registration" at any time and on an
unlimited number of occasions. Transferees of EDS (and EDS upon a reduction in
its ownership to less than 20% of the voting power) may only exercise this
demand registration right three times. If EDS owns less than 50% of the total
voting power of all classes of stock of the Company outstanding, the Company
may postpone a demand registration under certain customary circumstances. In
addition, at any time prior to the tenth anniversary of the date of the
Registration Rights Agreement, EDS may request the Company to include shares
of the Company's capital stock held by it in any registration proposed by the
Company of such capital stock under the Securities Act of 1933. The
Registration Rights Agreement contains provisions regarding the pro rata
payment of expenses by the Company and EDS and regarding mutual
indemnification agreements for certain securities laws violations.
Sublease Agreements. At the time of the Reorganization, the Company entered
into sublease agreements with EDS covering substantially all of the real
property occupied by the Company at the time of the Reorganization. The terms
of such sublease agreements incorporate the financial and other material terms
of EDS' lease agreements for the subject property (other than the sublease for
the Company's St. Louis headquarters for which the rental rate charged to the
Company was reduced to reflect then-current market rates). The Company paid to
EDS annual aggregate rental payments of approximately $12.5 million in 1998 in
respect of all real property leased or subleased from EDS.
PROPOSAL 2: APPROVAL OF THE UNIGRAPHICS SOLUTIONS INC. EMPLOYEE STOCK PURCHASE
PLAN
On March 29, 1999, the Board of Directors adopted the Unigraphics Solutions
Inc. Employee Stock Purchase Plan (the "ESPP"), which will become effective on
April 15, 1999 and is subject to stockholder approval. The purpose of the ESPP
is to attract, retain and motivate employees of the Company and its designated
subsidiaries and provide them an incentive to contribute to and share in the
continued success of the Company. The ESPP provides eligible employees the
opportunity to purchase Class A Common Stock, $.01 par value per share, of the
Company ("Common Stock") through accumulated payroll deductions during the
offering periods under the ESPP. The ESPP is intended to qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"). If stockholder approval is not obtained at
this Meeting, the ESPP will be void and of no effect, and amounts withheld
from participating employees will be returned to them. Electronic Data Systems
Corporation has indicated to the Company that it intends to vote its shares
for approval of the ESPP.
Summary of the ESPP
The full text of the ESPP is set forth in Exhibit A to this Proxy
Statement. The following summary of the material features of the ESPP is
qualified in its entirety by reference to the text of the ESPP.
The ESPP will be administered by the Compensation Committee of the Board of
Directors (the "Committee"), and the administrator appointed by the Committee.
A total of 500,000 shares of Class A Common Stock have been reserved for
purchase under the ESPP, subject to antidilution adjustments as provided in
the ESPP. These shares may be shares acquired by the Company or by an
independent plan administrator on behalf of the Company in open market or
privately negotiated transactions, previously acquired treasury shares, or
authorized but unissued shares.
15
<PAGE>
The Committee is responsible for the administration of the ESPP and has the
authority to: (i) determine the effective date of an offering of shares and
the purchase period in which payroll deductions may be made for the purchase
of such shares; (ii) determine the purchase price of the shares to be
purchased; (iii) adopt, amend, and rescind any rules deemed desirable and
appropriate for the administration of the ESPP and not inconsistent with the
ESPP; (iv) construe and interpret the ESPP; and (v) make all other
determinations as necessary or advisable for the administration of the ESPP.
The Board of Directors or the Committee may amend, suspend or terminate the
ESPP at any time in accordance with the terms of the ESPP, provided that no
amendment may change any option granted under the ESPP which adversely affects
the rights of the holder of such option. However, stockholder approval will be
required for any amendment that increases the maximum number of shares
issuable under the ESPP or modifies the provisions of the ESPP governing
eligibility to participate in the ESPP. Upon termination of the ESPP, all
amounts in the accounts of participating employees will be promptly refunded.
Other than highly compensated employees excluded from participation in the
ESPP by the Committee, employees who are customarily employed by the Company
or a designated subsidiary at least 20 hours per week and more than five
months per year are eligible to participate in the ESPP. Participation in the
ESPP is voluntary. Employees may enroll in the ESPP by completing a
participation agreement authorizing payroll deductions, on an after-tax basis,
specifying the date on which participation in the Plan is to commence, and
filing the participation agreement with the ESPP administrator at any time
prior to the beginning of the next payroll period in which payroll deductions
will be made. The participation agreement will continue in effect for
subsequent offering periods if the participating employee remains an eligible
employee and has not withdrawn the participation agreement.
The Committee may appoint an independent third party to administer the
ESPP. The ESPP administrator will maintain a payroll deduction account for
each participant. At the discretion of the Committee, such payroll deduction
account may be a custodial account held by an independent ESPP administrator
and the cash balance accumulated in a participant's payroll deduction account
may accrue interest during each purchase period. Until the accumulated cash
balances in payroll deduction accounts are applied to purchase shares of
Common Stock at the end of a purchase period or refunded to each participant
in accordance with the ESPP, the Company may use such funds for its general
corporate purposes.
