<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
(DATED APRIL 19, 1996)
TO
SCHEDULE 13E-3/A
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
GENERAL MOTORS CORPORATION
(NAME OF ISSUER)
GENERAL MOTORS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
CLASS E COMMON STOCK
(TITLE OF CLASS OF SECURITIES)
37044240
(CUSIP NUMBER OF CLASS OF SECURITIES)
J. MICHAEL LOSH
EXECUTIVE VICE PRESIDENT
GENERAL MOTORS CORPORATION
3044 WEST GRAND BOULEVARD
DETROIT, MICHIGAN 48202-3091
(313) 556-3549
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPIES TO :
WARREN G. ANDERSEN ROBERT S. OSBORNE, P.C.
GENERAL MOTORS CORPORATION KIRKLAND & ELLIS
3031 WEST GRAND BOULEVARD 200 EAST RANDOLPH ST.
DETROIT, MICHIGAN 48202-3091 CHICAGO, ILLINOIS 60601-6636
(313) 974-1528 (312) 861-2368
This statement is filed in connection with (check the appropriate box):
a.[X]The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [XThe]filing of a registration statement under the Securities Act of
1933.
c.[_]A tender offer.
d. [_None]of the above.
Check the following box if soliciting materials or an information statement
referred to in checking box (a) are preliminary copies: [X]
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<PAGE>
ITEMS 1 THROUGH 17. INTRODUCTION
This Rule 13e-3 Transaction Statement is being filed by General Motors
Corporation, a Delaware corporation ("General Motors"), in connection with a
split-off (the "Split-Off") of General Motors' wholly owned subsidiary,
Electronic Data Systems Holding Corporation, a Delaware corporation (together
with its subsidiaries, "EDS"), pursuant to a merger in which each outstanding
share of General Motors Class E Common Stock, $0.10 par value per share (the
"Class E Common Stock"), will be converted into one share of EDS Common Stock,
$0.01 par value per share (the "EDS Common Stock"). As a result of the Split-
Off, EDS will become an independent, publicly held company, holders of Class E
Common Stock will become stockholders of EDS rather than of General Motors,
and Class E Common Stock will cease to exist. All other outstanding shares of
General Motors capital stock will remain outstanding, and the terms of such
stock will remain essentially unchanged.
EDS has filed a Registration Statement on Form S-4 (as amended and including
exhibits, the "Registration Statement") with the Securities and Exchange
Commission concurrently herewith in connection with the Split-Off.
The cross reference sheet on the following pages, which is supplied pursuant
to General Instruction F to Schedule 13E-3, shows the location in the
Solicitation Statement/Prospectus that forms a part of the Registration
Statement of the information required to be included in response to the items
of this Transaction Statement. The information set forth in the Registration
Statement, which is attached hereto as Exhibit (d)(1), is incorporated herein
by reference in its entirety, and responses to each item herein are qualified
in their entirety by such reference.
ITEM 16. ADDITIONAL INFORMATION
The information contained in the Registration Statement is incorporated
herein by reference in its entirety.
1
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
Exhibit (a)(1) Not Applicable.
Exhibit (b)(1) Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), dated March 31, 1996, which
is attached as Appendix B-1 to the Solicitation
Statement/Prospectus that forms a part of the Registration
Statement filed as Exhibit (d)(1) hereto.
Exhibit (b)(2) Opinion of Lehman Brothers Inc. ("Lehman Brothers"), dated
March 31, 1996, which is attached as Appendix B-2 to the
Solicitation Statement/Prospectus that forms a part of the
Registration Statement filed as Exhibit (d)(1) hereto.
Exhibit (b)(3) Opinion of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), dated March 31, 1996, which is attached as
Appendix B-3 to the Solicitation Statement/Prospectus that
forms a part of the Registration Statement filed as Exhibit
(d)(1) hereto.
Exhibit (b)(4) Presentation to the General Motors Board of Directors
Regarding Split-Off of EDS, dated March 31, 1996, given by
Merrill Lynch.
Exhibit (b)(5) Presentation to the General Motors Board of Directors
Concerning the Split-Off of EDS, dated March 31, 1996, given by
Morgan Stanley and Lehman Brothers.
Exhibit (c)(1) Merger Agreement dated as of April , 1996 between General
Motors and GM Mergeco Corporation ("Mergeco"), which is
attached as Appendix A to the Solicitation Statement/
Prospectus that forms a part of the Registration Statement
filed as Exhibit (d)(1) hereto.
Exhibit (d)(1) Registration Statement.
Exhibit (e)(1) Not Applicable.
Exhibit (f)(1) Not Applicable.
2
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
1.Issuer and Class of Security
Subject to the Transaction
(a)............................ Introduction; Summary--General Motors
(b)............................ Introduction; Class E Common Stock--
Introduction; Solicitation of Written
Consent of General Motors Common
Stockholders
(c)............................ Class E Common Stock--Price Range and
Dividends
(d)............................ Risk Factors Regarding General Motors
after the Split-Off--Loss of Potential
Availability of EDS Funds and Assets;
Class E Common Stock--Price Range and
Dividends;--Dividend Policy;--
Considerations Relating to Multi-Class
Common Stock Capital Structure
(e)............................ Security Ownership of Certain Beneficial
Owners and Management of General Motors
and EDS--GM Hourly Plan Special Trust
(f)............................ See Annex 1 to this Transaction
Statement.
2.Identity and Background......... General Motors, the person filing this
Transaction Statement, is the issuer of
the class of equity securities which is
the subject of the Rule 13e-3
transaction.
(a)............................ The persons enumerated in General
Instruction C to Schedule 13E-3 (each,
an "Instruction C Person") are John F.
Smith, Jr., Anne L. Armstrong, John H.
Bryan, Thomas E. Everhart, Charles T.
Fisher, III, J. Willard Marriott, Jr.,
Ann D. McLaughlin, Harry J. Pearce,
Edmund T. Pratt, Jr., John G. Smale,
Louis W. Sullivan, Dennis Weatherstone,
Thomas H. Wyman, J. Michael Losh, G.
Richard Wagoner, Jr., Louis R. Hughes,
J.T. Battenberg, III and C. Michael
Armstrong.
(b)............................ See Annex 1 to this Transaction
Statement.
(c)............................ See Annex 1 to this Transaction
Statement.
(d)............................ See Annex 1 to this Transaction
Statement.
(e)............................ To the best of General Motors' knowledge,
during the past five years, no
Instruction C Person has been convicted
in a criminal proceeding (excluding
traffic violations or similar
misdemeanors).
(f)............................ To the best of General Motors' knowledge,
during the past five years, no
Instruction C Person has been party to a
civil proceeding of a judicial or
administrative body of competent
jurisdiction and as a result of such
proceeding was or is subject to a
judgment, decree or final order
enjoining further violations of, or
prohibiting activities subject to,
federal or state securities laws or
finding any violation of such laws.
(g)............................ Each Instruction C Person is a U.S.
citizen.
3.Past Contacts, Transactions or
Negotiations
(a)............................ Not Applicable
(b)............................ Incorporation of Certain Documents by
Reference; Special Factors--Background
of the Split-Off; Security Ownership of
Certain Beneficial Owners and Management
of General Motors and EDS--GM Hourly
Plan Special Trust
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
4.Terms of Transaction
(a)............................ The Split-Off; Relationship Between
General Motors and EDS--Post Split-Off
Arrangements; EDS Capital Stock
(b)............................ Not Applicable
5.Plans or Proposals of the Issuer
or Affiliate
(a)............................ Not Applicable
(b)............................ Not Applicable
(c)............................ Not Applicable
(d)............................ Not Applicable
(e)............................ Not Applicable
(f)............................ Not Applicable
(g)............................ Not Applicable
6.Source and Amounts of Funds or
Other Consideration
(a)............................ Estimated Fees and Expenses
(b)............................ Estimated Fees and Expenses
(c)............................ Not Applicable
(d)............................ Not Applicable
7.Purpose(s), Alternatives,
Reasons and Effects
(a)............................ Special Factors--Purposes of the Split-
Off
(b)............................ Special Factors--Alternatives to the
Split-Off
(c)............................ Special Factors--Alternatives to the
Split-Off;--Background of the Split-Off
(d)............................ Special Factors--Effects of the Split-
Off;--Certain U.S. Federal Income Tax
Considerations
8.Fairness of the Transaction
(a)............................ Special Factors--Recommendations of the
Capital Stock Committee and the GM
Board; Fairness of the Transactions;
The Split-Off
(b)............................ Special Factors--Recommendations of the
Capital Stock Committee and the GM
Board; Fairness of the Transactions
(c)............................ Special Factors--Requisite Vote for the
Transactions; The Split-Off--Merger
Agreement; Solicitation of Written
Consent of General Motors Common
Stockholders
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
(d)............................ Special Factors--Requisite Vote for the
Transactions
(e)............................ Special Factors--Recommendations of the
Capital Stock Committee and the GM
Board; Fairness of the Transactions; The
Split-Off
(f)............................ Not Applicable
9.Reports, Opinions, Appraisals
and Certain Negotiations
(a)............................ Special Factors--Fairness Opinions
(b)............................ Special Factors--Fairness Opinions
(c)............................ Special Factors--Fairness Opinions;
Appendix B--Fairness Opinions
10.Interest in Securities of the
Issuer
(a)............................ Security Ownership of Certain Beneficial
Owners and Management of General Motors
and EDS; See also Annex 1 to this
Transaction Statement.
(b)............................ See Annex 1 to this Transaction
Statement.
11.Contracts, Arrangements or
Understandings with Respect to
the Issuer's Securities....... The Split-Off--Merger Agreement
12.Present Intention and
Recommendation of Certain
Persons with Regard to the
Transaction
(a)............................ Solicitation of Written Consent of
General Motors Common Stockholders.
Other than as set forth in such section,
General Motors has not received any
notice of intent with respect to the
vote on the Split-Off from any person
enumerated in Item 12(a) of Schedule
13E-3.
(b)............................ Special Factors--Background of the Split-
Off;--Recommendations of the Capital
Stock Committee and the GM Board;
Fairness of the Transactions; The Split-
Off; Solicitation of Written Consent of
General Motors Common Stockholders.
Other than as set forth in such
sections, General Motors has not
received any notice that any person
enumerated in Item 12(a) of Schedule
13E-3 has made any recommendation with
respect to the Split-Off.
13.Other Provisions of the
Transaction
(a)............................ The Split-Off--No Appraisal Rights
(b)............................ Not Applicable
(c)............................ Not Applicable
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
14.Financial Statements
(a)............................ Incorporation of Certain Documents By
Reference; Summary--Certain Per Share
and Other Financial Information--GM
Common Stock Historical Per Share Data;
--General Motors Ratios of Earnings to
Fixed Charges
(b)............................ Summary--Certain Per Share and Other
Financial Information--GM Common Stock
Pro Forma Per Share Data;--General
Motors Summary Consolidated Historical
and Pro Forma Financial Data; General
Motors Unaudited Pro Forma Condensed
Consolidated Financial Statements
15.Persons and Assets Employed,
Retained or Utilized
(a)............................ Special Factors--Background of the Split-
Off--Negotiating Teams; Solicitation of
Written Consent of General Motors Common
Stockholders
(b)............................ Solicitation of Written Consent of
General Motors Common Stockholders
16.Additional Information.......... The information contained in the
Registration Statement is incorporated
by reference herein in its entirety.
17.Material to be Filed as Exhibits
(a)............................ Not Applicable
(b)............................ Fairness opinions of each of Merrill
Lynch, Lehman Brothers and Morgan
Stanley, which are attached as Appendix
B-1, B-2 and B-3, respectively, to the
Solicitation Statement/Prospectus that
forms a part of the Registration
Statement filed as Exhibit (d)(1)
hereto; Presentations to the General
Motors Board of Directors given by (i)
Merrill Lynch and (ii) Lehman Brothers
and Morgan Stanley, which are filed as
Exhibits (b)(4) and (b)(5) hereto,
respectively
(c)............................ Merger Agreement between General Motors
and Mergeco, which is attached as
Appendix A to the Solicitation
Statement/Prospectus that forms a part
of the Registration Statement filed as
Exhibit (d)(1) hereto
(d)............................ Registration Statement filed as Exhibit
(d)(1) hereto
(e)............................ Not Applicable
(f)............................ Not Applicable
</TABLE>
6
<PAGE>
ANNEX 1
ITEM 1(F). ISSUER AND CLASS
Since January 1, 1994, General Motors has purchased Class E Common Stock on
four occasions. On February 22, 1995, General Motors purchased 106,000 shares
of Class E Common Stock at a price of $38.3125 per share, which thereby
represented the average purchase price for Class E Common Stock purchased by
General Motors during the first quarter of 1995. On November 2, 1995, General
Motors purchased (i) 25,000 shares of Class E Common Stock at a price of
$48.9375 per share and (ii) 25,000 shares of Class E Common Stock at a price
of $48.3125 per share, resulting in an average purchase price of $48.625 per
share of Class E Common Stock purchased by General Motors during the third
quarter of 1995. On April 2, 1996, General Motors purchased 11,073 shares of
Class E Common Stock at a price of $53.1875 per share, which thereby
represents the average purchase price for Class E Common Stock purchased by
General Motors during the second quarter of 1996 through April 15, 1996.
ITEM 2(B) THROUGH (D). IDENTITY AND BACKGROUND
The following information with respect to principal occupation or employment
and name of the corporation or other organization in which such occupation or
employment is carried on and in regard to other affiliations has been
furnished to General Motors by the Instruction C Persons. In addition to the
affiliations mentioned on the following pages, the Instruction C Persons are
active in many local and national cultural, charitable, professional, and
trade organizations.
ANNE L. ARMSTRONG, P.O. Box 1358, Kingsville, Texas 78364; Chairman, Board
of Trustees, Center for Strategic and International Studies; former Chairman
of the President's Foreign Intelligence Advisory Board and former Ambassador
to Great Britain; Joined General Motors Board in 1977; Director of American
Express Company, Boise Cascade Corporation, Glaxo-Wellcome and Halliburton
Company; Member of the Council on Foreign Relations and Board of Overseers
Hoover Institution.
JOHN H. BRYAN, Sara Lee Corporation, Three First National Plaza, Chicago,
Illinois 60602-4260; Chairman and Chief Executive Officer, Sara Lee
Corporation, Chicago; Joined General Motors Board in 1993; Director of Amoco
Corporation, First Chicago NBD Corporation and its subsidiary, First National
Bank of Chicago; Member of The Business Roundtable and Vice Chairman of The
Business Council; Chairman of Catalyst; Trustee of the University of Chicago
and the Committee for Economic Development.
THOMAS E. EVERHART, California Institute of Technology, Parsons-Oates Hall
of Administration, 1201 East California Boulevard, Pasadena, California 91125;
President and Professor of Electrical Engineering and Applied Physics,
California Institute of Technology, Pasadena; Former Chancellor of University
of Illinois, Urbana-Champaign; Joined General Motors Board in 1989; Director
of Hewlett-Packard Corporation, Reveo, Inc., Corporation for National Research
Initiatives, Community Television of Southern California (KCET); Member of
National Academy of Engineering; Vice Chairman, Council on Competitiveness.
CHARLES T. FISHER, III, 100 Renaissance Center, Detroit, Michigan 48243;
Retired Chairman and President of NBD Bancorp, Inc. and its subsidiary NBD
Bank, N.A., 611 Woodward Avenue, Detroit, Michigan 48226-3408; Joined General
Motors Board in 1972; Director of Hughes Electronics Corporation, AMR
Corporation and its subsidiary American Airlines, Inc., First Chicago NBD
Corporation and its subsidiaries First National Bank of Chicago and NBD Bank
(Michigan).
J. WILLARD MARRIOTT, JR., Marriott International, Inc., One Marriott Drive,
Washington, D.C. 20058; Chairman, President and Chief Executive Officer,
Marriott International, Inc., Washington, D.C., since October 1993; Chairman,
President and Chief Executive Officer, Marriott Corporation (1985-1993);
Joined General Motors Board in 1989; Director of Host Marriott Corporation
(formerly Marriott Corporation), Host Marriott Services Corporation, Outboard
Marine Corporation, and the U.S.-Russia Business Council; Serves on Board of
Trustees of National Geographic Society, Georgetown University and the Mayo
Foundation; Member of The Business Council and The Business Roundtable.
7
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ANN D. MCLAUGHLIN, 4320 Garfield, N.W., Washington, D.C.; Former U.S.
Secretary of Labor (1987-1989); Vice Chairman, The Aspen Institute; President,
Federal City Council, Washington, D.C. (1990-1995); Joined General Motors
Board in 1990; Director of AMR Corporation and its subsidiary American
Airlines, Inc., Federal National Mortgage Association, Harman International
Industries, Host Marriott Corporation (formerly Marriott Corporation); Kellogg
Company, Nordstrom, Potomac Electric Power Company, Sedgwick Group plc, Union
Camp Corporation, and Vulcan Materials Company; Trustee of The Public Agenda
Foundation, The Conservation Fund and Rand; Board of Overseers, Wharton School
of Business, University of Pennsylvania.
HARRY J. PEARCE, General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan 48202-3091; Vice Chairman, General Motors Board since
January 1, 1996, and Executive Vice President, Electronic Data Systems
Corporation, Hughes Electronics Corporation, GM Locomotive Group EMD, Allison
Transmission Division and Corporate Affairs since 1994, Executive Vice
President and General Counsel (1992-1994), Vice President and General Counsel
(1987-1992); Joined General Motors in 1985 and its Board in 1996; Member of
The President's Council; Director of Hughes Electronics Corporation, Marriott
International, Inc.; Member, The Conference Board, Northwestern University
School of Law Visiting Committee, and Board of Visitors, United States Air
Force Academy; Trustee, Howard University.
EDMUND T. PRATT, JR., Astor Lane, Port Washington, New York 11050; Chairman
Emeritus and currently director of Pfizer Inc., 253 East 42nd Street, New
York, New York 10017; Joined General Motors Board in 1977; Director of Hughes
Electronics Corporation, Chase Manhattan Corporation and its subsidiary Chase
Manhattan Bank, N.A., International Paper Company, Minerals Technologies Inc.
and AEA Investors, Inc.; Member of The Business Council.
JOHN G. SMALE, The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio
45201-0599; Chairman of the Executive Committee of General Motors since
January 1, 1996, former Chairman, General Motors (November 2, 1992-December
31, 1995); Retired Chairman and Chief Executive of The Procter & Gamble
Company; Joined General Motors Board in 1982; Member of the Executive
Committee of The Business Council; Board of Governors, The Nature Conservancy;
Emeritus Trustee of Kenyon College.
JOHN F. SMITH, JR., General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan 48202-3091; Chairman, General Motors since January 1, 1996,
and Chief Executive Officer and President since November 2, 1992, President
(April-November 1992), Vice Chairman, Board of Directors (1990-1992),
Executive Vice President, International Operations (1988-1990); Joined General
Motors in 1961 and its Board in 1990; Member of The President's Council;
Director of Hughes Electronics Corporation, The Procter & Gamble Company;
Member of The Business Roundtable, The Business Council, U.S.-Japan Business
Council and the Chancellor's Executive Committee of the University of
Massachusetts; Member of Board of Overseers of Memorial Sloan-Kettering Cancer
Center and Member of Board of Polish-American Enterprise Fund.
LOUIS W. SULLIVAN, Morehouse School of Medicine, 720 Westview Drive, S.W.,
Atlanta, Georgia 30310-1495; President, Morehouse School of Medicine, Atlanta,
Georgia, since January 21, 1993; U.S. Secretary of Health and Human Services,
200 Independence, S.W., Washington, D.C. 20201 (1989-1993); Joined General
Motors Board in 1993; Director of Georgia Pacific, 3M Corporation, Household
International Inc., CIGNA Corporation, Bristol-Myers Squibb Company and
Equifax Corporation.
DENNIS WEATHERSTONE, J.P. Morgan & Co. Incorporated, 60 Wall Street, 21st
Floor, New York, New York 10260; Retired Chairman and currently director of
J.P. Morgan & Co. Incorporated and its subsidiary Morgan Guaranty Trust
Company of New York; Joined General Motors Board in 1986; Director of L'Air
Liquide, Merck & Co., Inc. and the Institute for International Economics;
Member of The Business Council; President and trustee of the Royal College of
Surgeons Foundation, Inc., New York; Trustee of the Alfred P. Sloan
Foundation; Independent member of the Board of Banking Supervision of the Bank
of England.
THOMAS H. WYMAN, S.G. Warburg & Co., Inc., 277 Park Avenue, New York, New
York 10172; Chairman, S.G. Warburg & Co. Inc., New York, and former Chairman,
President and Chief Executive Officer, CBS Inc.,
8
<PAGE>
New York; Joined General Motors Board in 1985; Director of Hughes Electronics
Corporation, AT&T, Zeneca Group PLC (London) and United Biscuits (Holdings)
plc (Edinburgh); Member of The Business Council; Trustee Emeritus of The Ford
Foundation and of The Aspen Institute; Chairman Emeritus of Amherst College.
C. MICHAEL ARMSTRONG, Hughes Electronics Corporation, 7200 Hughes Terrace,
Los Angeles, California 90045-0066; Chairman and Chief Executive Officer,
Hughes Electronics Corporation since March 1992; Senior Vice President,
International Business Machines Corporation, Old Orchard Road, Armonk, New
York 10504 (1989-March 1992); Member of the President's Council.
J. T. BATTENBERG, III, General Motors Corporation, 3044 West Grand
Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President, General
Motors since July 1995 and President, Delphi Automotive Systems since July
1994, Senior Vice President (July 1994-July 1995), Vice President and Group
Executive in charge of the Automotive Components Group (May 1992-July 1994),
Vice President and Group Executive in charge of the Buick-Oldsmobile-Cadillac
Group (June 1988-May 1992); Associated with General Motors since 1961; Member
of the President's Council.
LOUIS R. HUGHES, General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan, 48202-3091; Executive Vice President, International
Operations, General Motors since November 1992 and President, International
Operations since September 1994, President, General Motors Europe and Vice
President and Group Executive (April-November 1992), Chairman and Managing
Director of Adam Opel AG (March 1989-April 1992); Associated with General
Motors since 1966; Member of the President's Council.
J. MICHAEL LOSH, General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan, 48202-3091; Executive Vice President and Chief Financial
Officer, General Motors since July 1994, Group Executive in charge of North
American Vehicle Sales, Service, and Marketing (May 1992-July 1994), Vice
President and General Manager of Oldsmobile Division (June 1989-May 1992);
Associated with General Motors since 1964; Member of the President's Council.
G. RICHARD WAGONER, JR., General Motors Corporation, 3044 West Grand
Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President, General
Motors since November 1992 and President, North American Operations since July
1994, Chief Financial Officer (November 1992-July 1994), President and
Managing Director of General Motors do Brasil (July 1991-November 1992), Vice
President in charge of finance for General Motors Europe (June 1989-July
1991); Associated with General Motors since 1977; Member of the President's
Council.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
ITEM 10(A)
The following table sets forth, as of February 29, 1996, beneficial
ownership of Class E Common Stock for certain Instruction C Persons and
pension and profit-sharing or similar plans of General Motors (excluding its
subsidiaries). Ownership of less than one percent of the outstanding shares of
Class E Common Stock is indicated by an asterisk. Upon consummation of the
Split-Off, each outstanding share of Class E Common Stock will be
automatically converted into one share of EDS Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
BENEFICIAL OWNER OWNED CLASS
---------------- ------------ -------
<S> <C> <C>
J. T. Battenberg, III............................... 1,208 *
J. M. Losh.......................................... 5,659 *
General Motors Retirement Plan
for Salaried Employees............................. 7,295,169 1.5
General Motors Savings Plans Master Trust........... 14,760,025 3.0
General Motors Canadian Savings-Stock Purchase
Program............................................ 100,310 *
</TABLE>
9
<PAGE>
ITEM 10(B)
On various dates between February 9 and April 10, 1996, certain pension and
profit-sharing or similar plans of General Motors (excluding its subsidiaries)
effected multiple transactions in Class E Common Stock. During such period,
the General Motors Savings Plans Master Trust purchased an aggregate amount of
approximately 4.5 million shares of Class E Common Stock at prices ranging
from $53.75 to $56.595 per share and sold an aggregate amount of approximately
323,000 shares of Class E Common Stock at prices ranging from $53.188 to
$57.75 per share. The General Motors Canadian Savings-Stock Purchase Program
also purchased within such period an aggregate amount of approximately 8,200
shares of Class E Common Stock at an average price of $56.225 per share and
sold an aggregate amount of approximately 680 shares of Class E Common Stock
at an average price of $56.6801 per share. In addition, on February 21, 1996,
the General Motors Retirement Plan for Salaried Employees sold 15,800 shares
of Class E Common Stock at a price of $55.855 per share, and on February 23,
1996, the General Motors Hourly-Rate Employees Pension Plan sold 21,300 shares
of Class E Common Stock at the same per share price. Since April 10, 1996,
other transactions in Class E Common Stock may have been effected by certain
General Motors pension and profit-sharing or similar plans in the ordinary
course.
10
<PAGE>
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
General Motors Corporation
/s/ John F. Smith, Jr.
By: _________________________________
John F. Smith, Jr.
Chairman, Chief Executive Officer,
and President
Dated: April 18, 1996
II-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
(a)(1) Not Applicable.
(b)(1) Opinion of Merrill Lynch, dated March 31, 1996, which
is attached as Appendix B-1 to the Solicitation
Statement/Prospectus that forms a part of the Regis-
tration Statement filed as Exhibit (d)(1) hereto.**
(b)(2) Opinion of Lehman Brothers, dated March 31, 1996,
which is attached as Appendix B-2 to the Solicitation
Statement/Prospectus that forms a part of the Regis-
tration Statement filed as Exhibit (d)(1) hereto.**
(b)(3) Opinion of Morgan Stanley, dated March 31, 1996,
which is attached as Appendix B-3 to the Solicitation
Statement/Prospectus that forms a part of the Regis-
tration Statement filed as Exhibit (d)(1) hereto.**
(b)(4) Presentation to the General Motors Board of Directors
Regarding Split-Off of EDS, dated March 31, 1996,
given by Merrill Lynch.*
(b)(5) Presentation to the General Motors Board of Directors
concerning the Split-Off of EDS, dated March 31,
1996, given by Morgan Stanley and Lehman Brothers.*
(c)(1) Merger Agreement dated as of April , 1996 between
General Motors and Mergeco, which is attached as Ap-
pendix A to the Solicitation Statement/Prospectus
that forms a part of the Registration Statement filed
as Exhibit (d)(1) hereto.**
(d)(1) Registration Statement.**
(e)(1) Not Applicable.
(f)(1) Not Applicable.
</TABLE>
- --------
*Filed previously.
**Filed herewith.
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1996
REGISTRATION NO. 333-02543
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ELECTRONIC DATA SYSTEMS HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE 75-2548221 7374
(STATE OR OTHER (I.R.S. EMPLOYER IDENTIFICATION NO.)
JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
INCORPORATION OR
ORGANIZATION)
5400 LEGACY DRIVE, PLANO, TEXAS 75024-3105; (214) 604-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JOSEPH M. GRANT
CHIEF FINANCIAL OFFICER
ELECTRONIC DATA SYSTEMS HOLDING CORPORATION
5400 LEGACY DRIVE
PLANO, TEXAS 75024-3105
(214) 604-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
WARREN G. ANDERSEN ANDREW M. D. GILBERT ROBERT S. OSBORNE,
GENERAL MOTORS BAKER FRIEDLANDER P.C.
CORPORATION BAKER & BOTTS, ELECTRONIC DATA KIRKLAND & ELLIS
3031 WEST GRAND L.L.P. SYSTEMS 200 EAST RANDOLPH
BOULEVARD 2001 ROSS HOLDING DRIVE
DETROIT, MICHIGAN AVENUE CORPORATION CHICAGO, ILLINOIS
48202-3091 DALLAS, TEXAS 5400 LEGACY 60601-6636
75201-2916 DRIVE
PLANO, TEXAS
75024-3105
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the requisite consents are obtained pursuant to the
solicitation by General Motors Corporation referred to in this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF
FORM S-4.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
A. INFORMATION ABOUT THE TRANSACTION
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page
2.Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front Cover Page; Table of Contents;
Outside Back Cover Page
3.Risk Factors, Ratio of Earnings
to Fixed Charges and Other Summary; Risk Factors Regarding EDS after
Information................... the Split-Off; Risk Factors Regarding
General Motors after the Split-Off; Risk
Factors Regarding Non-Consummation of the
Split-Off
4.Terms of the Transaction........ Special Factors; The Split-Off; EDS Capital
Stock; Comparison of Class E Common Stock
and EDS Common Stock
5.Pro Forma Financial Information. General Motors Unaudited Pro Forma
Condensed Consolidated Financial
Statements; EDS Unaudited Pro Forma
Condensed Consolidated Financial
Statements
6.Material Contacts with the
Company Being Acquired........ Special Factors; Relationship Between
General Motors and EDS
7.Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................. Not Applicable
8.Interests of Named Experts and
Counsel....................... Not Applicable
9.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10.Information with Respect to S-3
Registrants................... Not Applicable
11.Incorporation of Certain
Information by Reference...... Not Applicable
12.Information with Respect to S-2
or S-3 Registrants............ Not Applicable
13.Incorporation of Certain
Information by Reference...... Not Applicable
14.Information with Respect to
Registrants other Than S-2 or Outside Front Cover Page; Summary; Plans
S-3 Registrants............... and Proposals of EDS; EDS Selected
Consolidated Financial Information; EDS
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business of EDS; Appendix C:
EDS Consolidated Financial Statements
</TABLE>
i
<PAGE>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
<TABLE>
<S> <C>
15.Information with Respect to S-3 Incorporation of Certain Documents by
Companies...................... Reference; Summary; Class E Common Stock
16.Information with Respect to S-2
or S-3 Companies............... Not Applicable
17.Information with Respect to
Companies Other Than S-2 or S-3
Companies...................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18.Information if Proxies, Consents
or Authorizations are to be Outside Front Cover Page; Summary; EDS
Solicited...................... Management and Executive Compensation;
Solicitation of Written Consent of General
Motors Common Stockholders; Security
Ownership of Certain Beneficial Owners and
Management of General Motors and EDS
19.Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer.......................... Not Applicable
</TABLE>
ii
<PAGE>
GENERAL MOTORS CORPORATION
April , 1996
To Our Common Stockholders:
The enclosed materials seek your approval of a proposal to split off
Electronic Data Systems Holding Corporation ("EDS") from General Motors
Corporation ("General Motors" or "GM") on a tax-free basis for U.S. federal
income tax purposes. EDS is currently a wholly owned subsidiary of General
Motors that indirectly holds all of the capital stock of Electronic Data
Systems Corporation. As part of the split-off of EDS from General Motors (the
"Split-Off"), each outstanding share of General Motors Class E Common Stock
will be converted into one share of EDS Common Stock. Following the Split-Off,
EDS will be an independent, publicly held company, with approximately 485
million shares of its Common Stock traded on the New York Stock Exchange. All
other shares of General Motors capital stock will remain outstanding, and the
terms of such stock will remain essentially unchanged.
The conversion of all outstanding shares of Class E Common Stock into shares
of EDS Common Stock on a one-for-one basis will be accomplished through a
merger (the "Merger") of General Motors with GM Mergeco Corporation, an
indirect wholly owned subsidiary of EDS organized for this purpose
("Mergeco"), pursuant to a merger agreement between General Motors and Mergeco
(the "Merger Agreement"). Immediately prior to the Merger, EDS will contribute
to Mergeco $500 million in cash (the "Special Inter-Company Payment"). As a
result of the Merger, all of Mergeco's assets, which will consist entirely of
the cash contributed by EDS, will become assets of General Motors.
Furthermore, as a result of the Merger, the General Motors Restated
Certificate of Incorporation will be amended to delete provisions regarding
the Class E Common Stock (including provisions that require Class E Common
Stock to be recapitalized into $1 2/3 Common Stock at a 120% exchange ratio
upon a disposition by GM of substantially all of the business of EDS and under
certain other circumstances) and to make certain other changes.
Immediately before the Merger, General Motors and EDS will enter into a new
Master Service Agreement (the "Master Services Agreement") and certain related
agreements pursuant to which EDS will continue to serve as General Motors'
principal supplier of information technology ("IT") services on a world-wide
basis for an initial term of 10 years following the Split-Off, which may be
extended by agreement of the parties. The IT services to be provided by EDS
under the Master Services Agreement will generally be similar to those
provided to General Motors under the existing agreements and arrangements
between the parties. However, the Master Services Agreement provides that
certain significant changes will be made to the pricing and terms of services
currently provided by EDS to General Motors. The General Motors Board of
Directors (the "GM Board") believes that such changes are necessary (i) in
light of the fact that, after the Split-Off, EDS will no longer be a
subsidiary of General Motors and the Capital Stock Committee of the GM Board
(the "Capital Stock Committee") will no longer be able to monitor the IT
service arrangements between the parties, (ii) to reflect the evolutionary
nature of the General Motors-EDS customer relationship and the IT services
industry and (iii) to provide additional assurances to General Motors, as EDS'
largest customer, that the IT services performed by EDS will remain
competitive.
The GM Board has determined that ownership of EDS is not necessary for GM to
execute its IT strategy or to ensure the security of its computer data and
other information. Furthermore, the GM Board has determined that there are
certain actual and potential conflicts between the business of EDS and the
other businesses of General Motors. The Split-Off is intended to address such
conflicts in a manner that is beneficial from the standpoint of all
stockholders of General Motors and to allow the boards and management of GM
and EDS to increase their focus on their respective business operations.
Approximately one-third of the outstanding Class E Common Stock is held by a
trust under the General Motors Hourly-Rate Employees Pension Plan.
Accordingly, after the Split-Off, so long as such pension plan holds any EDS
Common Stock, any appreciation or depreciation in the value of such stock will
affect the level of General Motors' pension expense and unfunded pension
liability.
<PAGE>
The Split-Off is intended to accomplish at least three business objectives
from the perspective of EDS and holders of Class E Common Stock: (i) to remove
limitations on EDS' ability to participate in major strategic alliances
(including mergers and acquisitions which can be effected using EDS Common
Stock); (ii) to remove limitations on EDS' ability to obtain additional
business from and establish new customer relationships with companies that
compete with General Motors or its subsidiaries; and (iii) to enhance EDS'
access to the capital necessary for investment in its future growth.
General Motors has received a ruling from the Internal Revenue Service to
the effect that the Split-Off will be treated as a tax-free exchange under
Section 355 of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, for U.S. federal income tax purposes, no gain or loss will be
recognized by either General Motors or the holders of Class E Common Stock on
the exchange of EDS Common Stock for Class E Common Stock pursuant to the
Split-Off.
The Capital Stock Committee, which consists entirely of independent
directors, has had a significant role on behalf of the GM Board in developing
and reviewing the terms of the Split-Off and related transactions to ensure
the fairness of such transactions to all classes of General Motors common
stock. In taking action with respect to the Split-Off, the GM Board and the
Capital Stock Committee considered, among other things, the process of arm's
length negotiation established by the GM Board in order to develop the terms
of the Split-Off, the one-for-one ratio for converting shares of Class E
Common Stock into shares of EDS Common Stock, the opportunity to accomplish
the purposes of the Split-Off described above, the amount of the Special
Inter-Company Payment and the terms of the Master Services Agreement. The GM
Board and the Capital Stock Committee also considered (i) the opinion, dated
March 31, 1996, of Merrill Lynch, Pierce, Fenner & Smith Incorporated to the
GM Board that, as of that date and on the basis of and subject to the
assumptions, limitations and other matters set forth therein, the Financial
Effects of the Transactions (as defined in such opinion) are fair, from a
financial point of view, to General Motors and, accordingly, to General
Motors' common stockholders after consummation of the Merger, namely the
holders of the $1 2/3 Common Stock and the Class H Common Stock and (ii) the
opinion of each of Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated,
each dated March 31, 1996, to the GM Board to the effect that, as of such
date, based on and subject to the assumptions, limitations and other matters
set forth therein, the financial effect of the Split-Off Transactions (as
defined in each such opinion) taken as a whole is fair, from a financial point
of view, to the holders of Class E Common Stock.
BASED ON THE FOREGOING, THE GM BOARD HAS DETERMINED THAT THE SPLIT-OFF AND
RELATED TRANSACTIONS ARE IN THE BEST INTERESTS OF, AND FAIR TO, GENERAL MOTORS
AND EACH CLASS OF GM COMMON STOCKHOLDERS. THE GM BOARD HAS UNANIMOUSLY
APPROVED THE SPLIT-OFF AND RELATED TRANSACTIONS AND RECOMMENDS THAT GENERAL
MOTORS COMMON STOCKHOLDERS APPROVE THE SPLIT-OFF AND RELATED TRANSACTIONS BY
EXECUTING AND RETURNING THE ENCLOSED CONSENT.
In lieu of a special meeting of General Motors common stockholders, action
on the Split-Off and related transactions will be taken by written consent.
The Split-Off will be consummated on a date to be determined by General
Motors, which date is expected to be as soon as practicable after consents
from the number of General Motors common stockholders required to approve the
Split-Off and related transactions are received by General Motors (but no
sooner than 20 business days after the date of mailing of this Solicitation
Statement/Prospectus). Consummation of the Split-Off and related transactions
is conditioned upon, among other things, receiving the consent of the holders
of (i) a majority of the voting power of all outstanding shares of all three
classes of General Motors common stock, voting together as a single class
based on their respective voting rights, (ii) a majority of the outstanding
shares of $1 2/3 Common Stock, voting as a separate class, and (iii) a
majority of the outstanding shares of Class E Common Stock, voting as a
separate class.
In connection with the Split-Off, you are also being asked to approve the
1996 Incentive Plan of EDS (the "Amended EDS Incentive Plan"), which amends
and restates EDS' existing stock incentive plan in order, among other things,
to provide that awards made thereunder will be in the form of EDS Common Stock
rather than Class E Common Stock. Approval of the Amended EDS Incentive Plan
by the common stockholders of
2
<PAGE>
General Motors is being sought to ensure that the deductibility by EDS, for
U.S. federal income tax purposes, of certain performance-based awards made
under the plan will not be limited by Section 162(m) of the Code. Approval of
the Amended EDS Incentive Plan is independent of approval of the Split-Off and
will require the consent of the holders of (i) a majority of the voting power
of all outstanding shares of all three classes of General Motors common stock,
voting together as a single class based on their respective voting rights, and
(ii) a majority of the outstanding shares of Class E Common Stock, voting as a
separate class.
THE AMENDED EDS INCENTIVE PLAN HAS BEEN APPROVED BY THE GM BOARD AND
RATIFIED AND APPROVED BY THE EDS BOARD OF DIRECTORS. THE GM BOARD RECOMMENDS
THAT GENERAL MOTORS COMMON STOCKHOLDERS APPROVE THE AMENDED EDS INCENTIVE PLAN
BY EXECUTING AND RETURNING THE ENCLOSED CONSENT.
We urge you to read the enclosed material carefully and request that you
complete, date, sign and return the enclosed consent as soon as possible. Your
consent is important regardless of the number of shares you own.
Sincerely yours,
LOGO
John F. Smith, Jr.
Chairman, Chief Executive Officer,
and President
3
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY SOLICITATION STATEMENT/PROSPECTUS DATED APRIL 19, 1996
SUBJECT TO COMPLETION
GENERAL MOTORS CORPORATION ELECTRONIC DATA SYSTEMS HOLDING CORPORATION
3044 WEST GRAND BOULEVARD 5400 LEGACY DRIVE
DETROIT, MICHIGAN 48202-3091 PLANO, TEXAS 75024-3105
(313) 556-5000 (214) 604-6000
-----------
SOLICITATION OF WRITTEN CONSENT
LOGO OF GENERAL MOTORS CORPORATION COMMON STOCKHOLDERS LOGO
-----------
-----------
PROSPECTUS OF ELECTRONIC DATA SYSTEMS HOLDING CORPORATION
-----------
INTRODUCTION
This Solicitation Statement/Prospectus is being furnished to stockholders of
General Motors Corporation, a Delaware corporation ("General Motors" or "GM"),
who hold shares of its Common Stock, $1 2/3 par value per share (the "$1 2/3
Common Stock"), its Class E Common Stock, $0.10 par value per share (the "Class
E Common Stock"), or its Class H Common Stock, $0.10 par value per share (the
"Class H Common Stock"), in order to secure their consent to a proposal by
General Motors to effect a tax-free (for U.S. federal income tax purposes)
split-off (the "Split-Off") of General Motors' wholly owned subsidiary,
Electronic Data Systems Holding Corporation, a Delaware corporation ("EDS"),
which indirectly owns all of the capital stock of Electronic Data Systems
Corporation and which will be renamed "Electronic Data Systems Corporation"
immediately prior to the consummation of the Split-Off. As a result of the
Split-Off, (i) EDS will become an independent, publicly held company, with
approximately 485 million shares of EDS Common Stock (as defined below) traded
on the New York Stock Exchange, (ii) holders of the Class E Common Stock will
become stockholders of EDS rather than of General Motors, and (iii) Class E
Common Stock will cease to exist. All other outstanding shares of GM capital
stock will remain outstanding, and the terms of such stock will remain
essentially unchanged.
The Split-Off will be accomplished through a merger (the "Merger") of GM
Mergeco Corporation ("Mergeco"), with and into General Motors pursuant to the
Agreement and Plan of Merger, dated April , 1996 (the "Merger Agreement"),
between General Motors and Mergeco, a copy of which is attached hereto as
Appendix A. Mergeco is an indirect wholly owned subsidiary of EDS organized for
the purpose of effecting the Split-Off. In the Merger, each outstanding share
of Class E Common Stock will be converted into one share of EDS common stock,
$0.01 par value per share (the "EDS Common Stock"). General Motors will be the
surviving corporation of the Merger. The Merger Agreement also provides for the
deletion from General Motors' Restated Certificate of Incorporation, as amended
(the "General Motors Certificate of Incorporation"), of provisions regarding
the Class E Common Stock (including the provisions that require Class E Common
Stock to be recapitalized into $1 2/3 Common Stock at a 120% exchange ratio
upon a disposition by General Motors of substantially all of the business of
EDS and under certain other circumstances) and certain other changes as
described herein.
General Motors, not EDS, is the issuer of Class E Common Stock. Dividends on
the Class E Common Stock are payable under the General Motors Certificate of
Incorporation only to the extent of (i) the paid-in surplus of General Motors
attributable to the Class E Common Stock plus (ii) a portion of the earnings of
General Motors attributable to EDS since the date of General Motors'
acquisition of the business of EDS and allocated to the amounts available for
the payment of dividends on the Class E Common Stock in accordance with the
formula specified in the General Motors Certificate of Incorporation. For a
description of dividend, voting and liquidation rights and recapitalization
provisions of the Class E Common Stock, see "Class E Common Stock." EDS is the
issuer of the EDS Common Stock, and thus, following the Split-Off, former
holders of Class E Common Stock will no longer own an interest (incident to
such holdings) in General Motors' equity or assets, but will instead own an
equity interest in EDS. For a description of the EDS Common Stock, see "EDS
Capital Stock" and "Comparison of Class E Common Stock and EDS Common Stock."
i
<PAGE>
Immediately prior to and as a condition of the consummation of the Merger,
EDS will contribute to Mergeco $500 million in cash (the "Special Inter-
Company Payment"). As a result of the Merger, all of the assets of Mergeco,
which will consist entirely of the cash contributed by EDS, will become assets
of General Motors. In determining the amount of the Special Inter-Company
Payment, the GM Board gave consideration to, among other things, the fact that
in the Separation Agreement (as hereinafter defined) GM would provide EDS a
$50.0 million allowance relating to the resolution of various uncertain,
contingent or other matters arising out of the separation of GM and EDS. The
Special Inter-Company Payment was included as one of the terms of the Split-
Off in order to enable the General Motors Board of Directors (the "GM Board")
to determine that the Split-Off is fair to all classes of General Motors
common stockholders.
Immediately before the Merger, General Motors and EDS will enter into a new
Master Service Agreement (the "Master Services Agreement") and certain related
agreements pursuant to which EDS will continue to serve as General Motors'
principal supplier of information technology ("IT") services on a world-wide
basis for an initial term of 10 years following the Split-Off, which may be
extended by mutual agreement of the parties. The IT services to be provided by
EDS under the Master Services Agreement will generally be similar to those
provided to General Motors under the existing agreements and arrangements
between the parties. However, the Master Services Agreement provides that
certain significant changes will be made to the pricing and terms of services
currently provided by EDS to General Motors. The GM Board believes that such
changes are necessary (i) in light of the fact that, after the Split-Off, EDS
will no longer be a subsidiary of General Motors and the Capital Stock
Committee of the GM Board (the "Capital Stock Committee") will no longer be
able to monitor the IT service arrangements between the parties, (ii) to
reflect the evolutionary nature of the General Motors-EDS customer
relationship and the IT services industry and (iii) to provide additional
assurances to General Motors, as EDS' largest customer, that the IT services
performed by EDS will remain competitive.
Additionally, as a condition of the consummation of the Merger, General
Motors and EDS will enter into a Separation Agreement and certain related
agreements (collectively, the "Separation Agreement"), including an Amended
and Restated Agreement for the Allocation of United States Federal, State and
Local Income Tax (the "Tax Allocation Agreement"), establishing certain
arrangements between General Motors and EDS deemed necessary in order to deal
with various business, legal and regulatory issues following the Split-Off.
See "Relationship Between General Motors and EDS--Post-Split-Off
Arrangements--Separation Agreement."
The Split-Off and related transactions, including the consummation of the
Merger, the making of the Special Inter-Company Payment, the execution and
delivery of the Master Services Agreement (and certain other IT service
agreements to be entered into in connection therewith) and the Separation
Agreement and the consummation of the other transactions and events
contemplated by the Merger Agreement, are collectively referred to herein as
the "Transactions." See "The Split-Off" and "Relationship Between General
Motors and EDS--Post-Split-Off Arrangements."
The GM Board has determined that ownership of EDS is not necessary for GM to
execute its IT strategy or to ensure the security of its computer data and
other information. Furthermore, the GM Board has determined that there are
certain actual and potential conflicts between the business of EDS and the
other businesses of General Motors. The Split-Off is intended to address such
conflicts in a manner that is beneficial from the standpoint of all
stockholders of GM and to allow the boards and management of GM and EDS to
increase their focus on their respective business operations. Approximately
one-third of the outstanding Class E Common Stock is held by the General
Motors Special Hourly Employees Pension Trust (together with any sub-trusts
thereunder, the "GM Hourly Plan Special Trust") under the General Motors
Hourly-Rate Employees Pension Plan (the "GM Hourly Plan"). Accordingly, after
the Split-Off, so long as the GM Hourly Plan Special Trust holds any EDS
Common Stock, any appreciation or depreciation in the value of such stock will
affect the level of General Motors' pension expense and unfunded pension
liability, which are actuarially determined and computed in accordance with
generally accepted accounting principles.
The Split-Off is intended to accomplish at least three business objectives
from the perspective of EDS and holders of Class E Common Stock: (i) to remove
limitations on EDS' ability to participate in major strategic alliances
(including mergers and acquisitions which can be effected using EDS Common
Stock); (ii) to remove limitations on EDS' ability to obtain additional
business from and establish new customer relationships with
ii
<PAGE>
companies that compete with General Motors or its subsidiaries; and (iii) to
enhance EDS' access to the capital necessary for investment in its future
growth.
Pursuant to this Solicitation Statement/Prospectus, General Motors is
requesting the common stockholders of General Motors to approve the
Transactions, including the adoption of the Merger Agreement. Consummation of
the Transactions is conditioned upon, among other things, receiving the
consent of the holders of (i) a majority of the voting power of all
outstanding shares of all three classes of General Motors common stock, voting
together as a single class based on their respective voting rights, (ii) a
majority of the outstanding shares of $1 2/3 Common Stock, voting as a
separate class, and (iii) a majority of the outstanding shares of Class E
Common Stock, voting as a separate class.
Assuming the Transactions are consummated, a letter of transmittal will be
sent to all holders of Class E Common Stock as of the time of consummation of
the Merger, who will then be deemed to be holders of EDS Common Stock, with
instructions for surrendering their certificates evidencing shares of Class E
Common Stock in exchange for certificates representing an equal number of
shares of EDS Common Stock. HOLDERS OF CLASS E COMMON STOCK CERTIFICATES
SHOULD NOT SURRENDER THOSE CERTIFICATES UNTIL THEY HAVE RECEIVED SUCH LETTER
OF TRANSMITTAL.
General Motors has received a ruling from the Internal Revenue Service (the
"IRS") to the effect that the Split-Off will be treated as a tax-free exchange
under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, for U.S. federal income tax purposes, no gain or loss
will be recognized by either General Motors or the holders of Class E Common
Stock on the exchange of EDS Common Stock for Class E Common Stock pursuant to
the Split-Off. Current Treasury Regulations require each General Motors
stockholder who receives EDS Common Stock pursuant to the Split-Off to attach
to such stockholder's federal income tax return for the year in which the
Split-Off occurs a detailed statement setting forth such data as may be
appropriate in order to show the applicability of Section 355 of the Code to
the Split-Off. At the time that the letter of transmittal is sent to all such
holders of Class E Common Stock, General Motors will provide such information
to each holder of Class E Common Stock receiving EDS Common Stock in the
Split-Off in order to enable each such holder to comply with such regulations.
See "Special Factors--Certain U.S. Federal Income Tax Considerations."
General Motors is also requesting the common stockholders of General Motors,
pursuant to this Solicitation Statement/Prospectus, to approve the 1996 Long-
Term Incentive Plan of EDS (the "Amended EDS Incentive Plan"), which amends
and restates the existing 1984 EDS Stock Incentive Plan (the "Existing EDS
Incentive Plan") in order, among other things, to provide that awards made
thereunder will be in the form of EDS Common Stock rather than Class E Common
Stock. The Amended EDS Incentive Plan has been approved by the GM Board and
has been ratified and approved by the EDS Board of Directors (the "EDS
Board"). Approval of the Amended EDS Incentive Plan by the common stockholders
of General Motors is being sought to ensure that the deductibility by EDS, for
U.S. federal income tax purposes, of certain performance-based awards made
under the Amended EDS Incentive Plan will not be limited by Section 162(m) of
the Code. Approval of the Amended EDS Incentive Plan is independent of
approval of the Transactions and will require the consent of the holders of
(i) a majority of the voting power of all outstanding shares of all three
classes of General Motors common stock, voting together as a single class
based on their respective voting rights, and (ii) a majority of the
outstanding shares of Class E Common Stock, voting as a separate class. For a
description of the Amended EDS Incentive Plan and the Existing EDS Incentive
Plan, see "EDS Management and Executive Compensation--Amended EDS Incentive
Plan" and "--Existing EDS Incentive Plan."
This Solicitation Statement/Prospectus also constitutes a prospectus of EDS
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of EDS Common Stock to be distributed in exchange for
Class E Common Stock in the Split-Off. Application has been made to list the
EDS Common Stock on the New York Stock Exchange (the "NYSE"), and such
application has been granted pending notice of issuance. EDS Common Stock will
trade under the symbol "EDS."
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FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THE SPLIT-OFF, SEE "RISK FACTORS REGARDING EDS AFTER THE SPLIT-OFF" ON
PAGE 20, "RISK FACTORS REGARDING GENERAL MOTORS AFTER THE SPLIT-OFF" ON PAGE
25 AND "RISK FACTORS REGARDING NON-CONSUMMATION OF THE SPLIT-OFF" ON PAGE 27.
All information in this Solicitation Statement/Prospectus concerning General
Motors has been furnished by General Motors, and all information concerning
EDS and the Amended EDS Incentive Plan has been furnished by EDS.
This Solicitation Statement/Prospectus is dated April , 1996 and was
mailed to General Motors common stockholders within three weeks from such
date.
----------------
NEITHER THE TRANSACTIONS NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS
SOLICITATION STATEMENT/PROSPECTUS HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTIONS OR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS SOLICITATION
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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AVAILABLE INFORMATION
General Motors is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
(including certain information relating to EDS) with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by General Motors with the Commission can be
inspected, and copies may be obtained, at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, as well as at the following Regional Offices of the Commission: Seven
World Trade Center, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Reports, proxy
statements and other information concerning General Motors (which also contain
information concerning EDS) can also be inspected at the offices of the NYSE,
11 Wall Street, New York, New York 10005, where the Class E Common Stock,
Class H Common Stock and $1 2/3 Common Stock of General Motors are listed, and
at the offices of the following other stock exchanges where the $1 2/3 Common
Stock is listed in the United States: the Chicago Stock Exchange, Inc., One
Financial Place, 440 S. LaSalle Street, Chicago, Illinois 60605; the Pacific
Stock Exchange, Inc., 233 South Beaudry Avenue, Los Angeles, California 90012
and 301 Pine Street, San Francisco, California 94104; and the Philadelphia
Stock Exchange, Inc., 1900 Market Street, Philadelphia, Pennsylvania 19103.
Reports, proxy statements, and other information concerning General Motors
(which also contain information concerning EDS) can also be obtained
electronically through a variety of databases, including, among others, the
Commission's Electronic Data Gathering And Retrieval ("EDGAR") program,
Knight-Ridder Information, Inc., Federal Filings/Dow Jones and Lexis/Nexis.
EDS has filed a Registration Statement on Form S-4 (as amended and including
exhibits, the "Registration Statement") with the Commission under the
Securities Act with respect to the shares of EDS Common Stock to be
distributed in exchange for Class E Common Stock in the Split-Off. General
Motors has also filed a Schedule 13E-3 Transaction Statement (as amended and
including exhibits, the "Schedule 13E-3") under the Exchange Act with respect
to certain of the Transactions. Pursuant to the rules and regulations of the
Commission, this Solicitation Statement/Prospectus omits certain information
contained in the Registration Statement and the Schedule 13E-3. Such
information can be inspected at and obtained from the Commission and the NYSE
in the manner set forth above. For further information pertaining to General
Motors, EDS, the Class E Common Stock and the EDS Common Stock, reference is
made to the Registration Statement and the Schedule 13E-3. Statements
contained herein concerning any document filed as an exhibit to the
Registration Statement or the Schedule 13E-3 are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or the Schedule 13E-3. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by General Motors with the
Commission, are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1995 (as
amended and including exhibits, the "GM 1995 Form 10-K"); and
2. Current Reports on Form 8-K dated January 29, February 26 and March
12, 1996.
All documents filed by General Motors with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Solicitation Statement/Prospectus and prior to the consummation of the
Transactions shall be deemed to be incorporated by reference in this
Solicitation Statement/Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Solicitation
Statement/Prospectus to the extent that a statement contained herein or in any
other
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subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Solicitation Statement/Prospectus.
THIS SOLICITATION STATEMENT/PROSPECTUS INCORPORATES AND MAY INCORPORATE
DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS, OTHER THAN THE EXHIBITS THERETO, ARE AVAILABLE WITHOUT CHARGE
FROM GENERAL MOTORS TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER TO WHOM
THIS SOLICITATION STATEMENT/PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON TO GENERAL MOTORS CORPORATION, ROOM 11-243, GENERAL
MOTORS BUILDING, 3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091
(TELEPHONE NUMBER (313) 556-2044). IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH
DOCUMENTS, ANY REQUEST SHOULD BE MADE WITHIN 15 BUSINESS DAYS OF THE DATE OF
MAILING OF THIS SOLICITATION STATEMENT/PROSPECTUS.
UNTIL 25 DAYS AFTER THE DATE OF MAILING OF THIS SOLICITATION
STATEMENT/PROSPECTUS, ALL DEALERS EFFECTING TRANSACTIONS IN EDS COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.............................................................. i
Available Information..................................................... v
Incorporation of Certain Documents by Reference........................... v
Summary................................................................... 1
Introduction............................................................. 1
General Motors........................................................... 1
EDS...................................................................... 2
The Transactions......................................................... 2
Amended EDS Incentive Plan............................................... 11
Certain Per Share and Other Financial Information........................ 13
General Motors Summary Consolidated Historical and Pro Forma Financial
Data.................................................................... 15
General Motors Summary Unaudited Pro Forma Consolidated Financial Data
Presented with EDS as a Discontinued Operation.......................... 17
EDS Summary Consolidated Historical and Pro Forma Financial Data......... 18
Risk Factors Regarding EDS after the Split-Off............................ 20
Dividend Policy.......................................................... 20
Increased Leverage; No Assurance of Access to Capital.................... 20
No Prior Public Market for EDS Common Stock; No Assurance as to Market
Price................................................................... 20
Dependence on Major Customer; Changes in Pricing and Terms............... 21
Significant Stockholder.................................................. 22
No Assurance of Strategic Alliances and Other Business Opportunities..... 22
Termination of Subsidiary Relationship with General Motors............... 23
Certain Limitations on Changes in Control of EDS......................... 23
Forward-Looking Information May Prove Inaccurate......................... 24
Risk Factors Regarding General Motors after the Split-Off................. 25
Reduction in General Motors' Consolidated Net Worth, Assets and Certain
Ratios.................................................................. 25
Loss of Potential Availability of EDS Funds and Assets................... 25
Effect of Split-Off on GM Pension Expense and Unfunded Pension Liability. 26
Loss of Ownership Interest in IT Provider................................ 26
Forward-Looking Information May Prove Inaccurate......................... 26
Risk Factors Regarding Non-Consummation of the Split-Off.................. 27
Business Conflicts and Objectives........................................ 27
Changes in Terms of Existing IT Services Agreements...................... 27
Special Factors........................................................... 28
Purposes of the Split-Off................................................ 28
Alternatives to the Split-Off............................................ 29
Effects of the Split-Off................................................. 30
Background of the Split-Off.............................................. 32
Recommendations of the Capital Stock Committee and the GM Board;
Fairness of the Transactions............................................ 48
Fairness Opinions........................................................ 49
Requisite Vote for the Transactions...................................... 66
Certain U.S. Federal Income Tax Considerations........................... 66
GM-PBGC Agreement........................................................ 67
Certain Litigation....................................................... 68
The Split-Off............................................................. 70
General.................................................................. 70
Merger Agreement......................................................... 71
No Appraisal Rights...................................................... 72
Stock Exchange Listings for EDS Common Stock............................. 73
Accounting Treatment..................................................... 73
Certain U.S. Federal Income Tax Considerations........................... 73
Regulatory Requirements.................................................. 73
Relationship Between General Motors and EDS............................... 74
Pre-Split-Off Relationship............................................... 74
Post-Split-Off Arrangements.............................................. 75
Plans and Proposals of EDS................................................ 83
EDS Dividend Policy...................................................... 83
EDS Unaudited Pro Forma Consolidated Capitalization....................... 84
General Motors Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................................... 85
EDS Unaudited Pro Forma Condensed Consolidated Financial Statements....... 90
EDS Selected Consolidated Financial Information........................... 93
EDS Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 94
</TABLE>
vii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business of EDS.......................................................... 101
General................................................................. 101
Strategy................................................................ 101
Services................................................................ 102
Business Areas.......................................................... 103
Acquisitions and Strategic Alliances.................................... 104
Revenues................................................................ 104
Services for General Motors............................................. 104
Backlog................................................................. 105
Competition............................................................. 105
Employees............................................................... 106
Patents, Proprietary Rights and Licenses................................ 106
Regulation.............................................................. 106
Real Property........................................................... 106
Legal Proceedings....................................................... 107
EDS Management and Executive Compensation................................ 108
Directors and Executive Officers........................................ 108
Director Compensation................................................... 111
Executive Compensation.................................................. 112
Amended EDS Incentive Plan.............................................. 112
Existing EDS Incentive Plan............................................. 119
EDS Retirement Plan..................................................... 123
Stock Purchase Plan..................................................... 124
Change of Control Employment Agreements................................. 125
Compensation Committee Interlocks and Insider Participation............. 126
Indemnification Agreements.............................................. 126
Class E Common Stock..................................................... 128
Introduction............................................................ 128
Price Range and Dividends............................................... 128
Dividend Policy......................................................... 128
Voting Rights........................................................... 130
Liquidation Rights...................................................... 130
Recapitalization........................................................ 130
Subdivision or Combination.............................................. 131
Considerations Relating to Multi-Class Common Stock Capital Structure... 131
EDS Capital Stock........................................................ 132
EDS Common Stock........................................................ 132
EDS Preferred Stock..................................................... 132
EDS Rights Agreement.................................................... 133
Limitation on EDS Directors' Liability.................................. 135
Section 203 of the Delaware General Corporation Law..................... 136
Limitations on Changes in Control....................................... 136
EDS Transfer Agent and Registrar........................................ 137
Comparison of Class E Common Stock and EDS Common Stock.................. 138
General................................................................. 138
Dividend Policy......................................................... 138
Voting Rights........................................................... 138
Liquidation Rights...................................................... 138
Recapitalization........................................................ 139
Certain Limitations on Changes in Control of EDS........................ 139
Solicitation of Written Consent of General Motors Common Stockholders.... 140
Matters to be Considered................................................ 140
Action by Written Consent............................................... 141
Consents................................................................ 142
Security Ownership of Certain Beneficial Owners and Management of General
Motors and EDS.......................................................... 144
General Motors.......................................................... 144
EDS..................................................................... 147
GM Hourly Plan Special Trust............................................ 147
Estimated Fees and Expenses.............................................. 150
Legal Matters............................................................ 150
Experts.................................................................. 150
</TABLE>
<TABLE>
<C> <S> <C>
Merger
Appendix A-- Agreement... A-1
Fairness
Appendix B-- Opinions
Merrill
Lynch
Fairness
Appendix B-1-- Opinion..... B-1
Lehman
Brothers
Fairness
Appendix B-2-- Opinion..... B-5
Morgan
Stanley
Fairness
Appendix B-3-- Opinion..... B-10
EDS
Consolidated
Financial
Appendix C-- Statements..
Independent
Auditors'
Report...... C-1
EDS
Consolidated
Financial
Statements
and Notes
Thereto..... C-2
Amended EDS
Incentive
Appendix D-- Plan........ D-1
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere or incorporated by reference in this
Solicitation Statement/Prospectus and the Appendices hereto. General Motors
stockholders are urged to read this Solicitation Statement/Prospectus and the
Appendices hereto in their entirety. Unless the context otherwise requires, all
references in this Solicitation Statement/Prospectus to General Motors include
General Motors and its subsidiaries (including EDS to the extent that such
references relate to periods prior to the Split-Off). Electronic Data Systems
Holding Corporation currently owns all of the capital stock of Electronic Data
Systems Intermediate Corporation, which in turn owns all of the capital stock
of Electronic Data Systems Corporation. Immediately prior to the Split-Off, (i)
Electronic Data Systems Intermediate Corporation will be merged with and into
Electronic Data Systems Holding Corporation and (ii) Electronic Data Systems
Corporation will be merged with and into Electronic Data Systems Holding
Corporation and, pursuant to such merger, Electronic Data Systems Holding
Corporation will be renamed "Electronic Data Systems Corporation." Unless the
context otherwise requires, all references in this Solicitation
Statement/Prospectus to EDS give effect to the transactions described in the
preceding sentence and include Electronic Data Systems Corporation and its
subsidiaries. The share numbers in this Solicitation Statement/Prospectus
reflect all stock dividends and subdivisions or combinations of General Motors
capital stock prior to the date hereof.
INTRODUCTION
This Solicitation Statement/Prospectus is being furnished in connection with
the solicitation by the GM Board of the written consent of General Motors
common stockholders approving the Transactions, including the adoption of the
Merger Agreement. Pursuant to the Merger, each outstanding share of Class E
Common Stock will be converted into one share of EDS Common Stock. In lieu of a
special meeting of stockholders, action on the Transactions will be taken by
written consent. The Transactions will be consummated on a date to be
determined by GM, which is expected to be as soon as practicable after the
requisite consents thereto are received from holders of $1 2/3 Common Stock,
Class E Common Stock and Class H Common Stock, provided that the conditions to
the consummation of the Merger set forth in the Merger Agreement have been
satisfied or waived and the Merger Agreement has not been terminated. The
Transactions will in any event not be consummated sooner than 20 business days
after the date of mailing of this Solicitation Statement/Prospectus to GM's
common stockholders. See "--Vote Required for Approval; Voting Securities Owned
by Certain Persons" and "The Split-Off."
This Solicitation Statement/Prospectus is also being furnished by General
Motors to obtain the approval by the General Motors common stockholders of the
Amended EDS Incentive Plan, which amends and restates the Existing EDS
Incentive Plan in order, among other things, to provide that awards made
thereunder will be in the form of EDS Common Stock rather than Class E Common
Stock. Approval of the Amended EDS Incentive Plan by the common stockholders of
General Motors is being sought to ensure that the deductibility by EDS, for
U.S. federal income tax purposes, of certain performance-based awards made
under the Amended EDS Incentive Plan will not be limited by Section 162(m) of
the Code. See "--Amended EDS Incentive Plan--Stockholder Approval; Vote
Required," "EDS Management and Executive Compensation--Amended EDS Incentive
Plan" and "--Existing EDS Incentive Plan."
This Solicitation Statement/Prospectus also constitutes a prospectus of EDS
under the Securities Act with respect to shares of EDS Common Stock to be
distributed in exchange for Class E Common Stock in the Split-Off.
GENERAL MOTORS
The major portion of General Motors' operations is derived from the
automotive products industry, consisting of the design, manufacture, assembly
and sale of automobiles, trucks and related parts and accessories. Primarily
through its wholly owned subsidiaries, EDS, General Motors Acceptance
Corporation ("GMAC") and
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Hughes Electronics Corporation ("Hughes"), General Motors also manufactures
products and provides services in other industry segments. General Motors'
principal executive offices are located at 3044 West Grand Boulevard, Detroit,
Michigan 48202-3091 (Telephone Number (313) 556-5000).
EDS
EDS is a world leader in applying information technology, with over 30 years
of experience in using advanced computer and communications technologies to
meet its clients' business needs. EDS' total revenues in 1995 were $12.4
billion, of which approximately $3.9 billion was attributable to the
performance of IT and other services on behalf of General Motors and its
affiliates. As of December 31, 1995, EDS employed approximately 96,000 persons
and served clients in the United States and approximately 40 other countries.
See "Business of EDS." EDS' principal executive offices are located at 5400
Legacy Drive, Plano, Texas 75024-3105 (Telephone Number (214) 604-6000).
THE TRANSACTIONS
Purposes of the Split-Off
The GM Board has determined that ownership of EDS is not necessary for GM to
execute its IT strategy or to ensure the security of its computer data and
other information. Furthermore, the GM Board has determined that there are
certain actual and potential conflicts between the business of EDS and the
other businesses of General Motors. The Split-Off is intended to address such
conflicts in a manner that is beneficial from the standpoint of all
stockholders of General Motors and to allow the boards and management of GM and
EDS to increase their focus on their respective business operations.
Approximately one-third of the outstanding Class E Common Stock is held by the
GM Hourly Plan Special Trust. Accordingly, after the Split-Off, so long as the
GM Hourly Plan Special Trust holds any EDS Common Stock, any appreciation or
depreciation in the value of such stock will affect the level of General
Motors' pension expense and unfunded pension liability, which are actuarially
determined and computed in accordance with generally accepted accounting
principles.
The Split-Off is intended to accomplish at least three business objectives
from the perspective of EDS and holders of Class E Common Stock: (i) to remove
limitations on EDS' ability to participate in major strategic alliances
(including mergers and acquisitions which can be effected using EDS Common
Stock); (ii) to remove limitations on EDS' ability to obtain additional
business from and establish new customer relationships with companies that
compete with General Motors or its subsidiaries; and (iii) to enhance EDS'
access to the capital necessary for investment in its future growth. See
"Special Factors--Purposes of the Split-Off."
Effects of the Split-Off
As a result of the Split-Off, EDS will become an independent, publicly held
company. In addition, holders of the Class E Common Stock will become
stockholders of EDS rather than of General Motors, and the Class E Common Stock
will cease to exist. The Split-Off will not result in the recapitalization of
Class E Common Stock into $1 2/3 Common Stock at a 120% exchange ratio as
currently provided in the General Motors Certificate of Incorporation upon a
disposition by General Motors of substantially all of the business of EDS and
under certain other circumstances. Holders of EDS Common Stock will have no
rights comparable to such recapitalization rights of holders of Class E Common
Stock. See "Comparison of Class E Common Stock and EDS Common Stock." All other
outstanding shares of GM capital stock will remain outstanding after the Split-
Off, and the terms of such stock will remain essentially unchanged. No dividend
or other distribution will be made on any GM capital stock in connection with
the Split-Off. See "Special Factors--Effects of the Split-Off."
The Merger
The Split-Off will be accomplished through the consummation of the Merger of
Mergeco with and into General Motors pursuant to the Merger Agreement. Mergeco
is an indirect wholly owned subsidiary of EDS organized for the purpose of
effecting the Split-Off. Pursuant to the Merger, among other things, (i)
Mergeco
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<PAGE>
will be merged with and into General Motors, with General Motors being the
surviving corporation, (ii) each outstanding share of Class E Common Stock will
be automatically converted into one share of EDS Common Stock and (iii)
provisions in the General Motors Certificate of Incorporation regarding the
Class E Common Stock will be deleted and certain other provisions therein,
including provisions with respect to the General Motors Preferred Stock (the
"Preferred Stock"), will be amended. There are currently no shares of Preferred
Stock outstanding. The changes to the General Motors Certificate of
Incorporation relating to the Preferred Stock will allow the GM Board to
determine the specific rights, preferences and limitations of any series of
Preferred Stock if and when issued in the discretion of the GM Board and will
cause the Preferred Stock to assume the characteristics of "blank-check"
preferred stock, which the General Motors Preference Stock already possesses.
Such changes include the deletion of a restrictive covenant limiting the
payment of cash dividends on classes of General Motors stock other than the
Preferred Stock based on a net quick assets test, the removal of a restriction
on the placing of liens on General Motors property, the elimination of certain
voting rights of the Preferred Stock and the deletion of a specified
liquidation price of $100 per share of Preferred Stock. See "The Split-Off--
Merger Agreement--Effect of the Merger."
The consummation of the Merger is subject to certain conditions set forth in
the Merger Agreement. The Merger Agreement may be terminated under certain
circumstances set forth therein, including by General Motors at any time prior
to the effective date of the Merger in the event that the GM Board concludes
that termination would be in the best interests of General Motors and its
stockholders. See "The Split-Off--Merger Agreement."
Special Inter-Company Payment
Immediately prior to and as a condition of the consummation of the Merger,
EDS will contribute to Mergeco the Special Inter-Company Payment in the amount
of $500 million in cash. As a result of the Merger, all of the assets of
Mergeco, which will consist entirely of the cash contributed by EDS, will
become assets of General Motors. In determining the amount of the Special
Inter-Company Payment, the GM Board gave consideration to, among other things,
the fact that in the Separation Agreement GM would provide EDS a $50.0 million
allowance relating to the resolution of various uncertain, contingent or other
matters arising out of the separation of GM and EDS. The Special Inter-Company
Payment was included as one of the terms of the Split-Off in order to enable
the GM Board to determine that the Split-Off is fair to all classes of General
Motors common stockholders.
IT Services Agreements
Immediately prior to and as a condition of the consummation of the Merger,
General Motors and EDS will enter into the new Master Services Agreement, which
will serve as a framework for the negotiation and operation of service
agreements between GM and EDS related to certain "in-scope" IT services to be
provided by EDS to General Motors on a worldwide basis after the Split-Off
(collectively, together with the Master Services Agreement, the "IT Services
Agreements"). The Master Services Agreement contemplates that EDS will continue
to serve as GM's principal supplier of IT services for an initial term of ten
years, which may be extended by agreement of the parties, and that the IT
services to be provided by EDS after the Split-Off will generally be similar to
those provided to General Motors under the existing Master Agreement (the
"Existing Master Services Agreement"), which currently serves as a framework
for individual services agreements between GM and EDS (collectively, together
with the Existing Master Services Agreement, the "Existing IT Services
Agreements"). Under the IT Services Agreements, EDS will provide to General
Motors certain plant floor automation services in North America which had
previously been provided by EDS and other vendors under a variety of
agreements. IT services that will be considered to be "in-scope" for purposes
of the Master Services Agreement accounted for approximately $3.4 billion of
approximately $3.9 billion in the aggregate of revenues received by EDS from GM
in 1995. The balance of EDS' 1995 revenues from GM was attributable to goods
and services provided to GM by EDS which would have been outside the scope of
the Master Services Agreement. Following the Split-Off, the parties expect that
EDS will continue to provide "out-of-scope" goods and services to GM under
various types of contractual agreements other than the Master Services
Agreement.
The IT Services Agreements provide that certain of the Existing IT Services
Agreements applicable to particular units, sectors or other organizations
within General Motors will be extended for additional terms of
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<PAGE>
between approximately one and three years beyond their current expiration
dates. The IT Services Agreements also provide that certain significant changes
will be made to the pricing and terms of services provided by EDS. Among other
things, the parties have agreed that the rates charged by EDS to General Motors
for certain information processing activities and communications services will
be reduced and that the parties will work together to achieve targets for
increased structural cost reductions. General Motors will also be given the
right to competitively bid and, subject to certain restrictions, outsource a
limited portion of its IT service requirements to third party providers. In
addition, commencing in 1997, the payment terms relating to IT services
provided by EDS will be revised over a two-year period to extend the due dates
for payments from General Motors. The Master Services Agreement provides for
termination in the event of material default by either party, non-payment by
GM, the insolvency of either party and certain changes in control of EDS. The
GM Board believes that the changes reflected in the Master Services Agreement
are necessary (i) in light of the fact that, after the Split-Off, EDS will no
longer be a subsidiary of General Motors and the Capital Stock Committee will
no longer be able to monitor the IT service arrangements between the parties,
(ii) to reflect the evolutionary nature of the General Motors-EDS customer
relationship and the IT services industry and (iii) to provide additional
assurances to General Motors, as EDS' largest customer, that the IT services
performed by EDS will remain competitive. See "Relationship Between General
Motors and EDS--Post-Split-Off Arrangements--IT Services Agreements."
Negotiating Teams
In order to ensure that the terms of the Split-Off would be fair to all
classes of GM common stockholders, the GM Board determined that it was
appropriate to institute a process of arm's-length negotiation between separate
teams acting on behalf of each of the groups of GM stockholders that could be
deemed to have divergent interests in the Split-Off. Accordingly, in August
1995, the GM Board appointed two management negotiating teams. One team, which
consisted of executive officers of General Motors (the "GM Team"), was charged
with negotiating recommended terms of the Split-Off from the perspective of the
holders of $1 2/3 Common Stock and the Class H Common Stock. The other team,
which consisted of executive officers of EDS (the "EDS Team"), was charged with
negotiating recommended terms of the Split-Off from the perspective of the
holders of Class E Common Stock. The GM Team and the EDS Team negotiated the
terms of the IT Services Agreements and the Separation Agreement, the amount of
the Special Inter-Company Payment and the other material terms of the
Transactions and recommended such terms to the Capital Stock Committee and the
GM Board.
Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
The GM Board has received an opinion from Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), dated March 31, 1996 (the "Merrill Lynch
Fairness Opinion"), that, as of that date and on the basis of and subject to
the assumptions, limitations and other matters set forth therein, the Financial
Effects of the Transactions (as defined in the Merrill Lynch Fairness Opinion)
are fair, from a financial point of view, to General Motors and, accordingly,
to General Motors' common stockholders after consummation of the Merger, namely
the holders of the $1 2/3 Common Stock and the Class H Common Stock. The
Merrill Lynch Fairness Opinion, which sets forth the assumptions made, the
matters considered and the limits on the review undertaken by Merrill Lynch, is
attached as Appendix B-1 to this Solicitation Statement/Prospectus and should
be read in its entirety. For information relating to the Merrill Lynch Fairness
Opinion, see "Special Factors--Fairness Opinions--Merrill Lynch Fairness
Opinion."
Fairness Opinions of Lehman Brothers Inc. and Morgan Stanley & Co.
Incorporated
The GM Board has received a written opinion from each of Lehman Brothers Inc.
("Lehman Brothers") and Morgan Stanley & Co. Incorporated ("Morgan Stanley,"
and together with Lehman Brothers, the "EDS Team Financial Advisors"), each
dated March 31, 1996 (the "Lehman Brothers and Morgan Stanley Fairness
Opinions"), to the effect that, as of that date and on the basis of and subject
to the assumptions, limitations and other matters set forth therein, the
financial effect of the Split-Off Transactions (as defined in the Lehman
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Brothers and Morgan Stanley Fairness Opinions) taken as a whole is fair, from a
financial point of view, to the holders of Class E Common Stock. Assumptions
made, matters considered and limits on the review undertaken by Lehman Brothers
and Morgan Stanley, respectively, are set forth in the Lehman Brothers and
Morgan Stanley Fairness Opinions, which are attached as Appendix B-2 and B-3,
respectively, to this Solicitation Statement/Prospectus and should be read in
their entirety. For information relating to the Lehman Brothers and Morgan
Stanley Fairness Opinions, including a discussion of certain of the factors
considered by EDS Team Financial Advisors in reaching their respective
opinions, see "Special Factors--Fairness Opinions--EDS Team Financial Advisors
Fairness Opinions."
Advantages and Disadvantages of the Split-Off to the Holders of $1 2/3 Common
Stock and Class H Common Stock
Factors considered by the Capital Stock Committee and the GM Board to have a
positive effect on the holders of the $1 2/3 Common Stock include the removal
of certain existing and potential business conflicts between EDS and certain
other GM business units; any decrease in GM's pension expense and funding
obligations that may be caused by any appreciation resulting from the Split-Off
in the EDS Common Stock to be owned by the pension plans for GM's hourly-rate
and salaried employees; the receipt of the Special Inter-Company Payment; the
terms of the new IT Services Agreements; and the elimination of the potential
recapitalization of the Class E Common Stock into $1 2/3 Common Stock at a 120%
exchange ratio upon a disposition by GM of substantially all of the business of
EDS. Certain of these factors, including the removal of potential business
conflicts between EDS and Hughes and, with respect to Hughes' subsidiary, Delco
Electronics Corporation ("Delco"), the terms of the new IT Services Agreements,
were also considered to have a positive effect on the holders of Class H Common
Stock. The factors considered by the Capital Stock Committee and the GM Board
to have a negative effect on the holders of the $1 2/3 Common Stock include the
loss of ownership of its IT provider, EDS, the possible effect of the Split-Off
on GM's credit rating and credit profile and the loss of the ability of General
Motors to elect to recapitalize shares of Class E Common Stock as shares of $1
2/3 Common Stock. See "Special Factors--Background of the Split-Off--March 3,
1996 Capital Stock Committee Meeting," "--March 22, 1996 Capital Stock
Committee Meeting," "--Recommendations of the Capital Stock Committee and the
GM Board; Fairness of the Transactions" and "--Fairness Opinions."
Advantages and Disadvantages of the Split-Off to the Holders of Class E Common
Stock
Factors considered by the Capital Stock Committee and the GM Board to have a
positive effect on the holders of the Class E Common Stock included the
benefits of owning an equity security like EDS Common Stock rather than Class E
Common Stock, which is a derivative or "tracking" security; the removal of
constraints on EDS' ability, as a subsidiary of GM, to participate in strategic
alliances, including the ability to use EDS Common Stock in large acquisitions;
the availability of new market opportunities and increased growth potential for
EDS; lower cost of and better access to capital for EDS; the possibility that
EDS Common Stock would be included in the Standard & Poor's 500 Index after the
Split-Off; the release of EDS from certain liabilities relating to GM's U.S.
pension plans; and the potential of holders of EDS Common Stock to realize
premiums over prevailing market prices in connection with certain corporate
transactions, including tender offers and other change of control transactions.
The factors considered by the Capital Stock Committee and the GM Board to have
a negative effect on the holders of Class E Common Stock were the payment of
the Special Inter-Company Payment; the terms of the new IT Services Agreements;
and the loss of the right to recapitalization of the Class E Common Stock into
$1 2/3 Common Stock at a 120% exchange ratio upon a disposition by GM of
substantially all of the business of EDS and under certain other circumstances.
See "Special Factors--Background of Split-Off--March 3, 1996 Capital Stock
Committee Meeting," "--March 22, 1996 Capital Stock Committee Meeting," "--
Recommendations of the Capital Stock Committee and the GM Board; Fairness of
the Transactions" and "--Fairness Opinions."
Recommendations of the Capital Stock Committee and the GM Board; Fairness of
the Transactions
The Capital Stock Committee, which consists entirely of independent
directors, has unanimously recommended that the GM Board proceed with the
Transactions as being in the best interests of, and fair to,
5
<PAGE>
General Motors and each class of GM common stockholders. Based upon, among
other things, the GM Board's review and consideration of the terms and
conditions of the Transactions and related matters, including the process of
arm's-length negotiation established by the GM Board in order to develop the
terms of the Split-Off, the oversight of such process and the GM/EDS
relationship by the Capital Stock Committee and its recommendation, the reports
and recommendations of the GM Team, the EDS Team and GM executive management,
and the Merrill Lynch Fairness Opinion and the Lehman Brothers and Morgan
Stanley Fairness Opinions, the GM Board has determined that the Transactions
are in the best interests of, and fair to, General Motors and each class of GM
common stockholders. Accordingly, the GM Board has unanimously approved the
Transactions and recommends that General Motors common stockholders execute
consents approving the Transactions, including the adoption of the Merger
Agreement. For a description of the factors considered by the Capital Stock
Committee and the GM Board in reaching their respective determinations, see
"Special Factors--Background of the Split-Off" and "--Recommendations of the
Capital Stock Committee and the GM Board; Fairness of the Transactions."
Vote Required for Approval; Voting Securities Owned by Certain Persons
Consummation of the Transactions is conditioned upon, among other things,
receiving the consent of the holders of (i) a majority of the voting power of
all outstanding shares of all three classes of General Motors common stock,
voting together as a single class based on their respective voting rights, (ii)
a majority of the outstanding shares of $1 2/3 Common Stock, voting as a
separate class, and (iii) a majority of the outstanding shares of Class E
Common Stock, voting as a separate class. For purposes of the vote described in
clause (i) above, and as provided for in the General Motors Certificate of
Incorporation, holders of $1 2/3 Common Stock will be entitled to one vote per
share, holders of Class E Common Stock will be entitled to one-eighth of a vote
per share and holders of Class H Common Stock will be entitled to one-half of a
vote per share. See "Solicitation of Written Consent of General Motors Common
Stockholders." As of the Record Date, directors and executive officers of
General Motors together held less than 1% of the outstanding shares of each
class of GM common stock. As of the Record Date, persons expected to be
directors and executive officers of EDS upon consummation of the Split-Off
together held less than 1% of the outstanding shares of each class of GM common
stock. See "Security Ownership of Certain Beneficial Owners and Management of
General Motors and EDS."
As of the Record Date, pension, savings and incentive plans of General Motors
(excluding its subsidiaries), including the GM Hourly Plan Special Trust,
together beneficially owned approximately 14% of the $1 2/3 Common Stock
outstanding, approximately 36% of the Class E Common Stock outstanding and
approximately 5% of the Class H Common Stock outstanding. Approximately 31% of
the shares of Class E Common Stock outstanding on the Record Date
(approximately 2.2% of the combined voting power of the $1 2/3 Common Stock,
Class E Common Stock and Class H Common Stock) was owned by the GM Hourly Plan
Special Trust. General Motors and EDS have been advised by the GM Hourly Plan
Trustees that, based on the information currently available to them, the GM
Hourly Plan Trustees intend to vote the shares of Class E Common Stock held by
the GM Hourly Plan Special Trust in favor of the Transactions. Such statement
of intent is not binding on the GM Hourly Plan Trustees, and there can be no
assurance that they will vote the shares of Class E Common Stock held by the GM
Hourly Plan Special Trust in favor of the Transactions.
Risk Factors Regarding EDS after the Split-Off
Holders of Class E Common Stock will receive shares of EDS Common Stock in
the Split-Off and should therefore be aware of certain risk factors with
respect to an investment in EDS Common Stock, including that (i) the EDS Board
may consider and implement after the Split-Off a dividend policy for EDS Common
Stock that is different than the dividend policy that the GM Board has
maintained with respect to the Class E Common Stock; (ii) it is anticipated
that EDS may incur substantially more debt after the Split-Off than it has had
while a subsidiary of GM and will borrow approximately $500 million to finance
the Special Inter-Company Payment; (iii) there is currently no public market
for EDS Common Stock and no assurance can be given that the trading price of a
share of EDS Common Stock after the Split-Off will be equal to or greater than
the trading price of a
6
<PAGE>
share of Class E Common Stock prior to the Split-Off; (iv) although the
percentage of EDS' total revenues attributable to GM and its affiliates has
decreased significantly in recent years, GM will continue to account for a
substantial portion of EDS' revenues upon consummation of the Split-Off; (v)
the GM Hourly Plan Special Trust will hold approximately 31% of the outstanding
EDS Common Stock immediately after the consummation of the Split-Off; (vi)
there can be no assurance that the Split-Off will enable EDS to enter into
major strategic alliances and take advantage of other growth opportunities or
otherwise achieve the business objectives described herein; (vii) after the
Split-Off, EDS may no longer be able to benefit from General Motors' worldwide
network of business relationships with companies and government contacts; and
(viii) the Restated Certificate of Incorporation of EDS (after giving effect to
the Split-Off, the "EDS Certificate of Incorporation") and the EDS Bylaws
(after giving effect to the Split-Off, the "EDS Bylaws"), as well as the EDS
Rights Agreement (as hereinafter defined) and the provisions of certain other
agreements, could have the effect of delaying, deferring or preventing a change
in control of EDS after the Split-Off. See "Risk Factors Regarding EDS after
the Split-Off."
Risk Factors Regarding General Motors after the Split-Off
Holders of $1 2/3 Common Stock and Class H Common Stock should be aware of
certain risk factors, including that after the Split-Off, (i) GM will no longer
own the outstanding stock of EDS and, accordingly, its balance sheet and income
statement will no longer reflect the assets and operations of EDS; (ii) General
Motors will no longer be able to consider the use of EDS funds and assets for
GM's other businesses or corporate needs and the holders of $1 2/3 Common Stock
and Class H Common Stock will lose their rights to share in the distribution of
EDS' equity and assets upon the liquidation of General Motors; (iii) so long as
the GM Hourly Plan Special Trust holds any EDS Common Stock, any appreciation
or depreciation in the value of such stock will affect the level of GM's
pension expense and unfunded pension liability; and (iv) GM will no longer have
an ownership interest in its principal IT provider, and its rights with respect
to IT services provided by EDS will be derived solely by contract. See "Risk
Factors Regarding General Motors after the Split-Off."
Risk Factors Regarding Non-Consummation of the Split-Off
Holders of all classes of General Motors common stock should be aware of
certain factors if the Split-Off is not consummated, including that (i) there
are certain actual and potential conflicts between the businesses of EDS and
the other businesses of General Motors, as well as certain business objectives
of EDS, that would need to be addressed in a different manner if EDS were to
remain a subsidiary of General Motors, and there can be no assurance that the
GM Board will be able to address these conflicts and objectives in a manner
that will not have an adverse effect on the business, financial condition or
results of operations of EDS or General Motors or on the market price of any
class of GM common stock, and (ii) GM management has advised EDS management
that, if the Split-Off is not consummated, General Motors would seek
substantial changes to the Existing IT Services Agreements, including
implementation of substantially all of the changes reflected in the IT Services
Agreements, although no agreement has been reached between GM and EDS regarding
the terms on which EDS will provide IT services to GM if the Split-Off is not
consummated, and the Existing IT Services Agreements will remain in effect
until GM and EDS agree to changes or the GM Board, upon recommendation of the
Capital Stock Committee, determines that particular changes should be made and
that such changes are fair to all classes of GM common stockholders.
No Appraisal Rights
General Motors stockholders will not be entitled to any appraisal rights in
connection with the Transactions. See "The Split-Off--No Appraisal Rights."
7
<PAGE>
Summary Comparison of Class E Common Stock and EDS Common Stock
The following is a summary comparison of the terms of the outstanding Class E
Common Stock and the EDS Common Stock proposed to be distributed in the Split-
Off. For more detailed information regarding the terms of the Class E Common
Stock and EDS Common Stock, see "Class E Common Stock," "EDS Capital Stock" and
"Comparison of Class E Common Stock and EDS Common Stock."
CLASS E COMMON STOCK EDS COMMON STOCK
GENERAL............. Holders of Class E Common Holders of EDS Common Stock
Stock are stockholders of will be stockholders of EDS,
General Motors, not of which will no longer be a
EDS, and have an interest subsidiary of General Motors,
in the equity and assets and will have an equity in-
of General Motors, which terest in EDS. EDS is a Dela-
includes 100% of the ware corporation.
stock of EDS. General Mo-
tors is a Delaware corpo-
ration.
DIVIDEND POLICY..... Under the General Motors Under Delaware law and the
Certificate of Incorpora- EDS Certificate of Incorpora-
tion, dividends on Class tion, dividend policy with
E Common Stock may be de- respect to the EDS Common
clared and paid only to Stock will be determined by
the extent of the sum of the EDS Board. EDS management
(i) the paid in surplus intends to recommend to the
of General Motors attrib- EDS Board at its first meet-
utable to the Class E ing following consummation of
Common Stock plus (ii) an the Split-Off that EDS con-
allocated portion of the tinue to pay quarterly divi-
earnings of General Mo- dends through 1996 in an
tors attributable to EDS, amount equal to $0.15 per
determined as described share. The EDS Board will not
herein under "Class E be required to follow such
Common Stock" (the recommendation by EDS manage-
"Available Separate Con- ment. The EDS Board will be
solidated Net Income" of free to adopt such dividend
EDS). The current divi- policy as it deems appropri-
dend policy of the GM ate and, during or after
Board is to pay dividends 1996, to change its dividend
on Class E Common Stock, policies and practices from
when, as and if declared time to time and to decrease
by the GM Board, at an or increase the dividends
annual rate equal to ap- paid on the EDS Common Stock
proximately 30% of the on the basis of EDS' finan-
Available Separate Con- cial condition, earnings and
solidated Net Income of capital requirements and
EDS for the prior year. other factors the EDS Board
may deem relevant.
VOTING RIGHTS....... Holders of Class E Common Holders of EDS Common Stock
Stock are entitled to will be entitled to cast one
cast one-eighth of a vote vote per share on all matters
per share on all matters submitted to a vote of the
submitted to a vote of common stockholders of EDS.
the common stockholders
of General Motors and,
with specified excep-
tions, such holders vote
together as a single
class with the holders of
$1 2/3 Common Stock and
Class H Common Stock on
all matters based on
their respective voting
rights as set forth in
the General Motors Cer-
tificate of Incorpora-
tion.
8
<PAGE>
CLASS E COMMON STOCK EDS COMMON STOCK
LIQUIDATION RIGHTS.. Upon the liquidation, Upon the liquidation, disso-
dissolution or winding up lution or winding up of EDS,
of General Motors, after after the preferential or
the holders of GM Pre- participating amounts to
ferred Stock (if any) and which the holders of EDS Pre-
GM Preference Stock re- ferred Stock (if any) are en-
ceive the full preferen- titled have been paid or set
tial amounts to which aside for payment, holders of
they are entitled, hold- EDS Common Stock will be en-
ers of Class E Common titled to receive any assets
Stock will be entitled to available for distribution to
share in the distribution stockholders.
of the remaining avail-
able assets of General
Motors with all other
holders of GM common
stock in proportion to
their respective liquida-
tion units. Holders of
Class E Common Stock are
entitled to a number of
liquidation units equal
to approximately one-
eighth per share, com-
pared to approximately
one per share for holders
of $1 2/3 Common Stock
and approximately one-
half per share for hold-
ers of Class H Common
Stock.
RECAPITALIZATION All outstanding shares of Holders of EDS Common Stock
RIGHTS.............. Class E Common Stock may will have no rights compara-
be recapitalized as ble to those of holders of
shares of $1 2/3 Common Class E Common Stock with re-
Stock (i) at any time af- spect to the potential recap-
ter December 31, 1995, in italization of Class E Common
the sole discretion of Stock into $1 2/3 Common
the GM Board (provided, Stock at a 120% exchange ra-
that during each of the tio. Holders of EDS Common
five full fiscal years Stock will, however, have the
preceding the recapitali- potential to realize premiums
zation, the aggregate over prevailing market prices
cash dividends on Class E for EDS Common Stock in con-
Common Stock have been no nection with certain corpo-
less than a specified rate transactions, including
percentage of the Avail- tender offers for EDS Common
able Separate Consoli- Stock and change in control
dated Net Income of EDS transactions involving EDS,
for the prior fiscal although there can be no as-
year) and (ii) automati- surance in this regard.
cally, if at any time
General Motors disposes
of substantially all of
the business of EDS. In
the event of any such re-
capitalization, each
holder of Class E Common
Stock would receive
shares of $1 2/3 Common
Stock having a market
value, as of a specified
date, equal to 120% of
the market value of such
holder's Class E Common
Stock on such date. As a
result of the Merger, the
General Motors Certifi-
cate of Incorporation
will be amended so that
the Split-Off will not
result in any such recap-
italization.
9
<PAGE>
CLASS E COMMON STOCK EDS COMMON STOCK
CERTAIN LIMITATIONS
ON CHANGES IN
CONTROL.............
The EDS Certificate of Incor-
poration and the EDS Bylaws
The holders of Class E contain certain provisions,
Common Stock are not sub- such as a "fair price" provi-
ject to provisions compa- sion, which could have the
rable to the "fair price" effect of delaying, deferring
provision in the EDS Cer- or preventing a change in
tificate of Incorporation control of EDS and of limit-
or the provisions of the ing any opportunity to real-
EDS Rights Agreement. ize premiums over prevailing
market prices for EDS Common
Stock in connection there-
with. In addition, the Rights
Agreement (the "EDS Rights
Agreement") to which EDS is a
party provides for preferred
stock purchase rights that
could have the same effect.
One such right will be at-
tached to each share of EDS
Common Stock distributed upon
conversion of a share of
Class E Common Stock in the
Split-Off.
LISTING............. The Class E Common Stock Application has been made to
is listed and traded on list the EDS Common Stock on
the NYSE. the NYSE, and such applica-
tion has been granted pending
notice of issuance.
Certain U.S. Federal Income Tax Considerations
General Motors has received a ruling (the "Tax Ruling") from the IRS to the
effect that the Split-Off will be treated as a tax-free exchange under Section
355 of the Code. Accordingly, for U.S. federal income tax purposes, no gain or
loss will be recognized by either General Motors or holders of Class E Common
Stock on the exchange of EDS Common Stock for Class E Common Stock pursuant to
the Split-Off. The Tax Ruling is based on certain factual representations and
assumptions, however, and does not address U.S. state or local or non-U.S. tax
consequences or the tax consequences of transactions (if any) effectuated prior
to or after the Split-Off. If any such factual representations or assumptions
are incorrect or untrue in any material respect, the Tax Ruling may be
invalidated. Current Treasury Regulations require each General Motors
stockholder who receives EDS Common Stock pursuant to the Split-Off to attach
to such stockholder's federal income tax return for the year in which the
Split-Off occurs a detailed statement setting forth such data as may be
appropriate in order to show the applicability of Section 355 of the Code to
the Split-Off. At the time that the letter of transmittal is sent to all such
holders of Class E Common Stock, General Motors will provide such information
to each holder of Class E Common Stock receiving EDS Common Stock in the Split-
Off in order to enable each such holder to comply with such regulations. For a
more detailed discussion of the federal income tax consequences of the Split-
Off to General Motors and its stockholders, see "Special Factors--Certain U.S.
Federal Income Tax Considerations."
GM--PBGC Agreement
GM expects that, effective upon consummation of the Split-Off, the U.S.
Pension Benefit Guaranty Corporation (the "PBGC") will release EDS and its
subsidiaries from all existing and potential liabilities relating to General
Motors' U.S. pension plans under Title IV of the Employee Retirement Income
Security Act of 1974,
10
<PAGE>
as amended ("ERISA"), pursuant to the procedures set forth in an agreement
dated March 3, 1995 between General Motors and the PBGC (as amended, the "GM-
PBGC Agreement"). The PBGC has executed appropriate release instruments and has
delivered them to an escrow agent for delivery to GM and EDS following
consummation of the Split-Off. The GM-PBGC Agreement was entered into in
connection with the March 1995 contribution by GM to the GM Hourly Plan of
173.2 million shares of Class E Common Stock and $4 billion in cash. See
"Special Factors--Effects of the Split-Off" and "--GM-PBGC Agreement."
Certain Litigation
Two purported class actions relating to the Split-Off, the consolidated
action Solomon v. General Motors Corporation, et al. and TRV Holding Company v.
General Motors Corporation, et al., and Ward, et al., as Trustees for the
Eisenberg Children's Irrevocable Trust II v. General Motors Corporation, et
al., have been filed against General Motors and its directors in Delaware
Chancery Court. Both of the complaints seek injunctive relief against the
Split-Off, and the Solomon/TRV complaints seek monetary damages in addition.
See "Special Factors--Certain Litigation." General Motors believes that the
suits are without merit and intends to defend against them vigorously.
Regulatory Requirements
GM and EDS believe that no material U.S. federal or other regulatory
requirements remain to be complied with by GM or EDS, and no material approvals
thereunder must be obtained by GM or EDS, in order to consummate the Split-Off.
However, there may be certain regulatory (e.g., securities and competition)
requirements to be complied with and approvals to be obtained by GM and EDS
outside of the United States in connection with the consummation of the Split-
Off. GM and EDS are currently working together to evaluate and comply in all
material respects with such requirements and to obtain all such approvals, and
do not anticipate that any such foreign requirements will hinder, delay or
restrict in any material respect consummation of the Transactions. See "The
Split-Off--Regulatory Requirements."
AMENDED EDS INCENTIVE PLAN
General
The Amended EDS Incentive Plan is intended to amend and restate the Existing
EDS Incentive Plan in order, among other things, to provide that awards made
thereunder will be in the form of EDS Common Stock rather than Class E Common
Stock. Awards to employees of EDS under the Amended EDS Incentive Plan may be
made 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. Awards to nonemployee directors of
EDS under such plan will be in the form of grants of stock options and
restricted stock. The aggregate number of shares of EDS Common Stock that will
be available for grant under the Amended EDS Incentive Plan (in addition to
shares that are subject to outstanding awards at the time of consummation of
the Split-Off) will be 60,000,000, which is approximately 35% less than the
number of shares of Class E Common Stock that are currently available for grant
under the Existing EDS Incentive Plan. The Amended EDS Incentive Plan will be
administered by the Compensation and Benefits Committee of the EDS Board.
Stockholder Approval; Vote Required
Approval of the Amended EDS Incentive Plan by the common stockholders of
General Motors is being sought to ensure that the deductibility by EDS, for
U.S. federal income tax purposes, of certain performance-based awards made
under the Amended EDS Incentive Plan will not be limited by Section 162(m) of
the Code. Approval of the Amended EDS Incentive Plan is independent of the vote
on the Transactions and will require the consent of the holders of (i) a
majority of the voting power of all outstanding shares of all three classes of
General Motors common stock, voting together as a single class based on their
respective voting rights, and (ii)
11
<PAGE>
a majority of the outstanding shares of Class E Common Stock, voting as a
separate class. See "Solicitation of Written Consent of General Motors Common
Stockholders."
Approximately 31% of the shares of Class E Common Stock outstanding on the
Record Date (approximately 2.2% of the combined voting power of the $1 2/3
Common Stock, Class E Common Stock and Class H Common Stock) was owned by the
GM Hourly Plan Special Trust. General Motors and EDS have been advised by the
GM Hourly Plan Trustees that, based on the information currently available to
them, the GM Hourly Plan Trustees intend to vote the shares of Class E Common
Stock held by the GM Hourly Plan Special Trust in favor of the Amended EDS
Incentive Plan. Such a statement of intent is not binding on the GM Hourly Plan
Trustees, and there can be no assurance that they will vote the shares of Class
E Common Stock held by the GM Hourly Plan Special Trust in favor of the Amended
EDS Incentive Plan.
Effectiveness of Plan
If the Amended EDS Incentive Plan is approved by the stockholders of General
Motors, it will become effective in its entirety upon consummation of the
Split-Off. If the Amended EDS Incentive Plan is not approved by the
stockholders of General Motors, the Existing EDS Incentive Plan will remain in
effect (with certain modifications intended to reflect, among other things, the
assumption of such plan by EDS upon the consummation of the Split-Off) and the
Amended EDS Incentive Plan will become effective upon the consummation of the
Split-Off to the extent that it relates to nonemployee directors of EDS but
will not become effective to the extent that it relates to employees of EDS.
See "EDS Management and Executive Compensation--Amended EDS Incentive Plan" and
"--Existing EDS Incentive Plan."
12
<PAGE>
CERTAIN PER SHARE AND OTHER FINANCIAL INFORMATION
The following table presents selected historical and pro forma per share data
for all three classes of GM common stock and selected pro forma per share data
for the EDS Common Stock. The historical per share data as of and for the year
ended December 31, 1995 have been derived from General Motors' Consolidated
Financial Statements and should be read in conjunction with such Consolidated
Financial Statements (including the notes thereto) and Management's Discussion
and Analysis in the GM 1995 Form 10-K, which is incorporated herein by
reference, including the information with respect to EDS in Exhibit 99(a)
thereto. The pro forma per share data for all three classes of GM common stock
and the EDS Common Stock as of and for the year ended December 31, 1995 give
effect to the Transactions and have been derived from, and should be read in
conjunction with, the financial data set forth under "General Motors Unaudited
Pro Forma Condensed Consolidated Financial Statements" and "EDS Unaudited Pro
Forma Condensed Consolidated Financial Statements." The pro forma per share
data for all three classes of GM common stock and the EDS Common Stock are not
necessarily indicative of future operating results.
GM COMMON STOCK HISTORICAL PER SHARE DATA
<TABLE>
<CAPTION>
AS OF AND FOR
THE YEAR ENDED
DECEMBER 31, 1995
-------------------------
$1 2/3
PAR VALUE CLASS E CLASS H
--------- ------- -------
<S> <C> <C> <C>
Book value per share (a)........................ $24.37 $3.11 $12.20
Cash dividends per share........................ 1.10 0.52 0.92
Earnings per share attributable
to common stocks............................... 7.21 1.96 2.77
</TABLE>
GM COMMON STOCK PRO FORMA PER SHARE DATA (B)
<TABLE>
<CAPTION>
AS OF AND FOR
THE YEAR ENDED
DECEMBER 31, 1995
-------------------------
$1 2/3
PAR VALUE CLASS E CLASS H
--------- ------- -------
<S> <C> <C> <C>
Book value per share (a)........................ $22.30 $-- $11.15
Earnings per share attributable
to common stocks............................... 7.41 -- 2.77
</TABLE>
EDS COMMON STOCK PRO FORMA PER SHARE DATA (C)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995
----------------------------
<S> <C>
Book value per share (d)..................... $9.16
Earnings per share........................... 1.64
</TABLE>
- --------
(a) Determined based on the liquidation rights with respect to the assets of
General Motors associated with the three classes of General Motors common
stock. For a description of such liquidation rights, see "Class E Common
Stock."
(b) Pro forma amounts reflect the removal of the assets and liabilities of EDS,
the impact of the IT Services Agreements, the Special Inter-Company Payment
and other items related to the Split-Off and the reclassification of EDS'
operating results to income from discontinued operations.
(c) Pro forma amounts include adjustments to reflect the impact of the IT
Services Agreements, the Special Inter-Company Payment (including the
financing thereof) and other items related to the Split-Off. For certain
information regarding the anticipated 1996 financial impact of the
Transactions on EDS, see "EDS Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(d) Calculated by dividing book value of the net assets of EDS by the number of
shares of EDS Common Stock expected to be outstanding upon consummation of
the Split-Off.
13
<PAGE>
On August 4, 1995, the last trading day before General Motors announced that
it intended to pursue a split-off of EDS through which EDS would become an
independent, public company, the closing price of the Class E Common Stock, as
reported on the NYSE Composite Tape, was $43 5/8, and the aggregate market
value of the outstanding Class E Common Stock was approximately $19.1 billion.
On such date, the closing price of the $1 2/3 Common Stock and the Class H
Common Stock, as reported on the NYSE Composite Tape, was $48 1/4 and $41 7/8,
respectively, and the aggregate market value of the outstanding $1 2/3 Common
Stock and the outstanding Class H Common Stock was approximately $36.1 billion
and $4.0 billion, respectively.
On December 29, 1995, the last trading day before General Motors announced
that it had received the Tax Ruling, the closing price of the Class E Common
Stock, as reported on the NYSE Composite Tape, was $52, and the aggregate
market value of the outstanding Class E Common Stock was approximately $22.8
billion. On such date, the closing price of the $1 2/3 Common Stock and the
Class H Common Stock, as reported on the NYSE Composite Tape, was $52 7/8 and
$49 1/8, respectively, and the aggregate market value of the outstanding $1 2/3
Common Stock and the outstanding Class H Common Stock was approximately $39.8
billion and $4.8 billion, respectively.
On March 29, 1996, the last trading day before General Motors announced that
the GM Board had approved the Transactions, the closing price of the Class E
Common Stock, as reported on the NYSE Composite Tape, was $57, and the
aggregate market value of the outstanding Class E Common Stock was
approximately $27.7 billion. On such date, the closing price of the $1 2/3
Common Stock and the Class H Common Stock, as reported on the NYSE Composite
Tape, was $53 1/4 and $63 1/4, respectively, and the aggregate market value of
the outstanding $1 2/3 Common Stock and the outstanding Class H Common Stock
was approximately $40.3 billion and $6.2 billion, respectively.
GENERAL MOTORS RATIOS OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
The following table presents GM's historical and pro forma ratio of earnings
to fixed charges for the periods indicated. The historical ratio of earnings to
fixed charges for the years ended December 31, 1995 and 1994 have been derived
from General Motors' Consolidated Financial Statements and should be read in
conjunction with such Consolidated Financial Statements (including the notes
thereto) and Management's Discussion and Analysis in the GM 1995 Form 10-K,
which is incorporated herein by reference, including the information with
respect to EDS in Exhibit 99(a) thereto. The GM pro forma ratio of earnings to
fixed charges for the year ended December 31, 1995 gives effect to the
Transactions and has been derived from and should be read in conjunction with
the financial data set forth under "General Motors Unaudited Pro Forma
Condensed Consolidated Financial Statements." The GM pro forma ratio of
earnings to fixed charges is not necessarily indicative of future operating
results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
PRO FORMA
1995 1995 1994
--------- ---- ----
<S> <C> <C>
2.42 2.52 2.51
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of consolidated income before cumulative effect of accounting change
plus income taxes and fixed charges included in net income after eliminating
the amortization of capitalized interest and the undistributed earnings of
affiliates; "fixed charges" consist of interest and related charges on debt,
that portion of rentals deemed to be interest, and interest capitalized in the
period.
For purposes of computing the pro forma ratio of earnings to fixed charges,
"earnings" consist of pro forma income from continuing operations before
cumulative effect of accounting change plus pro forma income taxes and pro
forma fixed charges included in pro forma income from continuing operations
after eliminating the pro forma amortization of capitalized interest and the
pro forma undistributed earnings of affiliates; pro forma "fixed charges"
consist of pro forma interest and related charges on debt, that portion of pro
forma rentals deemed to be interest, and pro forma interest capitalized in the
period.
14
<PAGE>
GENERAL MOTORS SUMMARY CONSOLIDATED HISTORICAL
AND PRO FORMA FINANCIAL DATA
The following General Motors summary consolidated historical financial data
have been derived from General Motors' Consolidated Financial Statements. Such
data should be read in conjunction with General Motors' Consolidated Financial
Statements (including the notes thereto) and Management's Discussion and
Analysis in the GM 1995 Form 10-K, which is incorporated herein by reference,
including the information with respect to EDS in Exhibit 99(a) thereto. The
General Motors summary consolidated historical financial data as of and for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991 have been derived from
General Motors' Consolidated Financial Statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The summary consolidated financial
data presented with GMAC on an equity basis as of and for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991 are unaudited. The General Motors
unaudited summary consolidated pro forma financial data as of and for the year
ended December 31, 1995 give effect to the Transactions and have been derived
from, and should be read in conjunction with, the financial data set forth
under "General Motors Unaudited Pro Forma Condensed Consolidated Financial
Statements." Pro forma data are not necessarily indicative of future financial
position or operating results.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
PRO FORMA
1995(A) 1995(B) 1994(C) 1993 1992(D) 1991(E)
---------- ---------- ---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total net sales and
revenues.............. $160,272.5 $168,828.6 $154,951.2 $138,219.5 $132,242.2 $123,108.8
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses..... 151,763.5 159,052.3 146,597.9 134,694.2 134,338.3 126,180.3
Special provision for
scheduled plant
closings and other
restructurings........ -- -- -- 950.0 1,237.0 2,820.8
---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses............ 151,763.5 159,052.3 146,597.9 135,644.2 135,575.3 129,001.1
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) from
continuing operations
before cumulative
effect of accounting
changes............... 6,134.5 6,932.5 5,658.7 2,465.8 (2,620.6) (4,992.0)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 6,982.7 $ 6,880.7 $ 4,900.6 $ 2,465.8 $(23,498.3) $ (4,452.8)
========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA
Cash and marketable
securities............ $ 16,517.6 $ 16,642.9 $ 16,075.6 $ 17,962.7 $ 15,107.7 $ 10,192.4
---------- ---------- ---------- ---------- ---------- ----------
Total assets........... 208,006.5 217,123.4 198,598.7 188,200.9 190,196.0 184,074.6
---------- ---------- ---------- ---------- ---------- ----------
Notes and loans
payable............... 81,221.7 83,323.5 73,730.2 70,441.2 82,592.3 94,022.1
---------- ---------- ---------- ---------- ---------- ----------
Stockholders' equity... 18,748.7 23,345.5 12,823.8 5,597.5 6,225.6 27,327.6
---------- ---------- ---------- ---------- ---------- ----------
Cumulative Amount
Available for Payment
of Dividends (f)
Class E Common Stock.. $ -- $ 10,672.1 $ 3,752.1 $ 3,243.8 $ 2,546.4 $ 1,753.0
Class H Common Stock.. 2,909.5 2,909.5 2,169.3 1,886.7 1,582.9 1,218.5
$1 2/3 Par Value
Common Stock......... 18,496.7 12,474.7 9,013.8 4,870.0 3,487.7 23,264.1
---------- ---------- ---------- ---------- ---------- ----------
Total................ $ 21,406.2 $ 26,056.3 $ 14,935.2 $ 10,000.5 $ 7,617.0 $ 26,235.6
========== ========== ========== ========== ========== ==========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
PRO FORMA
1995(A) 1995(B) 1994(C) 1993 1992(D) 1991(E)
---------- ---------- ---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
GM OPERATIONS WITH
GMAC ON AN EQUITY
BASIS:
OPERATING RESULTS
Total net sales and
revenues.............. $143,753.7 $152,614.5 $141,576.0 $125,252.7 $118,571.6 $109,156.9
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses..... 138,146.9 145,630.5 134,815.3 122,812.1 121,420.0 112,719.3
Special provision for
scheduled plant
closings and other
restructurings........ -- -- -- 950.0 1,237.0 2,820.8
---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses.............. 138,146.9 145,630.5 134,815.3 123,762.1 122,657.0 115,540.1
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) from
continuing operations
before cumulative
effect of accounting
changes............... 6,134.5 6,932.5 5,651.3 2,465.8 (2,903.2) (4,660.5)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 6,982.7 $ 6,880.7 $ 4,900.6 $ 2,465.8 $(23,498.3) $ (4,452.8)
========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA
Cash and marketable
securities............ $ 10,740.8 $ 10,866.1 $ 10,976.4 $ 10,485.0 $ 7,960.8 $ 4,419.4
---------- ---------- ---------- ---------- ---------- ----------
Total assets........... 126,062.4 135,243.3 126,334.9 120,980.5 121,356.2 104,797.5
---------- ---------- ---------- ---------- ---------- ----------
Long-term debt and
capitalized leases.... 6,467.0 6,134.0 6,218.7 6,383.6 7,055.4 6,699.1
---------- ---------- ---------- ---------- ---------- ----------
Stockholders' equity... 18,748.7 23,345.5 12,823.8 5,597.5 6,225.6 27,327.6
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- --------
(a) The unaudited summary consolidated pro forma financial data give effect to
the removal of assets and liabilities of EDS; the reclassification of EDS'
operating results to income from discontinued operations; the receipt by GM
of the Special Inter-Company Payment; adjustments to costs and expenses to
reflect communication and information processing charges under the terms of
the IT Services Agreements and additional selling, general, and
administrative costs incurred as a result of the Split-Off; and income tax
expense on the pro forma adjustments calculated at 38%.
(b) In November 1995, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on its Issue No. 95-1,
"Revenue Recognition on Sales with a Guaranteed Minimum Resale Value."
Adoption of this consensus, effective January 1, 1995, resulted in an
unfavorable cumulative effect of $51.8 million, or $0.07 per share,
attributable to $1 2/3 Common Stock.
(c) Effective January 1, 1994, GM adopted Statement of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment
Benefits." The unfavorable cumulative effect of adopting SFAS No. 112 was
$758.1 million, or $751.3 million, or $1.05 per share, attributable to $1
2/3 Common Stock and $6.8 million, or $0.08 per share, attributable to
Class H Common Stock.
(d) GM adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," effective January 1, 1992. The unfavorable cumulative
effect of adopting SFAS No. 106 was $20,687.3 million, or $33.38 per share,
attributable to $1 2/3 Common Stock and $150.4 million, or $2.08 per share,
attributable to Class H Common Stock. Also, effective January 1, 1992,
Hughes Aircraft Company changed its revenue recognition policy for certain
commercial businesses. The unfavorable effect of this change on 1992
earnings was $32.8 million, or $0.05 per share, attributable to $1 2/3
Common Stock, and $7.2 million, or $0.10 per share, attributable to Class H
Common Stock.
(e) Effective January 1, 1991, accounting procedures were changed to include in
inventory general purpose spare parts previously charged directly to
expense. The effect of this change on 1991 earnings was a favorable
adjustment of $302.7 million, or $0.50 per share, attributable to $1 2/3
Common Stock, and $3.8 million, or $0.04 per share, attributable to Class H
Common Stock. Also, GM adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1991. The favorable (unfavorable) cumulative effect of
adopting SFAS No. 109 was $230.5 million, or $0.38 per share, attributable
to $1 2/3 Common Stock, ($6.1) million, or ($0.03) per share, attributable
to Class E Common Stock, and $8.3 million, or $0.09 per share, attributable
to Class H Common Stock.
(f) Amount of funds legally available as of such date for the payment of
dividends on each class of GM common stock under the General Motors
Certificate of Incorporation.
16
<PAGE>
GENERAL MOTORS SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
PRESENTED WITH EDS AS A DISCONTINUED OPERATION
The following General Motors summary unaudited pro forma consolidated
financial data for the years ended December 31, 1995, 1994 and 1993 have been
derived from General Motors' Consolidated Financial Statements included in the
GM 1995 Form 10-K. Such data should be read in conjunction with General Motors'
Consolidated Financial Statements (including the notes thereto) and
Management's Discussion and Analysis in the GM 1995 Form 10-K, which is
incorporated herein by reference, including the information with respect to EDS
in Exhibit 99(a) thereto, and with the financial data set forth under "General
Motors Unaudited Pro Forma Condensed Consolidated Financial Statements." The
General Motors summary unaudited pro forma consolidated financial data shown
below do not give effect to the Transactions; however, such data reflect EDS as
a discontinued operation. Pro forma data are not necessarily indicative of
future operating results.
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
PRO FORMA OPERATING RESULTS
Total net sales and revenues............ $160,272.5 $148,499.1 $132,991.0
---------- ---------- ----------
Costs and expenses...................... 151,924.3 141,400.9 130,562.1
Special provision for scheduled plant
closings and other restructurings...... -- -- 950.0
---------- ---------- ----------
Total costs and expenses.............. $151,924.3 141,400.9 131,512.1
Income from continuing operations before
cumulative effect of accounting
changes................................ 6,032.5 4,865.9 1,776.7
---------- ---------- ----------
Net income.............................. $ 6,880.7 $ 4,900.6 $ 2,465.8
========== ========== ==========
</TABLE>
17
<PAGE>
EDS SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following EDS summary consolidated historical financial data have been
derived from EDS' Consolidated Financial Statements. Such data should be read
in conjunction with EDS' Consolidated Financial Statements (including the notes
thereto), which are included as Appendix C to this Solicitation
Statement/Prospectus, and "EDS Management's Discussion and Analysis of
Financial Condition and Results of Operations." The EDS summary consolidated
historical financial data as of and for the years ended December 31, 1995,
1994, 1993, 1992 and 1991 have been derived from EDS' Consolidated Financial
Statements, which have been audited by KPMG Peat Marwick LLP, independent
auditors. The EDS unaudited summary consolidated pro forma financial data as of
and for the year ended December 31, 1995 give effect to the Transactions and
have been derived from, and should be read in conjunction with, the financial
data set forth under "EDS Unaudited Pro Forma Condensed Consolidated Financial
Statements." Pro forma data are not necessarily indicative of future financial
position or operating results.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------
PRO FORMA
1995(A) 1995 1994 1993 1992 1991(B)
--------- -------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Systems and other
contracts revenues
General Motors and
affiliates............ $ 3,715.3 $3,891.1 $ 3,547.2 $ 3,323.7 $ 3,348.5 $ 3,362.2
Outside customers...... 8,531.0 8,531.0 6,412.9 5,183.6 4,806.7 3,666.3
--------- -------- --------- --------- --------- ---------
Total revenues......... 12,246.3 12,422.1 9,960.1 8,507.3 8,155.2 7,028.5
--------- -------- --------- --------- --------- ---------
Costs and expenses
Cost of revenues....... 9,604.6 9,601.6 7,529.4 6,390.6 6,205.8 5,415.1
Selling, general, and
administrative........ 1,299.0 1,291.5 1,187.1 1,005.4 969.3 761.9
--------- -------- --------- --------- --------- ---------
Total costs and
expenses.............. 10,903.6 10,893.1 8,716.5 7,396.0 7,175.1 6,177.0
--------- -------- --------- --------- --------- ---------
Operating income........ 1,342.7 1,529.0 1,243.6 1,111.3 980.1 851.5
Interest and other
income, net............ (97.0) (62.0) 40.6 20.0 20.7 42.2
--------- -------- --------- --------- --------- ---------
Income before income
taxes.................. 1,245.7 1,467.0 1,284.2 1,131.3 1,000.8 893.7
Provision for income
taxes.................. 450.7 528.1 462.3 407.3 365.3 330.7
Cumulative effect of
accounting change(b)... -- -- -- -- -- (15.5)
--------- -------- --------- --------- --------- ---------
Net Income/Separate
Consolidated Net Income
(c)(d)................. $ 795.0 $ 938.9 $ 821.9 $ 724.0 $ 635.5 $ 547.5
========= ======== ========= ========= ========= =========
Average number of shares
of Class E Common Stock
outstanding (Numerator)
(d).................... -- 404.6 260.3 243.0 209.1 195.3
Class E Dividend Base
(Denominator) (d)...... -- 483.7 481.7 480.6 479.3 478.1
Available Separate
Consolidated Net Income
(d).................... -- $ 795.5 $ 444.4 $ 367.2 $ 278.4 $ 223.6
Earnings per share
attributable to Class E
Common
Stock (d).............. -- 1.96 1.71 1.51 1.33 1.14
Dividends per share of
Class E Common Stock
(d).................... -- 0.52 0.48 0.40 0.36 0.32
Weighted average number
of EDS common shares
outstanding............ 483.6 -- -- -- -- --
Net income per share.... $ 1.64 -- -- -- -- --
BALANCE SHEET DATA
Cash and marketable
securities............. $ 638.6 $ 638.6 $ 757.8 $ 607.5 $ 587.9 $ 415.8
Current assets.......... 4,368.1 4,381.5 3,354.1 2,506.8 2,157.0 1,945.6
Total assets (c)(e)..... 10,785.8 10,832.4 8,786.5 6,942.1 6,123.5 5,703.2
Current liabilities..... 3,296.4 3,261.4 2,873.2 2,160.4 1,903.1 2,396.7
Long-term debt.......... 2,352.8 1,852.8 1,021.0 522.8 561.1 281.9
Stockholders' equity
(e)(f)................. 4,430.2 4,978.5 4,232.5 3,617.4 3,063.4 2,610.3
OTHER DATA
Depreciation and
amortization........... $ 1,107.8 $1,107.8 $ 771.1 $ 626.8 $ 603.2 $ 524.4
Expenditures for
property
and equipment.......... 1,261.5 1,261.5 1,186.0 816.4 639.0 673.2
</TABLE>
18
<PAGE>
- --------
(a) Pro forma amounts include adjustments to reflect the impact of the IT
Services Agreements, the Special Inter-Company Payment (and the financing
thereof) and other items related to the Split-Off. For certain information
regarding the anticipated 1996 financial impact of the Transactions, see
"EDS Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(b) Effective January 1, 1991, GM and its affiliates (including EDS) adopted
SFAS No. 109, "Accounting for Income Taxes." The cumulative effect of this
accounting change at January 1, 1991 was a charge of $15.5 million, of
which $6.1 million, or $0.03 per share, was attributable to Class E Common
Stock.
(c) Separate Consolidated Net Income and Total assets exclude the effects of
purchase accounting adjustments relating to General Motors' 1984
acquisition of EDS.
(d) Calculated for purposes related to the Class E Common Stock, which will be
converted into EDS Common Stock on a one-for-one basis pursuant to the
Split-Off.
(e) Holders of Class E Common Stock have no direct rights in the equity or
assets of EDS, but rather have rights in the equity and assets of General
Motors (which include 100% of the stock of EDS).
(f) General Motors' equity in its indirect wholly owned subsidiary, EDS
(excluding the effects of purchase accounting adjustments relating to
General Motors' 1984 acquisition of EDS).
19
<PAGE>
RISK FACTORS REGARDING EDS AFTER THE SPLIT-OFF
Holders of Class E Common Stock will receive shares of EDS Common Stock in
the Split-Off and should therefore consider carefully, in addition to the
other information set forth in this Solicitation Statement/Prospectus, the
following factors.
DIVIDEND POLICY
The payment of dividends on the Class E Common Stock is subject to the
policies and practices of the GM Board. The current dividend policy of the GM
Board is to pay quarterly dividends on the Class E Common Stock, when, as and
if declared by the GM Board, at an annual rate equal to approximately 30% of
the Available Separate Consolidated Net Income of EDS for the prior year.
Under the current policies and practices of the GM Board, the quarterly
dividend paid on each share of Class E Common Stock was $0.13 per share during
1995. In February 1996, the GM Board increased the quarterly dividend on Class
E Common Stock to $0.15 per share. The GM Board reserves the right to
reconsider from time to time its policies and practices regarding dividends on
Class E Common Stock and to increase or decrease the dividends paid on Class E
Common Stock on the basis of General Motors' consolidated financial position,
including liquidity, and other factors, including the earnings and
consolidated financial position of EDS. See "Class E Common Stock."
Following the Split-Off, the dividend policy and practices with respect to
the EDS Common Stock will be as determined and as may be changed from time to
time by the EDS Board, not the GM Board. Under Delaware law and the EDS
Certificate of Incorporation, the EDS Board is not required to declare
dividends on the EDS Common Stock. EDS management intends to recommend to the
EDS Board at its first meeting following consummation of the Split-Off that
EDS continue to pay quarterly dividends through 1996 in an amount equal to
$0.15 per share. The EDS Board will not be required to follow such
recommendation by EDS management. The EDS Board will be free to adopt such
dividend policy as it deems appropriate and, during or after 1996, to change
its dividend policies and practices from time to time and to decrease or
increase the dividends paid on the EDS Common Stock on the basis of EDS'
financial condition, earnings and capital requirements and other factors the
EDS Board may deem relevant. See "Plans and Proposals of EDS--EDS Dividend
Policy."
INCREASED LEVERAGE; NO ASSURANCE OF ACCESS TO CAPITAL
After the Split-Off, it is expected that EDS may over time incur
substantially more debt than it has while a subsidiary of GM. EDS expects that
it will borrow approximately $500 million under its existing commercial paper
and committed credit facilities to finance the Special Inter-Company Payment.
In addition, EDS' financial leverage is expected to increase in the future as
it borrows additional funds to meet its growing capital needs. EDS management
believes that EDS' stable revenues should permit it to sustain a higher debt
to equity ratio than that which it currently maintains as a subsidiary of GM
and that such a higher level of debt will be necessary to provide EDS with the
capital it needs to fund future growth. The degree to which EDS is leveraged,
however, could under certain circumstances limit its financial and operating
flexibility. To the extent that EDS is more highly leveraged following the
Split-Off, EDS may also be required to pay higher interest rates on its
outstanding borrowings. Furthermore, although General Motors and EDS believe
that the Split-Off will enhance EDS' access to the capital necessary for
investment in its business growth, there can be no assurance in this regard.
See "Special Factors--Purposes of the Split-Off" and "EDS Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
NO PRIOR PUBLIC MARKET FOR EDS COMMON STOCK; NO ASSURANCE AS TO MARKET PRICE
Although the Class E Common Stock (which is a stock of General Motors
designed to provide holders with financial returns based on the performance of
EDS) has been traded publicly since its initial issuance in 1984, there has
been no public market for the EDS Common Stock since such time. Because, among
other things, EDS Common Stock will be a security of EDS (rather than a
security of GM), with different terms than the Class E Common Stock (including
no rights comparable to the potential recapitalization of Class E Common Stock
into
20
<PAGE>
$1 2/3 Common Stock at a 120% exchange ratio under certain circumstances),
there can be no assurance that the public market for EDS Common Stock will be
similar to the public market for Class E Common Stock. See "EDS Capital Stock"
and "Comparison of Class E Common Stock and EDS Common Stock." Based on the
one-for-one exchange ratio for the Split-Off, approximately 485 million shares
of EDS Common Stock will be issued and outstanding immediately after the
Split-Off, which shares have been approved for listing on the NYSE subject to
notice of issuance. Based on the ownership of Class E Common Stock on the
Record Date, immediately after the Split-Off, shares of EDS Common Stock will
be broadly distributed among numerous individual and institutional holders,
and approximately 149.5 million shares will be held by the GM Hourly Plan
Special Trust. Ultimately, the value of each share of EDS Common Stock will be
principally determined in the trading markets and could be influenced by many
factors, including the terms and conditions of the Split-Off, operations of
EDS, the growth and expansion of EDS' business, investors' expectations of
EDS' prospects, trends and uncertainties affecting the IT industry as a whole,
issuances and repurchases of EDS Common Stock, and general economic and other
conditions. See "EDS Management's Discussion and Analysis of Financial
Condition and Results of Operations." There can be no assurance that the
trading value of each share of EDS Common Stock immediately after the Split-
Off will be consistent with the trading value of each share of Class E Common
Stock immediately before the Split-Off. The trading value of EDS Common Stock
could be higher or lower than the trading value of Class E Common Stock, and
GM and EDS are unable to estimate whether such difference (whether favorable
or unfavorable) will be material to holders of EDS Common Stock.
DEPENDENCE ON MAJOR CUSTOMER; CHANGES IN PRICING AND TERMS
Although the percentage of EDS' total revenues attributable to GM and its
affiliates has decreased significantly in recent years as a result of the
revenue growth of EDS' non-GM business, General Motors continues to account
for a substantial portion of EDS' revenues. During the year ended December 31,
1995, the portion of EDS' revenues (excluding interest and other income)
attributable to the performance of IT and other services on behalf of General
Motors and its affiliates was approximately 31%. The loss of General Motors as
an ongoing major customer of EDS would have a material adverse effect on EDS.
Immediately prior to the Merger, General Motors and EDS will enter into the
Master Services Agreement and certain other related IT Services Agreements.
The IT services to be provided by EDS under the IT Services Agreements will
generally be similar to those provided to General Motors under the Existing IT
Services Agreements. However, unlike the Existing Master Services Agreement
(which does not have a fixed term, but provides that it may be terminated by
either party in the event of the sale of all or substantially all of the
assets or stock of EDS to a non-GM entity), the Master Services Agreement
provides for an initial term of 10 years from the date upon which the Split-
Off is consummated, which may be extended by agreement of the parties.
Furthermore, the Master Services Agreement will provide General Motors with
termination rights under certain circumstances, including upon the occurrence
of certain changes in control of EDS.
In addition, the IT Services Agreements provide that certain significant
changes will be made to the pricing and terms of services provided by EDS.
Among other things, the parties have agreed that the rates charged by EDS to
General Motors for certain information processing activities and communication
services will be reduced and that the parties will work together to achieve
targets for increased structural cost reductions. General Motors will also be
given the right to competitively bid and, subject to certain restrictions,
outsource a limited portion of its IT service requirements to third party
providers. In addition, commencing in 1997, the payment terms relating to IT
services provided by EDS will be revised over a two-year period to extend the
due dates for payments from General Motors. The GM Board believes that such
changes are necessary (i) in light of the fact that, after the Split-Off, EDS
will no longer be a subsidiary of General Motors and the Capital Stock
Committee will no longer be able to monitor the IT service arrangements
between the parties, (ii) to reflect the evolutionary nature of the General
Motors-EDS customer relationship and the IT services industry and (iii) to
provide additional assurances to General Motors, as EDS' largest customer,
that the IT services performed by EDS will remain competitive. See
"Relationship Between General Motors and EDS--Post-Split-Off Arrangements--IT
Services Agreements."
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Based on currently available information and assuming that the IT Services
Agreements had been effective as of January 1, 1996, EDS believes that
revenues generated from services performed for General Motors in 1996 would be
slightly lower than those generated from such services in 1995. Additionally,
EDS expects that the changes reflected in the IT Services Agreements could
reduce its 1996 earnings per share by as much as $0.07 to $0.14. The long-term
impact of the terms of the IT Services Agreements cannot be precisely
quantified at present, although such terms may have an adverse effect on
operating margins unless EDS is able to effect reductions in the costs of
providing services to General Motors. Although EDS plans to implement certain
cost reduction measures, there can be no assurance as to the extent, if any,
to which such measures will mitigate the possible adverse impact on its
operating margins. In general, there can be no assurance that the terms of the
IT Services Agreements would not have a material adverse effect in the long
term on the results of operations of EDS. See "EDS Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business of
EDS--Revenues."
SIGNIFICANT STOCKHOLDER
As of the Record Date, the GM Hourly Plan Special Trust owned approximately
149.5 million shares of Class E Common Stock and, assuming none of such shares
are sold, upon consummation of the Split-Off, will own approximately 31% of
the outstanding EDS Common Stock. United States Trust Company of New York and
its affiliate, U.S. Trust Company of California, N.A. (together, the "GM
Hourly Plan Trustees"), as the independent trustees of the GM Hourly Plan
Special Trust, have the authority and discretion to cause the GM Hourly Plan
Special Trust to hold such shares of Class E Common Stock (and following the
Split-Off, of EDS Common Stock) or to sell all or any portion thereof from
time to time as they deem appropriate. The shares owned by the GM Hourly Plan
Special Trust are subject to certain agreements that restrict the
transferability of such shares and that provide certain registration rights
with respect thereto. GM and EDS have been advised that, in order to discharge
their fiduciary duties, the GM Hourly Plan Trustees continually look for
attractive opportunities to sell a portion of their holdings of Class E Common
Stock (and following the Split-Off, EDS Common Stock). There can be no
assurance as to the timing or size of any offerings of shares owned by the GM
Hourly Plan Special Trust since, subject to the terms of the agreements
referred to above, the GM Hourly Plan Trustees have the right to sell such
shares at any time. The sale of shares by the GM Hourly Plan Special Trust
will depend on, among other things, market conditions, the price of, and
demand for, such shares, and other factors outside the control of EDS.
Although the GM Hourly Plan Trustees have notified GM and EDS of their intent
to manage the disposition of shares of EDS Common Stock in a manner consistent
with maintaining an orderly market for the EDS Common Stock, there can be no
assurance in this regard and sales of substantial amounts of EDS Common Stock
by the GM Hourly Plan Special Trust could adversely affect the then prevailing
market price for the EDS Common Stock and could impair EDS' ability to raise
additional capital through the sale of equity securities.
The GM Hourly Plan Trustees have the authority and discretion to direct the
voting and exercise of all other rights relating to the shares of Class E
Common Stock (and after the Split-Off, of EDS Common Stock) held by the GM
Hourly Plan Special Trust. Although the GM Hourly Plan Trustees have stated
that such stock was not acquired for such purpose, the level of such ownership
will give the GM Hourly Plan Special Trust sufficient voting power to
influence the direction and policies of EDS, the election of the EDS Board and
the outcome of any other corporate action requiring stockholder approval. As
described below under "--Certain Limitations on Changes in Control of EDS,"
the GM Hourly Plan Special Trust is a party to certain agreements which
restrict its ability to transfer shares of Class E Common Stock (and EDS
Common Stock after the Split-Off) and to vote in favor of certain business
combinations involving EDS. See "Security Ownership of Certain Beneficial
Owners and Management of General Motors and EDS--GM Hourly Plan Special
Trust."
NO ASSURANCE OF STRATEGIC ALLIANCES AND OTHER BUSINESS OPPORTUNITIES
The Split-Off is intended, among other things, to remove limitations on EDS'
ability to participate in major strategic alliances and to obtain additional
business that are believed to result from EDS' status as a subsidiary of
General Motors. EDS is not currently a party to any agreement or understanding
with respect to any material
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strategic alliance or business combination. Although General Motors and EDS
believe that the Split-Off will enhance EDS' ability to enter into major
strategic alliances and take advantage of other growth opportunities, no
assurance can be given in this regard. Furthermore, there can be no assurance
as to whether and to what extent any of the business objectives of the Split-
Off will be achieved if the Split-Off is consummated. See "Special Factors--
Purposes of the Split-Off." The ability of EDS to enter into and consummate
business combinations will be limited by the matters described below under "--
Certain Limitations on Changes in Control of EDS."
TERMINATION OF SUBSIDIARY RELATIONSHIP WITH GENERAL MOTORS
As a subsidiary of General Motors, EDS has been able to benefit since 1984
from General Motors' extensive network of business relationships with
companies and government contacts around the world. EDS has drawn on this
resource in developing its own contacts and relationships. After the Split-
Off, EDS will be a stand-alone, public company and thus will no longer be able
to benefit from General Motors' relationships to the same extent that it could
as a wholly owned subsidiary of GM.
CERTAIN LIMITATIONS ON CHANGES IN CONTROL OF EDS
The EDS Certificate of Incorporation and the EDS Bylaws contain certain
provisions, such as a "fair price" provision applicable to certain business
combinations, a provision prohibiting stockholder action by written consent
unless such action is unanimous, and provisions limiting the ability of
stockholders to call special stockholder meetings, which are not found in the
General Motors Certificate of Incorporation or General Motors By-Laws and
which could have the effect of delaying, deferring or preventing a change in
control of EDS, even if such a change would be favorable to the interests of
EDS' stockholders, and of limiting any opportunity to realize premiums over
prevailing market prices for EDS Common Stock in connection therewith. The EDS
Rights Agreement, which also has no equivalent at General Motors, could have
the same effect. See "EDS Capital Stock" and "Comparison of Class E Common
Stock and EDS Common Stock."
As noted above, as of the Record Date, the GM Hourly Plan Special Trust
owned approximately 31% of the outstanding Class E Common Stock. The GM Hourly
Plan Special Trust is a party to the Registration Rights Agreement (as defined
herein), which contains certain restrictions on its ability to transfer the
shares of Class E Common Stock held by it (including by tendering into any
tender offer), which restrictions will continue to apply to its holdings of
EDS Common Stock after consummation of the Split-Off. General Motors and the
GM Hourly Plan Special Trust are also parties to the Transfer Agreement (as
defined herein), which is intended to preserve the tax-free status of the
Split-Off and which contains restrictions on the ability of the GM Hourly Plan
Special Trust to transfer Class E Common Stock and to vote in favor of certain
business combinations involving EDS, which restrictions will apply to the EDS
Common Stock for a period generally of two years after the Split-Off. The
contractual restrictions to which the shares of EDS Common Stock owned by the
GM Hourly Plan Special Trust are subject could have the effect of making more
difficult or discouraging certain change in control transactions involving
EDS, including tender offers for EDS Common Stock, that could give the holders
of EDS Common Stock the opportunity to realize a premium over the then
prevailing market price of such stock. See "Security Ownership of Certain
Beneficial Owners and Management of General Motors and EDS--GM Hourly Plan
Special Trust."
In addition, in order to preserve the tax-free status of the Split-Off,
under the Separation Agreement, EDS will be prohibited, until after the two-
year anniversary of the consummation of the Split-Off and unless certain
conditions are satisfied, from entering into (i) certain secondary capital
stock transactions whereby a person would acquire, from holders of outstanding
shares of EDS capital stock, a number of shares of EDS capital stock that
would comprise more than 15% of the number of issued and outstanding shares of
EDS Common Stock; or (ii) any other transaction that would be reasonably
likely to jeopardize the tax-free status of the Split-Off. In addition, the
Separation Agreement will prohibit EDS, until after the six-month anniversary
of the consummation of the Split-Off, from entering into any transaction that
would result in any person acquiring from EDS a number of shares of EDS
capital stock that, when aggregated with all other shares of EDS capital stock
then owned by
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such person, would constitute more than 20% of the total combined voting power
of EDS voting stock or 20% of the total number of outstanding shares of any
class or series of EDS non-voting stock. See "Relationship Between General
Motors and EDS--Post-Split-Off Arrangements--Separation Agreement." The Master
Services Agreement will also provide General Motors with certain termination
rights upon the occurrence of certain changes in control of EDS. See
"Relationship Between General Motors and EDS--Post-Split-Off Arrangements--IT
Services Agreements."
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Solicitation Statement/Prospectus contains certain forward-looking
statements and information relating to EDS that are based on the beliefs of GM
or EDS management as well as assumptions made by and information currently
available to GM or EDS management. When used in this document, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions, as
they relate to GM, EDS or GM or EDS management, are intended to identify
forward-looking statements. Such statements reflect the current views of GM or
EDS with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
Solicitation Statement/Prospectus. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. Neither GM nor EDS intends to update these
forward-looking statements.
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RISK FACTORS REGARDING GENERAL MOTORS AFTER THE SPLIT-OFF
Holders of $1 2/3 Common Stock and Class H Common Stock should consider
carefully, in addition to the other information set forth in this Solicitation
Statement/Prospectus, the following factors.
REDUCTION IN GENERAL MOTORS' CONSOLIDATED NET WORTH, ASSETS AND CERTAIN RATIOS
Following the Split-Off, General Motors will no longer own all the
outstanding shares of EDS and, accordingly, General Motors' balance sheet will
reflect decreased stockholders' equity and liabilities as well as decreased
assets, resulting in an overall reduction in General Motors' consolidated net
worth of approximately $5 billion. General Motors also expects that, as a
result of the Split-Off, certain GM financial ratios on a consolidated basis
(including gross margin percentage, operating margin percentage and net margin
percentage) will decrease, since the business of EDS is generally a higher
margin business than GM's other businesses. See "General Motors Unaudited Pro
Forma Condensed Consolidated Financial Statements."
LOSS OF POTENTIAL AVAILABILITY OF EDS FUNDS AND ASSETS
Under the General Motors Certificate of Incorporation, the portion of
General Motors' consolidated earnings attributable to EDS that is included in
the amount available for the payment of dividends on the Class E Common Stock
is determined by a fraction, the numerator of which is a number equal to the
weighted average number of shares of Class E Common Stock outstanding during
each quarterly accounting period and the denominator of which was 484.4
million for the first quarter of 1996; provided that such fraction shall never
be greater than one. The denominator is adjusted from time to time as deemed
appropriate by the GM Board to reflect subdivisions and combinations of the
Class E Common Stock and certain transfers of capital to or from EDS. The
denominator is sometimes referred to herein as the Class E Dividend Base. See
"Class E Common Stock--Dividend Policy." Under the current dividend policies
and practices of General Motors, General Motors pays dividends to holders of
Class E Common Stock in an aggregate amount approximately equal to the product
of the aggregate dividends received from EDS multiplied by the fraction
described above.
For the first quarter of 1996, the fraction described above was 463.2
million/484.4 million, or approximately 0.96. Approximately 44.7 million
shares of Class E Common Stock were issued between January 1 and February 22,
1996 upon conversion of approximately 3.2 million shares of General Motors
Series C Convertible Preference Stock (the "Series C Preference Stock"). The
remaining 6,784 outstanding shares of Series C Preference Stock were redeemed
on February 22, 1996 for $3.6 million. After giving effect for a full quarter
to the issuance of such shares upon conversion (rather than for the portion of
the quarter during which such shares were outstanding), such fraction would be
approximately equal to one. Thus, under General Motors' current dividend
policies and practices and assuming that the Split-Off did not occur, General
Motors would not (unless such policies and practices were changed in the sole
discretion of the GM Board) retain a significant portion, if any, of the cash
received as dividends from EDS for other corporate purposes, since such cash
would instead be paid as dividends to holders of Class E Common Stock. After
the Split-Off, General Motors will no longer be the sole stockholder of EDS,
and any dividends declared by EDS will be paid directly to the holders of EDS
Common Stock. Accordingly, GM will no longer be able to consider using the
funds generated by EDS to fund GM's other businesses or corporate needs,
including in periods of economic downturn, rather than paying dividends to the
holders of Class E Common Stock. Any use by General Motors of funds generated
by EDS for purposes other than paying dividends to holders of Class E Common
Stock would take place only after due consideration by the Capital Stock
Committee and the GM Board of the best interests of the holders of each class
of GM common stock, the best interests of all of GM's common stockholders and
the fiduciary duties owed by the GM Board to the holders of each class of GM
common stock.
In addition, as a result of the Split-Off, holders of $1 2/3 Common Stock
and Class H Common Stock will lose their rights to share (in proportion to
their respective liquidation units as set forth in the General Motors
Certificate of Incorporation) in the distribution of EDS' equity and assets
upon the liquidation of General Motors.
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EFFECT OF SPLIT-OFF ON GM PENSION EXPENSE AND UNFUNDED PENSION LIABILITY
Approximately one-third of the outstanding Class E Common Stock is currently
held by the GM Hourly Plan Special Trust. The General Motors Retirement Plan
for Salaried Employees (the "GM Salaried Plan") also currently holds
approximately 7.3 million shares of Class E Common Stock. Accordingly, after
the Split-Off, so long as the GM Hourly Plan Special Trust or the GM Salaried
Plan holds any EDS Common Stock, any appreciation or depreciation in the value
of EDS Common Stock will affect the level of General Motors' pension expense
and unfunded pension liability, which are actuarially determined and computed
in accordance with generally accepted accounting principles. There can be no
assurance as to whether the trading value of EDS Common Stock after the Split-
Off will be equal to or greater than the trading value of Class E Common Stock
before the Split-Off or in the absence of the Split-Off. Accordingly, there
can be no assurance as to whether there will be a favorable or unfavorable
effect on the future level of General Motors' pension expense and unfunded
pension liability.
LOSS OF OWNERSHIP INTEREST IN IT PROVIDER
After the Split-Off, General Motors will no longer have an ownership
interest in its principal IT provider and the Capital Stock Committee will no
longer monitor the terms on which EDS provides IT services to General Motors.
Rather, following the Split-Off, all General Motors' rights concerning EDS'
provision of IT services to it will be purely contractual in nature and
governed by the IT Services Agreements and any other service contracts that
may be entered into between General Motors and EDS. The GM Board has
determined, however, that continued ownership of EDS is not necessary for GM
to execute its IT strategy or to ensure the security of its computer data and
other information. See "Special Factors--Background of the Split-Off."
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Solicitation Statement/Prospectus contains certain forward-looking
statements and information relating to GM that are based on the beliefs of GM
management as well as assumptions made by and information currently available
to GM management. When used in this document, the words "anticipate,"
"believe," "estimate" and "expect" and similar expressions, as they relate to
GM or GM management, are intended to identify forward-looking statements. Such
statements reflect the current view of GM with respect to future events and
are subject to certain risks, uncertainties and assumptions, including the
risk factors described in this Solicitation Statement/ Prospectus. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. GM does not
intend to update these forward-looking statements.
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RISK FACTORS REGARDING NON-CONSUMMATION OF THE SPLIT-OFF
Holders of all classes of General Motors common stock should consider
carefully, in addition to the other information in this Solicitation
Statement/Prospectus, the following factors.
BUSINESS CONFLICTS AND OBJECTIVES
The GM Board has determined that there are certain actual and potential
conflicts between the businesses of EDS and the other businesses of General
Motors and that it is likely that these conflicts will continue and intensify
over time. The GM Board believes that the Split-Off would resolve these
business conflicts and enhance certain additional EDS business objectives more
effectively than any of the other available alternatives. See "Special
Factors-- Alternatives to the Split-Off." However, if the Split-Off is not
consummated, the GM Board will need to consider alternative means of
addressing these conflicts and objectives. There can be no assurance that the
GM Board will be able to address these conflicts and objectives in a manner
that will not have an adverse effect on the business, financial condition or
results of operations of EDS or General Motors or on the market price of any
class of GM common stock.
CHANGES IN TERMS OF EXISTING IT SERVICES AGREEMENTS
If the Split-Off is not consummated, the Existing IT Services Agreements
will continue, with such changes as General Motors and EDS may from time to
time agree upon or as the GM Board upon recommendation of the Capital Stock
Committee may from time to time determine to be fair to all classes of GM
common stockholders. No agreement has been reached between GM and EDS
regarding any changes to the Existing IT Services Agreements that may take
effect if the Split-Off is not approved by General Motors common stockholders
or is not consummated for any other reason. GM management has advised EDS
management that in such an eventuality it would seek substantial changes in
the Existing IT Services Agreements, including implementation of substantially
all of the changes provided for by the Master Services Agreement. Neither the
GM Board nor the Capital Stock Committee has determined whether to require
such changes to the Existing IT Services Agreements if the Split-Off is not
consummated, but they anticipate considering such changes if such
circumstances arise.
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SPECIAL FACTORS
PURPOSES OF THE SPLIT-OFF
The GM Board has determined that ownership of EDS is not necessary for GM to
execute its IT strategy or to ensure the security of its computer data and
other information. Furthermore, the GM Board has determined that there are
certain actual and potential conflicts between the business of EDS and the
other businesses of General Motors. The Split-Off is intended to address such
conflicts in a manner that is beneficial from the standpoint of all
stockholders of GM and to allow the boards and management of GM and EDS to
increase their focus on their respective business operations. Approximately
one-third of the outstanding Class E Common Stock is held by the GM Hourly
Plan Special Trust. Accordingly, after the Split-Off, so long as the GM Hourly
Plan Special Trust holds any EDS Common Stock, any appreciation or
depreciation in the value of EDS Common Stock will affect the level of General
Motors' pension expense and unfunded pension liability, which are actuarially
determined and computed in accordance with generally accepted accounting
principles.
The Split-Off of EDS from General Motors is intended to accomplish at least
three business objectives from the perspective of EDS and the holders of Class
E Common Stock. First, converting EDS from a wholly owned subsidiary of GM
into an independent, publicly owned company is intended to remove limitations
on EDS' ability to participate in strategic alliances, particularly in the
rapidly growing and converging computing and software, communication, media
and entertainment, and electronic commerce industries, which are increasingly
important to EDS' continued competitiveness. Second, separating General Motors
and EDS is intended to remove limitations on EDS' ability to obtain additional
business and establish new customer relationships that result from GM's
ownership of EDS, its common ownership of EDS, Hughes and GMAC, and the
increasing overlap between EDS and the telecommunications and certain other
businesses of Hughes. Finally, causing EDS to become a stand-alone, public
company is intended to better position EDS to meet its growing capital needs.
Each of these business objectives is described in more detail below.
Strategic Alliances. The first purpose of the Split-Off is to eliminate the
impediments arising from General Motors' ownership of EDS that have prevented
EDS from pursuing and consummating strategic transactions that are important
to its continued competitiveness. During the decade in which EDS has been a
subsidiary of General Motors, there has been an increasing convergence of the
computing and software, communication, media and entertainment, and electronic
commerce industries. Because the ability to offer integrated services within
these fields is widely viewed as necessary to remain competitive and grow,
strategic alliances among service providers in these industries have
multiplied. Consistent with this industry trend, EDS has engaged in
discussions with leading telecommunications providers regarding potential
strategic combinations on numerous occasions during the last decade. See "--
Background of the Split-Off." While some of these negotiations reached
advanced stages (most notably the discussions with Sprint Corporation in
1994), none has resulted in a significant strategic transaction. In each case,
the difficulties associated with EDS' status as a subsidiary of GM, including
the complexities and control issues created by the nature of the Class E
Common Stock, have prevented or hindered the consummation of a transaction.
General Motors and EDS believe that these factors will continue to restrict
EDS' ability to expand into integrated worldwide markets so long as EDS
remains a subsidiary of General Motors.
Certain Additional Growth Opportunities. A second purpose of the Split-Off
is to remove certain limitations on EDS' ability to obtain additional business
and establish new customer relationships that have arisen as a result of EDS'
status as a subsidiary of GM. These limitations have not been imposed by GM,
but rather are a result of certain reactions of potential EDS customers to
EDS' affiliation with GM. Such limitations have become increasingly
significant during the 1990s as the businesses of General Motors and GMAC and
the telecommunications and certain other businesses of Hughes have expanded
either to present conflicts that limit EDS' ability to obtain business from
certain parties or to overlap with EDS' activities. In some cases, competitors
of General Motors, Hughes or GMAC in industries that are important target
markets for EDS have been reluctant to become customers or partners of EDS due
to concerns relating to divulging confidential and proprietary information to
an affiliate of one of their competitors. For example, GM and EDS believe that
EDS' affiliation with General Motors and GMAC has limited EDS' ability to
expand its business within the automotive, consumer finance and related
industries, despite EDS' extensive expertise in these important markets.
Similarly, GM and EDS believe that common ownership of EDS and Hughes, which
participates in the direct to home
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satellite television services and wireless communications industries, has
caused EDS to lose or be disadvantaged in seeking certain business
opportunities with potential customers and partners, including in the cable
television industry, who are concerned by Hughes' competition in these areas.
General Motors and EDS expect impediments and conflicts like these to
intensify in future years if the Split-Off does not occur.
Capital Needs. A third purpose of the Split-Off is to afford EDS more
flexible access to capital markets to meet its growing capital needs without
regard to competing considerations of GM and its affiliates. As a wholly owned
subsidiary of GM, EDS' ability to sell equity and debt securities to meet its
rising capital needs is limited by factors relating to GM. EDS and the
remainder of GM's operations are in industries with different characteristics,
and each of them has substantially different goals and needs with respect to
incurrence of debt and financial leverage. General Motors, which is engaged
principally in the highly cyclical automotive industry, places great
importance on maintaining a strong reserve of liquid assets and a high credit
rating for itself and its financial subsidiary, GMAC. In contrast, EDS has
based its business on long-term customer contracts, and as a result has
experienced stable cash flow and revenues that should permit it to sustain
higher debt-to-equity ratios on a stand-alone basis than those targeted by GM
for GM and its consolidated subsidiaries. These different business needs
create conflicts that GM and EDS believe will continue to grow. In addition,
as EDS' business has expanded and evolved in recent years, its capital
requirements have increased significantly. Driven in large part by the
convergence among hardware, software, communication, information content and
service providers, EDS has made tactical acquisitions and capital intensive
investments to expand its IT, hardware and telecommunications capacities. In
addition, EDS' customers have often insisted that EDS expend its own capital
to acquire their IT operations, hire their employees and, in some cases,
acquire an equity stake in the customers themselves. Accordingly, EDS believes
that its capital requirements are likely to continue to increase in the
future.
Achievement of each of the foregoing business objectives is dependent on
numerous factors in addition to consummation of the Split-Off, many of which
are beyond the control of EDS. Accordingly, there can be no assurance as to
whether and to what extent any of such objectives will in fact be achieved if
the Split-Off is consummated. Furthermore, there can be no assurance as to
whether the trading value of EDS Common Stock after the Split-Off will be
equal to or greater than the trading value of Class E Common Stock before the
Split-Off or in the absence of the Split-Off. Accordingly, there can be no
assurance as to whether there will be a favorable or unfavorable effect on the
future level of General Motors' pension expense and unfunded pension
liability.
ALTERNATIVES TO THE SPLIT-OFF
In addition to considering the Split-Off of EDS from General Motors, the GM
Board considered four other alternatives to address the conflicts and
limitations and accomplish the objectives outlined in "--Purposes of the
Split-Off." The first alternative considered was to make no change to the
existing structure or businesses of the General Motors group. Maintaining the
current structure, however, would not address EDS' difficulties in completing
strategic alliances, the growing business conflicts between the business of
EDS and other businesses of General Motors or challenges in providing for the
growing capital needs of EDS. Furthermore, due to converging lines of business
among EDS and other business units within General Motors, this option would
require the GM Board and the Capital Stock Committee to increasingly confront
difficult business decisions regarding capital allocation and other
operational issues in order to avoid, mitigate or resolve conflicts.
The second alternative considered was the maintenance of the existing
structure of the GM group with explicit delineation of the areas and the
manner in which EDS and Hughes could operate and compete. Implementation of
this approach would have required extensive oversight by the GM Board and the
Capital Stock Committee, involving continual and complex definitions and
redefinitions of markets and competitive boundaries in a highly fluid business
landscape, and would have continued to limit operating and strategic
flexibility for both EDS and Hughes. Moreover, this approach would have left
unresolved complications surrounding the unwillingness of potential strategic
partners to enter into alliances with EDS, conflicts stemming from the
unwillingness of competitors of General Motors, Hughes and GMAC to do business
with EDS, and limitations on meeting EDS' heightened capital needs.
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The third alternative considered was the merger of all or part of the
businesses of EDS and Hughes. Under this option, EDS and Hughes would have
consolidated their efforts to win contracts instead of competing for them and
potentially benefited from opportunities such as Hughes' ability to provide a
portion of EDS' telecommunications needs. A merger of EDS and Hughes, however,
could have exacerbated EDS' difficulties in seeking and maintaining certain
customers and partners that are Hughes' competitors in the telecommunications
industry and could have limited EDS' access to critical telecommunications
capabilities not owned by EDS or Hughes. Moreover, before this option could
have been implemented, a variety of difficult operational issues, such as
determining exactly which operations should be merged and how this would be
accomplished, would have needed to be resolved.
The fourth alternative considered was the divestiture of all or part of
Hughes. This approach would have eliminated business conflicts arising from
EDS' affiliation with Hughes, made more capital available for the remaining
members of the GM group, including EDS, and simplified General Motors'
decision-making process with respect to capital allocation within the group.
It would not, however, have removed many of the obstacles to EDS' consummation
of strategic combinations or addressed the conflicts caused by competition
between customers of EDS and other members of the GM group. Additionally, it
would not have addressed the conflicts between the capital raising activities
of General Motors and EDS. Furthermore, General Motors currently views the
automotive electronics business of Hughes' wholly owned subsidiary, Delco, as
part of GM's core operations.
After examining the four other alternatives, the GM Board concluded that a
divestiture of EDS offered the most comprehensive solution to the conflicts
and limitations described in "--Purposes of the Split-Off." Such a divestiture
was expected to remove the limitations on EDS' ability to participate in major
strategic alliances and to obtain additional business that the GM Board
believed were attributable to EDS' status as a subsidiary of General Motors,
although there can be no assurance as to whether and to what extent any of the
business objectives of the Split-Off will be achieved if the Split-Off is
consummated. See "Risk Factors Regarding EDS After the Split-Off--No Assurance
of Strategic Alliances and Other Business Opportunities." A divestiture of EDS
was also expected to address EDS' capital needs more effectively than the
other alternatives. See "Risk Factors Regarding EDS After the Split-Off--
Increased Leverage; No Assurance of Access to Capital." In addition, such a
divestiture was expected to allow the boards and management of GM and EDS to
increase their focus on their respective business operations. On the other
hand, divestiture of EDS was not believed to present potential adverse
consequences for GM's automotive business because the GM Board had determined
that ownership of EDS is not necessary for GM to execute its IT strategy or to
ensure the security of its computer data and other information.
In considering a divestiture of EDS, the GM Board determined that any such
transaction should be one that would both be tax-free for U.S. federal income
tax purposes and not result in a recapitalization of the Class E Common Stock
into $1 2/3 Common Stock at a 120% exchange ratio as provided under the
General Motors Certificate of Incorporation upon a disposition by General
Motors of substantially all of the business of EDS and under certain other
circumstances. This determination was based on the GM Board's belief that the
payment by General Motors of either the 20% premium on the Class E Common
Stock resulting from such exchange ratio or a material tax on an EDS
divestiture would not be in the best interests of General Motors and its
stockholders and that payment of the 20% premium in the context of a split-off
of EDS would not be consistent with the purpose for which the 120% exchange
rate provision was included in the terms of the Class E Common Stock.
EFFECTS OF THE SPLIT-OFF
As a result of the Split-Off, EDS will become an independent, publicly owned
company rather than a wholly owned subsidiary of General Motors. In connection
with the Split-Off, each outstanding share of Class E Common Stock (which is a
security of General Motors designed to provide financial returns based on the
performance of EDS) will be converted into one share of EDS Common Stock. As a
result of the Merger, the General Motors Certificate of Incorporation will be
amended so that the Split-Off will not result in the recapitalization of Class
E Common Stock into $1 2/3 Common Stock at a 120% exchange ratio as currently
provided in the General Motors Certificate of Incorporation upon a disposition
by General Motors of substantially all of the business of EDS and under
certain other circumstances, and to change certain provisions relating to the
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Preferred Stock that will allow the GM Board to determine the specific rights,
preferences and limitations of any series of Preferred Stock if and when
issued in the discretion of the GM Board and that will cause the Preferred
Stock to assume the characteristics of "blank check" preferred stock, which
the General Motors Preference Stock already possesses. Holders of EDS Common
Stock will have no rights comparable to such recapitalization rights of
holders of Class E Common Stock. See "Comparison of Class E Common Stock and
EDS Common Stock."
Upon consummation of the Split-Off, General Motors' $1 2/3 Common Stock and
Class H Common Stock will remain outstanding and essentially unaltered.
Moreover, because under the General Motors Certificate of Incorporation
dividends on each class of General Motors' common stock may only be declared
and paid out of certain defined amounts attributable to such class, dividends
to holders of $1 2/3 Common Stock and Class H Common Stock will be largely
unaffected by the Split-Off. See "Risk Factors Regarding General Motors after
the Split-Off--Loss of Potential Availability of EDS Funds and Assets" and
"Class E Common Stock--Dividend Policy" and "--Considerations Relating to
Multi-Class Common Stock Capital Structure." If the Split-Off takes place,
however, holders of $1 2/3 Common Stock and Class H Common Stock will lose the
portion of their liquidation rights attributable to General Motors' ownership
of EDS' equity and assets. For additional information on the effects of the
Split-Off on GM, see "Risk Factors Regarding General Motors after the Split-
Off--Reduction in General Motors' Consolidated Net Worth, Assets and Certain
Ratios" and "General Motors Unaudited Pro Forma Condensed Consolidated
Financial Statements." In addition, in the Merger, the General Motors
Certificate of Incorporation will be amended as described herein. See "The
Split-Off--Merger Agreement."
Immediately prior to the Split-Off and as a condition of the Merger whereby
the Split-Off is effected, EDS will contribute to Mergeco the Special Inter-
Company Payment. As a result of the Merger, all of Mergeco's assets, which
will consist entirely of the cash contributed by EDS, will become assets of
General Motors. General Motors will retain such cash for its general corporate
purposes, and no corresponding or related dividend will be distributed by
General Motors to its stockholders. EDS expects to fund the Special Inter-
Company Payment through borrowings under its existing commercial paper and
committed credit facilities. See "EDS Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Immediately prior to and as a condition of the consummation of the Merger,
General Motors and EDS will enter into the Master Services Agreement. The IT
services to be provided by EDS under the IT Services Agreements will generally
be similar to those provided to General Motors under the Existing IT Services
Agreements. However, unlike the Existing Master Services Agreement (which does
not have a fixed term, but provides that it may be terminated by either party
in the event of the sale of all or substantially all of the assets or stock of
EDS to a non-GM entity), the Master Services Agreement provides for an initial
term of 10 years from the date upon which the Split-Off is consummated, which
may be extended by agreement of the parties. In addition, the IT Services
Agreements provide that certain significant changes will be made to the
pricing and terms of services provided by EDS to General Motors. The GM Board
believes that such changes are necessary (i) in light of the fact that, after
the Split-Off, EDS will no longer be a subsidiary of General Motors and the
Capital Stock Committee will no longer be able to monitor the IT service
arrangements between the parties, (ii) to reflect the evolutionary nature of
the General Motors-EDS customer relationship and the IT services industry and
(iii) to provide additional assurances to General Motors, as EDS' largest
customer, that the IT services performed by EDS will remain competitive. See
"Relationship Between General Motors and EDS--Post-Split-Off Arrangements--IT
Services Agreements," "EDS Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business of EDS--Revenues."
Upon consummation of the Split-Off, former holders of Class E Common Stock
will no longer own any interest (incident to such holdings) in the equity or
assets of General Motors, but will instead own an equity interest in EDS. Such
holders will no longer have any rights (as such holders) to share in the
equity and assets of General Motors upon General Motors' liquidation but will
have the right to receive their proportionate share of EDS' assets in the
event of its liquidation. In addition, as holders of EDS Common Stock rather
than Class E Common Stock, such holders (in their capacities as such) will no
longer be entitled to vote as General Motors stockholders but will have the
right to vote directly on matters with respect to EDS submitted to the vote of
EDS' stockholders. As EDS stockholders, former holders of Class E Common Stock
will forego the potential for
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a recapitalization of their Class E Common Stock into $1 2/3 Common Stock at a
120% exchange ratio as currently provided by the General Motors Certificate of
Incorporation upon a disposition by General Motors of substantially all of the
business of EDS and under certain other circumstances. Holders of EDS Common
Stock will, however, have the potential to realize premiums over prevailing
market prices for their EDS Common Stock in connection with certain corporate
transactions, including tender offers for EDS Common Stock and change in
control transactions involving EDS, although there can be no assurance in this
regard. Such premiums, if any, will not be limited by any formula in the EDS
Certificate of Incorporation comparable to that relating to the
recapitalization of Class E Common Stock in the General Motors Certificate of
Incorporation. See "Risk Factors Regarding EDS after the Split-Off--Certain
Limitations on Changes in Control of EDS," "Class E Common Stock--Liquidation
Rights" and "--Recapitalization" and "Comparison of Class E Common Stock and
EDS Common Stock."
Approximately one-third of the outstanding Class E Common Stock is currently
held by the GM Hourly Plan Special Trust. The GM Salaried Plan also currently
owns approximately 7.3 million shares of Class E Common Stock. Accordingly,
after the Split-Off, so long as the GM Hourly Plan Special Trust or the GM
Salaried Plan holds any EDS Common Stock, any appreciation or depreciation in
the value of EDS Common Stock will affect the level of General Motors' pension
expense and unfunded pension liability, which are actuarially determined and
computed in accordance with generally accepted accounting principles. Under
the terms of the GM-PBGC Agreement, which was entered into in connection with
the March 1995 contribution of Class E Common Stock and cash to the GM Hourly
Plan, GM has agreed to defer the use of funding credits that would otherwise
result from such stock and cash contributions. Consequently, GM will continue
to make regular cash contributions to the GM Hourly Plan over the next several
years.
Because all outstanding shares of Class E Common Stock will be eliminated in
the Split-Off, the Class E Common Stock will be delisted from the NYSE.
Application has been made to list the EDS Common Stock on the NYSE, and such
application has been granted pending notice of issuance. The trading symbol
for the EDS Common Stock on the NYSE will be "EDS."
The Class E Common Stock is currently registered as an equity security of
General Motors under the Exchange Act. General Motors is permitted under the
Exchange Act to apply to the Commission for termination of such registration
if the Class E Common Stock is neither listed on a national securities
exchange nor held by at least 300 holders of record, and General Motors
intends to apply for such termination immediately following consummation of
the Split-Off. General Motors will, however, remain subject to the reporting
obligations of the Exchange Act on account of its other outstanding
securities. In addition, EDS intends to file with the Commission a
registration statement on Form 10 registering the EDS Common Stock under the
Exchange Act, and EDS will be subject to the reporting obligations of the
Exchange Act following the Split-Off.
BACKGROUND OF THE SPLIT-OFF
GM's Acquisition of EDS. In 1984, General Motors acquired EDS, which at the
time was already a leading provider of IT services. In connection with the
acquisition of EDS, General Motors created a new class of its common stock,
the Class E Common Stock, designed to provide financial returns based on the
future performance of EDS. The agreement governing the acquisition of EDS by
GM contemplated that EDS would be operated as an independent subsidiary of
General Motors with a substantial degree of autonomy. Pursuant to such
agreement, effective in 1985, General Motors and EDS entered into the Existing
Master Services Agreement. Within the framework of the Existing Master
Services Agreement, EDS is currently responsible for substantially all of the
worldwide data processing and telecommunications activities of General Motors
and its subsidiaries (other than Hughes, with the exception of its subsidiary,
Delco), including integrated information systems for payroll, health and
benefits, office automation, communications and plant automation functions.
See "Business of EDS--Services for General Motors."
It is GM's policy that a standard of fair dealing govern the relationship
between EDS and General Motors. To that end, in 1985 the GM Board formed a
standing committee, comprised entirely of independent directors of General
Motors, with responsibility for reviewing, among other things, (i) the
principal business and financial relationships and transactions among GM, EDS
and Hughes, (ii) the dividend policies and practices of GM and
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(iii) such other matters as have the potential to have differing effects on
holders of the three classes of General Motors common stock. That committee is
currently known as the "Capital Stock Committee." See "Class E Common Stock--
Considerations Relating to Multi-Class Common Stock Capital Structure."
EDS Strategic Combination Discussions. During the period in which EDS has
been a subsidiary of GM, there has been an increasing convergence of the
computing and software, communications, media and entertainment, and
electronic commerce industries. Because the ability to offer customers
integrated IT services and systems is increasingly viewed as necessary to
remain competitive and grow, strategic alliances among service providers in
these industries have become more prevalent. Consistent with this industry
trend, EDS has engaged in discussions with leading telecommunications
providers regarding potential strategic combinations on numerous occasions in
the last decade in an effort to enhance its own competitiveness.
In 1991, EDS explored the possibility of acquiring an international supplier
of IT services and had preliminary strategic discussions with a long-distance
carrier. In late 1992 and early 1993, EDS engaged in extended negotiations
with an international telecommunications company regarding a strategic
alliance. These discussions involved numerous types of possible business
alliances and reached varying stages of negotiations, but none of them
resulted in any consummated transaction.
In 1994, EDS and GM reached an advanced stage of negotiations on a possible
merger with a telecommunications company, Sprint Corporation ("Sprint"). Like
many of EDS' earlier potential strategic partners, Sprint was unwilling to
enter into a business combination with EDS if General Motors (whose dividend
and other financial policies are tied to a worldwide, cyclical automotive
business) remained the major stockholder of the merged entity. Based upon the
GM Board's determination that continued ownership of EDS was not necessary for
General Motors to implement its IT strategy and that General Motors would be
willing to split-off EDS to advance EDS' strategic objectives, GM announced
publicly that it would consider a split-off of EDS to facilitate EDS' possible
combination with Sprint. In particular, in a May 16, 1994 press release,
General Motors stated, in part:
"General Motors Corporation today confirmed that it is considering a
proposal to spin off its wholly owned subsidiary, Electronic Data Systems
Corp., (EDS) to holders of Class E common stock. Such a spin-off would be
proposed to General Motors shareholders if ongoing negotiations between EDS
and Sprint result in an agreement for those companies to merge or form a
strategic alliance.
A spin-off of EDS to Class E shareholders would be proposed only in a
transaction that is tax free, and does not result in the recapitalization
of Class E common stock into General Motors $1 2/3 par value common stock
at a 120 percent exchange ratio, as currently provided for under certain
circumstances by General Motors' certificate of incorporation.
EDS has been a wholly owned subsidiary of General Motors since 1984. In
the event that EDS becomes an independent company, General Motors and EDS
plan to enter into a new, 10-year master agreement, with options for
renewal, under which EDS would continue to provide the same information
technology services for General Motors that it does today."
Discussions with Sprint terminated in June 1994 when General Motors, EDS and
Sprint were unable to agree on the proper exchange ratio for EDS stock and
Sprint stock to have been issued in the EDS/Sprint transaction subsequent to
the split-off then contemplated by the parties. The parties disagreed in part
because of the difficulty, for purposes of such exchange ratio, of valuing the
Sprint stock in relation to the Class E Common Stock, which is a security of
General Motors with rights to dividends based on the earnings of EDS, as
opposed to a security of an independent company with full voting control. The
failure to complete the EDS/Sprint transaction was also partially attributable
to the additional constraints and complications created by combining one
complex transaction, a split-off of EDS, with a second complex transaction, a
strategic merger involving a second public company. Such uncertainties and
complexities added both time and procedural requirements (such as additional
stockholder votes and governmental approvals, including a ruling by the IRS as
to the tax-free status of a split-off) to the transaction process, and thereby
made the likelihood of completing the transaction more uncertain. See "--
Purposes of the Split-Off."
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Consideration of Split-Off. Following the termination of discussions with
Sprint, the GM Board reaffirmed that it remained willing to consider a split-
off of EDS under appropriate circumstances. On June 6, 1994, GM issued a press
release stating that it "would continue to consider a proposal to spin-off its
wholly owned subsidiary, Electronic Data Systems (EDS) Corp., if necessary to
facilitate EDS' ability to attain its strategic objectives. Such a spin-off
could occur through an exchange of EDS common stock for Class E stock and
would only be proposed in a transaction that is tax-free."
From time to time after June 1994, GM and EDS management personnel and
financial, legal and accounting advisers engaged in informal discussions of
EDS' strategic needs and ways of addressing them, including the possibility of
a split-off. Initially, these discussions assumed that a split-off would be
proposed only in the context of a specific strategic combination with a third
party. However, as the discussions progressed, they came to include
consideration of splitting off EDS for general strategic reasons rather than
in the context of a particular business combination.
In connection with these ongoing discussions, in February 1995, McKinsey &
Company ("McKinsey"), a management consulting firm, began to assess the
implications of the changing information technology industry for General
Motors' major lines of business, including the market forces driving the
convergence of computing, telecommunications, electronic commerce and media.
General Motors engaged McKinsey to assist GM management in developing a
perspective on current and potential conflicts among the major businesses
within GM, with a particular focus on whether EDS would be in a stronger
competitive position if it were not owned by GM.
During January to July 1995, GM and EDS management personnel and financial,
legal and accounting advisers met from time to time to assess EDS' strategic
objectives and to consider legal, tax and accounting issues that would be
presented by a split-off transaction. Among other things, the independent
accounting firms for GM and EDS considered the appropriate accounting
treatment for a split-off transaction and reviewed their conclusions with the
accounting staff of the Commission. In addition, during and after April 1995,
tax counsel for GM and EDS began to assess whether the strategic objectives
identified by management were consistent with the principles necessary to make
a determination that any proposed transaction would be tax-free to General
Motors and its stockholders for U.S. federal income tax purposes. These
preliminary discussions did not result in any definitive determination either
that a split-off would be desirable in the absence of a strategic combination
or as to the structure or terms of any transaction that might be presented to
the GM Board.
In June 1995, the GM Hourly Plan Special Trust and a trust (the "GM Salaried
Plan Trust") under the GM Salaried Plan completed a public offering in which
they sold 42.5 million shares of Class E Common Stock. See "Security Ownership
of Certain Beneficial Owners and Management of General Motors and EDS--GM
Hourly Plan Special Trust." In the prospectus related to such public offering,
General Motors stated:
"The managements of EDS and General Motors are engaged in discussions
concerning the most appropriate means of addressing EDS' strategic
objectives, including the possibility of a spin-off of EDS. These
discussions have not produced a definitive proposal as to the structure or
terms of any transaction or as to whether any transaction will be proposed
to the board of directors of General Motors or EDS or the stockholders of
General Motors. Any spin-off of EDS would be proposed only in a transaction
determined by General Motors' Board to be fair to holders of all classes of
General Motors' capital stock and that would be tax free and would not
result in the recapitalization of Class E Common Stock into General Motors
$1 2/3 Common Stock at a 120% exchange ratio as currently provided for
under certain circumstances in the General Motors Certificate of
Incorporation."
Based on the continuing discussions between management personnel at GM and
EDS and on the ongoing work by McKinsey, representatives of General Motors'
financial staff (Leon J. Krain, Vice President and Group Executive, and Heidi
Kunz, then Vice President and Treasurer) presented the financial staff's
recommendations regarding a possible split-off of EDS to General Motors'
senior management decisionmaking body, the
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President's Council, on July 28, 1995. The members of the President's Council
in attendance consisted of J.T. Battenberg III, Executive Vice President,
Louis R. Hughes, Executive Vice President, J. Michael Losh, Executive Vice
President and Chief Financial Officer, Harry J. Pearce, as Executive Vice
President, John F. Smith, Jr., as Chief Executive Officer and President, and
G. Richard Wagoner, Jr., Executive Vice President. The President's Council
reviewed the financial staff's recommendation that General Motors proceed to
develop the terms of a possible split-off of EDS and recommended that the
matter be brought before the GM Board and the Capital Stock Committee at their
regular meetings to be held in early August 1995. At its meeting on August 4,
1995, the President's Council decided to present the matter to the GM Board
and the Capital Stock Committee, as recommended by GM management.
August 1995 Capital Stock Committee Meeting. At meetings of the Capital
Stock Committee on August 6, 1995 and of the GM Board on August 7, 1995, GM
management reported its recommendation that General Motors proceed to develop
a specific proposal to split-off EDS. The principal discussion of these
matters took place during the meeting of the Capital Stock Committee on August
6, 1995 (the "August 1995 CSC Meeting"). All of the members of the GM Board
were invited to attend this meeting, which was attended not only by the
members of the Capital Stock Committee (Thomas H. Wyman, Chairman, John H.
Bryan, Ann D. McLaughlin, John G. Smale and Dennis Weatherstone) but also by
certain other members of the GM Board (Thomas E. Everhart, Charles T. Fisher
III, J.W. Marriott, Jr., Edward T. Pratt, Jr. and Louis W. Sullivan) and by
Mr. Smith as Chief Executive Officer and President. The August 1995 CSC
Meeting was also attended by Mr. Battenberg, Mr. Krain, Mr. Losh, Mr. Pearce,
Mr. Wagoner, Ms. Kunz, Thomas A. Gottschalk, General Counsel, and other
members of GM management; by Lester M. Alberthal, Jr., Chairman, President and
Chief Executive Officer of EDS and Gary J. Fernandes and John R. Castle, Jr.,
Senior Vice Presidents of EDS; and by a representative of McKinsey and the
Capital Stock Committee's independent legal counsel, Weil, Gotshal & Manges
LLP.
At the August 1995 CSC Meeting, management reviewed the history of General
Motors' ownership of EDS since 1984 and General Motors' determination that
continued ownership of EDS was not necessary for General Motors to execute its
IT strategy or to ensure the security of its computer data and other
information. Management also reviewed the growing perception of conflicts with
other GM businesses as EDS' business grew and expanded in scope during the
time it had been owned by General Motors. Among other things, as boundaries
increasingly disappeared between certain industries in which EDS and Hughes
participate, EDS had experienced a growing number of business conflicts and
limitations arising from the common ownership of both companies by General
Motors. Furthermore, it had become increasingly apparent that GM's ownership
of EDS presented a significant impediment to EDS' ability to consummate large
strategic transactions such as the proposed alliance with Sprint. Also, EDS'
significant annual growth in revenues, among other things, had resulted in
greater capital needs for its business, which sometimes conflicted with GM's
need to access capital for its other businesses. See "--Purposes of the Split-
Off."
Management also reported on a number of financial, legal, tax and accounting
matters that would affect any proposed split-off. These matters included the
necessity that the exchange ratio for the Class E Common Stock and the EDS
Common Stock and other terms be fair to all classes of General Motors common
stockholders, that the transaction be tax-free to General Motors and its
stockholders for U.S. federal income tax purposes, that the terms of the
Existing IT Services Agreements be amended and that other agreements
customarily incident to a split-off be entered into by General Motors and EDS
in connection with any split-off. Management also reported its determination,
concurred with by General Motors' independent accountants, that under
generally accepted accounting principles a split-off would be accounted for at
General Motors' historical amounts as a non-reciprocal transfer to the holders
of Class E Common Stock, with no accounting gain or loss being recognized by
General Motors in its consolidated statement of income on account thereof.
A representative of McKinsey summarized the conclusions of the consulting
project undertaken by McKinsey as described above. He observed that both EDS
and Hughes were currently well positioned to participate in the large and
rapidly developing IT and telecommunications marketplace. However, common
ownership of EDS and Hughes by General Motors and the increasing convergence
of IT and telecommunications industry participants and market sectors had
created business conflicts between EDS, Hughes and General Motors
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that McKinsey anticipated would continue and intensify over time. He also
stated that McKinsey believed that competition for customers and business
partners, restrictions on bidding and other customer concerns arising from
common ownership, obstructions to strategic transactions, reduced access to
funds for capital expenditures and differences in each company's decision-
making processes were all likely to have an increasing effect on the
businesses of EDS, Hughes and General Motors over time.
GM management and the McKinsey representative next reviewed the possible
alternative strategic options for EDS and Hughes that had been identified:
continuing the status quo by allowing each business to continue independently;
determining where and how each company would operate in order to avoid
conflicts; merging all or part of the businesses of EDS and Hughes; divesting
Hughes; and divesting EDS. The McKinsey representative discussed the relative
degree to which each of the five alternatives would effectively address the
conflicts and limitations described in "--Purposes of the Split-Off," as well
as certain related business synergies and the feasibility of implementation.
The matters discussed and conclusions reached, which were concurred with by GM
management, were substantially as set forth under "--Alternatives to the
Split-Off." Based on the foregoing, GM management then reported that it had
concluded that a split-off of EDS would most effectively address EDS'
strategic objectives and recommended that the GM Board authorize development
of definitive terms for a split-off of EDS.
The Capital Stock Committee, with other GM Board members participating,
engaged in a detailed discussion of the matters reported by management and
McKinsey. They also discussed a number of matters relating to the valuation of
EDS to be used in any split-off that might be proposed, the necessity of
negotiating amendments to the terms of the Existing IT Services Agreements in
connection with a split-off, tax considerations related to a split-off and the
business plans for EDS following a split-off.
The Capital Stock Committee also discussed and considered appropriate means
of ensuring that the terms of any split-off transaction would be fair to all
classes of GM common stockholders. In particular, the Capital Stock Committee
determined that it would be appropriate to institute a process of arm's-length
negotiation between separate teams negotiating from the perspective of each of
the groups of General Motors stockholders that could be deemed to have
divergent interests in a split-off. Accordingly, the Capital Stock Committee
considered and endorsed procedures for establishing the financial and other
essential terms of a split-off in which the GM Board would be aided by two
management negotiating teams, one consisting of GM executive officers and the
other consisting of EDS executive officers, with each team to be counseled by
its own internal and outside financial and legal advisers. See "--Negotiating
Teams." The progress of the negotiating teams would be reported to the Capital
Stock Committee, which would oversee the negotiations to ensure a level
playing field between the parties and keep the full GM Board informed about
the status of negotiations. The Capital Stock Committee and, ultimately, the
full GM Board would then review the results of this negotiating process in
making their own determinations as to whether the structure and terms of any
split-off proposal would be fair to all General Motors common stockholders. In
addition, any such transaction approved by the GM Board would then be
submitted for approval to appropriate class votes of GM common stockholders,
including separate class votes of holders of $1 2/3 Common Stock and Class E
Common Stock. In considering alternative means for establishing the terms of a
split-off, the Capital Stock Committee also requested that GM management
explore the feasibility of structuring a split-off in a way that would permit
the market, upon full disclosure of all material facts, to determine the
relative values of the Class E Common Stock and the EDS Common Stock.
After discussion of the foregoing matters, the Capital Stock Committee
determined to recommend that the GM Board approve management's recommendation
of authorization to proceed to develop definitive terms for a split-off of EDS
using the negotiating procedures that had been described to the Capital Stock
Committee.
August 1995 GM Board Meeting. At its meeting the following day, August 7,
1995, which was attended by all of GM's directors, the GM Board received a
report of the matters discussed at the August 1995 CSC Meeting and concluded
that a split-off of EDS, on terms that would be tax-free to General Motors and
its stockholders for U.S. federal income tax purposes and fair to all classes
of General Motors common stockholders, would be in the best interests of
General Motors and its stockholders. Accordingly, the GM Board appointed the
negotiating teams and authorized the process described above in order to aid
the GM Board in the development
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of definitive terms for such a transaction, subject to oversight of the
negotiating process by the Capital Stock Committee and subject to the GM
Board's own review and consideration of such definitive terms and changes
thereto that it might determine to make. Consistent with the principle of
trying to ensure a level playing field for the two negotiating teams, the GM
Board determined that officers and employees of General Motors and EDS who
served as members of the negotiating teams or in support of such teams would
be indemnified to the same extent as directors and officers of General Motors
are indemnified under General Motors' By-Laws. Finally, the GM Board
authorized the filing of a request with the IRS seeking a ruling on the tax-
free status of the proposed transaction.
Following the August 7, 1995 Board meeting, General Motors issued a press
release stating as follows:
"GM said today that it intends to pursue a split-off of its wholly owned
subsidiary, EDS, to its GM Class E shareholders in a tax-free exchange of
stock. The GM Board of Directors today approved a recommendation by GM and
EDS managements to develop specific terms and a plan for a split-off
transaction through which EDS would become an independent, public company.
The split-off would be subject to a number of approvals and to a favorable
vote by holders of GM common stocks.
. . .
To achieve a split-off, GM would exchange EDS capital stock for the
outstanding shares of GM Class E common stock. There are currently 438.7
million shares of GM Class E common stock outstanding, and 44.9 million
shares currently reserved for issuance upon conversion of Series C
Preference Stock. The process of establishing definitive terms for a split-
off transaction which will be fair to all holders of GM common stock will,
among other things, consider differences between the values of GM Class E
and EDS common stocks in order to establish any adjustment deemed
appropriate by the GM Board of Directors.
A split-off would be subject to the appropriate stockholder approvals,
and a favorable Internal Revenue Service ruling that the transaction would
be tax-free. The specific terms of a transaction, which are yet to be
developed, must also be approved by the GM Board of Directors. Subject to
these and other approvals and conditions, GM and EDS expect that a split-
off could occur in the first half of 1996. However, it should be noted that
due to the numerous uncertainties involved in these matters, there can be
no assurance that any split-off of EDS will be proposed or completed.
A split-off would be proposed only in a manner that would not result in
the recapitalization of GM Class E common stock into GM $1 2/3 par value
common stock at a 120 percent exchange ratio, as currently provided for
under certain circumstances in the GM certificate of incorporation.
In the event of a split-off GM and EDS would enter into a long-term
agreement in which EDS would provide substantially the same information
technology and other services for GM that it does today."
Alternative Market-Based Valuation Mechanisms. In a letter dated August 28,
1995, the General Motors Treasurer's Office responded to the request made by
the Capital Stock Committee at its August 6, 1995 meeting for the exploration
of the feasibility of structuring a split-off in a way that would allow the
market to value the differences between the Class E Common Stock and the EDS
Common Stock. Taking into account various legal, tax and accounting
considerations, the Treasurer's Office reviewed four such potential market
mechanisms, none of which were found to be feasible. Under the first
alternative, General Motors would have distributed some shares of EDS Common
Stock to the public prior to a split-off and set a split-off exchange ratio
based on the trading values of both stocks. Under the second alternative, EDS
Common Stock would have been publicly traded on a "when-issued" basis (i.e.,
conditional pending issuance) for a period of time preceding a split-off, and
the split-off exchange ratio would have been based on the trading prices of
the EDS Common Stock and the Class E Common Stock during such period. Under
the third alternative, shares of EDS Common Stock would have been sold through
an auction in which, in order to preserve the tax-free nature of such
transaction, participation would have been restricted to GM stockholders and
consideration for the purchase of EDS Common Stock in the auction would have
been restricted to GM capital stock. Under the fourth alternative, GM would
have issued to holders of $1 2/3 Common Stock warrants that would be required
to accompany each share of Class E Common Stock in order for such stock to be
exchanged for EDS Common Stock in a split-off on a one-for-one basis. This
fourth alternative contemplated that holders of $1 2/3 Common Stock and Class
E Common Stock would engage in negotiations to arrive at a price for the
warrants reflecting their relative valuations of the two securities.
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After assessing the foregoing alternatives, the Treasurer's Office reported
its conclusion that the practical problems and costs associated with the
implementation of any such market mechanism would be substantial. In addition,
the letter expressed the Treasurer's Office's opinion that, due to the
imperfect market in which the EDS Common Stock would be priced under any of
the available alternatives, the relative pricing observed in any such market
should not be relied on by the GM Board as the basis for determining the terms
of any split-off. The letter concluded that a "private" valuation of the
respective values of the Class E Common Stock and the EDS Common Stock (such
as that contemplated by the process established by the GM Board) would better
take into account all relevant considerations. In view of the conclusions
reached by the Treasurer's Office, a market mechanism for valuing the
differences between Class E Common Stock and EDS Common Stock was not utilized
and the GM Board continued to rely on the arm's-length negotiation process,
with Capital Stock Committee oversight, as described herein. Furthermore, no
conclusion was reached as to how any such market based valuation, even if
reliably determined, would affect the GM Board's deliberations as to the
fairness of all of the terms and conditions of a split-off.