The Committee will determine when an offering period to purchase shares
begins and the duration of each offering. During each offering period,
purchase periods will be established whereby participants of the ESPP may have
deductions made from his or her compensation to purchase shares available
during the offering. A purchase period may be the same as an offering period
but may not end more than 27 months from the effective date of the offering.
With respect to any offering under the Plan, a participant may authorize a
payroll deduction up to a maximum of 10% of compensation he or she receives
during the purchase period specified in the offering. All payroll deductions
made by a participant are credited to his or her account. At any time prior to
the end of a purchase period, a participant may change or temporarily
discontinue payroll deductions by filing a new payroll deduction authorization
form. However, a participant may not change a payroll deduction more than
twice, or temporarily discontinue a payroll deduction more than once, during
any purchase period.
During an offering, the Company will grant to each eligible employee who is
then a participant in the ESPP an option to purchase, at the option price
provided in the following paragraph, the largest number of whole shares of
Common Stock as does not exceed the number of shares determined by dividing:
(i) 15% of the employee's monthly base salary, determined as of the effective
date of the offering or the commencement of such Participant's eligibility to
participate in the offering, whichever is later, multiplied by the number of
months in the offering period or the number of months such participant is
eligible to participate in the offering, whichever is less; by (ii) the fair
market value of a share determined as of the effective date of the offering. A
participant
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may not purchase shares of Common Stock in excess of this amount during the
applicable offering period. Furthermore, a participant will not be granted an
option to purchase shares during an offering if, as a result:
. the participant would own stock and/or hold outstanding options to
purchase stock representing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or
of any subsidiary, or
. such option would permit his or her rights to purchase stock under all
employee stock purchase plans of the Company and any of its subsidiaries
or parent corporation to accrue at a rate which exceeds $25,000 of fair
market value of such stock, determined at the time such option is
granted, for each calendar year in which such option is outstanding at
any time.
The purchase price for each share purchased pursuant to the ESPP will be
determined as specified by the Committee prior to the commencement of each
offering and shall not be less than the lesser of (i) 85% of the fair market
value (as determined pursuant to Section 12 of the ESPP) of the Common Stock
on the date of grant of the option; or (ii) 85% of such fair market value at
the time the option is exercised. Shares of Common Stock purchased under the
ESPP may not be sold or transferred within two years of the date of purchase
unless they are first offered to the Company at the lesser of: (i) the price
originally paid for the shares, or (ii) the fair market value per share of the
Common Stock on the date the shares are offered to the Company. A participant
may not transfer any rights to purchase shares of Common Stock under the ESPP
and may exercise such rights only during his or her lifetime.
Unless a participant withdraws from the ESPP, his or her payroll deduction
account will be totaled on the last day of the purchase period. If on this
date the payroll deduction account of a participant has at least an amount
equal to the purchase price of one share of Common Stock, the participant
shall be deemed to have exercised his or her option at the purchase price as
determined under the ESPP and shall be deemed to have purchased the number of
whole shares of Common Stock that his or her accumulated payroll deductions
(and accrued interest, if any, on such amounts) on such date will pay for, but
not in excess of the maximum number determined in the manner set forth above.
At the end of each purchase period, the remaining balance in a participant's
payroll deduction account shall be applied toward purchases during the next
purchase period in the same offering. At the end of the offering period, any
remaining balance shall be refunded to the participant.
A Participant, at any time and for any reason, may withdraw the entire cash
balance then accumulated in his or her payroll deduction account and thereby
withdraw from participating in an offering. Upon withdrawal of the cash
balance in a payroll deduction account, the Participant will cease to be
eligible to participate in the offering pursuant to which the withdrawn funds
were withheld. Partial withdrawals are not permitted. Any cash balance
withdrawn may not be transferred to any payroll deduction account maintained
for the employee pursuant to another offering, whether under the ESPP or under
another plan. A participant who has withdrawn may re-enroll in the next
offering.
Federal Income Tax Consequences
A participating employee will not recognize income at the time rights to
purchase shares are granted to him or her or when the employee exercises such
rights and purchases shares of Common Stock under the ESPP during an offering.
If an employee (i) dies prior to disposing Common Stock acquired under the
ESPP or (ii) sells or otherwise disposes of such Common Stock more than one
year after acquiring it and more than two years after the date on which the
offering commenced (the "Grant Date"), and if the purchase price is less than
the fair market value on the Grant Date, the participant will realize ordinary
income equal to the lesser of (a) the excess of the fair market value of the
Common Stock on the Grant Date over the purchase price or (b) the excess of
the fair market value of the Common Stock on the date of death or disposition
over the price at which the participant purchased the Common Stock. Any gain
upon sale or other disposition in excess of the lesser of the amounts in (a)
or (b) above, if applicable, and, if not, any gain would be treated as a long-
term capital gain. If the sale price of the Common Sock is less than the price
at which the participant purchased the Common Stock, then the participant will
recognize long-term capital loss in an amount equal to the excess of the price
at which the participant purchased the Common Stock over the sale price of the
Common Stock.