Negotiating Teams. As noted previously, in order to aid the GM Board in the
development of definitive financial and other essential terms of the Split-
Off, the GM Board appointed two management negotiating teams at its August
1995 meeting. One team, which consisted of executive officers of General
Motors (the GM Team), was charged with negotiating terms of the Split-Off to
be recommended to the Capital Stock Committee and the GM Board from the
perspective of the holders of the $1 2/3 Common Stock and the Class H Common
Stock, who would continue to be stockholders of General Motors after the
Split-Off. The GM Team initially consisted of Harry J. Pearce, as General
Motors' Executive Vice President with responsibility, among other things, for
EDS and Hughes matters, and Heidi Kunz, then Vice President and Treasurer of
General Motors. On December 4, 1995, the GM Board accepted the resignation of
Ms. Kunz as Vice President and Treasurer and appointed John D. Finnegan to
replace Ms. Kunz in that position. On December 4, 1995, the GM Board also
elected Mr. Pearce to the GM Board and designated him as Vice Chairman of the
GM Board. On February 5, 1996, the GM Board reconstituted the GM Team to
consist of Messrs. Finnegan, Krain and Losh. The GM Team was authorized to use
the assistance of General Motors' Treasurer's Office Staff and Legal Staff,
and also engaged Merrill Lynch as its independent financial advisor and the
law firms of Kirkland & Ellis, Richards Layton & Finger and Milbank, Tweed,
Hadley & McCloy as its outside counsel.
The other team, which consisted of executive officers of EDS (the EDS Team),
was charged with negotiating terms of the Split-Off to be recommended to the
Capital Stock Committee and the GM Board from the perspective of the holders
of Class E Common Stock, who would become stockholders of EDS in the Split-
Off. The EDS Team consisted of Lester M. Alberthal, Jr., Chairman, President
and Chief Executive Officer of EDS, Gary J. Fernandes, Senior Vice President
of EDS, and Joseph M. Grant, Senior Vice President and Chief Financial Officer
of EDS. The EDS Team was authorized to use the assistance of the Financial and
Legal Staffs of EDS and also engaged Lehman Brothers as its independent
financial advisor and the law firms of Baker & Botts, L.L.P., Prickett, Jones,
Elliott, Kristol & Schnee and Hughes & Luce, L.L.P. as its outside counsel. In
March 1996, certain senior personnel involved in providing financial advice to
the EDS Team left Lehman Brothers to join Morgan Stanley, at which time Morgan
Stanley also began advising the EDS Team. Since the time Morgan Stanley began
advising the EDS Team, it and Lehman Brothers have performed their services in
cooperation with each other. See "--Fairness Opinions--EDS Team Financial
Advisors Fairness Opinions."
On August 31, 1995, representatives of Weil, Gotshal & Manges LLP,
independent counsel to the Capital Stock Committee, held a meeting with the
General Counsel of General Motors and another attorney on the GM Legal Staff
as representatives of the GM Team and with a Senior Vice President of EDS and
the General Counsel of EDS as representatives of the EDS Team. At this
meeting, there was preliminary discussion of the appropriate sequence for
negotiating the provisions of the IT Services Agreements and the amount of any
special payment between GM and EDS.
On September 7, 1995, members and representatives of the management
negotiating teams and their advisors met with representatives of Weil, Gotshal
& Manges LLP for further discussion of the sequencing of negotiations and
other procedural matters. The meeting was attended on behalf of the GM Team by
Ms. Kunz and representatives of the GM Treasurer's Office, the GM Legal Staff,
Merrill Lynch and Kirkland & Ellis. Participants in the meeting for the EDS
Team were Mr. Fernandes and Mr. Grant, together with EDS' General
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Counsel and representatives of Lehman Brothers and Baker & Botts, L.L.P. The
participants in the meeting discussed the order in which they would negotiate
various terms of the transaction. It was determined at the meeting that the
terms of the IT Services Agreements would be negotiated before other matters,
such as the amount of any special payment between General Motors and EDS, in
order to enhance the arm's-length and commercially reasonable nature of the IT
Services Agreements on a stand-alone basis. Counsel for the Capital Stock
Committee also reviewed the background behind the formation of the management
negotiating teams and explained the process contemplated by the Capital Stock
Committee.
Negotiation of IT Services Agreements. The EDS Team designated Paul
Chiapparone, Senior Vice President of EDS, and John R. Castle, Jr., Senior
Vice President of EDS, as its lead negotiators regarding the IT Services
Agreements, and the GM Team similarly designated Leon J. Krain, GM Vice
President and Group Executive--Finance (who later was designated a member of
the GM Team), and Thomas A. Gottschalk, General Counsel of GM, as its lead
negotiators. Subsequently, Messrs. Krain and Gottschalk formed a negotiating
guidance team, consisting of themselves, Robert Hendry, GM Group Vice
President, North American Operations Business Support Group, and Vince
Barabba, General Director--Knowledge Network, to provide senior level
direction to GM's staff negotiators.
The lead negotiators met on September 21, 1995 to discuss the framework and
procedures for the negotiations and the appointment of staff-level negotiating
teams and outside advisors.
The staff negotiators for the teams held their first meeting on September
29, 1995. The GM Team representatives outlined their view of the essential
elements of new agreements that would meet GM's business requirements,
including the duration of the principal agreement's initial term,
determination of "in-scope" services to be provided, provisions relating to
competitiveness of services provided with respect to quality, service, price
and technology, and the establishment of appropriate payment terms for
services rendered. The EDS Team representatives asked clarifying questions but
did not negotiate substantive terms at that time.
At its meeting on October 2, 1995, the GM Board received reports on the
status of the Split-Off from Mr. Pearce and Mr. Wyman, chairman of the Capital
Stock Committee, including a report on the principal issues with respect to
the negotiation of the IT Services Agreements. All of the members of the GM
Board were present at the meeting.
During October and early November 1995, the representatives of the
management negotiating teams exchanged views regarding the IT services issues
that had been identified by GM at the September 29, 1995 meeting. The EDS Team
representatives noted that GM and EDS had participated in a successful
strategic IT partnership for more than ten years and stated that the GM/EDS
relationship should continue largely unchanged so as to continue to help GM
achieve important strategic objectives, including maximizing the value
provided to GM by EDS' worldwide organization and resources, making
information a strategic advantage for GM on a global basis, improving GM's
worldwide competitive cost and quality position through the innovative and
effective use of IT, implementing common systems and processes approved by GM,
enabling GM to make the most effective use of its IT expenditures and allowing
GM and EDS to continue to work together to demonstrate that GM pays reasonable
prices for and receives meaningful value from the services provided by EDS. On
that basis, the EDS Team representatives suggested that no material changes
would be needed to the Existing IT Services Agreements other than to provide
for a specific duration rather than an indefinite term and that the principal
issues to be negotiated should be limited to the duration of initial and
renewal terms for the agreements, provisions for termination upon material
default or non-payment, mitigation and allocation of recurring costs resulting
from the split-off, dispute resolution procedures, the establishment of an
information technology committee of GM and EDS corporate officers to oversee
implementation of the agreement and the elimination of any existing contract
ambiguities. As described in their September 29, 1995 presentation, the GM
Team representatives stated their view that certain additional changes would
be required in the context of a split-off because (i) the Capital Stock
Committee and other fairness mechanisms such as cost audits would no longer be
available to monitor the commercial reasonableness and fairness of
implementation of the agreements, (ii) the provisions of the agreements had
been developing in an evolutionary manner during the decade that GM had
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owned EDS and would, in any event, continue to develop to reflect changing
business, industry and economic circumstances, and (iii) the IT outsourcing
industry had experienced significant growth and change since GM acquired EDS
in 1984, and it was therefore now possible and appropriate for the agreements
to reflect the more competitive IT outsourcing market.
At its meeting on November 5, 1995, the Capital Stock Committee received a
report from representatives of Weil, Gotshal & Manges LLP, its independent
counsel, on the status of the negotiations of the IT Services Agreements. The
members of the Capital Stock Committee in attendance at the meeting consisted
of Mr. Wyman, Mr. Bryan, Ms. McLaughlin and Mr. Weatherstone. After extensive
discussion of issues that had arisen in the course of the negotiations, the
Capital Stock Committee determined that the negotiating teams were in need of
guidance as to the corporate objectives to be addressed in a split-off.
Accordingly, the Capital Stock Committee recommended that the GM Board provide
the following guidelines to the management negotiating teams regarding its
goals and priorities with respect to the Split-Off in general and the IT
Services Agreements in particular: (i) an appropriate, long-term IT supply
contract should be developed for the proposed split-off to achieve the
respective business goals of GM and EDS; (ii) the terms of any such contract
should take into account and further the legitimate interests and expectations
of all GM stockholders; (iii) GM should resume the principal role in
developing and supervising its IT strategy and programs, while still drawing
on EDS' expertise; and (iv) since following any split-off the Capital Stock
Committee would no longer be able to review the terms on which EDS provides IT
services to GM and would therefore have to rely on contractual protections,
the IT Services Agreements should provide GM with greater ability to test the
competitiveness of the terms on which EDS would provide such services to GM,
including through the opportunity to competitively bid limited portions of
GM's IT service needs and to award such bids to suppliers other than EDS when
appropriate.
At a GM Board meeting on November 6, 1995 attended by all of the directors,
the GM Board received a report from Mr. Wyman on the status of various issues
relating to the Split-Off, including the guidelines recommended by the Capital
Stock Committee. The GM Board concurred that counsel for the Capital Stock
Committee should communicate such guidelines to the GM Team and the EDS Team.
Such counsel so communicated the guidelines and indicated that the guidelines
should be used to inform and guide the continuing negotiations of the terms of
the IT Services Agreements. Counsel also communicated the GM Board's desire
that the GM Team and the EDS Team and their lead negotiators remain personally
involved in the negotiations in order to expedite them.
At meetings during the first half of November 1995, the GM Team negotiators
and the EDS Team negotiators continued to exchange proposals regarding
contract terms and identified as the key issue finding appropriate means,
including limited competitive bidding and outsourcing to third party service
providers, to assure GM of the competitiveness of EDS' prices, quality,
service and technology. During these meetings, the GM Team representatives
also stressed the importance of realizing long-term reductions in GM's
structural costs, whether a split-off were to occur or not. In these meetings,
the respective representatives also discussed certain other issues relating to
the GM/EDS relationship that would likely have arisen in the absence of split-
off discussions, including the implementation of a new agreement upon the
expiration on December 31, 1995 of EDS' arrangement with GM's International
Operations group, the pricing of certain information processing activities and
communications services ("IPACS") provided by EDS and matters relating to a
new plant floor automation project being undertaken by GM's North American
Operations group. On November 20, 1995, GM determined to withhold certain
IPACS payments from EDS pending resolution of disputed amounts.
At the GM Board meeting on December 4, 1995, with all directors in
attendance, the GM Board received a report on the status of the Split-Off from
Weil, Gotshal & Manges LLP, independent counsel to the Capital Stock
Committee. It was reported that although Messrs. Alberthal and Pearce and
other senior EDS and GM executives had become personally involved in the
negotiations of the IT Services Agreements and some progress appeared to have
been made, there was as yet no resolution of significant substantive issues.
On December 18, 1995, the GM Board met by telephone conference, with all but
one director in attendance. Representatives of EDS described the terms of
certain provisions of the EDS Certificate of Incorporation, the
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EDS Bylaws and the EDS Rights Agreement that EDS desired to adopt in order to
protect future public stockholders of EDS, including holders of Class E Common
Stock who would become EDS stockholders upon consummation of the Split-Off,
from certain abusive and coercive takeover tactics by third parties. The EDS
representatives noted that the proposal to adopt these provisions was not
being made in response to any known takeover threat and that many public
companies have similar provisions. After discussion and review of information
regarding, among other things, the market impact of such provisions, the GM
Board determined that it would have no objection to the implementation of such
provisions at any time after the management negotiating teams reached an
agreement in principle on the material terms of the IT Services Agreements.
Following the resolution of these terms, the protective provisions were
adopted by EDS on March 12, 1996. For a description of the EDS Rights
Agreement and other provisions, see "EDS Capital Stock."
Negotiations with respect to the principal terms for the IT Services
Agreements continued during December 1995 and January and February 1996. The
principal issues discussed included extension of certain service agreements,
limited exposure of certain services to competitive bidding, the timing of
payments by GM for services provided by EDS, the definition of "in-scope"
services, termination rights for GM in certain circumstances (including in the
event of certain changes in control of EDS), commitments by both parties with
respect to certain structural cost reductions for GM, the identification of
project personnel and the ownership of intellectual property. The parties also
discussed the IPACS payments being withheld by GM and certain disputed issues
involving GM's international operations.
At the GM Board Meeting on February 5, 1996, with all but one director in
attendance, Mr. Wyman reported to the GM Board on the status of the Split-Off
discussions and the GM Board reconstituted the GM Team as described above in
"--Negotiating Teams."
On February 8, 1996, the EDS Team's lead negotiators and the GM Team's lead
negotiators reached a preliminary agreement with respect to a substantial
number of terms proposed to be included in the IT Services Agreements. Two
material issues under discussion at that time were not fully resolved by the
preliminary agreement. One such issue related to the scope of GM's termination
rights in the event of a change of control of EDS and the other related to the
methods for the resolution of disputes arising in connection with the
negotiation of the terms of future service agreements under the Master
Services Agreement. In mid-February 1996, the parties commenced work on
definitive documentation for the IT Services Agreements. In March 1996,
agreement was reached by the parties' lead negotiators as to the two
previously unresolved material issues. See "Relationship Between General
Motors and EDS--Post-Split-Off Arrangements--IT Services Agreements."
Negotiation of Special Inter-Company Payment. The GM Team and EDS Team
agreed that it would be appropriate to address a special inter-company payment
as one of the terms of the Split-Off in order to enable
the GM Board to determine that the Split-Off is fair to all classes of GM
common stockholders. See "--Recommendations of the Capital Stock Committee and
the GM Board; Fairness of the Transactions." On December 8, 1995, in response
to an inquiry from the IRS regarding the Tax Ruling, General Motors advised
the IRS that the Special Inter-Company Payment would not exceed one billion
dollars and could well be substantially less. As described above, it had been
determined in September 1995 that the amount of the Special Inter-Company
Payment would not be negotiated by the management negotiating teams until
after they reached agreement on the principal terms of the IT Services
Agreements. Accordingly, negotiation of the amount of the Special Inter-
Company Payment did not commence until shortly after the teams reached a
preliminary agreement on February 8, 1996 as to a substantial number of terms
proposed to be included in the IT Services Agreements.
In order to facilitate the negotiating process, the independent counsel for
the Capital Stock Committee invited representatives of the GM Team and the EDS
Team to make separate presentations to such counsel as to each respective
team's views on the appropriate range for the amount of the Special Inter-
Company Payment and its underlying assumptions and analysis. The two teams
generally considered similar factors relating to the overall Split-Off
transaction in formulating their views as to a range of appropriate values for
the Special Inter-Company Payment. Both teams recognized that two of the
principal factors relevant to the negotiation of the amount of the Special
Inter-Company Payment were (i) the different characteristics of the Class E
Common Stock, which is a security of GM designed to provide financial returns
based on the performance of EDS, and
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the EDS Common Stock, which is a more typical equity security, and (ii) the
financial impact of the terms of the IT Services Agreements. However, each
team had different assumptions and views about the effect of the factors due,
in part, to the asymmetrical impact that certain factors could have on GM and
EDS, respectively. For example, the GM Team anticipated that GM's IT spending
(and corresponding EDS revenues) would slightly increase over the ten-year
initial term of the IT Services Agreements, while the EDS Team expected a
slightly declining revenue stream during that period. In addition, while the
GM Team had access to information about and focused its attention on the
spending (and revenue) effects of changes in the IT Services Agreements, the
EDS Team also had access to information about and placed greater weight on the
effect that the changes in the IT Services Agreements might have on EDS'
operating margins. The teams also had different assessments of the changes
that likely would be made in the Existing IT Services Agreements in the
absence of a Split-Off and the anticipated financial impact of such changes on
EDS. The factors considered by the negotiating teams were also considered by
the Capital Stock Committee and the GM Board and are described in greater
detail below under "--March 3, 1996 Capital Stock Committee Meeting," "--March
22, 1996 Capital Stock Committee Meeting" and "--March 31, 1996 GM Board
Meeting."
The GM Team and its advisors made an initial presentation to counsel for the
Capital Stock Committee on February 16, 1996. At this meeting, the GM Team
stated that, based on its assumptions, a Special Inter-Company Payment could
be supported in the range of $750 million to $1.7 billion. Nevertheless, in
light of the prior determination that any special payment would not exceed
$1.0 billion and in order not to impair the growth potential of EDS following
the Split-Off, the GM Team stated that the Special Inter-Company Payment
should be in the range of $750 million to $1.0 billion. On February 19, 1996,
the EDS Team and its advisors had an initial meeting with the independent
counsel for the Capital Stock Committee. At this meeting, the EDS Team stated
that, based on its assumptions, the amount to be paid by EDS to GM in
connection with the Split-Off should not exceed $250 million and that the EDS
Team was not currently prepared to recommend the making of any payment.
Between February 20, 1996 and March 1, 1996, there were further discussions
by both teams and their advisors with counsel for the Capital Stock Committee
as well as three meetings between the GM Team and the EDS Team with respect to
the Special Inter-Company Payment. At these meetings, the teams exchanged
their respective views as to the appropriate factors to consider in
determining the amount of the Special Inter-Company Payment. Although both
teams generally agreed on the list of such factors and whether the factors had
positive or negative effects, the teams held widely divergent estimates of the
value and importance of almost all of the factors. Rather than resolving their
different views on individual matters, the teams sought to reach a compromise
on an amount of the Special Inter-Company Payment that would permit each team
to recommend the terms of the Transactions taken as a whole to the Capital
Stock Committee and the GM Board. As a result of these discussions, the GM
Team and EDS Team reached preliminary agreement on March 1, 1996 on a Special
Inter-Company Payment in the amount of $500 million. In reaching this
preliminary agreement, the teams recognized that the Special Inter-Company
Payment constituted only one of the many terms of the Split-Off and related
transactions, all of which are integrally related. Accordingly, the teams
viewed their agreement as to the amount of the Special Inter-Company Payment
as preliminary in that it was premised on, among other things, the review of
and approval by the Capital Stock Committee and the GM Board of all of the
terms of the Transactions on substantially the same terms as those
contemplated by the teams at the time such preliminary agreement was reached.
The teams also reached preliminary agreement that General Motors would provide
EDS a $50 million allowance relating to the resolution of various uncertain,
contingent or other matters arising out of the separation of GM and EDS.
March 3, 1996 Capital Stock Committee Meeting. At its meeting on March 3,
1996 (the "March 3, 1996 CSC Meeting"), the Capital Stock Committee received
reports and presentations as to the Split-Off and related matters. All of the
members of the Capital Stock Committee and certain other members of the GM
Board attended the meeting. The relevant portion of the March 3, 1996 CSC
Meeting was also attended by representatives of the management negotiating
teams and their advisors and by the Capital Stock Committee's independent
legal counsel.
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Independent counsel for the Capital Stock Committee reviewed certain
corporate governance matters relating to consideration of the Split-Off.
Representatives of the GM Legal Staff then reported on various aspects of the
developing Split-Off proposal and on an update provided by McKinsey to its
consulting project concerning potential conflicts between EDS' business and
other businesses of GM and its subsidiaries which had been discussed at the
August 1995 CSC Meeting. This update included McKinsey's conclusion that the
fundamental industry forces shaping competition (and creating potential
conflicts among GM's current businesses) had intensified, strengthening the
rationale underlying its earlier recommendation as to a split-off of EDS.
Mr. Gottschalk and Mr. Castle, on behalf of the GM Team and the EDS Team,
respectively, then reported on the substantial progress made by the
negotiating teams, including reaching preliminary agreement with respect to a
substantial number of terms proposed to be included in the IT Services
Agreements. With Mr. Castle's concurrence, Mr. Gottschalk summarized the
agreement that had been negotiated with respect to, among other things, the
term of the new Master Services Agreement, the allocation of responsibility
between GM and EDS for IT strategy and direction, the limited competitive
bidding that would be permitted, the identification of key EDS employees for
critical projects, revised payment terms, certain matters related to the scope
of the agreement and the inclusion of a standard of good faith and fair
dealing in the contract. He also reported that the teams were still
negotiating certain matters relating to termination provisions for the Master
Services Agreement.
Counsel for the Capital Stock Committee then reviewed certain matters
relating to the negotiations over the amount of the Special Inter-Company
Payment, noting that such payment should take into account, among other
factors, the financial impact of the IT Services Agreements on EDS to the
extent that such impact was attributable to the Split-Off. However, counsel
noted that, while both negotiating teams expressed their belief that certain
changes would have been made to the Existing IT Services Agreements in the
absence of a split-off of EDS, the exact nature and timing of such changes
were extremely difficult, if not impossible, to determine.
Mr. Finnegan and Mr. Grant, representing the GM Team and the EDS Team,
respectively, then discussed the negotiations regarding the amount of the
Special Inter-Company Payment. They observed that the payment was considered
as one element among many in the overall Split-Off transaction. They reported
on the factors considered in negotiating the amount of the payment, noting
that both teams generally agreed as to the list of such factors and whether
the factors had a positive or negative effect but that virtually all of the
factors were subject to widely varying estimates of value and importance, and
that the teams had not resolved their differences in reaching a preliminary
agreement on a payment of $500 million and a preliminary agreement to
recommend that General Motors provide EDS a $50 million allowance relating to
the resolution of various uncertain, contingent or other matters arising out
of the separation of GM and EDS.
The factors considered to have a positive effect on the holders of the $1
2/3 Common Stock were the removal of the existing and potential business
conflicts that had previously been identified between EDS and certain other GM
business units, including Hughes and GMAC; any decrease in GM's pension
expense and funding obligations that may be caused by any appreciation
resulting from the Split-Off in the EDS Common Stock to be owned by the
pension plans for GM's hourly-rate and salaried employees; the receipt of the
Special Inter-Company Payment; the terms of the new IT Services Agreements;
and the elimination of the potential recapitalization of the Class E Common
Stock into $1 2/3 Common Stock at a 120% exchange ratio upon a disposition by
GM of substantially all of the business of EDS. Certain of these factors,
including the removal of potential business conflicts between EDS and Hughes
and, with respect to Delco, the terms of the IT Services Agreements, were also
considered to have a positive effect on the holders of Class H Common Stock.
Factors considered to have a positive effect on the holders of the Class E
Common Stock included the benefits of owning an equity security like EDS
Common Stock rather than Class E Common Stock, which is a security of GM
designed to provide holders with financial returns based on the performance of
EDS; the removal of constraints on EDS' ability, as a subsidiary of GM, to
participate in strategic alliances, including the ability to use EDS Common
Stock in large acquisitions; the availability of new market opportunities and
increased growth potential for EDS; lower cost of and better access to capital
for EDS; the possibility that EDS Common Stock would be included in the
Standard & Poor's 500 Index after the Split-Off; the release by the PBGC of
EDS from liability under Title IV of ERISA
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relating to GM's U.S. pension plans; and the potential of holders of EDS
Common Stock to realize premiums over prevailing market prices in connection
with certain corporate transactions, including tender offers and other change
of control transactions.
The teams also agreed on the list of certain negative factors. The factors
considered to have a negative effect on the holders of $1 2/3 Common Stock
were the loss of the ability to control through ownership its IT provider,
EDS, the possible effect of the Split-Off on GM's credit rating and credit
profile and the loss of the ability of General Motors to elect to recapitalize
shares of Class E Common Stock as shares of $1 2/3 Common Stock. The factors
considered to have a negative effect on the holders of Class E Common Stock
were the payment of the Special Inter-Company Payment; the terms of the new IT
Services Agreements; and the loss of the right to recapitalization of the
Class E Common Stock into $1 2/3 Common Stock at a 120% exchange ratio under
certain circumstances. Other practical considerations discussed included
market expectations and the requirement to have the Split-Off approved by GM's
common stockholders and that, after the Split-Off, EDS should be adequately
capitalized to pursue growth and new business opportunities.
March 4, 1996 GM Board Meeting. At the GM Board meeting on March 4, 1996,
with all but one director in attendance, Mr. Wyman reported to the GM Board
regarding the Capital Stock Committee's review of the status of the Split-Off
at its March 3, 1996 meeting.
March 18, 1996 Capital Stock Committee Meeting. At a telephonic meeting of
the Capital Stock Committee on March 18, 1996, with all members participating,
counsel to the Capital Stock Committee described the process planned for the
further review and consideration of the Split-Off by the Capital Stock
Committee, including matters related to the Capital Stock Committee's March
22, 1996 meeting. The Capital Stock Committee also received a report on the
status of certain issues with respect to the IT Services Agreements.
March 22, 1996 Capital Stock Committee Meeting. The Capital Stock Committee
met by telephone conference on March 22, 1996, with all members participating.
Members of GM and EDS management, representatives of the financial and legal
advisors to the GM Team and EDS Team and the Capital Stock Committee's
independent legal counsel participated in the relevant portions of the
meeting.
Counsel for the Capital Stock Committee reviewed certain matters relating to
directors' responsibilities, the process that had previously been established
for arm's length negotiations regarding the terms of the Split-Off and the
role of the Capital Stock Committee in reviewing the proposed terms of the
Transactions.
Mr. Finnegan presented a report on behalf of GM management as to the
background of the Transactions, including the principal business purposes for
the Split-Off, the strategic advice received from McKinsey, the Tax Ruling and
the process of arm's-length bargaining that had been followed by the
management negotiating teams. Mr. Finnegan noted that the anticipated benefits
and costs of the Transactions from the perspective of each of the three
classes of GM common stock would be addressed in the reports of the management
negotiating teams and financial advisors.
Mr. Finnegan also presented the report of the GM Team, noting that it was
relying on the advice of Merrill Lynch that it expected to be in a position to
render the Merrill Lynch Fairness Opinion to the GM Board on March 31, 1996.
He reviewed certain material terms and advantages and disadvantages of the
Transactions, including the IT Services Agreements and the Special Inter-
Company Payment, from the perspective of the holders of $1 2/3 Common Stock
and Class H Common Stock. Based on the foregoing, Mr. Finnegan stated that the
GM Team recommended the Transactions as in the best interest of and fair to
the holders of $1 2/3 Common Stock and Class H Common Stock.
Members of the EDS Team then reviewed the background and history of the
negotiations, including the appointment of the teams as an aid to the process
established by the GM Board, the engagement by the EDS Team of its financial
advisors and counsel, the preliminary agreements reached by the teams with
respect to the terms of the Master Services Agreement and the amount of the
Special Inter-Company Payment and the anticipated financial effects of the
Transactions on EDS. After reviewing the foregoing matters, the EDS Team
recommended the proposed terms of the Split-Off to the Capital Stock Committee
as being in the best interests of the holders of the Class E Common Stock and,
accordingly, fair to such holders. In reaching its conclusions,
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the EDS Team specifically noted that (i) it was relying on the advice of
Lehman Brothers and Morgan Stanley that they expected to be in a position to
render an opinion to the effect that, based on and subject to the assumptions,
limitations and other matters set forth therein, the financial effect of the
Split-Off Transactions taken as a whole is fair, from a financial point of
view, to the holders of Class E Common Stock; (ii) it had considered both the
advantages and disadvantages of the Transactions from the perspective of the
holders of Class E Common Stock; and (iii) its conclusions were subject to the
understanding of EDS' management that substantial changes would have been made
beginning in 1996 to the Existing Master Services Agreement regardless of
whether the Split-Off occurred. The disadvantages of the Transactions
identified by the EDS Team included (a) the impact on EDS and the holders of
Class E Common Stock of the changes reflected in the Master Services
Agreement; and (b) the impact on EDS and the holders of Class E Common Stock
of the Special Inter-Company Payment. The advantages of the Transactions
identified by the EDS Team included (a) the benefits of owning EDS Common
Stock instead of Class E Common Stock, which is a derivative or "tracking"
stock; (b) the removal of constraints on EDS to pursue strategic alliances not
available to EDS as a subsidiary of General Motors; (c) the removal of
constraints on EDS to pursue new market opportunities not available to EDS as
a subsidiary of General Motors; (d) the more flexible access to capital
markets that will be available to EDS after the Split-Off without regard to
competing considerations of General Motors; (e) the advice of the financial
advisors to the EDS Team regarding the likelihood of EDS being included in the
Standard & Poor's 500 Index and the benefits of such inclusion; (f) the
release by the PBGC of EDS from contingent liability for General Motors
pension benefit obligations; (g) the tax-free nature of the Split-Off; and (h)
the advantages of a simplified governance process after the Split-Off,
including the benefits of a board of directors that will be focused
exclusively on the interests of the holders of EDS Common Stock. Members of
the EDS Team also discussed certain matters relating to corporate governance
arrangements for EDS following the Split-Off, including the identity of the
persons who would be elected to serve as non-employee directors of EDS upon
the consummation of the Split-Off.
A representative of Merrill Lynch presented certain financial analyses
regarding the Split-Off, as described under "--Fairness Opinions--Merrill
Lynch Fairness Opinion." The representative said that Merrill Lynch expected
to be in a position to render the Merrill Lynch Fairness Opinion to the full
GM Board on March 31, 1996.
A representative of Morgan Stanley presented a joint report of Morgan
Stanley and Lehman Brothers as to the EDS Team Financial Advisors' analysis of
the financial effect of the Split-Off Transactions from the perspective of the
holders of Class E Common Stock. Information about the report is provided
under "--Fairness Opinions--EDS Team Financial Advisors Fairness Opinions."
The representative said that Morgan Stanley and Lehman Brothers expected to be
in a position to render their respective opinions to the full GM Board on
March 31, 1996.
Representatives of GM's Legal and Tax Staffs described certain terms of the
Merger Agreement, the Separation Agreement and the Tax Allocation Agreement.
EDS management reported on EDS' consideration of a nonrecurring charge to be
taken no earlier than the second quarter of 1996. See "EDS Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, EDS management reported on various matters relating to the GM Hourly
Plan Special Trust's ownership of Class E Common Stock.
Mr. Smith, GM's Chairman, Chief Executive Officer and President, summarized
the presentations and recommendations that had been made by or on behalf of
the two management negotiating teams. Based on the foregoing, he stated that
GM executive management recommended the Transactions as fair to all classes of
GM common stockholders and in the best interests of GM and its common
stockholders.
After reviewing and discussing the foregoing matters, and acting in reliance
on the reports provided by and the advice of Merrill Lynch, Lehman Brothers
and Morgan Stanley that they expected to be in a position to render fairness
opinions as described herein, the Capital Stock Committee unanimously adopted
a resolution recommending that the GM Board proceed with the Transactions as
being in the best interests of, and fair to, General Motors and each class of
GM common stockholders.
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March 31, 1996 GM Board Meeting. The GM Board held a special meeting on
March 31, 1996 to review and consider the terms of the proposed Split-Off as
recommended by the two management negotiating teams, by GM executive
management and by the Capital Stock Committee. The special meeting was
attended by all but one of the members of the GM Board as well as by members
of GM and EDS management, representatives of the financial and legal advisors
to the GM Team and the EDS Team, counsel for the Capital Stock Committee and
representatives of GM's independent auditors.
Counsel for the Capital Stock Committee reviewed the terms of proposed
resolutions to be considered by the GM Board and certain matters relating to
the GM Board's responsibilities in connection with considering the
Transactions. Counsel reviewed the GM Board's fiduciary obligations to holders
of all classes of GM common stock and the process that had been established by
the GM Board for arm's-length negotiation of the terms of the Split-Off under
the supervision of, and subject to review by, the Capital Stock Committee.
Counsel also noted that with respect to the fairness of the Transactions to
each class of GM common stockholders, approval of the Transactions would be
sought not only from all three classes of GM common stockholders voting
together as a single class in accordance with their respective voting rights,
but also from the holders of the $ 1 2/3 Common Stock voting as a separate
class and the holders of the Class E Common Stock voting as a separate class.
In addition, counsel reported on the status of certain pending litigation
relating to the Split-Off. See "--Certain Litigation."
Mr. Wyman, Chairman of the Capital Stock Committee, reported as to the
special role that the Capital Stock Committee had played for many years in
reviewing the relationship between General Motors and EDS. He described the
special charge given to the Committee in August 1995 to oversee the
negotiations between the management negotiating teams and review the proposed
terms of the Transactions, noting that the Capital Stock Committee had held
seven meetings since August 1995 relating to the Split-Off (including the
August 1995 CSC Meeting) and members of the Capital Stock Committee had
participated in numerous other informal briefings and conferences with counsel
and members of the management negotiating teams and had reported to the GM
Board regarding such meetings, briefings, and conferences at eight different
GM Board meetings, including the August 7, 1995 GM Board Meeting. Mr. Wyman
noted the Capital Stock Committee's involvement in determining that the
principal terms of the IT Services Agreements should be negotiated before
other terms of the Transactions and in providing specific guidance to the
negotiating teams in November 1995 as to the corporate objectives to be
addressed in a split-off of EDS, particularly with respect to IT Services. He
also noted the complexity of evaluating the proposed IT Services Agreements in
comparison to the arrangements that might have prevailed between the parties
in the absence of the Split-Off. He said that if the Split-Off were not
consummated for any reason, the Capital Stock Committee anticipated that it
would review further the subject of GM/EDS IT services arrangements and
consider whether any changes would be appropriate. Based on the foregoing and
the matters discussed at the March 22, 1996 meeting of the Capital Stock
Committee (including the reports and recommendations of the GM Team and EDS
Team and GM executive management and the fairness opinions expected to be
delivered by Merrill Lynch and by each of the EDS Team Financial Advisors),
Mr. Wyman stated that the Capital Stock Committee had unanimously determined
that the Transactions are in the best interests of, and fair to, General
Motors and each class of its common stockholders, and that the Capital Stock
Committee recommended that the GM Board proceed with the Transactions. See "--
March 22, 1996 Capital Stock Committee Meeting."
Mr. Finnegan presented a report of GM management with respect to the
background, purposes and terms of the Transactions, which report was
substantially similar to the report on these matters that he had delivered to
the Capital Stock Committee on March 22, 1996. See "--March 22, 1996 Capital
Stock Committee Meeting."
Mr. Smith stated that, based on the information that had previously been
delivered to the GM Board, the presentations to be made by the management
negotiating teams and their respective financial advisors, and the actions of
the Capital Stock Committee, GM's senior executive management believed that
the two teams had used a fair process to negotiate and structure a transaction
that is fair to all classes of GM common stockholders and that GM should
proceed with the Transactions as being in the best interests of GM and all of
its common stockholders.
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Merrill Lynch delivered its written opinion to the GM Board that, based on
and subject to the assumptions, limitations and other matters set forth
therein, the Financial Effects of the Transactions (as defined in the Merrill
Lynch Fairness Opinion) are fair, from a financial point of view, to General
Motors and, accordingly, to General Motors' common stockholders after
consummation of the Merger, namely the holders of the $1 2/3 Common Stock and
the Class H Common Stock. A copy of the Merrill Lynch Fairness Opinion, which
sets forth the assumptions made, matters considered and limits of the review
undertaken, is attached as Appendix B-1 to this Solicitation
Statement/Prospectus and is incorporated herein by reference. A representative
of Merrill Lynch reviewed with the GM Board certain materials relating to the
Transactions and such opinion, which materials have been filed as an exhibit
to the Schedule 13E-3. For further information about the Merrill Lynch
Fairness Opinion and related presentation to the GM Board, see "--Fairness
Opinions--Merrill Lynch Fairness Opinion."
The EDS Team Financial Advisors delivered their written opinions to the GM
Board to the effect that, based on and subject to the assumptions, limitations
and other matters set forth therein, the financial effect of the Split-Off
Transactions (as defined in the Lehman Brothers and Morgan Stanley Fairness
Opinions) taken as a whole is fair, from a financial point of view, to the
holders of Class E Common Stock. A copy of each of the Lehman Brothers and
Morgan Stanley Fairness Opinions, which sets forth the assumptions made,
matters considered and limits of the review undertaken, is attached as
Appendix B-2 and Appendix B-3, respectively, to this Solicitation
Statement/Prospectus and is incorporated herein by reference. A representative
of the EDS Team Financial Advisors reviewed with the GM Board certain
materials relating to the Transactions and such opinions, which materials have
been filed as an exhibit to the Schedule 13E-3. For further information about
the Lehman Brothers and Morgan Stanley Fairness Opinions and related
presentation to the GM Board, see "--Fairness Opinions--EDS Team Financial
Advisors Fairness Opinions."
Mr. Finnegan presented a report on behalf of the GM Team as to the
negotiation of the terms of the Split-Off, including the IT Services
Agreements and the Special Inter-Company Payment, from the perspective of the
holders of the $1 2/3 Common Stock and the Class H Common Stock, which report
was substantially similar to the report on these matters that he had delivered
to the Capital Stock Committee on March 22, 1996. See
"--March 22, 1996 Capital Stock Committee Meeting." Based on the entire
process and its results, and in reliance on the Merrill Lynch Fairness
Opinion, he stated that the GM Team believed the terms of the Transactions are
in the best interests of GM and fair to the holders of $1 2/3 Common Stock and
Class H Common Stock. Accordingly, the GM Team recommended that the
Transactions be approved by the GM Board.
Members of the EDS Team then proceeded, after reviewing the background and
history of the negotiations between the management teams, to recommend the
proposed terms of the Split-Off to the GM Board as being in the best interests
of the holders of Class E Common Stock and, accordingly, fair to such holders.
In reaching such conclusion, the EDS Team took note of the same bases and
assumptions, and reviewed the same advantages and disadvantages of the
Transactions, as were discussed at the meeting of the Capital Stock Committee
held on March 22, 1996. See "--March 22, 1996 Capital Stock Committee
Meeting."
The GM Board also received reports on the Amended EDS Incentive Plan, EDS'
consideration of a nonrecurring charge to be taken by EDS in the second
quarter of 1996 and related disclosure matters, other matters relating to the
business and operations of EDS and the governance of EDS after the Split-Off.
See "EDS Management's Discussion and Analysis of Financial Condition and
Results of Operations." In addition, EDS management reported on certain
matters relating to the GM Hourly Plan Special Trust's ownership of Class E
Common Stock.
GM management reported as to the appropriate accounting treatment for the
Split-Off and discussed the process for filing this Solicitation
Statement/Prospectus with the Commission and soliciting consents from GM's
common stockholders in connection with the Transactions and the Amended EDS
Incentive Plan. GM management also discussed the press releases and other
announcements that would be appropriate in connection with the approval by the
GM Board of the Transactions.
After considering the foregoing matters, the GM Board unanimously determined
that the Transactions are in the best interests of, and fair to, General
Motors and each class of the GM common stockholders and,
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accordingly, the GM Board unanimously approved and authorized the
Transactions. The GM Board also unanimously determined to recommend to the
common stockholders of GM that they execute consents approving the
Transactions, including the adoption of the Merger Agreement.
RECOMMENDATIONS OF THE CAPITAL STOCK COMMITTEE AND THE GM BOARD; FAIRNESS OF
THE TRANSACTIONS
As described above, at its August 7, 1995 meeting, the GM Board concluded
that certain important strategic objectives of EDS could be addressed through
a split-off of EDS and determined that a split-off of EDS on terms that would
be fair to all classes of GM common stockholders would be in the best
interests of GM and its stockholders. Furthermore, the GM Board required that
any such split-off would be proposed only in a transaction that would be tax-
free for U.S. federal income tax purposes and that would not result in the
recapitalization of Class E Common Stock into $1 2/3 Common Stock at a 120%
exchange ratio as currently provided for upon a disposition by GM of
substantially all of the business of EDS and under certain other circumstances
by the General Motors Certificate of Incorporation. See "--Alternatives to the
Split-Off" and "--Background of the Split-Off--Consideration of Split-Off."
In August 1995, the Capital Stock Committee considered and endorsed
procedures for establishing the financial and other essential terms of a
split-off. The GM Board, in connection with its August 1995 authorization to
management to develop the terms of a specific proposal regarding a split-off,
placed substantial reliance on presentations made to and discussions held at
the August 1995 Capital Stock Committee meeting. Upon the recommendation of
the Capital Stock Committee, the GM Board established procedures that it
believed would result in the negotiation of the terms of a split-off
transaction that would be fair to all classes of GM common stockholders. The
principal procedure established was the process of arm's-length negotiation
involving the GM Team and the EDS Team, each acting with its own legal and
financial advisors and under the general oversight of the Capital Stock
Committee, to ensure a level playing field between the teams. The GM Board
relied substantially on the Capital Stock Committee to monitor and oversee the
process by which the terms of the Transactions were developed. See "--
Background of the Split-Off--Consideration of Split-Off," "--August 1995
Capital Stock Committee Meeting," "--August 1995 GM Board Meeting" and "--
Negotiating Teams."
The Capital Stock Committee and the GM Board monitored the progress of the
management negotiating teams and provided guidance to them as appropriate,
including the communication in November 1995 of certain guidelines regarding
the GM Board's goals and priorities with respect to the Split-Off in general
and the IT Services Agreements in particular. In addition, the Capital Stock
Committee provided assistance to the negotiating teams in connection with the
September 1995 decision to negotiate the terms of the IT Services Agreements
before the other terms of the Transactions in order to enhance the arm's-
length and commercially reasonable nature of the IT Services Agreements on a
stand-alone basis. As a result of so sequencing the negotiations, the
management teams were able to negotiate the amount of the Special Inter-
Company Payment as a final term of the Transactions that would enable the
Capital Stock Committee and the GM Board, taking into account all other
factors (including the terms of the IT Services Agreements), to determine that
the Transactions are fair to all classes of GM common stockholders. See
"Background of the Split-Off--Negotiating Teams," "--Negotiation of IT
Services Agreements" and "--Negotiation of Special Inter-Company Payment."
In reviewing the terms of the Split-Off, the Capital Stock Committee placed
substantial reliance on its determination (based on the reports of the two
management negotiating teams and GM executive management) that there had in
fact been a process that involved vigorous arm's-length negotiation between
the two management teams, each of which was represented by independent
financial and legal advisors. With respect to the fairness of the
Transactions, the Capital Stock Committee also considered the fact that the
Transactions would be submitted for approval not only by all of GM's common
stockholders voting together as a single class in accordance with their
respective voting rights, but also by separate class votes of the holders of
$1 2/3 Common Stock and Class E Common Stock. The Capital Stock Committee
considered the recommendations of the GM Team and the EDS Team, as well as the
fact that the proposed terms of the Transactions satisfied the conditions
initially established by the GM Board as to the tax-free nature of the Split-
Off and the absence of a recapitalization at a 120% exchange ratio and the
guidelines established in November 1995 as to certain other
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matters. The Capital Stock Committee also considered the one-for-one ratio for
converting shares of Class E Common Stock into shares of EDS Common Stock, the
opportunities that would be afforded to EDS and GM to accomplish the purposes
of the Split-Off, the amount of the Special Inter-Company Payment and the
terms of the IT Services Agreements. In addition, as to the financial fairness
of the Transactions, the Capital Stock Committee placed substantial reliance
on the presentations made and fairness opinions expected to be delivered by
Merrill Lynch and by each of the EDS Team Financial Advisors. On the basis of
all of the foregoing considerations and the other matters discussed at its
March 22, 1996 meeting, the Capital Stock Committee determined to recommend to
the GM Board that General Motors proceed with the Transactions as in the best
interests of, and fair to, GM and each class of GM common stockholders. See
"--Background of the Split-Off--March 22, 1996 Capital Stock Committee
Meeting."
The GM Board determined the fairness of the Transactions based on
substantially the same factors as those considered by the Capital Stock
Committee. The GM Board did not formally assign weights to specific factors
but considered all factors together. However, the GM Board placed principal
reliance on its conclusion that certain important strategic objectives of EDS
could be addressed through the Split-Off without significant potential adverse
consequences for GM and its determination that a fair process had been
developed and implemented for negotiating the terms of the Transactions. With
regard to the negotiating process, the GM Board attributed substantial
importance to the vigorous arm's-length negotiations that it determined had
taken place between the two management negotiating teams and to the activities
of the Capital Stock Committee and its independent counsel in overseeing and
providing guidance to the management negotiating teams. In addition, (a) as to
the fairness, from a financial point of view, of the financial effects of the
Transactions on General Motors (and, accordingly, on holders of the $1 2/3
Common Stock and the Class H Common Stock), the GM Board principally relied on
the Merrill Lynch Fairness Opinion and the presentation of Merrill Lynch to
the GM Board and (b) as to the fairness, from a financial point of view, of
the financial effects of the Transactions on holders of the Class E Common
Stock, the GM Board principally relied on the presentation and written opinion
of each of the EDS Team Financial Advisors.
In addition to and without limiting the foregoing, in determining the
fairness of the Transactions to each class of GM common stock, the GM Board
considered (i) the report, presentation and recommendation of GM's executive
management regarding the Split-Off and related transactions, (ii) the report
and recommendation of each of the GM Team and the EDS Team, (iii) the
presentation and written opinion of each of Merrill Lynch and the EDS Team
Financial Advisors, (iv) the recommendation of the Capital Stock Committee
that the GM Board proceed with the Transactions as in the best interests of,
and fair to, GM and each class of GM common stockholders, (v) the background,
oversight, deliberations and views of the Capital Stock Committee with respect
to the Transactions and the relationship between GM and EDS, (vi) the
information previously reviewed and the prior deliberations of the GM Board
concerning the potential for a split-off of EDS and the relationship between
GM and EDS and (vii) the other matters reported on at the March 31, 1996 GM
Board Meeting. See "--Background of the Split-Off--March 31, 1996 GM Board
Meeting" and "--Fairness Opinions."
Based on the foregoing, the GM Board unanimously determined that the
Transactions are in the best interests of, and fair to, General Motors and
each class of the GM common stockholders and, accordingly, the GM Board
unanimously approved and authorized the Transactions. The GM Board also
unanimously determined to recommend to the common stockholders of GM that they
execute consents approving the Transactions, including the adoption of the
Merger Agreement.
FAIRNESS OPINIONS
Merrill Lynch Fairness Opinion
On March 31, 1996, Merrill Lynch delivered its written opinion to the GM
Board that, as of that date and on the basis of and subject to the
assumptions, limitations and other matters set forth therein, the Financial
Effects of the Transactions (as defined below) are fair, from a financial
point of view, to General Motors and, accordingly, to General Motors' common
stockholders after consummation of the Merger, namely the holders of the $1
2/3 Common Stock and the Class H Common Stock. As used in the Merrill Lynch
Fairness Opinion and in
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this section of this Solicitation Statement/Prospectus, the term "Financial
Effects of the Transactions" refers collectively to the Special Inter-Company
Payment, the $50 million allowance to EDS under the Separation Agreement, the
expenses of implementing the Transactions to be borne by General Motors and
the financial effects on General Motors (excluding EDS) of (i) certain
changes, pursuant to the Master Services Agreement and certain IT Services
Agreements, to the terms on which IT services are currently provided by EDS to
General Motors (the "MSA Modifications"), (ii) the removal of certain
potential conflicts between the business of EDS and certain other businesses
of General Motors and its subsidiaries, (iii) any change in the market price
of the shares of Class E Common Stock held by the GM Hourly Plan Special Trust
and the GM Salaried Plan Trust (collectively, the "Plan Holdings") as a result
of the Transactions and (iv) the conversion of each share of Class E Common
Stock into one share of EDS Common Stock and, upon such conversion, the
cancellation of all such shares of Class E Common Stock (the "Class E Common
Stock Conversion"). A COPY OF THE MERRILL LYNCH FAIRNESS OPINION, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX B-1 TO THIS SOLICITATION
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF
THE MERRILL LYNCH FAIRNESS OPINION SET FORTH IN THIS SOLICITATION
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. COMMON STOCKHOLDERS OF GENERAL MOTORS ARE URGED TO READ
THE MERRILL LYNCH FAIRNESS OPINION IN ITS ENTIRETY.
Merrill Lynch also provided a written presentation to the GM Board regarding
the financial and comparative analyses performed by Merrill Lynch in
connection with preparation of the Merrill Lynch Fairness Opinion and
discussed such analyses with the GM Board at its March 31, 1996 meeting. A
description of such presentation is contained in this section of the
Solicitation Statement/Prospectus. A substantially similar presentation was
provided to the Capital Stock Committee and discussed with the Capital Stock
Committee at its March 22, 1996 meeting. A copy of the written presentation to
the GM Board has been filed as an exhibit to the Rule 13e-3 Transaction
Statement filed with the Commission with respect to the Transactions and may
be inspected and copied, and obtained by mail, from the Commission as set
forth in "Available Information" and will be made available for inspection and
copying at the principal executive offices of General Motors at General Motors
Corporation, Room 11-243, General Motors Building, 3044 West Grand Boulevard,
Detroit, Michigan 48202-3091 during regular business hours by any interested
common stockholder of General Motors or his or her representative who has been
so designated in writing.
The Merrill Lynch Fairness Opinion is directed only to the fairness, from a
financial point of view, of the Financial Effects of the Transactions to
General Motors and, accordingly, to General Motors' common stockholders after
consummation of the Merger, namely the holders of the $1 2/3 Common Stock and
the Class H Common Stock, and does not constitute a recommendation to any
common stockholder of General Motors as to whether such stockholder should
consent to the Transactions. The Merrill Lynch Fairness Opinion does not in
any manner address the fairness of the Transactions to EDS or to the holders
of Class E Common Stock, matters as to which Merrill Lynch's opinion has not
been requested. Furthermore, Merrill Lynch expressed no opinion as to the
prices at which EDS Common Stock will trade subsequent to the Split-Off. The
Merrill Lynch Fairness Opinion is necessarily based upon financial, economic,
market and other conditions as they existed and could be evaluated on the date
of the Merrill Lynch Fairness Opinion.
In arriving at its opinion, Merrill Lynch, among other things: (1) reviewed
General Motors' Annual Reports, Forms 10-K and related financial information
for the five fiscal years ended December 31, 1994, General Motors' audited
financial statements for the year ended December 31, 1995, drafts of General
Motors' Annual Report and Form 10-K for that year, and General Motors' Forms
10-Q for the quarterly periods ending March 31, 1995, June 30, 1995 and
September 30, 1995; (2) reviewed EDS' Annual Reports and related financial
information for the five fiscal years ended December 31, 1994 and EDS' audited
financial statements for the year ended December 31, 1995; (3) conducted
discussions with members of senior management of General Motors concerning
their views regarding (a) the use of IT services by General Motors in the
future and (b) the strategic rationale for, and the financial effects on
General Motors (excluding EDS) of, the Split-Off, including the financial
benefits to General Motors of the removal of certain potential conflicts
between the business of EDS and certain other businesses of General Motors and
its subsidiaries; (4) reviewed certain forecasts furnished to
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Merrill Lynch by General Motors management of General Motors' future
expenditures for information technology services; (5) reviewed certain
estimates furnished to Merrill Lynch by management of General Motors of the
expenses of implementing the Transactions to be borne by General Motors; (6)
reviewed certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of EDS, furnished to
Merrill Lynch by EDS; (7) reviewed published reports of equity analysts
regarding their expectations with respect to the future earnings of EDS and
the impact of the Split-Off on such earnings; (8) conducted discussions with
members of senior management of EDS concerning their views regarding the
strategic rationale for, and the financial effects on EDS of, the Split-Off,
and various strategic alternatives available to EDS, both as a wholly owned
subsidiary of General Motors and as an independent, publicly traded company;
(9) compared certain financial ratios of EDS, on a pro forma basis giving
effect to the Split-Off, to the financial ratios of certain companies that
Merrill Lynch deemed to be reasonably similar to EDS; (10) reviewed the
historical market prices for the Class E Common Stock to be converted into EDS
Common Stock in the Split-Off and considered the potential impact of the
Split-Off on the market price thereof; (11) considered the financial benefits
to General Motors of its rights of ownership and control of EDS (taking into
account the terms of the Class E Common Stock and the GM Board's policies with
respect to the exercise of such rights), all of which would terminate as a
result of the Class E Common Stock Conversion; (12) compared the financial
terms of the Split-Off with the financial terms of certain transactions that
Merrill Lynch deemed to be relevant; (13) considered the alternatives
available to EDS and General Motors in developing and implementing strategic
alliances and other strategic alternatives for EDS, as a wholly owned
subsidiary of General Motors, with third parties; (14) reviewed a draft dated
March 27, 1996 of the Merger Agreement; (15) reviewed a draft dated March 26,
1996 of the Separation Agreement and a draft dated March 28, 1996 of the Tax
Allocation Agreement; (16) reviewed the Existing Master Services Agreement and
a draft dated March 22, 1996 of the Master Services Agreement; (17) reviewed
the General Motors Certificate of Incorporation and GM's By-laws; (18)
reviewed (a) the GM-PBGC Agreement, (b) the Escrow Agreement (the "Escrow
Agreement") made as of March 5, 1996 by and among Bankers Trust Company (the
"Escrow Agent"), the PBGC and General Motors and (c) forms of the
Unconditional Releases (as defined below in "--GM-PBGC Agreement"); (19)
reviewed the Registration Rights Agreement; (20) reviewed the Final Exemption
published by the Department of Labor in the Federal Register dated March 15,
1995 with respect to GM's March 1995 contribution of Class E Common Stock and
cash to the GM Hourly Plan Special Trust; (21) reviewed the Tax Ruling and the
request to the IRS for such ruling; (22) reviewed a draft dated March 28, 1996
of this Solicitation Statement/Prospectus; and (23) reviewed such other
financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Fairness Opinion, Merrill Lynch assumed and
relied on the accuracy and completeness of all information supplied or
otherwise made available to it by General Motors and EDS, and Merrill Lynch
did not independently verify such information or undertake an independent
evaluation or appraisal of any of the assets or liabilities of General Motors
or EDS and was not furnished with any such evaluation or appraisal. With
respect to the forecasts furnished by General Motors management of General
Motors' future expenditures for information technology services, Merrill Lynch
assumed that they are reasonably based and reflect the best currently
available estimates and judgments of such management as to such expected
expenditures. Merrill Lynch assumed that the executed Unconditional Releases
will be released from escrow in accordance with the terms of the Escrow
Agreement. In addition, Merrill Lynch assumed that any appreciation in the
market price of the Plan Holdings as a result of the Transactions will
directly reduce General Motors' pension expense and unfunded pension
liability. Merrill Lynch was advised by General Motors that the consummation
of the Transactions will not result in any default or similar event under any
loan agreement, instrument of indebtedness or other contract of General Motors
or EDS that will not be waived.
The terms of the Transactions were developed through a process of arms'-
length negotiations between the GM Team and the EDS Team and were approved by
the Capital Stock Committee and the GM Board. See "--Background of the Split-
Off." No limitations were imposed by General Motors or the GM Board with
respect to the investigations made or procedures followed by Merrill Lynch in
rendering its opinion, except that
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Merrill Lynch was not authorized by General Motors or the GM Board to solicit,
nor did Merrill Lynch solicit, third-party indications of interest with
respect to a business combination or other extraordinary transaction involving
EDS or any of its assets.
The following paragraphs contain a summary of certain financial and
comparative analyses performed by Merrill Lynch in connection with the
preparation of the Merrill Lynch Fairness Opinion and presented to the GM
Board and the Capital Stock Committee. The summary does not purport to be a
complete description of the analyses conducted by Merrill Lynch in arriving at
its opinion. In addition, Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all such factors and analyses,
could create an incomplete view of the processes underlying its opinion.
Merrill Lynch did not assign relative weights to any of its analyses in
preparing its opinion. The preparation of a fairness opinion is a complex
process, and a summary description does not capture the full analysis. In
performing its analyses, Merrill Lynch made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of General Motors and EDS. In
addition, certain elements of the Transactions were not susceptible to precise
quantification and, in preparing its opinion, Merrill Lynch made judgments and
estimates that it considered reasonable and appropriate under the
circumstances. Any estimates incorporated in the analyses performed by Merrill
Lynch are not necessarily indicative of actual past or future values or
results, which may be significantly more or less favorable than suggested by
such estimates or analyses. Because such estimates are inherently subject to
uncertainty, none of General Motors, EDS, Merrill Lynch or any other person
assumes responsibility for their accuracy. In addition, analyses relating to
the value of businesses do not purport to be appraisals and do not necessarily
reflect the prices at which businesses may be sold in the future or at which
their shares of capital stock may trade in the future.
Overview of Analyses of the Financial Effects of the Transactions. Merrill
Lynch analyzed the value of the financial effects on General Motors (excluding
EDS) of the MSA Modifications and of the Funding Effect (as defined below
under "--Analysis of the Financial Effects of the Transactions on the Plan
Holdings") by calculating ranges of values of such financial effects, as
described below. By adding the amount of the Special Inter-Company Payment to
the sum of such ranges of values, and by subtracting a range of from $70
million to $50 million on account of the $50 million allowance provided to EDS
under the Separation Agreement and for the expenses of implementing the
Transactions to be borne by General Motors, Merrill Lynch calculated a range
of values for such financial effects of $970 million to $2.29 billion, or from
3.6% to 8.5% of the aggregate market value of the Class E Common Stock (the
"Class E Aggregate Market Value"), based on 483 million shares outstanding and
the closing market price on March 26, 1996 of $55.875 per share. Merrill Lynch
reviewed such range of percentages of the Class E Aggregate Market Value
against reference ranges of Percentage Premiums (as defined and described
below under "--Analysis of the Financial Effects of the Class E Common Stock
Conversion") developed from analyses of certain Comparable Transactions (as
defined and described below). The analyses of the Comparable Transactions were
undertaken in order to quantify the financial benefits to General Motors from
its control of EDS, all of which would terminate as a result of the Class E
Common Stock Conversion. In addition, Merrill Lynch discussed with the GM
Board and the Capital Stock Committee (as described below), but did not
attempt to quantify, (a) certain financial benefits to General Motors of the
Transactions, including financial benefits to General Motors (excluding EDS)
arising out of the removal of certain potential conflicts between the business
of EDS and certain other businesses of General Motors and its subsidiaries and
a reduction in goodwill amortization and (b) certain financial benefits that
General Motors would cease to have as a result of the Class E Common Stock
Conversion, including the ability of General Motors to elect to recapitalize
shares of Class E Common Stock as shares of $1 2/3 Common Stock under certain
circumstances (as described below under "Class E Common Stock--
Recapitalization") and the ability of General Motors to capture and retain
dividends paid by EDS to General Motors.
Analysis of the Financial Effects of the MSA Modifications. In order to
quantify the financial effects on General Motors (excluding EDS) of the MSA
Modifications, Merrill Lynch calculated: (a) ranges of values of the financial
effects of the MSA Modifications (i) giving General Motors and its affiliates
the option, with respect
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to purchases of information technology services covered under the Master
Services Agreement, to subject a portion of such purchases to competitive
bidding and to source such purchases with bidders other than EDS (the
"Outsourcing Modification"), (ii) providing certain goals for EDS to meet in
reducing the cost to General Motors and its affiliates of the services to be
provided by EDS (the "Structural Cost Reductions"), (iii) lengthening,
commencing in 1997, the time available to General Motors and its affiliates to
make payments for services (the "Payment Terms Modification") and (iv)
providing for an initial term of 10 years following the consummation of the
Split-Off (the "Primary Term"), subject to renewal; and (b) ranges of values
of the financial effects of the MSA Modifications based on assumptions
regarding possible changes to the terms on which IT services are currently
provided by EDS to General Motors that might have been implemented in the
absence of a split-off of EDS. In addition, Merrill Lynch discussed with the
GM Board and the Capital Stock Committee, but did not attempt to quantify, the
financial effects on General Motors (excluding EDS) of certain other MSA
Modifications, including the extension of certain of the Existing IT Services
Agreements for additional terms of approximately one and two years beyond
their current expiration dates, the inclusion in MSA Services of plant floor
automation services in General Motors manufacturing facilities that are
currently contracted for outside the scope of the Existing Master Services
Agreement, and certain changes to the pricing of commodity items.
. Outsourcing Modification--Primary Term. Merrill Lynch calculated a range
of values for the financial effects of the Outsourcing Modification during the
Primary Term, based on the after-tax present value of assumed price reductions
resulting from the opportunity to expose certain MSA Services to competitive
bidding and the assumption that there would be no such opportunity to
outsource during the Primary Term absent the Split-Off. Based on discussions
with General Motors management, Merrill Lynch made certain additional
assumptions for purposes of its analysis, including that (a) price reductions
of from 12% to 20% would occur on services that were actually outsourced as a
result of competitive bidding, (b) price reductions of from 6% to 10% would
occur on services that EDS would continue to provide as a result of its being
awarded a contract on the basis of its bid (which was assumed to occur with
respect to 75% of the contracts awarded after competitive bidding), (c)
average growth of expenditures by GM for IT services would be approximately 2%
per year (taking into account the assumptions regarding price reductions
described above), (d) General Motors' tax rate would be 35% and (e) General
Motors' after-tax cost of capital would be 11%. Based on such assumptions,
Merrill Lynch calculated a range of values for the financial effects on
General Motors (excluding EDS) of the Outsourcing Modification during the
Primary Term of from $165 million to $274 million (of which between $1 million
and $2 million would be benefits allocable to holders of the Class H Common
Stock).
In the absence of information as to the likelihood that terms similar to the
Outsourcing Modification would be implemented in the absence of the Split-Off,
Merrill Lynch noted that the value of the financial effects of the Outsourcing
Modification would, if and to the extent that such similar terms were
implemented, be less than the value reflected in the analysis described above,
and could be zero.
. Outsourcing Modification--After the Primary Term. Merrill Lynch calculated
a range of values for the financial effects of the Outsourcing Modification
after the Primary Term, based on the after-tax present value of assumed price
reductions resulting from the opportunity to expose certain MSA Services to
competitive bidding under the Master Services Agreement (the "Split-Off Case")
and the following two cases: one premised on the assumption that there would
be no such opportunity to outsource after the Primary Term absent the Split-
Off (the "No Outsourcing Case"); and the other premised on the assumption that
there would be a limited opportunity to outsource after the Primary Term
absent the Split-Off (the "Limited Outsourcing Case"). Based on discussions
with General Motors management, Merrill Lynch also assumed that expenditures
for IT services by General Motors would grow by 2% per year after 2005 and
made certain additional assumptions for purposes of its analysis of: (a) the
Split-Off Case, including that (i) 6.8% of General Motors' expenditures for IT
services would be outsourced in 2005 and such percentage would increase
linearly to a constant percentage within a range between 20% and 40% after
2014 and (ii) all of General Motors' expenditures for IT services would be
exposed to outsourcing after 2005; (b) the Limited Outsourcing Case, including
that (i) a constant 6.8% of General Motors' expenditures for IT services would
be outsourced after 2005 and (ii) 27.2% of General Motors'
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expenditures for IT services would be exposed to outsourcing after 2005; and
(c) for each of the Split-Off Case, the No Outsourcing Case and the Limited
Outsourcing Case, including that (i) price reductions of from 6% to 10% would
occur on services that were actually outsourced as a result of competitive
bidding, (ii) price reductions of from 3% to 5% would occur on services that
EDS would continue to provide as a result of its being awarded a contract on
the basis of its bid, (iii) General Motors' tax rate would be 35% and (iv)
General Motors' after-tax cost of capital would be 11%. Based on such
assumptions, Merrill Lynch calculated a range of values for the financial
effects of the Outsourcing Modification after the Primary Term of from $396
million to $744 million assuming that the No Outsourcing Case would have
occurred in the absence of the Split-Off (of which between $3 million and $5
million would be benefits allocable to holders of the Class H Common Stock)
and $279 million to $546 million assuming that the Limited Outsourcing Case
would have occurred in the absence of the Split-Off (of which between $2
million and $4 million would be benefits allocable to holders of the Class H
Common Stock).
. Structural Cost Reductions. Merrill Lynch calculated that the financial
benefits to General Motors (excluding EDS) of the Structural Cost Reductions
would be $163 million, based on the after-tax present value of the amount by
which (a) the targeted amounts of Structural Cost Reductions in the IT
Services Agreements exceed (b) the targeted amounts of cost reductions under
the Existing IT Services Agreements. To the extent that the amounts targeted
under the Structural Cost Reductions would have been achieved in the absence
of the Split-Off but would have been required to be shared with EDS under the
Existing IT Services Agreements until the expiration of such agreements, the
value of the Structural Cost Reductions to General Motors would be $73
million. In making the calculations of the financial effect of the Structural
Cost Reductions described above, Merrill Lynch assumed that the IT Services
Agreements would, even in the absence of the Split-Off, be renegotiated as
they expire to include terms identical to the Structural Cost Reductions.
In the absence of information as to the likelihood that terms similar to the
Structural Cost Reductions would, in the absence of the Split-Off, be
implemented prior to the expiration dates of the respective Existing IT
Services Agreements, Merrill Lynch noted that the value of the financial
effects of the Structural Cost Reductions would, if and to the extent that
such similar terms were implemented prior to such dates, be less than the
value reflected in the analysis described above, and could be zero.
. Payment Terms Modification. Merrill Lynch analyzed the financial effects
on General Motors (excluding EDS) of the Payment Terms Modification by
calculating a range of present values of the positive cash flows from
increased days receivable during the Primary Term of from $64 million to $123
million, using the following assumptions, based on discussions with General
Motors management: (a) averages of 15 additional days before payments are
rendered by General Motors to EDS during 1997, 19.3 such additional days
during 1998 and 35 such additional days during the years from 1999 to 2005,
(b) a range of after-tax funding rates for General Motors of from 4% to 12%,
and (c) expenditures by General Motors for IT services as described under "--
Outsourcing Modification--Primary Term" and applicability of the Payment Terms
Modification to 71% of such expenditures (principally in North America). In
addition, Merrill Lynch assumed that, even if there were no Split-Off, terms
of payment would, at the point in time equivalent to the end of the Primary
Term, be conformed to those in the Master Services Agreement.
In the absence of information as to the likelihood that terms similar to the
Payment Terms Modification would, in the absence of the Split-Off, be
implemented prior to the equivalent of the end of the Primary Term, Merrill
Lynch noted that the value of the financial effects of the Payment Terms
Modification would, if and to the extent that such similar terms were
implemented prior to such time, be less than the value reflected in the
analysis described above, and could be zero.
Analysis of the Financial Effects of the Transactions on the Plan Holdings.
In order to quantify the financial effects on General Motors (excluding EDS)
of the financial effects of the Transactions on the Plan Holdings, Merrill
Lynch analyzed the potential effect of the Split-Off on the per share market
price of the Class E Common Stock to be converted in the Merger into EDS
Common Stock (the "Pricing Effect"), using the following assumptions, based on
discussions with General Motors management (except as otherwise noted below):
(a)
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earnings per share ("EPS") for EDS of $2.27 in 1996 and growth in EPS ("Future
Growth") of 15% per year for the following five years, in each case absent the
Split-Off (based on analyst expectations as compiled by I/B/E/S, February
1996); (b) EDS revenue from sources other than General Motors ("Non-GM
Revenue") of $9.871 billion in 1996 (based on Merrill Lynch's estimate),
growth in Non-GM Revenue of approximately 19% per year for the following 5
years absent the Split-Off, increases in growth of such revenue of from 0% to
4% as a result of the Split-Off (focusing in the analyses, as described below,
on increases in growth of 1% to 2%) and a constant pre-tax margin of 14% on
such EDS revenue; (c) increases in EDS revenue from General Motors resulting
from the Plant Floor Agreement and a constant pre-tax margin of 14% on such
EDS revenue; (d) increases in EDS interest expense at a pre-tax rate of 6% as
a result of the Special Inter-Company Payment and the Payment Terms
Modification; and (e) the following two cases: (i) one premised on assumptions
consistent with no financial benefits to General Motors during the first five
years of the Primary Term as a result of the MSA Modifications ("MSA Case 1")
and (ii) the other premised on assumptions consistent with the maximum amount
of financial benefits to General Motors as a result of the MSA Modifications
("MSA Case 2"), in each case as summarized above under "--Analysis of the
Financial Effects of the MSA Modifications." In its analysis, Merrill Lynch
also assumed that: (1) any appreciation in the market price of the Plan
Holdings as a result of the Transactions would directly reduce General Motors'
pension expense and unfunded pension liability; (2) reductions in pension
funding would reduce future tax benefits to General Motors at a marginal rate
of 35%; and (3) General Motors' after-tax cost of capital would equal the
investment return of the GM Pension Plans (as defined below). Merrill Lynch
calculated ranges of Pricing Effect using the above assumptions and the
following equation: Price = (Price/EPS / Future Growth) X (Future Growth X
Earnings). In addition, Merrill Lynch calculated the Pricing Effect of
inclusion of EDS Common Stock in the S&P 500 Index (the "S&P 500 Inclusion
Effect") by calculating the effect of an increase of up to 2% in the ratio of
Price/EPS to Future Growth included in such equation, based on historical data
reviewed by Merrill Lynch regarding the effect of such inclusion on pricing of
the capital stock of other issuers.
Based on the above methodology, Merrill Lynch calculated ranges (the high
and low ends of such ranges corresponding to assumptions of the high and low
S&P 500 Inclusion Effect) of the Pricing Effect and ranges of amounts of
after-tax savings to General Motors from reductions in General Motors' pension
expense and unfunded pension liability (the "Funding Effect") as follows: (a)
with respect to MSA Case 1, (i) assuming a 0% increase in growth of Non-GM
Revenue, (A) a $(0.98) to $0.12 Pricing Effect and (B) a $(99) million to $12
million Funding Effect, (ii) assuming a 1% increase in growth of Non-GM
Revenue, (A) a $2.51 to $3.68 Pricing Effect and (B) a $255 million to $373
million Funding Effect, (iii) assuming a 2% increase in growth of Non-GM
Revenue, (A) a $6.06 to $7.30 Pricing Effect and (B) a $615 million to $740
million Funding Effect, (iv) assuming a 3% increase in growth of Non-GM
Revenue, (A) a $9.68 to $10.99 Pricing Effect and (B) a $982 million to $1.12
billion Funding Effect, and (v) assuming a 4% increase in growth of Non-GM
Revenue, (A) a $13.36 to $14.75 Pricing Effect and (B) a $1.36 billion to
$1.50 billion Funding Effect; and (b) with respect to MSA Case 2, (i) assuming
a 0% increase in growth of Non-GM Revenue, (A) a $(2.71) to $(1.64) Pricing
Effect and (B) a $(274) million to $(166) million Funding Effect, (ii)
assuming a 1% increase in growth of Non-GM Revenue, (A) a $0.71 to $1.85
Pricing Effect and (B) a $72 million to $187 million Funding Effect, (iii)
assuming a 2% increase in growth of Non-GM Revenue, (A) a $4.20 to $5.40
Pricing Effect and (B) a $426 million to $548 million Funding Effect, (iv)
assuming a 3% increase in growth of Non-GM Revenue, (A) a $7.75 to $9.02
Pricing Effect and (B) a $786 million to $915 million Funding Effect, and (v)
assuming a 4% increase in growth of Non-GM Revenue, (A) a $11.36 to $12.70
Pricing Effect and (B) a $1.15 billion to $1.29 billion Funding Effect.
Merrill Lynch indicated, however, that it believed that the increase in growth
of Non-GM Revenue would probably be in the range of approximately 1% to 2%
and, accordingly, focused on a range of Funding Effects of from $255 million
to $548 million in its analyses.
Merrill Lynch also reviewed data regarding the daily closing market price of
the Class E Common Stock and the daily closing market price of an index of
selected comparable companies during the periods from July 25, 1995 to August
22, 1995 and from December 15, 1995 to January 12, 1996 and, in connection
therewith, considered the potential impact that certain announcements during
such periods regarding the Split-Off had on the market price of the Class E
Common Stock. Merrill Lynch noted, however, that such announcements
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contained only then current information about the probability of the Split-Off
and the terms thereof. The index of comparable companies included: Automatic
Data Processing, Computer Sciences Corporation, First Data Corporation,
Fiserv, Inc., Policy Management Systems Corp., Shared Medical Systems
Corporation and SunGard Data Systems, Inc.
Analysis of the Financial Effects of the Class E Common Stock Conversion. In
order to analyze the financial effects on General Motors (excluding EDS) of
the Class E Common Stock Conversion, Merrill Lynch considered the financial
benefits to General Motors of its rights of ownership and control of EDS
(taking into account the terms of the Class E Common Stock and the GM Board's
policies with respect to the exercise of such rights), all of which would
terminate as a result of the Class E Common Stock Conversion. Merrill Lynch
considered the financial benefits to General Motors of its ability to elect to
recapitalize shares of Class E Common Stock as shares of $1 2/3 Common Stock
under certain circumstances (as described below under "Class E Common Stock--
Recapitalization") and its ability to capture and retain dividends paid by EDS
to General Motors, both of which would terminate as a result of the Class E
Common Stock Conversion. However, Merrill did not attempt to quantify such
financial benefits because of the low probability, according to management of
General Motors, that General Motors would undertake such a recapitalization or
attempt to capture and retain such dividends. Merrill Lynch analyzed the
financial benefits to General Motors of control of EDS by comparing the
financial terms of the Split-Off with the financial terms of certain
recapitalization and acquisition transactions in which either (a) holders of
shares of common stock issued by companies with dual class common stock
received different consideration depending on whether they were holders of the
shares having a greater number of votes per share ("High Vote Shares") or (b)
holders of a significant block (a "Blocking Position") of the common stock of
a company received different consideration than other such holders. Merrill
Lynch reviewed the premiums paid to the holders of High Vote Shares or
Blocking Positions in the following transactions (the "Comparable
Transactions"): (a) the recapitalization of Fischer & Porter in 1993 and the
recapitalization of Bergen Brunswig Corp. in 1988 (the "Recapitalization
Transactions"), (b) the acquisition of Resorts International Inc. by The Merv
Griffin Company in 1988 and the acquisition of Sealand by CSX in 1986 (the
"Competitive Acquisitions") and (c) the acquisition by Silver King
Communications of a 41% stake in Home Shopping Network, Inc. in 1995, the 1993
proposed (but not consummated) acquisition by Bell Atlantic of Tele-
Communications, Inc., the 1993 proposed (but not consummated) acquisition by
AT&T of McCaw Cellular, the acquisition by Premark International Inc. of Sikes
Corporation in 1990 and the acquisition by Trumps of Pay 'n Save in 1984 (the
"Negotiated Acquisitions"). The High Vote Shares in each applicable
transaction represented more than 50% of the outstanding voting power of the
common stock. The Blocking Position in Trumps/Pay 'n Save was 18.4% and in
CSX/Sealand was 39.2%. Merrill Lynch calculated the aggregate premium paid or
to be paid in each Comparable Transaction to the holders of High Vote Shares
or Blocking Positions, as a percentage of the total consideration (the
"Percentage Premium"). While there were numerous other instances of
acquisitions of companies with dual classes of stock or with shareholders
having Blocking Positions, such other transactions reviewed by Merrill Lynch
did not involve the payment of a premium to the holders of High Vote Shares or
Blocking Positions. The high, low and mean of the Percentage Premiums in the
Recapitalization Transactions were 11.6% (Bergen Brunswig), 2.9% (Fischer &
Porter) and 7.3%, respectively. The high, low and mean of the Percentage
Premiums in the Competitive Acquisitions were 23.1% (The Merv Griffin
Company/Resorts International Inc.), 7.1% (CSX/Sealand) and 15.1%,
respectively. The high, low, mean and median of the Percentage Premiums in the
Negotiated Acquisitions were 5.8% (AT&T/McCaw), 1.2% (Trumps/Pay 'n Save),
3.0% and 2.2%. The foregoing analysis of the Comparable Transactions takes
into account solely the purchase price paid for the equity interest in the
target company and does not take into account any value or detriment inherent
in any strategic arrangements or other agreements that may have been entered
into in connection with the Comparable Transactions.
As part of its investment banking business, Merrill Lynch is engaged
continually in the valuation of businesses and their securities in connection
with mergers and acquisitions and strategic transactions and for other
purposes. Merrill Lynch was selected by the GM Team to act as financial
advisor to General Motors, the GM Board and the GM Team because Merrill Lynch
is an internationally recognized investment banking firm, with substantial
experience in complex strategic transactions, and because Merrill Lynch was
familiar with
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General Motors (including its capital structure) and EDS. Pursuant to an
engagement letter dated December 13, 1995 (the "Engagement Letter"), General
Motors has agreed to pay Merrill Lynch a fee of $12,500,000, contingent upon
the consummation of the Split-Off. In addition, under certain circumstances,
General Motors would be obligated to pay Merrill Lynch an additional fee of
$10,000,000 in connection with a Business Combination (as defined below)
between EDS and any third party entered into after the Split-Off but that was
agreed to, proposed or as to which substantive discussions were held prior to
consummation of the Split-Off. A fee of $2,500,000 would become payable upon
execution of a definitive agreement with respect to any such Business
Combination, but would be credited against the first to be paid of the other
fees described above. A "Business Combination" is defined in the Engagement
Letter as a merger or other business combination pursuant to which all or a
substantial portion of the business of EDS would be combined with that of
another business entity the value of which exceeds $2.5 billion. A fee in line
with compensation paid to major investment banking firms for similar services
would be payable for transactions, other than a Business Combination, between
EDS and a third party. The engagement letter also provides that General Motors
will reimburse Merrill Lynch for its reasonable out-of-pocket expenses
(including reasonable fees and disbursements of its legal counsel) and will
indemnify Merrill Lynch and certain related persons against certain
liabilities arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory, financing and
other services to General Motors and its affiliates (including financial
advisory services in connection with General Motors' contribution of Class E
Common Stock to the GM Hourly Plan Special Trust) and has received fees for
the rendering of such services in the past two years in the aggregate amount
of approximately $40,000,000. In the ordinary course of its business, Merrill
Lynch may actively trade in securities of General Motors for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
EDS Team Financial Advisors Fairness Opinions
The EDS Team Financial Advisors were engaged by General Motors to act as
financial advisors to the EDS Team in connection with the Split-Off. The EDS
Team Financial Advisors provided financial advice to the EDS Team in
connection with its consideration of the Split-Off and the negotiation of
certain terms thereof, and were requested to evaluate, and provide their
respective opinions to the GM Board as to, the fairness, from a financial
point of view, of the financial effect of the Split-Off Transactions (as
defined below) taken as a whole, to the holders of Class E Common Stock. The
Merger and the related transactions, including the Special Inter-Company
Payment, the Split-Off Changes (as defined below) effected pursuant to the
execution and delivery of the Master Services Agreement and the execution and
delivery of the Separation Agreement are collectively referred to as the
"Split-Off Transactions."
At a meeting of the GM Board held on March 31, 1996, at which the GM Board
approved the terms of the Split-Off, the EDS Team Financial Advisors rendered
their respective opinions to the GM Board to the effect that, based upon and
subject to the assumptions, limitations and other matters described in their
respective written opinions, the financial effect of the Split-Off
Transactions taken as a whole is fair, from a financial point of view, to the
holders of Class E Common Stock. Prior to the time such opinions were rendered
to the GM Board, each of the EDS Team and the Capital Stock Committee were
advised of the substance of the opinions that the EDS Team Financial Advisors
expected to render to the GM Board, and that such opinions would also be for
the use and benefit of each of the EDS Team, the EDS Board and the Capital
Stock Committee. A copy of the written opinion of Lehman Brothers is attached
as Appendix B-2 and a copy of the written opinion of Morgan Stanley is
attached as Appendix B-3 to this Solicitation Statement/Prospectus, and each
of such opinions is incorporated herein by reference. STOCKHOLDERS MAY READ
THE WRITTEN OPINIONS OF THE EDS TEAM FINANCIAL ADVISORS IN THEIR ENTIRETY FOR
A DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND THE SCOPE OF REVIEW
UNDERTAKEN BY THE EDS TEAM FINANCIAL ADVISORS IN RENDERING SUCH OPINIONS. The
summary of the written opinions of Morgan Stanley and Lehman Brothers set
forth in this Solicitation Statement/Prospectus is qualified in its entirety
by reference to the full text of such opinions. A copy of the EDS Team
Financial Advisors' written presentation to the GM Board has been filed as an
exhibit to the Schedule 13E-3. In addition, copies thereof will be made
available for inspection and copying at the principal executive offices of
General Motors during their
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regular business hours by any interested stockholder or any representative of
a stockholder who has been so designated in writing.
The opinions of Morgan Stanley and Lehman Brothers speak only as of the date
thereof and were provided for the use and benefit of the GM Board, the EDS
Team, the Capital Stock Committee and the EDS Board in connection with
consideration of the Split-Off Transactions. Such opinions do not constitute a
recommendation to any holder of Class E Common Stock, or any other class of
capital stock of General Motors, as to whether such stockholder should consent
to the Transactions.
No limitations were imposed by the GM Board, the Capital Stock Committee or
the EDS Team on the scope of the EDS Team Financial Advisors' investigation or
the procedures to be followed by the EDS Team Financial Advisors in rendering
their respective opinions, except as described herein. The EDS Team Financial
Advisors were not authorized to solicit, and did not solicit, any indications
of interest from any third party with respect to the purchase of all or a part
of EDS, its business or the Class E Common Stock. The EDS Team Financial
Advisors were not asked to, and did not, express an opinion as to the prices
at which EDS Common Stock will actually trade following the Merger, and the
EDS Team Financial Advisors can provide no assurance that the trading price of
a share of EDS Common Stock following the Split-Off will be equal to or in
excess of the trading price of a share of Class E Common Stock prior to the
Split-Off. The EDS Team Financial Advisors were not requested to, and did not,
recommend the terms of the Transactions, including the form or amount of the
Special Inter-Company Payment, the terms of the Master Services Agreement or
the form or amount of the consideration to be received by holders of Class E
Common Stock in the Merger, all of which were determined by the GM Board
following the negotiations and other procedures discussed under "--Background
of the Split-Off." The EDS Team Financial Advisors were not requested to opine
as to, and their respective opinions do not address, the underlying business
decision to proceed with or effect the proposed Split-Off Transactions.
In arriving at their respective opinions, the EDS Team Financial Advisors
reviewed, among other things, (i) historical financial statements of EDS and
certain other financial and operating data of EDS, (ii) historical financial
statements of General Motors, (iii) certain publicly available information
with respect to EDS and General Motors, (iv) certain projected financial data
with respect to EDS, both with and without giving effect to the Split-Off,
prepared by EDS management, (v) reported prices and trading activity for the
Class E Common Stock, (vi) drafts of this Solicitation Statement/Prospectus,
(vii) the terms of the Class E Common Stock as set forth in the General Motors
Certificate of Incorporation as currently in effect, (viii) the terms of the
EDS Common Stock as set forth in the EDS Certificate of Incorporation as
currently in effect, (ix) the Tax Ruling, (x) a summary of terms for the
Master Services Agreement provided to the GM Board in connection with its
March 31, 1996 meeting, (xi) the Registration Rights Agreement and (xii) the
EDS Rights Agreement. In addition, the EDS Team Financial Advisors held
discussions with management of EDS, and in certain cases management of General
Motors, with respect to, among other things, (i) the operations and financial
condition of EDS and the plans of EDS management with respect to the business
and affairs of EDS both prior to and after the Split-Off, (ii) the projected
financial data for EDS prepared by EDS management, (iii) the benefits and
detriments to EDS of ownership by General Motors, (iv) the expected impact of
the Split-Off Transactions on EDS' operations and the financial and strategic
flexibility of EDS, and the new business opportunities available to EDS, after
the Split-Off, (v) certain terms of (A) the GM-PBGC Agreement, (B) the
Existing Master Services Agreement and the proposed Master Services Agreement
and certain other IT Services Agreements to be entered into in connection with
the Master Services Agreement, and (C) the proposed Separation Agreement and
(vi) the effect of the Master Services Agreement (including the related
changes to the terms of the underlying services agreements, and certain other
IT Services Agreements to be entered into in connection with the Master
Services Agreement, to the extent that they relate to the financial effect of
the Master Services Agreement as projected by EDS management, as discussed
under "Discounted Cash Flow Analysis--Master Services Agreement") and the
Separation Agreement on the business, results of operations and financial
condition of EDS and on the business relationship between General Motors and
EDS (including, but not limited to, their relationship as customer and vendor,
respectively). In addition, the EDS Team Financial Advisors undertook such
other studies, analyses and investigations as they deemed appropriate for
purposes of rendering their respective opinions.
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In arriving at their respective opinions, the EDS Team Financial Advisors
assumed and relied upon the accuracy and completeness of all of the financial
and other information used by them without assuming any responsibility for
independent verification of such information and further relied upon the
assurances of management of EDS and General Motors that they are not aware of
any facts that would make such information inaccurate or misleading. With
respect to the projected financial data of EDS prepared by EDS management
(which reflect, among other things, with respect to periods following the
Split-Off, estimates of the expected value of certain benefits to be derived
by EDS from the Split-Off), upon the advice of EDS management and with the
consent of the GM Board, the EDS Team Financial Advisors assumed that such
projections were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of EDS management as to expected future
prospects and financial performance of EDS, and the EDS Team Financial
Advisors relied on such projections in rendering their respective opinions.
With respect to the estimates prepared by EDS management of the value of
certain benefits and detriments of the Split-Off to EDS, with the consent of
the GM Board, the EDS Team Financial Advisors relied on such estimates and
assumed that they were reasonably prepared and reflected the best currently
available judgments of EDS management as to such benefits and detriments. The
EDS Team Financial Advisors also took into account and considered the
determination of the GM Board, as described in this Solicitation
Statement/Prospectus, that a split-off of EDS would be proposed only in a
transaction that would not result in the recapitalization of shares of Class E
Common Stock into $1 2/3 Common Stock at a 120% exchange ratio as provided for
under certain circumstances under the terms of the General Motors Certificate
of Incorporation. See "--Background of the Split-Off." Furthermore, the EDS
Team Financial Advisors believe that following the Split-Off, the EDS Common
Stock would very likely be included in the Standard and Poor's 500 Index and
the EDS Team Financial Advisors rendered their respective opinions on that
basis. The EDS Team Financial Advisors did not conduct a physical inspection
of the properties and facilities of EDS and did not make or obtain any
evaluation or appraisal of the assets or liabilities of EDS. The respective
opinions of the EDS Team Financial Advisors are necessarily based upon market,
economic and other conditions as they existed on, and could be evaluated as
of, the date thereof.
In connection with the review of the financial effect on EDS of the Master
Services Agreement, both EDS management and General Motors management advised
the EDS Team Financial Advisors that certain changes would have been made to
the Existing Master Services Agreement commencing in 1996 even in the absence
of the Split-Off. EDS management identified to the EDS Team Financial Advisors
those changes that EDS management believed would have been made to the
Existing Master Services Agreement commencing in 1996 even in the absence of
the Split-Off, the financial effect of which, as projected by EDS management,
would begin to impact EDS in 1996 and continue over time as reflected in the
analyses described under "Discounted Cash Flow Analysis." The changes to the
Existing Master Services Agreement which would have been made in the absence
of the Split-Off are referred to herein as the "Base Changes." Under different
base cases identified by EDS management and described under "--Discounted Cash
Flow Analysis," the Base Changes assumed to occur vary to the extent they
reflect different assumptions regarding certain rate reductions and changes in
payment terms. General Motors management advised the EDS Team Financial
Advisors that General Motors management believed that changes that differ from
or are in addition to the Base Changes identified by EDS management, which
changes, taken as a whole, would have been more favorable to General Motors
and less favorable to EDS than the Base Changes identified by EDS management,
would have been made to the Existing Master Services Agreement even in the
absence of the Split-Off. No assurances can be given as to exactly which
changes to the Existing Master Services Agreement would have been implemented
absent the Split-Off or which changes might be implemented in the future if
the Split-Off is not consummated.
At the request of the EDS Team, and with the consent of the GM Board, the
EDS Team Financial Advisors assumed that the Base Changes would have been made
to the Existing Master Services Agreement in 1996 even in the absence of the
Split-Off (or any other change in the nature of General Motors' ownership of
EDS), and that the financial effect thereof would begin in 1996 and continue
over time as reflected in the projections prepared by EDS management and
described under "--Discounted Cash Flow Analysis," and therefore, in
performing their analyses in connection with rendering their respective
opinions, at the request of the EDS Team and with the consent of the GM Board,
the EDS Team Financial Advisors did not address, and gave no effect to,
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the financial effect on EDS or holders of Class E Common Stock of the Base
Changes effected pursuant to the Master Services Agreement. At the request of
the EDS Team and with the consent of the GM Board, the EDS Team Financial
Advisors did not consider, and gave no effect to, contingent liabilities or
indemnification obligations of EDS arising under the Separation Agreement or
otherwise in connection with the Split-Off. At the request of the EDS Team,
upon the advice of General Motors management and its legal and accounting
advisors, and with the consent of the GM Board, the EDS Team Financial
Advisors also assumed that the proposed Merger would be tax free to the
holders of Class E Common Stock receiving EDS Common Stock in the Merger and
that the Unconditional Releases under the GM-PBGC Agreement would become
effective as of the effectiveness of the Merger.
The following is a summary of certain financial analyses which were reviewed
by the EDS Team Financial Advisors with the EDS Team, the Capital Stock
Committee and the GM Board in connection with the respective opinions of the
EDS Team Financial Advisors, and does not purport to be a complete description
of the analyses conducted by the EDS Team Financial Advisors in arriving at
such opinions. In arriving at their respective opinions, the EDS Team
Financial Advisors did not attribute any particular weight to any analysis or
factor considered by them, but rather considered all of these analyses and
factors together and made qualitative judgments as to the significance and
relevance thereof. Although in connection with their financial analyses the
EDS Team Financial Advisors considered various value differentials and ranges,
they did not ascribe a specific value or range of values to Class E Common
Stock or the EDS Common Stock. Although the EDS Team Financial Advisors
performed independent, as well as cooperative, analyses in connection with
providing their respective opinions, the presentations made to the Capital
Stock Committee and the GM Board described herein were made jointly by the EDS
Team Financial Advisors.
Benefits and Detriments Analysis. In considering the fairness, from a
financial point of view, to the holders of Class E Common Stock, of the
financial effect of the Split-Off Transactions taken as a whole, the EDS Team
Financial Advisors considered, among other things, (i) the $500 million
Special Inter-Company Payment, (ii) the $50 million allowance provided to EDS
under the Separation Agreement (and, with the consent of the GM Board, in
rendering their respective opinions, the EDS Team Financial Advisors assumed
that a substantial amount of such allowance will be used for the benefit of
EDS under the Separation Agreement), (iii) that EDS management has estimated
that, as a result of the allowance identified in the immediately preceding
clause, there will be no net payments made by EDS to General Motors under the
terms of the Separation Agreement (other than payments, if any, to be made
under the provisions thereof with respect to indemnification obligations or
the allocation of contingent liabilities, to which the EDS Team Financial
Advisors gave no effect in rendering their respective opinions), (iv) the
financial effect on EDS, as projected by EDS management, of the changes other
than the Base Changes (such changes being referred to herein as the "Split-Off
Changes") effected pursuant to the Master Services Agreement as discussed
under "--Discounted Cash Flow Analysis--Master Services Agreement" and
"Relationship Between General Motors and EDS--Post Split-Off Arrangements--IT
Services Agreements," (v) the financial effect, as projected by EDS
management, of projected declines following the Split-Off in sales of certain
goods and services provided by EDS to General Motors and its affiliates other
than under the Existing Master Services Agreement or the Master Services
Agreement, as the case may be, (vi) transaction costs, estimated by EDS
management, of between $25 million and $38 million payable by EDS in
connection with the Split-Off and (vii) certain estimated benefits of the
Split-Off to EDS or holders of Class E Common Stock, including (A) the
Derivative Stock Differential (as defined below) as discussed under "--
Derivative Security vs. Capital Stock Analysis," (B) the value of the
inclusion of EDS Common Stock in the Standard & Poor's 500 Index, as discussed
under "--Certain Other Analyses," (C) the value to EDS of the removal of
certain limitations on EDS' ability to participate in major strategic
alliances (including, among others, mergers and acquisitions which can be
effected using EDS Common Stock), which was estimated by EDS management as
discussed under "--Discounted Cash Flow Analysis--Consideration of Strategic
Benefits" and (D) the present value to EDS of projected new business growth
and customer relationships, which was estimated by EDS management, as
discussed under "--Discounted Cash Flow Analysis--Consolidated Company."
Accordingly, to the extent described herein, the EDS Team Financial Advisors
took into account and considered certain benefits as estimated by EDS
management that may be realized by EDS as a result of the opportunity to
pursue the business purposes of the Split-Off.
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Derivative Security vs. Capital Stock Analysis. The EDS Team Financial
Advisors identified certain significant components of value of a derivative
security having the general terms of the Class E Common Stock and of capital
stock having the general terms of the EDS Common Stock and then analyzed the
valuation impact of such differences. The primary components of the value of
such differences identified were (i) voting rights, (ii) liquidation rights
and credit risks and (iii) redemption rights.
In their analysis of voting rights differences, the EDS Team Financial
Advisors considered, among other things, (i) the voting rights of the Class E
Common Stock, (ii) the voting rights of the EDS Common Stock, including that
holders of EDS Common Stock will not have the right to vote with General
Motors stockholders, (iii) that Class E Common Stock has relatively lesser
voting rights compared to more typical common stock, primarily because holders
of Class E Common Stock do not have the ability to vote for directors of EDS
(and consequently have limited ability to direct EDS policies as set by the
EDS Board) and because the voting power in General Motors of holders of Class
E Common Stock is disproportionately low compared to the economic value of the
outstanding Class E Common Stock relative to the other classes of General
Motors common stock, (iv) factors related to selected dual class common
stocks, including trading differentials, amounts paid in merger and
acquisition transactions and the impact on trading value of selected
recapitalizations creating or eliminating a class of common stock and (v) the
impact of ownership of a substantial portion of the Class E Common Stock prior
to, and the EDS Common Stock following, the Split-Off by the GM Hourly Plan
Special Trust. Based on their voting rights analysis, the EDS Team Financial
Advisors concluded that the voting rights of the EDS Common Stock should be
perceived as more valuable than the voting rights of the Class E Common Stock.
In their analysis of liquidation rights and credit risk differences, the EDS
Team Financial Advisors considered, among other things, (i) the liquidation
rights of the Class E Common Stock, (ii) the liquidation rights of the EDS
Common Stock, (iii) that Class E Common Stock has relatively lesser
liquidation rights compared to more typical common stock, primarily because
the liquidation rights in General Motors of holders of Class E Common Stock
are disproportionately low in relation to the economic value of the
outstanding Class E Common Stock relative to the other classes of General
Motors common stock, (iv) the absence of any direct claim by holders of Class
E Common Stock on the assets of EDS upon liquidation of EDS, (v) that the new
EDS Common Stock would be entitled to a direct claim on assets of EDS upon
liquidation of EDS, and would not be entitled to any claim on assets of
General Motors upon liquidation of General Motors, (vi) the possibility that
earnings and cash flow generated by EDS might not be available to, or used for
the benefit of, EDS or holders of Class E Common Stock, (vii) analyses
performed by the EDS Team Financial Advisors suggesting that the trading value
of the Class E Common Stock is not currently adversely impacted by General
Motors' liquidation risk or the theoretical structural disadvantage of the
Class E Common Stock, which does not provide its holders with a direct claim
on the assets or cash flow of EDS and (viii) various factors indicative of
General Motors' perceived credit risk. Based on their liquidation rights and
credit risks analysis, the EDS Team Financial Advisors concluded that the
liquidation rights of the EDS Common Stock should be perceived as more
valuable than the liquidation rights of the Class E Common Stock.
In their analysis of redemption rights differences, the EDS Team Financial
Advisors considered, among other things, (i) the redemption rights that could
result in the recapitalization of Class E Common Stock as shares of $1 2/3
Common Stock at a 120% exchange ratio at the option of General Motors or
automatically upon the occurrence of certain events, including a sale,
transfer, assignment or other disposition by General Motors of the business of
EDS substantially as an entirety (whether by merger, consolidation, sale of
assets or stock, liquidation, dissolution, winding up or otherwise) relative
to the ability of EDS Common Stock to obtain the entire amount of any control
premium associated with a change in control of EDS unrestricted by the
redemption rights of General Motors, (ii) the absence of corresponding rights
with respect to the EDS Common Stock and (iii) the potential economic impact
on General Motors of redemption of the Class E Common Stock under various
scenarios. Based on their redemption rights analysis, the EDS Team Financial
Advisors concluded that the redemption rights of the Class E Common Stock
should be perceived as more valuable than the absence of redemption rights in
the EDS Common Stock.
As a result of their derivative security versus capital stock differential
analysis, the EDS Team Financial Advisors concluded that capital stock having
the general characteristics of EDS Common Stock would be
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expected to have a value in excess of a derivative security having the general
characteristics of the Class E Common Stock and that such differential (the
"Derivative Security Differential") would be expected to be in the range of $0
to $172 million, based on the March 29, 1996, $57.00 per share closing price
of the Class E Common Stock as reported on the NYSE.
Discounted Cash Flow Analysis. Based on projected financial data prepared by
EDS management, the EDS Team Financial Advisors reviewed discounted cash flow
analyses both on a "consolidated company" basis for EDS (including goods and
services provided to General Motors and its affiliates, whether or not under
the Existing Master Services Agreement or the Master Services Agreement, and
to all other customers) and with respect only to goods and services provided
to General Motors and its affiliates under the Existing Master Services
Agreement, after giving effect to the Base Changes reflected in the Master
Services Agreement with respect to non-Split-Off cases, or the Master Services
Agreement with respect to post-Split-Off cases. In addition, the EDS Team
Financial Advisors considered the estimates by EDS management of the value of
certain strategic benefits discussed under "--Consideration of Strategic
Benefits."
Consolidated Company. Based on projected financial data prepared by EDS
management, the EDS Team Financial Advisors performed analyses calculating the
present value of future streams of cash flows both as projected by management
for EDS on a consolidated company basis following the Split-Off and as
adjusted for EDS on a consolidated company basis if the Split-Off were not to
occur. EDS management advised the EDS Team Financial Advisors that the only
material differences between the categories of items included in pre-Split-Off
projected financial data and the post-Split-Off projected financial data were
the financial effect of inclusion in the post-Split-Off projected financial
data of (i) the Split-Off Changes reflected in the Master Services Agreement
and projected declines in sales of certain goods and services provided by EDS
to General Motors and its affiliates other than under the Existing Master
Services Agreement or the Master Services Agreement, as the case may be, (ii)
new business assumed to be available to EDS only if the Split-Off is completed
and (iii) the impact of the Special Inter-Company Payment; although various
assumptions within categories of items differed among different projected
cases. Estimates prepared by EDS management of the value of the removal of
certain limitations on EDS' ability to participate in major strategic
alliances, as discussed under "--Consideration of Strategic Benefits" were not
included in such projected financial data. The EDS Team Financial Advisors
compared (A) the present value of the projected cash flows of EDS on a
consolidated company basis plus a terminal value under a weighted average of
two base cases each of which assumed, among other things, the non-consummation
of the Split-Off and the modification of the Existing Master Services
Agreement to effect the Base Changes, determined under two different
scenarios, the first of which (the "Lower Base Case") assumed certain Base
Changes (with respect to certain rate reductions and changes in payment terms)
additional to the Base Changes assumed under the other case (the "Higher Base
Case") (the weighted average under such cases (the weight attributed by EDS
management to the Lower Base Case being 60% and the weight attributed by EDS
management to the Higher Base Case being 40%) being referred to as "the Base
Case") with (B) the present value of the projected cash flows of EDS on a
consolidated company basis plus terminal values under a post- Split-Off case
projected by management which was derived as the weighted average of three
post-Split-Off cases (the "Weighted Average Case"). The three post-Split-Off
cases projected by EDS management were a "Favorable Case", an "Intermediate
Case" and a "Low Case", each of which applied varying assumptions. These
assumptions included different assumptions with respect to the term of the
Master Services Agreement (including renewals and post-contract provision of
goods and services), revenue growth, outsourcing, pricing and structural cost
reductions. In deriving the Weighted Average Case, the weight attributed by
EDS management to the Favorable Case was 40%, to the Intermediate Case was 50%
and to the Low Case was 10%. The consolidated company projected financial data
were projected for a ten-year period, and therefore do not reflect the
financial effect of a significant portion of the changes to the Existing
Master Services Agreement reflected in the Master Services Agreement, to the
extent that such effect is projected to occur following such ten-year period.
Each of the Weighted Average Case, and the three other post-Split-Off cases
underlying that case assumed, among other things, the occurrence of the Split-
Off and gave effect to, among other things, both the Base Changes and the
Split-Off Changes effected pursuant to the Master Services Agreement. None of
the non-Split-
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Off or post-Split-Off projected financial data reflected estimates of the
value of the removal of certain limitations on EDS' ability to participate in
major strategic alliances, as discussed under "--Consideration of Strategic
Benefits." However, all post-Split-Off cases did include new business growth
and customer relationships believed to be available to EDS only if the Split-
Off is completed. In this regard, the projected financial data prepared on a
consolidated company basis for post-Split-Off periods reflected that the
present value of EDS management's estimates of (i) such new business growth
and customer relationships, at discount rates from 11% to 13%, as calculated
by the EDS Team Financial Advisors, was in the range of $769 million to $1,121
million and (ii) projected declines in sales of certain goods and services
provided by EDS to General Motors and its affiliates other than under the
Existing Master Services Agreement or the Master Services Agreement, as the
case may be, at discount rates from 11% to 13%, as calculated by the EDS Team
Financial Advisors, was in the range of $133 million to $167 million. The
discount rates utilized by the EDS Team Financial Advisors in performing their
analyses were selected based on a number of factors, including the interest
rate environment at the time of the opinion, required rates of return of
investors in the common stock of EDS and of similar companies, the risks
associated with an investment in the stock of similar companies, and the
weighted average cost of capital for EDS.
Cash flows were calculated as net income plus interest expense net of tax
benefit plus non-cash expense items less non-cash income items, less capital
expenditures plus or minus (as appropriate) changes in working capital and
plus or minus certain changes in other assets and liabilities. Terminal values
were calculated under the market multiple method (by applying to terminal year
earnings before interest, taxes, depreciation and amortization, multiples
based on enterprise value/cash flow multiples of selected comparable
companies). The cash flow streams and terminal values were then discounted to
present values using discount rates ranging from 11% to 13%.
The present values of the projected cash flows for all of EDS' business,
including new business that was assumed to be available to EDS only if the
Split-Off is completed, plus terminal values for all of EDS' business on a
consolidated company basis were, at discount rates from 11% to 13%, from $0.8
billion to $0.9 billion lower under the Weighted Average Case than the present
values of projected cash flows plus terminal values for all of EDS' business
on a consolidated company basis (excluding the new business assumed to be
available only if the Split-Off is completed) under the Base Case using the
same terminal value price/earnings ratio and discount rate in various
scenarios. As noted above, General Motors management advised the EDS Team
Financial Advisors that such management believed that changes to the Existing
Master Services Agreement that are different from or in addition to the Base
Changes identified by EDS management would have been made even in the absence
of a Split-Off, which changes, taken as a whole, would have been more
favorable to General Motors and less favorable to EDS than the Base Changes
identified by EDS management. The EDS Team Financial Advisors noted that,
using the assumptions embodied in the projected cash flow models prepared by
EDS management, this would imply a smaller decrement between the Base Case and
the Weighted Average Case than is reflected either in the above analysis or in
the analysis below under "--Master Services Agreement."
Master Services Agreement. EDS management provided to the EDS Team Financial
Advisors projected financial data reflecting only goods and services provided
to General Motors and its affiliates under the Master Services Agreement.
Unlike the ten-year period covered in the consolidated company projections,
the period covered by these projections extended to the assumed termination of
the provision of goods and services under the Master Services Agreement. Based
on the projected financial data prepared by EDS management with respect to the
Master Services Agreement, the present value of the projected cash flows of
EDS attributable to goods and services provided to General Motors and its
affiliates under the Master Services Agreement as calculated under the
Weighted Average Case was, at discount rates from 11% to 13%, in a range from
$517 million to $654 million lower than the present value calculated under the
Base Case using the same discount rate in various scenarios. Because this
analysis dealt only with projected financial data with respect to goods and
services provided under the Master Services Agreement, the $769 million to
$1,121 million new business opportunities referred to under "--Consolidated
Company" are not reflected in this analysis. Based on information regarding
the historical financial and operating results of EDS and discussions with EDS
management, the EDS Team
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Financial Advisors noted that if neither the Base Changes nor any other
significant modifications to the terms of the Existing Master Services
Agreement would have been made in the absence of a Split-Off, then the
decrement in the present value of cash flows attributable to goods and
services projected by EDS management to be provided to General Motors and its
affiliates in accordance with the terms of the Existing Master Services
Agreement (both under analyses performed on a consolidated company basis for
EDS (including goods and services provided to General Motors and its
affiliates and to all other customers) and under analyses performed on a basis
reflecting only goods and services provided to General Motors and affiliates
in accordance with the terms of the Existing Master Services Agreement)
resulting from changes to the Existing Master Services Agreement arising as a
result of the Split-Off would have been significantly larger than under the
analyses conducted by the EDS Team Financial Advisors.
Consideration of Strategic Benefits. The EDS Team Financial Advisors were
advised by EDS management that it estimates (and the EDS Team Financial
Advisors took into account for purposes of their respective opinions), based
in part on an analysis prepared by McKinsey, that the value to EDS of the
removal of certain limitations on EDS' ability to participate in major
strategic alliances (including, among others, mergers and acquisitions which
can be effected using EDS Common Stock) prior to the Split-Off is at least
$500 million. However, in arriving at such estimates, EDS management noted
that the benefits derived from the resolution of such factors are inherently
subject to uncertainty and are not susceptible of precise quantification. As a
result, the effect of these separate benefits was not included in EDS' post-
Split-Off projections and is therefore not reflected in the analysis above.
In connection with their consideration of the strategic benefits analysis
prepared by EDS management, the EDS Team Financial Advisors considered EDS'
historic pursuit of strategic transactions, the nature of the impediments
which have in the past prevented the consummation of a major business alliance
as well as the fact that one of the principal business strategies of EDS after
the Split-Off, as articulated by EDS management, will be to pursue
opportunities for major strategic transactions.
Certain Other Analyses. Based on the projected financial data prepared by
EDS management, the EDS Team Financial Advisors analyzed the projected
earnings and earnings per share of EDS under the Base Case and the Weighted
Average Case. The EDS Team Financial Advisors also reviewed various multiples
of earnings based on historical and projected multiples applicable to the
Class E Common Stock, multiples applicable to certain other companies and
other factors. Management's projections for 1996, and pro forma calculation
for 1995, of EDS' earnings and earnings per share on a consolidated company
basis under the Weighted Average Case (including the benefits of new business
believed to be available to EDS only if the Split-Off is completed) was 3.6%
lower than under the Base Case for 1996 and was 5.2% lower than under the Base
Case on a pro forma basis for 1995. The financial effect of certain of the
changes to the Existing Master Services Agreement made pursuant to the Master
Services Agreement are not reflected in earnings projections for 1996 or in
pro forma 1995 earnings because such financial effect is projected to occur
following 1996.
Based on the projected financial data prepared by EDS management, the EDS
Team Financial Advisors also considered the financial effect of the increased
leverage of EDS on EDS' credit rating and other indicia of creditworthiness
following the Split-Off.
The EDS Team Financial Advisors considered various criteria that currently
appear to forestall inclusion of the Class E Common Stock in the Standard &
Poor's 500 Index, including status as a subsidiary of General Motors, trading
liquidity in the Class E Common Stock and the percentage holdings of Class E
Common Stock of the GM Hourly Plan Special Trust. The EDS Team Financial
Advisors noted that there could be no assurance that EDS would be included in
the Standard & Poor's 500 Index. However, based upon factors including
elimination of subsidiary status of EDS upon the Split-Off, and anticipated
improvements in liquidity and percentage ownership following the Split-Off,
the EDS Team Financial Advisors considered it very likely that following the
Split-Off, the EDS Common Stock will be included in the Standard & Poor's 500
Index and the EDS Team Financial Advisors rendered their respective opinions
on that basis. Based on a review of historical stock price impact when various
companies have been included in the Standard & Poor's 500 Index, the EDS
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Team Financial Advisors estimated the value of such inclusion to be in the
range of 1.5% to 2.5% of the market capitalization of the EDS Common Stock
after adjustment for the Derivative Stock Differential.
Certain Other Benefits and Detriments to EDS. The EDS Team Financial
Advisors considered certain potential benefits and detriments of the Split-Off
to EDS in addition to those discussed above. Factors considered by the EDS
Team Financial Advisors included, among other things, (i) the PBGC release of
EDS from the General Motors control group under certain circumstances
following the Split-Off, which would relieve EDS of a large potential
liability, (ii) the increased financial flexibility of EDS resulting from the
Split-Off and (iii) the ownership of a significant portion of the Class E
Common Stock before the Split-Off, and of the EDS Common Stock following the
Split-Off, by the GM Hourly Plan Special Trust. The EDS Team Financial
Advisors did not attempt to quantify the impact on the value of the Class E
Common Stock or the EDS Common Stock of the factors referred to in this
paragraph.
The foregoing summary does not purport to be a complete description all of
the analyses performed by the EDS Team Financial Advisors. The preparation of
fairness opinions is a complex process and is not susceptible to partial
analysis or summary description. Selecting portions of the EDS Team Financial
Advisors' analyses or any of the factors considered by the EDS Team Financial
Advisors, without considering the analyses and factors considered as a whole,
could create an incomplete or incorrect view of the processes underlying the
respective opinions of the EDS Team Financial Advisors. In arriving at their
respective opinions, the EDS Team Financial Advisors considered the results of
all such analyses. No company, security or transaction used in the analyses
described above as a comparison is identical to General Motors or EDS, the
Class E Common Stock or the EDS Common Stock, or the Split-Off. Accordingly, a
review of the results of the analyses and factors discussed above is not
mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of EDS, the
behavior of persons other than EDS, trading of the Class E Common Stock and
EDS Common Stock and a number of other factors and assumptions, many of which
are beyond the control of General Motors and EDS.
The analyses described above were prepared for the purposes of, and in
connection with, assisting the EDS Team in its review of the terms of the
Split-Off Transactions and the preparation by the EDS Team Financial Advisors
of their respective opinions to the General Motors Board as to the fairness,
from a financial point of view, of the financial effect of the Split-Off
Transactions taken as a whole to the holders of Class E Common Stock. These
analyses do not purport to be appraisals or to reflect the prices at which the
Class E Common Stock or EDS Common Stock should or will trade. Analyses based
on forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties
or their respective advisors, the EDS Team Financial Advisors assume no
responsibility if future results are materially different from those forecast.
The EDS Team selected the EDS Team Financial Advisors to render financial
advisory services to the EDS Team based upon their familiarity with General
Motors and its subsidiaries, including EDS, and their investment banking
experience and expertise, including expertise with regard to the information
technology business. As part of their investment banking business, the EDS
Team Financial Advisors regularly engage in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings,
competitive biddings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate, estate and other
purposes.
Pursuant to separate engagement letters between General Motors and each of
Morgan Stanley and Lehman Brothers, each of Morgan Stanley and Lehman Brothers
will receive a fee of $7,500,000 in connection with the Transactions, payable
as follows: $1,000,000 was paid to each of Morgan Stanley and Lehman Brothers
on rendering their respective opinions and $6,500,000 is payable to each of
Morgan Stanley and Lehman Brothers on consummation of the Split-Off.
Therefore, a significant portion of the fees of the EDS Team Financial
Advisors is contingent on consummation of the Split-Off. The engagement
letters also provide for reimbursement of the EDS Team Financial Advisors for
certain out-of-pocket expenses, including certain fees and expenses of
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legal counsel, and indemnification of the EDS Team Financial Advisors against
certain expenses and liabilities (and EDS has agreed to exculpate the EDS Team
Financial Advisors) in connection with their services as financial advisors,
including those arising under the federal securities laws. Under the
Separation Agreement, EDS has agreed to pay the fees and expenses of the EDS
Team Financial Advisors. See "Relationship Between General Motors and EDS--
Post-Split-Off Arrangements--Separation Agreement."
Lehman Brothers and Morgan Stanley have performed investment banking and
financial advisory services for General Motors, and Lehman Brothers has
performed such services for EDS, in the past and have received customary
compensation in connection therewith, including approximately $17,000,000 and
$10,400,000, respectively, during the last two years. In particular, in 1995,
at the time of General Motors' contribution of shares of Class E Common Stock
to the GM Hourly Plan Special Trust, Lehman Brothers received $5,000,000 from
EDS for financial advisory services. In addition, certain senior personnel
providing financial advice to the EDS Team and involved in rendering the
opinion of Morgan Stanley represented General Motors in connection with its
acquisition of EDS and the related creation and issuance of the Class E Common
Stock.
In March 1996, two of the senior investment bankers actively involved in the
transaction for Lehman Brothers in its capacity as financial advisor to the
EDS Team joined Morgan Stanley, at which time Morgan Stanley also began
advising the EDS Team. Since such time as Morgan Stanley also began acting in
this capacity, it and Lehman Brothers have performed their services in
cooperation, with Lehman Brothers relying to a significant degree on the due
diligence performed, and Morgan Stanley relying to a significant degree on the
work performed, by the same individuals. However, each firm performed its own
independent internal review and analysis in arriving at its opinion.
In the ordinary course of business, both Morgan Stanley and Lehman Brothers
actively trade in the debt and equity securities of General Motors, including
the Class E Common Stock, for their own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
REQUISITE VOTE FOR THE TRANSACTIONS
Consummation of the Transactions is conditioned upon receiving the consent
of the holders of (i) a majority of the voting power of all outstanding shares
of all three classes of General Motors' common stock, voting together as a
single class based on their respective voting rights, (ii) a majority of the
outstanding shares of $1 2/3 Common Stock, voting as a separate class, and
(iii) a majority of the outstanding shares of Class E Common Stock, voting as
a separate class. See "Solicitation of Written Consent of General Motors
Common Stockholders." In light of such requisite stockholder votes, as well as
the process by which the terms of the Split-Off were determined, General
Motors has not retained any unaffiliated representative to act solely on
behalf of its unaffiliated stockholders in negotiating the Split-Off or to
prepare a report for such stockholders as to the fairness thereof. See "--
Negotiating Teams."
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes those U.S. federal income tax
considerations resulting from the Split-Off that materially affect General
Motors and its stockholders. This discussion is based on currently existing
provisions of the Code, existing and proposed Treasury Regulations thereunder
and current administrative rulings and court decisions, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences to General Motors or its stockholders as described
herein.
Stockholders of General Motors should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, banks, insurance companies, tax-
exempt organizations and non-United States persons. In addition, the following
discussion does not address the tax consequences of the Split-Off under U.S.
state or local and non-U.S. tax laws or the tax consequences of transactions
(if any) effectuated
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prior to or after the Split-Off (whether or not such transactions are
undertaken in connection with the Split-Off). ACCORDINGLY, STOCKHOLDERS OF
GENERAL MOTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S.
FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE SPLIT-OFF TO
THEM.
General Motors has received the Tax Ruling with regard to the U.S. federal
income tax consequences of the Split-Off to the effect that the Split-Off will
be treated as a tax-free exchange under Section 355 of the Code and that,
accordingly, for U.S. federal income tax purposes: (i) no gain or loss will be
recognized by General Motors upon the exchange of EDS Common Stock for Class E
Common Stock pursuant to the Split-Off, (ii) no gain or loss will be
recognized by (and no amount will be included in the income of) the holders of
Class E Common Stock upon the receipt of EDS Common Stock in exchange for
Class E Common Stock pursuant to the Split-Off, (iii) the basis of EDS Common
Stock received by each holder of Class E Common Stock pursuant to the Split-
Off will be the same as the basis of the Class E Common Stock held by such
holder immediately before the Split-Off, and (iv) the holding period of the
EDS Common Stock received by each holder of Class E Common Stock will include
the holding period of the Class E Common Stock surrendered by such stockholder
pursuant to the Split-Off, provided that such stock is held as a capital asset
on the date of the Split-Off.
The Tax Ruling does not specifically address how tax bases and holding
periods should be allocated among shares of EDS Common Stock received in the
Split-Off by holders who own two or more blocks of Class E Common Stock with
different per share bases and/or holding periods. Such holders are encouraged
to consult with their own tax advisors regarding the possible tax basis and
holding period consequences of the Split-Off.
The Tax Ruling, while generally binding on the IRS, is based upon certain
factual representations and assumptions described in the Tax Ruling, including
the representation that Class E Common Stock is stock of General Motors and
not of EDS, and the written application therefor. If any such factual
representations or assumptions are incorrect or untrue in any material
respect, the Tax Ruling may be invalidated. General Motors is not aware of any
facts or circumstances which would cause any such representations or
assumptions to be incorrect or untrue in any material respect. Nevertheless,
if General Motors consummates the Split-Off and the Split-Off is held to be
taxable, both General Motors and holders of Class E Common Stock would in all
probability incur material tax liabilities.
On March 19, 1996, the Clinton administration proposed new legislation that
would, under certain circumstances, cause a parent corporation to recognize
gain on the distribution of the stock of a subsidiary in a split-off
transaction. Even if such legislation were enacted, General Motors believes
that such legislation would not apply to the Split-Off.
Current Treasury Regulations require each General Motors stockholder who
receives EDS Common Stock pursuant to the Split-Off to attach to such
stockholder's federal income tax return for the year in which the Split-Off
occurs a detailed statement setting forth such data as may be appropriate in
order to show the applicability of Section 355 of the Code to the Split-Off.
At the time that the letter of transmittal regarding exchange of certificates
is sent to such holders of Class E Common Stock, General Motors will provide
such information to each holder of Class E Common Stock receiving EDS Common
Stock in the Split-Off in order to enable each such holder to comply with such
regulations.
GM-PBGC AGREEMENT
General Motors and certain of its subsidiaries sponsor U.S. defined benefit
pension plans covered by Title IV of ERISA (the "GM Pension Plans"). As of
December 31, 1995, measured on an SFAS No. 87 basis, the GM Pension Plans were
underfunded, and the projected benefit obligations exceeded plan assets, by
approximately $3 billion in the aggregate. If any of the GM Pension Plans were
to terminate at a time that they had unfunded benefit liabilities, the PBGC
would have a statutory claim to recover such unfunded benefit liabilities. The
PBGC's claim would extend to the company or companies that sponsored the
terminated GM Pension Plan(s) and to all other persons within the sponsoring
company's "controlled group," as that term is defined under Title IV of ERISA.
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EDS is currently a company within General Motors' "controlled group" for
purposes of ERISA. As such, EDS would potentially be among the companies
against which the PBGC could have a claim to recover unfunded benefit
liabilities with respect to a GM Pension Plan if such GM Pension Plan were to
terminate at a time when it had unfunded benefit liabilities.
In March 1995, in connection with the contribution of approximately 173
million shares of Class E Common Stock and $4 billion in cash to the GM Hourly
Plan as described herein (see "Security Ownership of Certain Beneficial Owners
and Management of General Motors and EDS--GM Hourly Plan Special Trust"),
General Motors and the PBGC entered into the GM-PBGC Agreement, which
provides, among other things, for the PBGC to release EDS and EDS'
subsidiaries from all liabilities or obligations now existing or hereafter
arising under Title IV of ERISA with respect to the GM Pension Plans if a
transaction such as the Split-Off were to occur. Under the GM-PBGC Agreement,
the PBGC's releases become effective upon the occurrence of a "Qualified EDS
Transaction," provided that certain other conditions have not occurred. The
GM-PBGC Agreement defines "Qualified EDS Transaction" to mean any transaction
or series of transactions (including one by which Class E Common Stock is
exchanged, converted or redeemed for capital stock of EDS) by which EDS ceases
to be a member of General Motors' "controlled group," unless immediately after
the transaction, the GM Hourly Plan continues to hold certain types of
securities in certain specified amounts.
The PBGC's releases in connection with a Qualified EDS Transaction are
documented in two ways. Initial release instruments, which become effective
upon the occurrence of a Qualified EDS Transaction, provided that certain
conditions have not occurred, were delivered to GM and EDS by the PBGC on
March 24, 1995. In addition, under the GM-PBGC Agreement, a second set of
release instruments, which are not subject to any conditions (the
"Unconditional Releases") are to be delivered to GM and EDS by the PBGC
following the consummation of a Qualified EDS Transaction through the
certification procedure described below.
The GM-PBGC Agreement includes a procedure by which General Motors may
obtain certification that a proposed transaction constitutes a Qualified EDS
Transaction (the "Certification Process"). Under the Certification Process,
the PBGC is required to deliver written notice to General Motors within a
specified period of time if it disagrees with General Motors' determination
that a transaction proposed by General Motors constitutes or will constitute a
Qualified EDS Transaction. In the absence of such disagreement, the PBGC is
required to execute the Unconditional Releases and deliver them to an escrow
agent for delivery to GM and EDS upon notification of consummation of the
Split-Off and instruction from the PBGC.
General Motors has determined that the Split-Off, if and when consummated,
will constitute a Qualified EDS Transaction. General Motors has initiated the
Certification Process described above, and the PBGC has not notified General
Motors of any disagreement with such determination. The PBGC has delivered the
Unconditional Releases to an escrow agent for delivery to GM and EDS upon
notification of consummation of the Split-Off and instruction from the PBGC.
Such instruction must, under the GM-PBGC Agreement, be given by the PBGC no
more than two (or, in certain circumstances, fourteen) business days after
receipt of certain additional documentation from GM. In the Separation
Agreement, General Motors has agreed to deliver such documentation as soon as
practicable after the effective time of the Merger and to use commercially
reasonable efforts to do all things necessary pursuant to the GM-PBGC
Agreement to effect the delivery to EDS of the Unconditional Releases. See
"Relationship Between General Motors and EDS--Post-Split-Off Arrangements--
Separation Agreement." Accordingly, General Motors expects the PBGC's releases
of EDS and its subsidiaries to be effective immediately upon consummation of
the Split-Off, and further that the Unconditional Releases will be delivered
to EDS shortly after consummation of the Split-Off.
CERTAIN LITIGATION
Two suits, Solomon v. General Motors Corporation, et al. and TRV Holding
Company v. General Motors Corporation et al., were filed in Delaware Chancery
Court on May 13 and 18, 1994, respectively. Such actions have been
consolidated, and a consolidated amended complaint ("Solomon/TRV") was filed
on April 2, 1996. Another lawsuit, Ward et al., as Trustees for the Eisenberg
Children's Irrevocable Trust II v. General Motors
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Corporation, et al. ("Ward"), was filed in Delaware Chancery Court on November
15, 1995. Both of these actions purport to be class actions brought on behalf
of holders of Class E Common Stock against General Motors and its directors.
The complaints make essentially the same allegations, namely, that defendants
have breached and are continuing to breach their fiduciary duties to holders
of Class E Common Stock by proposing and pursuing the Split-Off, which
plaintiffs contend would unfairly benefit General Motors to the detriment of
such holders. Specifically, the complaints allege that the Split-Off unfairly
effects a disposition of EDS without providing for a recapitalization of the
Class E Common Stock into $1 2/3 Common Stock at a 120% exchange ratio, as
currently provided in the General Motors Certificate of Incorporation upon a
disposition by GM of substantially all of the business of EDS and under
certain other circumstances. The actions allege that the shares of EDS Common
Stock to be received by holders of Class E Common Stock in the Split-Off are
substantially less valuable than the shares of $1 2/3 Common Stock that such
holders would receive in a recapitalization, and that the value of EDS will be
further eroded by the Special Inter-Company Payment and, according to
Solomon/TRV, by the terms of the IT Services Agreements. Ward seeks a
preliminary and permanent injunction against the Split-Off (or any other
disposition of EDS in the absence of a recapitalization of the Class E Common
Stock into $1 2/3 Common Stock at a 120% exchange ratio) and against any
equalizing payment from EDS to General Motors. Solomon/TRV seeks monetary
damages as well as injunctive relief against the Split-Off. General Motors
believes that the suits are without merit and intends to defend against them
vigorously.
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THE SPLIT-OFF
GENERAL
The common stockholders of General Motors are being asked to approve the
Transactions, including the adoption of the Merger Agreement whereby the
Split-Off of EDS from General Motors will be accomplished. Pursuant to the
Merger Agreement, among other things, (i) Mergeco will be merged with and into
General Motors, with General Motors being the surviving corporation, (ii) each
outstanding share of Class E Common Stock will be converted automatically into
one share of EDS Common Stock and (iii) provisions in the General Motors
Certificate of Incorporation regarding the Class E Common Stock will be
deleted (including the provisions that require Class E Common Stock to be
recapitalized into $1 2/3 Common Stock at a 120% exchange ratio upon a
disposition by General Motors of substantially all of the business of EDS and
under certain other circumstances) and certain other provisions therein will
be amended as described herein. As a result of the Merger, EDS will become an
independent, publicly held company. THE DESCRIPTION OF THE MERGER AGREEMENT
SET FORTH BELOW DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS
APPENDIX A TO THIS SOLICITATION STATEMENT/PROSPECTUS AND INCORPORATED HEREIN
BY REFERENCE.
Consummation of the Transactions is conditioned upon, among other things,
receiving the consent of the common stockholders of General Motors. Approval
of the Transactions is independent of the vote on the Amended EDS Incentive
Plan and will require the consent of the holders of (i) a majority of the
voting power of all outstanding shares of all three classes of General Motors'
common stock, voting together as a single class based on their respective
voting rights, (ii) a majority of the outstanding shares of $1 2/3 Common
Stock, voting as a separate class, and (iii) a majority of the outstanding
shares of Class E Common Stock, voting as a separate class. See "Solicitation
of Written Consent of General Motors Common Stockholders." If the
Transactions, including the Merger Agreement, are so approved, the Merger will
become effective upon the filing of a certificate of merger with the Secretary
of State of the State of Delaware.
The Split-Off and related Transactions, including the consummation of the
Merger, the making of the Special Inter-Company Payment, the execution and
delivery of the Master Services Agreement and certain other IT Services
Agreements to be entered into in connection therewith and the Separation
Agreement and the consummation of the other transactions and events
contemplated by the Merger Agreement, are all part of a single plan. By voting
in favor of the Transactions, General Motors' common stockholders will be
ratifying each of the Transactions.
If the Transactions are not approved by General Motors common stockholders,
none of the Transactions will be consummated. If the Transactions are not
consummated, the Existing IT Services Agreements will continue, with such
changes beginning in 1996 as General Motors and EDS may agree or as the GM
Board, upon recommendation of the Capital Stock Committee, may from time to
time consider fair to all classes of General Motors common stockholders. In
this regard, EDS management believes that substantial changes would be made to
the Existing Master Services Agreement in 1996 even in the absence of the
Split-Off. GM management has determined, and has advised EDS management, that
in the absence of the Split-Off it would seek substantial changes in the
Existing IT Services Agreements, including implementation of substantially all
of the changes provided for by the Master Services Agreement. Neither the GM
Board nor the Capital Stock Committee has determined whether to require such
changes to the Existing IT Services Agreements if the Split-Off is not
consummated, but they anticipate considering such changes if such
circumstances arise. See "Risk Factors Regarding Non-Consummation of the
Split-Off--Changes in Terms of Existing IT Services Agreements."
THE GM BOARD HAS UNANIMOUSLY APPROVED THE TRANSACTIONS. THE GM BOARD HAS
DETERMINED THAT THE TRANSACTIONS ARE IN THE BEST INTERESTS OF, AND FAIR TO,
GENERAL MOTORS AND EACH CLASS OF GM COMMON STOCKHOLDERS. THE GM BOARD
RECOMMENDS THAT GENERAL MOTORS COMMON STOCKHOLDERS EXECUTE CONSENTS TO APPROVE
THE TRANSACTIONS, INCLUDING THE ADOPTION OF THE MERGER AGREEMENT.
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MERGER AGREEMENT
Effect of the Merger
Subject to the terms and conditions of the Merger Agreement, Mergeco will
merge with and into General Motors, with General Motors being the corporation
surviving the Merger. Promptly following the satisfaction or waiver of the
conditions to the Merger, the parties will file a certificate of merger with
the Secretary of State of the State of Delaware, at which time the Merger will
be effective (the "Effective Time"). The separate corporate existence of
Mergeco will then cease, and the internal corporate affairs of General Motors
(sometimes referred to in this discussion as the "Surviving Corporation") will
continue to be governed by the laws of the State of Delaware. By operation of
the Merger, at the Effective Time, Article Fourth of the General Motors
Certificate of Incorporation will be amended to remove Class E Common Stock as
a class of authorized General Motors capital stock, to delete provisions
therein regarding the Class E Common Stock and certain related provisions that
will no longer be relevant and to make certain additional changes updating
terms and provisions therein, such as reflecting the current name of Hughes
and changing certain provisions relating to any Preferred Stock that may be
issued by General Motors from time to time in the future. There are currently
no shares of Preferred Stock outstanding.
The changes to the General Motors Certificate of Incorporation relating to
the Preferred Stock will allow the GM Board to determine the specific rights,
preferences and limitations of each series of Preferred Stock if and when
issued in the discretion of the GM Board and will cause the Preferred Stock to
assume the characteristics of "blank-check" preferred stock, which the General
Motors Preference Stock already possesses. Such changes include the deletion
of a restrictive covenant limiting the payment of cash dividends on classes of
General Motors stock other than the Preferred Stock based on a net quick
assets test, the removal of a restriction on the placing of liens on General
Motors property, the elimination of certain voting rights of the Preferred
Stock and the deletion of a specified liquidation price of $100 per share of
Preferred Stock. There will continue to be six million shares of Preferred
Stock authorized under the General Motors Certificate of Incorporation
immediately after the Merger. Under certain circumstances, the issuance of
shares of such "blank-check" Preferred Stock could have the effect of
delaying, deferring or preventing certain corporate transactions involving a
change in control of General Motors, although the changes to the terms of the
Preferred Stock to be effected by the Merger are not being made for such
purpose. The terms of the three outstanding series of General Motors
Preference Stock will be unaffected by the Merger.
The General Motors Certificate of Incorporation, as so amended, will be the
certificate of incorporation of the Surviving Corporation. Article Fourth of
the General Motors Certificate of Incorporation, in the form proposed to be
amended, is included in Appendix A of this Solicitation Statement/Prospectus
as Exhibit A to the Merger Agreement. The By-Laws of General Motors will
continue to be the By-Laws of the Surviving Corporation, with appropriate
deletions of references to Class E Common Stock and EDS. The directors and
officers of General Motors in office immediately prior to the Effective Time
will be the directors and officers of the Surviving Corporation immediately
after the Effective Time.
Conversion of Class E Common Stock
At the Effective Time, each issued and outstanding share of Class E Common
Stock (each, a "Class E Share") will be converted into one share of EDS Common
Stock (each, an "EDS Share"). Accordingly, immediately after the Effective
Time, (i) for all purposes of determining the record holders of EDS Common
Stock, the holders of Class E Common Stock immediately prior to the Effective
Time shall be deemed to be holders of EDS Common Stock and (ii) subject to any
transfer of such stock, such holders shall be entitled to receive all
dividends payable on, and exercise voting rights and all other rights and
privileges with respect to, EDS Common Stock. EDS will agree in the Separation
Agreement to cause The Bank of New York, as exchange agent (the "Exchange
Agent"), to mail, as promptly as practicable, to each record holder of Class E
Shares as of the Effective Time a letter of transmittal for such holder to use
in surrendering the certificates which represented such holder's Class E
Shares in exchange for a certificate representing the number of EDS Shares to
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which such holder is entitled. Holders of Class E Shares will be instructed to
mail the certificates representing such shares to the Exchange Agent
accompanied by such letter of transmittal. HOLDERS OF CLASS E SHARES SHOULD
NOT RETURN SUCH CERTIFICATES WITH THE CONSENT CARD ENCLOSED WITH THIS
SOLICITATION STATEMENT/PROSPECTUS.
Conditions to Closing
Under the Merger Agreement, the obligation of General Motors to consummate
the Merger is subject to the satisfaction or waiver of the following
conditions: (i) the absence of any action, suit or proceeding that would be
reasonably likely to prevent consummation of the Merger, cause the Merger to
be rescinded following consummation or cause General Motors or any of its
officers or directors to become liable for any material damages; (ii) the
approval of the Transactions, including adoption of the Merger Agreement, by
(a) a majority of the voting power of all outstanding shares of all three
classes of General Motors' common stock, voting together as a single class
based on their respective voting rights, (b) a majority of the outstanding
shares of $1 2/3 Common Stock, voting as a separate class, and (c) a majority
of the outstanding shares of Class E Common Stock, voting as a separate class;
(iii) the absence of any notification from Merrill Lynch that the Merrill
Lynch Fairness Opinion has been withdrawn or from Lehman Brothers or Morgan
Stanley that either of their respective opinions has been withdrawn; (iv) the
absence of any notification from the IRS that the Tax Ruling has been
withdrawn or invalidated and of any determination by the GM Board that the
representations and assumptions underlying such ruling are not true and
correct in all material respects; (v) the merger of Electronic Data Systems
Intermediate Corporation and Electronic Data Systems Corporation,
respectively, into EDS; (vi) the receipt by Mergeco of cash in the amount of
the Special Inter-Company Payment; and (vii) the execution and delivery by
General Motors and EDS of the Master Services Agreement, the Separation
Agreement and a succession agreement with respect to the Registration Rights
Agreement.
Termination
The Merger Agreement may be terminated as follows: (i) by mutual written
consent of General Motors and Mergeco prior to the Effective Time; (ii) by
General Motors by giving written notice to Mergeco at any time prior to the
Effective Time in the event that the GM Board concludes that termination would
be in the best interests of General Motors and its stockholders; (iii) by
General Motors in the event that either the Merrill Fairness Opinion or either
of the respective opinions of Lehman Brothers or Morgan Stanley is withdrawn;
(iv) by General Motors in the event that GM has been notified by the IRS or
otherwise believes that the Split-Off would not be treated as a tax-free
exchange under Section 355 of the Code; and (v) by General Motors in the event
the Transactions are not approved by written consent of the holders of (a) a
majority of the voting power of all outstanding shares of all three classes of
General Motors' common stock, voting together as a single class based on their
respective voting rights, (b) a majority of the outstanding shares of $1 2/3
Common Stock, voting as a separate class, and (c) a majority of the
outstanding shares of Class E Common Stock, voting as a separate class.
Amendment
The Merger Agreement may be amended at any time and from time to time by a
writing executed by General Motors and Mergeco; provided, however, that any
such amendment made after the Merger Agreement is adopted by written consent
of the common stockholders of GM as described herein shall not (a) alter or
change the amount or kind of shares, securities, cash, property and/or rights
to be received in exchange for or on conversion of the Class E Common Stock,
(b) alter or change any term of the certificate of incorporation of the
Surviving Corporation or (c) alter or change any of the terms and conditions
of the Merger Agreement if such alteration or change would adversely affect
the holders of any class or series of General Motors capital stock.
NO APPRAISAL RIGHTS
The Delaware General Corporation Law, as amended (the "DGCL"), does not
provide appraisal rights to stockholders of General Motors in connection with
the Transactions. Appraisal rights will not be available to
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holders of Class E Common Stock because, among other things, the Class E
Common Stock is, and the EDS Common Stock will be, listed on the NYSE. All
other holders of GM capital stock will not be entitled to appraisal rights
because, among other things, each class of such stock is listed on the NYSE
and the holders thereof will not exchange or otherwise relinquish any such
stock pursuant to the Merger.
STOCK EXCHANGE LISTINGS FOR EDS COMMON STOCK
Application has been made to list the EDS Common Stock on the NYSE, and such
application has been granted pending notice of issuance. The trading symbol
for the EDS Common Stock on the NYSE will be "EDS." EDS intends to seek to
list the EDS Common Stock on the London Stock Exchange, with such listing to
be effective upon the consummation of the Split-Off.
ACCOUNTING TREATMENT
General Motors will not recognize any accounting gain or loss as a result of
the Split-Off. For accounting purposes, the assets and liabilities of EDS will
continue to be accounted for by EDS at their existing carrying values after
the consummation of the Split-Off. EDS' Consolidated Financial Statements
exclude the effects of purchase accounting adjustments arising from the
acquisition of EDS by GM in 1984, including GM's remaining carrying value of
such purchase adjustments and the accumulated amortization of all such
adjustments. The remaining carrying value of such adjustments would be
immaterial to EDS' Consolidated Financial Statements.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
For a description of the U.S. federal income tax consequences of the Split-
Off for General Motors and its stockholders, see "Special Factors--Certain
U.S. Federal Income Tax Considerations."
REGULATORY REQUIREMENTS
GM and EDS believe that no material U.S. federal or other regulatory
requirements remain to be complied with by GM or EDS, and no material
approvals thereunder must be obtained by GM or EDS, in order to consummate the
Split-Off. However, there may be certain regulatory (e.g., securities and
competition) requirements to be complied with and approvals to be obtained by
GM and EDS outside of the United States in connection with the consummation of
the Split-Off. GM and EDS are currently working together to evaluate and
comply in all material respects with such requirements and to obtain all such
approvals, and do not anticipate that any such foreign requirements will
hinder, delay or restrict in any material respect consummation of the
Transactions.
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RELATIONSHIP BETWEEN GENERAL MOTORS AND EDS
PRE-SPLIT-OFF RELATIONSHIP
General
EDS is currently a wholly owned subsidiary of General Motors, and the Class
E Common Stock, which is a security of General Motors, is designed to provide
financial returns based on the performance of EDS. See "Class E Common Stock."
Because of GM's multi-class capital structure, it is GM's policy that a
standard of fair dealing govern the prices, terms and conditions of commercial
transactions between EDS and General Motors. The Capital Stock Committee of
the GM Board is primarily responsible for reviewing, among other things, (i)
the principal business and financial relationships and transactions among
General Motors, EDS and Hughes, (ii) the dividend policies or practices of
General Motors and (iii) such other matters as have the potential to have
differing effects on holders of the three classes of General Motors common
stock, all to the extent such Committee may deem appropriate. The Capital
Stock Committee is comprised entirely of independent directors of General
Motors. In addition, a majority of the members of the GM Board are independent
directors. See "Class E Common Stock--Considerations Relating to Multi-Class
Common Stock Capital Structure."
The EDS Board is currently comprised of executive officers of EDS. As the
sole stockholder of EDS, General Motors controls the EDS Board and, subject to
Delaware law, is able to cause EDS to pay dividends and make advances to or
otherwise enter into such transactions as GM deems desirable and appropriate.
So long as General Motors is the sole stockholder of EDS, GM reserves the
right to cause EDS to pay dividends to GM in such amounts as GM determines are
desirable under the then prevailing facts and circumstances. Such amounts may
be the same as, greater than, or less than the cash dividends paid by General
Motors on the Class E Common Stock. There is no required fixed relationship,
on a per share or aggregate basis, between the cash dividends that may be paid
by GM to holders of the Class E Common Stock and the dividends or other
amounts that may be paid by EDS to GM. However, it has been the consistent
practice of the EDS Board to pay quarterly cash dividends on the outstanding
shares of EDS Common Stock in an aggregate amount equal to the quarterly
dividends per share paid by General Motors with respect to Class E Common
Stock multiplied by the Class E Dividend Base, which is the denominator of the
fraction used in allocating a portion of GM's earnings attributable to EDS to
the Class E Common Stock for dividend purposes as described herein. See "Class
E Common Stock."
Existing IT Services Agreements
General Motors and EDS are currently parties to the Existing Master Services
Agreement under which EDS is responsible for substantially all of the
worldwide IT services activities of General Motors and certain of its
affiliates. The Existing Master Services Agreement, which was effective as of
September 1, 1985 and was amended on May 29, 1987, establishes standard
provisions that govern the contractual arrangements between EDS and General
Motors with respect to a substantial portion of the IT services required by
General Motors. In accordance with the framework established by the Existing
Master Services Agreement, each GM subsidiary, division, group or other
organization within the scope of such agreement negotiates and enters into a
service agreement (a "Service Agreement") with EDS for the provision of IT
services. Generally, each Service Agreement incorporates the standard
provisions contained in the Existing Master Services Agreement (except to the
extent that the contracting parties otherwise agree) and contains separately
negotiated provisions regarding term, services to be provided, and payment for
services, as well as other matters required to be addressed in connection with
the applicable service or project. The Existing Master Services Agreement does
not have a fixed term, but provides that it may be terminated by either party
in the event of the sale of all or substantially all of the assets or stock of
EDS to a non-GM entity. Each Service Agreement is effective for a fixed term,
although in most cases a Service Agreement may be terminated by either party
in the event of the termination of the Existing Master Services Agreement.
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Under the Existing Master Services Agreement, General Motors and EDS have
generally utilized one of three alternative pricing methods, as appropriate
for a particular service or project. The pricing method for a particular
service or project is negotiated by the parties. First, General Motors and EDS
have utilized fixed-price arrangements for Service Agreements where the scope
of work can be defined. Second, the parties have utilized a cost-plus
management fee method of pricing for EDS' services where the scope of work is
more difficult to define. Third, the parties have utilized uniform published
rates for the pricing of off-the-shelf, commercially available products and
services. The Existing Master Services Agreement provides that, in the absence
of separately negotiated pricing terms set forth in a Service Agreement or as
a default mechanism in the event that the parties are not able to reach
agreement, EDS will be compensated for its services on a cost-plus management
fee basis.
POST-SPLIT-OFF ARRANGEMENTS
General
General Motors will continue to have certain contractual relationships with
EDS after the Split-Off has been consummated. The Separation Agreement will
establish certain transitional and other arrangements deemed necessary in
connection with the Split-Off and the IT Services Agreements will provide for
the continuation of a long-term customer-supplier relationship, in each case
as described below. Additionally, GM will have a significant indirect stake in
EDS' financial performance for a substantial period of time following the
Split-Off as a result of the sizeable holdings of EDS Common Stock that the GM
Hourly Plan Special Trust and the GM Salaried Plan will possess after the
Split-Off. See "Security Ownership of Certain Beneficial Owners and Management
of General Motors and EDS--GM Hourly Plan Special Trust." Appreciation or
depreciation in the value of such holdings will affect the level of General
Motors' pension expense and unfunded pension liability, which are actuarially
determined and computed in accordance with generally accepted accounting
principles.
IT Services Agreements
Immediately prior to and as a condition of the consummation of the Merger,
General Motors and EDS will enter into the Master Services Agreement and
certain related agreements pursuant to which EDS will continue to serve as
General Motors' principal supplier of IT services on a worldwide basis for an
initial term of 10 years following the Split-Off, which term may be extended
by mutual agreement of the parties. In addition, GM and EDS will implement
certain contractual changes which modify or otherwise affect the provisions of
several existing Service Agreements. GM and EDS will also enter into
agreements whereby the rates charged by EDS for certain information processing
activities and communications services will be reduced.
The terms of the Master Services Agreement are applicable to all IT Services
Agreements between and among GM and its affiliates, on the one hand, and EDS
and its affiliates, on the other hand, which relate to certain "in-scope"
services as defined in the Master Services Agreement ("MSA Services"). Under
the IT Services Agreements, EDS will provide to General Motors certain plant
floor automation services in North America which had previously been provided
by EDS and other vendors under a variety of agreements. IT services that will
be considered to be MSA Services after the Split-Off accounted for
approximately $3.4 billion of the approximately $3.9 billion of revenues in
the aggregate received by EDS from GM in 1995. The balance of EDS' 1995
revenues from GM was attributable to goods and services provided to GM by EDS
which would have been outside the scope of the Master Services Agreement.
Following the Split-Off, the parties expect that EDS will continue to provide
"out-of-scope" goods and services to GM under various types of contractual
agreements other than the Master Services Agreement.
Set forth below is a summary description of certain of the principal
provisions of the IT Services Agreements. Such description does not purport to
be complete, and to the extent it relates to the Master Services Agreement, is
qualified in its entirety by reference to the Master Services Agreement, the
form of which has been filed with the Commission as an exhibit to the
Registration Statement of which this Solicitation Statement/Prospectus is a
part. For a discussion of certain financial effects on General Motors and EDS
of the terms of the IT Services Agreements, see "Special Factors--Fairness
Opinions" and "EDS Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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Term. The term of the Master Services Agreement will commence upon the
consummation of the Split-Off and will continue until the expiration of ten
years thereafter. The term of the Master Services Agreement may be extended
for an additional period or periods by mutual agreement between General Motors
and EDS. Prior to the Split-Off, the Existing Master Services Agreement
remained in effect indefinitely, subject to termination by either General
Motors or EDS in the event of the sale of all or substantially all of the
assets or stock of EDS to a non-GM entity. The change in the term of the
Master Services Agreement was deemed appropriate in connection with the Split-
Off because GM and EDS desire to continue the customer-supplier relationship
after the Split-Off and independent IT service providers generally do not have
contracts with their customers for indefinite terms. The length of EDS'
largest customer contracts generally ranges from 8 to 12 years. Although EDS
has historically been able to achieve high renewal rates with its customers
upon the expiration of long-term contracts, there can be no assurance as to
whether or to what extent EDS will continue to provide IT services to GM after
the initial term of the Master Services Agreement.
Service Agreements. As previously noted, pursuant to the Existing Master
Services Agreement, GM business units and EDS have entered into a number of
Service Agreements setting forth the terms and provisions applicable to
specific services or projects undertaken by EDS on behalf of various GM
organizations. See "--Pre-Split-Off Relationship--Existing IT Services
Agreements." Such Service Agreements will remain in effect after the Split-Off
and, in many cases, will be extended or otherwise modified as provided in the
Master Services Agreement. In addition, it is contemplated that, under the
Master Services Agreement, GM business units and EDS will continue to
negotiate and enter into additional Service Agreements after the Split-Off
providing for the performance of IT services on mutually agreed terms. Each
future Service Agreement will set forth provisions with respect to, among
other things, (i) the period of time for which EDS will perform services
pursuant thereto, (ii) the nature and scope of the respective obligations of
the parties thereunder and (iii) the pricing structure, method and amounts of
payments to be made to EDS in accordance therewith. In negotiating future
Service Agreements, the parties will endeavor to agree upon fixed-price
service arrangements which meet the standards of competitiveness described
below. See "--Competitiveness" and "--Pricing of Services" below. The
provisions of the Master Services Agreement will apply to all Service
Agreements, whether entered into prior to or after the consummation of the
Split-Off.
In connection with the execution of the Master Services Agreement, the terms
of the largest domestic Service Agreements (accounting for approximately $2.4
billion in annual revenues in 1995) currently in effect will be extended for
additional terms of between one and three years. In particular, the Service
Agreement with Delphi Automotive Systems will be extended through December 31,
1998 and the Service Agreements with GM's North American Operations ("NAO"),
General Motors Acceptance Corporation (U.S. and Canada) and Motors Insurance
Corporation (U.S. and Canada) will each be extended through December 31, 1999.
Each other Service Agreement entered into prior to the Split-Off will continue
in effect for the duration of its agreed term.
Scope of Services. The Master Services Agreement will establish a
contractual framework for the provision on a worldwide basis of the MSA
Services by EDS to General Motors and all entities (i) in which General Motors
owns 65% or more of the outstanding equity and over which it exercises
management control (if EDS was providing services in support of the business
operations of that entity as of August 1, 1995) or (ii) in which General
Motors owns 80% or more of the outstanding equity (if EDS was not providing
services in support of the business operations of that entity as of August 1,
1995). The Master Services Agreement will contain a flexible description of
the MSA Services that is based on functional service categories so as to take
into account possible future changes in business operations or technologies
that result in the replacement of existing processes and technologies. The MSA
Services to be provided by EDS include IT goods and services related to the
following functional service categories: (i) computing and communications
infrastructure; (ii) development of application software and implementation of
commercial off-the-shelf application software; (iii) data management; (iv)
cross-functional IT-related services; and (v) certain services related to
specified plant floor operations.
Under the Master Services Agreement, services for certain GM units or
operations or in certain geographic areas will be specifically excluded from
the scope of work to be performed by EDS. In particular, such agreement
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will provide that General Motors will not be required to obtain from EDS any
MSA Services (i) for Hughes, with the exception of its subsidiary, Delco, (ii)
for any other business or entity acquired by General Motors after January 1,
1985 (other than (x) GMAC Mortgage Corporation, with the exception of its
subsidiary, Residential Funding Corporation, and (y) any other entity which
executed a Service Agreement prior to August 1, 1995), (iii) in any country
where the provision of such services by EDS would violate any national law of
that country, (iv) in specified emerging geographic markets outside of North
America and Western Europe where, as of August 1, 1995, EDS has not previously
provided such services for the same GM business function and line of business
in that emerging market, and (v) with respect to any plant floor services
other than pursuant to the agreement described in "--Plant Floor Agreement"
below or certain other arrangements currently in effect between the parties.
Furthermore, the provisions of the Master Services Agreement relating to the
scope of services to be provided by EDS will be subject to General Motors'
right, under certain circumstances, to competitively bid and award a portion
of such services to third party service providers. See "--Market Testing and
Outsourcing" below.
IT Strategy and Direction. The Master Services Agreement will provide that
General Motors will be responsible for, and will decide and direct, its IT
strategies and requirements, including its computing and communications
architecture. EDS will be responsible for the performance of IT services
pursuant to the Master Services Agreement in furtherance of General Motors' IT
strategies and requirements.
Competitiveness. In accordance with the Master Services Agreement, the MSA
Services to be provided by EDS will be competitive with respect to quality,
service, price and technology giving due consideration to General Motors'
requirements and other relevant factors. The provisions of the Master Services
Agreement with respect to competitiveness will apply to the negotiation or
renegotiation of (i) new or replacement Service Agreements, (ii) the terms and
conditions applicable to new or replacement MSA Services and (iii) the pricing
of any MSA Services when such negotiation or renegotiation is contractually
provided for in a Service Agreement. When the applicable EDS and GM
organizations reach a mutually acceptable agreement as to the competitiveness
of any services, the standards of competitiveness provided for in the Master
Services Agreement will be deemed satisfied for the term of such agreement.
In situations where the applicable GM and EDS organizations are unable to
reach a mutually acceptable agreement as to the competitiveness of any MSA
Services, the Master Services Agreement will provide a procedure whereby the
negotiating impasse will be escalated to senior management, the services of a
standing neutral mediator may (and, in some cases, must) be utilized, and, in
the absence of an agreement, (i) any impasse as to uniform published rates for
applicable items will be resolved by binding arbitration and (ii) any impasse
as to any other services will be resolved by EDS providing the services on the
basis of the standard terms and conditions provided in the Master Services
Agreement and a modified cost-plus pricing methodology.
Pricing of Services. In general, under the Master Services Agreement, the
same methods of pricing will be available as are provided for under the
Existing Master Services Agreement. See "--Pre-Split-Off Relationship--
Existing IT Services Agreements." As a result, depending on the type of
services to be provided by EDS, the parties may utilize (i) fixed-price
arrangements, (ii) cost-based pricing methods or (iii) uniform published rates
for off-the-shelf, commercially available products and services. However, the
parties have agreed to endeavor to incorporate fixed-price arrangements into
new Service Agreements entered into under the Master Services Agreement to the
extent practicable.
With respect to certain information processing services to be performed by
EDS, the parties have agreed to annual reductions in the rates to be charged
by EDS to all GM organizations worldwide, which reduced rates will be applied
retroactively as of January 1, 1996 and will be in effect through December 31,
2000. In addition, with respect to certain communication services to be
performed by EDS, the parties have agreed to annual reductions in the rates to
be charged by EDS to all GM organizations in the United States, which reduced
rates will be applied retroactively as of January 1, 1996 and will be in
effect through December 31, 1998. During the respective periods that these
reduced rates are in effect, the information processing and communications
services to which the reduced charges apply will not be subject to the
provisions of the Master Services Agreement relating to market testing or
outsourcing. See "--Market Testing and Outsourcing" below.
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Market Testing and Outsourcing. The Master Services Agreement will provide
for certain market testing procedures in order to test the competitiveness of
the MSA Services provided by EDS given that after the Split-Off the Capital
Stock Committee of GM's Board of Directors will no longer have the ability to
monitor and ensure the continued fairness of the arrangements between GM and
EDS. Under these procedures, EDS will have the opportunity to bid on any and
all MSA Services and any bid submitted by EDS will be evaluated on the same
criteria as bids submitted by other service providers. In each of 1996 and
1997, GM's International Operations unit ("GMIO") may expose to competitive
bidding MSA Services that would otherwise be provided by EDS so long as the
revenues that would be reasonably paid to EDS by GM for such MSA Services
during each such year do not exceed $30 million. Following such competitive
bidding, GMIO may award contracts to one or more third party service providers
with respect to any or all of the MSA Services exposed to competitive bidding.
Thereafter, during each year beginning in 1998, GM will be permitted to expose
to competitive bidding specified percentages of the prior year's revenues paid
to EDS for MSA Services. In each year from 1998 through 2000, GM may expose to
competitive bidding and award to third parties contracts for MSA Services for
which GM would otherwise have reasonably paid EDS up to an average of
approximately 6% of the prior year's revenues paid to EDS for MSA Services.
For the years 2001 through 2005, GM may expose to competitive bidding and
award to third parties contracts for MSA Services for which GM would otherwise
have reasonably paid EDS up to an average of approximately 2.4% of the prior
year's revenues paid to EDS for MSA Services. Subject to certain limitations,
GM will select the MSA Services to be exposed to competitive bidding after
consultation with EDS. In addition to the aforementioned annual limitations,
the following aggregate limitations apply: through the year 2000, in no single
calendar year may the amount paid to third parties for MSA Services exceed 15%
of the aggregate amount of revenue paid to EDS for MSA Services performed
during the prior year; and after the year 2000, in no single calendar year may
the amount paid to third parties for MSA Services exceed 25% of the aggregate
amount of revenue paid to EDS for MSA Services performed during the prior
year. Although EDS may bid on any and all of such MSA Services, it is expected
that third party service providers will be awarded some portion of the MSA
Services exposed to competitive bidding. Accordingly, there can be no
assurance as to whether or to what extent EDS will be successful in bidding on
such MSA Services.
Structural Cost Reductions. The Master Services Agreement will establish
specified structural cost reduction targets for the first four years of the
Master Services Agreement. In each of the years 1996 through 1998, the annual
cost reduction targets will be $100 million. In 1999, the target will be $50
million. These cost reduction targets are generally somewhat higher than the
cost reduction targets set forth in the existing Service Agreements, which
they are intended to replace. Unlike the cost reduction targets in the
existing Service Agreements, however, the targets under the Master Services
Agreement are not intended to be performance guarantees, but rather simply
represent firm good faith business commitments on the part of General Motors
and EDS. As such, the Master Services Agreement does not provide for any gain
sharing or similar incentives in the event that the targets are exceeded and
does not impose any penalties or other liabilities in the event that they are
not met. No assurance can be given that any of the specific targets for
structural cost reductions will be achieved.
Payment Terms. The Existing IT Services Agreements provide for GM to pay EDS
on the 15th day of the month in which services are provided with respect to a
substantial portion of services, especially in North America. International
payment terms in the Existing IT Services Agreements are often more favorable
to GM and are generally governed by the commercial standards prevailing in
each particular country. Under the IT Services Agreements, there will be a
transition of payment terms to the 20th day of the month following service for
all agreements which do not have payment terms at least that favorable to GM
(principally in North America). The transition will be accomplished as
follows: (i) through 1996, no change; (ii) beginning in 1997, payment on the
30th day of the month when services are provided; (iii) beginning in 1998,
payment on the 20th day of the month following service for certain business
units; and (iv) beginning in 1999, payment on the 20th day of the month
following service for all remaining business units, including NAO.
Termination. The Master Services Agreement provides that it may be
terminated (i) by either party, if the other party defaults in any material
respect in the performance of its obligations thereunder and such default is
not cured as provided therein after notice thereof, (ii) by EDS, if General
Motors defaults in the payment when
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due of any material amount owing to EDS thereunder and such default is not
cured as provided therein after notice thereof, (iii) by either party, if the
other party becomes insolvent or (iv) by General Motors, if there occurs a
"change of control" of EDS and certain additional conditions are met.
For purposes of the termination provisions of the Master Services Agreement,
a "change of control" means the occurrence of any of the following events: (i)
any person files (or is required to file) a Schedule 13D or 14D-1 under the
Exchange Act disclosing that such person has become the beneficial owner of
EDS Common Stock representing 50% or more of the aggregate voting power of the
outstanding shares of EDS Common Stock; (ii) any person files (or is required
to file) a Schedule 13D or 14D-1 under the Exchange Act disclosing that such
person has become the beneficial owner of EDS Common Stock representing 30% or
more of the aggregate voting power of the outstanding shares of EDS Common
Stock, or commences a proxy solicitation subject to Rule 14a-11 of the
Exchange Act with respect to the election or removal of members of the EDS
Board, and, within two years, individuals who constituted a majority of the
members of the EDS Board at the time of such acquisition or solicitation (as
applicable), together with certain persons elected, recommended or nominated
by such directors, cease to constitute a majority of the EDS Board; or (iii)
there is consummated any transaction (or transactions) resulting in a number
of shares of EDS Common Stock which represents 50% or more of the aggregate
voting power of the outstanding shares of EDS Common Stock being beneficially
owned by persons who did not either own such securities as EDS Common Stock
immediately prior to such transaction or receive such securities in respect of
the conversion or exchange of EDS Common Stock in such transaction.
In the event of a change of control, GM may elect to terminate the Master
Services Agreement if the GM Board of Directors determines that there is
substantial uncertainty about EDS' ability to perform its obligations under
the IT Services Agreements in all material respects or any other significant
threat to the business relationship between EDS and the GM units that are
provided MSA Services by EDS. GM may also terminate the Master Services
Agreement in the event of a change of control in which EDS is acquired by a
manufacturer of cars or trucks that competes with GM (a "core competitor") and
as a result of which GM determines that there is a reasonable likelihood of a
significant competitive threat to GM. In addition, if there is a change of
control in which EDS is acquired by a competitor of GM (other than a core
competitor) and there is a reasonable likelihood of a significant competitive
threat to one or more significant GM units that contract with EDS for MSA
Services under the Master Services Agreement, GM may terminate the Service
Agreements between EDS and such units; provided, that EDS may instead elect to
terminate the Master Services Agreement if the revenues associated with those
Service Agreements accounted for more than 60% of the revenues paid to EDS for
MSA Services during the preceding year.
In the event that General Motors elects to terminate the Master Services
Agreement or any Service Agreement as a result of a change in control of EDS,
then General Motors (i) will be obligated to pay EDS for transition services
in accordance with the provisions therefor in the Master Services Agreement,
and (ii) may, under certain circumstances, be obligated to pay for all or a
portion (depending on the status of the party acquiring control of EDS) of
certain cancellation charges intended to reimburse EDS for certain wind-down
expenses, losses relating to capital assets and long-term leases, and
personnel expenses.
Plant Floor Agreement. GM and EDS will also enter into an agreement (the
"Plant Floor Agreement") which covers plant floor systems services for NAO and
Delphi North American entities (excluding Saturn) for an initial term of five
years and for additional renewal periods under the Master Services Agreement
(subject to possible termination at the end of a 2.5 year probationary
period). The Plant Floor Agreement, which will be subject to the Master
Services Agreement, is expected to account for approximately $200 million in
revenue in 1997. Prior to the Plant Floor Agreement, GM procured plant floor
services from EDS and other vendors under a variety of agreements.
Separation Agreement
As a condition to the consummation of the Merger, General Motors and EDS
will enter into the Separation Agreement, which will establish certain
arrangements between General Motors and EDS deemed necessary in order to deal
with various business, legal and regulatory issues following the Split-Off,
and the Tax Allocation
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Agreement, which replaces both the Agreement for the Allocation of United
States Federal Income Taxes and the Agreement for the Allocation of United
States State and Local Income Taxes, between General Motors and EDS, each
entered into effective as of December 31, 1984. The Separation Agreement will
be entered into immediately prior to the consummation of the Merger. Set forth
below is a summary description of certain of the principal provisions of the
Separation Agreement and the Tax Allocation Agreement. Such description does
not purport to be complete and is qualified in its entirety by reference to
such agreements. The form of the Separation Agreement and a copy of the Tax
Allocation Agreement have been filed with the Commission as exhibits to the
Registration Statement of which this Solicitation Statement/Prospectus is a
part.
The Separation Agreement will contain covenants intended to protect the tax-
free status of the Split-Off. EDS will agree with General Motors that, until
after the two-year anniversary of the Effective Time, EDS will not (i) enter
into certain secondary capital stock transactions, or permit such transactions
to occur, whereby a person would acquire, from holders of outstanding shares
of EDS capital stock, a number of shares of EDS capital stock that would
comprise more than 15% of the number of issued and outstanding shares of EDS
Common Stock, unless either (a) General Motors has determined that any such
proposed transaction would constitute a tax-free reorganization under the Code
or would not otherwise jeopardize the tax-free status of the Split-Off or (b)
the IRS has issued a ruling to the effect that any such proposed transaction
would constitute a tax-free reorganization under the Code; (ii) fail to
continue the active conduct of the trade or business conducted by EDS at the
Effective Time (or liquidate, dispose of, or otherwise discontinue the conduct
of any material portion of such trade or business); (iii) voluntarily dissolve
or liquidate or, except in the ordinary course of business, sell or otherwise
dispose of more than 60% of the gross assets of EDS or more than 60% of the
consolidated gross assets of EDS and its subsidiaries, unless General Motors
determines that such transaction would not jeopardize the tax-free status of
the Split-Off; or (iv) take any other action or enter into any transaction
that would be reasonably likely to jeopardize the tax-free status of the
Split-Off, unless GM has determined that such action or transaction would not
jeopardize the tax-free status of the Split-Off. In addition, EDS has agreed
with General Motors that, until after the six-month anniversary of the
Effective Time, EDS will not enter into any transaction that would result in
any person acquiring from EDS a number of shares of EDS capital stock that,
when aggregated with all other shares of EDS capital stock then owned by such
person, would constitute more than 20% of the total combined voting power of
the voting stock of EDS or 20% of the total number of outstanding shares of
any class or series of non-voting stock of EDS. EDS will indemnify General
Motors and its affiliates from and against tax-related losses incurred by
General Motors to the extent caused by EDS' breach of any of the
representations, warranties or covenants made by EDS in the Separation
Agreement with respect to protecting the tax-free status of the Split-Off.
Under the Separation Agreement, each of General Motors and EDS will agree to
indemnify the other and its affiliates and their respective directors,
officers and employees from and against losses arising out of (i) breaches of
the provisions of the Separation Agreement (not including for such purpose the
Tax Allocation Agreement), (ii) certain misstatements or omissions, or alleged
misstatements or omissions, in certain filings under the securities laws,
(iii) certain administrative actions in connection with stock records and the
exchange of stock certificates by former holders of Class E Common Stock and
(iv) the conduct of its respective business. GM has agreed to indemnify the
members of the EDS Team, the officers and employees of EDS providing
assistance to the EDS Team, and the directors of EDS who granted any approval
or authorization for EDS in connection with the Split-Off, in each case, in
their capacity as such, against losses arising from the Split-Off in
accordance with the GM Bylaws, to the same extent as if such person were a
director or officer of GM; provided that such indemnification does not apply
to losses relating to (i) the EDS Certificate of Incorporation, the EDS Bylaws
or the EDS Rights Agreement, (ii) EDS employee and director compensation and
indemnification arrangements or (iii) EDS plans, proposals, intentions or
policies applicable after the Effective Time, including EDS' dividend policy.
EDS will reimburse GM for all amounts paid to or on behalf of the persons
entitled to indemnification as referred to in the preceding sentence.
Pursuant to the Separation Agreement, until the six-year anniversary of the
Effective Time, General Motors will provide EDS and its affiliates with
directors' and officers' liability, general liability and products liability
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insurance, with respect to applicable incidents, acts or omissions occurring
before the Effective Time, no less favorable to any covered person in coverage
and amount than the lesser of (i) the coverage in effect at the Effective Time
and (ii) the coverage then in effect for General Motors. Such insurance will
be subject to the payment by EDS of certain deductibles and retention amounts,
but EDS will make no annual premium payments for such coverage. EDS may
terminate any of such coverage at any time, subject to applicable notice
provisions.
The Separation Agreement allocates responsibility for the payment of fees
and expenses incurred by the parties in connection with the Split-Off. EDS
will pay the fees and expenses of the financial, accounting and legal advisors
retained by it or the EDS Team, including Lehman Brothers, Morgan Stanley,
KPMG Peat Marwick LLP, Baker & Botts, L.L.P., Prickett, Jones, Elliott,
Kristol & Schnee and Hughes & Luce, L.L.P. GM will pay the fees and expenses
of the financial, accounting, legal and other advisors retained by it or the
GM Team, including Merrill Lynch, Deloitte & Touche LLP, Kirkland & Ellis,
Richards, Layton & Finger, Milbank, Tweed, Hadley & McCloy, Weil, Gotshal &
Manges LLP, and McKinsey. Other than as provided in the preceding sentence,
the fees and expenses associated with the preparation, distribution to
stockholders and filing with the Commission of the materials associated with
this consent solicitation or associated with other securities law filings will
be shared equally by General Motors and EDS, except that GM shall pay the
first $3.0 million of such fees and expenses. EDS will pay all costs of
printing and engraving the certificates representing the EDS Common Stock and
the costs of listing the EDS Common Stock on any stock exchange. All other
costs and expenses of either party incurred in connection with the Split-Off
will be paid by such party. See "Estimated Fees and Expenses."
The Separation Agreement provides for General Motors to deliver to the PBGC
certain documentation required by the PBGC as soon as practicable after the
Effective Time and to use commercially reasonable efforts to do all things
necessary pursuant to the GM-PBGC Agreement to effect the delivery to EDS of
the Unconditional Releases. See "Special Factors--GM-PBGC Agreement." The
Separation Agreement also provides that General Motors will not amend or
modify the Transfer Agreement between General Motors and the GM Hourly Plan
Trustee in any material respect, or waive the benefit of any material term of
the Transfer Agreement, without the prior written consent of EDS. See
"Security Ownership of Certain Beneficial Owners and Management of General
Motors and EDS--GM Hourly Plan Special Trust." The Separation Agreement
provides that any employee who transferred between General Motors, EDS and
certain of their affiliates during the period between September 1, 1985 and
the Split-Off and continues in employment until his or her retirement will
receive certain reciprocal treatment under his or her original employer's
qualified retirement plan for service to the company to which such employee
transferred. Such employee's compensation and service will be recognized for
certain specific purposes under the qualified retirement plan of the company
from which he or she transferred. The reciprocal treatment provided by the
Separation Agreement will not apply to certain employees who transferred to or
from Hughes or certain other General Motors subsidiaries. The Separation
Agreement also includes certain agreements and arrangements with respect to
the provision of continuing access to certain information, the treatment of
confidential information and the establishment of lease arrangements for space
within certain GM facilities used or occupied by EDS. In addition, the
Separation Agreement contains representations and warranties as to certain
matters, including with respect to the Class E Common Stock and EDS Common
Stock to be outstanding immediately before the Effective Time, and the absence
of registration rights granted by GM that would apply to EDS Common Stock
after the Split-Off (other than those of the GM Hourly Plan Special Trust as
described under "Security Ownership of Certain Beneficial Owners and
Management of General Motors and EDS--GM Hourly Plan Special Trust").
The Separation Agreement provides EDS a $50.0 million allowance relating to
the resolution of various uncertain, contingent or other matters arising out
of the separation of GM and EDS. To date, the parties have agreed to the
application of $40.7 million of the allowance, principally to various tax,
employee benefit and insurance matters. The remaining $9.3 million of the
allowance will be available to EDS for a period generally of two years after
the Effective Time for application against any amounts that are or may become
payable by EDS and its affiliates to GM and its affiliates in connection with
any uncertain, contingent or other matters arising
81
<PAGE>
prior to the Effective Time and out of the separation of GM and EDS. Such
allowance generally may not be utilized for items provided for in the
Separation Agreement or in the Tax Allocation Agreement.
Pursuant to the Separation Agreement, GM and EDS shall attempt in good faith
to resolve any disputes thereunder through negotiation, and have agreed that
any such disputes that cannot be resolved through negotiation shall be
litigated in the Delaware state courts (except that disputes with respect to
tax matters shall be submitted to arbitration).
The Tax Allocation Agreement, which applies to tax periods during which EDS
and its consolidated or combined subsidiaries (the "EDS Group") are part of
GM's consolidated federal, state and local income tax returns, generally
requires EDS to pay to GM in a timely manner the amount of federal, state and
local income taxes that the EDS Group would have paid had the EDS Group been a
separate group of corporations during such periods, filing its own
consolidated income tax returns. Any tax attributes arising in the tax periods
covered by the Tax Allocation Agreement that carry over to periods following
the Split-Off will be apportioned between GM and EDS on the basis of
applicable regulations or, absent specific guidance, on the basis of the
amount of such attributes that would have carried over and been available to
the EDS Group had it filed separate returns as described above. The Tax
Allocation Agreement also grants EDS certain control and participation rights
in any audit of GM by the Internal Revenue Service or state and local tax
authorities, and in any litigation arising therefrom, to the extent EDS would
be liable under the Tax Allocation Agreement with respect to the issues in
dispute.
82
<PAGE>
PLANS AND PROPOSALS OF EDS
EDS DIVIDEND POLICY
The current dividend policy of the GM Board is to pay quarterly dividends on
Class E Common Stock, when, as and if declared by the GM Board, at an annual
rate equal to approximately 30% of the Available Separate Consolidated Net
Income of EDS for the prior year. Under this dividend practice of the GM
Board, GM paid quarterly dividends on the outstanding shares of Class E Common
Stock in an amount equal to $0.13 per share during 1995. In February 1996, the
GM Board raised the quarterly dividend on Class E Common Stock to $0.15 per
share. There is no fixed relationship, on a per share or aggregate basis,
between the cash dividends that may be paid by General Motors to holders of
Class E Common Stock and cash dividends or other amounts that may be paid by
EDS to General Motors. However, it has been the practice of the EDS Board to
pay quarterly cash dividends on the outstanding shares of EDS Common Stock in
an aggregate amount equal to the quarterly dividends per share paid by General
Motors with respect to Class E Common Stock, multiplied by the Class E
Dividend Base, which is the denominator of the fraction used in allocating a
portion of GM's earnings attributable to EDS to the Class E Common Stock for
dividend purposes as described herein. See "Class E Common Stock--Dividend
Policy."
EDS' dividend policy following the Split-Off will be determined by the EDS
Board. Under Delaware law and the EDS Certificate of Incorporation, the EDS
Board will not be required to declare dividends on any class of EDS capital
stock. EDS management intends to recommend to the EDS Board at its first
meeting following consummation of the Split-Off that EDS continue to pay
quarterly dividends through 1996 in an amount equal to $0.15 per share. The
EDS Board will not be required to follow such recommendation by EDS
management. The EDS Board will be free to adopt such dividend policy as it
deems appropriate and, during or after 1996, to change its dividend policies
and practices from time to time and to decrease or increase the dividends paid
on the EDS Common Stock on the basis of EDS' financial condition, earnings and
capital requirements and other factors the EDS Board may deem relevant.
EDS expects that it will adopt a dividend reinvestment plan, which will
become effective following the Split-Off.
83
<PAGE>
EDS UNAUDITED PRO FORMA CONSOLIDATED CAPITALIZATION
The following table sets forth the short-term debt and consolidated
capitalization of EDS as of December 31, 1995 and on a pro forma basis after
giving effect to the Transactions. This table should be read in conjunction
with EDS' Consolidated Financial Statements (including the notes thereto),
which are included as Appendix C to this Solicitation Statement/Prospectus,
and with the financial data set forth under "EDS Unaudited Pro Forma Condensed
Consolidated Financial Statements." The pro forma data are not necessarily
indicative of EDS' future short-term debt and consolidated capitalization or
of what EDS' short-term debt and consolidated capitalization would have been
had the Transactions been consummated as of December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------
PRO
HISTORICAL FORMA
---------- --------
(IN MILLIONS)
<S> <C> <C>
Short-term debt:
Notes payable (current).................................. $ 247.8 $ 247.8
======== ========
Long-term debt:
Notes payable............................................ $1,852.8 $2,352.8
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 200 million shares
authorized; no shares issued and outstanding............ -- --
Common stock, without par value; one billion shares
authorized; 483.7 million shares issued and outstanding. 517.7 --
Common stock, $.01 par value; two billion shares
authorized; 483.7 million shares issued and outstanding. -- 4.8
Additional paid-in capital............................... -- 512.9
Retained earnings........................................ 4,460.8 3,912.5
-------- --------
Total stockholders' equity............................. 4,978.5 4,430.2
-------- --------
Total capitalization................................... $6,831.3 $6,783.0
======== ========
</TABLE>
84
<PAGE>
GENERAL MOTORS UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements are based on General Motors' Consolidated Financial Statements. The
unaudited pro forma condensed consolidated financial statements for 1995 give
effect to the Transactions as if they had been consummated as of January 1,
1995 (in the case of income statement data) or as of December 31, 1995 (in the
case of balance sheet data). The unaudited pro forma condensed consolidated
statements of income for the years ended December 31, 1994 and 1993 do not
give effect to the Transactions; however, such data reflect EDS as a
discontinued operation. The pro forma condensed consolidated financial
statements are based on the assumptions set forth in the accompanying notes
and should be read in conjunction with General Motors' Consolidated Financial
Statements (including the notes thereto) in the GM 1995 Form 10-K, which is
incorporated herein by reference, including the information with respect to
EDS in Exhibit 99(a) thereto. The pro forma condensed consolidated financial
statements are not necessarily indicative of General Motors' future
consolidated financial position or results of operations or of what General
Motors' consolidated financial position would have been had the Transactions
been consummated as of December 31, 1995 or what the results of operations for
1995 would have been had the Transactions been consummated as of January 1,
1995.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
ASSETS ---------- ----------- ----------
<S> <C> <C> <C>
Cash and cash equivalents................. $ 11,044.3 $ (548.9)(a)
500.0 (b) $ 10,995.4
Other marketable securities............... 5,598.6 (76.4)(a) 5,522.2
---------- --------- ----------
Total cash and marketable securities.... 16,642.9 (125.3) 16,517.6
Finance receivables--net.................. 58,732.0 -- 58,732.0
Accounts and note receivable.............. 9,988.4 (3,008.9)(a) 6,979.5
Inventories............................... 11,529.5 (181.2)(a) 11,348.3
Contracts in process...................... 2,469.2 -- 2,469.2
Net equipment on operating leases......... 27,702.3 -- 27,702.3
Deferred income taxes..................... 19,028.3 691.7 (a)
(26.8)(c) 19,693.2
Property
Real estate, plants, and equipment--at
cost................................... 73,652.3 (6,237.5)(a) 67,414.8
Less accumulated depreciation........... 44,083.2 (3,065.7)(a) 41,017.5
---------- --------- ----------
Net real estate, plants, and
equipment............................ 29,569.1 (3,171.8) 26,397.3
Special tools--net...................... 8,170.7 -- 8,170.7
---------- --------- ----------
Total property...................... 37,739.8 (3,171.8)(a) 34,568.0
Intangible assets--net.................... 11,898.9 (1,155.4)(a) 10,743.5
Other assets--net......................... 21,392.1 (2,139.2)(a) 19,252.9
---------- --------- ----------
Total Assets.......................... $217,123.4 $(9,116.9) $208,006.5
========== ========= ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Accounts payable (principally trade)...... $ 11,898.8 $ (288.0)(a)
24.3 (d) $ 11,635.1
Notes and loans payable................... 83,323.5 (2,101.8)(a) 81,221.7
United States, foreign, and other income
taxes--deferred and payable.............. 3,231.6 (123.9)(a)
(9.2)(d) 3,098.5
Postretirement benefits other than
pensions................................. 41,595.1 -- 41,595.1
Pensions.................................. 6,842.3 (151.0)(a) 6,691.3
Other liabilities and deferred credits.... 46,886.6 (1,870.5)(a) 45,016.1
---------- --------- ----------
Total Liabilities....................... 193,777.9 (4,520.1) 189,257.8
Total Stockholders' Equity................ 23,345.5 (5,054.9)(a,e)
500.0 (b)
(15.1)(d)
(26.8)(c) 18,748.7(f)
---------- --------- ----------
Total Liabilities and Stockholders'
Equity............................... $217,123.4 $(9,116.9) $208,006.5
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
85
<PAGE>
GENERAL MOTORS UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GENERAL MOTORS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA EXCLUDING PRO FORMA
HISTORICAL ADJUSTMENTS(A) TRANSACTIONS ADJUSTMENTS PRO FORMA
---------- -------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
NET SALES AND REVENUES
Manufactured products... $143,666.1 -- $143,666.1 $143,666.1
Financial services...... 11,664.0 -- 11,664.0 11,664.0
Computer systems
services............... 8,531.0 (8,531.0) -- --
Other income............ 4,967.5 (25.1) 4,942.4 4,942.4
---------- -------- ---------- ----------
Total Net Sales and
Revenues............ 168,828.6 (8,556.1) 160,272.5 160,272.5
---------- -------- ---------- ----------
COSTS AND EXPENSES
Cost of sales and other
operating charges,
exclusive of items
listed below........... 126,535.3 (5,234.2) 121,301.1 $(175.8)(g) 121,125.3
Selling, general, and
administrative
expenses............... 13,514.7 (964.9) 12,549.8 15.0 (h) 12,564.8
Interest expense........ 5,302.2 (120.8) 5,181.4 5,181.4
Depreciation of real
estate, plants, and
equipment.............. 8,554.4 (808.1) 7,746.3 7,746.3
Amortization and other
deductions............. 5,145.7 -- 5,145.7 5,145.7
---------- -------- ---------- ------- ----------
Total Costs and
Expenses............ 159,052.3 (7,128.0) 151,924.3 (160.8) 151,763.5
---------- -------- ---------- ------- ----------
Income from continuing
operations before
income taxes and
cumulative effect of
accounting change...... 9,776.3 (1,428.1) 8,348.2 160.8 8,509.0
United States, foreign,
and other income taxes. 2,843.8 (528.1) 2,315.7 58.8 (i) 2,374.5
---------- -------- ---------- ------- ----------
Income from continuing
operations before
cumulative effect of
accounting changes..... 6,932.5 (900.0) 6,032.5 102.0 6,134.5
Income from discontinued
operations............. -- 900.0 (a) 900.0 (j) (900.0) --
Cumulative effect of
accounting change...... (51.8) -- (51.8) (51.8)
---------- -------- ---------- ------- ----------
Net Income........... 6,880.7 -- 6,880.7 (798.0) 6,082.7
Preference shares tender
offer premium.......... 153.4 -- 153.4 153.4
Dividends on preferred
and preference stocks.. 210.2 -- 210.2 (103.5)(k) 106.7
---------- -------- ---------- ------- ----------
Income on Common
Stocks.............. $ 6,517.1 $ -- $ 6,517.1 $(694.5) $ 5,822.6
========== ======== ========== ======= ==========
EARNINGS ATTRIBUTABLE TO
COMMON STOCKS (M)
$1 2/3 par value from
continuing operations
before cumulative
effect of accounting
change................. $ 5,508.8 $ (104.5) $ 5,404.3 $ 205.5 $ 5,609.8
Discontinued operations. -- 104.5 (l) 104.5 (104.5)(l) --
Cumulative effect of
accounting change...... (51.8) -- (51.8) -- (51.8)
---------- -------- ---------- ------- ----------
Net earnings
attributable to $1
2/3 par value....... $ 5,457.0 $ -- $ 5,457.0 $ 101.0 $ 5,558.0
========== ======== ========== ======= ==========
Net earnings
attributable to
Class H............. $ 264.6 $ -- $ 264.6 -- $ 264.6
========== ======== ========== ======= ==========
Class E from continuing
operations............. $ 795.5 $ (795.5) $ -- $ -- $ --
Discontinued operations. -- 795.5 795.5 (795.5) --
---------- -------- ---------- ------- ----------
$ 795.5 $ -- $ 795.5 $(795.5) $ --
========== ======== ========== ======= ==========
AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING (IN MILLIONS)
$1 2/3 par value........ 749.7 -- 749.7 -- 749.7
Class E................. 404.6 -- 404.6 (404.6) --
Class H................. 95.5 -- 95.5 -- 95.5
EARNINGS PER SHARE
ATTRIBUTABLE TO COMMON
STOCKS (M)
$1 2/3 par value from
continuing operations
before cumulative
effect of accounting
change................. $ 7.28 ($0.14) $ 7.14 $ 0.34 $ 7.48
$1 2/3 par value from
discontinued
operations............. -- 0.14 (l) 0.14 (0.14)(l) --
Cumulative effect of
accounting change...... (0.07) -- (0.07) -- (0.07)
---------- -------- ---------- ------- ----------
Net earnings
attributable to $1
2/3 par value....... $ 7.21 $ -- $ 7.21 $ 0.20 $ 7.41
========== ======== ========== ======= ==========
Net earnings
attributable to
Class H............. $ 2.77 $ -- $ 2.77 $ -- $ 2.77
========== ======== ========== ======= ==========
Class E from continuing
operations............. $ 1.96 $ (1.96) $ -- $ -- $ --
Discontinued operations. -- 1.96 1.96 (1.96) --
---------- -------- ---------- ------- ----------
$ 1.96 $ -- $ 1.96 $ (1.96) $ --
========== ======== ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
86
<PAGE>
GENERAL MOTORS UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GENERAL MOTORS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA EXCLUDING
HISTORICAL ADJUSTMENTS(A) TRANSACTIONS
---------- -------------- ------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Manufactured products................ $134,759.8 $ -- $134,759.8
Financial services................... 9,418.8 -- 9,418.8
Computer systems services............ 6,412.9 (6,412.9) --
Other income......................... 4,359.7 (39.2) 4,320.5
---------- -------- ----------
Total Net Sales and Revenues...... 154,951.2 (6,452.1) 148,499.1
---------- -------- ----------
COSTS AND EXPENSES
Cost of sales and other operating
charges, exclusive of items listed
below............................... 117,220.5 (3,635.8) 113,584.7
Selling, general, and administrative
expenses............................ 12,233.7 (914.7) 11,319.0
Interest expense..................... 5,431.9 (39.9) 5,392.0
Depreciation of real estate, plants,
and equipment....................... 7,124.4 (577.5) 6,546.9
Amortization and other deductions.... 4,587.4 (29.1) 4,558.3
---------- -------- ----------
Total Costs and Expenses.......... 146,597.9 (5,197.0) 141,400.9
---------- -------- ----------
Income from continuing operations
before income taxes and cumulative
effect of accounting changes........ 8,353.3 (1,255.1) 7,098.2
United States, foreign, and other
income taxes........................ 2,694.6 (462.3) 2,232.3
---------- -------- ----------
Income from continuing operations
before cumulative effect of
accounting changes.................. 5,658.7 (792.8) 4,865.9
Income from discontinued operations.. -- 792.8 792.8(j)
Cumulative effect of accounting
changes............................. (758.1) -- (758.1)
---------- -------- ----------
Net income........................ 4,900.6 -- 4,900.6
Dividends on preferred and preference
stocks.............................. 320.7 -- 320.7
---------- -------- ----------
Income on Common Stocks........... $ 4,579.9 $ -- $ 4,579.9
========== ======== ==========
EARNINGS ATTRIBUTABLE TO COMMON
STOCKS (M)
$1 2/3 par value from continuing
operations before cumulative effect
of accounting change................ $ 4,645.2 $ (348.4) $ 4,296.8
Discontinued operations.............. -- 348.4(l) 348.4
Cumulative effect of accounting
change.............................. (751.3) -- (751.3)
---------- -------- ----------
Net earnings attributable to $1
2/3 par value.................... $ 3,893.9 $ -- $ 3,893.9
========== ======== ==========
Class H before cumulative effect of
accounting change................... $ 248.4 $ -- $ 248.4
Cumulative effect of accounting
change.............................. (6.8) -- (6.8)
---------- -------- ----------
Net earnings attributable to Class
H................................ $ 241.6 $ -- $ 241.6
========== ======== ==========
Class E from continuing operations... $ 444.4 $ (444.4) $ --
Discontinued operations.............. -- 444.4 444.4
---------- -------- ----------
$ 444.4 -- $ 444.4
========== ======== ==========
AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING (IN MILLIONS)
$1 2/3 par value..................... 741.3 -- 741.3
Class E.............................. 260.3 -- 260.3
Class H.............................. 92.1 -- 92.1
EARNINGS PER SHARE ATTRIBUTABLE TO
COMMON STOCKS (M)
$1 2/3 par value from continuing
operations before cumulative effect
of accounting change................ $ 6.20 $ (0.46) $ 5.74
$1 2/3 par value from discontinued
operations.......................... -- 0.46(l) 0.46
Cumulative effect of accounting
change.............................. (1.05) -- (1.05)
---------- -------- ----------
Net earnings attributable to $1
2/3 par value.................... $ 5.15 $ -- $ 5.15
========== ======== ==========
Class H before cumulative effect of
accounting change................... $ 2.70 $ -- $ 2.70
Cumulative effect of accounting
change.............................. (0.08) -- (0.08)
---------- -------- ----------
Net earnings attributable to Class
H................................ $ 2.62 $ -- $ 2.62
========== ======== ==========
Class E from continuing operations... $ 1.71 $ (1.71) $ --
Discontinued operations.............. -- 1.71 1.71
---------- -------- ----------
$ 1.71 $ -- $ 1.71
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
87
<PAGE>
GENERAL MOTORS UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GENERAL MOTORS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA EXCLUDING
HISTORICAL ADJUSTMENTS(A) TRANSACTIONS
---------- -------------- ------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Manufactured products................ $119,686.3 $ -- $119,686.3
Financial services................... 8,752.0 -- 8,752.0
Computer systems services............ 5,183.6 (5,183.6) --
Other income......................... 4,597.6 (44.9) 4,552.7
---------- --------- ----------
Total Net Sales and Revenues...... 138,219.5 (5,228.5) 132,991.0
---------- --------- ----------
COSTS AND EXPENSES
Cost of sales and other operating
charges, exclusive of items listed
below............................... 106,421.9 (2,854.8) 103,567.1
Selling, general, and administrative
expenses............................ 11,531.9 (742.3) 10,789.6
Interest expense..................... 5,673.7 (34.5) 5,639.2
Depreciation of real estate, plants,
and equipment....................... 6,576.3 (465.6) 6,110.7
Amortization and other deductions.... 4,490.4 (34.9) 4,455.5
Special provision for scheduled plant
closings and other restructurings... 950.0 -- 950.0
---------- --------- ----------
Total Costs and Expenses.......... 135,644.2 (4,132.1) 131,512.1
---------- --------- ----------
Income from continuing operations
before income taxes and cumulative
effect of accounting change......... 2,575.3 (1,096.4) 1,478.9
United States, foreign, and other
income taxes (benefits)............. 109.5 (407.3) (297.8)
---------- --------- ----------
Income from continuing operations
before cumulative effect of
accounting changes.................. 2,465.8 (689.1) 1,776.7
Income from discontinued operations.. -- 689.1 689.1(j)
Cumulative effect of accounting
changes............................. -- -- --
---------- --------- ----------
Net Income........................ 2,465.8 -- 2,465.8
Preference shares tender offer
premium............................. --
Dividends on preferred and preference
stocks.............................. 356.8 -- 356.8
---------- --------- ----------
Income on Common Stocks........... $ 2,109.0 $ -- $ 2,109.0
========== ========= ==========
EARNINGS ATTRIBUTABLE TO COMMON
STOCKS (M)
$1 2/3 par value from continuing
operations.......................... $ 1,537.3 $ (321.9) $ 1,215.4
Discontinued operations.............. -- 321.9 (l) 321.9
---------- --------- ----------
Net earnings attributable to $1
2/3 par value.................... $ 1,537.3 $ -- $ 1,537.3
========== ========= ==========
Net earnings attributable to Class
H................................ $ 204.5 $ -- $ 204.5
========== ========= ==========
Class E from continuing operations... $ 367.2 $ (367.2) $ --
Discontinued operations.............. -- 367.2 367.2
---------- --------- ----------
$ 367.2 $ -- $ 367.2
========== ========= ==========
AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING (IN MILLIONS)
$1 2/3 par value..................... 710.2 -- 710.2
Class E.............................. 243.0 -- 243.0
Class H.............................. 88.6 -- 88.6
EARNINGS PER SHARE ATTRIBUTABLE TO
COMMON STOCKS (M)
$1 2/3 par value from continuing
operations.......................... $ 2.13 $ (0.45) $ 1.68
$1 2/3 par value from discontinued
operations.......................... -- .45 (l) .45
---------- --------- ----------
Net earnings attributable to $1
2/3 par value.................... $ 2.13 $ -- $ 2.13
========== ========= ==========
Net earnings attributable to Class
H................................ $ 2.30 $ -- $ 2.30
========== ========= ==========
Class E from continuing operations... $ 1.51 $ (1.51) $ --
Discontinued operations.............. -- 1.51 1.51
---------- --------- ----------
$ 1.51 $ -- $ 1.51
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
88
<PAGE>
GENERAL MOTORS UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTES TO GENERAL MOTORS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(a) Reflects the removal of the assets and liabilities of EDS, prior to
receipt of the Special Inter-Company Payment described in note (b) below, and
the reclassification of EDS' operating results to income from discontinued
operations. The measurement date for the Split-Off, for accounting purposes
will be the date GM stockholder approval is received.