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If a participant sells the Common Stock within one year after acquiring it
or within two years after the Grant Date (a "Disqualifying Disposition"), the
participant will recognize ordinary compensation income in an amount equal to
the excess of the fair market value of the Common Stock on the date that it
was purchased over the price at which the participant purchased the Common
Stock. A Participant will also recognize capital gain in an amount equal to
the excess of the sale price of the Common Stock over the fair market value of
the Common Stock on the date that it was purchased, or capital loss in an
amount equal to the excess of the fair market value of the Common Stock on the
date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the
participant has held the Common Stock for more than one year prior to the date
of the sale and will be a short-term capital gain or loss if the Participant
has held the Common Stock for a shorter period.
Under current tax law, long-term capital gain will be taxable at a maximum
federal rate of 20%, and short-term capital gain and ordinary income will be
taxable at a maximum federal rate of 39.6%. However, the effective rate may be
higher due to the phase-out of the deduction for personal exemptions and
otherwise deductible expenses if adjusted gross income exceeds certain levels.
Phase-outs of personal exemptions and reductions of allowable itemized
deductions at higher levels of income may result in slightly higher marginal
tax rates. Ordinary compensation income will also be subject to a Medicare tax
and, under certain circumstances, a social security tax.
The Company is not subject to any tax consequences due to the offering of
Common Stock under the ESPP. Moreover, in general, the Company is not subject
to any tax consequences due to the purchase or the sale of Common Stock
acquired under the ESPP. However, the Company will be entitled to a business-
expense deduction with respect to any ordinary compensation income recognized
by a participant upon making a Disqualifying Disposition. Any such deduction
will be subject to the limitations of Section 162(m) of the Code.
The amount that a participant elects to have deducted from his or her base
pay for the purchase of Common Stock under the ESPP constitutes taxable wages
and is subject to withholding. Moreover, the Company will have a withholding
obligation with respect to ordinary compensation income recognized by a
participant upon making a Disqualifying Disposition. The Company will require
any affected employee to make arrangements to satisfy this withholding
obligation.
Interest, if any, paid on a participant's cash balance in his or her
payroll deduction account is ordinary income to the participant.
* * *
Approval of this proposal requires the affirmative vote of a majority of
the votes eligible to be cast at a meeting of the stockholders of the Company
voting as a single class. Accordingly, abstentions and non-votes will have the
effect of votes against these proposals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
UNIGRAPHICS SOLUTIONS INC. EMPLOYEE STOCK PURCHASE PLAN.
INDEPENDENT AUDITORS
KPMG LLP was the auditor for the fiscal year ended December 31, 1998, and
the Audit Committee intends to select KPMG LLP as auditor for the year ending
December 31, 1999. A representative of KPMG LLP will be present at the meeting
with the opportunity to make a statement and/or respond to appropriate
questions from stockholders.
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STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Under SEC rules, stockholder proposals intended to be presented at the 2000
Annual Meeting and included in the proxy materials for that meeting must be
received no later than December 1, 1999. Proposals may be mailed to the
Secretary of UGS, 13736 Riverport Drive, Maryland Heights, Missouri 63043.
Upon timely receipt of any such proposal, the Company will determine whether
or not to include such proposal in the proxy statement and proxy in accordance
with applicable regulations governing the solicitation of proxies.
Our Bylaws provide for certain procedures which stockholders must follow to
nominate persons for election as directors or to introduce an item of business
at an annual meeting. Generally, the stockholder must notify the Secretary of
UGS of the nomination or proposal not less than 90 days nor more than 120 days
before the first anniversary of the previous years' annual meeting (or, in the
event that the date of the annual meeting is advanced by more than 20 days or
delayed by more than 70 days from such anniversary date, not earlier than the
120th day prior to such meeting and not later than the later of (x) the 90th
day prior to such meeting and (y) the 10th day after public announcement of
the date of such meeting is first made). Notwithstanding the foregoing, in the
event that the number of directors to be elected is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Company at least 100 days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice will be timely, but only with respect to nominees for any
new positions created by such increase, if it is received by the Company not
later than the 10th day after such public announcement is first made by the
Company. Under the Bylaws, for notice of a stockholder nomination to be made
at a special meeting at which directors are to be elected to be timely, such
notice must be received by the Company not earlier than the 120th day before
such meeting and not later than the later of (x) the 90th day prior to such
meeting and (y) the 10th day after public announcement of the date of such
meeting is first made. In the case of special meetings of stockholders, only
such business as is set forth in the notice of meeting may be conducted. The
foregoing time limits also apply in determining whether notice is timely for
purposes of rules adopted by the Securities and Exchange Commission relating
to the exercise of discretionary voting authority.
Such stockholders must be entitled to vote at the meeting and be holders of
record at the time they furnish such notice. The notice must be delivered to
the Secretary at our principal executive officers and include the name and
address of the stockholder and of any beneficial owner, if any, on whose
behalf the proposal or nomination is made, and the class and number of shares
which are owned beneficially and of record by such stockholder and such
beneficial owner. If the notice relates to a nomination for director, it must
also set forth all information regarding each nominee as would have been
required to be included in a proxy statement filed pursuant to the SEC's proxy
rules (including the written consent of each nominee to being named in the
proxy statement as a nominee and to serving as a director, if elected). Notice
of an item of business is also required to include a description of the
proposed business, the reason for conducting the proposed business at the
annual meeting and any material interest in such business of such stockholder
and any beneficial owner, if any, on whose behalf the proposal is made. Copies
of our Bylaws are available from the Secretary of UGS.
The foregoing requirements do not apply to EDS or its affiliates prior to
the date EDS ceases to be the beneficial owner of at least a majority of the
voting power of the voting stock of the Company then outstanding. These Bylaw
requirements are separate from and in addition to the requirements a
stockholder must meet to have a proposal included in the Company's proxy
statement.
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Form 10-K
A copy of UGS' Annual Report on Form 10-K as filed with the SEC is included
with this Proxy Statement, as well as a Summary Annual Report. UGS will
provide an additional copy of the Form 10-K to any stockholder upon written
request to UGS Investor Relations, 13736 Riverport Drive, Maryland Heights,
Missouri 63043.
By order of the Board of Directors,
/s/ Douglas E. Barnett
---------------------------------
Douglas E. Barnett
Vice President, Chief Financial
Officer
and Secretary
April 8, 1999
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EXHIBIT A
UNIGRAPHICS SOLUTIONS INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Name and Purpose
The name of this Plan is the "Unigraphics Solutions Inc. Employee Stock
Purchase Plan" (hereinafter referred to as the "Plan"). The purpose of the
Plan is to attract, retain and motivate employees of Unigraphics Solutions
Inc., a Delaware corporation ("Unigraphics"), and its designated subsidiaries,
and provide them an incentive to contribute to and share in the continued
success of Unigraphics and its subsidiaries by enabling such employees to
acquire shares of Class A Common Stock, $.01 par value per share (the
"Unigraphics Stock"), of Unigraphics, in the manner contemplated by the Plan.
Rights to purchase Unigraphics Stock offered pursuant to the Plan are a matter
of separate inducement and not in lieu of any salary or other compensation for
the services of any employee. The Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Amount of Stock Subject to the Plan; Payment of Shares
The total number of shares of Unigraphics Stock that may be purchased
pursuant to rights of purchase granted under the Plan shall not exceed 500,000
shares of the authorized Unigraphics Stock. In the discretion of the Board of
Directors of Unigraphics (the "Board of Directors") or its delegate, such
shares may be: (i) shares acquired by the Company or an independent plan
administrator in open market or privately negotiated transactions; (ii)
treasury shares previously acquired by Unigraphics; or (iii) authorized but
unissued shares. If a right of purchase under the Plan expires or is
terminated unexercised for any reason, the shares as to which such right so
expired or terminated again may be made subject to a right of purchase under
the Plan. Notwithstanding anything to the contrary herein, if the total number
of shares which would otherwise be subject to options granted under the Plan
exceeds the total number of shares then available for purchase under the Plan
or any limit on the number of shares that may be purchased during an offering
as specified by the Committee in accordance Sections 5 and 10 (after deduction
of all shares for which options have been exercised or are then outstanding),
Unigraphics shall make a pro rata allocation of the shares remaining available
for option in as uniform manner as shall be practicable and as it shall
determine to be equitable. In such event, Unigraphics shall give written
notice of such reduction of the number of shares subject to the option to each
employee affected thereby and shall similarly reduce the rate of
contributions, if necessary.
3. Administration
The Compensation Committee of the Board of Directors (the "Committee")
shall appoint or engage any person or persons as an administrator (the
"Administrator") of the Plan, who may be, but shall not be required to be, a
member of the Committee. Any person engaged or delegated to be the
Administrator who is not an employee of Unigraphics, shall be required to be
bonded and insured for errors and omissions insurance in such amounts and by
such carrier as is deemed suitable and appropriate by the Committee. The
Committee and the Administrator shall administer the Plan all as provided
herein. The Committee shall hold meetings at such times and places as it may
determine and may take action by unanimous written consent or by means of a
meeting held by conference telephone call or similar communications equipment
pursuant to which all persons participating in the meeting can hear each
other. The Committee may request advice or assistance or employ such other
persons as it deems necessary for proper administration of the Plan. Subject
to the express provisions of the Plan and the requirements of applicable law,
the Committee shall have authority, in its discretion, to determine when each
offering hereunder of rights to purchase shares (hereinafter "offering") shall
be made, the duration of each offering, the dates on which the purchase period
for each offering shall begin and end, the total number of shares subject to
each offering, the purchase price of shares subject to each offering and the
exclusion of any classes of employees pursuant to Section 4(ii). Subject to
the express provisions of the Plan, the Committee has discretionary authority:
(a) to construe offerings, the Plan and the respective rights to purchase
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shares; (b) to prescribe, amend and rescind rules and regulations relating to
the Plan; and (c) to make all other determinations necessary or advisable for
administering and carrying out the purposes of the Plan. The determination of
the Committee with respect to matters referred to in this Section 3 as within
its province shall be conclusive, except that, to the extent required by law
or by the Certificate of Incorporation or By-Laws of Unigraphics, the terms of
any offering shall be subject to ratification by the Board of Directors or the
Committee prior to the effective date of such offering.