(b) Reflects receipt by GM of the Special Inter-Company Payment from EDS.
(c) Reflects net deferred tax benefits allocated to EDS.
(d) Reflects one-time charges of approximately $24.3 million, net of income
tax effect of $9.2 million, for financial advisory, legal, registration fee,
printing and mailing costs related to the Split-Off. Such costs have been
excluded from the Unaudited Pro Forma Condensed Consolidated Statement of
Income.
(e) Stockholders' equity pro forma adjustments (as described in note (a)
above), excluding those items discussed in notes (b) and (d) above, for
General Motors reconciles to EDS' stockholder's equity, before pro forma
adjustment, as follows:
<TABLE>
<S> <C>
GM stockholders' equity pro forma adjustments................... $5,054.9
EDS stockholder's equity........................................ 4,978.5
--------
Effect of purchase accounting adjustments reflected in General
Motors Consolidated Financial Statements that are applicable to
EDS............................................................ $ 76.4
========
</TABLE>
(f) Pro forma stockholders' equity includes the impact of the 1996 issuance
of approximately 44.7 million shares of Class E Common Stock upon conversion
of approximately 3.2 million shares of Series C Preference Stock. On February
22, 1996, the remaining 6,784 outstanding shares of Series C Preference Stock
were redeemed. The impact of the redemption was not material to GM's
consolidated balance sheet.
(g) Reflects reductions in unit billings as provided for under the terms of
the IT Services Agreements as applied to actual usage for certain
communication and information processing charges.
(h) Reflects additional selling, general, and administrative costs expected
to be incurred as a result of the Split-Off.
(i) Income tax expense on pro forma adjustments was calculated at 38%, and
includes the benefits of certain tax credits.
(j) The General Motors pro forma income from discontinued operations
reconciles to EDS' Separate Consolidated Net Income as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Pro forma income from discontinued operations... $900.0 $792.8 $689.1
EDS' Separate Consolidated Net Income........... 938.9 821.9 724.0
------ ------ ------
Effect of purchase accounting adjustments
reflected in General Motors Consolidated
Financial Statements that are applicable to
EDS.......................................... $(38.9) $(29.1) $(34.9)
====== ====== ======
</TABLE>
(k) Reflects dividends on Series C Preference Stock, assuming conversion of
shares as of January 1, 1995.
(l) Represents the reclassification, and the related per share impact, of
the portion of EDS' Separate Consolidated Net Income allocated to $1 2/3
Common Stock, offset by the impact of the purchase accounting adjustments
described in note (j) above.
(m) The allocation of earnings attributable to $1 2/3 Common Stock, Class E
Common Stock, and Class H Common Stock and the calculation of the related
amounts per share are computed by considering the weighted average number of
common shares outstanding and common stock equivalents, to the extent the
effect of such equivalents is not antidilutive.
89
<PAGE>
EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements are based on EDS' Consolidated Financial Statements and give effect
to the Transactions as if they had been consummated as of January 1, 1995 (in
the case of income statement data) or as of December 31, 1995 (in the case of
balance sheet data). The pro forma condensed consolidated financial statements
are based on the assumptions set forth in the accompanying notes and should be
read in conjunction with EDS' Consolidated Financial Statements (including the
notes thereto), which are included as Appendix C to this Solicitation
Statement/Prospectus. The pro forma condensed consolidated financial
statements are not necessarily indicative of EDS' future consolidated
financial position or results of operations or of what EDS' consolidated
financial position would have been had the Transactions been consummated as of
December 31, 1995 or what the results of operations would have been had the
Transactions been consummated as of January 1, 1995.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Systems and other contracts revenues
GM and affiliates..................... $ 3,891.1 $(175.8)(a) $ 3,715.3
Outside customers..................... 8,531.0 8,531.0
--------- ------- ---------
Total revenues...................... 12,422.1 (175.8) 12,246.3
--------- ------- ---------
Costs and expenses
Cost of revenues...................... 9,601.6 3.0 (c) 9,604.6
Selling, general, and administrative.. 1,291.5 7.5 (c) 1,299.0
--------- ------- ---------
Total costs and expenses............ 10,893.1 10.5 10,903.6
--------- ------- ---------
Operating income........................ 1,529.0 (186.3) 1,342.7
Interest and other income, net.......... (62.0) (35.0)(b) (97.0)
--------- ------- ---------
Income before income taxes.............. 1,467.0 (221.3) 1,245.7
Provision for income taxes.............. 528.1 2.3 (a)
(79.7)(d) 450.7
--------- ------- ---------
Separate Consolidated Net Income/Net
Income................................. $ 938.9 $(143.9) $ 795.0 (j)
========= ======= =========
Available Separate Consolidated Net
Income................................. $ 795.5 $ --
========= =========
Average number of shares of Class E
Common Stock outstanding............... 404.6 --
========= =========
Earnings per share attributable to Class
E Common Stock......................... $ 1.96 $ --
========= =========
Weighted average number of EDS common
shares outstanding..................... -- 483.6 (e)
========= =========
Net income per share.................... $ -- $ 1.64 (e)
========= =========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
90
<PAGE>
EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
ASSETS ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 548.9 $ $548.9
Accounts receivable...................... 3,169.0 3,169.0
Other current assets..................... 663.6 (13.4)(h) 650.2
--------- ------ ---------
Total current assets................... 4,381.5 (13.4) 4,368.1
Property and equipment, net................ 3,242.4 3,242.4
Investment in leases and other............. 1,573.5 (33.2)(h) 1,540.3
Software, goodwill, and other intangibles,
net....................................... 1,529.9 1,529.9
Other assets............................... 105.1 105.1
--------- ------ ---------
Total assets........................... $10,832.4 $(46.6) $10,785.8
========= ====== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accrued liabilities...................... $ 1,704.5 $ 35.0 (j) $1,739.5
Other current liabilities................ 1,556.9 1,556.9
--------- ------ ---------
Total current liabilities.............. 3,261.4 35.0 3,296.4
Deferred income taxes...................... 739.7 (33.3)(g) 706.4
Notes payable.............................. 1,852.8 500.0 (f) 2,352.8
Stockholders' equity....................... 4,978.5(i) (500.0)(f)
33.3 (g)
(46.6)(h)
(35.0)(j) 4,430.2
--------- ------ ---------
Total liabilities and stockholders'
equity................................ $10,832.4 $(46.6) $10,785.8
========= ====== =========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
91
<PAGE>
EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONCLUDED)
NOTES TO EDS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Notes to EDS Unaudited Pro Forma Condensed Consolidated
Financial Statements relate to the individual adjustments required to reflect
the Transactions as if they had occurred on January 1, 1995 (in the case of
income statement data) or as of December 31, 1995 (in the case of balance
sheet data). Adjustments to EDS' consolidated balance sheet are based on EDS'
carryover basis as reported in EDS' Consolidated Financial Statements included
as Appendix C herein. EDS' Consolidated Financial Statements exclude the
effects of purchase accounting adjustments arising from the acquisition of EDS
by GM in 1984, including GM's remaining carrying value of such purchase
adjustments and the accumulated amortization of all such adjustments. The
remaining carrying value of such adjustments would be immaterial to EDS'
Consolidated Financial Statements.
(a) Reflects the reductions in revenues from GM and its affiliates, which
represent the effects of reduced unit billings as provided for under the
terms of the IT Services Agreements as applied to actual usage for certain
communications and compute activities for the year ended December 31,
1995, as well as certain reduced tax credits.
(b) Reflects additional interest expense attributable to $500.0 million of
debt incurred to make the Special Inter-Company Payment, calculated based
on EDS' 1995 average long-term borrowing rate.
(c) Reflects additional costs as a result of operating as a separate public
company, rather than a subsidiary of General Motors. These costs include,
among other items, additional insurance coverages, NYSE fees and transfer
agent fees.
(d) Reflects the tax impact of pretax income statement adjustments at EDS'
effective tax rate of 36%.
(e) Reflects the conversion of each outstanding share of Class E Common Stock
into one share of EDS Common Stock. Pro forma earnings per share have been
calculated based on the weighted average shares of Class E Common Stock
outstanding for the year ended December 31, 1995, adjusted for the
following: (i) GM's contribution of approximately 173.2 million shares of
Class E Common Stock to the GM Hourly Plan on March 13, 1995; and (ii)
GM's issuance of approximately 44.7 million shares of Class E Common Stock
between January 1 and February 22, 1996, to satisfy conversion privileges
associated with Series C Preference Stock. For purposes of computing pro
forma earnings per share for 1995, each of these transactions was treated
as if it occurred on January 1, 1995.
(f) Reflects payment of the Special Inter-Company Payment and incurrence of
additional debt for the financing thereof.
(g) Reflects the net deferred tax benefits previously allocated to GM.
(h) Reflects the reclassification to EDS treasury stock for GM Class E Common
Stock held by EDS as an asset prior to the Split-Off. These shares, which
are used to satisfy restricted stock awards as they vest, will be
converted to EDS Common Stock in the Merger.
(i) General Motors' equity in its indirect wholly owned subsidiary, EDS
(excluding the effects of purchase accounting adjustments relating to
General Motors' 1984 acquisition of EDS).
(j) The pro forma balance sheet includes, and the pro forma income statement
excludes, the one-time charges of approximately $35.0 million associated
with the formulation and implementation of the Split-Off. These charges
will be included in EDS' consolidated financial statements for the year
ended December 31, 1996. These expenses could impact EDS' effective tax
rate to the extent that they are non-deductible for tax purposes.
92
<PAGE>
EDS SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following EDS selected consolidated historical financial data have been
derived from EDS' Consolidated Financial Statements. Such data should be read
in conjunction with the EDS consolidated financial statements (including the
notes thereto), which are included as Appendix C to this Solicitation
Statement/Prospectus, and "EDS Management's Discussion and Analysis of
Financial Condition and Results of Operations." The EDS selected consolidated
historical financial data as of and for the years ended December 31, 1995,
1994, 1993, 1992 and 1991 have been derived from EDS' Consolidated Financial
Statements, which have been audited by KPMG Peat Marwick LLP, independent
auditors.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993 1992 1991
-------- --------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Systems and other contracts
revenues
General Motors and affiliates. $3,891.1 $ 3,547.2 $3,323.7 $3,348.5 $3,362.2
Outside customers............. 8,531.0 6,412.9 5,183.6 4,806.7 3,666.3
-------- --------- -------- -------- --------
Total revenues................ 12,422.1 9,960.1 8,507.3 8,155.2 7,028.5
-------- --------- -------- -------- --------
Costs and expenses
Cost of revenues.............. 9,601.6 7,529.4 6,390.6 6,205.8 5,415.1
Selling, general, and
administrative............... 1,291.5 1,187.1 1,005.4 969.3 761.9
-------- --------- -------- -------- --------
Total costs and expenses...... 10,893.1 8,716.5 7,396.0 7,175.1 6,177.0
-------- --------- -------- -------- --------
Operating income............... 1,529.0 1,243.6 1,111.3 980.1 851.5
Interest and other income, net. (62.0) 40.6 20.0 20.7 42.2
-------- --------- -------- -------- --------
Income before income taxes..... 1,467.0 1,284.2 1,131.3 1,000.8 893.7
Provision for income taxes..... 528.1 462.3 407.3 365.3 330.7
Cumulative effect of accounting
change(a)..................... -- -- -- -- (15.5)
-------- --------- -------- -------- --------
Separate Consolidated Net
Income (b).................... $ 938.9 $ 821.9 $ 724.0 $ 635.5 $ 547.5
======== ========= ======== ======== ========
Average number of shares of
Class E Common Stock
outstanding
(Numerator) (b)............... 404.6 260.3 243.0 209.1 195.3
Class E Dividend Base
(Denominator) (b)............. 483.7 481.7 480.6 479.3 478.1
Available Separate Consolidated
Net Income (b)................ $ 795.5 $ 444.4 $ 367.2 $ 278.4 $ 223.6
Earnings per share attributable
to Class E Common Stock (b)... 1.96 1.71 1.51 1.33 1.14
Dividends per share of Class E
Common Stock (b).............. 0.52 0.48 0.40 0.36 0.32
BALANCE SHEET DATA
Cash and marketable securities. $ 638.6 $ 757.8 $ 607.5 $ 587.9 $ 415.8
Current assets................. 4,381.5 3,354.1 2,506.8 2,157.0 1,945.6
Total assets (c)............... 10,832.4 8,786.5 6,942.1 6,123.5 5,703.2
Current liabilities............ 3,261.4 2,873.2 2,160.4 1,903.1 2,396.7
Long-term debt................. 1,852.8 1,021.0 522.8 561.1 281.9
Stockholder's equity (c)(d).... 4,978.5 4,232.5 3,617.4 3,063.4 2,610.3
OTHER DATA
Depreciation and amortization.. $1,107.8 $ 771.1 $ 626.8 $ 603.2 $ 524.4
Expenditures for property and
equipment..................... 1,261.5 1,186.0 816.4 639.0 673.2
</TABLE>
- --------
(a) Effective January 1, 1991, General Motors and its subsidiaries (including
EDS) adopted SFAS No. 109, "Accounting for Income Taxes." The cumulative
effect of this accounting change at January 1, 1991 was a charge of $15.5
million, of which $6.1 million, or $0.03 per share, was attributable to
Class E Common Stock.
(b) Calculated for purposes related to the Class E Common Stock, which will be
converted into EDS Common Stock on a one-for-one basis pursuant to the
Split-Off.
(c) Holders of Class E Common Stock have no direct rights in the equity or
assets of EDS, but rather have rights in the equity and assets of General
Motors (which include 100% of the stock of EDS).
(d) General Motors' equity in its indirect wholly owned subsidiary, EDS
(excluding the effects of purchase accounting adjustments relating to
General Motors' 1984 acquisition of EDS).
93
<PAGE>
EDS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
EDS is a provider of IT services using computer and communication
technologies to meet the business needs of its clients. EDS offers its clients
a continuum of services, including the management and operation of computers,
networks, information systems, information processing facilities, business
operations, and related personnel, as well as management consulting services.
EFFECT OF THE SPLIT-OFF
In connection with the Split-Off, the Master Services Agreement will be
entered into between EDS and General Motors with respect to IT services to be
provided after the Split-Off and the Special Inter-Company Payment will be
made by EDS. If the Split-Off is not consummated, EDS will continue as an
indirect wholly owned subsidiary of GM and no Special Inter-Company Payment
will be made. Under such circumstances, the Existing IT Services Agreements
will continue with such changes as GM and EDS may from time to time agree upon
or as the GM Board upon recommendation of the Capital Stock Committee may from
time to time determine to be fair to all classes of GM common stockholders. No
agreement has been reached between GM and EDS regarding any changes to the
Existing IT Services Agreements that may take effect if the Split-Off is not
approved by GM common stockholders or is not consummated for any other reason.
GM management has advised EDS management that in such an eventuality it would
seek substantial changes in the Existing IT Services Agreements, including
implementation of substantially all of the changes provided for by the Master
Services Agreement. Neither the GM Board nor the Capital Stock Committee has
determined whether to require such changes to the Existing IT Services
Agreements if the Split-Off is not consummated, but they anticipate
considering such changes if such circumstances arise.
The IT Services Agreements contemplate that EDS will continue to serve as
General Motors' principal supplier of IT services for an initial term of ten
years, which may be extended by agreement of the parties, and that the IT
services to be provided by EDS after the Split-Off will generally be similar
to those provided to General Motors under the Existing IT Services Agreements.
Under the terms of the IT Services Agreements, certain of the Existing IT
Services Agreements applicable to particular units, sectors or other
organizations within General Motors will be extended for additional terms of
between approximately one and three years beyond their current expiration
dates. In addition, EDS will provide certain plant floor automation services
in North America to GM that it has not previously provided. The IT Services
Agreements also provide that certain significant changes will be made to the
pricing and terms under which EDS will provide IT services to General Motors
after the Split-Off. Among other things, the IT Services Agreements provide
that the rates charged by EDS to General Motors for certain information
processing activities and communications services will be reduced and that the
parties will work together to achieve increased targets for structural cost
reductions. General Motors will also be given the right to competitively bid
and, subject to certain restrictions, outsource a limited portion of its IT
service requirements to third party providers. In addition, beginning in 1997,
the payment terms relating to IT services provided by EDS will be revised over
a two-year period to extend the due dates for payments from General Motors.
See "Relationship between General Motors and EDS--Post Split-Off
Arrangements--IT Services Agreements."
Based on currently available information and assuming that the IT Services
Agreements had been effective as of January 1, 1996, EDS believes that
revenues generated from services performed for General Motors in 1996 would be
slightly lower than those generated from such services in 1995. In addition,
EDS expects that the contemplated changes in its arrangements with GM could
reduce its 1996 earnings per share by as much as $0.07 to $0.14 (including
$0.03 in the first quarter of 1996). The long-term impact of the terms of the
IT Services Agreements cannot be precisely quantified at present, although
such terms may have an adverse effect on operating margins unless EDS is able
to effect reductions in the costs of providing services to General Motors.
Although EDS plans to implement certain cost reduction measures, there can be
no assurance as to the extent, if
94
<PAGE>
any, to which such measures will mitigate the possible adverse impact on its
operating margins. In general, there can be no assurance that the terms of the
IT Services Agreements would not have a material adverse effect in the long
term on the results of operations of EDS. For additional information regarding
the IT Services Agreements, see "Relationship Between General Motors and EDS--
Post-Split-Off Arrangements--IT Services Agreements" and "Business of EDS--
Revenues."
The Special Inter-Company Payment will be paid by EDS to GM at such time, if
any, as the Split-Off occurs. The amount of the Special Inter-Company Payment
will be $500.0 million. Interest costs related to the Special Inter-Company
Payment are expected to be approximately $.03 per share in 1996. In addition
to the Special Inter-Company Payment, EDS expects to incur approximately $35.0
million, or approximately $.05 per share in 1996, of one-time costs in
connection with the formulation and implementation of the Split-Off. Certain
of these costs will be incurred only if the Split-Off is consummated. In
arriving at the amount of the $500.0 million Special Inter-Company Payment,
the parties took into account the fact that in the Separation Agreement GM
would provide EDS an allowance of $50 million relating to the resolution of
various uncertain, contingent or other matters arising out of the separation
of GM and EDS.
Statements about the effect of the Transactions and the impact of the IT
Services Agreements after the Split-Off are forward-looking statements which
by their nature are subject to numerous uncertainties that could cause actual
results to vary.
RESTRUCTURING ACTIVITIES
On April 1, 1996, EDS announced that it is taking certain actions and
considering others to maintain and improve operating efficiencies and
accelerate EDS' move towards "user-centered" computing. In connection
therewith, EDS also announced the implementation of a voluntary early
retirement offer and involuntary severance arrangements affecting between
4,000 and 5,000 employees and designed to both reduce labor costs and change
the skill mix of EDS' workforce. Communication of terms of these arrangements
to employees began on April 1 and will continue during the second quarter of
1996. It is expected that substantially all of these workforce reductions
would be completed by December 1996.
As part of its overall goal to improve operating efficiencies, EDS is also
in the process of evaluating certain aspects of its business to identify any
redundant facilities and related assets which may no longer fit its long-term
strategic objectives. Accordingly, the actions under consideration could
include the elimination by EDS of certain business functions and consolidation
of certain related facilities.
EDS will incur a pre-tax non-recurring charge in the second quarter of 1996
in connection with the restructuring actions discussed above. The amount of
the aggregate charge (including the employee related actions, asset
writedowns, and other actions being considered) will depend on the number of
employees who elect to accept early retirement offers and the determination of
which EDS business functions and related facilities would be eliminated or
consolidated. EDS estimates that all such actions could result in an aggregate
pre-tax non-recurring charge in the second quarter of 1996 in the range of
$500.0 million to $750.0 million (between $.66 and $.99 per share, after tax).
A portion of the contemplated charge will be of a non-cash nature, the amount
of which has not yet been determined. EDS expects that any restructuring
actions implemented by it will result in savings commencing in the second half
of 1996. The restructuring activities discussed above are not contingent upon
approval or consummation of the Split-Off.
Statements about the effect of EDS' actions and the possible amount of a
non-recurring charge are forward-looking statements which by their nature are
subject to numerous uncertainties that could cause actual results to vary.
95
<PAGE>
RESULTS OF OPERATIONS
Three Years Ended December 31, 1995, 1994 and 1993
Revenues. EDS conducts its sales, marketing and service activities on a
global basis through business units that focus both geographically and
vertically along the lines of specified industries. The following table
summarizes EDS' systems and other contracts revenues in each geographic
operating segment for each of the years ended December 31, 1995, 1994 and
1993:
SYSTEMS AND OTHER CONTRACTS REVENUES
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Outside Customers:
United States............................... $ 5,794.9 $4,611.2 $4,004.5
Europe...................................... 2,001.5 1,308.1 911.6
Other....................................... 734.6 493.6 267.5
--------- -------- --------
Total Outside Customers................... 8,531.0 6,412.9 5,183.6
--------- -------- --------
GM and Affiliates:
United States............................... 2,926.1 2,764.4 2,574.5
Europe...................................... 659.2 523.4 511.2
Other....................................... 305.8 259.4 238.0
--------- -------- --------
Total GM and Affiliates................... 3,891.1 3,547.2 3,323.7
--------- -------- --------
Total Systems and Other Contracts Revenues.... $12,422.1 $9,960.1 $8,507.3
========= ======== ========
Percentage of Total Revenues:
Outside Customers........................... 69% 64% 61%
GM and Affiliates........................... 31 36 39
--- --- ---
Total..................................... 100% 100% 100%
=== === ===
</TABLE>
Total revenues increased 25% in 1995 to $12,422.1 million from $9,960.1
million in 1994, which represented a 17% increase over 1993 total revenues of
$8,507.3 million. Revenues from customers other than General Motors and its
affiliates (outside customers) grew 33% in 1995 to $8,531.0 million, compared
to a 24% increase in 1994 from $5,183.6 million in 1993. Total revenues
related to GM and its affiliates were $3,891.1 million, $3,547.2 million, and
$3,323.7 million in 1995, 1994 and 1993, respectively. The percentage of EDS'
total revenues generated from GM and its affiliates declined to 31% in 1995
from 36% in 1994 and 39% in 1993. EDS expects this trend to continue as
revenues from outside customers continue to grow.
Total domestic revenues from outside customers increased 26% from $4,611.2
million in 1994 to $5,794.9 million for 1995. This compares with growth rates
of 15% in 1994 and 8% in 1993. The increase in 1995 was attributable to full-
year revenues on contracts which began in late 1994 and to revenues related to
acquisitions, primarily the A.T. Kearney acquisition in August 1995. Domestic
revenues from outside customers in 1994 increased over 1993 results due to
revenues associated with new contracts signed in 1993 and 1994.
During 1995, non-U.S. revenues from outside customers increased $934.4
million compared with an increase of $622.6 million in 1994 from $1,179.1
million in 1993. Growth in revenues from outside customers in Europe increased
$693.4 million in 1995 from revenues associated with new contracts signed
during 1994 and 1995, as well as certain acquisitions which occurred in late
1994 or 1995. In 1994, non-U.S. revenues from outside customers in Europe
increased $396.5 million, or 43%, to $1,308.1 million.
Other non-U.S. revenues from outside customers grew $241.0 million over
1994, to $734.6 million due to new contracts signed in Asia/Pacific and
Canada, as well as full-year revenues from acquisitions in New Zealand which
occurred in 1994. Other non-U.S. revenues from outside customers in 1994 was
up $226.1 million over 1993 due in part to business in Japan and New Zealand.
96
<PAGE>
The following summary table sets forth the percentage of revenues for each
of the years in the three-year period ended December 31, 1995, derived from
EDS' principal industry areas.
<TABLE>
<CAPTION>
PERCENTAGE OF
REVENUES FOR
THE YEARS
ENDED DECEMBER
31,
----------------
INDUSTRY AREA 1995 1994 1993
------------- ---- ---- ----
<S> <C> <C> <C>
Manufacturing........................................... 47% 49% 51%
Financial Services...................................... 14 14 15
Government.............................................. 12 10 10
All others individually less than 10%................... 27 27 24
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Other than General Motors, no one client accounted for more than 5% of EDS'
total revenues in 1995, 1994, or 1993. GM business, which has historically
grown at a slower rate than business from outside customers, is included in
the Manufacturing industry area. The Government industry area has grown due
to, among other reasons, EDS' success in selling to newly privatized sectors
in Europe.
Costs and Expenses. Cost of revenues as a percentage of systems and other
contracts revenues was 77% in 1995, compared with 76% in 1994 and 75% in 1993.
Cost as a percentage of revenues has increased due to higher labor costs for
skilled workforce and pricing pressures as a result of the increasingly
competitive environment in which EDS operates. The increasingly competitive
environment in which EDS operates results in part from a long-term trend of
convergence occurring in the computing, communications and media/entertainment
sectors of the information industry. EDS is addressing this environment in
part through expected efficiencies to be gained from its restructuring
activities described above and its value-added business approach. See "--
Restructuring Activities" and "Business of EDS." Selling, general and
administrative expenses increased 9% in 1995 to $1,291.5 million from $1,187.1
million in 1994, which increased 18% from 1993. Selling, general and
administrative expenses were 10% of systems and other contracts revenues in
1995, down from 12% in 1994 and 1993 due to the fixed nature of certain of
these costs.
Operating Income. Operating income increased $285.4 million to $1,529.0
million in 1995. Operating income was $1,243.6 million and $1,111.3 million
for 1994 and 1993, respectively. Operating margins declined from 12.5% in 1994
to 12.3% in 1995 due to the aforementioned changes in costs and expenses, as
well as increased reserves for certain customer receivables. The 1993
operating margin was 13.1%.
Interest and Other Income, net. Interest and other income, net, decreased
$102.6 million in 1995 to $(62.0) million, compared with $40.6 million in 1994
and $20.0 million in 1993. The primary reason for the decrease in 1995 was due
to increased interest expense. Interest expense increased to $120.8 million in
1995, compared with $51.7 million in 1994 and $34.5 million in 1993. The
increase in 1995 resulted from interest associated with the issuance of $350.0
million of 6.85% notes due May 15, 2000 (the "Five-year Notes") and $300.0
million of 7.125% notes due May 15, 2005 (the "Ten-year Notes"), as well as
from other borrowings. These borrowings were used for general corporate
purposes, including the repayment of outstanding commercial paper borrowings,
property and equipment expenditures, acquisitions, and other contract-related
investments to support business growth. Interest and other income decreased
from $92.3 million in 1994 to $58.8 million in 1995 primarily due to lower
interest income on notes receivable and the recognition of other than
temporary declines in the fair value of certain investment securities.
Income Taxes. The effective income tax rate was 36% in 1995, 1994 and 1993.
Net Income. EDS' separate consolidated net income increased 14% to $938.9
million in 1995, compared with $821.9 million for 1994 and $724.0 million in
1993. Earnings per share attributable to Class E Common Stock increased 15% to
$1.96 per share in 1995 and 13% to $1.71 per share in 1994, based on EDS'
Available Separate Consolidated Net Income as described in Note 1 to EDS'
Consolidated Financial Statements.
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EDS and its customers may, from time to time, modify their contractual
arrangements. For customer contracts accounted for under the percentage of
completion method, such changes would be reflected in results of operations as
a cumulative change in accounting estimate in the period the revisions are
determined.
Seasonality and Inflation. EDS' revenues vary over the calendar year, with
the fourth quarter generally reflecting the highest revenues for the year due
to certain EDS services that are purchased more heavily in the fourth quarter
as a result of the spending patterns of several customers. In addition,
revenues have generally increased from quarter to quarter as a result of new
business added throughout the year. EDS believes that inflation generally had
little effect on its results of operations for each of the years ended
December 31, 1995, 1994, and 1993.
FINANCIAL POSITION
Assets. In 1995, EDS' total assets increased to $10,832.4 million, a 23%
increase over total assets of $8,786.5 million at December 31, 1994. This
change represents increases in accounts receivable and property and equipment
for contract-related investments and an increase in intangible assets related
to acquisitions, primarily the acquisition of A.T. Kearney. Accounts
receivable from outside customers increased $789.9 million due to more
competitive contract terms, receivables acquired in the A.T. Kearney
acquisition ($149.3 million), and an increase in unbilled receivables on newer
contracts.
At December 31, 1995, EDS held cash and cash equivalents of $548.9 million,
had working capital of $1,120.1 million, and a current ratio of 1.3-to-1. This
compares to $480.9 million in working capital and a 1.2-to-1 current ratio at
December 31, 1994.
On August 31, 1995, EDS acquired A.T. Kearney, a Chicago-based international
management consulting firm. At the acquisition date, EDS paid approximately
$113 million in cash and $162 million in short and long-term notes to A.T.
Kearney shareholders in connection with this acquisition. Additionally, the
terms included restricted stock grants of approximately 6.6 million shares of
Class E Common Stock, which will vest over a ten-year period for certain A.T.
Kearney personnel remaining with EDS. Prior to December 31, 1995, EDS retired
$80.9 million of short-term notes related to the acquisition. After the
acquisition, EDS' Management Consulting Services unit was combined with A.T.
Kearney to create a new wholly owned subsidiary operating under the A.T.
Kearney brand.
Return on assets was 9.6% in 1995, compared with 10.5% for 1994 and 11.1%
for 1993. Return on assets has declined due to the increasing capital
intensity of EDS' business and increased contract-related investments in
computers and telecommunications equipment, software, and other property and
equipment. Additionally, EDS' results for the year ended December 31, 1995,
include the results of A.T. Kearney's operations only since the acquisition
date.
Liabilities and Stockholder's Equity. Total liabilities increased in 1995 to
support business growth and as a result of the issuance of EDS' Five-year and
Ten-year Notes. Additionally, EDS revised its agreement with a syndicate of
banks, which increased EDS' committed lines of credit to $2,500.0 million.
Total debt was $2,100.6 million and $1,224.4 million at December 31, 1995 and
1994, respectively, which consisted of long- and short-term notes payable. The
total debt-to-capital ratio (which includes current notes payable as a
component of capital) was 29.7% at December 31, 1995, and 22.4% at December
31, 1994. The ratio of noncurrent debt-to-capital was 27% at December 31,
1995, and 19% at December 31, 1994. At December 31, 1995, EDS had unused
uncommitted short-term lines of credit totaling $728.2 million and unused
committed lines of credit of $2,500.0 million. The unused committed lines of
credit of $2,500.0 million serve as a backup facility for EDS' commercial
paper borrowings. At December 31, 1995, EDS had total committed lines of
credit of $2,515.5 million.
Stockholder's equity was $4,978.5 million at December 31, 1995, and $4,232.5
million at December 31, 1994. Return on stockholder's equity was 20.4% in
1995, compared with 20.9% in 1994 and 21.7% in 1993.
New Accounting Standards. The Financial Accounting Standards Board (FASB)
has issued Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for
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Long-Lived Assets to Be Disposed Of, which will become effective for fiscal
years beginning in 1996. This Statement requires that long-lived assets and
certain identifiable intangibles to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, and for the measurement of
loss to be based on the fair value of the asset. In addition, long-lived
assets and certain identifiable intangibles to be disposed of are generally to
be reported at the lower of the carrying amount or fair value less selling
costs.
As discussed above, EDS is in the process of evaluating certain aspects of
its business to identify any redundant facilities and related assets which may
no longer fit its long-term strategic objectives. Since this evaluation is not
expected to be completed until the second quarter of 1996, EDS believes the
effects of initially adopting SFAS No. 121 as of January 1, 1996 will be
immaterial to its consolidated financial statements.
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation,
which will become effective for fiscal years beginning in 1996. EDS intends to
remain on Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, for the preparation of its basic consolidated financial
statements and provide pro forma disclosures as if the SFAS No. 123 fair value
method had been applied. Accordingly, EDS expects no impact on the basic
consolidated financial statements upon adoption of this Statement.
Foreign Exchange Risk Management. The translation effects of changes in
exchange rates on EDS' Consolidated Financial Statements can be found in the
consolidated stockholder's equity currency translation adjustment in Note 10
and in the effect of exchange rate changes on cash and cash equivalents in the
EDS consolidated statements of cash flows. The disclosure of nonfunctional
currency transactions gains (losses) is contained in the "Summary of
Significant Accounting Policies" in Note 1. All other effects of changes in
exchange rates on EDS' consolidated financial statements are immaterial due to
the general nature of EDS' business and its risk management strategies
described below. EDS' foreign subsidiaries conduct nearly all aspects of their
respective operations using their respective functional currencies.
Accordingly, such operations are not expected to yield significant currency
risks.
EDS hedges predominantly all its transaction risk associated with material
monetary assets and liabilities denominated in currencies other than the U.S.
dollar. EDS does not hedge the foreign exchange risk related to either the
translation of foreign earnings into U.S. dollars or the translation of its
net investment in foreign subsidiaries into U.S. dollars. EDS has no material
unhedged monetary assets or liabilities denominated in currencies other than
its foreign operations' functional currencies.
EDS conducts business in the United States and approximately 40 other
countries. EDS' most significant foreign currency transaction exposures relate
to Canada, Western European countries (primarily Germany, the United Kingdom,
Italy, the Netherlands and Switzerland) and New Zealand. EDS manages the
foreign exchange transaction exposure resulting from its multinational
operations primarily by utilizing short-term forward contracts which are used
to hedge the aggregate net exposure in each currency. Derivatives involve, to
varying degrees, elements of credit risk in the event a counterparty should
default and market risk as the instruments are subject to rate and price
fluctuations. Credit risk is managed by dealing solely with major commercial
banks with high quality credit and, therefore, EDS management does not expect
to incur any cost due to counterparty default. Market risk is inherently
limited by the fact that EDS holds offsetting asset or liability positions.
Pursuant to its prescribed policies, EDS does not hold or issue financial
instruments for trading purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, net cash provided by operating
activities was $1,259.0 million, down $273.5 million from the same period in
1994 due to increases in accounts receivable, including an increase in
receivables from GM and its affiliates. For the year ended December 31, 1994,
net cash provided by operating activities was $1,532.5 million, up $111.5
million from 1993, due in part to increases in accounts payable and accrued
liabilities. Net cash provided by operating activities for 1993 consisted of
depreciation and amortization as well as increases in working capital items.
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For the year ended December 31, 1995, net cash used in investing activities
increased $241.8 million, to $1,781.5 million when compared to the same period
for 1994. Net cash used in investing activities increased $472.0 million, to
$1,539.7 million in 1994, from $1,067.7 million in 1993. Consistent with the
increasing capital intensity of EDS' business, cash used in investing
activities consisted largely of payments for purchases of property and
equipment of $1,261.5 million, $1,186.0 million, and $816.4 million in 1995,
1994, and 1993, respectively. Additionally, EDS used cash for investments in
leases and other assets and for payments related to acquisitions.
Net cash provided by financing activities was $465.1 million for the year
ended December 31, 1995, up $258.6 million from the corresponding period in
1994 due in part to the issuance of long-term debt and notes payable,
particularly the issuance of the Five-year Notes and the Ten-year Notes. For
the year ended December 31, 1994, net cash provided by financing activities
was $206.5 million, compared with cash used in financing activities of $378.2
million in 1993. EDS paid cash dividends to GM totaling $251.3 million, $231.1
million, and $192.1 million in 1995, 1994, and 1993, respectively.
EDS expects that its principal uses of funds for the foreseeable future will
be for capital expenditures, debt repayment, working capital and costs
associated with the Split-Off, as well as the payment of the Special Inter-
Company Payment to General Motors. Capital expenditures may consist of
purchases of computer and telecommunications equipment, buildings and
facilities, land, and software, as well as acquisitions. EDS' projected
capital expenditures for 1996 are approximately $1,400.0 to $1,700.0 million.
However, actual capital expenditures will depend to a significant extent on
the level of acquisition and joint venture activities by EDS, as well as
capital requirements for new business. EDS anticipates that cash flows from
operations and unused borrowing capacity under its existing lines of credit
will provide sufficient funds to meet its needs for at least the next year.
The Existing IT Services Agreements provide for GM to pay EDS on the 15th
day of the month in which services are provided with respect to a substantial
portion of services. Under the IT Services Agreements, there will be a
transition over a two-year period, beginning in 1997, to payment on the 20th
day of the month following service for all agreements which do not already
have payment terms at least that favorable to GM. See "Relationship Between
General Motors and EDS--Post-Split-Off Arrangements--IT Services Agreements--
Payment Terms." These revised payment terms are expected to result in an
increase in EDS' working capital requirements. EDS will obtain the funds for
this working capital impact and for the Special Inter-Company Payment through
borrowings under its existing commercial paper or bank credit facilities. EDS
currently anticipates that it may seek to refinance such commercial paper or
bank borrowings as part of its general plan to extend maturities of its
indebtedness.
The competitive environment and changing market forces are increasing the
capital intensity of EDS' business. Increasing amounts of capital will be
required by EDS in order to make investments in acquisitions, joint ventures
and strategic alliances in other parts of the information industry and in new
product development. In addition, information technology customer contracts
frequently require investments in computers and telecommunications equipment,
software, and other property, plant and equipment. For these reasons, EDS'
ability to continue to access the capital markets on an efficient basis will
become increasingly important to its ability to compete effectively.
The Split-Off is intended, among other things, to afford EDS more flexible
access to capital markets to meet its growing needs without regard to
competing considerations of GM and its affiliates. Following the Split-Off,
EDS may over time incur substantially more debt than it has while a subsidiary
of GM. As a result, EDS' financial leverage may increase in the future. To the
extent that EDS would become more highly leveraged following the Split-Off,
EDS may be required to pay higher interest rates on its outstanding
borrowings. In order to provide the funds necessary for EDS' future
acquisition and expansion goals, EDS expects that it might incur, from time to
time, additional bank financing and/or issue equity or debt securities,
depending on market and other conditions.
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BUSINESS OF EDS
GENERAL
EDS is a world leader in applying IT, with over 30 years of experience in
using advanced computer and communications technologies to meet the business
needs of its clients.
Electronic Data Systems Holding Corporation was incorporated in Delaware in
1994 for the purpose of holding the capital stock of Electronic Data Systems
Corporation, which was incorporated in Texas in 1962. General Motors acquired
all of the capital stock of Electronic Data Systems Corporation in October
1984. Prior to that time, Electronic Data Systems Corporation had been an
independent, publicly held corporation. In December 1995, Electronic Data
Systems Holding Corporation formed a new wholly owned subsidiary, Electronic
Data Systems Intermediate Corporation, a Delaware corporation, to which it
contributed all of the capital stock of Electronic Data Systems Corporation.
Thus, as of the date hereof, Electronic Data Systems Holding Corporation
owns all of the capital stock of Electronic Data Systems Intermediate
Corporation, which in turn owns all of the capital stock of Electronic Data
Systems Corporation. Immediately prior to the Split-Off, (i) Electronic Data
Systems Intermediate Corporation will be merged with and into Electronic Data
Systems Holding Corporation and (ii) Electronic Data Systems Corporation will
be merged with and into Electronic Data Systems Holding Corporation and,
pursuant to such merger, Electronic Data Systems Holding Corporation will be
renamed "Electronic Data Systems Corporation." Unless the context otherwise
requires, references herein to EDS give effect to the transactions described
in the preceding sentence and include Electronic Data Systems Corporation and
its subsidiaries.
EDS' principal executive offices are located at 5400 Legacy Drive, Plano,
Texas 75024-3105 (telephone number (214) 604-6000).
STRATEGY
EDS' strategy is to offer a full range of IT services to enterprises,
government entities and individuals worldwide. These services include
management consulting, systems development, systems integration, systems
management and process management. EDS' organizational structure is designed
to offer the full range of services on a global basis through business units
that focus along the lines of specified industries, such as manufacturing,
financial services, government, communications, health, travel and
transportation, and energy, as well as geographically, such as on the
Americas, Europe, and Asia/Pacific and Japan. Each business unit is further
organized into separate, more focused business units within the relevant
industry or geography. EDS seeks to leverage its knowledge and resources for
its individual customers by drawing from the many industries and skill sets
available across a wide range of geographies. EDS believes its organizational
structure enables it to better focus on and use the knowledge gained from the
industries and geographies in which its customers operate and therefore better
serve its customers and its customers' customers.
EDS seeks to continue its leadership position in the IT industry through
increased globalization and expanded product and service offerings. The
percentage of EDS' revenues outside the United States has increased from 18%
in 1990 to 30% in 1995, and the number of countries in which EDS operates has
increased from 28 in 1990 to 40 in 1995. EDS believes that corporations are
becoming increasingly globalized because other companies enter their markets
from other geographies or they desire to expand into additional geographies.
This trend is fostered by advancements in communications technology which
compress time and distance. EDS intends to continue to capitalize on the
general trend toward convergence of the world's markets by enhancing its
capability through expanded service offerings as well as through strategic
alliances with global partners and distributors. The acquisition of A.T.
Kearney in 1995, which expanded EDS' capabilities along a range of industries,
skill sets and regions, is an example of such strategic growth.
EDS seeks to create value by imbedding more information content into the
products and services it delivers. By creating "smart" systems, or systems
with built-in flexibility, EDS can enhance the quantity and type of
information available to a customer, increase the value of that information to
the customer and better enable the customer to take full advantage of that
information for its business needs.
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EDS believes that as the trend toward the individualization of products and
services accelerates, the ability to customize the delivery of information to
the individual consumer will become increasingly important. This trend is
evidenced by the growth of the internet and electronic commerce markets. EDS
anticipates building the tools, capabilities and offerings to be a significant
participant in the internet and electronic commerce markets. EDS' delivery of
services to these markets, which include the home banking and home shopping
markets, is generally to the consumer through EDS' customer.
SERVICES
EDS offers its clients a continuum of services worldwide, including the
management of computers, networks, information systems, information processing
facilities, business operations and related personnel, providing to its
clients advantages in cost-effectiveness, speed of implementation and state-
of-the-art technology. In delivering this continuum of services, EDS generally
performs one or more of five basic functions:
. MANAGEMENT CONSULTING SERVICES. Through its A.T. Kearney subsidiary, EDS
offers management consulting services, including business and market
strategy, benchmarking and best practices analysis, business process
reengineering, manufacturing and operations improvement, organizational
effectiveness, global sourcing and logistics and supply change
management.
. CREATION OF IT SYSTEMS--SYSTEMS DEVELOPMENT. EDS designs, develops and
implements information systems or adds features that may increase the
capabilities of existing systems.
. ASSEMBLY OF IT PLATFORMS--SYSTEMS INTEGRATION. EDS selects technologies
and assembles integrated systems that may include software, hardware,
telecommunications and systems support and maintenance.
. MANAGEMENT OF IT OPERATIONS--SYSTEMS MANAGEMENT. EDS assumes and manages
the operation of part or all of a client's IT operations, which may
include equipment, personnel, information processing systems and
communications networks.
. MANAGEMENT OF BUSINESS OPERATIONS--PROCESS MANAGEMENT. EDS manages an
entire business function within the client's enterprise, which may
include IT operations as well as other activities such as remittance
processing, marketing, sales, customer service and training.
EDS is able to leverage its extensive technical infrastructure and other
numerous resources to offer IT services at clients' sites or through large
scale information processing centers or specialized distributed service
centers located worldwide. EDS' digital telecommunications network, EDSNET(R),
is capable of worldwide transmission of clients' voice, digital and video data
using the integrated fiber optic, microwave and satellite facilities of what
EDS believes is one of the world's largest digital telecommunications
networks, excluding government networks and common carriers. EDS constantly
examines and tests computer hardware and software offered by suppliers
worldwide as part of its efforts to assess and use in its operations, and
offer to EDS' clients, the technological changes that continuously occur
within the computer industry, including developments in distributed computing
and client/server architecture. EDS has developed computer-aided software
engineering ("CASE") tools to assist in generating new software to keep pace
with rapidly evolving strategies involving hardware technologies and
information processing theories and to facilitate the rapid deployment of its
products and services to the market.
BUSINESS AREAS
EDS conducts its sales, marketing and service activities on a global basis
through business units that focus both geographically and vertically along the
lines of specified industries. By combining the skills of an industry-focused
business unit with a geographic business unit, EDS is able to respond to a
client's requirements with people who are knowledgeable about a specific
industry and the client's business.
Additionally, certain services provided by EDS to all clients are
concentrated in specific service units. These service units provide electronic
transfer, microcomputer technology, computer assisted design, manufacturing
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and engineering ("CAD," "CAM" and "CAE") and other services to EDS' clients in
coordination with the business units having primary responsibility for a
particular client.
The industry areas to which EDS provides IT services can be broadly
categorized as follows:
. MANUFACTURING. EDS assists numerous manufacturing companies in their
worldwide operations and in their implementation of global competitive
strategies, providing them with advanced capabilities in information
processing, information management and telecommunications. EDS offers
manufacturing clients expertise in electronic data interchange,
engineering information systems, integrated document processing,
inventory control, materials handling, process control, synchronous
manufacturing, artificial intelligence techniques and capabilities in
CAD/CAM/CAE on an integrated basis.
. GOVERNMENT. EDS performs IT services for national, state and local
governments in the U.S. and around the world. At the national level, EDS
targets its services at both civil and defense organizations with
complex, large-scale information needs. Within state and local
governments, key markets of EDS include human services, transportation,
public safety and administration and finance. EDS' core competency for
managing complexity and its proven ability to leverage process
performance improvement techniques and technologies from the private
sector into the public sector has allowed EDS to expand its government
presence worldwide.
. FINANCIAL SERVICES. EDS offers a full range of IT services to the global
financial services industry. The industry's expansion of products and
services has led to an unprecedented dependence on IT and its integration
with a financial institution's business processes and strategy. Through
strategic alliances and acquisitions, EDS has positioned itself to
support a wide range of industry segments, including commercial banks,
consumer finance companies, commercial insurance companies, investment
banks, regional and community banks, credit unions, brokerage and
securities firms, thrifts and mortgage lenders. EDS' services are
augmented by a full range of industry-specific products and services,
including data processing, automated teller machines ("ATMs"), debit and
credit card services, voice and teller automation, item and remittance
processing, crossborder funds transfer and currency exchange, consumer
asset management, customer service technology, remote/home banking and
business-process improvement.
. COMMUNICATIONS. EDS offers a full spectrum of IT services to the global
communications market in addition to industry specific technology
platforms tailored to the information needs of each industry segment.
These services include clearinghouse, roaming and billing services and
systems for the wireless industry, information management and billing
systems for the cable television industry, and operational support
systems and billing systems for the telecommunications industry. EDS also
offers multimedia-based services designed to satisfy the predicted demand
of emerging full service network operators within the interactive
multimedia segment.
. HEALTH. EDS offers IT services to companies in the health care industry,
providing the management of information required in this highly regulated
industry in a rapidly-changing, record-intensive environment. EDS'
services go beyond traditional outsourcing and include solution sets to
improve specific business areas, including sales and marketing, customer
service and claims management.
. TRAVEL AND TRANSPORTATION. EDS' travel and transportation group offers IT
services to customers worldwide in the air transportation, freight,
computer reservation system, vehicle rental, travel agency, cruise line
and hospitality industries. EDS' IT services to these industries are
designed to meet customer requirements for reducing operating costs,
improving quality and increasing responsiveness to rapidly changing
market conditions.
. ENERGY. EDS provides IT services on a global basis to companies in the
petroleum, natural gas, chemical, pharmaceutical, mining and utility
industries. EDS' services in the energy industry are intended to improve
inventory control, reduce time to market, lower product cost, improve
rate case approval, improve capacity planning and increase efficiency in
regulatory and environmental compliance.
In certain of these markets, EDS provides services, such as ATM and travel
related services, directly to individual consumers.
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ACQUISITIONS AND STRATEGIC ALLIANCES
From time to time EDS has made acquisitions and entered into strategic
alliances in an effort to obtain a competitive advantage or a new or expanded
presence in targeted geographic or service markets. For example, EDS acquired
the domestic and international management consulting business of A.T. Kearney
in August 1995. A.T. Kearney is one of the world's leading international
management consulting and executive search firms serving clients throughout
the world.
EDS believes that a convergence of the computing and software,
communication, media and entertainment and electronic commerce industries is
occurring and will continue. As a result, acquisitions, joint ventures and
strategic alliances are expected to be increasingly important to EDS' ability
to compete effectively. See "Risk Factors Regarding EDS after the Split-Off--
No Assurance of Strategic Alliances and Other Business Opportunities,"
"Special Factors--Purposes of the Split-Off" and "--Competition."
REVENUES
EDS receives fees for all aspects of its continuum of services. The fees are
generally paid pursuant to predetermined rates set forth in contracts.
Contracts with respect to non-General Motors business generally have terms of
one to 10 years.
EDS' total revenues grew from $786 million in its 1984 fiscal year (the last
full fiscal year before General Motors' acquisition of EDS) to $12.4 billion
in 1995. Although revenues attributable to General Motors and its affiliates
have increased from 1985 to 1995, they have decreased as a percentage of total
revenues from approximately 70% in 1985 to approximately 31% in 1995 as a
result of the rapid revenue growth of EDS' outside (non-General Motors)
business. As a percentage of total revenues, revenues attributable to EDS'
outside business have increased from approximately 30% in 1985 to
approximately 69% in 1995.
The following table sets forth the percentage of revenues for each of the
years in the three-year period ended December 31, 1995 derived by EDS from the
identified principal business areas.
<TABLE>
<CAPTION>
PERCENTAGE OF
REVENUES
FOR THE YEARS
ENDED DECEMBER
31,
----------------
BUSINESS AREA 1995 1994 1993
------------- ---- ---- ----
<S> <C> <C> <C>
Manufacturing............................................. 47% 49% 51%
Financial Services........................................ 14 14 15
Government................................................ 12 10 10
Communications............................................ 8 7 6
Health.................................................... 7 8 8
Travel and Transportation................................. 4 4 5
Energy.................................................... 3 4 4
Other..................................................... 5 4 1
--- --- ---
Total................................................. 100% 100% 100%
=== === ===
</TABLE>
Other than General Motors, no one client accounted for more than 5% of EDS'
total revenues in 1995, 1994 or 1993. See "EDS Management's Discussion and
Analysis of Financial Condition and Results of Operations--Revenues."
SERVICES FOR GENERAL MOTORS
Approximately 31% of EDS' total revenues in 1995 was attributable to General
Motors and its affiliates. EDS provides substantially all of the worldwide
data processing and telecommunications activities for General Motors and its
affiliates (other than Hughes, with the exception of its subsidiary, Delco),
including integrated information systems for payroll, health and benefits,
office automation, communications and plant automation functions. The loss of
General Motors as an ongoing major customer of EDS would have a material
adverse
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effect on EDS. See "Risk Factors Regarding EDS after the Split-Off--Dependence
on Major Customer; Changes in Pricing and Terms." The IT services to be
provided by EDS under the IT Services Agreements will generally be similar to
those provided to General Motors under the Existing IT Services Agreements.
See "Relationship Between General Motors and EDS--Post-Split-Off
Arrangements--IT Services Agreements."
BACKLOG
EDS' backlog represents an estimate of the remaining future revenue from
existing signed contracts. Using the best available information, EDS
determines this estimate on an annual basis as of December 31 of each year.
The estimate includes contracts with non-GM customers which have a term of 12
months or longer and is calculated for each of the next ten years plus a
summary amount for contracts with terms extending beyond such ten-year period.
EDS historically has not included estimates for future revenues from General
Motors and its subsidiaries because of the intercompany relationships with
these entities as well as the ongoing nature of the Existing IT Services
Agreements. The EDS backlog estimate includes revenues expected under current
terms of executed contracts, revenues from government contracts in which
quantities are not definite but estimable, and a risk-adjusted estimate of
renewals and extensions for those contracts which contain renewal or extension
provisions.
Changes in the backlog calculation from year to year result from (i)
additional revenue from the signing of new contracts, (ii) reduction in
revenue from fulfilling contracts during the most recent year, (iii) reduction
in revenue from early termination of contracts, and (iv) adjustments to
estimates of previously included contracts. On an annual basis, EDS reviews
each contract included in the calculation and adjusts estimates for those
contracts based on the latest available information.
At December 31, 1995 and 1994, EDS' firm backlog for services was
approximately $39.8 billion and $34.5 billion, respectively.
COMPETITION
EDS experiences competition in the IT industry and in the broader
information industry, which includes the computing, communications and
media/entertainment industries. Today, EDS' principal competitors in the IT
services industry include International Business Machines Corporation,
Andersen Consulting LLP, Computer Sciences Corporation, AT&T Corp. ("AT&T"),
MCI Communications Corporation/SHL Systemhouse Inc. ("MCI") and Cap Gemini
Sogeti S.A.
EDS has historically faced competition principally from other companies
providing information technology systems and services. As the markets for IT
services have grown and as the services demanded by customers have expanded
and increased in complexity, EDS' competitors have expanded from niche-
oriented, geographically-focused companies to include broader-based, global
competitors.
EDS believes that a long-term trend of convergence is occurring in the
computing, communications and media/entertainment sectors of the information
industry. As this trend continues, companies historically involved in the
communications and media/entertainment sectors of the information industry, as
well as companies principally involved in other portions of the IT industry,
will increasingly seek to compete in the businesses in which EDS has
traditionally operated. For example, AT&T and MCI now offer services that
combine computing with communications. Similarly, EDS' strategy includes
continuing to leverage its expertise into other parts of the information
industry. The ability of EDS to remain competitive will depend in part upon
its continued ability to finance and acquire the resources necessary to offer
broad-based services and products on an efficient basis. See "Special
Factors--Purposes of the Split-Off."
In addition, technology in the IT industry is in a rapid and continuing
state of change as new technologies continue to be developed, introduced and
implemented. EDS management believes that its ability to continue to
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compete effectively also will depend upon its ability to develop and market
services and products that meet changing user needs and respond to
technological changes on a timely and cost-effective basis.
EMPLOYEES
As of December 31, 1995, EDS employed approximately 96,000 persons located
in the United States and approximately 40 other countries. None of EDS' United
States or Canadian employees is currently employed under an agreement with a
collective bargaining unit, and EDS believes that its relations with employees
are good. To maintain its technical expertise and its responsiveness to
evolving client needs, EDS provides its employees with extensive continuing
education and training, as well as leadership and professional development
programs.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
EDS holds a number of patents and pending patent applications in the United
States and in foreign countries. EDS' policy generally is to pursue patent
protection that it considers necessary or advisable for the patentable
inventions and technological improvements of its business. EDS also relies
significantly on trade secrets, copyrights, technical expertise and know-how,
continuing technological innovations and other means, such as confidentiality
agreements with employees, consultants and customers, to protect and enhance
its competitive position.
Some of the business areas in which EDS is engaged are highly patent-
intensive. Many of EDS' competitors have obtained, and may be expected to
obtain in the future, patents that cover or affect services or products
directly or indirectly related to those offered by EDS. EDS routinely receives
communications from third parties asserting patent or other rights covering
EDS' services or products. There can be no assurance that EDS is aware of all
patents containing claims that may post a risk of infringement by its services
or products. In addition, patent applications in the United States are
confidential until a patent is issued and, accordingly, EDS cannot evaluate
the extent to which its services or products may infringe claims contained in
pending patent applications. In general, if it were determined that one or
more of the services or products offered by EDS infringe patents held by
others, EDS would be required to cease developing or marketing such services
or products, to obtain licenses to develop or market such services from the
holders of the patents or to redesign such services or products in such a way
as to avoid infringing the patent claims. The extent to which EDS may be
required in the future to obtain licenses with respect to patents held by
others and the availability and cost of any such licenses are currently
unknown. There can be no assurance that EDS would be able to obtain such
licenses on commercially reasonable terms or, if it were unable to obtain such
licenses, that it would be able to redesign its services or products to avoid
infringement or that litigation would not ensue.
EDS management is not aware of any pending patent or proprietary right
disputes against EDS that would have a material adverse effect on EDS'
consolidated financial position or results of operations.
REGULATION
Various aspects of EDS' business are subject to federal and state regulation
noncompliance with which, depending upon the nature of the noncompliance, may
result in the suspension or revocation of any license or registration at
issue, the termination or loss of any contract at issue or the imposition of
contractual damages, civil fines or criminal penalties. EDS has experienced no
material difficulties in complying with the various laws and regulations
affecting its business.
REAL PROPERTY
As of December 31, 1995, EDS had approximately 442 locations operating in 41
states and 221 cities in the United States and approximately 257 additional
locations in 130 cities in approximately 40 countries outside the United
States. At such date, approximately 6.1 million square feet of space was owned
by EDS and an additional
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13.8 million square feet of space was leased. EDS' worldwide headquarters,
which is owned by EDS and located on a 363 acre campus in Plano, Texas,
contains approximately 3.5 million square feet of office and data center
space. EDS' two information management centers, which monitor the EDSNET(R)
global telecommunications network, are located in Plano, Texas and Stockley
Park, United Kingdom. EDS' large scale information processing centers ("IPCs")
are located throughout the United States and in each of Canada, Brazil,
France, Germany, the Netherlands, Spain and the United Kingdom. In addition,
EDS operates distributed service centers ("DSCs") at customer owned sites or
EDS owned or leased facilities throughout the world. DSCs generally support a
single or small number of customers with more specialized requirements than
those supported at the large scale, multiple customer IPCs.
Leased properties consist primarily of office, warehouse, DSC and non-U.S.
IPC facilities. Lease terms are generally five years or, with respect to
leases related to a specific customer contract, have a term concurrent with
that contract. Upon expiration of its leases, EDS does not anticipate any
difficulty in obtaining renewals or alternative space. In addition to the
leased property referred to above, EDS occupies office space at customer
locations throughout the world. Such space is generally occupied pursuant to
the terms of the respective customer contracts.
EDS management believes that its facilities are suitable and adequate for
its business; however, EDS periodically reviews its space requirements to
consolidate and dispose of or sublet facilities which are no longer required
in connection with its business and to acquire new space to meet the needs of
its business.
LEGAL PROCEEDINGS
From time to time EDS is involved in various litigation matters arising in
the ordinary course of its business. EDS management does not believe that
disposition of any current matter will have a material adverse effect on EDS'
consolidated financial position or results of operations.
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EDS MANAGEMENT AND EXECUTIVE COMPENSATION
DIRECTORS AND EXECUTIVE OFFICERS
The EDS Board currently has five members, all of whom are executive officers
of EDS. Effective as of the date of consummation of the Split-Off, three of
the current members of the EDS Board will resign as directors. In addition,
effective as of the same date, the total number of directors will be increased
to 10 and eight additional persons will commence to serve as directors. When
such persons commence to serve as directors, a majority of the members of the
EDS Board will consist of independent directors.
Set forth below are the names, ages and positions with EDS upon consummation
of the Split-Off of the persons expected to be directors and executive
officers of EDS immediately after such consummation.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Lester M. Alberthal, Jr.
........................ 52 Chairman of the Board and Chief Executive Officer
Gary J. Fernandes........ 52 Vice Chairman and Director
Jeffrey M. Heller........ 56 President, Chief Operating Officer and Director*
John R. Castle, Jr. ..... 53 Senior Vice President
Paul J. Chiapparone...... 56 Senior Vice President
Joseph M. Grant.......... 57 Senior Vice President and Chief Financial Officer
Dean Linderman........... 52 Senior Vice President
G. Stuart Reeves......... 56 Senior Vice President
James A. Baker, III...... 65 Director*
Richard B. Cheney........ 55 Director*
Ray J. Groves............ 60 Director*
Ray L. Hunt.............. 53 Director*
C. Robert Kidder......... 51 Director*
Judith Rodin............. 51 Director*
Enrique J. Sosa.......... 56 Director*
</TABLE>
- --------
*Election as director to be effective immediately after consummation of the
Split-Off.
The EDS Board will be divided into three classes serving staggered terms.
Directors in each class will be elected to serve for three-year terms and
until their successors are elected and qualified. Each year, the directors of
one class will stand for election as their terms of office expire. Messrs.
Groves, Heller and Hunt will be designated as Class I directors, with their
terms of office expiring in 1997; Messrs. Cheney, Fernandes, Kidder and Sosa
will be designated as Class II directors, with their terms of office expiring
in 1998; and Messrs. Alberthal and Baker and Dr. Rodin will be designated as
Class III directors, with their terms of office expiring in 1999.
The EDS Board has established three standing committees, an Audit Committee,
a Compensation and Benefits Committee and a Governance Committee. The Audit
Committee will initially consist of Messrs. Groves, Hunt and Sosa. The
Compensation and Benefits Committee will initially consist of Messrs. Groves
and Kidder, who are "disinterested persons" within the meaning of Rule 16b-3
under the Exchange Act. The Governance Committee will initially consist of
Messrs. Baker and Cheney and Dr. Rodin, with the Chairman of the Board being
an ex-officio, non-voting member.
The Audit Committee will recommend to the EDS Board the independent public
accountants to be selected to audit EDS' annual financial statements. The
Audit Committee will also review the planned scope of the annual external and
internal audits, the independent accountants' and internal auditors' reports
to management and management's responses thereto, possible violations of EDS'
business ethics and conflicts of interest policies and the effectiveness of
EDS' internal audit staff.
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The Compensation and Benefits Committee will establish remuneration levels
for senior executives of EDS, review the performance of the Chief Executive
Officer, review significant employee benefit programs and establish and
administer executive compensation programs, including bonus plans, stock
option and other equity-based programs, deferred compensation plans and any
other cash or stock incentive programs.
The Governance Committee will recommend to the EDS Board the slate of
nominees to be elected to the EDS Board and to be selected for membership on
the various EDS Board committees and will recommend a successor to the Chief
Executive Officer when a vacancy occurs through retirement or otherwise.
The EDS Board may, from time to time, establish other committees to
facilitate the management of EDS or for other purposes it may deem
appropriate.
Executive officers serve at the discretion of the EDS Board.
Set forth below is a description of the backgrounds of the persons expected
to be directors and executive officers of EDS upon the consummation of the
Split-Off.
Mr. Alberthal has been President of EDS since April 1986, Chief Executive
Officer since December 1986 and Chairman of the Board since June 1989. Mr.
Alberthal joined EDS in 1968. He became responsible for EDS' health care
division in 1974 and was named Senior Vice President with responsibility for
EDS' insurance group in 1979. Following the acquisition of EDS by General
Motors in 1984, Mr. Alberthal led all non-General Motors North American
operating groups. Mr. Alberthal is on the Board of Directors of Baker Hughes
Incorporated.
Mr. Fernandes has been a Senior Vice President of EDS since October 1984 and
a director of EDS since October 1981. Mr. Fernandes has been elected as the
Vice Chairman of EDS effective upon consummation of the Split-Off. Mr.
Fernandes has oversight responsibility for EDS' worldwide business development
and corporate development (including marketing and strategic planning) and is
Chairman of its A.T. Kearney management consulting services subsidiary. Mr.
Fernandes joined EDS in 1969 and has served in numerous management capacities
in the United States, Europe and Japan. Mr. Fernandes is a director of The
Southland Corporation, Westcott Communications, Inc., Amtech Corporation and
John Wiley & Sons, Inc.
Mr. Heller has been a Senior Vice President of EDS since October 1984 and a
director of Electronic Data Systems Corporation since April 1983. Mr. Heller
has been elected as the President and Chief Operating Officer and a director
of EDS effective upon consummation of the Split-Off. Mr. Heller has oversight
responsibility for EDS' Asia/Pacific operations, global communications
business units and technical services groups. Mr. Heller joined EDS in 1968
and has served in numerous technical management positions. Mr. Heller is a
director of Westcott Communications, Inc.
Mr. Castle has been a Senior Vice President of EDS since October 1988. He
has oversight responsibility for EDS' government affairs, communications and
public relations groups and EDS' legal department. Prior to joining EDS in
1988, Mr. Castle was a partner in the Dallas law firm of Hughes & Luce.
Mr. Chiapparone has been a Senior Vice President of EDS since April 1986. He
has oversight responsibility for EDS' business units serving General Motors
and other customers in the manufacturing industry. Mr. Chiapparone joined EDS
in 1966 and has served in numerous management capacities. Mr. Chiapparone is a
director of St. Jude Medical, Inc.
Mr. Grant has been Chief Financial Officer of EDS since December 1990 and a
Senior Vice President since February 1992. Mr. Grant has oversight
responsibility for EDS' administration and corporate finance groups. Prior to
joining EDS in December 1990, Mr. Grant served as executive vice president and
chief systems officer for American General Corporation from 1989 to 1990 and
as chairman of the board and chief executive officer of Texas American
Bancshares Inc. from 1986 to 1989. Mr. Grant is a director of Heritage Media
Corporation, American Eagle Group, Inc. and NorAm Energy Corp.
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Mr. Linderman has been a Senior Vice President of EDS since April 1986. He
has oversight for EDS' business units serving customers in the financial,
energy, travel and transportation, health care and insurance industries, as
well as EDS' operations in Canada, Mexico and Central and South America and
its employee development units. Mr. Linderman joined EDS in 1970 and has
served in numerous management positions.
Mr. Reeves has been a Senior Vice President since February 1987. Mr. Reeves
has oversight responsibilities for EDS' European operations. Mr. Reeves joined
EDS in 1967, and has held numerous technical and management positions.
Mr. Baker has been elected as a director of EDS effective upon consummation
of the Split-Off. Mr. Baker has been a Senior Partner of Baker & Botts, L.L.P.
since March 1993 and a Senior Counselor of The Carlyle Group, a merchant
banking firm, since 1993. Mr. Baker served as Senior Counselor to the
President of the United States and White House Chief of Staff from August 1992
to January 1993, as United States Secretary of State from January 1989 to
August 1992, as United States Secretary of the Treasury from 1985 to 1988, and
as White House Chief of Staff from 1981 to 1985.
Mr. Cheney has been elected as a director of EDS effective upon consummation
of the Split-Off. Mr. Cheney has been the President and Chief Executive
Officer of Halliburton Company since October 1995 and its Chairman of the
Board since January 1996. Mr. Cheney was a Senior Fellow at the American
Enterprise Institute, a policy think tank, from January 1993 to October 1995.
Mr. Cheney served as United States Secretary of Defense from January 1989 to
January 1993. Mr. Cheney is a director of Halliburton Company, Union Pacific
Corporation and The Procter & Gamble Company.
Mr. Groves has been elected as a director of EDS effective upon consummation
of the Split-Off. Mr. Groves retired as Chairman and Chief Executive Officer
of Ernst & Young L.L.P. in September 1994, which position he had held since
October 1977, and has served as part-time Chairman of Legg Mason Merchant
Banking, Inc. since March 1995. Mr. Groves is a director of Consolidated
Natural Gas Company, Marsh & McLennan Companies, Inc., RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc.
Mr. Hunt has been elected as a director of EDS effective upon consummation
of the Split-Off. Mr. Hunt has been the Chairman of the Board, President and
Chief Executive Officer of Hunt Consolidated Inc. and the Chairman of the
Board and Chief Executive Officer of Hunt Oil Company for more than five
years. Mr. Hunt is a director of Dresser Industries, Inc., Pepsico, Inc., and
Ergo Science Corporation.
Mr. Kidder has been elected as a director of EDS effective upon consummation
of the Split-Off. Mr. Kidder has been Chairman and Chief Executive Officer of
Borden, Inc. since January 1995. Mr. Kidder was Chairman and Chief Executive
Officer of Duracell International, Inc. from August 1991 through October 1994
and its President and Chief Executive Officer from June 1988 to August 1991.
Mr Kidder is a director of Borden, Inc., Duracell International, Inc., and
Dean Witter, Discover & Co.
Dr. Rodin has been elected as a director of EDS effective upon consummation
of the Split-Off. Dr. Rodin has been President of the University of
Pennsylvania, as well as a professor of psychology and of medicine and
psychiatry at the university, since 1994. Dr. Rodin was Provost of Yale
University from 1992 to 1994 and held various professorial and other positions
at Yale from 1972 to 1994, including Dean of the Graduate School of Arts and
Sciences and Chair of the Department of Psychology. Dr. Rodin is a director of
AETNA Life and Casualty Company and Air Products and Chemicals, Inc.
Mr. Sosa has been elected as a director of EDS effective upon consummation
of the Split-Off. Since October 1995, Mr. Sosa has been an Executive Vice
President of Amoco Corporation, heading its chemicals sector. For greater than
five years prior to that time, Mr. Sosa was with The Dow Chemical Company,
most recently serving as a Senior Vice President and a director, as well as
President of Dow North America.
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DIRECTOR COMPENSATION
Each non-employee director of EDS will receive annual cash compensation in
the amount of $35,000, and will also receive annual cash compensation in the
amount of $5,000 for serving as a committee chairman and $2,500 for attendance
at each meeting of the EDS Board and each committee thereof. Any director who
is also an employee of EDS or its affiliates will not be entitled to any
compensation for serving as a director of EDS.
Amended EDS Incentive Plan
In addition, each nonemployee director will receive, on an annual basis
pursuant to the Amended EDS Incentive Plan, (i) options to purchase 1,500
shares of EDS Common Stock at an exercise price equal to the fair market value
of such shares at the date of grant and (ii) 500 restricted shares of EDS
Common Stock, which options and restricted stock will vest ratably over a
three-year period. A nonemployee 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, (i) non-qualified stock options to
purchase EDS Common Stock and/or (ii) a restricted stock award covering shares
of EDS Common Stock, in each case in accordance with the terms of the Amended
EDS Incentive Plan.
EDS Nonemployee Director Deferred Compensation Plan
The EDS Deferred Compensation Plan for Nonemployee Directors (the "EDS
Nonemployee Director Deferred Compensation Plan"), which has been adopted by
the EDS Board and approved and ratified by General Motors, permits nonemployee
directors to elect annually to defer all or a portion of their director's fees
and to have such deferred fees treated as if they had been, at the election of
the director, invested either in an interest bearing account or in units
denominated in EDS Common Stock. The EDS Nonemployee Director Deferred
Compensation Plan will be administered by a committee consisting of at least
two members of the EDS Board. Such committee shall initially be the
Compensation and Benefits Committee.
Fees deferred and treated as invested in an interest bearing account earn
interest from the effective date of the deferral until paid at a rate,
adjusted as of January 1 of each year, equal to 120% of the applicable federal
long-term rate published by the Internal Revenue Service pursuant to Section
1274(d) of the Code, compounded annually. Fees deferred and treated as
invested in EDS Common Stock shall be deemed to have purchased whole and
fractional shares of such stock on the effective date of the deferral at the
then fair market value of EDS Common Stock. At such time as dividends are paid
on EDS Common Stock, the interest bearing account established for a
nonemployee director who has elected to invest his or her fees in units
denominated in EDS Common Stock will be credited with an amount equal to the
deemed dividends thereon. Interest accrued on amounts accumulated in a
nonemployee director's interest bearing account will be credited to such
account on an annual basis.
All amounts accumulated in the account of a nonemployee director pursuant to
the EDS Nonemployee Director Deferred Compensation Plan, including any
interest or deemed dividends, will be paid to such nonemployee director
commencing upon (i) the date of termination of his or her status as a director
of EDS or (ii) the expiration of five years after such date. Any payments made
pursuant to the plan shall be in the form of cash, and a nonemployee director
may elect to receive the cash payments to which he or she is entitled (a) in a
lump sum, (b) in three equal consecutive annual installments or (c) in five
equal consecutive annual installments.
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information on
compensation earned in 1995 by Mr. Alberthal and the four other most highly
compensated executive officers of EDS.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ------------
NAME AND RESTRICTED ALL
PRINCIPAL POSITION OTHER ANNUAL STOCK OTHER
DURING 1995 YEAR SALARY BONUS(A) COMPENSATION AWARDS(B) COMPENSATION(C)
------------------ ---- -------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Lester M. Alberthal,
Jr.,
Chairman of the Board,
President and Chief
Executive Officer...... 1995 $675,000 $1,000,000 $10,902 -- $33,126
Jeffrey M. Heller,
Senior Vice President.. 1995 385,000 550,000 11,498 -- 48,588
Gary J. Fernandes,
Senior Vice President.. 1995 330,000 575,000 2,113 -- 9,026
John R. Castle, Jr.,
Senior Vice President.. 1995 370,000 450,000 1,592 -- 8,048
Dean Linderman,
Senior Vice President.. 1995 335,000 450,000 2,766 -- 10,591
</TABLE>
- --------
(a) Represents bonuses earned by the named executives with respect to the year
ended December 31, 1995. 50%, 25% and 25% of the amount reported with
respect to each named executive will be paid during 1996, 1997 and 1998,
respectively, subject to certain conditions regarding the continuation of
the named executive's employment.
(b) As of December 31, 1995, the number and fair market value of the aggregate
units representing shares of unvested restricted Class E Common Stock held
by the named executive officers is: Mr. Alberthal, 480,000 shares,
$24,960,000; Mr. Heller, 340,000 shares, $17,680,000; Mr. Fernandes,
260,000 shares, $13,520,000; Mr. Castle, 155,000 shares, $8,060,000; and
Mr. Linderman, 290,000 shares, $15,080,000. All such restricted stock
units have been granted pursuant to the Existing EDS Incentive Plan and
are scheduled to vest (subject to earlier vesting based on the achievement
of performance goals by EDS) during the period from 1996 through the
earlier of normal retirement age or 2009. Certificates for the shares
underlying such units are issuable upon vesting. Dividend equivalents are
paid to the named executive officers with respect to such restricted stock
units in the amounts and at the time of the payment of dividends on the
Class E Common Stock.
(c) Consists of (i) payments by EDS of premiums under certain life insurance
policies the proceeds of which would be applied by EDS for the benefit of
the named executives' estates and (ii) the imputed value of outstanding
non-interest bearing loans to the named executives during 1995 for the
payment of withholding taxes required as a result of the vesting of units
representing restricted Class E Common Stock under the Existing EDS
Incentive Plan. See "--Existing EDS Incentive Plan--Advancement of
Withholding Tax Payments."
AMENDED EDS INCENTIVE PLAN
The description set forth below represents a summary of the principal terms
and conditions of the Amended EDS Incentive Plan in the form approved by the
GM Board and its Executive Compensation Committee and does not purport to be
complete. Such description is qualified in its entirety by reference to the
Amended EDS Incentive Plan, a copy of which is attached as Appendix D to this
Solicitation Statement/Prospectus.
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General
The Amended EDS Incentive Plan is intended to amend and restate the Existing
EDS Incentive Plan. On March 31, 1996, the GM Board and its Executive
Compensation Committee approved the Amended EDS Incentive Plan. The Amended
EDS Incentive Plan has also been ratified and approved by the EDS Board. If
the Amended EDS Incentive Plan is approved by the requisite votes of the
common stockholders of General Motors, it will become effective in its
entirety upon consummation of the Split-Off. If the Plan is not approved by
the requisite stockholder votes, it will nonetheless become effective upon
consummation of the Split-Off insofar as it relates to Nonemployee Directors
(as defined below) but will not become effective insofar as it relates to
Employees (as defined below). Furthermore, if the Amended EDS Incentive Plan
is not approved by the common stockholders of General Motors, the Existing EDS
Incentive Plan will remain in effect (with certain modifications intended,
among other things, to reflect the assumption of such plan by EDS upon the
consummation of the Split-Off) and an aggregate of 60,000,000 shares of EDS
Common Stock will be available for future awards to Employees thereunder. A
description of the terms and provisions of the Existing EDS Incentive Plan is
provided below under "--Existing EDS Incentive Plan."
The objectives of the Amended EDS Incentive Plan are to attract and retain
key employees of EDS and its subsidiaries, to attract and retain qualified
directors of EDS, to encourage the sense of proprietorship of such employees
and directors and to stimulate the active interest of such persons in the
development and financial success of EDS and its subsidiaries. These
objectives are to be accomplished by making awards ("Awards") under the
Amended EDS Incentive Plan and thereby providing participants with a
proprietary interest in the growth and performance of EDS and its
subsidiaries.
Key employees eligible for Awards under the Amended EDS Incentive Plan (the
"Employees") are those that hold positions of responsibility and whose
performance can have a significant effect on the success of EDS and its
subsidiaries. Directors eligible for automatic or elective Awards under the
Amended EDS Incentive Plan are those who are not employees of EDS or any of
its subsidiaries (the "Nonemployee Directors").
Awards to Employees under the Amended EDS Incentive Plan ("Employee Awards")
may be made in the form of grants of stock options ("Options"), stock
appreciation rights ("SARs"), restricted or non-restricted stock or units
denominated in stock ("Stock Awards"), cash awards ("Cash Awards"),
performance awards ("Performance Awards") or any combination of the foregoing.
Awards to Nonemployee Directors under the Amended EDS Incentive Plan
("Director Awards") will be in the form of grants of Options and restricted
Stock Awards.
The Amended EDS Incentive Plan provides for Awards to be made in respect of
a maximum of 60,000,000 shares of EDS Common Stock (in addition to the shares
that are the subject of awards outstanding as of the date upon which the
Amended EDS Incentive Plan becomes effective), of which 400,000 shares will be
available for Director Awards and the remainder will be available for Employee
Awards. Shares of EDS Common Stock which are the subject of Awards that are
forfeited or terminated, expire unexercised, are settled in cash in lieu of
EDS Common Stock or in a manner such that all or some of the shares covered
thereby are not issued or are exchanged for Awards that do not involve EDS
Common Stock will again immediately become available for Awards under the
Amended EDS Incentive Plan.
The Amended EDS Incentive Plan, as it applies to Employee Awards but not
with respect to Nonemployee Directors, will be administered by the
Compensation and Benefits Committee of the EDS Board, or such other committee
as may in the future be appointed by the EDS Board (the "Committee"). To the
extent required pursuant to Rule 16b-3 under the Exchange Act in order for the
grant of Employee Awards to be exempt under Section 16, the Committee will at
all times consist of at least two members of the EDS Board of Directors who
meet the requirements of the definition of "disinterested person" set forth in
Rule 16b-3(c)(2)(i).
Insofar as the Amended EDS Incentive Plan relates to Employee Awards, the
Committee will have the exclusive power to administer the Amended EDS
Incentive Plan and to take all actions which are specifically
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contemplated thereby or are necessary or appropriate in connection with the
administration thereof. Insofar as the Amended EDS Incentive Plan relates to
Employee Awards, the Committee will also have the exclusive power to interpret
the Amended EDS Incentive Plan and to adopt such rules, regulations and
guidelines for carrying out the purposes of the Amended EDS Incentive Plan as
it may deem necessary or proper in keeping with the objectives thereof. The
Committee may, in its discretion, provide for the extension of the
exercisability of an Employee Award, accelerate the vesting or exercisability
of an Employee Award, eliminate or make less restrictive any restrictions
contained in an Employee Award, waive any restriction or other provision of
the Amended EDS Incentive Plan or in any Employee Award or otherwise amend or
modify an Employee Award in any manner that is either (i) not adverse to the
Employee holding the Employee Award or (ii) consented to by such Employee.
The Committee may delegate to the Chief Executive Officer and to other
senior officers of EDS its duties under the Amended EDS Incentive Plan, except
that no such delegation may be made in the case of actions with respect to
participants who are subject to Section 16 of the Exchange Act.
Employee Awards
The Committee will determine the type or types of Employee Awards made under
the Amended EDS Incentive Plan and will designate the Employees who are to be
recipients of such Awards. Each Employee Award may be embodied in an
agreement, which will contain such terms, conditions and limitations as are
determined by the Committee. Employee Awards may be granted singly, in
combination or in tandem. Employee Awards may also be made in combination or
in tandem with, in replacement of, or as alternatives to, grants or rights
under the Amended EDS Incentive Plan or any other employee plan of EDS or any
of its subsidiaries, including any acquired entity; provided, however, that no
Option may be issued in exchange for the cancellation of an Option with a
lower exercise price. All or part of an Employee Award may be subject to
conditions established by the Committee, which may include continuous service
with EDS and its subsidiaries, achievement of specific business objectives,
increases in specified indices, attainment of specified growth rates and other
comparable measurements of performance.
The types of Employee Awards that may be made under the Amended EDS
Incentive Plan are as follows:
Options. Options are rights to purchase a specified number of shares of EDS
Common Stock at a specified price. An option granted pursuant to the Amended
EDS Incentive Plan may consist of either an incentive stock option ("ISO")
that complies with the requirements of Section 422 of the Code or a non-
qualified stock option ("NQSO") that does not comply with such requirements.
ISOs must have an exercise price per share that is not less than the fair
market value of the EDS Common Stock on the date of grant. NQSOs must have an
exercise price per share that is not less than, but may exceed, the fair
market value of the EDS Common Stock on the date of grant. In either case, the
exercise price must be paid in full at the time an Option is exercised in cash
or, if the Employee so elects, by means of tendering EDS Common Stock or
surrendering another Award. The Committee will determine acceptable methods
for tendering EDS Common Stock or other Awards by an Employee to exercise an
Option; provided, however, that any EDS Common Stock or other Employee Award
may be so tendered only if it has been held by the Employee for at least six
months. Subject to the foregoing, the terms, conditions and limitations
applicable to any Options, including the term of any Options and the date or
dates upon which they become exercisable, will be determined by the Committee.
SARs. SARs are rights to receive a payment, in cash or EDS Common Stock,
equal to the excess of the fair market value or other specified valuation of a
specified number of shares of EDS Common Stock on the date the rights are
exercised over a specified strike price. An SAR may be granted under the
Amended EDS Incentive Plan to the holder of an Option with respect to all or a
portion of the shares of EDS Common Stock subject to such Option or may be
granted separately. The terms, conditions and limitations applicable to any
SARs, including the term of any SARs and the date or dates upon which they
become exercisable, will be determined by the Committee.
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Stock Awards. Stock Awards consist of restricted and non-restricted grants
of EDS Common Stock or units denominated in EDS Common Stock. The terms,
conditions and limitations applicable to any Stock Awards will be determined
by the Committee. Without limiting the foregoing, rights to dividends or
dividend equivalents may be extended to and made part of any Stock Award in
the discretion of the Committee.
Cash Awards. Cash Awards consist of grants denominated in cash. The terms,
conditions and limitations applicable to any Cash Awards will be determined by
the Committee.
Performance Awards. Performance Awards consist of grants made to an Employee
subject to the attainment of one or more performance goals. A Performance
Award will be paid, vested or otherwise deliverable solely upon the attainment
of one or more pre-established, objective performance goals established by the
Committee prior to the earlier of (i) 90 days after the commencement of the
period of service to which the performance goals relate and (ii) the elapse of
25% of the period of service, and in any event while the outcome is
substantially uncertain. A performance goal may be based upon one or more
business criteria that apply to the Employee, one or more business units of
EDS or EDS as a whole, and may include any of the following: increased
revenue, net income, stock price, market share, earnings per share, return on
equity, return on assets or decrease in costs. Subject to the foregoing, the
terms, conditions and limitations applicable to any Performance Awards will be
determined by the Committee.
EDS management intends to recommend to the Committee that Employee Awards
granted under the Amended EDS Incentive Plan be distributed among a
significant number of Employees and that the Committee balance the use of
Options and Stock Awards and include the use of a significant number of
Options.
The Amended EDS Incentive Plan contains certain limitations with respect to
Awards that may be made thereunder. In particular, the Amended EDS Incentive
Plan provides that the following limitations shall apply to any Employee
Awards made thereunder:
(i) no Participant may be granted, during any one-year period, Employee
Awards consisting of Options or SARs that are exercisable for more than
1,500,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year period, Employee
Awards consisting of shares of Common Stock or units denominated in such
shares (other than any Employee Awards consisting of Options or SARs)
covering or relating to more than 300,000 shares of Common Stock (the
limitation set forth in this clause (ii), together with the limitation set
forth in clause (i) above, being hereinafter collectively referred to as
the "Stock Based Awards Limitations"); and
(iii) no Participant may be granted Employee Awards consisting of cash or
in any other form permitted under the Amended EDS Incentive Plan (other
than Employee Awards consisting of Options or SARs or otherwise consisting
of shares of Common Stock or units denominated in such shares) in respect
of any one-year period having a value determined on the date of grant in
excess of $5,000,000.
Under the Existing EDS Incentive Plan, there are currently outstanding
restricted Stock Awards covering an aggregate of approximately 17,100,000
shares of Class E Common Stock. Upon the effectiveness of the Amended EDS
Incentive Plan in so far as it relates to Employees, such outstanding
restricted Stock Awards will be adjusted to reflect the Split-Off and prevent
any dilution or enlargement of the rights of the holders thereof. By virtue of
this adjustment and without necessity of any action on the part of the
participants, each outstanding restricted Stock Award will be modified so
that, effective as of the date of consummation of the Split-Off, the
securities to which each such Stock Award relates will be a number of shares
of EDS Common Stock equal to the number of shares of Class E Common Stock
subject to such Stock Award immediately prior to the consummation thereof.
Such adjustment will not have any effect on the vesting of, or restrictions on
resale applicable to, any outstanding restricted Stock Award. Furthermore, the
holder of each restricted Stock Award shall continue to be subject to any non-
competition restrictions provided for in the Existing EDS Incentive Plan which
were applicable thereto prior to the effectiveness of the Amended EDS
Incentive Plan.
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Director Awards
Under the Amended EDS Incentive Plan, each Nonemployee Director will receive
the Awards described below, which will be granted either automatically or at
the option of the Nonemployee Director in lieu of director's fees.
Nonemployee Director Options. On the date of the consummation of the Split-
Off, each Nonemployee Director will automatically receive a grant of NQSOs
that provide for the purchase of 1,500 shares of EDS Common Stock. In
addition, on the first business day of the month following the date on which
each annual meeting of the stockholders of EDS is held (each, an "Annual
Director Award Date"), each Nonemployee Director will automatically receive a
grant of NQSOs that provide for the purchase of 1,500 shares of EDS Common
Stock. A Nonemployee Director who is elected after the date of the
consummation of the Split-Off otherwise than by election at an annual meeting
of stockholders of the Company will automatically receive, on the date of his
or her election, a grant of NQSOs that provides for the purchase of a number
of shares of EDS Common Stock equal to the product of (i) 1,500 and (ii) a
fraction the numerator of which is the number of days between the election of
such Nonemployee Director and the next scheduled Annual Director Award Date
and the denominator of which is 365. The term of the NQSOs granted to
Nonemployee Directors will be for a period of ten years from the date of
grant. The exercise price of such NQSOs will be equal to the fair market value
of the EDS Common Stock on the date of grant. Such exercise price must be paid
in full in cash at the time a NQSO is exercised. All NQSOs granted to
Nonemployee Directors under the Amended EDS Incentive Plan will become
exercisable in increments of one-third of the total number of shares of EDS
Common Stock that are subject thereto on the first, second and third
anniversaries of the date of grant. All unvested NQSOs granted to a
Nonemployee Director will be forfeited if the Nonemployee Director resigns
from the EDS Board without the consent of a majority of the other directors.
In addition a Nonemployee 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 NQSOs equal to the product of (x) three times (y) a fraction the
numerator of which is equal to the dollar amount of fees the Nonemployee
Director elects to forego in the next year in exchange for NQSOs and the
denominator of which is equal to the fair market value of EDS Common Stock on
the date of the election. The terms of the NQSOs received by a Nonemployee
Director pursuant to such election will be the same as those of the NQSOs
automatically granted as described above.
Nonemployee Director Restricted Stock Grants. On the date of the
consummation of the Split-Off, each Nonemployee Director will automatically
receive a restricted Stock Award covering 500 shares of EDS Common Stock. In
addition, on each Annual Director Award Date, each Nonemployee Director will
automatically receive a restricted Stock Award covering 500 shares of EDS
Common Stock. A Nonemployee Director who is elected after the date of the
consummation of the Split-Off otherwise than by election at an annual meeting
of stockholders of the Company will automatically receive, on the date of his
or her election, a restricted Stock Award covering a number of shares of EDS
Common Stock equal to the product of (i) 500 and (ii) a fraction the numerator
of which is the number of days between the election of such Nonemployee
Director and the next scheduled Annual Director Award Date and the denominator
of which is 365. The shares of EDS Common Stock that are the subject of any
such restricted Stock Award (i) will vest ratably in increments equal to one-
third of the total number of shares of EDS Common Stock subject thereto on the
first, second and third anniversaries of the date of grant and (ii) will vest
fully upon the failure of the Nonemployee Director to be reelected as a
director of EDS, the death of the Nonemployee Director or the resignation of
the Nonemployee Director by reason of disability or at the request of a
majority of the other directors of EDS. All unvested shares of EDS Common
Stock that are the subject of such restricted Stock Award will be forfeited if
the Nonemployee Director resigns from the EDS Board without the consent of a
majority of the other directors.
In addition, a Nonemployee 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
restricted Stock Award covering a number of shares of EDS Common Stock having
a fair market
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value equal to 110% of a fraction the numerator of which is equal to the
dollar amount of fees the Nonemployee Director elects to forego in the next
year in exchange for restricted Stock Awards and the denominator of which is
equal to the fair market value of EDS Common Stock on the date of the
election. The terms of the restricted Stock Awards received by a Nonemployee
Director pursuant to such election will be the same as those of the restricted
Stock Awards automatically granted as described above.
Other Provisions
With the approval of the Committee, payments in respect of Employee Awards
may be deferred, either in the form of installments or a future lump sum
payment, by any Employee. At the discretion of the Committee, an Employee may
be offered an election to substitute an Award for another Award or Awards of
the same or different type.
EDS will have the right to deduct applicable taxes from any Employee Award
payment and withhold, at the time of delivery or vesting of cash or shares of
EDS Common Stock under the Amended EDS Incentive Plan, an appropriate amount
of cash or number of shares of EDS Common Stock, or combination thereof, for
the payment of taxes. The Committee may also permit withholding to be
satisfied by the transfer to EDS of shares of EDS Common Stock previously
owned by the holder of the Employee Award for which withholding is required.
The Committee may provide for loans, on either a short term or demand basis,
from EDS to an Employee or Nonemployee Director to permit the payment of taxes
required by law.
The EDS Board may amend, modify, suspend or terminate the Amended EDS
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other purpose permitted by law, except that (i) no amendment that
would impair the rights of any Employee or Nonemployee Director with respect
to any Award may be made without the consent of such Employee or Nonemployee
Director and (ii) no amendment requiring stockholder approval in accordance
with Rule 16b-3 under the Exchange Act will be effective until such approval
has been obtained.
No Award or any other benefit under the Amended EDS Incentive Plan
constituting a "derivative security" within the meaning of Rule 16a-1(c) under
the Exchange Act will be assignable or otherwise transferable except by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder.