4. Eligibility
No right to purchase shares shall be granted hereunder to a person who is
not an employee of Unigraphics or a subsidiary corporation, now existing or
hereafter formed or acquired. As used in the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the meanings respectively
given to such terms in Sections 424(e) and 424(f) of the Code. Each offering
shall be made to all employees of Unigraphics and to all employees of any
subsidiary corporation as is designated by the Committee to participate in the
Plan, excluding: (i) employees whose customary employment is 20 hours or less
per week or not more than five months in any calendar year; (ii) in the
discretion of the Committee, as specified in the terms of any offering,
"highly compensated employees" within the meaning of Section 414(q) of the
Code; and (iii) any employee who, immediately after the grant of a right to
purchase stock pursuant to an offering, owns stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the
employee's employer or of any subsidiary or parent corporation of the
employee's employer (in determining stock ownership of an individual, the
rules of Section 424(d) of the Code shall be applied; shares that the employee
may purchase under outstanding rights of purchase and options shall be treated
as stock owned by him; and the Committee and the Administrator may rely on
representations of fact made to them by the employee and believed by them to
be true).
5. Offerings
The Committee may make grants to all eligible employees of Unigraphics and
to all eligible employees of any subsidiary corporation as is designated by
the Committee to participate in the Plan of rights to purchase shares under
the terms hereinafter set forth. The Committee shall have the authority to
specify the terms and conditions of each offering, including its effective
date, the duration of such offering and the purchase period thereunder, the
number of shares that may be purchased thereunder, the purchase price for such
shares and the class of employees, if any, that are to be excluded pursuant to
Section 4(ii). During the purchase period specified in the terms of an
offering (or during such portion thereof as an eligible employee may elect to
participate), payroll deductions shall be made from such employee's
compensation pursuant to Sections 6 and 7. Any stated purchase period shall
end no later than 27 months from the effective date of any offering hereunder.
The measure of an employee's participation in an offering shall be such
employee's total compensation for the purchase period specified in such
offering (or for such portion thereof as the employee is eligible to
participate), subject to appropriate adjustments that would exclude items such
as reimbursement of moving, travel, trade or business expenses.
6. Participation
An employee eligible on the effective date of an offering or thereafter
during the offering may participate in such offering by completing a
participation agreement (in such form and manner as may be approved by the
Board of Directors or the Committee) and forwarding it to the Administrator at
any time prior to the beginning of the next payroll period in which payroll
deductions will be made. Using the participation agreement, the employee must
authorize a regular payroll deduction from the employee's compensation and
must specify the date on which such employee's deduction and participation in
the Plan is to commence, which may not be retroactive. An employee shall be
considered a "Participant" in the Plan as of the payroll date of the first
payroll deduction. By submitting a participation agreement, each Participant
will be deemed to have authorized the establishment of a brokerage account in
his or her name at a firm approved by the Board of Directors or the Committee
which shall serve as custodial agent for the purpose of holding shares
purchased under the Plan.
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7. Deductions
With respect to any offering made under the Plan, an employee may authorize
a payroll deduction of any whole percentage up to a maximum of 10% of the
total compensation he or she receives during the purchase period specified in
an offering (or during such portion thereof as he or she may be eligible or
elect to participate). All payroll deductions made by a Participant shall be
credited to his or her account under the Plan. A Participant may not make any
additional payments into such account.
8. Deduction Changes
At any time prior to the end of the applicable purchase period, a
Participant may change or temporarily discontinue payroll deductions by filing
a new payroll deduction authorization form. Notwithstanding, no Participant
shall be entitled to change a payroll deduction more than twice or to
temporarily discontinue a payroll deduction more than once during any purchase
period. In addition, no such change or discontinuance shall become effective
sooner than the next payroll period after the Participant properly registered
a change to the payroll deduction authorization information then on file with
the Administrator.
9. Withdrawal of Funds
A Participant may at any time and for any reason withdraw the entire cash
balance then accumulated in such Participant's payroll deduction account and
thereby withdraw from participating in an offering. Upon withdrawal of the
cash balance in a payroll deduction account, such Participant shall cease to
be eligible to participate in the offering pursuant to which the withdrawn
funds were withheld. Partial withdrawals shall not be permitted. Any cash
balance withdrawn in accordance with this Section 9 may not be transferred to
any payroll deduction account maintained for the employee pursuant to another
offering, whether under the Plan or under another such plan.
10. Right of Purchase--Option for a Maximum Number of Shares
The right of an employee to purchase stock pursuant to an offering under
the Plan shall be an "option" (and an offering shall be the "grant" of such
option). Notwithstanding any other provision hereunder, during any offering,
no Participant may purchase more than the maximum number of shares determined
by dividing: (i) 15% of the employee's monthly base salary, determined as of
the date of the offering or the commencement of such Participant's
participation in the offering (in accordance with Section 6), whichever is
later, multiplied by the number of months in the offering period or, if the
Participant begins participating after the commencement of the offering, the
number of months such Participant can participate in the offering, whichever
is less; by (ii) the fair market value of a share determined as of the date of
the offering in the manner set forth in Section 12. Subject to the foregoing
sentence, the Committee, in its sole discretion, may also impose per-
Participant and aggregate limits on the number of shares that may be purchased
under the Plan during any offering.
11. Maximum Allotment of Rights of Purchase
Any right to purchase shares under the Plan shall be subject to the
limitations of Section 423(b)(8) of the Code (generally limiting accrual of
the right of any employee to purchase shares under all employee stock purchase
plans of Unigraphics and any subsidiary or parent corporation, qualified under
Section 423 of the Code, to an annual rate of $25,000 in fair market value).
12. Purchase Price
The purchase price for each share under each right of purchase granted
pursuant to an offering shall be not less than the lesser of: (i) an amount
equal to 85% of the fair market value (defined below) of such share at the
time the right to purchase is granted; or (ii) an amount equal to 85% of the
fair market value of such share at the time the right to purchase is
exercised. The "fair market value" of a share of Unigraphics Stock on any
given
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date shall be the mean between the high and low sale prices on the New York
Stock Exchange Composite Tape for Unigraphics Stock, as reported by the Dow
Jones News/Retrieval Service of Dow Jones and Company, Inc., on such date or
on the date immediately prior thereto on which such prices for Unigraphics
Stock are so reported or, if not so reported, as reported in a newspaper of
national circulation selected by the Committee or, in case no such sales take
place on such date, the mean of the closing bid and asked prices (regular way)
on the New York Stock Exchange Composite Tape on such date or, if the
Unigraphics Stock is not then listed or admitted to trading on the New York
Stock Exchange, the mean between the high and low sale prices on such date or,
in case no sales take place on such date, the mean of the closing bid and
asked prices (regular way) on the largest principal national securities
exchange on which such stock is then listed or admitted to trading, or if not
listed or admitted to trading on any principal national securities exchange,
then the last reported sales prices for such shares in the over-the-counter
market, as reported on the National Association of Securities Dealers
Automated Quotations System or, if such sale prices shall not be reported
thereon, the mean of the closing bid and asked prices as reported thereon, or
if such prices shall not be reported thereon, as the same shall be reported by
the National Quotation Bureau Incorporated, or, in all other cases, the mean
of two appraisals of fair market value, each of which shall be furnished by a
New York Stock Exchange member firm selected by the Committee for that
purpose. In the event the funds in the payroll deduction account of a
participating employee are in a currency other than United States dollars on
any investment date (as defined below), for purposes of determining the
maximum whole number of shares that may be purchased pursuant to Section 13,
such funds shall be deemed to have been converted into United States dollars
based upon the foreign exchange selling rates, as reported by the Dow Jones
News/Retrieval Service of Dow Jones and Company, Inc., on such date, or if not
so reported on such date, as reported on the next preceding date on which such
rates are reported.
13. Method of Payment
As of the last day of each purchase period (each of such dates being known
as an "investment date"), the payroll deduction account of each Participant
shall be totaled. If on an investment date, the payroll deduction account of a
Participant has at least an amount equal to the purchase price of one whole
share of Unigraphics Stock then, on such investment date such Participant
shall purchase, without any further action, the maximum whole number of shares
(subject to the limitation provided in Section 10) possible at the fair market
value of such shares as determined in accordance with Section 12 together with
any fees or charges associated with such purchase that can be purchased with
the funds in such Participant's payroll deduction account, provided that
fractional shares may not be purchased. The Participant's payroll deduction
account shall be charged for the amount of the purchase and a stock
certificate shall be issued for the benefit of the Participant as soon
thereafter as practicable for the shares so purchased, which certificate may
be issued in nominee name. Participant's payroll deduction account at the end
of each purchase period shall be applied toward purchases during the next
purchase period in the same offering. Except as provided otherwise by the
Committee in connection with any offering, all funds in payroll deduction
accounts may be used by Unigraphics for its general corporate purposes as the
Board of Directors shall determine. However, the last purchase on the last
investment date of an offering shall be for the maximum whole number of shares
(subject to the limitation provided in Section 10) possible that can be
purchased with the funds available in such Participant's payroll deduction
account, and all cash remaining in such Participant's payroll deduction
account thereafter shall be returned to the Participant.
14. Issuance of Certificates and Payment of Expenses
Upon request and after expiration of applicable restrictions, certificates
representing shares purchased under the Plan may be issued in the name of the
employee or, if he/she so indicates on an appropriate form: (i) in such
Participant's name jointly with a member of such Participant's family, with
right of survivorship; (ii) in the name of a fiduciary for the employee (in
the event the employee is under a legal disability to have certificates issued
in such Participant's name); or (iii) in a manner giving effect to the status
of such shares as community property in jurisdictions where applicable. Upon
termination of employment, certificates representing both restricted and
nonrestricted shares purchased under the Plan will be issued in the name of
the employee and forwarded to such Participant's account address on file with
the Plan's transfer agent of record. In the event of a final non-
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appealable court-ordered account distribution, certificates representing both
restricted and nonrestricted shares purchased under the Plan will be issued in
the name and to the address specified in the court documents provided to the
office of the Administrator. Unigraphics shall pay all issue or initial
transfer taxes of Unigraphics with respect to the issuance or initial transfer
of shares, as well as all fees and expenses necessarily incurred by
Unigraphics in connection with such issuance or initial transfer.