In the event of any subdivision or consolidation of outstanding shares of
EDS Common Stock, declaration of a stock dividend payable in shares of EDS
Common Stock or other stock split, the Amended EDS Incentive Plan provides for
the Committee to make appropriate adjustments to (i) the number of shares of
EDS Common Stock reserved under the Amended EDS Incentive Plan, (ii) the
number of shares of EDS Common Stock covered by outstanding Awards in the form
of EDS Common Stock or units denominated in EDS Common Stock, (iii) the
exercise or other price in respect of such Awards, (iv) the appropriate fair
market value and other price determinations for Awards in order to reflect
such transactions, (v) the number of shares of Common Stock covered by Options
automatically granted to Nonemployee Directors, (vi) the number of shares
covered by restricted Stock Awards automatically granted to Nonemployee
Directors and (vii) the Stock Based Awards Limitations. Furthermore, in the
event of any other recapitalization or capital reorganization of EDS, any
consolidation or merger of EDS with another corporation or entity, the
adoption by EDS of any plan of exchange affecting the EDS Common Stock or any
distribution to holders of EDS Common Stock of securities or property (other
than normal cash dividends or stock dividends), the EDS Board will make
appropriate adjustments to the amounts or other items referred to in clauses
(ii), (iii), (iv), (v), (vi) and (vii) above to give effect to such
transactions, but only to the extent necessary to maintain the proportionate
interest of the holders of the Awards and to preserve, without exceeding, the
value thereof.
Tax Implications of Awards
Set forth below is a summary of the federal income tax consequences to
Employees, Nonemployee Directors and EDS as a result of the grant and exercise
of Awards under the Amended EDS Incentive Plan. This summary
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is based on statutory provisions, Treasury regulations thereunder, judicial
decisions, and IRS rulings in effect on the date hereof. The foregoing
discussion does not address the consequences of the Amended EDS Incentive Plan
under U.S. state or local or non U.S. tax laws.
Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Employees and Nonemployee Directors will not realize taxable income
upon the grant of a NQSO or an SAR. Upon the exercise of an SAR or NQSO, the
Employee or Nonemployee Director will recognize ordinary income (subject, in
the case of Employees, to withholding by EDS) in an amount equal to the excess
of (i) the amount of cash and the fair market value of the EDS Common Stock
received, over (ii) the exercise price (if any) paid therefor. The Employee or
Nonemployee Director will generally have a tax basis in any shares of EDS
Common Stock received pursuant to the exercise of an SAR, or pursuant to the
cash exercise of an NQSO, that equals the fair market value of such shares on
the date of exercise. Subject to the discussion under "--Certain Tax Code
Limitations on Deductibility" below, EDS (or a subsidiary) will generally be
entitled to a deduction for U.S. federal income tax purposes that corresponds
as to timing and amount with the compensation income recognized by the
Employee or Nonemployee Director under the foregoing rules.
Employees will not have taxable income upon the grant of an ISO. Upon the
exercise of an ISO, the Employee will not have taxable income, although the
excess of the fair market value of the shares of EDS Common Stock received
upon exercise of the ISO ("ISO Stock") over the exercise price will increase
the alternative minimum taxable income of the Employee, which may cause such
Employee to incur alternative minimum tax. The payment of any alternative
minimum tax attributable to the exercise of an ISO would be allowed as a
credit against the Employee's regular tax liability in a later year to the
extent the Employee's regular tax liability is in excess of the alternative
minimum tax for that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee will generally
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for
the ISO Stock. However, if an Employee disposes of ISO Stock that has not been
held for the requisite holding period (a "disqualifying disposition"), the
Employee will recognize ordinary income in the year of the disqualifying
disposition to the extent that the fair market value of the ISO Stock at the
time of exercise of the ISO (or, if less, the amount realized in the case of
an arm's-length disqualifying disposition to an unrelated party) exceeds the
exercise price paid by the Employee for such ISO Stock. The Employee would
also recognize capital gain to the extent the amount realized in the
disqualifying disposition exceeds the fair market value of the ISO stock on
the exercise date. If the exercise price paid for the ISO Stock exceeds the
amount realized in the disqualifying disposition (in the case of an arm's-
length disposition to an unrelated party), such excess would generally
constitute a capital loss.
EDS and its subsidiaries will generally not be entitled to any federal
income tax deduction upon the grant or exercise of an ISO, unless the Employee
makes a disqualifying disposition of the ISO Stock. If an Employee makes such
a disqualifying disposition, EDS (or a subsidiary) will then, subject to the
discussion below under
"--Certain Tax Code Limitations on Deductibility," be entitled to a tax
deduction that corresponds as to timing and amount with the compensation
income recognized by the Employee under the rules described in the preceding
paragraph.
Under current rulings, if an Employee or Nonemployee Director transfers
previously held shares of EDS Common Stock (other than ISO Stock that has not
been held for the requisite holding period) in satisfaction of part or all of
the exercise price of an NQSO or ISO, the Employee or Nonemployee Director
will recognize income with respect to the EDS Common Stock received in the
manner described above, but no additional gain will be recognized as a result
of the transfer of such previously held shares in satisfaction of the NQSO or
ISO exercise price. Moreover, that number of shares of EDS Common Stock
received upon exercise which equals the number of shares of previously held
EDS Common Stock surrendered therefor in satisfaction of the NQSO or ISO
exercise price will have a tax basis that equals, and a holding period that
includes, the tax basis and holding period of the previously held shares of
EDS Common Stock surrendered in satisfaction of the NQSO or
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ISO exercise price. Any additional shares of EDS Common Stock received upon
exercise will have a tax basis that equals the amount of cash (if any) paid by
the Employee or Nonemployee Director.
Cash Awards; Stock Unit Awards; Stock Awards. An Employee will recognize
ordinary compensation income upon receipt of cash pursuant to a Cash Award or
Performance Award or, if earlier, at the time such cash is otherwise made
available for the Employee to draw upon it. An Employee will not have taxable
income upon the grant of a Stock Award in the form of units denominated in EDS
Common Stock ("Stock Unit Award"), but rather will generally recognize
ordinary compensation income at the time the Employee receives EDS Common
Stock or cash in satisfaction of such Stock Unit Award in an amount equal to
the fair market value of the EDS Common Stock or cash received. In general, an
Employee or Nonemployee Director will recognize ordinary compensation income
as a result of the receipt of EDS Common Stock pursuant to a Stock Award or
Performance Award in an amount equal to the fair market value of the EDS
Common Stock when such stock is received; provided, however, that if the stock
is not transferable and is subject to a substantial risk of forfeiture when
received, the Employee or Nonemployee Director will recognize ordinary
compensation income in an amount equal to the fair market value of the EDS
Common Stock when it first becomes transferable or is no longer subject to a
substantial risk of forfeiture, unless the Employee or Nonemployee Director
makes an election to be taxed on the fair market value of the EDS Common Stock
when such stock is received.
An Employee will be subject to withholding for federal, and generally for
state and local, income taxes at the time the Employee recognizes income under
the rules described above with respect to EDS Common Stock or cash received
pursuant to a Cash Award, Performance Award, Stock Award or Stock Unit Award.
Dividends that are received by an Employee or Nonemployee Director prior to
the time that the EDS Common Stock is taxed to the Employee or Nonemployee
Director under the rules described in the preceding paragraph are taxed as
additional compensation, not as dividend income. The tax basis of an Employee
or Nonemployee Director in the EDS Common Stock received will equal the amount
recognized by the Employee as compensation income under the rules described in
the preceding paragraph, and the Employee's holding period in such shares will
commence on the date income is so recognized.
Certain Tax Code Limitations on Deductibility. In order for the amounts
described above to be deductible by EDS (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
must be ordinary and necessary business expenses. The ability of EDS (or a
subsidiary) to obtain a deduction for future payments under the Amended EDS
Incentive Plan could also be limited by Section 280G of the Code, which
prevents the deductibility of certain excess parachute payments made in
connection with a change in control of an employer. The ability of EDS (or a
subsidiary) to obtain a deduction for amounts paid under the Amended EDS
Incentive Plan could also be affected by Section 162(m) of the Code, which
limits the deductibility, for U.S. federal income tax purposes, of
compensation paid to certain employees of EDS to $1 million with respect to
any such employee during any taxable year of EDS. However, certain exceptions
apply to this limitation in the case of performance-based compensation. It is
intended that the approval of the Amended EDS Incentive Plan by the common
stockholders of General Motors and the description of the Amended EDS
Incentive Plan contained herein will satisfy certain of the requirements for
the performance-based exception, and after the consummation of the Split-Off,
EDS will be able to comply with the requirements of the Code and the Treasury
Regulation Section 1.162-27 with respect to the grant and payment of certain
performance-based awards (including certain options and SARs) under the
Amended EDS Incentive Plan so as to be eligible for the performance-based
exception. However, it may not be possible in all cases to satisfy all of the
requirements for the exception and EDS may, in its sole discretion, determine
that in one or more cases it is in its best interests to not satisfy all of
the requirements for the performance-based exception.
EXISTING EDS INCENTIVE PLAN
The description set forth below represents a summary of the principal terms
and conditions of the Existing EDS Incentive Plan. The following description,
which gives effect to the EDS Assumption Amendments (as hereinafter defined),
does not purport to be complete and is qualified in its entirety by reference
to the Existing
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EDS Incentive Plan, a copy of which is filed as an exhibit to the Registration
Statement of which this Solicitation Statement/Prospectus is a part.
General
If the Amended EDS Incentive Plan is not approved by the stockholders of
General Motors, the Existing EDS Incentive Plan will continue in effect after
the Split-Off and will not be amended and restated as described above under
"--Amended EDS Incentive Plan." However, the committee charged with
administering the Existing EDS Incentive Plan will adopt certain amendments to
the Existing EDS Incentive Plan (the "EDS Assumption Amendments") which are
intended to reflect the assumption of the Existing EDS Incentive Plan by EDS
upon consummation of the Split-Off. Among other things, the EDS Assumption
Amendments provide that, effective upon the consummation of the Split-Off, (i)
the Existing EDS Incentive Plan will be administered by the Compensation and
Benefits Committee of EDS, or such other committee as may in the future be
appointed by the EDS Board, (ii) each outstanding award under the Existing EDS
Incentive Plan will be adjusted so that, effective as of the date of
consummation of the Split-Off, the securities to which each such award relates
will be a number of shares of EDS Common Stock equal to the number of shares
of Class E Common Stock subject to such award immediately prior to the
consummation thereof, (iii) future awards made under the Existing EDS
Incentive Plan will be in the form of EDS Common Stock rather than Class E
Common Stock, (iv) future awards may be made under the Existing EDS Incentive
Plan in respect of a maximum of 60,000,000 shares of EDS Common Stock and (v)
all references to General Motors contained in the Existing EDS Incentive Plan
will be deleted.
The purpose of the Existing EDS Incentive Plan is to provide corporate
officers and key employees of EDS and its subsidiaries with a strong incentive
for individual creativity and contribution to ensure the future growth of EDS.
The Existing EDS Incentive Plan is designed to reward employees making
important contributions to the success of EDS by enabling such persons to
acquire shares of EDS Common Stock.
Key employees, including officers and directors, of EDS are eligible to
participate in the Existing EDS Incentive Plan. However, (i) no member of the
EDS Board is entitled to participate in the Existing EDS Incentive Plan unless
he or she is also a full time employee of EDS; (ii) no member of the
Compensation and Benefits Committee of EDS is eligible to participate in the
Existing EDS Incentive Plan; (iii) no person is eligible to participate in the
Existing EDS Incentive Plan if he or she owns, directly or indirectly, more
than 5% of the total combined voting power of all classes of stock of EDS and
(iv) not more than 32,000,000 shares of EDS Common Stock may be sold, awarded
or covered by rights or options granted under the Existing EDS Incentive Plan
to any one participant.
The Existing EDS Incentive Plan covers (i) the sale of shares subject to
restrictions ("Restricted Stock"), (ii) the grant of rights, subject to
restrictions ("Restricted Stock Units"), to acquire shares which may or may
not be subject to restrictions ("Unit Stock"), (iii) the award of bonus shares
that may or may not be subject to restrictions ("Bonus Stock") and (iv) the
grant of options (including ISOs) to acquire shares which may or may not be
subject to restrictions ("Option Stock").
An aggregate of 60,000,000 shares of EDS Common Stock (in addition to the
shares that are the subject of awards outstanding as of the date upon which
the EDS Assumption Amendments become effective) will be available for awards
under the Existing EDS Incentive Plan after giving effect to the EDS
Assumption Amendments. If shares of Restricted Stock, Unit Stock, Bonus Stock
or Option Stock issued pursuant to the Existing EDS Incentive Plan are
repurchased by or redelivered to EDS in connection with the restrictions
imposed on such shares pursuant to the Existing EDS Incentive Plan, such
repurchased and redelivered shares shall again become available for sale,
award or grant under the Existing EDS Incentive Plan. To the extent that any
Restricted Stock Units terminate in connection with the restrictions imposed
on such units (other than pursuant to the delivery of shares in respect
thereof) or any options granted under the Existing EDS Incentive Plan
terminate or expire unexercised in whole or in part, the shares of EDS Common
Stock then so covered will again become available for sale, award or grant
under the Existing EDS Incentive Plan.
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Upon the effectiveness of the EDS Assumption Amendments, the Existing EDS
Incentive Plan will be administered and interpreted by the Benefits and
Compensation Committee of the EDS Board. No member of such committee shall be
eligible, or shall have been eligible at any time within one year prior to his
appointment to the Committee, for selection as a person to whom EDS Common
Stock may be sold or awarded or to whom either rights to acquire shares or
options may be granted pursuant to the Existing EDS Incentive Plan.
The committee charged with administering the Existing EDS Incentive Plan has
full authority, in its discretion, to determine those corporate officers and
key employees who shall participate in the Existing EDS Incentive Plan and the
number of shares of EDS Common Stock to be sold or awarded to each participant
and the number of shares of EDS Common Stock to be covered by either rights to
acquire shares or options granted to each participant. Recommendations for
individual awards are made to such committee by the President of EDS. Such
committee may adopt rules and regulations for the administration of the
Existing EDS Incentive Plan to the extent it deems advisable and has full
discretionary authority to amend such rules and regulations. All
determinations made by such committee are conclusive except that, to the
extent required by law or by the EDS Certificate of Incorporation or Bylaws,
the terms of any sale or award of shares or any grant of either rights to
acquire shares or options under the Existing EDS Incentive Plan and the
sufficiency of the consideration therefor are subject to ratification by the
EDS Board prior to such sale, award or grant.
Awards
The types of awards that may be made under the Existing EDS Incentive Plan
are as follows:
Restricted Stock. Shares of Restricted Stock may be sold pursuant to the
Existing EDS Incentive Plan at a nominal price which does not exceed 10% of
the fair market value of the shares at the time of grant. All shares of
Restricted Stock sold pursuant to the Existing EDS Incentive Plan are subject
to specified restrictions, certain of which may be modified in the applicable
award agreement.
Restricted Stock Units. Restricted Stock Units may be granted pursuant to
the Existing EDS Incentive Plan without cash consideration. Each Restricted
Stock Unit entitles the holder thereof to receive the shares covered by such
unit at such time, in such amounts and subject to such conditions as specified
in the applicable award agreement.
Bonus Stock. Shares of Bonus Stock may be awarded pursuant to the Existing
EDS Incentive Plan without cash consideration. The committee administering the
Existing EDS Incentive Plan is authorized to determine, and set forth in the
applicable award agreement, whether such shares of Bonus Stock are awarded
free of, or subject to, any restrictions.
Stock Options. Stock options may be granted pursuant to the Existing EDS
Incentive Plan and shall have such terms and conditions as the committee
administering such plan in its sole discretion shall determine, including the
period during which they may be exercised and the conditions under which they
may be terminated. The exercise price of a stock option shall not be less than
100% of the fair market value of the underlying shares of EDS Common Stock on
the date the option is granted.
Each Award made pursuant to the Existing EDS Incentive Plan is subject to
certain non-competition restrictions that apply for such period of time and in
such geographic area as is specified in the applicable award agreement. Such
non-competition restrictions generally provide that if within the specified
period of time and geographic areas a participant engages in certain
competitive activities (such as (i) participating in any activity as or for a
competitor of EDS, which is the same or similar to the activities in which the
participant was involved as an employee of EDS, (ii) hiring or attempting to
hire any employee of EDS, (iii) soliciting the business of any customer of EDS
or (iv) participating in any activity for a customer of EDS, which is the same
or similar to the activities in which the participant was involved as an
employee of EDS), the participant may be obligated to (a) immediately resell
and deliver to EDS, upon demand, all shares of Restricted Stock, Unit Stock,
Bonus Stock or Option Stock sold or awarded to the participant as to which the
participant is still the direct or indirect
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beneficial owner at the cash price per share, if any, paid by the participant;
and (b) pay to EDS an amount in cash with respect to each share of Restricted
Stock, Unit Stock, Bonus Stock and Option Stock not still so held equal to the
fair market value of each such share on the first date on which such share is
no longer held less the price paid by him for such share. Additionally, if a
participant engages in such activities, any option outstanding under the
Existing EDS Incentive Plan that is held by such participant shall
automatically terminate and shall no longer be exercisable, and all Restricted
Stock Units then held shall automatically terminate.
Other Provisions
The EDS Board or the committee administering the Existing EDS Incentive Plan
may amend such plan at any time, provided that, without the approval of the
stockholders of EDS entitled to vote thereon, no such amendment shall become
effective if it would (i) increase the number of shares of EDS Common Stock
which may be sold or awarded under the Existing EDS Incentive Plan; or (ii)
modify the requirements as to eligibility for participation in such plan.
Unless earlier terminated by the EDS Board or the committee administering
the Existing EDS Incentive Plan, such plan shall terminate on October 17,
2004. Although no shares of EDS Common Stock may be sold or issued (except to
the extent issued in connection with rights or options previously granted
under such plan) or rights or options granted after such date, such
termination shall not affect any restrictions previously imposed on shares
issued, or alter the rights of participants with respect to rights or options
granted or shares issued, pursuant to the Existing EDS Incentive Plan.
In the event of any change in the number, class or rights of shares subject
to the Existing EDS Incentive Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination of
shares, exchange of shares, issuance of rights to subscribe or other change in
capital structure), the Existing EDS Incentive Plan provides for the committee
administering such plan to make appropriate adjustments to the maximum number
of shares subject to the Existing EDS Incentive Plan and the number of shares
and price per share subject to any outstanding award or grant as the committee
shall find to be equitable to prevent dilution or enlargement of such rights.
Advancement of Withholding Tax Payments
Under current EDS policy, holders of Restricted Stock Units granted under
the Existing Incentive Plan are required to reimburse EDS for the applicable
withholding taxes paid by EDS in respect of the vesting of such units within
60 days of such payment by EDS. In the event that such holder is restricted
from selling shares of Class E Common Stock (or, following the Split-Off, EDS
Common Stock) by virtue of such holder's being in possession of material non-
public information regarding EDS, EDS has historically extended the date for
the reimbursement of such payment until such restriction is terminated. As of
March 15, 1996, the indebtedness of Messrs. Alberthal, Castle, Chiapparone,
Fernandes, Grant, Heller, Linderman and Reeves in respect of such advancement
of payments for withholding taxes was $964,009, $365,659, $698,075, $531,867,
$299,175, $698,075, $971,929, and $598,350, respectively, and the largest
amount of such indebtedness outstanding at any time since January 1, 1995 for
such executive officers was $964,009, $365,659, $698,075, $531,867, $299,175,
$938,601, $971,929, and $598,350, respectively.
Tax Implications to EDS
EDS would generally be entitled to a deduction with respect to awards
granted under the Existing EDS Incentive Plan in the manner, and subject to
the limitations, described above under "Amended EDS Incentive Plan--Tax
Implications of Awards." However, notwithstanding the fact that approval of
the Amended EDS Incentive Plan by the common stockholders of General Motors is
not obtained, the deduction limitations set forth in Section 162(m) of the
Code would not apply to shares of Restricted Stock, shares of Bonus Stock,
Restricted Stock Units or options which are granted on or prior to the date of
the first regularly scheduled stockholder meeting of EDS that occurs after
December 2, 1995.
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EDS RETIREMENT PLAN
The following table indicates the estimated annual benefits payable upon
retirement to Messrs. Alberthal, Castle, Fernandes, Heller and Linderman, for
the specified compensation and years of service classifications, under the
combined formulas of the Amended and Restated EDS Retirement Plan (the "EDS
Retirement Plan") and the EDS Supplemental Executive Retirement Plan (the "EDS
Supplemental Plan"). The EDS Supplemental Plan is a non-qualified, unfunded
retirement plan intended to pay benefits to certain executive level employees
whose benefits under the EDS Retirement Plan are limited under the Code.
Benefits under the EDS Supplemental Plan can be reduced, suspended or
eliminated at any time by the EDS Compensation and Benefits Committee.
PROJECTED TOTAL ANNUAL RETIREMENT BENEFITS
UNDER THE EDS RETIREMENT PLAN AND THE
EDS SUPPLEMENTAL PLAN
<TABLE>
<CAPTION>
YEARS OF SERVICE
- -------------------------------------------------------------------------------
FINAL AVERAGE
EARNINGS 5 10 15 20 25 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 32,428 $ 64,856 $ 97,284 $129,712 $162,140 $194,568
$ 600,000 $ 49,128 $ 98,256 $147,384 $196,512 $245,640 $294,768
$ 800,000 $ 65,828 $131,656 $197,484 $263,312 $329,140 $394,968
$1,000,000 $ 82,528 $165,056 $247,584 $330,112 $412,640 $495,168
$1,200,000 $ 99,228 $198,456 $297,684 $396,912 $496,140 $595,368
$1,400,000 $115,928 $231,856 $347,784 $463,712 $579,640 $695,568
</TABLE>
As of December 31, 1995, the average annual base salary for the highest five
years over the last 10-year period and the eligible years of credited service
for each of the named executive officers was as follows: Mr. Alberthal,
$1,277,167--28 years; Mr. Castle, $682,667--seven years; Mr. Fernandes,
$635,250--27 years; Mr. Heller, $729,334--28 years; and Mr. Linderman,
$643,167--25 years. The annual base salary for the most recent year considered
in the calculation of such average annual base salary is set forth in the
Summary Compensation Table set forth above under the column labeled "Salary."
"Earnings" under the EDS Retirement Plan generally refer to total annual
cash compensation (up to $150,000 for 1995 as limited by the Code) for
services rendered to EDS and its participating subsidiaries, together with any
salary reduction contributions to the EDS Deferred Compensation Plan, and
shall exclude extraordinary compensation (such as overseas living allowances,
relocation allowances and benefits under any employee benefit plan, such as
the Stock Incentive Plan). Benefits under the EDS Retirement Plan generally
equal (i) 55% of the participant's final average earnings (based on the
highest five consecutive years of includible earnings within the last ten
years of employment), less the maximum offset allowance that can be deducted
from final average earnings as determined under the Code, multiplied by (ii)
the participant's years of credited benefit service (not to exceed 30),
divided by 30. Benefits are payable in the form of a single or joint survivor
life annuity, unless otherwise elected.
To be eligible to participate in the EDS Supplemental Plan, an executive
level employee must, among other requirements, be a participant in EDS'
executive bonus plan and a participant in the EDS Retirement Plan and have met
the eligibility requirements for the receipt of benefits thereunder. The
benefit payable under the EDS Supplemental Plan for normal retirement,
together with the benefit payable under the EDS Retirement Plan, will
generally equal (i) 50% of the average of the participant's total compensation
(based on the highest five consecutive years within the last ten years of
employment) less (ii) the maximum offset allowance that can be deducted from
final average earnings as determined under the Code. Such benefits are payable
in the form of a single or joint survivor life annuity.
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STOCK PURCHASE PLAN
The EDS Board has adopted, and General Motors as the sole stockholder of EDS
has approved, the 1996 Electronic Data Systems Corporation Stock Purchase Plan
(the "EDS Stock Purchase Plan"), subject to consummation of the Split-Off. The
EDS Stock Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. All full-time employees of EDS and
certain subsidiaries are eligible to participate in the EDS Stock Purchase
Plan. An aggregate of approximately 57,500,000 shares of EDS Common Stock
would be reserved for issuance under the EDS Stock Purchase Plan following
consummation of the Split-Off, subject to adjustment in accordance with the
terms of the EDS Stock Purchase Plan.
Under the EDS Stock Purchase Plan, the EDS Board and/or the Compensation and
Benefits Committee may determine the effective date of an offering and the
purchase period thereunder and establish the purchase price and the maximum
number of shares that each eligible employee may purchase, which number will
be based on a percentage of the employee's compensation with a maximum
individual investment as specified in the Code.
All eligible employees who enroll in an offering receive options to purchase
shares of EDS Common Stock at a price that is not less than the lesser of (i)
85% of the fair market value of the stock on the offering date or (ii) an
amount which under the terms of the offering is not less than 85% of such fair
market value at the time the right to purchase is exercised. Shares of EDS
Common 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 EDS at the
lesser of (i) the price originally paid for the shares or (ii) the fair market
value per share of EDS Common Stock on the date the shares are offered to EDS.
EDS will make no cash contributions to the EDS Stock Purchase Plan, but will
bear the expenses of administration. The EDS Stock Purchase Plan will be
administered by the Compensation and Benefits Committee, which will have
authority to resolve all questions relating to the administration of the Plan.
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 EDS Common Stock at the end of an offering. If
an employee sells or otherwise disposes of the shares acquired under the Plan
(i) more than two years after the date of purchase and (ii) more than two
years after the date of the grant and more than one year after the date of
exercise, or if the employee dies before disposing of the shares, ordinary
income (compensation) should be included in the employee's gross income,
limited to the lesser of (a) the excess of the fair market value at the time
of sale or other disposition or at death over the amount paid for the shares
under the option or (b) the excess of the fair market value of the shares at
the time the option was granted over the purchase price (determined as if the
option were exercised on the date of grant). Any gain upon sale or other
disposition in excess of the lesser of the amounts in (a) or (b) above would
be treated as a long-term capital gain. If the employee meets requirement (ii)
above but not (i), he or she should recognize ordinary income (compensation)
as described in the first sentence of this paragraph, if any, and, in
addition, long-term capital loss equal to the difference between the amount
paid by EDS to repurchase the stock and the sum of the price paid by the
employee for the stock plus the amount of ordinary income, if any, recognized
by the employee on the disposition.
EDS will recognize no income, gain, deduction or loss with respect to the
grant or exercise of rights to purchase shares under the EDS Stock Purchase
Plan.
In the event of a disqualifying disposition (the sale or disposition of a
share prior to the expiration of the two-year period after the date of grant
or the one year period after the date of exercise), the employee should
recognize ordinary income (compensation) in the year of the disqualifying
disposition to the extent of the excess, if any, of the fair market value of
the stock at the date the option was exercised over the price paid for the
stock under the option with the difference between the amount paid by EDS for
repurchase of the stock and the sum of the price paid by the employee for the
stock plus the amount of ordinary income, if any, recognized by the employee
on the disposition treated as a long-term or short-term capital loss depending
on the length of the
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holding period. In the event of such a disqualifying disposition, EDS would be
accorded a deduction, assuming certain compliance requirements are met, equal
to the amount of the compensation includible by the employee. The foregoing
discussion does not address the consequences of the Stock Purchase Plan under
U.S. state or local or non U.S. tax laws.
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
EDS management intends to recommend to the EDS Board at its first meeting
following consummation of the Split-Off that EDS enter into certain change of
control employment agreements ("Employment Agreements") with each of its
executive officers and certain of its other officers (each, an "Executive").
EDS management expects that the Employment Agreements to be recommended to the
EDS Board will generally provide that, upon the occurrence of certain
triggering events involving an actual or potential change of control of EDS,
the employment of each Executive with EDS will be continued for specified
period of time ranging from three to five years (the "Employment Period") and
will contain the other terms and provisions described below.
The employment rights of the Executives under the Employment Agreements would
be triggered by either a "Change of Control" or a "Potential Change of Control"
(as such terms are defined in the Employment Agreements). Following a Potential
Change of Control, the employment period may terminate (but the Employment
Agreement will remain in force and a new employment period will apply to any
future Change of Control or Potential Change of Control), if either (a) the EDS
Board determines that a Change of Control is not likely or (b) the Executive,
upon proper notice to EDS, elects to terminate his Employment Period as of any
anniversary of the Potential Change of Control. A "Change of Control" generally
includes the occurrence on or after the date of the Split-Off of any of the
following: (i) any person, other than an exempt person (including EDS and its
subsidiaries and employee benefit plans), becoming a beneficial owner of 15% or
more of the shares of EDS Common Stock or voting stock of EDS then outstanding
(including as a result of the Split-Off); (ii) a change in the identity of a
majority of the persons serving as members of the EDS Board, unless such change
was approved by a majority of the incumbent members of the EDS Board; (iii) the
approval by the EDS stockholders of a reorganization, merger or consolidation
in which (x) existing EDS stockholders would not own more than 85% of the
common stock and voting stock of the resulting company, (y) a person (other
than certain exempt persons) would own 15% or more of the common stock or
voting stock of the resulting company or (z) less than a majority of the board
of the resulting company would consist of the then incumbent members of the EDS
Board; or (iv) the approval by the EDS stockholders of a liquidation or
dissolution of EDS, unless such liquidation or dissolution is part of a plan of
liquidation or dissolution involving a sale to a company of which following
such transaction (x) more than 85% of the common stock and voting stock would
be owned by existing EDS stockholders, (y) no person (other than certain exempt
persons) would own 15% or more of the common stock or voting stock of such
company and (z) at least a majority of the board of directors of such company
would consist of the then incumbent members of the EDS Board. The acquisition
of EDS Common Stock in the Split-Off by the GM Hourly Plan is an exempt
transaction that will not constitute a Change of Control. A "Potential Change
in Control" generally includes any of the following: (i) the commencement of a
tender or exchange offer for EDS stock that, if consummated, would result in a
Change of Control; (ii) EDS entering into an agreement which, if consummated,
would constitute a Change of Control; (iii) the commencement of a contested
election contest subject to certain proxy rules; or (iv) the occurrence of any
other event that the EDS Board determines could result in a Change of Control.
Under the Employment Agreements, EDS would agree that throughout the
Employment Period, each Executive's position, authority, duties and
responsibilities will not be diminished from the most significant held or
exercised by, or assigned to, such Executive at any time during the 90-day
period immediately prior to the commencement of the Employment Period.
Additionally, all forms of the Executive's compensation, including salary,
bonus, regular salaried employee plans, stock options, restricted stock and
other awards, will continue on a basis no less favorable than as the same exist
during the same period.
The Employment Agreements would provide that an Executive's Employment Period
terminates (i) automatically upon the Executive's death or after 180 days of
the Executive's continuing Disability (as defined in the Employment
Agreements), (ii) at EDS' option if the Executive is terminated for "Cause" (as
defined in
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the Employment Agreements) and (iii) at the Executive's option at any time for
"Good Reason" or for any reason during the 180-day period beginning 60 days
(or 180 days in the case of agreements with less than a five-year term) after
a Change of Control (a "Window Period"). For purposes of EDS' option to
terminate the Employment Period, "Cause" is defined in the Employment
Agreement to mean (i) dishonesty by the Executive which results in substantial
personal enrichment at the expense of EDS or (ii) demonstratively willful
repeated violations of the Executive's obligations under the Employment
Agreement, which violations are intended to result and do result in material
injury to EDS. For purposes of an Executive's option to terminate the
Employment Period, "Good Reason" generally means (i) a diminution of the
executive officer's job duties; (ii) EDS' failure to comply with the
requirements of the Employment Agreement; (iii) the transfer of an Executive's
work location; (iv) a purported termination of the Executive's employment by
EDS which is not in compliance with the Employment Agreement; (v) the failure
of a successor to honor the Employment Agreement or (vi) a failure to reelect
the Executive to the EDS Board if such Executive was a member of the EDS Board
immediately prior to the commencement of the Employment Period.
If an Executive's employment is terminated for any reason during a Window
Period, by reason of death or Disability during a Window Period, or for Good
Reason at any time, the Executive (or the Executive's legal representatives)
will be entitled to receive the following: (i) the employee benefits the
Executive has earned as of the date of termination; (ii) the Executive's then
current salary and bonus throughout the remainder of the Employment Period;
(iii) the cash value of the Executive's retirement and 401(k) benefits to the
end of the Employment Period; (iv) under certain circumstances, a pro rata
portion of the grants of options, restricted stock and other compensatory
awards the Executive would have received had his employment continued; and (v)
continued coverage under employee welfare benefit plans until the end of the
Employment Period. In addition, all options, restricted stock and other
compensatory awards held by the Executive will immediately vest and become
exercisable and the term thereof will be extended for up to one year following
termination of employment. The Executive may also elect to cash out equity-
based compensatory awards at the highest price per share paid by specified
persons during the Employment Period or the six-month period prior to the date
upon which the Employment Period commences. Upon the death of an Executive
(other than during a Window Period), the Executive's legal representatives
will be entitled to receive the following: (i) the employee benefits earned by
the Executive as of the date of death, (ii) the Executive's then current
salary for one year from the date of death and (iii) the continuation of
welfare benefits until the end of the Employment Period. In addition, all
options, restricted stock and other compensatory awards will immediately vest
and become exercisable and the term thereof will be extended for up to one
year following death. The Executive's legal representatives may elect to cash
out equity-based compensatory awards at the highest price per share of common
stock paid by specified persons during the Employment Period or the six-month
period prior to the date upon which the Employment Period commences. Upon
termination of an Executive's employment with EDS due to Disability, the
Executive will be entitled to receive the same amounts and benefits as would
be provided upon the termination of the Executive's employment by reason of
death. If an Executive's employment is terminated, other than during a Window
Period, (i) by EDS for Cause or (ii) by the Executive other than for Good
Reason, the Executive will be entitled to receive only the compensation and
benefits the Executive has earned as of the date of termination of the
Executive's employment with EDS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation information with respect to the named executives for 1995
reflects compensation earned while EDS was a wholly owned subsidiary of
General Motors. During that period, EDS' compensation committee was composed
of John F. Smith, Jr., Harry J. Pearce and J. Michael Losh, all of whom are
officers of General Motors. In connection with the Split-Off, such persons
will resign from such positions and it is anticipated that Ray J. Groves and
C. Robert Kidder will be appointed to the Compensation and Benefits Committee
of EDS.
INDEMNIFICATION AGREEMENTS
EDS has entered into Indemnification Agreements (the "Indemnification
Agreements") with its directors, nominees for director and certain of its
officers (the "Indemnitees"), a form of which is filed with the
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Commission as an exhibit to the Registration Statement of which this
Solicitation Statement/Prospectus is a part. Under the terms of the
Indemnification Agreements, EDS has generally agreed to indemnify, and advance
expenses to, each Indemnitee to the fullest extent permitted by applicable law
on the date of such agreements and to such greater extent as applicable law
may thereafter permit. In addition, the Indemnification Agreements contain
specific provisions pursuant to which EDS has agreed to indemnify each
Indemnitee (i) if such person is, by reason of his or her status as a
director, nominee for director, officer, agent or fiduciary of EDS or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise with which such person was serving at the request of EDS (any
such status being hereinafter referred to as a "Corporate Status"), made or
threatened to be made a party to any threatened, pending or completed action,
suit, arbitration, alternative dispute resolution mechanism, investigation or
other proceeding (each, a "Proceeding"), other than a Proceeding by or in the
right of EDS, (ii) if such person is, by reason of his or her Corporate
Status, made or threatened to be made a party to any Proceeding brought by or
in the right of EDS to procure a judgment in its favor, except that no
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which such Indemnitee shall have been adjudged to be liable
to EDS if applicable law prohibits such indemnification (unless and only to
the extent that a court shall otherwise determine), (iii) against expenses
actually and reasonably incurred by such person or on his or her behalf in
connection with any Proceeding to which such Indemnitee was or is a party by
reason of his or her Corporate Status and in which such Indemnitee is
successful, on the merits or otherwise, (iv) against expenses actually and
reasonably incurred by such person or on his or her behalf in connection with
a Proceeding to the extent that such Indemnitee is, by reason of his or her
Corporate Status, a witness or otherwise participates in any Proceeding at a
time when such person is not a party in the Proceeding, and (v) against
expenses actually and reasonably incurred by such person in any judicial
adjudication of or any award in arbitration to enforce his or her rights under
the Indemnification Agreements.
Furthermore, under the terms of the Indemnification Agreements, EDS has
agreed to pay all reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding, whether brought by or in the
right of EDS or otherwise, in advance of any determination with respect to
entitlement to indemnification
and within 15 days after the receipt by EDS of a written request from such
Indemnitee for such payment. In the Indemnification Agreements, each
Indemnitee has agreed that he or she will reimburse and repay EDS for any
expenses so advanced to the extent that it shall ultimately be determined that
he or she is not entitled to be indemnified by EDS against such expenses.
The Indemnification Agreements also include provisions that specify the
procedures and presumptions which are to be employed to determine whether an
Indemnitee is entitled to indemnification thereunder. In some cases, the
nature of the procedures specified in the Indemnification Agreements varies
depending on whether there has occurred a "Change in Control" (as defined in
the Indemnification Agreements) of EDS.
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CLASS E COMMON STOCK
INTRODUCTION
Class E Common Stock is one of three classes of General Motors common stock.
The other two classes of common stock are $1 2/3 Common Stock and Class H
Common Stock. On the Record Date, approximately 485.7 million shares of Class
E Common Stock, held by approximately 268,123 record holders, were issued and
outstanding. Upon consummation of the Split-Off, each outstanding share of
Class E Common Stock will be converted into one share of EDS Common Stock, and
persons who held Class E Common Stock will become holders of EDS Common Stock.
See "The Split-Off," "EDS Capital Stock" and "Comparison of Class E Common
Stock and EDS Common Stock."
Holders of Class E Common Stock have no direct rights in the equity or
assets of EDS, but rather have rights in the equity and assets of General
Motors (which include 100% of the stock of EDS). Class E Common Stock is
designed to provide holders with financial returns based on the performance of
EDS. The intent of this design objective is achieved through (i) allocations
under the General Motors Certificate of Incorporation of the earnings of GM
attributable to EDS between amounts available for the payment of dividends on
Class E Common Stock and amounts available for the payment of dividends on the
$1 2/3 Common Stock and (ii) the announced current dividend practices and
policies of the GM Board, all as more fully described herein. General Motors,
not EDS, is the issuer of Class E Common Stock. The GM Board is free to change
dividend practices and policies with respect to Class E Common Stock, or any
other class of General Motors common stock, at any time.
PRICE RANGE AND DIVIDENDS
The Class E Common Stock is listed and traded on the NYSE under the symbol
"GME." The table below shows the range of reported per share sale prices on
the NYSE Composite Tape for the Class E Common Stock for the periods
indicated, and the dividends paid per share on the Class E Common Stock in
such periods. The last reported sale price of the Class E Common Stock on the
NYSE on April 12, 1996 was $52.75 per share.
<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW DIVIDENDS PAID
- ------------- ------ ------ --------------
<S> <C> <C> <C>
1994
First Quarter.................................... $36.88 $27.50 $0.12
Second Quarter................................... 38.00 32.88 0.12
Third Quarter.................................... 38.50 33.00 0.12
Fourth Quarter................................... 39.50 34.75 0.12
1995
First Quarter.................................... $41.38 $36.88 $0.13
Second Quarter................................... 45.25 38.38 0.13
Third Quarter.................................... 47.50 41.50 0.13
Fourth Quarter................................... 52.63 43.88 0.13
1996
First Quarter.................................... $58.00 $50.00 $0.15
Second Quarter (through April 12, 1996).......... 56.75 52.25 --
</TABLE>
DIVIDEND POLICY
Subject to the rights of the holders of General Motors Preferred Stock (if
any) and General Motors Preference Stock, under the General Motors Certificate
of Incorporation, dividends on Class E Common Stock may be declared and paid
out of the assets of General Motors only to the extent of the sum of (i) the
paid in surplus of General Motors attributable to the Class E Common Stock
plus (ii) an allocated portion of the earnings, determined as described
herein, of GM attributable to EDS earned after General Motors' acquisition of
EDS. The portion of General Motors' earnings attributable to EDS that is
included in the amount available for the payment of dividends on Class E
Common Stock (which amount is also used to calculate earnings per share
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of Class E Common Stock) is determined by a fraction, the numerator of which
is a number equal to the weighted average number of shares of Class E Common
Stock outstanding (463.2 million for the first quarter of 1996) and the
denominator of which was 484.4 million for the first quarter of 1996;
provided, that such fraction shall never be greater than one. The amount so
allocated is referred to in the General Motors Certificate of Incorporation as
the "Available Separate Consolidated Net Income" of EDS.
For purposes of determining the approximate earnings per share attributable
to Class E Common Stock for financial reporting purposes, an investor may
divide the quarterly earnings allocated to Class E Common Stock (the Available
Separate Consolidated Net Income of EDS) by the weighted average number of
shares of Class E Common Stock outstanding during such quarter, which is the
numerator of the fraction described above. Approximately the same mathematical
result may be obtained by dividing the quarterly earnings used for computation
of Available Separate Consolidated Net Income of EDS (i.e., net income) by the
denominator of the fraction described above. The denominator is sometimes
referred to herein as the "Class E Dividend Base."
Neither the February 1996 redemption of the Series C Preference Stock nor
any conversion of shares of Series C Preference Stock into shares of Class E
Common Stock prior to such redemption was dilutive of earnings attributable to
Class E Common Stock for financial reporting purposes, as such shares affected
the numerator but not the denominator of the fraction used in determining
Available Separate Consolidated Net Income of EDS. After giving effect to the
issuance of shares of Class E Common Stock upon the conversion of shares of
Series C Preference Stock prior to such stock's redemption for a full quarter,
such fraction would be approximately equal to one.
The denominator used in determining the Available Separate Consolidated Net
Income of EDS is adjusted as deemed appropriate by the GM Board to reflect
subdivisions or combinations of the Class E Common Stock and to reflect
certain transfers of capital to or from EDS. The GM Board's discretion to make
such adjustments is limited by criteria set forth in the General Motors
Certificate of Incorporation. In this regard, the GM Board has generally
caused the denominator to decrease as shares of Class E Common Stock are
purchased by EDS and to increase as shares of Class E Common Stock are used
for EDS employee benefit plans or acquisitions.
Dividend policy is one of the matters reviewed by the Capital Stock
Committee of the GM Board. See "Relationship Between General Motors and EDS--
Pre-Split-Off Relationship" and "--Considerations Relating to Multi-Class
Common Stock Capital Structure." The current dividend policy of the GM Board
is to pay quarterly dividends on Class E Common Stock, when, as and if
declared by the GM Board, at an annual rate equal to approximately 30% of the
Available Separate Consolidated Net Income of EDS for the prior year. Under
the current dividend policy, the quarterly dividend on the Class E Common
Stock was $0.13 per share for 1995. In February 1996, the GM Board increased
the quarterly dividend on Class E Common Stock from $0.13 per share to $0.15
per share.
Under Delaware law and the General Motors Certificate of Incorporation, the
GM Board is not required to declare dividends on any class of General Motors
common stock. If and to the extent the GM Board chooses to declare dividends
on any or all of the classes of its common stock, neither Delaware law nor the
General Motors Certificate of Incorporation requires that there be any
proportionate or other fixed relationship between the amount of dividends
declared with respect to such different classes of common stock. The GM Board
reserves the right to reconsider from time to time its practices and policies
regarding dividends on General Motors' common stocks and to increase or
decrease the dividends paid on General Motors' common stocks on the basis of
General Motors' consolidated financial position, including liquidity, and
other factors, including, with regard to Class E Common Stock, the earnings
and consolidated financial position of EDS. Under the current dividend
practices and policies of the GM Board, dividends on Class E Common Stock are
not materially affected by developments involving the performance (operations,
liquidity or financial condition) of General Motors (excluding EDS).
Information concerning General Motors and its consolidated financial
performance, including Management's Discussion and Analysis, may be found in
the documents incorporated herein by reference, including the GM 1995 Form 10-
K. There is no fixed relationship, on a per share or aggregate basis, between
the cash dividends that may be paid by General Motors to holders of Class E
Common Stock and cash dividends
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or other amounts that may be paid by EDS to General Motors. However, it has
been the practice of the EDS Board to pay quarterly cash dividends on the
outstanding EDS common stock in an aggregate amount equal to the quarterly
dividends per share paid by General Motors on Class E Common Stock multiplied
by the Class E Dividend Base. See "Risk Factors Regarding General Motors after
the Split-Off--Loss of Potential Availability of EDS Funds and Assets" and
"Relationship Between General Motors and EDS--Pre-Split-Off Relationship."
VOTING RIGHTS
Under the General Motors Certificate of Incorporation, holders of Class E
Common Stock may cast one-eighth of a vote per share on all matters submitted
to General Motors stockholders for a vote, while holders of $1 2/3 Common
Stock may cast one vote per share and holders of Class H Common Stock may cast
one-half of a vote per share. Holders of all three classes of common stock
vote together as a single class on all matters, except that separate class
votes are required for certain amendments to the General Motors Certificate of
Incorporation, including any amendment which adversely affects the rights,
powers or privileges of any class, which must also be approved by the holders
of that class voting separately as a class.
LIQUIDATION RIGHTS
In the event of the liquidation, dissolution or winding up of the business
of General Motors, whether voluntary or involuntary, the General Motors
Certificate of Incorporation provides that, after the holders of the Preferred
Stock (if any) and Preference Stock receive the full preferential amounts to
which they are entitled, holders of the Class E Common Stock, $1 2/3 Common
Stock and Class H Common Stock will receive the assets remaining for
distribution to the General Motors stockholders on a per share basis in
proportion to the respective per share liquidation units of such classes and
will have no direct claim against any particular assets of General Motors or
any of its subsidiaries. Subject to adjustment, as described below, each share
of Class E Common Stock, $1 2/3 Common Stock and Class H Common Stock would
currently be entitled to liquidation units of approximately one-eighth
(0.125), one (1.0) and one-half (0.5), respectively. Holders of Class E Common
Stock have no direct rights in the equity or assets of EDS, but rather have
rights in the equity and assets of General Motors (which include 100% of the
stock of EDS).
RECAPITALIZATION
Under the General Motors Certificate of Incorporation, all outstanding
shares of Class E Common Stock may be recapitalized as shares of $1 2/3 Common
Stock (i) at any time after December 31, 1995, in the sole discretion of the
GM Board (provided that, during each of the five full fiscal years preceding
the exchange, the aggregate cash dividends on the Class E Common Stock have
been no less than the product of the Payout Ratio (as defined below) for such
year multiplied by the Available Separate Consolidated Net Income of EDS for
the prior fiscal year) or (ii) automatically, if at any time General Motors
disposes of substantially all of the business of EDS. In the event of such a
recapitalization, each holder of Class E Common Stock would receive shares of
$1 2/3 Common Stock having a market value, as of the valuation date provided
for in the General Motors Certificate of Incorporation, equal to 120% of the
market value of such holder's Class E Common Stock on such valuation date.
Based on the dividends paid on Class E Common Stock in 1991 through 1995, the
condition described in clause (i) above that would permit a recapitalization
in the discretion of the GM Board during 1996 has been satisfied. As a result
of the Merger, the General Motors Certificate of Incorporation will be amended
so that the Split-Off will not result in any recapitalization of Class E
Common Stock at the 120% exchange ratio. Holders of EDS Common Stock will have
no rights comparable to such recapitalization rights.
No fractional shares of $1 2/3 Common Stock would be issued in any such
exchange. In lieu thereof, a holder of shares of Class E Common Stock would
receive cash equal to the product of (A) the fraction of a share of $1 2/3
Common Stock to which the holder would otherwise have been entitled,
multiplied by (B) the average market price per share of $1 2/3 Common Stock on
such valuation date.
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The "Payout Ratio" equals the lesser of (A) 0.25 or (B) the quotient of (x)
the total cash dividends paid on $1 2/3 Common Stock for such fiscal year,
divided by (y) the net income of General Motors for such fiscal year, minus
the Available Separate Consolidated Net Income of EDS for such fiscal year and
the Available Separate Consolidated Net Income of Hughes for such fiscal year.
SUBDIVISION OR COMBINATION
If General Motors subdivides (by stock split or otherwise) or combines (by
reverse stock split or otherwise) the outstanding shares of the $1 2/3 Common
Stock, the Class E Common Stock or the Class H Common Stock, the voting and
liquidation rights of shares of Class E Common Stock and Class H Common Stock
relative to $1 2/3 Common Stock will be appropriately adjusted. In the event
of the issuance of shares of Class E Common Stock or Class H Common Stock as a
dividend on shares of $1 2/3 Common Stock, the liquidation rights of the
applicable class of Common Stock would be adjusted so that the relative
aggregate liquidation rights of each stockholder would not be changed as a
result of such dividend.
CONSIDERATIONS RELATING TO MULTI-CLASS COMMON STOCK CAPITAL STRUCTURE
Class E Common Stock is one of three classes of General Motors common stock.
The General Motors Certificate of Incorporation restricts the power of the GM
Board to declare and pay dividends on any one of the three classes of common
stock to certain defined amounts which are attributable to each separate class
of common stock and based on the legally available retained earnings of
General Motors. For dividend purposes, this restriction serves to preserve the
interest in retained earnings of holders of each class of GM common stock in
relation to the interests therein of holders of the other two classes.
However, this restriction does not result in a physical segregation of the
assets of General Motors, EDS or Hughes, nor does it result in the
establishment of separate accounts or dividend or liquidation preferences with
respect to such assets for the benefit of the holders of any of the three
separate classes of General Motors common stock. Holders of Class E Common
Stock and Class H Common Stock have no direct rights in the equity or assets
of EDS or Hughes, but rather, together with holders of $1 2/3 Common Stock,
have certain liquidation rights in the equity and assets of General Motors
(which include 100% of the stock of both EDS and Hughes).
The existence of multiple classes of common stock with separate dividend
rights as provided for in the General Motors Certificate of Incorporation can
give rise to potential divergences among the interests of the holders of each
of the separate classes of General Motors common stock with respect to various
intercompany transactions and other matters. In this regard, the GM Board, in
the discharge of its fiduciary duties, principally through its Capital Stock
Committee (comprised entirely of independent directors of General Motors),
oversees the policies, programs and practices of General Motors which may
impact the potentially divergent interests of the three classes of General
Motors common stock.
The By-Laws of General Motors, in defining the role of the Capital Stock
Committee, provide that such Committee shall oversee those matters in which
the three classes of stockholders may have divergent interests, particularly
as they relate to: (a) the business and financial relationships between
General Motors or any of its units and EDS, between General Motors or any of
its units and Hughes, and between EDS and Hughes; (b) dividends in respect of,
disclosures to stockholders and the public concerning, and transactions by
General Motors or any of its subsidiaries in, shares of Class E Common Stock
or Class H Common Stock; and (c) any matters arising in connection therewith,
all to the extent the Committee may deem appropriate, and to recommend such
changes in such policies, programs and practices as the Committee may deem
appropriate. In performing this function, the Capital Stock Committee's role
is not to make decisions concerning matters referred to its attention, but
rather to oversee the process by which decisions concerning such matters are
made. The Committee does this with a view towards, among other things,
assuring a process of fair dealing among General Motors, EDS and Hughes as
well as fairness to the interests of all GM stockholders in the resolution of
such matters. The Capital Stock Committee had a significant role in reviewing
the terms of the Transactions to ensure the fairness thereof to all classes of
General Motors common stock. See "Special Factors--Background of the Split-
Off" and "Recommendations of the Capital Stock Committee and the GM Board;
Fairness of the Transactions."
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EDS CAPITAL STOCK
Under the EDS Certificate of Incorporation, the authorized capital stock of
EDS is 2,200,000,000 shares, of which 2,000,000,000 shares are EDS Common
Stock, par value $0.01 per share, and 200,000,000 shares are preferred stock,
par value $0.01 per share (the "EDS Preferred Stock").
The following descriptions (i) are summaries and do not purport to be
complete and (ii) give effect to the consummation of the Split-Off. See "The
Split-Off" and "Comparison of Class E Common Stock and EDS Common Stock."
Reference is also made to the more detailed provisions of, and such
descriptions are qualified in their entirety by reference to, the EDS
Certificate of Incorporation and the EDS Bylaws, copies of which are filed
with the Commission as exhibits to the Registration Statement of which this
Solicitation Statement/Prospectus is a part.
EDS COMMON STOCK
Holders of EDS Common Stock will be entitled to one vote per share with
respect to each matter submitted to a vote of stockholders of EDS, subject to
voting rights that may be established for shares of EDS Preferred Stock, if
any. Except as may be provided in connection with any EDS Preferred Stock or
as may otherwise be required by law or the EDS Certificate of Incorporation,
the EDS Common Stock will be the only capital stock of EDS entitled to vote in
the election of directors. The EDS Common Stock will not have cumulative
voting rights. Immediately prior to the consummation of the Split-Off, General
Motors was the only holder of record of EDS Common Stock.
Subject to the prior rights of holders of EDS Preferred Stock, if any,
holders of the EDS Common Stock are entitled to receive such dividends as may
be lawfully declared from time to time by the EDS Board. Upon any liquidation,
dissolution or winding up of EDS, whether voluntary or involuntary, holders of
the EDS Common Stock will be entitled to receive such assets as are available
for distribution to stockholders after there shall have been paid or set apart
for payment the full amounts necessary to satisfy any preferential or
participating rights to which the holders of each outstanding series of EDS
Preferred Stock are entitled by the express terms of such series.
The outstanding shares of EDS Common Stock are fully paid and nonassessable.
The EDS Common Stock will not have any preemptive, subscription or conversion
rights. Additional shares of authorized EDS Common Stock may be issued, as
authorized by the EDS Board from time to time, without stockholder approval,
except as may be required by applicable stock exchange requirements.
EDS PREFERRED STOCK
The EDS Board is empowered, without approval of the stockholders, to cause
shares of EDS Preferred Stock to be issued in one or more series, with the
numbers of shares of each series and the powers, preferences, rights and
limitations of each series to be determined by it. Among the specific matters
that may be determined by the EDS Board are the rate of dividends, if any;
rights and terms of conversion or exchange, if any; the terms of redemption,
if any; the amount payable in the event of any voluntary liquidation,
dissolution or winding up of the affairs of EDS; the terms of a sinking or
purchase fund, if any; and voting rights, if any. The Series A EDS Preferred
Stock described under "EDS Rights Agreement" below is a series of EDS
Preferred Stock that has been authorized by the EDS Board.
Although EDS has no current plans to issue EDS Preferred Stock, the issuance
of shares of EDS Preferred Stock, or the issuance of rights to purchase such
shares, could be used to discourage an unsolicited acquisition proposal. For
example, a business combination could be impeded by the issuance of a series
of EDS Preferred Stock containing class voting rights that would enable the
holder or holders of such series to block any such transaction. Alternatively,
a business combination could be facilitated by the issuance of a series of EDS
Preferred Stock having sufficient voting rights to provide a required
percentage vote of the stockholders. In
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addition, under certain circumstances, the issuance of EDS Preferred Stock
could adversely affect the voting power of the holders of the EDS Common
Stock. Although the EDS Board is required to make any determination to issue
any such stock based on its judgment as to the best interests of the
stockholders of EDS, the EDS Board could act in a manner that would discourage
an acquisition attempt or other transaction that some, or a majority, of the
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over prevailing market
prices of such stock. The EDS Board does not at present intend to seek
stockholder approval prior to any issuance of currently authorized stock,
unless otherwise required by law or applicable stock exchange requirements.
EDS RIGHTS AGREEMENT
There will be attached to each share of EDS Common Stock offered hereby one
right (a "Right") to purchase from EDS a unit consisting of one one-hundredth
of a share (a "Unit") of Series A Junior Participating Preferred Stock, par
value $0.01 per share (the "Series A EDS Preferred Stock"), at a purchase
price of $200 per Unit, subject to adjustment in certain events (the "Purchase
Price"). The following description of the Rights (i) is a summary and does not
purport to be complete and (ii) gives effect to the consummation of the Split-
Off. Reference is also made to the more detailed provisions of, and such
description is qualified in its entirety by reference to, the EDS Rights
Agreement, a copy of which is filed with the Commission as an exhibit to the
Registration Statement of which this Solicitation Statement/Prospectus is a
part.
Initially, the Rights will be attached to all certificates representing
outstanding shares of EDS Common Stock, including the shares of EDS Common
Stock issued in the Split-Off, and no separate certificates for the Rights
("Rights Certificates") will be distributed. The Rights will separate from the
EDS Common Stock and a "Distribution Date" will occur upon the earlier of (i)
ten days following a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the outstanding
shares of EDS Common Stock (the date of the announcement being the "Stock
Acquisition Date"), or (ii) ten business days (or such later date as may be
determined by the EDS Board before the Distribution Date occurs) following the
commencement of a tender offer or exchange offer that would result in a
person's becoming an Acquiring Person. The GM Hourly Plan, and any trustee of
or other fiduciary with respect to such plan (when acting in such capacity),
will not be an Acquiring Person solely as a result of its acquiring EDS Common
Stock in the Split-Off but may thereafter become an Acquiring Person if it
shall purchase or otherwise become the beneficial owner of additional shares
of EDS Common Stock constituting 1% or more of the then outstanding shares of
EDS Common Stock unless the Hourly Plan is not then the beneficial owner of
10% or more of the then outstanding shares of EDS Common Stock. Until the
Distribution Date, (a) the Rights will be evidenced by the certificates
representing EDS Common Stock and will be transferred with and only with such
certificates, (b) certificates representing EDS Common Stock will contain a
notation incorporating the EDS Rights Agreement by reference and (c) the
surrender for transfer of any certificate for EDS Common Stock will also
constitute the transfer of the Rights associated with the stock represented by
such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on March 12, 2006, unless earlier redeemed or
exchanged by EDS as described below.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of EDS Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the
separate Rights Certificates alone will represent the Rights. All shares of
EDS Common Stock issued prior to the Distribution Date will be issued with
Rights. Shares of EDS Common Stock issued after the Distribution Date in
connection with certain employee benefit plans or upon conversion of certain
securities will be issued with Rights. Except as otherwise determined by the
EDS Board, no other shares of EDS Common Stock issued after the Distribution
Date will be issued with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or exchange offer for all outstanding shares of
EDS Common Stock at a price and on terms that a majority of the
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directors of EDS who are not officers or employees of EDS and who are not
representatives, nominees, affiliates or associates of the Acquiring Person
determines to be fair to and otherwise in the best interests of EDS and its
stockholders (a "Permitted Offer")), each holder of a Right will thereafter
have the right to receive, upon exercise of such Right, a number of shares of
EDS Common Stock (or, in certain circumstances, cash, property or other
securities of EDS) having a Current Market Price (as defined in the EDS Rights
Agreement) equal to two times the Purchase Price of the Right. Notwithstanding
the foregoing, following the occurrence of any Flip-In Event, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person (or by certain related parties)
will be null and void in the circumstances set forth in the EDS Rights
Agreement. However, the Rights are not exercisable following the occurrence of
any Flip-In Event until such time as the Rights are no longer redeemable by
EDS as set forth below.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) EDS is acquired in a merger or other business
combination transaction (other than certain mergers that follow a Permitted
Offer), or (ii) 50% or more of EDS' assets or earning power is sold or
transferred, each holder of a Right (except Rights that previously have become
void as set forth above) shall thereafter have the right to receive, upon
exercise, a number of shares of common stock of the acquiring company having a
Current Market Price equal to two times the Purchase Price of the Right. Flip-
In Events and Flip-Over Events are collectively referred to as "Triggering
Events."
The Purchase Price payable, and the number of Units of Series A EDS
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A EDS Preferred Stock, (ii) if holders of the
Series A EDS Preferred Stock are granted certain rights or warrants to
subscribe for Series A EDS Preferred Stock or certain convertible securities
at less than the current market price of the Series A EDS Preferred Stock, or
(iii) upon the distribution to holders of the Series A EDS Preferred Stock of
evidences of indebtedness, cash or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than those referred to
above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Series A EDS Preferred
Stock on the last trading date prior to the date of exercise. Pursuant to the
EDS Rights Agreement, EDS reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number
of Rights be exercised so that only whole shares of Series A EDS Preferred
Stock will be issued.
At any time until ten days following the Stock Acquisition Date, EDS may
redeem the Rights in whole, but not in part, at a price of $.01 per Right,
payable, at the option of EDS, in cash, shares of EDS Common Stock or such
other consideration as the EDS Board may determine. Immediately upon the
effectiveness of the action of the EDS Board ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more or the shares of EDS Common Stock
then outstanding, EDS may, at its option, exchange the Rights (other than
Rights owned by an Acquiring Person or an affiliate or an associate of an
Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of EDS Common Stock and/or other equity securities
deemed to have the same value as one share of EDS Common Stock, per Right,
subject to adjustment.
Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the EDS Rights Agreement may be amended
by the EDS Board prior to the Distribution Date. Thereafter, the provisions of
the EDS Rights Agreement may be amended by the EDS Board in order to cure any
ambiguity, defect or inconsistency, to make changes that do not materially
adversely affect the interests of holders of Rights
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(excluding the interests of any Acquiring Person), or to shorten or lengthen
any time period under the EDS Rights Agreement; provided, however, that no
amendment to lengthen the time period governing redemption shall be made at
such time as the Rights are not redeemable. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of EDS,
including, without limitation, the right to vote or to receive dividends.
Any shares of Series A EDS Preferred Stock that may be issued upon exercise
of the Rights will be entitled to receive, when, as and if declared,
preferential quarterly dividends in cash in an amount per share equal to the
greater of $1.00 per quarter and 100 times the aggregate per share cash
dividend paid on the EDS Common Stock, and noncash dividends payable in kind
in an amount per share equal to 100 times any noncash dividend or other
distribution declared on the EDS Common Stock. In the event of the
liquidation, dissolution or winding up of EDS, holders of any such Series A
EDS Preferred Stock will be entitled to receive (after satisfaction of or
provision for liabilities and any preferential amounts payable with respect to
any EDS Preferred Stock ranking senior to the Series A EDS Preferred Stock)
liquidation payments per share in an amount equal to accrued but unpaid
dividends plus the greater of $100.00 or 100 times the per share amount
distributed to holders of EDS Common Stock. In the event of any merger,
consolidation or other transaction in which shares of EDS Common Stock are
exchanged, holders of shares of Series A EDS Preferred Stock will be entitled
to receive a per share amount and type of consideration equal to 100 times the
per share amount received by holders of EDS Common Stock. Any Series A EDS
Preferred Stock will be redeemable at the option of EDS in whole at any time
or in part from time to time, for cash in an amount per share equal to 100
times the market price of the EDS Common Stock (determined on the basis of an
average closing price over a specified ten trading day period). Holders of
Series A EDS Preferred Stock will have 100 votes per share and, except as
otherwise provided in the EDS Certificate of Incorporation or required by law,
shall vote together with holders of EDS Common Stock as a single class. The
rights of the Series A EDS Preferred Stock as to dividends, liquidation and
voting are protected by anti-dilution provisions. Whenever dividend payments
on the Series A EDS Preferred Stock are in arrears, EDS will not (i) purchase
or redeem any shares of Series A Preferred Stock or shares ranking on a parity
with the Series A EDS Preferred Stock except in accordance with a purchase
offer to all holders, (ii) declare or pay dividends on or purchase or redeem
any shares of stock ranking junior to the Series A EDS Preferred Stock or
(iii) declare or pay dividends on or purchase or redeem any shares of stock
ranking on a parity with the Series A EDS Preferred Stock except dividends
paid ratably on the Series A EDS Preferred Stock and all such parity stock and
except purchases or redemptions of such parity stock in exchange for junior
stock. If dividend payments on any Series A EDS Preferred Stock are in arrears
for six quarters, the holders of the Series A EDS Preferred Stock (together
with holders of any other Preferred Stock with similar rights) will have the
right to elect two directors of EDS.
The Rights will have certain antitakeover effects. The Rights will cause
substantial dilution to any person or group that attempts to acquire EDS
without the approval of the EDS Board. As a result, the overall effect of the
Rights may be to render more difficult or discourage any attempt to acquire
EDS even if such acquisition may be favorable to the interests of EDS'
stockholders. Because the EDS Board can redeem the Rights or approve a
Permitted Offer, the Rights should not interfere with a merger or other
business combination approved by the EDS Board. The Rights have been
distributed prior to the consummation of the Split-Off to protect EDS'
stockholders from coercive or abusive takeover tactics and to give the EDS
Board more negotiating leverage in dealing with prospective acquirors.
LIMITATION ON EDS DIRECTORS' LIABILITY
The EDS Certificate of Incorporation provides, as authorized by Section
102(b)(7) of the DGCL, that a director of EDS will not be personally liable to
EDS or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to EDS or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
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The inclusion of this provision in the EDS Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited EDS and
its stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
EDS is a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time such stockholder became an interested
stockholder, unless (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. A "business combination" includes (a) any merger or
consolidation of the corporation with the interested stockholder, (b) any
sale, lease, exchange or other disposition, except proportionately as a
stockholder of such corporation, to or with the interested stockholder of
assets of the corporation having an aggregate market value equal to 10% or
more of either the aggregate market value of all the assets of the corporation
or the aggregate market value of all the outstanding stock of the corporation,
(c) certain transactions resulting in the issuance or transfer by the
corporation of stock of the corporation to the interested stockholder, (d)
certain transactions involving the corporation which have the effect of
increasing the proportionate share of the stock of any class or series of the
corporation which is owned by the interested stockholder or (e) certain
transactions in which the interested stockholder receives financial benefits
provided by the corporation. An "interested stockholder" generally is (i) any
person that owns 15% or more of the outstanding voting stock of the
corporation, (ii) any person that is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period prior to the date
on which it is sought to be determined whether such person is an interested
stockholder and (iii) the affiliates or associates of any such person. The EDS
Board has approved the distribution of EDS Common Stock to the GM Hourly Plan
Special Trust pursuant to the Merger for purposes of Section 203 so long as
the GM Hourly Plan Special Trust does not purchase or otherwise become the
owner of additional shares of capital stock constituting 1% or more of the
aggregate voting power of the outstanding capital stock of EDS at any time
that it is the owner of 15% or more of the outstanding voting stock of EDS.
The EDS Board further provided that such approval would not apply to any
transferee of EDS capital stock from the GM Hourly Plan Special Trust.
LIMITATIONS ON CHANGES IN CONTROL
The EDS Bylaws contain provisions requiring that advance notice be delivered
to EDS of any business to be brought by a stockholder before an annual meeting
of stockholders and providing for certain procedures to be followed by
stockholders in nominating persons for election to the EDS Board. Generally,
such advance notice provisions provide that the stockholder must give written
notice to the Secretary of EDS not less than 90 days nor more than 150 days
before the scheduled date of the annual meeting of stockholders of EDS. The
notice must set forth specific information regarding such stockholder and such
business or director nominee, as described in the EDS Bylaws. It is currently
anticipated that the deadline for receipt of such notices with respect to EDS'
1997 Annual Meeting of Stockholders will be on March 6, 1997.
The EDS Certificate of Incorporation provides that, except as may be
provided by the EDS Certificate of Incorporation or in the resolution or
resolutions providing for the issuance of any series of EDS Preferred Stock,
the number of directors shall not be fewer than three nor more than fifteen
and provides for a classified Board of Directors, consisting of three classes
as nearly equal in size as practicable. Each class holds office until the
third annual stockholders' meeting for election of directors following the
most recent election of such class, except that the initial terms of the three
classes expire in 1997, 1998 and 1999, respectively. See "EDS Management
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<PAGE>
and Executive Compensation-- Directors and Executive Officers." A director of
EDS may be removed only for cause.
The EDS Certificate of Incorporation provides that stockholders may not act
by written consent in lieu of a meeting, unless such written consent is
unanimous. Special meetings of the stockholders may be called by the Chairman
of the EDS Board or by the EDS Board, but may not be called by stockholders.
The EDS Bylaws may be amended by the EDS Board or by the affirmative vote of
the holders of at least 66 2/3% of the aggregate voting power of the
outstanding capital stock of EDS entitled to vote in the election of
directors.
The EDS Certificate of Incorporation also contains a "fair price" provision
that applies to certain business combination transactions involving any person
or group that beneficially owns at least 10% of the aggregate voting power of
the outstanding capital stock of EDS (a "Related Person"). The "fair price"
provision requires the affirmative vote of the holders of (i) at least 80% of
the voting stock of EDS and (ii) at least 66 2/3% of the voting stock of EDS
not beneficially owned by the Related Person, to approve certain transactions
between the Related Person and EDS or its subsidiaries, including any merger,
consolidation or share exchange, any sale, lease, exchange, pledge or other
disposition of assets of EDS or its subsidiaries having a fair market value of
at least $10 million, any transfer or issuance of securities of EDS or any of
its subsidiaries, any adoption of a plan or proposal by EDS of voluntary
liquidation or dissolution of EDS, certain reclassifications of securities or
recapitalizations of EDS or certain other transactions, in each case involving
the Related Person. This voting requirement will not apply to certain
transactions, including (a) any transaction in which the consideration to be
received by the holders of each class of capital stock of EDS is (x) the same
in form and amount as that paid in a tender offer in which the Related Person
acquired at least 50% of the outstanding shares of such class and which was
consummated not more than one year earlier or (y) not less in amount than the
highest per share price paid by the Related Person for shares of such class or
(b) any transaction approved by EDS' continuing directors (as defined in the
EDS Certificate of Incorporation). The GM Hourly Plan, and any trustee of or
other fiduciary with respect to such plan (when acting in such capacity), will
not be a Related Person solely as a result of its acquiring EDS Common Stock
in the Split-Off but may thereafter become a Related Person if it shall
purchase or otherwise become the beneficial owner of additional shares of
capital stock constituting 1% or more of the aggregate voting power of the
outstanding capital stock of EDS unless the GM Hourly Plan is not then the
beneficial owner of 10% or more of the aggregate voting power of the
outstanding capital stock of EDS. This provision could have the effect of
delaying or preventing a change in control of EDS in a transaction or series
of transactions that did not satisfy the "fair price" criteria.
The provisions of the EDS Certificate of Incorporation relating to the EDS
Board, the limitation of actions taken by written consent, the calling of
special meetings, the amendment of the EDS Bylaws and the "fair price"
provision may be amended only by the affirmative vote of the holders of at
least 80% of the aggregate voting power of the outstanding capital stock of
EDS entitled to vote for the election of directors.
The foregoing provisions of the EDS Certificate of Incorporation and the EDS
Bylaws, together with the EDS Rights Agreement and the provisions of Section
203 of the DGCL, could have the effect of delaying, deferring or preventing a
change in control of EDS or the removal of existing management, of deterring
potential acquirors from making an offer to stockholders of EDS and of
limiting any opportunity to realize premiums over prevailing market prices for
EDS Common Stock in connection therewith. For a description of certain other
factors that could limit such changes in control and offers, see "Risk Factors
Regarding EDS after the Split-Off--Certain Limitations on Changes in Control
of EDS." This could be the case notwithstanding that a majority of EDS'
stockholders might benefit from such a change in control or offer.
EDS TRANSFER AGENT AND REGISTRAR
The Bank of New York will serve as the Transfer Agent and Registrar for the
EDS Common Stock.
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COMPARISON OF CLASS E COMMON STOCK AND EDS COMMON STOCK
GENERAL
Upon consummation of the Split-Off, each outstanding share of Class E Common
Stock will be converted into one share of EDS Common Stock, holders of Class E
Common Stock will become stockholders of EDS rather than of General Motors,
and the Class E Common Stock will cease to exist. See "The Split-Off." As
stockholders of EDS, such holders' rights will continue to be governed by
Delaware law and will be governed by the EDS Certificate of Incorporation and
the EDS Bylaws, which differ in certain material respects from the General
Motors Certificate of Incorporation and the General Motors By-Laws, as
summarized below. For a more detailed description of the terms of the Class E
Common Stock and the EDS Common Stock and the applicable provisions of
Delaware law and the Certificate of Incorporation and Bylaws of both General
Motors and EDS, see "Class E Common Stock" and "EDS Capital Stock." See also
"Risk Factors Regarding EDS after the Split-Off--No Prior Public Market for
EDS Common Stock; No Assurance as to Market Price." The following discussion
relating to the EDS Common Stock, the EDS Certificate of Incorporation and the
EDS Bylaws give effect to the consummation of the Split-Off.
DIVIDEND POLICY
Under the General Motors Certificate of Incorporation, dividends on the
Class E Common Stock may be declared and paid only to the extent of the sum of
(i) the paid in surplus of General Motors attributable to the Class E Common
Stock plus (ii) an allocated portion of the earnings of GM attributable to
EDS, determined as described in "Class E Common Stock." The current dividend
policy of the GM Board is to pay quarterly dividends on Class E Common Stock,
when, as and if declared by the GM Board, at an annual rate equal to
approximately 30% of Available Separate Consolidated Net Income of EDS for the
prior year. Under this dividend policy, the quarterly dividend on Class E
Common Stock for 1995 was $0.13 per share. In February 1996, the GM Board
increased the quarterly dividend on Class E Common Stock to $0.15 per share.
Dividend policy with respect to EDS capital stock will be determined by the
EDS Board, which is not obligated to declare any dividends on any class of EDS
capital stock. For a description of EDS' currently anticipated dividend policy
following the Split-Off, see "Plans and Proposals of EDS--EDS Dividend
Policy."
VOTING RIGHTS
Holders of Class E Common Stock may cast one-eighth of a vote per share on
all matters submitted to a vote of GM stockholders under the General Motors
Certificate of Incorporation and vote together as a single class with holders
of the $1 2/3 Common Stock and Class H Common Stock on all matters (including
the election of directors), with specified exceptions. Holders of EDS Common
Stock will be entitled to one vote per share under the EDS Certificate of
Incorporation with respect to all matters submitted to a vote of EDS
stockholders.
Holders of EDS Common Stock will have the right to vote directly on matters
relating to EDS, while holders of Class E Common Stock vote directly on
matters relating to General Motors. Except as may be provided in connection
with any EDS Preferred Stock or as may otherwise be required by law or the EDS
Certificate of Incorporation, the EDS Common Stock will be the only capital
stock of EDS entitled to vote in the election of directors.
LIQUIDATION RIGHTS
The General Motors Certificate of Incorporation provides that upon the
liquidation, dissolution or winding up of General Motors, after the holders of
General Motors Preferred Stock (if any) and Preference Stock receive the full
preferential amounts to which they are entitled, each holder of Class E Common
Stock will share in the distribution of the available remaining assets of
General Motors (as distinguished from EDS) with all other holders of GM common
stock in proportion to their respective liquidation units of approximately
one-eighth (0.125) per share of Class E Common Stock, one (1.0) per share of
$1 2/3 Common Stock and one-half (0.5) per share of Class H Common Stock.
Under the EDS Certificate of Incorporation, holders of EDS Common Stock will
receive the assets of EDS available for distribution to its stockholders in
the event of its liquidation, dissolution or winding up, provided that
preferential or participating amounts owing to the holders of any EDS
Preferred Stock have been paid or set aside for payment previously.
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RECAPITALIZATION
Holders of EDS Common Stock will have no comparable right to that which they
possess as holders of Class E Common Stock with respect to the potential
recapitalization of their Class E Common Stock into $1 2/3 Common Stock at a
120% exchange ratio, as currently provided by the General Motors Certificate
of Incorporation upon a disposition by General Motors of substantially all of
the business of EDS and under certain other circumstances. Holders of EDS
Common Stock will, however, have the potential to realize premiums over
prevailing market prices for EDS Common Stock in connection with certain
corporate transactions, including tender offers for EDS Common Stock and
change in control transactions involving EDS, although there can be no
assurance in this regard. See "--Certain Limitations on Changes in Control of
EDS." Such premiums, if any, will not be limited by any formula in the EDS
Certificate of Incorporation comparable to that relating to the
recapitalization of Class E Common Stock in the General Motors Certificate of
Incorporation.
CERTAIN LIMITATIONS ON CHANGES IN CONTROL OF EDS
The EDS Certificate of Incorporation and the EDS Bylaws contain certain
provisions, such as a "fair price" provision applicable to certain business
combinations, a provision prohibiting stockholder action by written consent
unless such action is unanimous and provisions limiting the ability of
stockholders to call special meetings, which are not present in the General
Motors Certificate of Incorporation or the General Motors By-Laws and which
could have the effect of delaying, deferring or preventing a change in control
of EDS and of limiting any opportunity to realize premiums over prevailing
market prices for EDS Common Stock in connection therewith. The EDS Rights
Agreement, which also has no equivalent at General Motors, could have the same
effect. EDS, like General Motors, is subject to Section 203 of the DGCL.
Furthermore, in order to preserve the tax-free status of the Split-Off,
under the Separation Agreement, EDS will be prohibited, until after the two-
year anniversary of the Effective Time and unless certain conditions are
satisfied, from entering into (i) certain secondary capital stock transactions
whereby a person would acquire, from holders of outstanding shares of EDS
capital stock, a number of shares of EDS capital stock that would comprise
more than 15% of the number of issued and outstanding shares of EDS Common
Stock; or (ii) any other transaction that would be reasonably likely to
jeopardize the tax-free status of the Split-Off. In addition, the Separation
Agreement will prohibit EDS, until after the six-month anniversary of the
Effective Time, from entering into any transaction that would result in any
person acquiring from EDS a number of shares of EDS capital stock that, when
aggregated with all other shares of EDS capital stock then owned by such
person, would constitute more than 20% of the total combined voting power of
EDS voting stock or 20% of the total number of outstanding shares of any class
or series of EDS non-voting stock. See "Relationship Between General Motors
and EDS--Post-Split-Off Arrangements--Separation Agreement." The Master
Services Agreement will also provide General Motors with certain termination
rights upon the occurrence of certain changes in control of EDS. See
"Relationship Between General Motors and EDS--Post-Split-Off Arrangements--IT
Services Agreements."
In addition, the GM Hourly Plan Special Trust is a party to the Registration
Rights Agreement, which contains certain restrictions on its ability to
transfer the shares of Class E Common Stock held by it (including by tendering
into a tender offer), which restrictions will continue to apply to its
holdings of EDS Common Stock after the consummation of the Split-Off. General
Motors and the GM Hourly Plan Special Trust are also parties to the Transfer
Agreement, which is intended to preserve the tax-free status of the Split-Off
and which contains restrictions on the ability of the GM Hourly Plan Special
Trust to transfer Class E Common Stock and to vote in favor of certain
business combinations involving EDS, which restrictions will apply to the EDS
Common Stock for a period generally of two years after the Split-Off. See
"Security Ownership of Certain Beneficial Owners and Management of General
Motors and EDS--GM Hourly Plan Special Trust." The contractual restrictions to
which the shares of EDS Common Stock owned by the GM Hourly Plan Special Trust
are subject, as well as the terms of the Separation Agreement and the IT
Services Agreements, could have the effect of making more difficult or
discouraging certain change in control transactions involving EDS, including
tender offers for EDS Common Stock, that could give the holders of EDS Common
Stock the opportunity to realize a premium over the then prevailing market
price of such stock.
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SOLICITATION OF WRITTEN CONSENT OF GENERAL MOTORS
COMMON STOCKHOLDERS
MATTERS TO BE CONSIDERED
Transactions
This Solicitation Statement/Prospectus is being furnished to General Motors
common stockholders in connection with the solicitation by the GM Board of
written consents approving the Transactions, including the adoption of the
Merger Agreement, pursuant to which, among other things, (i) Mergeco will be
merged with and into General Motors, with General Motors being the surviving
corporation, (ii) each outstanding share of Class E Common Stock will be
converted automatically into one share of EDS Common Stock and (iii)
provisions in the General Motors Certificate of Incorporation regarding the
Class E Common Stock (including the provisions that require Class E Common
Stock to be recapitalized into $1 2/3 Common Stock at a 120% exchange ratio
upon a disposition by GM of substantially all of the business of EDS and under
certain other circumstances) will be deleted and certain other provisions
therein will be amended as described herein. The full text of the Merger
Agreement, including the attached Article Fourth of the General Motors
Certificate of Incorporation, as proposed to be amended, is attached as
Appendix A to this Solicitation Statement/Prospectus and is incorporated
herein by reference. See "The Split-Off."
Consummation of the Transactions is conditioned upon, among other things,
receiving the consent of the common stockholders of General Motors. Approval
of the Transactions is independent of the vote on the Amended EDS Incentive
Plan and will require the consent of the holders of (i) a majority of the
voting power of all outstanding shares of all three classes of General Motors
common stock, voting together as a single class based on their respective
voting rights, (ii) a majority of the outstanding shares of $1 2/3 Common
Stock, voting as a separate class, and (iii) a majority of the outstanding
shares of Class E Common Stock, voting as a separate class. If the
Transactions, including the Merger Agreement, are so approved, the Merger will
become effective upon the filing of a certificate of merger with the Secretary
of State of the State of Delaware.
Amended EDS Incentive Plan
This Solicitation Statement/Prospectus is also being furnished by General
Motors to solicit written consents of General Motors common stockholders to
approve the Amended EDS Incentive Plan, which amends and restates the Existing
EDS Incentive Plan. Approval of the Amended EDS Incentive Plan is independent
of the vote on the Transactions and will require the consent of the holders of
(i) a majority of the voting power of all outstanding shares of all three
classes of General Motors common stock, voting together as a single class
based on their respective voting rights, and (ii) a majority of the
outstanding shares of Class E Common Stock, voting as a separate class. The
full text of the Amended EDS Incentive Plan is attached as Appendix D to this
Solicitation Statement/Prospectus and is incorporated herein by reference. See
"EDS Management and Executive Compensation--Amended EDS Incentive Plan."
Approval of the Amended EDS Incentive Plan by the common stockholders of
General Motors is being sought to ensure that the deductibility by EDS, for
U.S. federal income tax purposes, of certain performance-based awards made
under the Plan will not be limited by Section 162(m) of the Code. Section
162(m) restricts a publicly traded company from claiming and receiving a
deduction, for U.S. federal income tax purposes, in respect of compensation
paid to certain employees in an amount in excess of $1 million for any such
employee during any taxable year. An exception applies to this limitation,
however, in the case of certain performance-based compensation. It is intended
that approval of the Amended EDS Incentive Plan by the common stockholders of
General Motors will satisfy certain requirements for such performance-based
exception. See "EDS Management and Executive Compensation--Amended EDS
Incentive Plan--Certain Tax Code Limitations on Deductibility."
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ACTION BY WRITTEN CONSENT
Transactions
In lieu of a special meeting of General Motors common stockholders, action
on the Transactions, including the Merger Agreement, will be taken by written
consent. The Transactions will be consummated on a date to be determined by
GM, which is expected to be as soon as practicable after consents have been
received and not revoked from holders of the number of outstanding shares of
$1 2/3 Common Stock, Class E Common Stock and Class H Common Stock required
for their approval, but which will not in any event be sooner than 20 business
days after the date of mailing of this Solicitation Statement/Prospectus.
Notwithstanding the foregoing, no consent shall be effective to approve the
Transactions unless, within 60 days of the earliest dated consent to the
Transactions delivered to General Motors, the number of consents required to
approve the Transactions are delivered to General Motors.
Amended EDS Incentive Plan
If written consents have been received and not revoked from holders of the
number of outstanding shares of $1 2/3 Common Stock, Class E Common Stock and
Class H Common Stock required for the approval of the Amended EDS Incentive
Plan prior to the consummation of the Split-Off, the Amended EDS Incentive
Plan will become effective in its entirety upon such consummation.
Notwithstanding the foregoing, no consent shall be effective to approve the
Amended EDS Incentive Plan unless, within 60 days of the earliest dated
consent to the Amended EDS Incentive Plan delivered to General Motors, the
number of consents required to approve the Amended EDS Incentive Plan are
delivered to General Motors. If the Amended EDS Incentive Plan is not approved
by the common stockholders of General Motors, such plan will nonetheless
become effective upon consummation of the Split-Off insofar as it relates to
Nonemployee Directors (as defined in "EDS Management and Executive
Compensation--Amended EDS Incentive Plan") but will not become effective
insofar as it relates to employees of EDS and its subsidiaries. Furthermore,
if the Amended EDS Incentive Plan is not approved by the common stockholders
of General Motors, the Existing EDS Incentive Plan will remain in effect. See
"EDS Management and Executive Compensation--Existing EDS Incentive Plan."
General
Only General Motors common stockholders of record on April 10, 1996 (the
Record Date) are entitled to consent with respect to each of the two proposals
being submitted for General Motors common stockholder consent. On the Record
Date, there were outstanding approximately 755.3 million shares of $1 2/3
Common Stock held by approximately 614,126 holders of record, approximately
485.7 million shares of Class E Common Stock held by approximately 268,123
holders of record and approximately 97.9 million shares of Class H Common
Stock held by approximately 260,893 holders of record. When voting together as
a single class in connection with each of the two proposals, holders of record
of $1 2/3 Common Stock are entitled to one vote per share, holders of record
of Class E Common Stock are entitled to one-eighth of a vote per share and
holders of record of Class H Common Stock are entitled to one-half of a vote
per share.
As of the Record Date, directors and officers of General Motors held an
aggregate of 660,285 outstanding shares of $1 2/3 Common Stock, 233,465
outstanding shares of Class E Common Stock, and 173,061 outstanding shares of
Class H Common Stock. As of the Record Date, persons expected to be directors
and executive officers of EDS upon consummation of the Split-Off held an
aggregate of 20 outstanding shares of $1 2/3 Common Stock, 788,802 outstanding
shares of Class E Common Stock, and 10 outstanding shares of Class H Common
Stock. In each case, such holdings constituted, as of the Record Date, less
than 1% of the outstanding shares of each class of GM common stock. See
"Security Ownership of Certain Beneficial Owners and Management of General
Motors and EDS."
The GM Board has unanimously recommended that each of the two proposals
being submitted for General Motors common stockholder consent be approved. To
the best of General Motors' knowledge, all of General
141
<PAGE>
Motors' directors and executive officers currently intend to consent to each
of the two proposals and, except as described under "Summary--The
Transactions" and "Special Factors--Background of the Split-Off" and
"Recommendations of the Capital Stock Committee and the GM Board; Fairness of
the Transactions," none of General Motors' executive officers who are not
directors have made any recommendations with respect to either proposal.
As of the Record Date, the GM Hourly Plan Special Trust beneficially owned
approximately 149.5 million shares of Class E Common Stock (or approximately
31% of the Class E Common Stock outstanding). The GM Hourly Plan Trustees, as
independent fiduciaries within the meaning of ERISA, have the authority and
discretion to direct the voting of such shares, including in connection with
each of the two proposals described herein. General Motors and EDS have been
advised by the GM Hourly Plan Trustees that, based on the information
currently available to them, the GM Hourly Plan Trustees intend to vote the
shares of Class E Common Stock held by the GM Hourly Plan Special Trust in
favor of the Transactions and in favor of the Amended EDS Incentive Plan. Such
a statement of intent is not binding on the GM Hourly Plan Trustees, and there
can be no assurance that they will vote the shares of Class E Common Stock
held by the GM Hourly Plan Special Trust in favor of the two proposals. For
information regarding the procedures by which shares held in savings and
incentive plans of General Motors will be voted, see "--Consents" below.
CONSENTS
The shares represented by each executed consent submitted with respect to
the proposal to approve the Transactions, including the adoption of the Merger
Agreement, will be deemed to have approved the Transactions. The shares
represented by each executed consent submitted with respect to the proposal to
approve the Amended EDS Incentive Plan will be deemed to have approved the
Amended Incentive Plan. Approval of the Amended EDS Incentive Plan is
independent of the vote on the Transactions. Failure to execute and submit a
consent to either proposal will have the effect of a vote against such
proposal. In addition, under the rules of the NYSE, brokers who hold shares in
street names may not consent on behalf of customers to non-routine proposals
such as those to approve the Transactions, including the adoption of the
Merger Agreement, and to approve the Amended EDS Incentive Plan, without
specific instructions from such customers. Thus, "broker non-votes" with
respect to either the proposal to approve the Transactions, including the
adoption of the Merger Agreement, or the proposal to approve the Amended EDS
Incentive Plan will have the effect of a vote against such proposal.
If a General Motors common stockholder is a participant in the General
Motors Savings-Stock Purchase Program for Salaried Employees in the United
States, the General Motors Personal Savings Plan for Hourly-Rate Employees in
the United States, the General Motors Canadian Savings-Stock Purchase Program,
the EDS Deferred Compensation Plan, the EDS Puerto Rico Savings Plan, the
Hughes Salaried Employees' Thrift and Savings Plan, the Hughes Tucson
Bargaining Employees' Thrift and Savings Plan, the Hughes California Hourly
Employees' Thrift and Savings Plan, the Hughes Thrift and Savings Plan, the
Saturn Individual Savings Plan for Represented Members, the Saturn Personal
Choices Savings Plan for Non-Represented Members or the GMAC Mortgage
Corporation Savings Incentive Plan, each consent will also serve as a voting
instruction for the trustees, plan committees or independent fiduciaries of
those plans. With respect to the General Motors Savings-Stock Purchase Program
for Salaried Employees in the United States, the General Motors Personal
Savings Plan for Hourly-Rate Employees in the United States, the Saturn
Individual Savings Plan for Represented Members, the Saturn Personal Choices
Savings Plan for Non-Represented Members and the EDS Deferred Compensation
Plan, if voting instructions are not received for shares in such plans, those
shares will be voted by the trustee, plan committee or independent fiduciary.
For the remainder of the plans, shares in such plans will not be voted unless
the consent is executed and returned.
If a General Motors common stockholder participates in any of these plans or
maintains other accounts under a different name (e.g., with and without a
middle initial), such stockholder may receive more than one set of
solicitation materials. To ensure that all shares are voted, such stockholder
must execute and return every consent received.
Brokers, dealers, banks, voting trustees and their nominees who desire a
supply of this solicitation material for transmittal by them to beneficial
owners should write to General Motors Corporation, c/o Morrow & Co., Inc., 909
Third Avenue, 20th Floor, New York, NY 10022-4799.
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Any consent given pursuant to this solicitation with respect to either of
the two proposals being submitted for General Motors common stockholder
consent may be revoked by the person giving it at any time before unrevoked
consents representing the requisite number of shares required to approve the
corporate action with respect to such proposal are delivered to General
Motors. Consents may be revoked by filing with the Secretary of General Motors
a written notice of revocation or another form of written consent bearing a
date later than the date of the consent. Any such notice of revocation or
written consent should be sent to General Motors Corporation, 3044 West Grand
Boulevard, Detroit, Michigan 48202-3091, Attention: Secretary.
General Motors and EDS will bear the cost of preparing and mailing
Solicitation Statement/Prospectus materials to General Motors common
stockholders. General Motors will solicit written consents by mail, and the
directors, officers and employees of General Motors may also solicit written
consents by telephone, telegram or personal interview. These persons will
receive no additional compensation for such services. In addition, General
Motors has retained Morrow & Co., Inc. to assist in soliciting written
consents. General Motors has agreed to pay Morrow & Co., Inc. a fee of
$125,000 and reasonable out-of-pocket expenses. Arrangements will be made to
furnish copies of solicitation materials to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of $1 2/3 Common Stock,
Class E Common Stock and Class H Common Stock.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GENERAL
MOTORS AND EDS
GENERAL MOTORS
The following table sets forth, as of February 29, 1996, beneficial
ownership of all classes of common stock of General Motors for each current
director, the Chief Executive Officer and the four other most highly
compensated executive officers of General Motors and all current directors and
officers of General Motors as a group. As of the date hereof, all of the
outstanding common stock of EDS was owned by General Motors. Upon consummation
of the Split-Off, each outstanding share of Class E Common Stock will be
automatically converted into one share of EDS Common Stock.
Each of the individuals/groups listed below is the owner of less than one
percent of the outstanding shares and voting power of any class of common
stock of General Motors (based on the number of shares of the applicable class
outstanding on the Record Date), except that the GM Hourly Plan owns 30.9% of
the outstanding shares and voting power of the Class E Common Stock (2.2% of
the combined voting power of the $1 2/3 Common Stock, Class E Common Stock,
and Class H Common Stock). The Capital Group Companies, Inc. is the parent of
six investment management companies which beneficially own 5.3% of the
outstanding shares and voting power of the Class H Common Stock (0.3% of the
combined voting power of the $1 2/3 Common Stock, Class E Common Stock, and
Class H Common Stock). No managed account by itself owns 5% or more of the
Class H Common Stock. Except as otherwise noted in the footnotes, each
individual has sole voting and investment power with respect to the shares
beneficially owned and the totals of shares owned by the individual nominees
and all directors and officers as a group. These shares do not include any
shares of $1 2/3 Common Stock, Class E Common Stock or Class H Common Stock
held by the pension and profit sharing plans or endowment funds of other
corporations or by educational and charitable institutions of which such
directors and officers serve as directors or trustees.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY DEFERRED STOCK
DIRECTORS CLASS OF STOCK OWNED STOCK UNITS TOTAL OPTIONS(A)
- --------- -------------------- ------------ ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
A. L. Armstrong (b)..... $1 2/3 Common Stock 1,500 13,477 14,977 -0-
Class E Common Stock 112 3,848 3,960 -0-
Class H Common Stock 48 1,586 1,634 -0-
J. H. Bryan (b)......... $1 2/3 Common Stock 2,000 2,758 4,758 -0-
T. E. Everhart (b)(c)... $1 2/3 Common Stock 400 5,644 6,044 -0-
Class E Common Stock -0- 3,944 3,944 -0-
Class H Common Stock -0- 1,098 1,098 -0-
C. T. Fisher, III $1 2/3 Common Stock 14,766 6,735 21,501 -0-
(b)(d)(e)..............