15. Condition Upon Issuance of Shares
Notwithstanding anything to the contrary in the Plan, shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic, or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for Unigraphics with respect to such compliance. Based on the
foregoing, the terms and conditions of options granted hereunder to, and the
purchase of shares by, persons subject to Section 16 of the Exchange Act shall
comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed
to contain, and options granted under the Plan shall contain, and the shares
issued upon exercise thereof shall be subject to, such additional conditions
and restrictions as may be required by Rule 16b-3 to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
16. Rights as a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares covered by a right of purchase until a stock certificate for such
shares is issued to the benefit of such Participant, which stock certificate
may be issued in nominee name. No adjustment will be made for dividends
(ordinary or extraordinary, whether in cash or in other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 20.
17. Sale of Stock
Shares of stock purchased under the Plan may not be sold or transferred
within two years of the date of purchase unless they are first offered to
Unigraphics (as designated by the Committee) at the lesser of: (i) the price
originally paid for the shares; or (ii) the fair market value (as determined
in accordance with Section 12) per share of Unigraphics Stock on the date the
shares are offered to Unigraphics. Unigraphics must accept or reject this
offer at the office of the Administrator within five business days of receipt
of the offer. Shares issued under the Plan will carry a restrictive legend to
this effect.
18. Purchase for Investment
The Committee may require each person purchasing shares pursuant to an
option to represent to and agree with Unigraphics in writing that such person
is acquiring the shares for investment and without a view to distribution or
resale.
19. Rights Not Transferable
Rights to purchase shares under the Plan are not transferable by a
participating employee and may be exercised only by such Participant during
such Participant's lifetime.
20. Adjustment of Shares
If any change is made in the number, class or rights of shares subject to
the Plan or subject to any offering under the Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, split-up,
A-5
<PAGE>
combination of shares, exchange of shares, issuance of rights to subscribe or
other change in capital structure), appropriate adjustments shall be made as
to the maximum number of shares subject to the Plan and the number of shares
and price per share subject to outstanding rights of purchase as shall be
equitable to prevent dilution or enlargement of such rights; provided,
however, that any such adjustment shall comply with the rules of Section
424(a) of the Code if the transaction is one described in said Section 424(a).
21. Retirement, Termination and Death
In the event of a Participant's retirement or termination of employment,
the amount in any Participant's payroll deduction account shall be refunded to
such Participant and the restricted and nonrestricted shares of stock held for
such Participant's benefit by the Plan shall be issued to such Participant,
and in the event of such Participant's death, such amount and stock shall be
paid and issued to such Participant's estate.
22. Amendment of the Plan
This Plan may be amended at any time by the Board of Directors or the
Committee, provided that no amendment may change any option granted under the
Plan which adversely affects the rights of the holder of such option.
Notwithstanding the foregoing, without the approval of the stockholders of
Unigraphics entitled to vote thereon, no amendment shall become effective if
it would: (i) increase the number of shares reserved for rights of purchase
under the Plan; or (ii) modify the provisions of this Plan that govern
eligibility for participation in the Plan.
23. Termination of the Plan
The Board of Directors or the Committee may suspend or terminate the Plan
at any time. Any cash balances remaining in Participants' payroll deduction
accounts upon termination of the Plan shall be refunded as soon thereafter as
practicable. The powers of the Committee provided by Section 3 to construe and
administer any right to purchase shares granted prior to the termination of
the Plan shall nevertheless continue after such termination.
24. Listing of Shares and Related Matters
If at any time the Committee shall determine, based on opinion of counsel,
that the listing, registration or qualification of the shares covered by the
Plan upon any national securities exchange or under any state or Federal law
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
shares under the Plan, no shares will be sold, issued or delivered unless and
until such listing, registration, qualification, consent or approval shall
have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to counsel.
25. Third Party Beneficiaries
None of the provisions of the Plan shall be for the benefit of or
enforceable by any creditor of a Participant. A Participant may not create a
lien on any portion of the cash balance accumulated in such Participant's
payroll deduction account or on any shares covered by a right to purchase
before a stock certificate for such shares is issued for such Participant's
benefit.
26. General Provisions
The Plan shall neither impose any obligation on Unigraphics or on any
subsidiary corporation to continue the employment of any Participant or
eligible employee, nor impose any obligation on any Participant to remain in
the employ of Unigraphics or of any subsidiary corporation. For purposes of
the Plan, an employment relationship shall be deemed to exist between an
individual and a corporation if, at the time of the determination, the
individual was an "employee" of such corporation within the meaning of Section
423(a)(2) of the Code and
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<PAGE>
the regulations and rulings interpreting such Section. For purposes of the
Plan, the transfer of an employee from employment with Unigraphics to
employment with a subsidiary of Unigraphics, or vice versa, shall not be
deemed a termination of employment of the employee. Subject to the specific
terms of the Plan, all employees granted rights to purchase shares hereunder
shall have the same rights and privileges.
27. No Effect on Other Benefits
The grant of options under the Plan shall have no effect on any other
benefits to which a Participant may be entitled from Unigraphics or of any
subsidiary corporation, under a another plan or otherwise, or preclude a
Participant from receiving any such benefits.
28. Interest
Absent a determination to the contrary by the Committee, in its sole
discretion, no interest shall accrue on any of the cash balance accumulated in
a Participant's payroll deduction account.
29. Notices
All notices or other communications by a Participant to the Committee or
the Administrator under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Committee or the
Administrator at the location, or by the person, designated by the Committee
or the Administrator for the receipt thereof.
30. Governing Law
Except where jurisdiction is exclusive to the federal courts or except as
governed by federal law, the Plan and rights to purchase shares that may be
granted hereunder shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
31. Effective Date
The Plan shall be effective as of April 15, 1999; provided, however, that
no purchase period under the Plan may begin until a Registration Statement
under the Securities Act of 1933, as amended, covering the shares to be issued
under the Plan has become effective; and provided further that the Plan shall
be approved by the stockholders of Unigraphics within one year before or after
approval by the Board of Directors. Any offerings made prior to the approval
by the stockholders of Unigraphics and options granted under such offerings
shall be void if such approval is not obtained.
32. Deposit of Certificated Shares
Any employee of Unigraphics who holds Unigraphics Stock certificates issued
in any manner specified in Section 14(i)-(iii) representing shares of
Unigraphics Stock, may deposit the Unigraphics Stock certificates into the
brokerage account, if any, established for the purpose of holding shares
purchased under the Plan by transferring such shares into nominee name. Any
such transfer of certificated shares shall be made pursuant to procedures
established by the Administrator. Any employee who elects to transfer shares
into nominee name pursuant to this Section is not required to participate
pursuant to Plan Sections 6 and 7.
33. Retirees
Notwithstanding anything to the contrary in Section 14 or elsewhere in the
Plan, Retirees who, by reason of Section 6 acquired shares pursuant to the
Plan, may continue to hold such shares in nominee name but may not purchase
any additional shares pursuant to Sections 6 and 7.
A-7
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[_]
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.)
1. Election of Directors
FOR all nominees listed below [X]
WITHHOLD AUTHORITY to vote for all nominees listed below [X]
*EXCEPTIONS [X]
Nominees: John A. Adams and John J. Mazzola
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions ____________________________________________________________________
2. Approval of Unigraphics Solutions Inc. Employee Stock Purchase Plan.
FOR [X] AGAINST [X] ABSTAIN [x]
This proxy will be voted as specified. If no specification is made, this proxy
will be voted for Proposal 1 and Proposal 2 and in the discretion of the proxies
upon such other business as may properly come before this meeting and any
adjournments or postponements thereof.
Change of Address and or Comments Mark Here [X]
Please sign exactly as name or names appear on this proxy. When signing as
attorney, executor, administrator, trustee, custodian, guardian or corporate
officer, give full title. If more than one trustee, all should sign. If stock is
owned in joint names, all should sign.
Dated:_______________________________
_____________________________________
Signature
_____________________________________
Signature
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)
Votes must be indicated (x) in Black or Blue ink. [X]
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UNIGRAPHICS SOLUTIONS INC.
PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UNIGRAPHICS SOLUTIONS INC. FOR THE ANNUAL MEETING OF STOCKHOLDERS
ON MAY 19, 1999
The undersigned hereby authorizes Jeffrey M. Heller, John J. Mazzola and J.
Randall Walti, and each or any of them, the true and lawful attorneys-in-fact,
agents and proxies of the undersigned, with power to appoint his substitute, to
vote as Proxy for the undersigned at the Annual Meeting of Stockholders to be
held at the Radisson Hotel -- St. Louis Airport, 11228 Lone Eagle Drive,
Bridgeton, Missouri 63044, on May 19, 1999 at 11:00 A.M., Central Time, or any
adjournment or postponement thereof, the number of shares of Class A Common
Stock or Class B Common Stock which the undersigned would be entitled to vote if
personally present. The proxies shall vote subject to the directions indicated
on the reverse side of this card and proxies are authorized to vote in their
discretion upon such other business as may properly come before the meeting and
any adjournments or postponements thereof.
Address Change/Comments:________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(IF YOU HAVE WRITTEN IN THE ABOVE SPACE, PLEASE MARK THE BOXES FOR
"COMMENTS/CHANGE OF ADDRESS" ON THE REVERSE SIDE OF THIS CARD SO THAT YOUR
COMMENTS CAN BE DIRECTED TO THE APPROPRIATE GROUP FOR REVIEW.)
UNIGRAPHICS SOLUTIONS INC.
P.O. BOX 11200
NEW YORK, N.Y. 10203-0200
(CONTINUED, AND PLEASE SIGN ON REVERSE SIDE.)
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