Class E Common Stock 224 1,924 2,148 -0-
Class H Common Stock 58 2,120 2,178 -0-
J. W. Marrion, Jr. (b).. $1 2/3 Common Stock 1,000 5,627 6,627 -0-
A. D. McLaughlin (b).... $1 2/3 Common Stock 923 1,131 2,054 -0-
Class E Common Stock -0- 226 226 -0-
Class H Common Stock -0- 560 560 -0-
H. J. Pearce (f)........ $1 2/3 Common Stock 11,124 25,001 36,125 123,138
Class E Common Stock 4,332 -0- 4,332 22,300
Class H Common Stock 21,858 8,402 30,260 35,284
E. T. Pratt, Jr.
(b)(d)(g).............. $1 2/3 Common Stock 200 16,491 16,691 -0-
Class E Common Stock 40 14,416 14,456 -0-
Class H Common Stock 10 11,432 11,442 -0-
</TABLE>
144
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<TABLE>
<CAPTION>
SHARES
BENEFICIALLY DEFERRED STOCK
DIRECTORS CLASS OF STOCK OWNED STOCK UNITS TOTAL OPTIONS(A)
- --------- -------------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
J. G. Smale (b)......... $1 2/3 Common Stock 16,000 4,538 20,538 -0-
Class E Common Stock 200 -0- 200 -0-
Class H Common Stock 200 -0- 200 -0-
J. F. Smith, Jr. (f).... $1 2/3 Common Stock 58,992 55,117 114,109 497,200
Class E Common Stock 27,328 -0- 27,328 -0-
Class H Common Stock 17,897 12,759 30,656 -0-
L. W. Sullivan (b)...... $1 2/3 Common Stock 100 1,654 1,754 -0-
Class E Common Stock -0- 108 108 -0-
Class H Common Stock -0- 117 117 -0-
D. Weatherstone (b)..... $1 2/3 Common Stock 6,000 10,599 16,599 -0-
Class E Common Stock -0- 6,881 6,881 -0-
Class H Common Stock -0- 564 564 -0-
T. H. Wyman (b)(d)...... $1 2/3 Common Stock 1,000 4,764 5,764 -0-
Class E Common Stock 500 412 912 -0-
Class H Common Stock 250 765 1,015 -0-
<CAPTION>
OTHER NAMED EXECUTIVES
- ----------------------
<S> <C> <C> <C> <C> <C>
C. M. Armstrong (h)(i).. $1 2/3 Common Stock 4,950 -0- 4,950 25,000
Class H Common Stock 34,508 9,578 44,086 242,500
L. R. Hughes (f)........ $1 2/3 Common Stock 18,254 27,413 45,667 175,046
Class E Common Stock 13,793 -0- 13,793 -0-
Class H Common Stock 7,609 6,232 13,841 -0-
G. R. Wagoner, Jr. (f).. $1 2/3 Common Stock 13,379 27,094 40,473 160,457
Class E Common Stock 8,881 -0- 8,881 -0-
Class H Common Stock 4,599 6,232 10,831 -0-
All directors and
officers of General
Motors as a group...... $1 2/3 Common Stock 660,285 568,939 1,229,224 4,250,629
Class E Common Stock 233,465 31,759 255,224 22,300
Class H Common Stock 173,061 136,446 309,507 309,584
GM Hourly Plan Special
Trust.................. Class E Common Stock 149,537,219 -0- 149,537,219 -0-
c/o United States Trust
Company of New York
114 West 47th Street
New York, NY 10036
The Capital Group
Companies, Inc......... Class H Common Stock 5,070,200 -0- 5,070,200 -0-
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- --------
(a) General Motors common stocks that may be acquired within 60 days through
exercise of stock option.
(b) Deferred Stock Units--Under a plan adopted by the GM Board, non-employee
directors of General Motors are required to retain a portion of the annual
retainer in deferred stock units of General Motors common stock. Directors
may also elect to defer receipt of all or a portion of their remaining
compensation by converting amounts deferred into units of any class of
General Motors common stock. In anticipation of the Split-Off, after
January 1, 1996 no further amounts could be deferred into Class E Common
Stock units.
145
<PAGE>
Further, under the Director Long-Term Stock Incentive Plan, directors have
been credited with General Motors common stock units related to their
length of service on the GM Board. Under both plans, these stock units are
credited with dividend equivalents in the form of additional stock units of
the same class. Distribution of amounts deferred is not available until age
70, following termination of service on the GM Board, and will be paid in
cash based on the number of stock units and the market price of the shares
at the time of payment.
(c) Does not include 32,000 shares of $1 2/3 Common Stock, 16,700 shares of
Class E Common Stock and 1,400 shares of Class H Common Stock held in the
endowment fund of the California Institute of Technology (the "Institute")
or the Beckman Foundation Equity Index Portfolio, the IDS Beckman
Foundation portfolio and the Sarofim Beckman Foundation portfolio which it
oversees. Dr. Everhart is a member of the Institute's 11-member Investment
Committee which has the power to acquire or dispose of the financial
investments of the Institute.
(d) Deferred Stock Units--Under a plan adopted by the Hughes Board of
Directors (the "Hughes Board"), members of the Hughes Board who are not
employees of either General Motors of Hughes may elect to defer receipt of
all or a portion of their compensation as a director of Hughes. Provisions
of the Hughes deferral plan are identical in all significant respects to
provisions of the GM plan described in footnote (b) above, except that the
portion required to be retained will be in the form of Class H Common
Stock.
(e) Includes 11,378 shares of $1 2/3 Common Stock held in a trust of which Mr.
Fischer is a co-trustee and in which he, among other family members, has a
residuary interest; 1,688 shares of $1 2/3 Common Stock held in two trusts
in which Mr. Fischer has a one-seventh remainderman interest; and 500
shares of $1 2/3 Common Stock held in one trust of which Mr. Fisher is a
co-trustee and the beneficiary is a relative of Mr. Fisher.
(f) "Shares Beneficially Owned" includes shares credited under the General
Motors Savings-Stock Purchase Program ("S-SPP"). Under this program,
participants may contribute up to 15% of eligible salary, subject to
maximum limits established by the Code. "Deferred Stock Units" include
shares under the General Motors Benefit Equalization Plan-Savings ("BEP-
S"). This Plan is a non-qualified "excess benefit" plan that is exempt
from ERISA and the Code limitations, and provides executives with the full
GM matching contribution without regard to such limitations. Amounts
credited under the Plan are maintained in share units of $1 2/3 Common
Stock. Upon distribution of an employee's S-SPP account, all amounts in
the executive's BEP-S account will be paid in cash. Deferred stock units
also include undelivered incentive awards which will vest upon the
occurrence of certain events and which are subject to forfeiture under
certain circumstances.
(g) Does not include shares held by a family member for which Mr. Pratt
disclaims voting or investment power.
(h) Includes 280 shares of $1 2/3 Common Stock held by Mr. Armstrong's wife.
Beneficial ownership of these shares is expressly disclaimed.
(i) "Shares Beneficially Owned" includes shares credited under the Hughes
Salaried Employees' Thrift and Savings Plan. Under this program,
participants may contribute of to 12% of eligible salary, subject to
maximum limits established by the Code. "Deferred Stock Units" include
shares under the Hughes Salaried Employees' Excess Benefits Plan. This
plan is a non-qualified "excess benefit" plan that is exempt from ERISA
and the Code limitations, and provides executives with the full Hughes
matching contribution without regard to such limitations. Amounts credited
under the plan are maintained in share units of Class H Common Stock. Upon
distribution of an employee's Excess Savings account, all amounts will be
paid in cash.
146
<PAGE>
EDS
The following table sets forth certain information regarding the beneficial
ownership of Class E Common Stock as of March 15, 1996, by each of the persons
expected to be a director of EDS immediately after consummation of the Split-
Off, by each other executive officer identified under the Executive
Compensation table above and by all persons expected to be directors and
executive officers of EDS upon consummation of the Split-Off as a group. None
of such persons beneficially owns any $1 2/3 Common Stock or Class H Common
Stock other than Mr. Alberthal, who beneficially owns 20 shares of $1 2/3
Common Stock and 10 shares of Class H Common Stock. Upon consummation of the
Split-Off, each outstanding share of Class E Common Stock will be
automatically converted into one share of EDS Common Stock, and the persons
shown herein as holding Class E Common Stock will own an identical number of
shares of EDS Common Stock and approximately the same percentage of the
outstanding shares of such class. Each of the individuals/groups listed below
is the owner of less than one percent of the outstanding shares and voting
power of the Class E Common Stock (based on the number of shares of Class E
Common Stock outstanding on the Record Date).
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(A)
------------------------ ------------
<S> <C>
Lester M. Alberthal, Jr........................ 109,062
Gary J. Fernandes.............................. 52,000
Jeffrey M. Heller.............................. 321,092
John R. Castle, Jr............................. 35,394
Dean Linderman................................. 79,856
James A. Baker, III............................ -0-
Richard B. Cheney.............................. -0-
Ray J. Groves.................................. -0-
Ray L. Hunt.................................... -0-
C. Robert Kidder............................... 2,300
Judith Rodin................................... -0-
Enrique J. Sosa................................ -0-
Directors and executive officers of EDS as a
group
(15 persons).................................. 788,851
</TABLE>
- --------
(a) Excludes units granted under the Existing EDS Incentive Plan to Messrs.
Alberthal, Fernandes, Heller, Castle and Linderman and all officers and
directors as a group representing 422,000, 228,000, 298,000, 133,000,
248,000 and 1,743,000 shares of unvested restricted Class E Common Stock,
respectively. All such units are scheduled to vest (subject to earlier
vesting based on the achievement of performance goals by EDS) during the
period from 1997 through the earlier of normal retirement age or 2009.
GM HOURLY PLAN SPECIAL TRUST
Of the approximately 485.7 million shares of Class E Common Stock
outstanding as of the Record Date, approximately 149.5 million shares, or
approximately 31%, were owned by the GM Hourly Plan Special Trust. The GM
Hourly Plan Special Trust acquired the substantial majority of such shares
pursuant to General Motors' contribution to the GM Hourly Plan, on March 13,
1995, of 173.2 million shares of Class E Common Stock.
All of the contributed shares, together with an additional approximately
16.9 million shares of Class E Common Stock held by the GM Hourly Plan Special
Trust at the time of the contribution, are subject to the restrictions on
transfer in and other terms of a Registration Rights Agreement, dated March
12, 1995 (the "Registration Rights Agreement"), between General Motors and the
GM Hourly Plan Trustees. Upon consummation of the Split-Off, EDS will succeed
to all of the rights and obligations of General Motors under the Registration
Rights Agreement (with the exception of certain indemnification provisions
relating to prior offerings under the Registration Rights Agreement), and all
of the provisions of the Registration Rights
147
<PAGE>
Agreement applicable to the Class E Common Stock held by the GM Hourly Plan
Special Trust will apply to the EDS Common Stock into which such Class E
Common Stock is converted (for purposes of this discussion, the "Registrable
Securities"). Under the Registration Rights Agreement, the GM Hourly Plan
Special Trust may only transfer Registrable Securities in certain types of
transactions and under certain circumstances, including "demand transfers"
(which are defined under the Registration Rights Agreement to include public
offerings and negotiated transactions, whether registered or not) and certain
transfers to employee benefit plans maintained by General Motors and its
subsidiaries. The Registration Rights Agreement provides that any underwritten
public offering to be effected thereunder by the GM Hourly Plan Special Trust
must be reasonably designed to achieve a broad public distribution of the
securities being offered. Subject to certain limitations, the issuer of the
Registrable Securities may postpone the filing or effectiveness of any
registration statement requested by the GM Hourly Plan Special Trust or the
making of any demand transfer at any time the issuer determines that such
action would interfere with any proposal or plan by the issuer to engage in
any material acquisition, merger, tender offer, securities offering or other
material transaction or would require such issuer to make a public disclosure
of previously non-public material information. The Registration Rights
Agreement prohibits the GM Hourly Plan Special Trust from making a negotiated
transfer (i) of more than 2% of the Registrable Securities then outstanding to
any person and (ii) to any person who is then required to file or has filed a
Schedule 13D under the Exchange Act with respect to the Registrable
Securities. Following the consummation of the Split-Off, the GM Hourly Plan
Special Trust will be permitted two demand transfers in any twelve-month
period. Restrictions on the GM Hourly Plan Special Trust's transfer of
Registrable Securities under the Registration Rights Agreement will terminate
when the GM Hourly Plan Special Trust owns less than 2% of the EDS Common
Stock then outstanding.
The Registration Rights Agreement also imposes certain restrictions on the
ability of the GM Hourly Plan Special Trust to tender its shares of
Registrable Securities in a third-party tender offer until such Trust owns
7.5% or less of the EDS Common Stock on a fully diluted basis (after which
time it may freely tender into any tender offer for EDS Common Stock). Until
such time, in the event of a tender offer for EDS Common Stock, the right of
the GM Hourly Plan Special Trust to tender its Registrable Securities will
depend on whether EDS has in effect a stockholders rights plan (such as the
EDS Rights Agreement). In general, the GM Hourly Plan Special Trust may tender
its shares in a tender offer if a stockholders rights plan is in effect during
the pendency of such tender offer, but the rights thereunder have been
redeemed, revoked or invalidated by the EDS Board, or by a final and non-
appealable court order, in connection with such tender offer. The GM Hourly
Plan Special Trust will also be able to tender its shares in a tender offer if
both (i) a stockholders rights plan is in effect during the pendency of such
tender offer, but the rights thereunder have been redeemed, revoked or
invalidated for any other reason, and (ii) either the EDS Board, or a majority
of EDS' Independent Directors (as defined in the Registration Rights
Agreement), has not recommended rejection of the tender offer, or there are
then fewer than two Independent Directors on the EDS Board. Additionally, if
(i) a stockholders rights plan is in effect during the pendency of a tender
offer, but the rights thereunder have been redeemed, revoked or invalidated
for any reason other than that described above and other than as a result of a
proposal publicly or privately initiated, recommended, endorsed, supported or
voted for by the GM Hourly Plan Special Trust, and (ii) the GM Hourly Plan
Special Trust makes a good faith determination that the tender offer will
likely result in the purchase of shares representing more than 50% of EDS'
total voting power (without giving effect to any securities tendered or to be
tendered by the GM Hourly Plan Special Trust), then the GM Hourly Plan Special
Trust may tender shares in such tender offer, unless EDS gives notice to the
GM Hourly Plan Special Trust. If EDS gives any such notice and the tender
offer then results in the purchase of shares constituting more than 50% of the
total voting power of EDS, then the GM Hourly Plan Special Trust will have the
option to cause EDS to purchase the number of shares that would have been
purchased from the GM Hourly Plan Special Trust in the tender offer if the GM
Hourly Plan Special Trust had been permitted to tender, at the price per
share, payable in cash, offered in the tender offer.
Pursuant to the Registration Rights Agreement, on June 12, 1995, General
Motors registered under the Securities Act an underwritten public offering of
40,550,000 shares (including an over-allotment option of 5,550,000 shares,
which was exercised in full) of Class E Common Stock owned by the GM Hourly
Plan Special
148
<PAGE>
Trust. In the same offering, General Motors also registered 2,000,000 shares
of Class E Common Stock owned by the GM Salaried Plan Trust. All such shares
were sold to the public at a price per share of $42.375. General Motors
received none of the proceeds from this offering of Class E Common Stock. The
GM Hourly Plan Special Trust and the GM Salaried Plan Trust received aggregate
proceeds from the offering, before deducting expenses, of $1,672,484,750 and
$82,490,000, respectively.
The GM Hourly Plan Special Trust has also agreed, pursuant to a Transfer
Agreement dated as of March 12, 1995 (the "Transfer Agreement") between
General Motors and the GM Hourly Plan Trustees, that for a period that
generally terminates on the second anniversary of the Split-Off, it will vote
against any merger of EDS that would not be a tax-free reorganization under
Section 368 of the Code. In the Transfer Agreement, the GM Hourly Plan Special
Trust additionally agreed to certain transfer restrictions intended to
preserve the tax-free status of the Split-Off. Such restrictions generally
terminate on the second anniversary of the Merger and do not apply to sales
pursuant to public offerings meeting certain criteria. The Transfer Agreement
could have the effect of delaying, deterring or preventing a change in control
of EDS. The Separation Agreement provides that General Motors will not (i)
amend or modify the Transfer Agreement in any material respect or (ii) waive
the benefit of any material term of the Transfer Agreement, without the prior
written consent of EDS. See "Relationship Between General Motors and EDS--Post
Split-Off Arrangements--Separation Agreement."
The GM Hourly Plan Trustees have been appointed, as fiduciaries within the
meaning of ERISA, to manage the shares of Registrable Securities owned by the
GM Hourly Plan Special Trust. The GM Hourly Plan Trustees have responsibility
to manage prudently the shares of Registrable Securities held by the GM Hourly
Plan Special Trust, in a manner consistent with maximizing the value of the GM
Hourly Plan Special Trust's investment in Registrable Securities and in
accordance with the GM Hourly Plan Trustees' determination of the extent to
which the GM Hourly Plan Special Trust may prudently continue to hold such
shares consistent with the diversification and related fiduciary requirements
of ERISA. In accordance with the foregoing and in a manner consistent with the
limitations and terms of the Registration Rights Agreement, the GM Hourly Plan
Trustees have the authority and discretion to cause the GM Hourly Plan Special
Trust to hold such shares or sell all or any portion thereof from time to time
as they may deem appropriate, and to direct the voting of and the exercise of
all other rights relating to such shares. General Motors and EDS have been
advised by the GM Hourly Plan Trustees that, based on the information
currently available to them, the GM Hourly Plan Trustees intend to vote the
shares of Class E Common Stock held by the GM Hourly Plan Special Trust in
favor of the Transactions and in favor of the Amended EDS Incentive Plan. Such
a statement of intent is not binding on the GM Hourly Plan Trustees, and there
can be no assurance that they will vote the shares of Class E Common Stock
held by the GM Hourly Plan Special Trust in favor of the two proposals. The GM
Hourly Plan Trustees have also notified GM and EDS of their intent to manage
the disposition of shares of EDS Common Stock in a manner consistent with
maintaining an orderly market for the EDS Common Stock, although there can be
no assurance in this regard. GM and EDS have been advised that, in order to
discharge their fiduciary duties, the GM Hourly Plan Trustees continually look
for attractive opportunities to sell a portion of their holdings of Class E
Common Stock (and following the Split-Off, EDS Common Stock) consistent with
their stated objectives of maximizing value for the GM Hourly Plan and
maintaining an orderly market for such stock. There can be no assurance as to
the timing or size of any offerings of shares owned by the GM Hourly Plan
Special Trust since, subject to the terms of the Registration Rights Agreement
and the Transfer Agreement, the GM Hourly Plan Trustees have the right to sell
such shares at any time. The sale of shares by the GM Hourly Plan Special
Trust will depend on, among other things, market conditions, the price of, and
demand for, such shares, and other factors outside the control of EDS. The
Department of Labor exemption obtained at the time of the contribution of the
shares of Registrable Securities to the GM Hourly Plan Special Trust does not
impose any time constraints on the GM Hourly Plan Special Trust for any
dispositions of such shares. The compensation of the GM Hourly Plan Trustees
is not contingent in any way on the sale or continued holding of shares of
Registrable Securities by the GM Hourly Plan Special Trust.
The Finance Committee of the GM Board is named fiduciary of the GM Hourly
Plan pursuant to the provisions of ERISA, and a portion of the assets of the
GM Hourly Plan (not including the shares of Registrable Securities owned by
the GM Hourly Plan Special Trust) is subject to management by or under the
supervision of General Motors Investment Management Corporation, a wholly
owned subsidiary of General Motors.
149
<PAGE>
ESTIMATED FEES AND EXPENSES
Estimated costs and fees in connection with the Transactions are as follows:
<TABLE>
<S> <C>
Merrill Lynch(1)............................................. $12,500,000
Lehman Brothers(2)........................................... 7,500,000
Morgan Stanley(2)............................................ 7,500,000
Legal Fees and Expenses...................................... 10,975,000
Accounting Fees and Expenses................................. 425,000
SEC Filing Fees.............................................. 8,856,245
Printing and Mailing Expenses................................ 3,700,000
Solicitation Fees and Expenses............................... 175,000
Miscellaneous................................................ 368,755
-----------
Total.................................................... $52,000,000
===========
</TABLE>
- --------
(1) Merrill Lynch has been retained by GM to act as financial advisor to the
GM Board and the GM Team in connection with the Transactions. See "Special
Factors--Background of the Split-Off--Negotiating Teams" and "--Fairness
Opinions--Merrill Lynch Fairness Opinion."
(2) Lehman Brothers and Morgan Stanley have been retained by GM to act as
financial advisors to the EDS Team in connection with the Transactions.
See "Special Factors--Background of the Split-Off--Negotiating Teams" and
"--Fairness Opinions--EDS Team Financial Advisors Fairness Opinions."
Pursuant to the Separation Agreement, General Motors will pay the fees and
expenses of Merrill Lynch and all other professional advisors (including
attorneys and accountants) engaged with respect to General Motors or the GM
Team in connection with the Transactions, and EDS will pay the fees and
expenses of Lehman Brothers and Morgan Stanley and all other professional
advisors (including attorneys and accountants) engaged with respect to EDS or
the EDS Team in connection with the Transactions. The fees and expenses
associated with the preparation, distribution to stockholders and filing with
the Commission of the materials associated with this consent solicitation will
be shared equally by General Motors and EDS, except that General Motors will
pay the first $3.0 million of such fees and expenses. General Motors will
obtain the funds necessary to pay for the costs and fees for which it is
responsible from General Motors working capital, and EDS will obtain the funds
to pay for its costs and fees from EDS' working capital. See "Relationship
Between General Motors and EDS--Post-Split-Off Arrangements--Separation
Agreement."
LEGAL MATTERS
The validity of the shares of EDS Common Stock to be distributed to the
former holders of Class E Common Stock upon consummation of the Split-Off will
be passed upon for EDS by Baker & Botts, L.L.P. Certain matters relating to
U.S. federal income tax considerations will be passed upon for General Motors
by Kirkland & Ellis.
EXPERTS
The consolidated financial statements and financial statement schedule
included in the GM 1995 Form 10-K, incorporated by reference herein, have been
audited by Deloitte & Touche LLP (as to financial statements and the financial
statement schedule of General Motors and as to financial statements of Hughes)
and KPMG Peat Marwick LLP (as to financial statements of EDS), independent
auditors, as stated in their respective reports appearing therein, and have
been so incorporated by reference herein in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing.
The consolidated financial statements and financial statement schedule of
EDS as of December 31, 1995 and 1994 and for each of the years in the three-
year period ended December 31, 1995, included in Appendix C hereto or
appearing elsewhere in the Registration Statement, have been audited by KPMG
Peat Marwick LLP, independent auditors, as stated in their reports appearing
therein, and have been so included in reliance upon such reports given upon
the authority of that firm as experts in accounting and auditing.
150
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
GENERAL MOTORS CORPORATION
AND
GM MERGECO CORPORATION
DATED AS OF APRIL , 1996
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of April , 1996 (the "Agreement") by and between
General Motors Corporation, a Delaware corporation ("General Motors"), and GM
Mergeco Corporation, a Delaware corporation ("Mergeco"). General Motors and
Mergeco are referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of Mergeco with and into
General Motors. The Class E Stockholders will receive Holding Common Stock in
exchange for their shares of Class E Common Stock pursuant to the Merger.
Mergeco has been formed for the purpose of effectuating the split-off of
Holding from General Motors and certain related transactions. The Parties
expect that the Merger will further certain of their business objectives
(including, without limitation, the split-off of Holding from General Motors
in a tax-free transaction).
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the covenants herein contained, the
Parties agree as follows:
Section 1. Definitions
"Agreement" has the meaning set forth in the preface above.
"Class E Common Stock" means the Class E Common Stock, $0.10 par value per
share, of General Motors.
"Class E Stockholder" means any holder of record of Class E Common Stock.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Delaware Certificate of Merger" has the meaning set forth in Section 2(c)
below.
"Delaware General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended.
"EDS" means Electronic Data Systems Corporation, a Texas corporation and a
wholly owned subsidiary of Interco.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"General Motors" has the meaning set forth in the preface above.
"General Motors Common Stocks" means collectively the $1 2/3 Par Value
Common Stock, par value $1 2/3 per share, of General Motors (the "$1 2/3
Common Stock"); the Class H Common Stock, par value $0.10 per share, of
General Motors; and the Class E Common Stock.
"Holding" means Electronic Data Systems Holding Corporation, a Delaware
corporation and a wholly owned subsidiary of General Motors.
"Holding Common Stock" means the common stock, $0.01 par value per share, of
Holding.
"Interco" means Electronic Data Systems Intermediate Corporation, a Delaware
corporation and a wholly owned subsidiary of Holding.
"IRS" means the Internal Revenue Service.
A-1
<PAGE>
"Master Services Agreement" means the Master Services Agreement to be
entered into immediately prior to the Closing and after the consummation of
the Reincorporation Merger by and between General Motors and Holding.
"Mergeco" has the meaning set forth in the preface above.
"Mergeco Share" means any share of the Common Stock, no par value, of
Mergeco.
"Merger" has the meaning set forth in Section 2(a) below.
"Parties" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or
political subdivision thereof).
"Registration Rights Agreement" means the Registration Rights Agreement
dated March 12, 1995 between General Motors and United States Trust Company of
New York and its affiliate, U.S. Trust Company of California, N.A., as
trustees of the General Motors Special Hourly Employees Pension Trust under
the General Motors Hourly-Rate Employees Pension Plan.
"Reincorporation Merger" has the meaning set forth in Section 3(e) below.
"Requisite Stockholder Approval" means the consent of the holders of (i) a
majority of the voting power of all outstanding shares of the General Motors
Common Stocks, voting together as a single class based on their respective
voting rights, (ii) a majority of the outstanding shares of $1 2/3 Common
Stock, voting as a separate class, and (iii) a majority of the outstanding
shares of Class E Common Stock, voting as a separate class.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Separation Agreement" means the Separation Agreement to be entered into
immediately prior to the Closing and after the consummation of the
Reincorporation Merger by and between General Motors and Holding.
"Special Inter-Company Payment" means $500 million in cash.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"Tax Allocation Agreement" means the Amended and Restated Agreement for the
Allocation of United States Federal, State and Local Income Tax to be entered
into prior to the Closing by and between General Motors and Holding.
"Transactions" means collectively (i) the split-off of Holding from General
Motors in connection herewith, (ii) the consummation of the Merger pursuant
hereto, (iii) the making of the Special Inter-Company Payment to Mergeco, (iv)
the execution and delivery by General Motors and Holding of the Master
Services Agreement, the Tax Allocation Agreement and the Separation Agreement
in connection herewith and (v) the consummation of the other transactions and
events contemplated hereby.
A-2
<PAGE>
Section 2. Basic Transaction.
(a) The Merger. On the terms and subject to the conditions of this
Agreement, Mergeco will merge with and into General Motors (the "Merger") at
the Effective Time. General Motors shall be the corporation surviving the
Merger (the "Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis,
200 East Randolph Street, Chicago, Illinois, on such date as General Motors
may determine (the "Closing Date"), which date shall be after the day on which
all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to
actions the respective Parties will take at the Closing itself) are satisfied
or waived.
(c) Actions at the Closing. At the Closing, General Motors will cause to be
filed with the Secretary of State of the State of Delaware, as provided in
Section 251 of the Delaware General Corporation Law, a Certificate of Merger
(the "Delaware Certificate of Merger").
(d) Effect of Merger.
(i) General. The Merger shall become effective at such time (the
"Effective Time") as General Motors files the Delaware Certificate of
Merger with the Secretary of State of the State of Delaware. The Merger
shall have the effect set forth in Section 259 of the Delaware General
Corporation Law. The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering any
document) in the name and on behalf of either General Motors or Mergeco in
order to carry out and effectuate the transactions contemplated by this
Agreement.
(ii) Certificate of Incorporation. At the Effective Time, Article Fourth
of the Certificate of Incorporation of General Motors will be amended to
read in its entirety as set forth on Exhibit A hereto and the Certificate
of Incorporation of General Motors as in effect at and as of immediately
prior to the Effective Time, with Article Fourth as so amended and with all
Certificates of Designations then in effect, shall be the Certificate of
Incorporation of the Surviving Corporation.
(iii) Bylaws. The Bylaws of General Motors as in effect at and as of
immediately prior to the Effective Time will remain the Bylaws of the
Surviving Corporation without any modification or amendment as a result of
the Merger.
(iv) Directors and Officers. The directors and officers of General Motors
in office at and as of immediately prior to the Effective Time will remain
the directors and officers of the Surviving Corporation (retaining their
respective positions and terms of office).
(v) Conversion of Class E Common Stock. At and as of the Effective Time,
by virtue of the Merger and without any action on the part of any holder of
any capital stock of General Motors, each share of Class E Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with Section 2(d)(vi)) shall be
converted into one fully paid and nonassessable share of Holding Common
Stock. Upon such conversion, all such shares of Class E Common Stock shall
be canceled and shall cease to exist. Accordingly, from and after the
Effective Time, (i) for all purposes of determining the record holders of
Holding Common Stock, the holders of Class E Common Stock immediately prior
to the Effective Time shall be deemed to be holders of Holding Common Stock
and (ii) subject to any transfer of such stock, each such holder shall be
entitled to receive all dividends payable on, and exercise voting rights
and all other rights and privileges with respect to, Holding Common Stock.
Each such holder shall be entitled, upon proper surrender (in accordance
with the requirements of the letter of transmittal and other instructions
provided to such holder following the Effective Time) of the certificate or
certificates representing the shares of Class E Common Stock formerly held
by it, to receive one or more certificates representing the shares of
Holding Common Stock then held by it. All classes and series of General
Motors capital stock, other than Class E Common Stock, shall remain
unaffected as a result of the Merger, except as otherwise set forth in
Exhibit A hereto.
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(vi) Treasury Shares. Each share of Class E Common Stock held by General
Motors as treasury stock immediately prior to the Effective Time shall be
canceled and retired and shall cease to exist, and no stock or other
consideration shall be delivered in exchange therefor.
(vii) Mergeco Shares. Each Mergeco Share issued and outstanding
immediately prior to the Effective Time shall be canceled and retired and
shall cease to exist and no stock or other consideration shall be delivered
in exchange therefor.
(e) Closing of Transfer Records. After the Effective Time, transfers of
shares of Class E Common Stock outstanding prior to the Effective Time shall
not be made on the stock transfer books of the Surviving Corporation.
Section 3. Conditions to Obligation to Close. The obligation of General
Motors to consummate the Merger is subject to satisfaction of the following
conditions:
(a) no action, suit, or proceeding shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would be reasonably
likely to (A) prevent consummation of any of the transactions contemplated by
this Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (C) cause any of General
Motors or its officers or directors to become liable for any material damages
(and no such injunction, judgment, order, decree, ruling, or charge shall be
in effect);
(b) the Transactions, including the adoption of this Agreement, shall have
received the Requisite Stockholder Approval;
(c) there shall have been no notification from Merrill Lynch, Pierce, Fenner
& Smith Incorporated that its opinion dated March 31, 1996 to General Motors'
board of directors that, as of that date and on the basis of and subject to
the assumptions, limitations and other matters set forth therein, the
Financial Effects of the Transactions (as defined in such opinion) are fair,
from a financial point of view, to General Motors and, accordingly, to General
Motors' common stockholders after consummation of the Merger, namely the
holders of the $1 2/3 Common Stock and the Class H Common Stock, has been
withdrawn or from Lehman Brothers Inc. or Morgan Stanley & Co. Incorporated
that either of their respective opinions, each dated March 31, 1996, to
General Motors' board of directors to the effect that, as of such date, based
on and subject to the assumptions, limitations and other matters set forth
therein, the financial effect of the Split-Off Transactions (as defined in
such opinion) taken as a whole is fair, from a financial point of view, to the
holders of Class E Common Stock, has been withdrawn;
(d) there shall have been no notification from the IRS that its ruling that
the transactions contemplated in the Merger constitute a tax-free distribution
under Section 355 of the Code has been withdrawn or invalidated, and no
determination by the GM Board that the representations and assumptions
underlying such ruling are not true and correct in all material respects;
(e) Interco shall have merged into Holding and thereafter EDS shall have
merged into Holding (together, the "Reincorporation Merger");
(f) Mergeco shall have received the Special Inter-Company Payment from
Holding; and
(g) General Motors and Holding shall have executed and delivered the Master
Services Agreement, the Separation Agreement, the Tax Allocation Agreement and
a succession agreement with respect to the Registration Rights Agreement.
Section 4. Termination.
(a) Termination of Agreement. The Parties may terminate this Agreement (with
the prior authorization of its board of directors, if applicable, whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent at
any time prior to the Effective Time;
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(ii) General Motors may terminate this Agreement by giving written notice
to Mergeco at any time prior to the Effective Time in the event General
Motors' board of directors concludes that termination would be in the best
interests of General Motors and its stockholders;
(iii) General Motors may terminate this Agreement by giving written
notice to Mergeco at any time prior to the Effective Time in the event any
opinion referred to in Section 3(c) is withdrawn;
(iv) General Motors may terminate this Agreement by giving written notice
to Mergeco at any time prior to the Effective Time in the event that
General Motors has been notified by the IRS or otherwise believes that the
Split-Off would not be treated as a tax-free exchange under Section 355 of
the Code; and
(v) General Motors may terminate this Agreement by giving written notice
to Mergeco in the event the Transactions, including the adoption of this
Agreement, fail to receive the Requisite Stockholder Approval.
(b) Effect of Termination. If either Party terminates this Agreement
pursuant to Section 4(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other
Party (except for any liability of any Party then in breach).
Section 5. Amendment. This Agreement may be amended at any time and from
time to time if set forth in a writing executed by both Parties; provided,
however, that any such amendment made after this Agreement has received
Requisite Stockholder Approval shall not (i) alter or change the amount or
kind of shares, securities, cash, property and/or rights to be received in
exchange for or on conversion of the Class E Common Stock, (ii) alter or
change any term of the Certificate of Incorporation of the Surviving
Corporation or (iii) alter or change any of the terms and conditions of this
Agreement if such alteration or change would adversely affect the holders of
any class or series of General Motors capital stock.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of
the date first above written.
/s/ General Motors Corporation
/s/ GM Mergeco Corporation
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EXHIBIT A TO MERGER AGREEMENT
ARTICLE FOURTH OF GENERAL MOTORS CERTIFICATE OF INCORPORATION, AFTER GIVING
EFFECT TO THE MERGER
The complete text of Article Fourth of the General Motors Certificate of
Incorporation, as proposed to be amended, appears below. Added text is
underlined. Deleted text has been lined through.
ARTICLE FOURTH
The total authorized capital stock of the Corporation is as follows:
3,706,000,000 2,706,000,000 shares, of which 6,000,000 shares shall be
Preferred Stock, without par value ("Preferred Stock"), 100,000,000 shares
shall be Preference Stock, $0.10 par value ("Preference Stock"), and
3,600,000,000 2,600,000,000 shares shall be Common Stock, of which
2,000,000,000 shares shall be Common Stock, $1 2/3 par value ("Common Stock"),
1,000,000,000 shares shall be Class E Common Stock, $0.10 par value ("Class E
Common Stock") and 600,000,000 shares shall be Class H Common Stock, $0.10 par
value ("Class H Common Stock").
DIVISION I:
COMMON STOCK, CLASS E COMMON STOCKAND CLASS H COMMON STOCK.
The Common Stock, the Class E Common Stock and the Class H Common Stock
shall be identical in all respects and shall have equal rights and privileges,
except as otherwise provided in this Article FOURTH. The relative rights,
privileges and restrictions of the shares of each class are as follows:
(a) Dividend Rights.
Subject to the express terms of any outstanding series of Preferred Stock or
Preference Stock, dividends may be paid in cash or otherwise upon the Common
Stock, the Class E Common Stock and the Class H Common Stock out of the assets
of the Corporation in the relationship and upon the terms provided for below
with respect to each such class:
(1) Dividends on Common Stock.
Dividends on Common Stock may be declared and paid only to the extent of the
assets of the Corporation legally available therefor reduced by an amount
equal to the sum of (A) the paid in surplus attributable to the Class E Common
Stock; (B) that portion of the earned surplus of the Corporation attributable
to the Available Separate Consolidated Net Income of EDS (as defined in
subparagraph (a)(5)) earned since the date of the acquisition by the
Corporation of Electronic Data Systems Corporation, its subsidiaries and
successors ("EDS"); (C) the paid in surplus attributable to the Class H Common
Stock; and (D) (B) that portion of the earned surplus of the Corporation
attributable to the Available Separate Consolidated Net Income of GMHE Hughes
(as defined in subparagraph (a)(6) (a)(5)) earned since the date of the
acquisition by the Corporation of GM Hughes Electronics Corporation, its
subsidiaries and successors ("GMHE Hughes"). Dividends declared and paid with
respect to shares of Common Stock and any adjustments to surplus resulting
from either (i) the repurchase or issuance of any shares of Common Stock or
(ii) any other reason deemed appropriate by the Board of Directors shall be
subtracted from or added to the amounts available for the payment of dividends
on Common Stock. Subject to the foregoing, the declaration and payment of
dividends on the Common Stock, and the amount thereof, shall at all times be
solely in the discretion of the Board of Directors of the Corporation.
(2) Dividends on Class E Common Stock.
Dividends on the Class E Common Stock may be declared and paid only to the
extent of the assets of the Corporation legally available therefor reduced by
an amount equal to the sum of (A) the paid in surplus attributable to the
Common Stock; (B) the paid in surplus attributable to the Class H Common
Stock; and (C)
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the earned surplus of the Corporation exclusive of that portion of such earned
surplus attributable to the Available Separate Consolidated Net Income of EDS
earned since the date of the acquisition of EDS by the Corporation. Dividends
declared and paid with respect to shares of Class E Common Stock and any
adjustments to surplus resulting from either (i) the repurchase or issuance of
any shares of Class E Common Stock or (ii) any other reason deemed appropriate
by the Board of Directors shall be subtracted from or added to the amounts
available for the payment of dividends on Class E Common Stock. Subject to the
foregoing, the declaration and payment of dividends on the Class E Common
Stock, and the amount thereof, shall at all times be solely in the discretion
of the Board of Directors of the Corporation.
(3)(2) Dividends on Class H Common Stock
Dividends on the Class H Common Stock may be declared and paid only to the
extent of the assets of the Corporation legally available therefor reduced by
an amount equal to the sum of (A) the paid in surplus attributable to the
Common Stock; and (B) the paid in surplus attributable to the Class E Common
Stock; and (C) the earned surplus of the Corporation exclusive of that portion
of such earned surplus attributable to the Available Separate Consolidated Net
Income of GMHE Hughes earned since the date of the acquisition of GMHE Hughes
by the Corporation. Dividends declared and paid with respect to shares of
Class H Common Stock and any adjustments to surplus resulting from either (i)
the repurchase or issuance of any shares of Class H Common Stock or (ii) any
other reason deemed appropriate by the Board of Directors shall be subtracted
from or added to the amounts available for the payment of dividends on Class H
Common Stock. Subject to the foregoing, the declaration and payment of
dividends on the Class H Common Stock, and the amount thereof, shall be at all
times be solely in the discretion of the Board of Directors of the
Corporation.
(4)(3) Discrimination Among Between Common Stock, Class E Common Stock and
Class H Common Stock
The Board of Directors, subject to the provisions of subparagraphs (a)(1),
and (a)(2) and (a)(3), may, in its sole discretion, declare dividends payable
exclusively to the holders of Common Stock, exclusively to the holders of
Class E Common Stock, exclusively to the holders of Class H Common Stock or to
the holders of any two or more of both such classes in equal or unequal
amounts, notwithstanding the respective amounts of surplus available for
dividends to each class, the respective voting and liquidation rights of each
class, the amount of prior dividends declared on each class or any other
factor.
(5)(4) Available Separate Consolidated Net Income of EDS.
The "Available Separate Consolidated Net Income of EDS" for any period
during which Electronic Data Systems Corporation (together with its
subsidiaries and successors, "EDS") was a direct or indirect wholly-owned
subsidiary of the Corporation shall mean the separate net income of EDS on a
consolidated basis, determined in accordance with generally accepted
accounting principles without giving effect to any adjustment which would
result from accounting for the acquisition of EDS by the Corporation using the
purchase method, calculated for each quarterly accounting period and
multiplied by a fraction, the numerator of which shall be the weighted average
number of shares of Class E Common Stock outstanding during such accounting
period and the denominator of which shall initially be 121,888,889; provided,
that such fraction shall in no event be greater than one. The denominator of
the foregoing fraction shall be adjusted from time to time as deemed
appropriate by the Board of Directors of the Corporation (i) to reflect
subdivisions (by stock split or otherwise) and combinations (by reverse stock
split or otherwise) of the Class E Common Stock and stock dividends payable in
shares of Class E Common Stock to holders of Class E Common Stock, (ii) to
reflect the fair market value of contributions of cash or property by the
Corporation to EDS or of cash or property of the Corporation to, or for the
benefit of, employees of EDS in connection with employee benefit plans or
arrangements of the Corporation or any of its subsidiaries, (iii) to reflect
the number of shares of capital stock of the Corporation contributed to, or
for the benefit of, employees of EDS in connection with benefit plans or
arrangements of the Corporation or any of its subsidiaries, (iv) to reflect
payments by EDS to the Corporation of amounts applied to the repurchase by the
Corporation of shares of Class E Common Stock, and (v) to reflect the number
of shares of Class E Common Stock repurchased by EDS and no longer
outstanding; provided, that in the case of adjustments
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pursuant to clause (iv) or clause (v) above, adjustments shall be made only to
the extent that the Board of Directors of the Corporation, in its sole
discretion, shall have approved such repurchase of shares by the Corporation
or EDS and, in the case of clause (iv) above, shall declare such payments by
EDS to be applied to such repurchase. Any changes in the numerator or
denominator of the foregoing fraction occurring after the end of a quarterly
accounting period shall not result in an adjustment to the Available Separate
Consolidated Net Income of EDS for such quarterly accounting period or any
prior period. For all purposes, determination of the Available Separate
Consolidated Net Income of EDS shall be in the sole discretion of the Board of
Directors of the Corporation and shall be final and binding on all
stockholders of the Corporation.
(6)(5) Available Separate Consolidated Net Income of GMHE Hughes.
The "Available Separate Consolidated Net Income of GMHE Hughes" shall mean
the separate net income of GMHE Hughes on a consolidated basis, determined in
accordance with generally accepted accounting principles without giving effect
to any adjustment which would result from accounting for the acquisition of
GMHE Hughes by the Corporation using the purchase method, calculated for each
quarterly accounting period and multiplied by a fraction, the numerator of
which shall be the weighted average number of shares of Class H Common Stock
outstanding during such accounting period and the denominator of which shall
initially be 200,000,000; provided, that such fraction shall in no event be
greater than one. The denominator of the foregoing fraction shall be adjusted
from time to time as deemed appropriate by the Board of Directors of the
Corporation (i) to reflect subdivisions (by stock split or otherwise) and
combinations (by reverse stock split or otherwise) of the Class H Common Stock
and stock dividends payable in shares of Class H Common Stock to holders of
Class H Common Stock, (ii) to reflect the fair market value of contributions
of cash or property by the Corporation to GMHE Hughes or of cash or property
of the Corporation to, or for the benefit of, employees of GMHE Hughes in
connection with employee benefit plans or arrangements of the Corporation or
any of its subsidiaries, (iii) to reflect the number of shares of capital
stock of the Corporation contributed to, or for the benefit of, employees of
GMHE Hughes in connection with benefit plans or arrangements of the
Corporation or any of its subsidiaries, (iv) to reflect payments by GMHE
Hughes to the Corporation of amounts applied to the repurchase by the
Corporation of shares of Class H Common Stock, and (v) to reflect the number
of shares of Class H Common Stock repurchased by GMHE Hughes and no longer
outstanding; provided, that in the case of adjustments pursuant to clause (iv)
or clause (v) above, adjustments shall be made only to the extent that the
Board of Directors of the Corporation, in its sole discretion, shall have
approved such repurchase of shares by the Corporation or GMHE Hughes and, in
the case of clause (iv) above, shall declare such payments by GMHE Hughes to
be applied to such repurchase. Any changes in the numerator or denominator of
the foregoing fraction occurring after the end of a quarterly accounting
period shall not result in an adjustment to the Available Separate
Consolidated Net Income of GMHE Hughes for such quarterly accounting period or
any prior period. For all purposes, determination of the Available Separate
Consolidated Net Income of GMHE Hughes shall be in the sole discretion of the
Board of Directors of the Corporation and shall be final and binding on all
stockholders of the Corporation.
(b) Voting Rights.
The holders of Common Stock, Class E Common Stock and Class H Common Stock
shall vote together as a single class on all matters; provided, however, that
(i) the holders of Common Stock voting separately as a class shall be entitled
to approve by the vote of a majority of the shares of Common Stock then
outstanding any amendment, alteration or repeal of any of the provisions of
this Certificate of Incorporation which adversely affects the rights, powers
or privileges of the Common Stock; (ii) the holders of Class E Common Stock
voting separately as a class shall be entitled to approve by the vote of a
majority of the shares of Class E Common Stock then outstanding any amendment,
alteration or repeal of any of the provisions of this Certificate of
Incorporation which adversely affects the rights, powers or privileges of the
Class E Common Stock; (iii) the holders of Class H Common Stock voting
separately as a class shall be entitled to approve by the vote of a majority
of the shares of Class H Common Stock then outstanding any amendment,
alteration or repeal of any of the provisions of this Certificate of
Incorporation which adversely affects the rights, powers or privileges of the
Class H Common Stock; (iv) any increase in the number of authorized shares of
Class E Common Stock shall be subject to approval by both (A) the holders of a
majority of the shares of Common Stock, Class E Common
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Stock and Class H Common Stock then outstanding, voting together as a single
class based upon their respective voting rights, and (B) the holders of a
majority of the shares of Class E Common Stock then outstanding, voting
separately as a class; and (v)(iii) any increase in the number of authorized
shares of Class H Common Stock shall be subject to approval by both (A) the
holders of a majority of the shares of Common Stock, Class E Common Stock and
Class H Common Stock then outstanding, voting together as a single class based
upon their respective voting rights, and (B) the holders of a majority of the
shares of Class H Common Stock then outstanding, voting separately as a class.
Subject to adjustment pursuant to paragraph (e) hereof, each holder of Common
Stock shall be entitled to one vote, in person or by proxy, for each share of
Common Stock standing in his name on the stock transfer books of the
Corporation; each holder of Class E Common Stock shall be entitled to one-
quarter (0.25) of a vote, in person or by proxy, for each share of Class E
Common Stock standing in his name on the stock transfer books of the
Corporation, and each holder of Class H Common Stock shall be entitled to one-
half (0.5) of a vote, in person or by proxy, for each share of Class H Common
Stock standing in his name on the stock transfer books of the Corporation.
(c) Exchangeability.
(1) After December 31, 1994, the Board of Directors of the Corporation, in
its sole discretion and by a majority vote of the directors then in office,
may at any time effect a recapitalization of the Corporation by declaring that
all of the outstanding shares of Class E Common Stock shall be exchanged for
fully paid and nonassessable shares of Common Stock in accordance with the
applicable Exchange Rate (as defined in subparagraph (c)(7)); provided, that
the Board of Directors may effect such recapitalization only if, during each
of the five full fiscal years preceding such recapitalization, the Board of
Directors has declared and paid cash dividends on the Class E Common Stock
equal to or greater than the Class E Payout Ratio for such year (as defined in
subparagraph (c)(3)) multiplied by the Available Separate Consolidated Net
Income of EDS for the prior fiscal year.
(2) After December 31, 1995, the Board of Directors of the Corporation, in
its sole discretion and by a majority vote of the directors then in office,
may at any time effect a recapitalization of the Corporation by declaring that
all of the outstanding shares of Class H Common Stock shall be exchanged for
fully paid and nonassessable shares of Common Stock in accordance with the
applicable Exchange Rate (as defined in subparagraph (c)(7)(c)(4)); provided,
that the Board of Directors may effect such recapitalization only if, during
each of the five full fiscal years preceding such recapitalization, the Board
of Directors has declared and paid cash dividends on the Class H Common Stock
equal to or greater than the Class H Payout Ratio for such year (as defined in
subparagraph (c)(4)(c)(2)) multiplied by the Available Separate Consolidated
Net Income of GMHE Hughes for the prior fiscal year.
(3) For purposes of this paragraph (c) of Division I of this Article FOURTH,
the term "Class E Payout Ratio" shall mean, for any fiscal year, the lesser of
(A) 0.25 or (B) the quotient of (x) the total cash dividends paid on the
Common Stock in respect of such fiscal year, divided by (y) (i) the
consolidated net income of the Corporation and its subsidiaries for such
fiscal year minus (ii) the Available Separate Consolidated Net Income of EDS
for such fiscal year minus (iii) the Available Separate Consolidated Net
Income of GMHE for such fiscal year; provided, that nothing in this paragraph
(c) shall be deemed to limit or restrict the authority of the Board of
Directors of the Corporation to declare and pay dividends on Class E Common
Stock and Common Stock at such times and in such amounts as the Board of
Directors in its sole discretion (subject to paragraph (a)) may determine.
(4)(2) For purposes of this paragraph (c) of Division I of this Article
FOURTH, the term "Class H Payout Ratio" shall mean, for any fiscal year, the
lesser of (A) 0.25 or (B) the quotient of (x) the total cash dividends paid on
the Common Stock in respect of such fiscal year, divided by (y) (i) the
consolidated net income of the Corporation and its subsidiaries for such
fiscal year minus (ii) the Available Separate Consolidated Net Income of EDS
for any portion of such fiscal year during which EDS was a direct or indirect
wholly owned subsidiary of the Corporation, minus (iii) the Available Separate
Consolidated Net Income of GMHE Hughes for such fiscal year; provided, that
nothing in this paragraph (c) shall be deemed to limit or restrict the
authority of the Board of
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Directors of the Corporation to declare and pay dividends on Class H Common
Stock and Common Stock at such times and in such amounts as the Board of
Directors in its sole discretion (subject to paragraph (a)) may determine.
(5) In the event of the sale, transfer, assignment or other disposition by
the Corporation of the business of EDS substantially as an entirety to a
person, entity or group of which the Corporation is not a majority owner
(whether by merger, consolidation, sale of assets or stock, liquidation,
dissolution, winding up or otherwise), effective upon the consummation of such
sale, transfer, assignment or other disposition and automatically without any
action on the part of the Corporation or its Board of Directors or on the part
of the holders of shares of Class E Common Stock, the Corporation shall be
recapitalized and all outstanding shares of Class E Common Stock shall be
exchanged for fully paid and nonassessable shares of Common Stock at the
applicable Exchange Rate (as defined in subparagraph (c)(7)).
(6)(3) In the event of the sale, transfer, assignment or other disposition
by the Corporation of substantially all of the business of Hughes Aircraft
Company, its subsidiaries and successors or of substantially all of the other
business of GMHE Hughes to a person, entity or group of which the Corporation
is not a majority owner (whether by merger, consolidation, sale of assets or
stock, liquidation, dissolution, winding up or otherwise), effective upon the
consummation of such sale, transfer, assignment or other disposition and
automatically without any action on the part of the Corporation or its Board
of Directors or on the part of the holders of shares of Class H Common Stock,
the Corporation shall be recapitalized and all outstanding shares of Class H
Common Stock shall be exchanged for fully paid and nonassessable shares of
Common Stock at the applicable Exchange Rate (as defined in subparagraph
(c)(7)(c)(4)).
(7)(4) For purposes of this paragraph (c) of Division I of this Article
FOURTH, the term "Exchange Rate" applicable to the Class E Common Stock and to
the Class H Common Stock shall mean the number of shares of Common Stock for
which each share of Class E Common Stock and Class H Common Stock,
respectively, shall be exchangeable pursuant to subparagraphs (c)(1) and
(c)(5) or (c)(2) and (c)(6)(c)(3), as the case may be, of this paragraph (c)
determined as follows: Each share of Class E Common Stock or Class H Common
Stock, as the case may be, shall be exchangeable for such number of shares of
Common Stock (calculated to the nearest five decimal places) as is determined
by dividing (A) the product resulting from multiplying (i) the Average Market
Price Per Share (as defined in subparagraph (c)(8) or (c)(9), as the case may
be), of such Class E Common Stock or (c)(5)) of such Class H Common Stock by
(ii) 1.2, by (B) the Average Market Price Per Share of Common Stock.
(8) For purposes of computing the Exchange Rate applicable to the Class E
Common Stock pursuant to this paragraph (c) of Division I of this Article
FOURTH, the Average Market Price Per Share of Common Stock or Class E Common
Stock, as the case may be, shall mean the average of the daily closing prices
per share for such Common Stock or Class E Common Stock for the fifteen (15)
consecutive trading days ending one (1) trading day prior to either (A) in the
case of an exchange pursuant to subparagraph (c)(1), the date the Exchange
Notice (as defined in subparagraph (c)(12)) is mailed or (B) in the case of an
exchange pursuant to subparagraph (c)(5), the date of the public announcement
by the Corporation or one of its subsidiaries of the first to occur of the
following: that the Corporation or one of its subsidiaries (1) has entered
into an agreement in principle with respect to such transaction or (2) has
entered into a definitive agreement with respect thereto. The closing price
for each day shall be the closing sales price as reported in The Wall Street
Journal or, if not reported therein, as reported in another newspaper of
national circulation chosen by the Board of Directors of the Corporation or,
in case no such sale takes place on such day, the average of the closing bid
and asked prices regular way on the New York Stock Exchange, or if the Common
Stock or Class E Common Stock is not then listed or admitted to trading on the
New York Stock Exchange, 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 national securities exchange, then the last
reported sale prices for such shares in the over-the-counter market, as
reported on the National Association of Securities Dealers Automatic Quotation
System, or, if such sale prices shall not be reported thereon, the average of
the closing bid and asked prices so reported, or, if such bid and asked prices
shall not be reported thereon, as the same shall be reported by the National
Quotation Bureau Incorporated, or,
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in all other cases, an appraised market value furnished by any New York Stock
Exchange member firm selected from time to time by the Board of Directors or
the Finance Committee or Executive Committee of the Corporation for that
purpose.
(9)(5) For purposes of computing the Exchange Rate applicable to the Class H
Common Stock pursuant to this paragraph (c) of Division I of this Article
FOURTH, the Average Market Price Per Share of Common Stock or Class H Common
Stock, as the case may be, shall mean the average of the daily closing prices
per share for such Common Stock or Class H Common Stock for the fifteen (15)
consecutive trading days ending one (1) trading day prior to either (A) in the
case of an exchange pursuant to subparagraph (c)(2)(c)(1), the date the
Exchange Notice (as defined in subparagraph (c)(12))(c)(8)) is mailed or (B)
in the case of an exchange pursuant to subparagraph (c)(6)(c)(3), the date of
the public announcement by the Corporation or one of its subsidiaries of the
first to occur of the following: that the Corporation or one of its
subsidiaries (1) has entered into an agreement in principle with respect to
such transaction or (2) has entered into a definitive agreement with respect
thereto. The closing price for each day shall be the closing sales price as
reported in The Wall Street Journal or, if not reported therein, as reported
in another newspaper of national circulation chosen by the Board of Directors
of the Corporation or, in case no such sale takes place on such day, the
average of the closing bid and asked prices regular way on the New York Stock
Exchange, or if the Common Stock or Class H Common Stock is not then listed or
admitted to trading on the New York Stock Exchange, 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 national securities
exchange, then the last reported sale prices for such shares in the over-the-
counter market, as reported on the National Association of Securities Dealers
Automated Quotation System, or, if such sale prices shall not be reported
thereon, the average of the closing bid and asked prices so reported, or, if
such bid and asked prices shall not be reported thereon, as the same shall be
reported by the National Quotation Bureau Incorporated, or, in all other
cases, an appraised market value furnished by any New York Stock Exchange
member firm selected from time to time by the Board of Directors or the
Finance Committee or Executive Committee of the Corporation for that purpose.
(10)(6) No fraction of a share of Common Stock shall be issued in connection
with the exchange of shares of Class E Common Stock or Class H Common Stock
into Common Stock, but in lieu thereof, each holder of Class E Common Stock or
Class H Common Stock, as the case may be, who would otherwise be entitled to a
fractional interest of a share of Common Stock shall, upon surrender of such
holder's certificate or certificates representing shares of Class E Common
Stock or Class H Common Stock, receive a cash payment (without interest) (the
"Fractional Payment") equal to the product resulting from multiplying (A) the
fraction of a share of Common Stock to which such holder would otherwise have
been entitled by (B) the Average Market Price Per Share of the Common Stock on
the Exchange Date (as defined in subparagraph (c)(12))(c)(8)).
(11)(7) No adjustments in respect of dividends shall be made upon the
exchange of any shares of Class E Common Stock or Class H Common Stock;
provided, however, that if the Exchange Date with respect to Class E Common
Stock or Class H Common Stock shall be subsequent to the record date for the
payment of a dividend or other distribution thereon or with respect thereto
but prior to the payment or distribution thereof, the registered holders of
such shares at the close of business on such record date shall be entitled to
receive the dividend or other distribution payable on such shares on the date
set for payment of such dividend or other distribution notwithstanding the
exchange of such shares or the Corporation's default in payment of the
dividend or distribution due on such date.
(12)(8) At such time or times as the Corporation exercises it right to cause
all of the shares of Class E Common Stock or Class H Common Stock to be
exchanged for Common Stock in accordance with subparagraph (c)(1) or (c)(2) of
this paragraph (c) of Division I of this Article FOURTH and at such time as
the Corporation causes the exchange of such Class E Common Stock or Class H
Common Stock for Common Stock as a result of a sale, transfer, assignment or
other disposition of the type referred to in subparagraph (c)(5) or
(c)(6)(c)(3) of this paragraph (c), the Corporation shall give notice of such
exchange to the holders of Class E Common Stock or Class H Common Stock, as
the case may be, whose shares are to be exchanged, by mailing by first-class
mail a notice of such exchange (the "Exchange Notice"), in the case of an
exchange in accordance with subparagraph
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(c)(1) or (c)(2) not less than thirty (30) nor more than sixty (60) days prior
to the date fixed for such exchange (the "Exchange Date"), and in the case of
an exchange in accordance with subparagraph (c)(5) or (c)(6)(c)(3) as soon as
practicable before or after the Exchange Date, in either case to their last
addresses as they shall appear upon the Corporation's books. Each such
Exchange Notice shall specify the Exchange Date and the Exchange Rate
applicable to such exchange, and shall state that issuance of certificates
representing Common Stock to be received upon exchange of shares of Class E
Common Stock or Class H Common Stock, as the case may be, shall be upon
surrender of certificates representing such shares of Class E Common Stock or
Class H Common Stock.
(13)(9) Before any holder of shares of Class E Common Stock or Class H
Common Stock shall be entitled to receive certificates representing such
shares of Common Stock, he shall surrender at such office as the Corporation
shall specify certificates for such shares of Class E Common Stock or Class H
Common Stock, as the case may be, duly endorsed to the Corporation or in blank
or accompanied by proper instruments of transfer to the Corporation or in
blank, unless the Corporation shall waive such requirement. The Corporation
will, as soon as practicable after such surrender of certificates representing
such shares of Class E Common Stock or Class H Common Stock, issue and deliver
at the office of the transfer agent representing the Common Stock to the
person for whose account such shares of Class E Common Stock or Class H Common
Stock were so surrendered, or to his nominee or nominees, certificates
representing the number of whole shares of Common Stock to which he shall be
entitled as aforesaid, together with the Fractional Payment, if any.
(14)(10) From and after any applicable the Exchange Date, all rights of a
holder of shares of Class E Common Stock or Class H Common Stock which were
exchanged for shares of Common Stock shall cease except for the right, upon
surrender of the certificates representing such shares of Class E Common Stock
or Class H Common Stock, as the case may be, to receive certificates
representing shares of Common Stock together with a Fractional Payment, if
any, as contemplated by subparagraphs (c)(10)(c)(6) and (c)(13)(c)(9) of this
paragraph (c) and rights to dividends as provided in subparagraph
(c)(11)(c)(7). No holder of a certificate which immediately prior to the
applicable Exchange Date represented shares of Class E Common Stock or Class H
Common Stock, as the case may be, shall be entitled to receive any dividend or
other distribution with respect to shares of Common Stock until surrender of
such holder's certificate for a certificate or certificates representing
shares of Common Stock. Upon such surrender, there shall be paid to the holder
the amount of any dividends or other distributions (without interest) which
theretofore became payable with respect to a record date after the Exchange
Date, but which were not paid by reason of the foregoing, with respect to the
number of whole shares of Common Stock represented by the certificate or
certificates issued upon such surrender. From and after an the Exchange Date
applicable to the Class E Common Stock or the Class H Common Stock, the
Corporation shall, however, be entitled to treat the certificates for Class E
Common Stock or Class H Common Stock, as the case may be, which have not yet
been surrendered for exchange as evidencing the ownership of the number of
whole shares of Common Stock for which the shares of Class E Common Stock or
Class H Common Stock represented by such certificates shall have been
exchanged, notwithstanding the failure to surrender such certificates.
(15)(11) If any certificate for shares of Common Stock is to be issued in a
name other than that in which the certificate representing shares of Class E
Common Stock or Class H Common Stock surrendered in exchange therefor is
registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other taxes required by
reason of the issuance of certificates for such shares of Common Stock in a
name other than that of the record holder of the certificate surrendered, or
shall establish to the satisfaction of the Corporation or its agent that such
tax has been paid or is not applicable. Notwithstanding anything to the
contrary in this paragraph (c), the Corporation shall not be liable to a
holder of shares of Class E Common Stock or Class H Common Stock for any
shares of Common Stock or dividends or distributions thereon delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(16)(12) At such time as any Exchange Notice is delivered with respect to
any shares of Class E Common Stock or Class H Common Stock, or at the time of
the Exchange Date, if earlier, the Corporation shall have reserved and kept
available, solely for the purpose of issuance upon exchange of the outstanding
shares of Class E Common Stock or Class H Common Stock, as the case may be,
such number of shares of Common Stock as
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shall be issuable upon the exchange of the number of shares of Class E Common
Stock or Class H Common Stock specified or to be specified in the applicable
Exchange Notice, provided, that nothing contained herein shall be construed to
preclude the Corporation from satisfying its obligations in respect of the
exchange of the outstanding shares of Class E Common Stock or Class H Common
Stock, as the case may be, by delivery of purchased shares of Common Stock
which are held in the treasury of the Corporation.
(d) Liquidation Rights.
In the event of the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after there shall have been
paid or set apart for the holders of Preferred Stock and Preference Stock the
full preferential amounts to which they are entitled, the holders of Common
Stock, Class E Common Stock and Class H Common Stock shall be entitled to
receive the assets of the Corporation remaining for distribution to its
stockholders, on a per share basis in proportion to the respective per share
liquidation units of such classes. Subject to adjustment pursuant to paragraph
(e) hereof, each share of Common Stock, Class E Common Stock and Class H
Common Stock shall initially be entitled to liquidation units of one (1.0),
one-quarter (0.25), and one-half (0.5), respectively.
(e) Subdivision or Combination.
(1) If after December 20, 1985, the Corporation shall in any manner
subdivide (by stock split or otherwise) or combine (by reverse stock split or
otherwise) the outstanding shares of the Common Stock, Class E Common Stock or
Class H Common Stock, or pay a stock dividend in shares of any class to
holders of that class, the per share voting rights specified in paragraph (b)
and the per share liquidation units specified in paragraph (d) of Class E
Common Stock and Class H Common Stock relative to Common Stock shall be
appropriately adjusted so as to avoid any dilution in the aggregate voting or
liquidation rights of any class. Distribution by the Corporation of shares of
any class of its common stock as a dividend on any other class of its common
stock shall not require an adjustment pursuant to this paragraph (e)(1).
(2) If after December 20, 1985, the Corporation shall distribute shares of
Class E Common Stock or Class H Common Stock (such class being hereinafter
referred to as the "Distributed Class") as a dividend (the "Dividend") on
Common Stock (such class being hereinafter referred to as the "Recipient
Class"), then the per share liquidation rights of the classes of common stock
set forth in paragraph (d) above, as they may have been previously adjusted,
shall be adjusted so that:
(A) each holder of shares of any class other than the Recipient Class
shall be entitled to, with respect to such holder's interest in each such
class, the same percentage of the aggregate liquidation units of all shares
of the Corporation's common stock immediately after the Dividend as such
holder was entitled to, with respect to such holder's interest in such
class immediately prior to the Dividend; and
(B) each holder of shares of the Recipient Class shall be entitled to,
with respect to such holder's interest in the Recipient Class and all
shares of the Distributed Class issued with respect to such holder's shares
of the Recipient Class, the same percentage of the aggregate liquidation
units of all shares of the Corporation's common stock immediately after the
Dividend as such holder was entitled to with respect to such holder's
interest in the Recipient Class immediately prior to the Dividend;
provided, that any adjustment pursuant to this subparagraph (e)(2)(B) shall
be made to the liquidation units of the Recipient Class.
Notwithstanding the foregoing provisions of this subparagraph (e)(2) or any
other provision of this Article FOURTH, in the event of the payment of the
first Dividend of Class H Common Stock on the Common Stock prior to September
16, 1986, no adjustment pursuant to this subparagraph (e)(2) shall be made to
the liquidation rights of the Class H Common Stock, except to the extent that
such Dividend shall exceed 20,000,000 shares of Class H Common Stock, but an
adjustment shall be made to the liquidation rights of the Common Stock and the
Class E Common Stock so that; (i) the ratio of the aggregate liquidation units
of the Common Stock to the aggregate liquidation units of the Class E Common
Stock, determined immediately prior to the Dividend, is the same as the ratio
of the aggregate liquidation units of the Common Stock plus the Class H Common
Stock
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distributed pursuant to the Dividend to the aggregate liquidation units of the
Class E Common Stock, determined immediately after the Dividend; and (ii) the
sum of the aggregate liquidation units of the Common Stock plus the Class E
Common Stock, computed immediately prior to the Dividend, equals the sum of
the aggregate liquidation units of the Common Stock plus the Class E Common
Stock, computed immediately after the Dividend.
In no event will any adjustments be made pursuant to this subparagraph
(e)(2) if the adjustment called for herein would reduce the liquidation units
of any class of common stock to less than zero.
(3) The determination of any adjustment required under this paragraph (e)
shall be made by the Corporation's Board of Directors; any such determination
shall be binding and conclusive upon all holders of shares of all classes of
the Corporation's common stock. Following any such determination, the
Secretary of the Corporation shall maintain a record of any such adjustment.
DIVISION II:
PREFERRED STOCK.
A statement of the relative rights of the holders of Preferred Stock and a
statement of the limits of variation between each series of Preferred Stock as
to rate of dividends and price of redemption, a statement of the provisions in
these respects of the Preferred Stock-$5 Series and the Preferred Stock-$3.75
Series, and a statement of the voting powers and the designations, powers,
privileges and rights, and the qualifications, limits or restrictions thereof
of the various series thereof, except so far as the Board of Directors is
expressly authorized to fix the same by resolution or resolutions for the
various series of the Preferred Stock, are as follows:
Preferred Stock of the Corporation may be issued in various series as may be
determined from time to time by the Board of Directors, each such series to be
distinctly designated, provided, however, that of the Preferred Stock
authorized or to be authorized, 1,875,366 shares shall be designated as
Preferred Stock-$5 Series and 1,000,000 shares shall be designated as
Preferred Stock-$3.75 Series. The Board of Directors may from time to time
authorize the issuance of Preferred Stock-$5 Series additional to the said
1,875,366 shares. All shares of any one series of Preferred Stock shall be
alike in every particular, and all series shall rank equally and be identical
in all respects except as to the dividend rate and the amount payable upon the
exercise of the right to redeem.
The dividend rate on the Preferred Stock-$5 Series shall be $5.00 per annum
and no more, the dividend rate on the Preferred Stock-$3.75 Series shall be
$3.75 per annum and no more, and the dividend on the Preferred Stock of each
series additional to the $5 Series and the $3.75 Series shall be such rate as
may be fixed by the Board of Directors in the resolution or resolutions
providing for the issuance of the Preferred Stock of such series, and as shall
be stated on the face or back of the certificates of stock therefor.
The amount payable upon the exercise of the right to redeem the Preferred
Stock-$5 Series shall be $120.00 a share and accrued dividends, the amount
payable upon the exercise of the right to redeem the Preferred Stock-$3.75
Series shall be $100.00 a share and accrued dividends, and the amount payable
on the exercise of the right to redeem Preferred Stock of each series
additional to the $5 Series and the $3.75 Series shall be an amount as may be
fixed by the Board of Directors in the resolution or resolutions providing for
the issuance of the Preferred Stock of such series, and as shall be stated on
the face or back of the certificates of stock therefor.
All other provisions herein set forth in respect of the Preferred Stock of
the Corporation shall apply to all the Preferred Stock of the Corporation,
irrespective of any variations between the Preferred Stock of the different
series.
The holders of the Preferred Stock shall be entitled to receive cumulative
dividends, when and as declared by the Board of Directors, at the rates fixed
for the respective series in the Certificate of Incorporation or in the
resolution or resolutions of the Board of Directors providing for the issuance
of the respective series, and no more, payable quarterly on the dates to be
fixed by the By-Laws. The periods between such dates commencing
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on such dates are herein designated as "dividend periods." Dividends on all
shares of any one series shall commence to accrue and be cumulative from the
first day of the current dividend period within which shares of such series
are first issued, but in the event of the issue of additional shares of such
series subsequent to the date of the first issue of said shares of such
series, all dividends paid on the shares of such series prior to the issue of
such additional shares and all dividends declared payable to holders of record
of shares of such series of a date prior to such issue shall be deemed to have
been paid in respect of the additional shares so issued. Such dividends on the
Preferred Stock shall be in preference and priority to any payment on any
other class of stock of the Corporation.
The dividends on the Preferred Stock shall be cumulative and shall be
payable before any dividend on the Common Stock, Class E Common Stock or Class
H Common Stock or any series of the Preference Stock shall be paid or set
apart so that if in any year dividends a the rates determined for the
respective series of the Preferred Stock shall not be paid thereon, the
deficiency shall be payable before any dividend shall be paid upon or set
apart for the Common Stock, Class E Common Stock or Class H Common Stock or
any series of the Preference Stock. Dividends shall not be declared and paid
on the shares of Preferred Stock of any one series for any dividend period
unless dividends have been or are contemporaneously paid or declared and set
apart for payment thereof on the shares of Preferred Stock of all series, for
all the dividend periods terminating on the same or an earlier date.
Whenever all cumulative dividends on the Preferred Stock outstanding shall
have been paid and a sum sufficient for the payment of the next ensuing
quarterly dividend on the Preferred Stock outstanding shall have been set
aside from the surplus or net profits, the Board of Directors may declare
dividends on the Common Stock, Class E Common Stock or Class H Common Stock or
any series of the Preference Stock, payable then or thereafter, out of any
remaining surplus or net profits, and no holders of any shares of any series
of Preferred Stock, as such, shall be entitled to share therein; provided,
however, that subsequent to the issue of any Preferred Stock herein provided
to be issued, additional to 1,875,366 of Preferred Stock-$5 Series, no
dividends other than dividends payable in Common Stock, Class E Common Stock
or Class H Common Stock shall be paid on the Common Stock, Class E Common
Stock or Class H Common Stock or any series of the Preference Stock unless the
aggregate of the Common Stock, Class E Common Stock and Class H Common Stock
capital and surplus shall exceed $335,700,600 by an amount not less than
$100.00 in respect of each such additional share of Preferred Stock issued and
outstanding; and provided further, that no cash dividends shall be paid on the
Common Stock, Class E Common Stock or Class H Common Stock or any series of
the Preference Stock after the issue of Preferred Stock so long as the net
quick assets in excess of current liabilities of the Corporation are less than
$75.00 in respect of each share of outstanding Preferred Stock. Net quick
assets referred to above shall be made up of cash, drafts, notes and accounts
receivable, inventories, and marketable securities, and the aforesaid current
liabilities shall consist of obligations maturing within one year, as set
forth in the books of the Corporation.
At the option of the Board of Directors, the Preferred Stock shall be
subject to redemption at the amounts fixed for the respective series in the
Certificate of Incorporation or in the resolution or resolutions of the Board
of Directors providing for the issuance of the respective series, together, in
the case of each class or series, with accrued dividends on the shares to be
redeemed, on any dividend paying date in such manner as the Board of Directors
may determine.
The holders of the Preferred Stock shall not have any voting power
whatsoever, except upon the question of selling, conveying, transferring or
otherwise disposing of the property and assets of the Corporation as an
entirety and except as otherwise required by law; provided, however:.
In the event that the Corporation shall fail to pay any dividend on the
shares of any series of the Preferred Stock when it regularly becomes due, and
failure to make such payment shall continue for a period of six months, the
holders of the shares of Preferred Stock as a class, during the continuance of
such non-payment and until the Corporation shall have paid all accrued
dividends on the shares of all series of Preferred Stock, shall have the
exclusive right to elect one quarter of the total number of directors of the
Corporation.
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Unless the holders of at least three-fourths of the shares of Preferred
Stock, as a class, then outstanding shall consent thereto either in writing or
at a special meeting, the Corporation shall not mortgage or pledge or place
any specific lien upon the whole or any part of the property of the
Corporation, but this prohibition shall not be construed to apply to the
execution of any purchase money mortgage or any other purchase money lien, nor
to the assumption of any mortgage or other lien upon property purchased, nor
to the renewal or renewals thereof or to substitutions therefor, in whole or
in part, nor shall it prevent the Corporation at any time from pledging
securities belonging to it for the purpose of securing cash to be used in the
ordinary course of its business, provided such cash advances are procured upon
its obligations which shall mature not more than three years from the date
thereof; nor shall any amendment to any provision contained in this
Certificate of Incorporation in reference to the rights and security of the
holders of the Preferred Stock be authorized, unless such amendment is
consented to by the holders of three-fourths of the shares of Preferred Stock
then issued and outstanding.
DIVISION III:
PREFERENCE STOCK
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article FOURTH, to provide for the issuance of
Preference Stock from time to time in one or more series of any number of
shares, with a distinctive serial designation for each series, provided that
the aggregate number of shares issued and not cancelled of any and all such
series shall not exceed the total number of shares of Preference Stock
authorized by this Article FOURTH, all as shall hereafter be stated and
expressed in the resolution or resolutions providing for the issue of such
Preference Stock from time to time adopted by the Board of Directors. Subject
to said limitations, and provided that each series of Preference Stock shall
rank junior to the Preferred Stock with respect to the payment of dividends
and distributions in liquidation, each series of Preference Stock (a) may have
such voting powers, full or limited, or may be without voting powers; (b) may
be subject to redemption at such time or times and at such prices; (c) may be
entitled to receive dividends (which may be cumulative or noncumulative) at
such rate or rates, on such conditions, and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other
class or classes or series of stock; (d) may have such rights upon the
dissolution of, or upon any distribution of the assets of, the Corporation;
(e) may be made convertible into, or exchangeable for, shares of any other
class or classes of or any other series of the same or any other class or
classes of stock of the Corporation or any other issuer, at such price or
prices or at such rates of exchange, and with such adjustments; (f) may be
entitled to the benefit of a sinking fund to be applied to the purchase or
redemption of shares of such series in such amount or amounts; (g) may be
entitled to the benefit of conditions and restrictions upon the creation of
indebtedness of the Corporation or any subsidiary, upon the issue of any
additional stock (including additional shares of such series or of any other
series) and upon the payment of dividends or the making of other distributions
on, and the purchase, redemption or other acquisition by the Corporation or
any subsidiary of any outstanding stock of the Corporation; and (h) may have
such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof; all as shall be stated in
said resolution or resolutions providing for the issue of such series of
Preference Stock.
Shares of any series of Preference Stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of Preference Stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of Preference Stock to be created by
resolution or resolutions of the Board of Directors or as part of any other
series of Preference Stock, all subject to the conditions or restrictions on
issuance set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preference Stock.
DIVISION IV:
MISCELLANEOUS.
From time to time, the Preferred Stock, the Preference Stock, the Common
Stock, the Class E Common Stock and the Class H Common Stock may be increased
or decreased according to law, and may be issued in
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such amounts and proportions as shall be determined by the Board of Directors,
and as may be permitted by law, except that no shares of Preferred Stock in
addition to 1,875,366 shares of the Preferred Stock-$5 Series shall be issued
unless the sum total of the Common Stock, Class E Common Stock and Class H
Common Stock capital and surplus shall exceed $335,700,600 by an amount at
least equal to $100.00 in respect of each additional share of the Preferred
Stock to be issued.
In the event of any liquidation or dissolution or winding up, whether
voluntary or otherwise, of the Corporation, the holders of the Preferred Stock
shall be entitled to be paid the redemption price of each series in full, as
aforesaid, out of the assets whether capital or surplus, $100.00 a share, and,
in every case, the unpaid dividends accrued on such shares, whether or not
earned or declared, before any distribution of the assets to be distributed
shall be made to the holders of Common Stock, Class E Common Stock or Class H
Common Stock or any series of the Preference Stock; but the holders of such
shares shall be entitled to no further participation in such distribution. If
the assets distributable on such liquidation, dissolution or winding up shall
be insufficient to permit the payment to the holders of the Preferred Stock of
the full amount of $100.00 a share the redemption price of each series in full
as aforesaid and accrued dividends as aforesaid, the said assets shall be
distributed pro rata among the holders of the respective series of the
Preferred Stock. After all payments are made as aforesaid, any required
payments shall be made with respect to the Preference Stock, if any,
outstanding, and the remaining assets and funds shall be divided among and
paid to the holders of Common Stock, Class E Common Stock and Class H Common
Stock pro rata in proportion to the respective per share liquidation units of
such classes. The merger or consolidation of the Corporation into or with any
other corporation shall not be or be deemed to be a distribution of assets or
a dissolution, liquidation or winding up for the purposes of this paragraph.
Any Preferred Stock, Preference Stock, Common Stock, Class E Common Stock or
Class H Common Stock, authorized hereunder or under any amendment hereof, in
the discretion of the Board of Directors, may be issued, except as herein
otherwise provided, in payment for property or services, or as bonuses to
employes of the Corporation or employes of subsidiary companies, or for other
assets or securities including cash, necessary or desirable, in the judgment
of the Board of Directors, to be purchased or acquired from time to time for
the Corporation, or for any other lawful purpose of the Corporation.
If it seems desirable so to do, the Board of Directors may from time to time
issue scrip for fractional shares of stock. Such scrip shall not confer upon
the holder any right to dividends or any voting or other rights of a
stockholder of the Corporation, but the Corporation shall from time to time,
within such time as the Board of Directors may determine or without limit of
time if the Board of Directors so determines, issue one or more whole shares
of stock upon the surrender of scrip for fractional shares aggregating the
number of whole shares issuable in respect of the scrip so surrendered,
provided that the scrip so surrendered shall be properly endorsed for transfer
if in registered form.
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APPENDIX B
FAIRNESS OPINIONS
<PAGE>
APPENDIX B-1
MERRILL LYNCH FAIRNESS OPINION
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
March 31, 1996
Board of Directors
General Motors Corporation
General Motors Building
3044 West Grand Boulevard
Detroit, Michigan 48202-3091
Ladies and Gentlemen:
General Motors Corporation ("GM") proposes to split off from GM (the "Split-
Off") its wholly owned subsidiary Electronic Data Systems Holding Corporation
(together with its subsidiaries, unless the context requires otherwise, "EDS")
in accordance with the terms of a proposed merger agreement (the "Merger
Agreement") to be entered into between GM and GM Mergeco Corporation, a wholly
owned subsidiary of EDS ("Mergeco"), pursuant to which Mergeco will be merged
with and into GM (the "Merger"). As a condition to the consummation of the
Merger, EDS will contribute to the capital of Mergeco $500 million in cash
(the "Special Inter-Company Payment"). As a result of the Merger, (i) each
outstanding share of GM's Class E Common Stock, par value $0.10 per share (the
"Class E Common Stock"), will be converted into one share of common stock, par
value $0.01 per share, of EDS ("EDS Common Stock") and, upon such conversion,
all such shares of Class E Common Stock will be cancelled and will cease to
exist (the "Class E Common Stock Conversion"), (ii) GM's $1 2/3 Par Value
Common Stock, par value $1 2/3 per share (the "$1 2/3 Common Stock"), and GM's
Class H Common Stock, par value $0.10 per share (the "Class H Common Stock"),
will remain outstanding and (iii) the Special Inter-Company Payment will
become an asset of GM. You have advised us that GM has received a private
letter ruling (the "Private Letter Ruling") from the Internal Revenue Service
to the effect that the Split-Off will be treated as a tax-free exchange under
Section 355 of the Internal Revenue Code of 1986, as amended.
In connection with the Split-Off, GM and EDS also propose to enter into a
long-term master services agreement and certain related agreements
(collectively, the "New MSA") governing certain of the terms on which EDS will
provide information technology and other services to GM and its affiliates
after the Split-Off. The New MSA modifies certain of the terms on which such
services are provided under the Master Agreement effective as of September 1,
1985 between GM and EDS, as amended by the Addendum dated May 29, 1987, and
certain related agreements (collectively, the "Current MSA"), including, among
other things, (1) by giving GM and its affiliates the option, with respect to
purchases of information technology services covered under the New MSA, to
subject a portion of such purchases to competitive bidding and to source such
purchases with bidders other than EDS, (2) by providing certain goals for EDS
to meet in reducing the cost to GM and its affiliates of the services to be
provided by EDS, (3) by lengthening, commencing in 1997, the time available to
GM and its affiliates to make payments for services and (4) by providing for
an initial term of 10 years following the consummation of the Split-Off,
subject to renewal (such modifications being collectively referred to as the
"MSA Modifications").
GM and EDS also propose to enter into a separation agreement (the
"Separation Agreement") and a tax allocation agreement (the "Tax Allocation
Agreement"), which will establish certain transitional and other arrangements
in connection with the Split-Off. Pursuant to the Separation Agreement, GM
would provide EDS a $50 million allowance relating to the resolution of
various uncertain, contingent or other matters arising directly or indirectly
out of the separation of GM and EDS (the "Separation Allowance").
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You have advised us that, as of December 31, 1995, defined benefit pension
plans covered by Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), sponsored by GM and certain of its subsidiaries
(the "GM Pension Plans") were underfunded, on an SFAS No. 87 basis, and the
projected benefit obligations exceeded plan assets by approximately $3 billion
in the aggregate. You have also advised us that you expect that the Pension
Benefit Guaranty Corporation (the "PBGC") will, in accordance with an
agreement dated March 3, 1995 between GM and the PBGC, as amended on March 5,
1996 (the "GM-PBGC Agreement"), release EDS and its subsidiaries, upon
consummation of the Merger, from all fixed or contingent liabilities under
Title IV of ERISA with respect to the GM Pension Plans. In addition, you have
advised us that, as of the date hereof, approximately 31% of the currently
outstanding Class E Common Stock is held by the GM Special Hourly Employees
Pension Trust (the "Hourly Plan Special Trust") and approximately 1% of such
stock is held by the GM Salaried Employees Pension Trust (such holdings are
collectively referred to as the "Plan Holdings").
Under the Registration Rights Agreement (as defined below), the Hourly Plan
Special Trust has certain registration rights with respect to the Class E
Common Stock that it holds and will have the same rights with respect to the
EDS Common Stock into which such stock will be converted in the Merger. The
Registration Rights Agreement also contains certain restrictions on transfer
of the shares of Class E Common Stock held by the Hourly Plan Special Trust
(and the EDS Common Stock into which such Class E Common Stock will be
converted in the Merger). The Hourly Plan Special Trust has agreed with GM,
pursuant to a Transfer Agreement dated as of March 12, 1995 (the "Transfer
Agreement"), to certain additional transfer restrictions intended to preserve
the tax-free status of the Split-Off.
The Merger and related transactions, including the making of the Special
Inter-Company Payment and the execution and delivery of the New MSA, are
collectively referred to herein as the "Transactions". The Special Inter-
Company Payment, the Separation Allowance, the expenses of implementing the
Transactions to be borne by GM and the financial effects on GM (excluding EDS)
of (i) the MSA Modifications, (ii) the removal of certain potential conflicts
between the business of EDS and certain other businesses of GM and its
subsidiaries, (iii) any change in the market price of the Plan Holdings as a
result of the Transactions and (iv) the Class E Common Stock Conversion are
collectively referred to herein as the "Financial Effects of the
Transactions".
You have asked us to advise you with respect to the fairness, from a
financial point of view, to GM and, accordingly, to GM's common stockholders
after consummation of the Merger, namely the holders of the $1 2/3 Common
Stock and the Class H Common Stock, of the Financial Effects of the
Transactions.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed GM's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1994, GM's audited
financial statements for the year ended December 31, 1995, drafts of GM's
Annual Report and Form 10-K for that year and GM's Forms 10-Q for the
quarterly periods ending March 31, 1995, June 30, 1995 and September 30,
1995;
(2) Reviewed EDS's Annual Reports and related financial information for
the five fiscal years ended December 31, 1994 and EDS's audited financial
statements for the year ended December 31, 1995;
(3) Conducted discussions with members of senior management of GM
concerning their views regarding (a) the use of information technology
services by GM in the future and (b) the strategic rationale for, and the
financial effects on GM (excluding EDS) of, the Split-Off, including the
financial benefits to GM of the removal of certain potential conflicts
between the business of EDS and certain other businesses of GM and its
subsidiaries;
(4) Reviewed certain forecasts furnished to us by GM management of GM's
future expenditures for information technology services;
(5) Reviewed certain estimates furnished to us by GM management of the
expenses of implementing the Transactions to borne by GM;
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(6) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of EDS,
furnished to us by EDS;
(7) Reviewed published reports of equity analysts regarding their
expectations with respect to the future earnings of EDS and the impact of
the Split-Off on such earnings;
(8) Conducted discussions with members of senior management of EDS
concerning their views regarding the strategic rationale for, and the
financial effects on EDS of, the Split-Off and various strategic
alternatives available to EDS, both as a wholly owned subsidiary of GM and
as an independent, publicly traded company;
(9) Compared certain financial ratios of EDS, on a pro forma basis giving
effect to the Split-Off, to the financial ratios of certain companies that
we deemed to be reasonably similar to EDS;
(10) Reviewed the historical market prices for the Class E Common Stock
to be converted into EDS Common Stock in the Split-Off and considered the
potential impact of the Split-Off on the market price thereof;
(11) Considered the financial benefits to GM of its rights of ownership
and control of EDS (taking into account the terms of the Class E Common
Stock and the GM Board's policies with respect to the exercise of such
rights), all of which would terminate as a result of the Class E Common
Stock Conversion;
(12) Compared the financial terms of the Split-Off with the financial
terms of certain transactions that we deemed to be relevant;
(13) Considered the alternatives available to EDS and GM in developing
and implementing strategic alliances and other strategic alternatives for
EDS, as a wholly owned subsidiary of GM, with third parties;
(14) Reviewed a draft dated March 27, 1996 of the Merger Agreement;
(15) Reviewed a draft dated March 26, 1996 of the Separation Agreement
and a draft dated March 28, 1996 of the Tax Allocation Agreement;
(16) Reviewed the Current MSA and a draft dated March 22, 1996 of the New
MSA;
(17) Reviewed GM's Restated Certificate of Incorporation and By-laws;
(18) Reviewed (a) the GM-PBGC Agreement, (b) the Escrow Agreement (the
"Escrow Agreement") made as of March 5, 1996 by and among Bankers Trust
Company (the "Escrow Agent"), the PBGC and GM and (c) forms of Releases and
Covenants Not to Sue (the "PBGC Releases") to be provided pursuant to the
GM-PBGC Agreement and held by the Escrow Agent in escrow pursuant to the
Escrow Agreement;
(19) Reviewed the Registration Rights Agreement (the "Registration Rights
Agreement") dated March 12, 1995 between GM and United States Trust Company
of New York and its affiliate, U.S. Trust Company of California, N.A., as
trustees of the Hourly Plan Special Trust, and the Transfer Agreement;
(20) Reviewed the Final Exemption published by the Department of Labor in
the Federal Register dated March 15, 1995;
(21) Reviewed the Private Letter Ruling and the request to the Internal
Revenue Service for such ruling;
(22) Reviewed a draft dated March 28, 1996 of the Solicitation
Statement/Prospectus to be furnished to the holders of the $1 2/3 Common
Stock, the Class H Common Stock and the Class E Common Stock; and
(23) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
GM and EDS, and we have not independently verified such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of GM or
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EDS or been furnished with any such evaluation or appraisal. With respect to
the forecasts furnished by GM management of GM's future expenditures for
information technology services, we have assumed that they are reasonably
based and reflect the best currently available estimates and judgments of such
management as to such expected expenditures. We have assumed that the executed
PBGC Releases will be released from escrow in accordance with the terms of the
Escrow Agreement. In addition, we have assumed that any appreciation in the
market price of the Plan Holdings as a result of the Transactions will
directly reduce GM's pension expense and unfunded pension liability. You have
advised us that the consummation of the Transactions will not result in any
default or similar event under any loan agreement, instrument of indebtedness
or other contract of GM or EDS that will not be waived.
Our opinion does not in any manner address the fairness of the Transactions
to EDS or to the holders of Class E Common Stock, matters as to which our
opinion has not been requested. Furthermore, we express no opinion as to the
prices at which EDS Common Stock will trade subsequent to the Split-Off. Our
opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. In
connection with the preparation of this opinion, we have not been authorized
by GM or the GM Board of Directors to solicit, nor have we solicited, third-
party indications of interest with respect to a business combination or other
extraordinary transaction involving EDS or any of its assets. We wish to
advise you that certain elements of the Transactions are not susceptible to
precise quantification and that, in connection with the preparation of this
opinion, we have made judgments and estimates that we consider reasonable and
appropriate under the circumstances.
We have acted as financial advisor to GM, its Board of Directors and the
negotiating team designated by GM's Board of Directors to develop the terms of
the Transactions from the perspective of the holders of the $1 2/3 Common
Stock and the Class H Common Stock and will receive a fee for our services
that is contingent upon the consummation of the Split-Off. We have also, in
the past, provided financial advisory and financing services to GM (including
financial advisory services in connection with GM's contribution of Class E
Common Stock to the Hourly Plan Special Trust) and have received fees for the
rendering of such services. In addition, in the ordinary course of our
business, we may actively trade shares of the $1 2/3 Common Stock, the Class H
Common Stock, the Class E Common Stock and other securities of GM for our own
account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the Financial Effects of the Transactions are fair, from a financial point of
view, to GM and, accordingly, to GM's common stockholders after consummation
of the Merger, namely the holders of the $1 2/3 Common Stock and the Class H
Common Stock.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH
INCORPORATED
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APPENDIX B-2
LEHMAN BROTHERS FAIRNESS OPINION
[Lehman Brothers Inc. Letterhead]
March 31, 1996
General Motors Corporation
General Motors Building
3044 West Grand Boulevard
Detroit, Michigan 48202
Attention: Board of Directors
Members of the Board:
We understand that the Board of Directors (the "General Motors Board") of
General Motors Corporation ("General Motors") is considering a tax-free split-
off (the "Split-Off") of General Motors' wholly owned subsidiary, Electronic
Data Systems Holding Corporation, a Delaware corporation ("EDS"). The Split-
Off will be accomplished through a merger (the "Merger") of GM Mergeco
Corporation ("Mergeco") with and into General Motors pursuant to the proposed
Agreement and Plan of Merger to be entered into between General Motors and
Mergeco (the "Merger Agreement"), with General Motors as the surviving
corporation in the Merger. Mergeco is an indirectly wholly owned subsidiary of
EDS organized for the purpose of effecting the Split-Off. In the Merger, each
outstanding share of Class E Common Stock, $.10 par value per share, of
General Motors ("Class E Common Stock") will be converted into one share of
EDS common stock, $0.01 par value per share (the "EDS Common Stock"). There
will be attached to each share of EDS Common Stock a purchase right for EDS
Series A Junior Participating Preferred Stock. As a result of the Split-Off,
EDS will become an independent, publicly held company, holders of the Class E
Common Stock will become stockholders of EDS rather than of General Motors,
and the Class E Common Stock will cease to exist. The terms and conditions of
the proposed Split-Off are set forth in more detail in the draft, dated March
27, 1996, of the joint Solicitation Statement/Prospectus of General Motors and
EDS (the "Statement").
Immediately prior to and as a condition of the consummation of the Merger,
EDS will contribute to Mergeco $500 million in cash (the "Special Inter-
Company Payment"). As a result of the Merger, all of the assets of Mergeco,
which will consist entirely of the cash contributed by EDS, will become assets
of General Motors. Immediately before the Merger, General Motors and EDS will
enter into a new master service agreement (the "Master Services Agreement")
pursuant to which EDS will continue to serve as General Motors' principal
supplier of information technology services for an initial term of ten years
following the Split-Off, which may be extended by agreement of the parties.
The information technology and other services to be provided by EDS under the
Master Services Agreement will generally be similar to those provided to
General Motors under an existing master agreement between General Motors and
EDS (the "Existing Master Services Agreement"). However, the Master Services
Agreement will reflect certain significant changes to the pricing and terms
under which such services are to be provided by EDS. Additionally, General
Motors and EDS will enter into a Separation Agreement and certain related
agreements, including a Tax Allocation Agreement (collectively, the
"Separation Agreement"), establishing certain arrangements between General
Motors and EDS deemed necessary by General Motors and EDS in order to address
various business, legal and regulatory issues resulting from the Split-Off.
The Merger and the related transactions, including the Special Inter-Company
Payment, the Split-Off Changes (as defined below) effected pursuant to the
execution and delivery of the Master Services Agreement and the execution and
delivery of the Separation Agreement are collectively referred to as the
"Split-Off Transactions".
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We have been engaged by General Motors to act as financial advisor to a team
appointed by the General Motors Board (the "E Team") which has been charged
with negotiating the terms and conditions of the proposed Split-Off from the
perspective of the holders of the Class E Common Stock. We have been requested
to render to the General Motors Board our opinion with respect to the
fairness, from a financial point of view, to the holders of Class E Common
Stock, of the financial effect of the Split-Off Transactions taken as a whole
and in connection with such opinion to provide our financial advice to General
Motors and its Board of Directors. We have not been requested to opine as to,
and our opinion does not in any manner address, General Motors' or EDS'
underlying business decision to proceed with or effect the proposed Split-Off
Transactions.
In arriving at our opinion, we reviewed, among other things, (1) historical
financial statements of EDS and certain other historical financial and
operating data of EDS, (2) historical financial statements of General Motors,
(3) certain publicly available information with respect to EDS and General
Motors, (4) certain projected financial data with respect to EDS, both with
and without giving effect to the Split-Off, prepared by EDS management, (5)
reported prices and trading activity for the Class E Common Stock, (6) drafts
of the Statement, (7) the terms of the Class E Common Stock as set forth in
General Motors' certificate of incorporation as currently in effect, (8) the
terms of the EDS Common Stock as set forth in EDS' certificate of
incorporation as currently in effect, (9) the private letter ruling received
by General Motors from the IRS with respect to the tax-free nature of the
Split-Off, (10) a summary of terms for the Master Services Agreement provided
to the General Motors Board in connection with its March 31, 1996 meeting,
(11) the Registration Rights Agreement, dated March 12, 1995 between General
Motors and the Trustees of the General Motors Hourly Plan Pension Trust and
(12) the Shareholder Rights Agreement between EDS and Bank of New York dated
as of March 12, 1996. In addition, we have held discussions with management of
EDS, and in certain cases management of General Motors, with respect to, among
other things, (1) the operations and financial condition of EDS and the plans
of EDS management with respect to the business and affairs of EDS both prior
to and after the Split-Off, (2) the projected financial data for EDS prepared
by EDS management, (3) the benefits and detriments to EDS of ownership by
General Motors, (4) the expected impact of the Split-Off Transactions on EDS'
operations and the financial and strategic flexibility of EDS, and the new
business opportunities available to EDS, after the Split-Off, (5) certain
terms of (A) the Agreement, dated March 3, 1995, between General Motors and
the Pension Benefit Guaranty Corporation (the "GM-PBGC Agreement"), (B) the
Existing Master Services Agreement and the proposed Master Services Agreement,
and certain other information technology services agreements to be entered
into in connection with the Master Services Agreement, and (C) the proposed
Separation Agreement, and (6) the effect of the Master Services Agreement
(including the related changes to the terms of the underlying services
agreements, and certain other information technology services agreements to be
entered into in connection with the Master Services Agreement, to the extent
that they relate to the financial effect of the Master Services Agreement as
projected by EDS management) and the Separation Agreement on the business,
results of operations and financial condition of EDS and on the business
relationship between General Motors and EDS (including, but not limited to,
their relationship as customer and vendor, respectively). In addition, we
undertook such other studies, analyses and investigations as we deemed
appropriate for purposes of rendering our opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of EDS and General
Motors that they are not aware of any facts that would make such information
inaccurate or misleading. With respect to the projected financial data of EDS
prepared by EDS management (which reflect, among other things, with respect to
periods following the Split-Off, estimates of the expected value of certain
benefits to be derived by EDS from the Split-Off), upon the advice of EDS
management and with your consent we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of EDS management as to the expected future prospects
and financial performance of EDS, and we have relied on such projections in
rendering our opinion. With respect to the estimates prepared by EDS
management of the value of certain benefits and detriments of the Split-Off to
EDS, with your consent, we have relied on such estimates and assumed that they
were reasonably prepared and reflected the best currently available judgments
of EDS management as to such benefits and detriments. We also took into
account and
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considered your determination, as described in the Statement, that a split-off
of EDS would be proposed only in a transaction that would not result in the
recapitalization of shares of Class E Common Stock into Common Stock, $1 2/3
par value, of General Motors at a 120% exchange ratio as provided for under
certain circumstances under the terms of General Motors' certificate of
incorporation. Furthermore, we believe that following the Split-Off, the EDS
Common Stock would very likely be included in the Standard and Poor's 500
Index, and we have rendered our opinion on that basis. In arriving at our
opinion, we have not conducted a physical inspection of the properties and
facilities of EDS and have not made or obtained any evaluations or appraisals
of the assets or liabilities of EDS. You have not authorized us to solicit,
and we have not solicited, any indications of interest from any third party
with respect to the purchase of all or a part of EDS, its business or the
Class E Common Stock. We have not been asked to, and we do not, express an
opinion as to the prices at which EDS Common Stock will actually trade
following the Merger and we can provide no assurance that the trading price of
a share of EDS Common Stock following the Split-Off will be equal to or in
excess of the trading price of a share of Class E Common Stock prior to the
Split-Off. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
In connection with the review of the financial effect on EDS of the Master
Services Agreement, both EDS management and General Motors management advised
us that certain changes would have been made to the Existing Master Services
Agreement commencing in 1996 even in the absence of the Split-Off. EDS
management identified to us those changes that EDS management believed would
have been made to the Existing Master Services Agreement commencing in 1996
even in the absence of the Split-Off, the financial effect of which, as
projected by EDS management, would begin to impact EDS in 1996 and continue
over time. The changes to the Existing Master Services Agreement which would
have been made in the absence of the Split-Off are referred to herein as the
"Base Changes." Under different base cases identified by EDS management, the
Base Changes assumed to occur vary to the extent they reflect different
assumptions regarding certain rate reductions and changes in payment terms.
General Motors management advised us that General Motors management believed
that changes that differ from or are in addition to the Base Changes
identified by EDS management, which changes, taken as a whole, would have been
more favorable to General Motors and less favorable to EDS than the Base
Changes identified by EDS management, would have been made to the Existing
Master Services Agreement even in the absence of the Split-Off. No assurances
can be given as to exactly which changes to the Existing Master Service
Agreement would have been implemented absent the Split-Off or which changes
might be implemented in the future if the Split-Off is not consummated.
In considering the fairness, from a financial point of view, to holders of
Class E Common Stock of the financial effect of the Split-Off Transactions
taken as a whole, we have considered, among other things, (1) the $500 million
Special Inter-Company Payment which was recommended to the General Motors
Board by the Capital Stock Committee on March 22, 1996 and is proposed to be
approved as of the date hereof in connection with the Split-Off Transactions,
(2) the allowance of $50 million provided to EDS under the Separation
Agreement (and in rendering our opinion, with your consent, we assumed that a
substantial amount of such allowance will be used for the benefit of EDS under
the Separation Agreement), (3) that EDS management has estimated that, as a
result of the allowance identified in the immediately preceding clause, there
will be no net payments made by EDS to General Motors under the terms of the
Separation Agreement (other than payments, if any, to be made under the
provisions thereof with respect to indemnification obligations or the
allocation of contingent liabilities, to which we gave no effect in rendering
this opinion), (4) the financial effect on EDS, as projected by EDS
management, of the changes other than the Base Changes (such changes being
referred to herein as the "Split-Off Changes") effected pursuant to the Master
Services Agreement, (5) the financial effect, as projected by EDS management,
of projected declines following the Split-Off in sales of certain goods and
services provided by EDS to General Motors and its affiliates other than under
the Existing Master Services Agreement or the Master Services Agreement, as
the case may be, (6) transaction costs, estimated by EDS management and (7)
certain estimated benefits of the Split-Off to EDS or holders of Class E
Common Stock, including (A) the Derivative Stock Differential (as defined in
the Statement), (B) the value of the inclusion of the EDS Common Stock in the
Standard & Poor's 500 Index, (C) the value to EDS of the removal of certain
limitations on EDS' ability to participate in major strategic alliances
(including among others, mergers and
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acquisitions which can be effected using EDS Common Stock), which was
estimated by EDS management to be at least $500 million and (D) the present
value to EDS of projected new business growth and customer relationships,
which was estimated by EDS management. Accordingly, to the extent described
herein, we took into account and considered certain benefits as estimated by
EDS management that may be realized by EDS as a result of the opportunity to
pursue the business purposes of the Split-Off.
At the request of the E Team, and with your consent, we have assumed that
the Base Changes would have been made to the Existing Master Services
Agreement in 1996 even in the absence of the Split-Off (or any other change in
the nature of General Motors' ownership of EDS), and that the financial effect
thereof would begin in 1996 and continue over time as reflected in the
projections prepared by EDS management and therefore, in performing our
analyses in connection with rendering this opinion, at the request of the E
Team and with your consent, we did not address, and gave no effect to, the
financial effect on EDS or holders of Class E Common Stock of the Base Changes
effected pursuant to the Master Services Agreement. Based on information
regarding the historical financial and operating results of EDS and
discussions with EDS management, if neither the Base Changes nor any other
significant modifications to the terms of the Existing Master Services
Agreement would have been made in the absence of a Split-Off, then the
decrement in the present value of cash flows attributable to goods and
services projected by EDS management to be provided to General Motors and its
affiliates in accordance with the terms of the Existing Master Services
Agreement (both under analyses performed on a consolidated company basis for
EDS (including goods and services provided to General Motors and its
affiliates and to all other customers) and under analyses performed on a basis
reflecting only goods and services provided to General Motors and affiliates
under the terms of the Existing Master Services Agreement) resulting from
changes to the Existing Master Services Agreement arising as a result of the
Split-Off would have been significantly larger than under the analyses we have
conducted. At the request of the E Team and with your consent, we did not
consider, and gave no effect to, contingent liabilities or indemnification
obligations of EDS arising under the Separation Agreement or otherwise in
connection with the Split-Off. At the request of the E Team, upon the advice
of General Motors management and its legal and accounting advisors, and with
your consent, we also assumed that the proposed Merger would be tax free to
the holders of Class E Common Stock receiving EDS Common Stock in the Merger
and that the Unconditional Releases under the GM-PBGC Agreement would become
effective as of the effectiveness of the Merger.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the financial effect of the Split-Off Transactions taken as a
whole is fair, from a financial point of view, to the holders of Class E
Common Stock.
We have been engaged by General Motors to act as financial advisor to the E
Team in connection with the Split-Off. We have been advised by you that it is
intended that our fee will be paid by EDS. A significant portion of our fee is
contingent on consummation of the Split-Off. In addition, General Motors has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for each of General Motors and EDS in the past (including
representation of General Motors and EDS in connection with the 1995
contribution by General Motors of approximately 173 million shares of Class E
Common Stock to the General Motors Hourly Plan Special Trust) and have
received customary fees for such services. In March 1996, two of the senior
investment bankers actively involved in the transaction for Lehman Brothers in
its capacity as financial advisor to the E Team joined Morgan Stanley, at
which time Morgan Stanley also began advising the E Team. Since such time,
Morgan Stanley and Lehman Brothers have performed their services in
cooperation, both relying to a significant degree on the due diligence of
those two individuals. However, Lehman Brothers has performed its own
independent internal review and analysis in arriving at this opinion.
In the ordinary course of our business, we actively trade in the debt and
equity securities of General Motors, including the Class E Common Stock, for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
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This opinion is for the use and benefit of the Board of Directors of General
Motors, the Capital Stock Committee of the Board of Directors of General
Motors, the E Team and the Board of Directors of EDS and is rendered to the
General Motors Board in connection with its consideration of the Split-Off
Transactions. This opinion is not intended to be and does not constitute a
recommendation to any holder of Class E Common Stock, or any other class of
capital stock of General Motors, as to whether such stockholder should consent
to the Transactions (as defined in the Statement).
Very truly yours,
[Lehman Brothers Inc.]
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APPENDIX B-3
MORGAN STANLEY FAIRNESS OPINION
[MORGAN STANLEY & CO. INCORPORATED LETTERHEAD]
March 31, 1996
General Motors Corporation
General Motors Building
3044 West Grand Boulevard
Detroit, Michigan 48202
Attention: Board of Directors
Members of the Board:
We understand that the Board of Directors (the "General Motors Board") of
General Motors Corporation ("General Motors") is considering a tax-free split-
off (the "Split-Off") of General Motors' wholly owned subsidiary, Electronic
Data Systems Holding Corporation, a Delaware corporation ("EDS"). The Split-
Off will be accomplished through a merger (the "Merger") of GM Mergeco
Corporation ("Mergeco") with and into General Motors pursuant to the proposed
Agreement and Plan of Merger to be entered into between General Motors and
Mergeco (the "Merger Agreement"), with General Motors as the surviving
corporation in the Merger. Mergeco is an indirectly wholly owned subsidiary of
EDS organized for the purpose of effecting the Split-Off. In the Merger, each
outstanding share of Class E Common Stock, $.10 par value per share, of
General Motors ("Class E Common Stock") will be converted into one share of
EDS common stock, $0.01 par value per share (the "EDS Common Stock"). There
will be attached to each share of EDS Common Stock a purchase right for EDS
Series A Junior Participating Preferred Stock. As a result of the Split-Off,
EDS will become an independent, publicly held company, holders of the Class E
Common Stock will become stockholders of EDS rather than of General Motors,
and the Class E Common Stock will cease to exist. The terms and conditions of
the proposed Split-Off are set forth in more detail in the draft, dated March
27, 1996, of the joint Solicitation Statement/Prospectus of General Motors and
EDS (the "Statement").
Immediately prior to and as a condition of the consummation of the Merger,
EDS will contribute to Mergeco $500 million in cash (the "Special Inter-
Company Payment"). As a result of the Merger, all of the assets of Mergeco,
which will consist entirely of the cash contributed by EDS, will become assets
of General Motors. Immediately before the Merger, General Motors and EDS will
enter into a new master service agreement (the "Master Services Agreement")
pursuant to which EDS will continue to serve as General Motors' principal
supplier of information technology services for an initial term of ten years
following the Split-Off which may be extended by agreement of the parties. The
information technology and other services to be provided by EDS under the
Master Services Agreement will generally be similar to those provided to
General Motors under an existing master agreement between General Motors and
EDS (the "Existing Master Services Agreement"). However, the Master Services
Agreement will reflect certain significant changes to the pricing and terms
under which such services are to be provided by EDS. Additionally, General
Motors and EDS will enter into a Separation Agreement and certain related
agreements, including a Tax Allocation Agreement (collectively, the
"Separation Agreement"), establishing certain arrangements between General
Motors and EDS deemed necessary by General Motors and EDS in order to address
various business, legal and regulatory issues resulting from the Split-Off.
The Merger and the related transactions, including the Special Inter-Company
Payment, the
B-10
<PAGE>
Split-Off Changes (as defined below) effected pursuant to the execution and
delivery of the Master Services Agreement and the execution and delivery of
the Separation Agreement are collectively referred to as the "Split-Off
Transactions".
We have been engaged by General Motors to act as financial advisor to a team
appointed by the General Motors Board (the "E Team") which has been charged
with negotiating the terms and conditions of the proposed Split-Off from the
perspective of the holders of the Class E Common Stock. We have been requested
to render to the General Motors Board our opinion with respect to the
fairness, from a financial point of view, to the holders of Class E Common
Stock, of the financial effect of the Split-Off Transactions taken as a whole
and in connection with such opinion to provide our financial advice to General
Motors and its Board of Directors. We have not been requested to opine as to,
and our opinion does not in any manner address, General Motors' or EDS'
underlying business decision to proceed with or effect the proposed Split-Off
Transactions.
In arriving at our opinion, we reviewed, among other things, (1) historical
financial statements of EDS and certain other historical financial and
operating data of EDS, (2) historical financial statements of General Motors,
(3) certain publicly available information with respect to EDS and General
Motors, (4) certain projected financial data with respect to EDS, both with
and without giving effect to the Split-Off, prepared by EDS management, (5)
reported prices and trading activity for the Class E Common Stock, (6) drafts
of the Statement, (7) the terms of the Class E Common Stock as set forth in
General Motors' certificate of incorporation as currently in effect, (8) the
terms of the EDS Common Stock as set forth in EDS' certificate of
incorporation as currently in effect, (9) the private letter ruling received
by General Motors from the IRS with respect to the tax-free nature of the
Split-Off, (10) a summary of terms for the Master Services Agreement provided
to the General Motors Board in connection with its March 31, 1996 meeting,
(11) the Registration Rights Agreement, dated March 12, 1995 between General
Motors and the Trustees of the General Motors Hourly Plan Pension Trust and
(12) the Shareholder Rights Agreement between EDS and Bank of New York dated
as of March 12, 1996. In addition, we have held discussions with management of
EDS, and in certain cases management of General Motors, with respect to, among
other things, (1) the operations and financial condition of EDS and the plans
of EDS management with respect to the business and affairs of EDS both prior
to and after the Split-Off, (2) the projected financial data for EDS prepared
by EDS management, (3) the benefits and detriments to EDS of ownership by
General Motors, (4) the expected impact of the Split-Off Transactions on EDS'
operations and the financial and strategic flexibility of EDS, and the new
business opportunities available to EDS, after the Split-Off, (5) certain
terms of (A) the Agreement, dated March 3, 1995, between General Motors and
the Pension Benefit Guaranty Corporation (the "GM-PBGC Agreement"), (B) the
Existing Master Services Agreement and the proposed Master Services Agreement,
and certain other information technology services agreements to be entered
into in connection with the Master Services Agreement, and (C) the proposed
Separation Agreement, and (6) the effect of the Master Services Agreement
(including the related changes to the terms of the underlying services
agreements, and certain other information technology services agreements to be
entered into in connection with the Master Services Agreement, to the extent
that they relate to the financial effect of the Master Services Agreement as
projected by EDS management) and the Separation Agreement on the business,
results of operations and financial condition of EDS and on the business
relationship between General Motors and EDS (including, but not limited to,
their relationship as customer and vendor, respectively). In addition, we
undertook such other studies, analyses and investigations as we deemed
appropriate for purposes of rendering our opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of EDS and General
Motors that they are not aware of any facts that would make such information
inaccurate or misleading. With respect to the projected financial data of EDS
prepared by EDS management (which reflect, among other things, with respect to
periods following the Split-Off, estimates of the expected value of certain
benefits to be derived by EDS from the Split-Off), upon the advice of EDS
management and with your consent we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of EDS management as to the expected future prospects
and financial performance of EDS, and we
B-11
<PAGE>
have relied on such projections in rendering our opinion. With respect to the
estimates prepared by EDS management of the value of certain benefits and
detriments of the Split-Off to EDS, with your consent, we have relied on such
estimates and assumed that they were reasonably prepared and reflected the
best currently available judgments of EDS management as to such benefits and
detriments. We also took into account and considered your determination, as
described in the Statement, that a split-off of EDS would be proposed only in
a transaction that would not result in the recapitalization of shares of Class
E Common Stock into Common Stock, $1 2/3 par value, of General Motors at a
120% exchange ratio as provided for under certain circumstances under the
terms of General Motors' certificate of incorporation. Furthermore, we believe
that following the Split-Off, the EDS Common Stock would very likely be
included in the Standard and Poor's 500 Index, and we have rendered our
opinion on that basis. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of EDS and have not made
or obtained any evaluations or appraisals of the assets or liabilities of EDS.
You have not authorized us to solicit, and we have not solicited, any
indications of interest from any third party with respect to the purchase of
all or a part of EDS, its business or the Class E Common Stock. We have not
been asked to, and we do not, express an opinion as to the prices at which EDS
Common Stock will actually trade following the Merger and we can provide no
assurance that the trading price of a share of EDS Common Stock following the
Split-Off will be equal to or in excess of the trading price of a share of
Class E Common Stock prior to the Split-Off. Our opinion necessarily is based
upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
In connection with the review of the financial effect on EDS of the Master
Services Agreement, both EDS management and General Motors management advised
us that certain changes would have been made to the Existing Master Services
Agreement commencing in 1996 even in the absence of the Split-Off. EDS
management identified to us those changes that EDS management believed would
have been made to the Existing Master Services Agreement commencing in 1996
even in the absence of the Split-Off, the financial effect of which, as
projected by EDS management, would begin to impact EDS in 1996 and continue
over time. The changes to the Existing Master Services Agreement which would
have been made in the absence of the Split-Off are referred to herein as the
"Base Changes." Under different base cases identified by EDS management, the
Base Changes assumed to occur vary to the extent they reflect different
assumptions regarding certain rate reductions and changes in payment terms.
General Motors management advised us that General Motors management believed
that changes that differ from or are in addition to the Base Changes
identified by EDS management, which changes, taken as a whole, would have been
more favorable to General Motors and less favorable to EDS than the Base
Changes identified by EDS management, would have been made to the Existing
Master Services Agreement even in the absence of the Split-Off. No assurances
can be given as to exactly which changes to the Existing Master Service
Agreement would have been implemented absent the Split-Off or which changes
might be implemented in the future if the Split-Off is not consummated.
In considering the fairness, from a financial point of view, to holders of
Class E Common Stock of the financial effect of the Split-Off Transactions
taken as a whole, we have considered, among other things, (1) the $500 million
Special Inter-Company Payment which was recommended to the General Motors
Board by the Capital Stock Committee on March 22, 1996 and is proposed to be
approved as of the date hereof in connection with the Split-Off Transactions,
(2) the allowance of $50 million provided to EDS under the Separation
Agreement (and in rendering our opinion, with your consent, we assumed that a
substantial amount of such allowance will be used for the benefit of EDS under
the Separation Agreement), (3) that EDS management has estimated that, as a
result of the allowance identified in the immediately preceding clause, there
will be no net payments made by EDS to General Motors under the terms of the
Separation Agreement (other than payments, if any, to be made under the
provisions thereof with respect to indemnification obligations or the
allocation of contingent liabilities, to which we gave no effect in rendering
this opinion), (4) the financial effect on EDS, as projected by EDS
management, of the changes other than the Base Changes (such changes being
referred to herein as the "Split-Off Changes") effected pursuant to the Master
Services Agreement, (5) the financial effect, as projected by EDS management,
of projected declines following the Split-Off in sales of certain goods and
services provided by EDS to General Motors and its affiliates other than under
the Existing Master Services Agreement or the Master Services Agreement, as
the case may be, (6) transaction costs, estimated by EDS
B-12
<PAGE>
management and (7) certain estimated benefits of the Split-Off to EDS or
holders of Class E Common Stock, including (A) the Derivative Stock
Differential (as defined in the Statement), (B) the value of the inclusion of
the EDS Common Stock in the Standard & Poor's 500 Index, (C) the value to EDS
of the removal of certain limitations on EDS' ability to participate in major
strategic alliances (including among others, mergers and acquisitions which
can be effected using EDS Common Stock), which was estimated by EDS management
to be at least $500 million and (D) the present value to EDS of projected new
business growth and customer relationships, which was estimated by EDS
management. Accordingly, to the extent described herein, we took into account
and considered certain benefits as estimated by EDS management that may be
realized by EDS as a result of the opportunity to pursue the business purposes
of the Split-Off.
At the request of the E Team, and with your consent, we have assumed that
the Base Changes would have been made to the Existing Master Services
Agreement in 1996 even in the absence of the Split-Off (or any other change in
the nature of General Motors' ownership of EDS), and that the financial effect
thereof would begin in 1996 and continue over time as reflected in the
projections prepared by EDS management and therefore, in performing our
analyses in connection with rendering this opinion, at the request of the E
Team and with your consent, we did not address, and gave no effect to, the
financial effect on EDS or holders of Class E Common Stock of the Base Changes
effected pursuant to the Master Services Agreement. Based on information
regarding the historical financial and operating results of EDS and
discussions with EDS management, if neither the Base Changes nor any other
significant modifications to the terms of the Existing Master Services
Agreement would have been made in the absence of a Split-Off, then the
decrement in the present value of cash flows attributable to goods and
services projected by EDS management to be provided to General Motors and its
affiliates in accordance with the terms of the Existing Master Services
Agreement (both under analyses performed on a consolidated company basis for
EDS (including goods and services provided to General Motors and its
affiliates and to all other customers) and under analyses performed on a basis
reflecting only goods and services provided to General Motors and affiliates
under the terms of the Existing Master Services Agreement) resulting from
changes to the Existing Master Services Agreement arising as a result of the
Split-Off would have been significantly larger than under the analyses we have
conducted. At the request of the E Team and with your consent, we did not
consider, and gave no effect to, contingent liabilities or indemnification
obligations of EDS arising under the Separation Agreement or otherwise in
connection with the Split-Off. At the request of the E Team, upon the advice
of General Motors management and its legal and accounting advisors, and with
your consent, we also assumed that the proposed Merger would be tax free to
the holders of Class E Common Stock receiving EDS Common Stock in the Merger
and that the Unconditional Releases under the GM-PBGC Agreement would become
effective as of the effectiveness of the Merger.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, the financial effect of the Split-Off Transactions taken as
a whole is fair, from a financial point of view, to the holders of Class E
Common Stock.
We have been engaged by General Motors to act as financial advisor to the E
Team in connection with the Split-Off. We have been advised by you that it is
intended that our fee will be paid by EDS. A significant portion of our fee is
contingent on consummation of the Split-Off. In addition, General Motors has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In addition, certain senior personnel providing
financial advice to the E Team and involved in rendering this opinion
represented General Motors in connection with its acquisition of EDS and the
related creation and issuance of the Class E Common Stock. In March 1996, two
of the senior investment bankers actively involved in the transaction for
Lehman Brothers in its capacity as financial advisor to the E Team joined
Morgan Stanley, at which time Morgan Stanley also began advising the E Team.
Since such time as Morgan Stanley also began acting in this capacity, it and
Lehman Brothers have performed their services in cooperation, both relying to
a significant degree on the work performed by the same individuals. However,
we have performed our own independent internal review and analysis in arriving
at this opinion.
In the ordinary course of our business, we actively trade in the debt and
equity securities of General Motors, including the Class E Common Stock, for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
B-13
<PAGE>
This opinion is for the use and benefit of the Board of Directors of General
Motors, the Capital Stock Committee of the Board of Directors of General
Motors, the E Team and the Board of Directors of EDS and is rendered to the
General Motors Board in connection with its consideration of the Split-Off
Transactions. This opinion is not intended to be and does not constitute a
recommendation to any holder of Class E Common Stock, or any other class of
capital stock of General Motors, as to whether such stockholder should consent
to the Transactions (as defined in the Statement).
Very truly yours,
[Morgan Stanley & Co.
Incorporated]
B-14
<PAGE>
APPENDIX C
EDS CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
Independent Auditors' Report.............................................. C-1
Consolidated Statements of Income......................................... C-2
Consolidated Balance Sheets............................................... C-3
Consolidated Statements of Cash Flows..................................... C-4
Notes to Consolidated Financial Statements................................ C-5
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Electronic Data Systems Corporation:
We have audited the accompanying consolidated balance sheets of Electronic
Data Systems Corporation and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income and cash flows for each of
the years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Electronic
Data Systems Corporation and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
January 24, 1996
C-1
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
--------- -------- --------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Systems and other contracts revenues.............. $12,422.1 $9,960.1 $8,507.3
--------- -------- --------
Costs and expenses
Cost of revenues................................ 9,601.6 7,529.4 6,390.6
Selling, general, and administrative............ 1,291.5 1,187.1 1,005.4
--------- -------- --------
Total costs and expenses...................... 10,893.1 8,716.5 7,396.0
--------- -------- --------
Operating income.................................. 1,529.0 1,243.6 1,111.3
Interest and other income, net (Note 20).......... (62.0) 40.6 20.0
--------- -------- --------
Income before income taxes........................ 1,467.0 1,284.2 1,131.3
Provision for income taxes (Note 11).............. 528.1 462.3 407.3
--------- -------- --------
Separate Consolidated Net Income.................. $ 938.9 $ 821.9 $ 724.0
========= ======== ========
Earnings Per Share Attributable to GM Class E
Common Stock..................................... $ 1.96 $ 1.71 $ 1.51
========= ======== ========
</TABLE>
Revenues related to GM and affiliates amounted to $3,891.1 million, $3,547.2
million, and $3,323.7 million for 1995, 1994, and 1993, respectively.
See accompanying notes to consolidated financial statements.
C-2
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
--------- --------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 548.9 $ 608.2
Marketable securities (Note 3)............................ 89.7 149.6
Accounts receivable, net.................................. 2,872.0 2,082.1
Accounts receivable from GM and affiliates................ 297.0 65.4
Inventories............................................... 181.2 137.8
Prepaids and other........................................ 392.7 311.0
--------- --------
Total current assets.................................... 4,381.5 3,354.1
--------- --------
Property and equipment, at cost less accumulated
depreciation (Note 4)...................................... 3,242.4 2,756.6
--------- --------
Operating and other assets
Land held for development, at cost (Note 5)............... 105.1 97.4
Investment in leases and other (Note 6)................... 1,573.5 1,308.8
Software, goodwill, and other intangibles, net (Notes 7
and 19).................................................. 1,529.9 1,269.6
--------- --------
Total operating and other assets........................ 3,208.5 2,675.8
--------- --------
Total Assets............................................ $10,832.4 $8,786.5
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable.......................................... $ 603.9 $ 571.1
Accrued liabilities (Note 8).............................. 1,704.5 1,451.0
Deferred revenue.......................................... 629.3 536.7
Income taxes (Note 11).................................... 75.9 111.0
Notes payable (Note 9).................................... 247.8 203.4
--------- --------
Total current liabilities............................... 3,261.4 2,873.2
--------- --------
Deferred income taxes (Note 11)............................. 739.7 659.8
--------- --------
Notes payable (Note 9)...................................... 1,852.8 1,021.0
--------- --------
Commitments and contingent liabilities (Notes 17 and 18)
Stockholder's equity (Notes 10 and 12)
Common stock, without par value; authorized 1,000.0
shares. Issued and outstanding 483.7 and 481.7 shares at
December 31, 1995 and 1994, respectively................. 517.7 455.1
Retained earnings......................................... 4,460.8 3,777.4
--------- --------
Total stockholder's equity.............................. 4,978.5 4,232.5
--------- --------
Total Liabilities and Stockholder's Equity.............. $10,832.4 $8,786.5
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
C-3
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $ 938.9 $ 821.9 $ 724.0
--------- ---------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 1,107.8 771.1 626.8
Deferred compensation.................... 58.8 62.0 33.8
Other.................................... 33.0 30.9 (17.7)
Changes in assets and liabilities, net of
effects of acquired companies:
(Increase) in accounts receivable...... (611.5) (605.4) (200.8)
(Increase) decrease in accounts
receivable from GM and affiliates..... (227.8) 51.1 (56.0)
(Increase) in inventories.............. (41.9) (1.9) (15.5)
(Increase) in prepaids and other....... (59.7) (57.0) (26.8)
Increase (decrease) in accounts payable
and accrued liabilities............... (76.0) 453.2 27.4
Increase in deferred revenue........... 81.0 79.1 137.1
Increase (decrease) in taxes payable... 56.4 (72.5) 188.7
--------- ---------- ---------
Total adjustments.................... 320.1 710.6 697.0
--------- ---------- ---------
Net cash provided by operating activities.. 1,259.0 1,532.5 1,421.0
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of marketable
securities................................ 163.6 370.0 234.2
Proceeds from investments in leases and
other assets.............................. 87.8 134.6 217.3
Payments for purchases of property and
equipment................................. (1,261.5) (1,186.0) (816.4)
Payments for investments in leases and
other assets.............................. (356.3) (395.7) (170.6)
Payments related to acquisitions, net of
cash acquired............................. (234.9) (186.6) (122.1)
Payments for purchases of software and
other intangibles......................... (92.0) (77.0) (119.0)
Payments for purchases of marketable
securities................................ (100.9) (248.9) (292.5)
Other...................................... 12.7 49.9 1.4
--------- ---------- ---------
Net cash used in investing activities...... (1,781.5) (1,539.7) (1,067.7)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable................ 7,466.7 10,821.0 2,527.7
Payments on notes payable.................. (6,776.3) (10,300.7) (2,648.7)
Net decrease in current notes payable with
maturities less than
90 days................................... -- (102.9) (99.0)
Employee stock transactions and related tax
benefit................................... 26.0 20.2 33.9
Dividends paid to GM....................... (251.3) (231.1) (192.1)
--------- ---------- ---------
Net cash provided by (used in) financing
activities................................ 465.1 206.5 (378.2)
--------- ---------- ---------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents............................ (1.9) 25.5 (13.6)
--------- ---------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents................................. (59.3) 224.8 (38.5)
Cash and Cash Equivalents at Beginning of
Year........................................ 608.2 383.4 421.9
--------- ---------- ---------
Cash and Cash Equivalents at End of Year..... $ 548.9 $ 608.2 $ 383.4
========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
C-4
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Electronic Data Systems Corporation is a provider of information technology
using advanced computer and communications technologies to meet the business
needs of its clients. As used herein, the terms "EDS" and "the Company" refer
to Electronic Data Systems Corporation and its consolidated subsidiaries. EDS
offers its clients a continuum of services in over 40 countries worldwide.
This continuum includes the management of computers, networks, information
systems, information processing facilities, business operations, and related
personnel, as well as management consulting services. (See Note 14 for
geographic segment information.)
General Motors Corporation (GM) acquired all of the capital stock of EDS in
October 1984. Prior to that time, EDS had been an independent, publicly held
corporation. Electronic Data Systems Holding Corporation was incorporated in
Delaware in 1994 for the purpose of holding the capital stock of EDS, which
was incorporated in Texas in 1962. Accordingly, EDS is an indirect wholly
owned subsidiary of GM.
Principles of Consolidation
The consolidated financial statements include the accounts of EDS and all
majority-owned subsidiaries. The Company's investments in companies in which
it has the ability to exercise significant influence over operating and
financial policies are accounted for under the equity method, with the
remaining investments carried at cost.
Earnings Attributable to GM Class E Common Stock on a Per Share Basis have
been determined based on the relative amounts available for the payment of
dividends to holders of GM Class E common stock. Holders of GM Class E common
stock have no direct rights in the equity or assets of EDS, but rather have
rights in the equity and assets of GM (which includes 100 percent of the stock
of EDS). Dividends on the GM Class E common stock are declared out of the
Available Separate Consolidated Net Income of EDS earned since the acquisition
of EDS by GM. The Available Separate Consolidated Net Income of EDS is
determined quarterly and is equal to the Separate Consolidated Net Income of
EDS, excluding the effects of purchase accounting adjustments arising from the
acquisition of EDS, which are not reflected in the accompanying consolidated
financial statements, multiplied by a fraction, the numerator of which is the
weighted average number of shares of GM Class E common stock outstanding
during the quarter, and the denominator of which was 483.7 million EDS common
shares at December 31, 1995 (the Class E Dividend Base).
GM Series C depositary shares represent ownership of one-tenth of a share of
GM Series C convertible preference stock. GM Series C depositary shares and GM
Series C preference stock are convertible into GM Class E common stock and are
common stock equivalents for purposes of computing Earnings Attributable to GM
Class E Common Stock on a Per Share Basis. On November 2, 1992, GM Series E-II
and E-III preference stocks, previously held by the GM pension plans, were
converted to GM Class E common stock. In 1993 and 1992, GM Series E-I
preference stock was converted to GM Class E common stock, or redeemed by GM.
The issuances and conversions of such preference stocks have no dilutive
effect on the GM Class E common stock because, to the extent that shares of GM
Class E common stock deemed to be outstanding would increase, such increased
shares would increase the numerator of the fraction used to determine
Available Separate Consolidated Net Income, but would have no effect on the
denominator. Additionally, unvested units in the Company's stock incentive
plan would have no material dilutive effect on the denominator.
C-5
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The denominator used in determining the Available Separate Consolidated Net
Income of EDS is adjusted as deemed appropriate by the GM Board of Directors
to reflect subdivisions or combinations of the GM Class E common stock and to
reflect certain transfers of capital to or from EDS. The GM Board's discretion
to make such adjustments is limited by criteria set forth in GM's Certificate
of Incorporation. In 1988, EDS initiated a program to purchase 11.0 million
shares of GM Class E common stock in order to meet certain future requirements
of the Company's employee benefit plans. As of December 31, 1989, the Company
had purchased 11.0 million shares of GM Class E common stock to be distributed
to key employees under the provisions of the 1984 Plan. The GM Board has
generally caused the denominator used in calculating the Available Separate
Consolidated Net Income of EDS to decrease as shares are purchased and to
increase as shares are used for the employee benefit plans.
In March 1995, GM contributed 173 million newly issued shares of GM Class E
Common Stock to the General Motors Hourly-Rate Employees Pension Plan.
The current GM Board policy is that the cash dividends on the GM Class E
Common Stock, when, as, and if declared by the GM Board in its sole
discretion, will equal approximately 30 percent of the prior year's Available
Separate Consolidated Net Income of EDS.
The following table summarizes certain amounts discussed above (in millions,
except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Separate Consolidated Net Income.................... $938.9 $821.9 $724.0
Available Separate Consolidated Net Income.......... $795.5 $444.4 $367.2
Average Number of Shares of GM Class E Common Stock
Outstanding (Numerator)............................ 404.6 260.3 243.0
Class E Dividend Base (Denominator)................. 483.7 481.7 480.6
Earnings Attributable to GM Class E Common Stock on
a Per Share Basis.................................. $1.96 $1.71 $1.51
Cash Dividends Per Share of GM Class E Common Stock. $0.52 $0.48 $0.40
</TABLE>
Debt and Marketable Equity Securities
Marketable securities at December 31, 1995 and 1994, consist of securities
issued by the U.S. Treasury, states, and political subdivisions, as well as
mortgage-backed debt, corporate debt and corporate equity securities. The
Company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, effective January 1, 1994. Pursuant to SFAS No. 115, the
provisions of the Statement were not applied retroactively. The change had no
material cumulative effect on the Company's financial position or results of
operations. Under SFAS No. 115, the Company classifies all of its debt and
marketable equity securities as available-for-sale. Management determines the
appropriate classification of all securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Noncurrent
available-for-sale securities are reported within the balance sheet
classification "Investment in Leases and Other." The Company's available-for-
sale securities are recorded at fair value. Unrealized holding gains and
losses, net of the related tax effect, are excluded from earnings and are
reported as a separate component of stockholder's equity until realized. A
decline in the fair value of any available-for-sale security below cost that
is deemed other than temporary is charged to earnings, resulting in the
establishment of a new cost basis for the security (see Note 3).
Inventory Valuation
Inventories are stated principally at the lower of cost or market using the
first-in, first-out method.
C-6
<PAGE>
APPENDIX D
AMENDED EDS INCENTIVE PLAN
<PAGE>
1996 INCENTIVE PLAN
OF
ELECTRONIC DATA SYSTEMS CORPORATION
1. Plan. This 1996 Incentive Plan of Electronic Data Systems Corporation
(the "Plan") is a continuation of the 1984 Electronic Data Systems Corporation
Stock Incentive Plan (the "Existing Plan"), which was adopted by General
Motors Corporation, a Delaware corporation ("General Motors"), to reward
certain corporate officers and key employees of the predecessor of Electronic
Data Systems Holding Corporation (to be renamed "Electronic Data Systems
Corporation" upon the consummation of the Reincorporation (as hereinafter
defined)), a Delaware corporation (the "Company"), and its subsidiaries by
enabling them to acquire shares of Class E Common Stock, par value $.10 per
share ("GM Class E Common Stock"), of General Motors. Upon the Amendment
Effective Date (as hereinafter defined), the Existing Plan shall be amended
and restated in its entirety as set forth herein and shall be assumed by the
Company and neither General Motors nor the committee appointed by General
Motors to administer the Existing Plan (the "Predecessor Committee") shall
have any further rights or responsibilities hereunder.
2. Objectives. This Plan is designed to attract and retain key employees of
the Company and its Subsidiaries (as hereinafter defined), to attract and
retain qualified directors of the Company, to encourage the sense of
proprietorship of such employees and Directors, and to stimulate the active
interest of such persons in the development and financial success of the
Company and its Subsidiaries. These objectives are to be accomplished by
making Awards (as hereinafter defined) under this Plan and thereby providing
Participants (as hereinafter defined) with a proprietary interest in the
growth and performance of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Amendment Effective Date" has the meaning set forth in paragraph 19 hereof.
"Annual Director Award Date" means, for each year beginning on or after the
Amendment Effective Date, the first business day of the month next succeeding
the date upon which the annual meeting of stockholders of the Company is held
in such year.
"Authorized Officer" means the Chairman of the Board or the Chief Executive
Officer of the Company (or any other senior officer of the Company to whom
either of them shall delegate the authority to execute any Award Agreement).
"Award" means an Employee Award or a Director Award.
"Award Agreement" means any Employee Award Agreement or Director Award
Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation and Benefits Committee of the Board or
such other committee of the Board as is designated by the Board to administer
the Plan.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option or Director Restricted
Stock.
D-1
<PAGE>
"Director Award Agreement" means a written agreement between the Company and
a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations
specified in paragraph 9(a) hereof.
"Director Restricted Stock" means Common Stock granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations
specified in paragraph 9(b) hereof.
"Disability" means, with respect to a Nonemployee Director, the inability to
perform the duties of a Director for a continuous period of more than three
months by reason of any medically determinable physical or mental impairment.
"Dividend Equivalents" means, with respect to shares of Restricted Stock
that are to be issued at the end of the Restriction Period, an amount equal to
all dividends and other distributions (or the economic equivalent thereof)
which are payable to stockholders of record during the Restriction Period on a
like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries.
"Employee Award" means the grant of any Option, SAR, Stock Award, Cash Award
or Performance Award, whether granted singly, in combination or in tandem, to
a Participant who is an Employee pursuant to such applicable terms, conditions
and limitations as the Committee may establish in order to fulfill the
objectives of the Plan.
"Employee Award Agreement" means a written agreement between the Company and
a Participant who is an Employee setting forth the terms, conditions and
limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" of a share of Common Stock means, as of a particular
date, (i) if shares of Common Stock are listed on a national securities
exchange, the mean between the highest and lowest sales price per share of
Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported,
(ii) if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported or (iii) if the Common
Stock is not so listed or quoted, the mean between the closing bid and asked
price on that date, or, if there are no quotations available for such date, on
the last preceding date on which such quotations shall be available, as
reported by the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock
Market, by the National Quotation Bureau Incorporated.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Noncompetition Provisions" has the meaning set forth in paragraph 8(c)
hereof.
"Nonemployee Director" has the meaning set forth in paragraph 4(b) hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive Option.
"Option" means a right to purchase a specified number of shares of Common
Stock at a specified price.
"Participant" means an Employee or Director to whom an Award has been made
under this Plan.
D-2
<PAGE>
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee that is subject to the attainment of one or
more Performance Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Reincorporation" means (i) the merger of Electronic Data Systems
Intermediate Corporation, a Delaware corporation and direct wholly owned
subsidiary of the Company, with and into the Company and (ii) the merger of
Electronic Data Systems Corporation, a Texas corporation and indirect wholly
owned subsidiary of the Company, with and into the Company.
"Restricted Stock" means any Common Stock that is restricted or subject to
forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date upon
which an Award of Restricted Stock is made pursuant to this Plan and ending as
of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock, equal to
the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price (in each case, as determined by the Committee).
"Split-Off" means the issuance or delivery of shares of Common Stock upon
conversion of all of the outstanding shares of GM Class E Common Stock as a
result of the merger of GM Mergeco Corporation, a Delaware corporation and
indirect wholly owned subsidiary of the Company, with and into General Motors
in accordance with the terms of the Merger Agreement to be entered into
between General Motors and GM Mergeco Corporation.
"Stock Award" means an award in the form of shares of Common Stock or units
denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than
50% of the combined voting power of the shares of all classes or series of
capital stock of such corporation which have the right to vote generally on
matters submitted to a vote of the stockholders of such corporation and (ii)
in the case of a partnership or other business entity not organized as a
corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
"Transactions" has the meaning set forth in paragraph 19 hereof.
4. Eligibility.
(a) Employees. Key Employees eligible for Employee Awards under this Plan
are those who hold positions of responsibility and whose performance, in
the judgment of the Committee, can have a significant effect on the success
of the Company and its Subsidiaries.
(b) Directors. Directors eligible for Director Awards under this Plan are
those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
5. Common Stock Available for Awards. Subject to the provisions of paragraph
15 hereof, there shall be available for Awards under this Plan granted wholly
or partly in Common Stock (including rights or options which may be exercised
for or settled in Common Stock) an aggregate of 60,000,000 shares of Common
Stock (in addition to any shares that are the subject of Awards outstanding as
of the Amendment Effective Date), of
D-3
<PAGE>
which an aggregate of not more than 400,000 shares shall be available for
Director Awards and the remainder shall be available for Employee Awards. The
number of shares of Common Stock that are the subject of Awards under this
Plan, that are forfeited or terminated, expire unexercised, are settled in
cash in lieu of Common Stock or in a manner such that all or some of the
shares covered by an Award are not issued to a Participant or are exchanged
for Awards that do not involve Common Stock, shall again immediately become
available for Awards hereunder. The Committee may from time to time adopt and
observe such procedures concerning the counting of shares against the Plan
maximum as it may deem appropriate. The Board and the appropriate officers of
the Company shall from time to time take whatever actions are necessary to
file any required documents with governmental authorities, stock exchanges and
transaction reporting systems to ensure that shares of Common Stock are
available for issuance pursuant to Awards.
6. Administration.
(a) This Plan, as it applies to Participants who are Employees but not
with respect to Participants who are Nonemployee Directors, shall be
administered by the Committee. To the extent required in order for Employee
Awards to be exempt from Section 16 of the Exchange Act by virtue of the
provisions of Rule 16b-3, the Committee shall consist of at least two
members of the Board who meet the requirements of the definition of
"disinterested person" set forth in Rule 16b-3(c)(2)(i) promulgated under
the Exchange Act.
(b) Subject to the provisions hereof, insofar as this Plan relates to the
Employee Awards, the Committee shall have full and exclusive power and
authority to administer this Plan and to take all actions which are
specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. Insofar as this Plan relates to
Employee Awards, the Committee shall also have full and exclusive power to
interpret this Plan and to adopt such rules, regulations and guidelines for
carrying out this Plan as it may deem necessary or proper, all of which
powers shall be exercised in the best interests of the Company and in
keeping with the objectives of this Plan. The Committee may, in its
discretion, provide for the extension of the exercisability of an Employee
Award, accelerate the vesting or exercisability of an Employee Award,
eliminate or make less restrictive any restrictions contained in an
Employee Award, waive any restriction or other provision of this Plan or an
Employee Award or otherwise amend or modify an Employee Award in any manner
that is either (i) not adverse to the Participant to whom such Employee
Award was granted or (ii) consented to by such Participant. The Committee
may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Employee Award in the manner and to
the extent the Committee deems necessary or desirable to carry it into
effect. Any decision of the Committee in the interpretation and
administration of this Plan shall lie within its sole and absolute
discretion and shall be final, conclusive and binding on all parties
concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to be
done by him or her, by any member of the Committee or by any officer of the
Company in connection with the performance of any duties under this Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to,
Participants who are subject to Section 16 of the Exchange Act.
8. Employee Awards.
(a) The Committee shall determine the type or types of Employee Awards to
be made under this Plan and shall designate from time to time the Employees
who are to be the recipients of such Awards. Each Employee Award may be
embodied in an Employee Award Agreement, which shall contain such terms,
conditions and limitations as shall be determined by the Committee in its
sole discretion and shall be signed by the Participant to whom the Employee
Award is made and by an Authorized Officer for and on behalf of the
Company. Employee Awards may consist of those listed in this paragraph 8(a)
hereof and may be
D-4
<PAGE>
granted singly, in combination or in tandem. Employee Awards may also be
made in combination or in tandem with, in replacement of, or as
alternatives to, grants or rights under this Plan or any other employee
plan of the Company or any of its Subsidiaries, including the plan of any
acquired entity; provided that no Option may be issued in exchange for the
cancellation of an Option with a lower exercise price. An Employee Award
may provide for the grant or issuance of additional, replacement or
alternative Employee Awards upon the occurrence of specified events,
including the exercise of the original Employee Award granted to a
Participant. All or part of an Employee Award may be subject to conditions
established by the Committee, which may include, but are not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attainment of
specified growth rates and other comparable measurements of performance.
Upon the termination of employment by a Participant who is an Employee, any
unexercised, deferred, unvested or unpaid Employee Awards shall be treated
as set forth in the applicable Employee Award Agreement.
(i) Stock Option. An Employee Award may be in the form of an Option.
An Option awarded pursuant to this Plan may consist of an Incentive
Option or a Nonqualified Option. The price at which shares of Common
Stock may be purchased upon the exercise of an Incentive Option shall
be not less than the Fair Market Value of the Common Stock on the date
of grant. The price at which shares of Common Stock may be purchased
upon the exercise of a Nonqualified Option shall be not less than, but
may exceed, the Fair Market Value of the Common Stock on the date of
grant. Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Options awarded pursuant to this Plan,
including the term of any Options and the date or dates upon which they
become exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Right. An Employee Award may be in the form
of an SAR. The terms, conditions and limitations applicable to any SARs
awarded pursuant to this Plan, including the term of any SARs and the
date or dates upon which they becomes exercisable, shall be determined
by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a Stock
Award. The terms, conditions and limitations applicable to any Stock
Awards granted pursuant to this Plan shall be determined by the
Committee.
(iv) Cash Award. An Employee Award may be in the form of a Cash
Award. The terms, conditions and limitations applicable to any Cash
Awards granted pursuant to this Plan shall be determined by the
Committee.
(v) Performance Award. Without limiting the type or number of
Employee Awards that may be made under the other provisions of this
Plan, an Employee Award may be in the form of a Performance Award. A
Performance Award shall be paid, vested or otherwise deliverable solely
on account of the attainment of one or more pre-established, objective
Performance Goals established by the Committee prior to the earlier to
occur of (x) 90 days after the commencement of the period of service to
which the Performance Goal relates and (y) the elapse of 25% of the
period of service (as scheduled in good faith at the time the goal is
established), and in any event while the outcome is substantially
uncertain. A Performance Goal is objective if a third party having
knowledge of the relevant facts could determine whether the goal is
met. Such a Performance Goal may be based on one or more of business
criteria that apply to the individual, one or more business units of
the Company, or the Company as a whole, and may include one or more of
the following: increased revenue, net income, stock price, market
share, earnings per share, return on equity, return on assets or
decrease in costs. Unless otherwise stated, such a Performance Goal
need not be based upon an increase or positive result under a
particular business criterion and could include, for example,
maintaining the status quo or limiting economic losses (measured, in
each case, by reference to specific business criteria). In interpreting
Plan provisions applicable to Performance Goals and Performance Awards,
it is the intent of the Plan to conform with the standards of Section
162(m) of the Code and Treasury Regulations (S) 1.162-27(e)(2)(i), and
the Committee in establishing such goals and interpreting the Plan
shall be guided by such provisions. Prior to the payment of any
compensation based on the achievement of
D-5
<PAGE>
Performance Goals, the Committee must certify in writing that
applicable Performance Goals and any of the material terms thereof
were, in fact, satisfied. Subject to the foregoing provisions, the
terms, conditions and limitations applicable to any Performance Awards
made pursuant to this Plan shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan, the
following limitations shall apply to any Employee Awards made hereunder:
(i) no Participant may be granted, during any one-year period,
Employee Awards consisting of Options or SARs that are exercisable for
more than 1,500,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year period,
Employee Awards consisting of shares of Common Stock or units
denominated in such shares (other than any Employee Awards consisting
of Options or SARs) covering or relating to more than 300,000 shares of
Common Stock (the limitation set forth in this clause (ii), together
with the limitation set forth in clause (i) above, being hereinafter
collectively referred to as the "Stock Based Awards Limitations"); and
(iii) no Participant may be granted Employee Awards consisting of
cash or in any other form permitted under this Plan (other than
Employee Awards consisting of Options or SARs or otherwise consisting
of shares of Common Stock or units denominated in such shares) in
respect of any one-year period having a value determined on the date of
grant in excess of $5,000,000.
(c) Prior to the Amendment Effective Date, certain awards consisting of
shares of GM Class E Common Stock or units denominated in such shares (the
"Existing Stock Awards") have been made to Employees under the Existing
Plan as in effect from time to time. As of the Amendment Effective Date,
each Existing Stock Award shall be adjusted so that such award shall
consist of or relate to a number of shares of Common Stock equal to the
number of shares of GM Class E Common Stock that are the subject of such
Existing Stock Award immediately prior to such date, without any alteration
or enlargement of the rights of the holders thereof. Notwithstanding
anything to the contrary contained in this Plan, all Existing Stock Awards
that are subject to the restrictions and other provisions relating to
competition by participants and related matters that are set forth in
Section 10 of the Existing Plan (the "Noncompetition Provisions") shall
continue to be subject to the Noncompetition Provisions after the Amendment
Effective Date, as fully and to the same extent as if Section 10 of the
Existing Plan were set forth herein in its entirety. The Noncompetition
Provisions shall apply to all Existing Awards, but shall not apply to any
Awards made after the Amendment Effective Date unless otherwise determined
by the Committee.
9. Director Awards. Each Nonemployee Director of the Company shall be
granted Director Awards in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be made in any year in which a
sufficient number of shares of Common Stock are not available to make such
Awards under this Plan.
(a) Director Options. On the Amendment Effective Date, each Nonemployee
Director shall be automatically awarded a Director Option that provides for
the purchase of 1,500 shares of Common Stock. In addition, on each Annual
Director Award Date, each Nonemployee Director shall automatically be
granted a Director Option that provides for the purchase of 1,500 shares of
Common Stock. In the event that a Nonemployee Director is elected after the
Amendment Effective Date otherwise than by election at an annual meeting of
stockholders of the Company, on the date of his or her election, such
Nonemployee Director shall automatically be granted a Director Option that
provides for the purchase of a number of shares of Common Stock (rounded up
to the nearest whole number) equal to the product of (i) 1,500 and (ii) a
fraction the numerator of which is the number of days between the election
of such Nonemployee Director and the next scheduled Annual Director Award
Date (or, if no such date has been scheduled, the first anniversary of the
immediately preceding Annual Director Award Date) and the denominator of
which is 365. Each Director Option shall have a term of ten years from the
date of grant, notwithstanding any earlier termination of the status of the
holder as a Nonemployee Director. The purchase price of each share
D-6
<PAGE>
of Common Stock subject to a Director Option shall be equal to the Fair
Market Value of the Common Stock on the date of grant. All Director Options
shall vest and become exercisable in increments of one-third of the total
number of shares of Common Stock that are subject thereto (rounded up to
the nearest whole number) on the first and second anniversaries of the date
of grant and of all remaining shares of Common Stock that are subject
thereto on the third anniversary of the date of grant. All unvested
Director Options shall be forfeited if the Nonemployee Director resigns as
a Director without the consent of a majority of the other Directors.
In addition to the Director Options automatically awarded pursuant to the
immediately preceding paragraph, a Nonemployee Director may make an annual
election to receive, in lieu of all or any portion of the Director's fees
he would otherwise be entitled to receive in cash during the next year
(including both annual retainer and meeting fees), Director Options that
provide for the purchase of a number of shares of Common Stock (rounded up
to the nearest whole number) equal to the product of (x) three times (y) a
fraction the numerator of which is equal to the dollar amount of fees the
Nonemployee Director elects to forego in the next year in exchange for
Director Options and the denominator of which is equal to the Fair Market
Value of the Common Stock on the date of the election. Each annual election
made by a Nonemployee Director pursuant to this paragraph 9(a)(i) shall
take the form of a written document signed by such Nonemployee Director and
filed with the Secretary of the Company, (ii) shall designate the dollar
amount of the fees the Nonemployee Director elects to forego in the next
year in exchange for Director Options and (iii) to extent provided by the
Committee in order to ensure that the Award of the Director Options is
exempt from Section 16 by virtue of Rule 16b-3, shall be irrevocable and
shall be made at least six months prior to the date as of which such Award
of Director Options is to be effective. An Award of Director Options at the
election of a Nonemployee Director shall be effective on the next Annual
Director Award Date.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations set
forth above and shall be signed by the Participant to whom the Director
Options are granted and by an Authorized Officer for and on behalf of the
Company.
(b) Director Restricted Stock. On the Amendment Effective Date, each
Nonemployee Director shall automatically be awarded 500 shares of Director
Restricted Stock. In addition, on each Annual Director Award Date, each
Nonemployee Director shall automatically be granted 500 shares of Director
Restricted Stock. In the event that a Nonemployee Director is elected after
the Amendment Effective Date otherwise than by election at an annual
meeting of stockholders of the Company, on the date of his or her election,
such Nonemployee Director shall automatically be granted a number of shares
of Director Restricted Stock (rounded up to the nearest whole number) equal
to the product of (i) 500 and (ii) a fraction the numerator of which is the
number of days between the election of such Nonemployee Director and the
next scheduled Annual Director Award Date (or, if no such date has been
scheduled, the first anniversary of the immediately preceding Annual
Director Award Date) and the denominator of which is 365. Shares of
Director Restricted Stock awarded to a Nonemployee Director (i) shall vest
in increments of one-third of the total number of shares of Director
Restricted Stock (rounded up to the nearest whole number) that are the
subject of such Award on the first and second anniversaries of the date of
grant and all remaining shares of Director Restricted Stock that are the
subject of such Award on the third anniversary of the date of grant and
(ii) shall fully vest (to the extent not previously vested pursuant to
clause (i) above) upon a failure to reelect the Nonemployee Director as
Director, the death of the Director or the resignation of the Director by
reason of Disability or at the request of a majority of the other
Directors. All unvested shares of Director Restricted Stock granted to a
Nonemployee Director shall be forfeited if the Nonemployee Director resigns
as a Director without the consent of a majority of the other Directors.
In addition to the Director Restricted Stock automatically awarded
pursuant to the immediately preceding paragraph, a Nonemployee Director may
make an annual election to receive, in lieu of all or any portion of the
Director's fees he would otherwise be entitled to receive in cash during
the next year (including both annual retainer and meeting fees), a number
of shares of Director Restricted Stock (rounded up to the nearest whole
number) having a Fair Market Value equal to 110% of a fraction the
numerator of
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<PAGE>
which is equal to the dollar amount of fees the Nonemployee Director elects
to forego in the next year in exchange for Director Restricted Stock and
the denominator of which is equal to the Fair Market Value of the Common
Stock on the date of the election. Each annual election made by a
Nonemployee Director pursuant to this paragraph 9(b)(i) shall take the form
of a written document signed by such Nonemployee Director and filed with
the Secretary of the Company, (ii) shall designate the dollar amount of the
fees the Nonemployee Director elects to forego in the next year in exchange
for Director Restricted Stock and (iii) to the extent provided by the
Committee in order to ensure that the Award of the Director Restricted
Stock is exempt from Section 16 by virtue of Rule 16b-3, shall be
irrevocable and shall be made at least six months prior to the date as of
which such Award of Director Restricted Stock is to be effective. An Award
of Director Restricted Stock at the election of a Nonemployee Director
shall be effective on the next Annual Director Award Date.
Any Award of Director Restricted Stock shall be embodied in a Director
Award Agreement, which shall contain the terms, conditions and limitations
set forth above and shall be signed by the Participant to whom the Director
Restricted Stock is granted and by an Authorized Officer for and on behalf
of the Company.
10. Payment of Awards.
(a) General. Payment of Employee Awards may be made in the form of cash
or Common Stock, or a combination thereof, and may include such
restrictions as the Committee shall determine, including, in the case of
Common Stock, restrictions on transfer and forfeiture provisions. If
payment of an Employee Award is made in the form of Restricted Stock, the
Employee Award Agreement relating to such shares shall specify whether they
are to be issued at the beginning or end of the Restriction Period. In the
event that shares of Restricted Stock are to be issued at the beginning of
the Restriction Period, the certificates evidencing such shares (to the
extent that such shares are so evidenced) shall contain appropriate legends
and restrictions that describe the terms and conditions of the restrictions
applicable thereto. In the event that shares of Restricted Stock are to be
issued at the end of the Restricted Period, the right to receive such
shares shall be evidenced by book entry registration or in such other
manner as the Committee may determine.
(b) Deferral. With the approval of the Committee, payments in respect of
Employee Awards may be deferred, either in the form of installments or a
future lump sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Employee Awards in
accordance with procedures established by the Committee. Any deferred
payment of an Employee Award, whether elected by the Participant or
specified by the Employee Award Agreement or by the Committee, may be
forfeited if and to the extent that the Employee Award Agreement so
provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award consisting of shares
of Common Stock or units denominated in shares of Common Stock, subject to
such terms, conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of
interest on deferred cash payments and Dividend Equivalents for Employee
Awards consisting of shares of Common Stock or units denominated in shares
of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee may be offered an election to substitute an
Employee Award for another Employee Award or Employee Awards of the same or
different type.
11. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under an Option shall be paid in full at the time of exercise in
cash or, if elected by the optionee, the optionee may purchase such shares by
means of tendering Common Stock or surrendering another Award, including
Restricted Stock or Director Restricted Stock, valued at Fair Market Value on
the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for Participants who are Employees to tender
Common Stock or other Employee Awards; provided that any Common Stock that is
or was the subject of an
D-8
<PAGE>
Employee Award may be so tendered only if it has been held by the Participant
for six months. The Committee may provide for procedures to permit the
exercise or purchase of such Awards by use of the proceeds to be received from
the sale of Common Stock issuable pursuant to an Employee Award. Unless
otherwise provided in the applicable Award Agreement, in the event shares of
Restricted Stock are tendered as consideration for the exercise of an Option,
a number of the shares issued upon the exercise of the Option, equal to the
number of shares of Restricted Stock or Director Restricted Stock used as
consideration therefor, shall be subject to the same restrictions as the
Restricted Stock or Director Restricted Stock so submitted as well as any
additional restrictions that may be imposed by the Committee.
12. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Employee Award payment and withhold, at the time of delivery or
vesting of cash or shares of Common Stock under this Plan, an appropriate
amount of cash or number of shares of Common Stock or a combination thereof
for payment of taxes required by law or to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. The Committee may also permit withholding to be
satisfied by the transfer to the Company of shares of Common Stock theretofore
owned by the holder of the Employee Award with respect to which withholding is
required. If shares of Common Stock are used to satisfy tax withholding, such
shares shall be valued based on the Fair Market Value when the tax withholding
is required to be made. The Committee may provide for loans, on either a short
term or demand basis, from the Company to a Participant who is an Employee to
permit the payment of taxes required by law.
13. Amendment, Modification, Suspension or Termination. The Board may amend,
modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to
approval by the stockholders of the Company to the extent such approval is
then required pursuant to Rule 16b-3 in order to preserve the applicability of
any exemption provided by such rule to any Award then outstanding (unless the
holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.
14. Assignability. Unless otherwise determined by the Committee and provided
in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c) under
the Exchange Act shall be assignable or otherwise transferable except by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. The Committee may prescribe and
include in applicable Award Agreements other restrictions on transfer. Any
attempted assignment of an Award or any other benefit under this Plan in
violation of this paragraph 14 shall be null and void.
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes
in the capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock (whether or not such issue is prior to, on a
parity with or junior to the Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect
of such Awards, (iv) the appropriate Fair Market Value and other price
determinations for such Awards, (v) the number of shares of Common Stock
covered by Director Options automatically granted pursuant to paragraph
9(a) hereof, (vi) the number of shares of Director Restricted
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Stock automatically granted pursuant to paragraph 9(b) hereof and (vii) the
Stock Based Awards Limitations shall each be proportionately adjusted by
the Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or entity,
the adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or
property (other than normal cash dividends or dividends payable in Common
Stock), the Board shall make appropriate adjustments to (i) the number of
shares of Common Stock covered by Awards in the form of Common Stock or
units denominated in Common Stock, (ii) the exercise or other price in
respect of such Awards, (iii) the appropriate Fair Market Value and other
price determinations for such Awards, (iv) the number of shares of Common
Stock covered by Director Options automatically granted pursuant to
paragraph 9(a) hereof, (v) the number of shares of Director Restricted
Stock automatically granted pursuant to paragraph 9(b) hereof and (vi) the
Stock Based Awards Limitations to give effect to such transaction shall
each be proportionately adjusted by the Board to reflect such transaction.;
provided that such adjustments shall only be such as are necessary to
maintain the proportionate interest of the holders of the Awards and
preserve, without exceeding, the value of such Awards. In the event of a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board shall be authorized to
issue or assume Awards by means of substitution of new Awards, as
appropriate, for previously issued Awards or an assumption of previously
issued Awards as part of such adjustment.
16. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with applicable
federal and state securities laws. It is the intent of the Company that this
Plan comply with Rule 16b-3 with respect to persons subject to Section 16 of
the Exchange Act unless otherwise provided herein or in an Award Agreement,
that any ambiguities or inconsistencies in the construction of this Plan be
interpreted to give effect to such intention, and that if any provision of
this Plan is found not to be in compliance with Rule 16b-3, such provision
shall be null and void to the extent required to permit this Plan to comply
with Rule 16b-3. Certificates evidencing shares of Common Stock certificates
delivered under this Plan (to the extent that such shares are so evidenced)
may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities
exchange or transaction reporting system upon which the Common Stock is then
listed or to which it is admitted for quotation and any applicable federal or
state securities law. The Committee may cause a legend or legends to be placed
upon such certificates (if any) to make appropriate reference to such
restrictions.
17. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock
or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash,
Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be
a trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with
respect to an Award of cash, Common Stock or rights thereto under this Plan
shall be based solely upon any contractual obligations that may be created by
this Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on
any property of the Company. Neither the Company nor the Board nor the
Committee shall be required to give any security or bond for the performance
of any obligation that may be created by this Plan.
18. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions
of the Code or the securities laws of the United States, shall be governed by
and construed in accordance with the laws of the State of Delaware.
19. Effectiveness. The Existing Plan shall be amended and restated in its
entirety as set forth herein as of the earliest date (the "Amendment Effective
Date") upon which both the Reincorporation and the Split-Off (collectively,
the "Transactions") have been consummated; provided, however, that (i) the
amendment and
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<PAGE>
restatement of the Existing Plan and the assumption of the Existing Plan by
the Company as contemplated hereby are expressly conditioned upon the approval
of this Plan by the Board of Directors and the Executive Compensation
Committee of General Motors and the ratification and approval of this Plan by
the Board (the "Corporate Approvals Condition") and (ii) insofar as this Plan
relates to Employees and Employee Awards, the amendment and restatement of the
Existing Plan and the assumption of the Existing Plan by the Company as
contemplated hereby are expressly conditioned upon the ratification and
approval of this Plan by (a) a majority of the voting power of the holders of
common stock of General Motors of all classes, voting together as a single
class in accordance with their respective voting rights and (b) a majority of
the holders of Class E Common Stock, voting together as a separate class (the
"Stockholder Approval Condition"). If the Transactions are not consummated
prior to December 31, 1996 or if at the date upon which the Transactions are
consummated the Corporate Approvals Condition shall not have been satisfied,
the Existing Plan shall not be amended and restated as set forth herein and
the awards granted under the Existing Plan as then in effect shall not be
affected and shall continue in full force and effect in accordance with the
Existing Plan as then in effect and any award agreements hereunder. If the
Transactions are consummated prior to December 31, 1996 but at the date upon
which the Transactions are consummated the Stockholder Approval Condition
shall not have been satisfied, (a) the Existing Plan shall not be amended and
restated as set forth herein and all awards granted under the Existing Plan as
then in effect shall not be affected and shall continue in full force and
effect in accordance with the Existing Plan as then in effect (or as the same
may be amended from time to time) and any award agreements hereunder and (b) a
new plan (the "Separate Director Stock Incentive Plan") shall be deemed to
have been adopted by the Company and approved by General Motors as the sole
stockholder of the Company, which plan shall be referred to as the "1996
Nonemployee Director Stock Incentive Plan" and shall include all of the terms
and conditions set forth herein that relate to Directors and Director Awards
but not the terms and conditions that relate to Employees and Employee Awards
(it being understood that the Board shall be authorized to cause the Separate
Director Stock Incentive Plan to be embodied in a separate document by
eliminating all references to Employees and Employee Awards contained herein
and making other appropriate changes to the text hereof, none of which shall
result in any alteration or enlargement of the rights granted to Directors
hereunder).
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF EDS.
Delaware General Corporation Law
Section 145(a) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Section 145(a) and (b), or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL provides that any indemnification under Section
145(a) and (b) (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 145(a) and (b). Such determination shall be made (1) a majority
vote of the directors who were not parties to such action, suit or proceeding,
even though less than a quorum, or (2) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion,
or (3) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
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Section 145(f) of the DGCL provides that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his capacity as such, whether or not the
corporation would have the power to indemnify him against such liability under
Section 145.
Restated Certificate of Incorporation
Article Seventh of the Restated Certificate of Incorporation of EDS, a copy
of which is filed as Exhibit 3(a) to this Registration Statement, provides
that no director of EDS shall be personally liable to EDS or any of its
stockholders for monetary damages for breach of fiduciary duty as a director
involving any act or omission of any such director; provided, however, that
such Article Seventh does not eliminate or limit the liability of a director
(1) for any breach of such director's duty of loyalty to EDS or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the DGCL (which relates to certain unlawful dividend payments or stock
purchases or redemptions), as the same exists or may hereafter be amended,
supplemented or replaced, or (4) for a transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of EDS, in addition to the limitation on personal
liability described above, shall be limited to the fullest extent permitted by
the DGCL, as so amended. Furthermore, any repeal or modification of Article
Seventh of the Restated Certificate of Incorporation by the stockholders of
EDS shall be prospective only, and shall not adversely affect any limitation
on the personal liability of a director of EDS existing at the time of such
repeal or modification.
Bylaws
Article VI of the Amended and Restated Bylaws of EDS, a copy of which is
filed as Exhibit 3(b) to this Registration Statement, provides that each
person who at any time shall serve or shall have served as a director,
officer, employee or agent of EDS, or any person who, while a director,
officer, employee or agent of EDS, is or was serving at the written request of
EDS (in accordance with written procedures adopted from time to time by the
Board of Directors of EDS) as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise, shall be entitled to (a)
indemnification and (b) the advancement of expenses incurred by such person
from EDS as, and to the fullest extent, permitted by Section 145 of the DGCL
or any successor statutory provision, as from time to time amended.
Indemnification Agreements
EDS has entered into Indemnification Agreements (the "Indemnification
Agreements") with its directors, nominees for director and certain of its
officers (the "Indemnitees"), a form of which is attached as Exhibit 10(f) to
this Registration Statement. Under the terms of the Indemnification
Agreements, EDS has generally agreed to indemnify, and advance expenses to,
each Indemnitee to the fullest extent permitted by applicable law on the date
of such agreements and to such greater extent as applicable law may thereafter
permit. In addition, the Indemnification Agreements contain specific
provisions pursuant to which EDS has agreed to indemnify each Indemnitee (i)
if such person is, by reason of his or her status as a director, nominee for
director, officer, agent or fiduciary of EDS or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
with which such person was serving at the request of EDS (any such status
being hereinafter referred to as a "Corporate Status"), made or threatened to
be made a party to any threatened, pending or completed
II-2
<PAGE>
action, suit, arbitration, alternative dispute resolution mechanism,
investigation or other proceeding (each, a "Proceeding"), other than a
Proceeding by or in the right of EDS, (ii) if such person is, by reason of his
or her Corporate Status, made or threatened to be made a party to any
Proceeding brought by or in the right of EDS to procure a judgment in its
favor, except that no indemnification shall be made in respect of any claim,
issue or matter in such Proceeding as to which such Indemnitee shall have been
adjudged to be liable to EDS if applicable law prohibits such indemnification
(unless and only to the extent that a court shall otherwise determine), (iii)
against expenses actually and reasonably incurred by such person or on his or
her behalf in connection with any Proceeding to which such Indemnitee was or
is a party by reason of his or her Corporate Status and in which such
Indemnitee is successful, on the merits or otherwise, (iv) against expenses
actually and reasonably incurred by such person or on his or her behalf in
connection with a Proceeding to the extent that such Indemnitee is, by reason
of his or her Corporate Status, a witness or otherwise participates in any
Proceeding at a time when such person is not a party in the Proceeding and (v)
against expenses actually and reasonably incurred by such person in any
judicial adjudication of or any award in arbitration to enforce his or her
rights under the Indemnification Agreements.
Furthermore, under the terms of the Indemnification Agreements, EDS has
agreed to pay all reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding, whether brought by or in the
right of EDS or otherwise, in advance of any determination with respect to
entitlement to indemnification and within 15 days after the receipt by EDS of
a written request from such Indemnitee for such payment. In the
Indemnification Agreements, each Indemnitee has agreed that he or she will
reimburse and repay EDS for any expenses so advanced to the extent that it
shall ultimately be determined that he or she is not entitled to be
indemnified by EDS against such expenses.
The Indemnification Agreements also include provisions that specify the
procedures and presumptions which are to be employed to determine whether an
Indemnitee is entitled to indemnification thereunder. In some cases, the
nature of the procedures specified in the Indemnification Agreements varies
depending on whether there has occurred a "Change in Control" (as defined in
the Indemnification Agreements) of EDS.
Separation Agreement
In the Separation Agreement, GM has agreed to indemnify the members of the
EDS Team, the officers and employees of EDS providing assistance to the EDS
Team, and the directors of EDS who granted any approval or authorization for
EDS in connection with the Split-Off, in each case, in their capacity as such,
against losses arising from the Split-Off in accordance with the GM Bylaws, to
the same extent as if such person were a director or officer of GM; provided
that such indemnification does not apply to losses relating to (i) the EDS
Certificate of Incorporation, the EDS Bylaws or the EDS Rights Agreement, (ii)
EDS employee and director compensation and indemnification arrangements or
(iii) EDS plans, proposals, intentions or policies applicable after the
Effective Time, including EDS' dividend policy. In addition, the Separation
Agreement requires GM to indemnify, in accordance with the GM Bylaws, to the
same extent as if such person were a director or officer of GM, each EDS non-
employee board nominee against losses arising from the expression of any views
prior to the Effective Time at the request of GM or the GM Board with respect
to EDS' proposed charter, bylaws, stockholders rights plan or employee benefit
plans. EDS will reimburse GM for all amounts paid to or on behalf of such
persons pursuant to such indemnification.
Insurance
EDS has obtained and intends to maintain in effect directors' and officers'
liability insurance policies providing customary coverage for its directors
and officers against losses resulting from wrongful acts committed by them in
their capacities as directors and officers of EDS.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
The following documents are exhibits to the Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S> <C>
2(a) Merger Agreement dated as of April , 1996 between Gen-
eral Motors and Mergeco (included as Appendix A).**
2(b) Form of Separation Agreement between General Motors and
EDS.*
2(c) Amended and Restated Agreement for the Allocation of
United States Federal, State and Local Income Taxes dated
as of April 2, 1996 between General Motors and EDS.*
3(a) Restated Certificate of Incorporation of EDS.*
3(b) Amended and Restated Bylaws of EDS.*
4(a) Restated Certificate of Incorporation of EDS (filed as Ex-
hibit 3(a) above).*
4(b) Amended and Restated Bylaws of EDS (filed as Exhibit 3(b)
above).*
4(c) Rights Agreement, dated as of March 12, 1996, by and be-
tween EDS and The Bank of New York, as Rights Agent.*
5 Opinion of Baker & Botts, L.L.P.*
8 Opinion of Kirkland & Ellis.*
10(a) Form of Master Services Agreement between General Motors
and EDS (portions of which are subject to a request for
confidential treatment filed with the Commission).*
<CAPTION>
<C> <S> <C>
10(b) 1996 Incentive Plan of EDS (included as Appendix D).**
10(c) 1996 Electronic Data Systems Corporation Stock Purchase
Plan.**
10(d) EDS Supplemental Executive Retirement Plan.*
10(e) Electronic Data Systems Corporation Deferred Compensation
Plan for Non-Employee Directors.*
10(f) Form of Indemnification Agreement entered into by EDS and
each of its executive officers and director nominees.*
10(g) Indenture dated as of May 15, 1995 between EDS, a Texas
corporation, and Texas Commerce Bank National Association,
as trustee.*
10(h) Revolving Credit and Term Loan Agreement dated as of Octo-
ber 4, 1995 among EDS, Citibank, N.A., as Administrative
Agent, and the other financial institutions identified
therein as Arrangers, Managers and Lenders.*
10(i) Multi-Currency Revolving Credit Agreement dated as of Oc-
tober 4, 1995 among EDS, Citibank, N.A., as Administrative
Agent, and the other financial institutions identified
therein as Arrangers, Managers and Lenders.*
10(j) Registration Rights Agreement dated March 12, 1995 between
General Motors and United States Trust Company of New
York, as trustee of the General Motors Hourly-Rate Pension
Plan.*
10(k) Form of Succession Agreement among General Motors, United
States Trust Company of New York and EDS.*
10(l) 1984 EDS Stock Incentive Plan.*
11 Statement of Computation of Earnings Per General Motors
Class E Common Share.*
21 Subsidiaries of EDS.*
23(a) Consent of Deloitte & Touche LLP, independent auditors.**
23(b) Consent of KPMG Peat Marwick LLP, independent auditors.**
23(c) Consent of Baker & Botts, L.L.P. (included in Exhibit 5
above).*
23(d) Consent of Kirkland & Ellis (included in Exhibit 8
above).*
23(e) Consent of Merrill Lynch.*
23(f) Consent of Lehman Brothers.*
23(g) Consent of Morgan Stanley.*
24 Powers of Attorney.**
99 Consents of Persons About to Become Directors.*
</TABLE>
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*Filed previously.
**Filed herewith.
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<PAGE>
FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report; Schedule II--Allowances
FAIRNESS OPINIONS
Incorporated as Appendix B to the Solicitation Statement/Prospectus which
forms a part of this Registration Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
2. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
3. That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is assessed by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
5. To respond to requests for information that is incorporated by
reference into this Solicitation Statement/Prospectus pursuant to Items 4,
10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this Registration
Statement through the date of responding to the request.
6. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PLANO, STATE OF TEXAS, ON APRIL 18, 1996.
Electronic Data Systems Holding
Corporation
/s/ Lester M. Alberthal, Jr.
By: _________________________________
Lester M. Alberthal, Jr.
Chairman of the Board, President
andChief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON
APRIL 18, 1996 IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ Lester M. Alberthal, Jr. Chairman of the Board,
____________________________________ President, Chief Executive
Lester M. Alberthal, Jr. Officer
and Director (Principal
Executive Officer)
* Senior Vice President and
____________________________________ Director
John R. Castle, Jr.
* Senior Vice President and
____________________________________ Director
Paul J. Chiapparone
* Senior Vice President and
____________________________________ Director
Gary J. Fernandes
/s/ Joseph M. Grant Senior Vice President, Chief
____________________________________ Financial Officer and
Joseph M. Grant Director (Principal
Financial Officer)
/s/ H. Paulett Eberhart Vice President and
____________________________________ Controller (Principal
H. Paulett Eberhart Accounting Officer)
</TABLE>
/s/ Joseph M. Grant
- -------------------------------
*By: Joseph M. Grant,
Attorney-in-Fact pursuant
to Powers of Attorney
filed as an exhibit
hereto
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Electronic Data Systems Corporation:
Under date of January 24, 1996, we reported on the consolidated balance
sheets of Electronic Data Systems Corporation and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of income and cash
flows for each of the years in the three-year period ended December 31, 1995,
which are included and incorporated by reference in the registration
statement. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule included in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
January 24, 1996
<PAGE>
SCHEDULE II
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II--ALLOWANCES
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS TO OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1995
Allowances Deducted
from Assets
Lease contracts
receivable.......... $288.7 $ 0.3 $31.3 $ 44.2(a) $276.1
Accounts and notes
receivable.......... 57.9 124.6 -- 83.0(b) 99.5
Inventories.......... 13.7 19.1 -- 13.3(c) 19.5
Valuation allowance
for deferred taxes.. 111.1 20.8 -- 5.6 126.3
------ ------ ----- ------ ------
Total Allowances
Deducted from
Assets............ $471.4 $164.8 $31.3 $146.1 $521.4
====== ====== ===== ====== ======
FOR THE YEAR ENDED
DECEMBER 31, 1994
Allowances Deducted
from Assets
Lease contracts
receivable.......... $301.8 $ -- $21.4 $ 34.5(a) $288.7
Accounts and notes
receivable.......... 53.0 50.6 -- 45.7(b) 57.9
Inventories.......... 15.0 28.2 -- 29.5(c) 13.7
Valuation allowance
for deferred taxes.. 92.3 18.8 -- -- 111.1
------ ------ ----- ------ ------
Total Allowances
Deducted from
Assets............ $462.1 $ 97.6 $21.4 $109.7 $471.4
====== ====== ===== ====== ======
FOR THE YEAR ENDED
DECEMBER 31, 1993
Allowances Deducted
from Assets
Lease contracts
receivable.......... $331.6 $ -- $15.1 $ 44.9(a) $301.8
Accounts and notes
receivable.......... 51.9 74.7 -- 73.6(b) 53.0
Inventories.......... 9.7 20.0 -- 14.7(c) 15.0
Valuation allowance
for deferred taxes.. 48.6 50.2 -- 6.5 92.3
------ ------ ----- ------ ------
Total Allowances
Deducted from
Assets............ $441.8 $144.9 $15.1 $139.7 $462.1
====== ====== ===== ====== ======
</TABLE>
- --------
(a) Recognition of lease income
(b) Accounts written off
(c) Obsolete parts disposed of, etc.
<PAGE>
Detach Consent Card Here
- -------------------------------------------------------------------------------
C O N S E N T
CONSENT TO ACTION OF STOCKHOLDERS WITHOUT A MEETING
REVOCABLE CONSENT SOLICITED ON BEHALF OF
GENERAL MOTORS CORPORATION
The undersigned, a common stockholder of General Motors Corporation
("General Motors"), acting with respect to all of the shares of Common Stock,
par value $1 2/3 per share ("$1 2/3 Common Stock"), Class H Common Stock, par
value $.10 per share ("Class H Common Stock"), and/or Class E Common Stock,
par value $.10 per share ("Class E Common Stock" and, together with the Class
H Common Stock and $1 2/3 Common Stock, the "Common Stock"), as applicable,
held by the undersigned on April 10, 1996 (the "Record Date"), hereby
consents, withholds consent or abstains as specified on the reverse side with
respect to the taking of corporate actions without a meeting pursuant to
Section 228 of the Delaware General Corporation Law. All capitalized terms
used but not defined herein shall have the meanings ascribed to such terms in
the Solicitation Statement/Prospectus furnished herewith to all stockholders
of General Motors who hold shares of Common Stock.
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED ON THE REVERSE SIDE OF THIS CARD.
Stockholders wishing to approve any or all of the actions set forth herein
should mark the appropriate "Consent" box on the reverse side of this consent
card. Those opposing any such action should register their position by marking
the appropriate "Withhold Consent" or "Abstain" box on the reverse side of
this consent card or by not returning this consent card. Unless you otherwise
indicate on this consent card, this consent card will be voted as set forth on
the reverse side with respect to all shares of all classes of Common Stock
held by the undersigned on the Record Date, and if no choice is indicated but
this consent card is otherwise completed, you will be deemed to have consented
to each of the actions set forth on the reverse side of this consent card. By
executing this card the undersigned hereby revokes any and all prior consents
and hereby affirms that, as of the Record Date, the undersigned had the power
to deliver a consent for the number of shares represented by this consent.
SIGNED BUT UNMARKED CARDS WILL BE DEEMED TO GIVE CONSENT TO EACH OF THE
ACTIONS SET FORTH ON THE REVERSE SIDE OF THIS CARD.
Consummation of the Transactions is conditioned upon receiving the consent
of the holders of (i) a majority of the voting power of all outstanding shares
of all three classes of General Motors Common Stock, voting together as a
single class based on their respective voting rights, (ii) a majority of the
outstanding shares of $1 2/3 Common Stock, voting as a separate class, and
(iii) a majority of the outstanding shares of Class E Common Stock, voting as
a separate class. Approval of the Amended EDS Incentive Plan will require the
consent of the holders of (i) a majority of the voting power of all
outstanding shares of all three classes of General Motors Common Stock, voting
together as a single class based on their respective voting rights, and (ii) a
majority of the outstanding shares of Class E Common Stock, voting as a
separate class. Unless previously revoked, this consent will be effective when
and if delivered along with consents representing the percentages of shares
indicated in the two immediately preceding sentences to General Motors.
PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE>
Detach Consent Card Here
- -------------------------------------------------------------------------------
[x] PLEASE MARK VOTES AS IN THIS EXAMPLE.
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED BELOW.
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF GENERAL MOTORS CORPORATION RECOMMENDS STOCKHOLDERS
CONSENT TO PROPOSALS 1 AND 2 BELOW.
- -------------------------------------------------------------------------------
1. APPROVAL OF THE SPLIT-OFF AND RELATED TRANSACTIONS, INCLUDING ADOPTION OF
THE MERGER AGREEMENT
The approval of the Split-Off and related transactions, including the
consummation of the Merger, the making of the Special Inter-Company Payment,
the execution and delivery of the Master Services Agreement (and certain
related agreements) and the Separation Agreement and the consummation of the
other transactions and events contemplated by the Merger Agreement, including
the adoption of the Merger Agreement.
[_] Consent [_]Withhold Consent [_] Abstain
2. APPROVAL OF THE AMENDED EDS INCENTIVE PLAN
The approval of the 1996 Incentive Plan of EDS, which amends and restates the
existing 1984 EDS Stock Incentive Plan.
[_] Consent [_]Withhold Consent [_] Abstain
When shares are held by joint tenants, both
must sign. When signing as attorney-in-fact,
executor, administrator, trustee, guardian,
corporate officer or partner, please give full
title as such. If a corporation, please sign in
corporate name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Signature ____________________ Signature, if held jointly _____________________
Title ________________________ Dated: __________
IN ORDER FOR THIS CONSENT CARD TO BE VALID, IT MUST BE DATED. PLEASE DATE AND
SIGN THIS CARD EXACTLY AS YOUR NAME APPEARS HEREON, AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE.
<PAGE>
CONSENT TO ACTION OF STOCKHOLDERS WITHOUT A MEETING
REVOCABLE CONSENT SOLICITED ON BEHALF OF
GENERAL MOTORS CORPORATION COMMON
The undersigned, a common stockholder of General Motors Corporation ("General
Motors"), acting with respect to all of the shares of Common Stock, par value
$1 2/3 per share ("$1 2/3 Common Stock") held by the undersigned on April 10,
1996 (the "Record Date"), hereby consents, withholds consent or abstains as
specified on the reverse side with respect to the taking of corporate actions
without a meeting pursuant to Section 228 of the Delaware General Corporation
Law. All capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Solicitation Statement/Prospectus furnished
herewith to all stockholders of General Motors who hold shares of General
Motors common stock.
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED ON THE REVERSE SIDE OF THIS CARD.
Stockholders wishing to approve any or all of the actions set forth herein
should mark the appropriate "Consent" box on the reverse side of this consent
card. Those opposing any such action should register their position by marking
the appropriate "Withhold Consent" or "Abstain" box on the reverse side of this
consent card or by not returning this consent card. Unless you otherwise
indicate on this consent card, this consent card will be voted as set forth on
the reverse side with respect to all shares of $1 2/3 Common Stock held by the
undersigned on the Record Date, and if no choice is indicated but this consent
card is otherwise completed, you will be deemed to have consented to each of
the actions set forth on the reverse side of this consent card. By executing
this card the undersigned hereby revokes any and all prior consents and hereby
affirms that, as of the Record Date, the undersigned had the power to deliver a
consent for the number of shares represented by this consent.
SIGNED BUT UNMARKED CARDS WILL BE DEEMED TO GIVE CONSENT TO EACH OF THE ACTIONS
SET FORTH ON THE REVERSE SIDE OF THIS CARD.
Consummation of the Transactions is conditioned upon receiving the consent of
the holders of (i) a majority of the voting power of all outstanding shares of
all three classes of General Motors common stock, voting together as a single
class based on their respective voting rights, (ii) a majority of the
outstanding shares of $1 2/3 Common Stock, voting as a separate class, and
(iii) a majority of the outstanding shares of General Motors Class E Common
Stock, voting as a separate class. Approval of the Amended EDS Incentive Plan
will require the consent of the holders of (i) a majority of the voting power
of all outstanding shares of all three classes of General Motors common stock,
voting together as a single class based on their respective voting rights, and
(ii) a majority of the outstanding shares of General Motors Class E Common
Stock, voting as a separate class. Unless previously revoked, this consent will
be effective when and if delivered along with consents representing the
percentages of shares indicated in the two immediately preceding sentences to
General Motors.
PLEASE SIGN AND DATE ON REVERSE SIDE
- --------------------------------------------------------------------------------
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE. COMMON
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED BELOW.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF GENERAL MOTORS CORPORATION RECOMMENDS STOCKHOLDERS
CONSENT TO PROPOSALS 1 AND 2 BELOW.
- --------------------------------------------------------------------------------
1. APPROVAL OF THE SPLIT-OFF AND RELATED TRANSACTIONS, INCLUDING ADOPTION OF
THE MERGER AGREEMENT
The approval of the Split-Off and related transactions, including the
consummation of the Merger, the making of the Special Inter-Company Payment,
the execution and delivery of the Master Services Agreement (and certain
related agreements) and the Separation Agreement and the consummation of the
other transactions and events contemplated by the Merger Agreement, including
the adoption of the Merger Agreement.
[_] CONSENT [_] WITHHOLD CONSENT [_]ABSTAIN
2. APPROVAL OF THE AMENDED EDS INCENTIVE PLAN
The approval of the 1996 Incentive Plan of EDS, which amends and restates the
existing 1984 EDS Stock Incentive Plan.
[_] CONSENT [_] WITHHOLD CONSENT [_]ABSTAIN
When shares are held by joint tenants, both
must sign. When signing as attorney-in-fact,
executor, administrator, trustee, guardian,
corporate officer or partner, please give
full title as such. If a corporation, please
sign in corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
Signature __________________ Dated: __________________________
Signature __________________ Dated: __________________________
<PAGE>
CONSENT TO ACTION OF STOCKHOLDERS WITHOUT A MEETING
REVOCABLE CONSENT SOLICITED ON BEHALF OF
GENERAL MOTORS CORPORATION CLASS E
The undersigned, a common stockholder of General Motors Corporation ("General
Motors"), acting with respect to all of the shares of Class E Common Stock, par
value $.10 per share ("Class E Common Stock") held by the undersigned on April
10, 1996 (the "Record Date"), hereby consents, withholds consent or abstains as
specified on the reverse side with respect to the taking of corporate actions
without a meeting pursuant to Section 228 of the Delaware General Corporation
Law. All capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Solicitation Statement/Prospectus furnished
herewith to all stockholders of General Motors who hold shares of General
Motors common stock.
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED ON THE REVERSE SIDE OF THIS CARD.
Stockholders wishing to approve any or all of the actions set forth herein
should mark the appropriate "Consent" box on the reverse side of this consent
card. Those opposing any such action should register their position by marking
the appropriate "Withhold Consent" or "Abstain" box on the reverse side of this
consent card or by not returning this consent card. Unless you otherwise
indicate on this consent card, this consent card will be voted as set forth on
the reverse side with respect to all shares of Class E Common Stock held by the
undersigned on the Record Date, and if no choice is indicated but this consent
card is otherwise completed, you will be deemed to have consented to each of
the actions set forth on the reverse side of this consent card. By executing
this card the undersigned hereby revokes any and all prior consents and hereby
affirms that, as of the Record Date, the undersigned had the power to deliver a
consent for the number of shares represented by this consent.
SIGNED BUT UNMARKED CARDS WILL BE DEEMED TO GIVE CONSENT TO EACH OF THE ACTIONS
SET FORTH ON THE REVERSE SIDE OF THIS CARD.
Consummation of the Transactions is conditioned upon receiving the consent of
the holders of (i) a majority of the voting power of all outstanding shares of
all three classes of General Motors common stock, voting together as a single
class based on their respective voting rights, (ii) a majority of the
outstanding shares of General Motors $1 2/3 Common Stock, voting as a separate
class, and (iii) a majority of the outstanding shares of Class E Common Stock,
voting as a separate class. Approval of the Amended EDS Incentive Plan will
require the consent of the holders of (i) a majority of the voting power of all
outstanding shares of all three classes of General Motors common stock, voting
together as a single class based on their respective voting rights, and (ii) a
majority of the outstanding shares of Class E Common Stock, voting as a
separate class. Unless previously revoked, this consent will be effective when
and if delivered along with consents representing the percentages of shares
indicated in the two immediately preceding sentences to General Motors.
PLEASE SIGN AND DATE ON REVERSE SIDE
- --------------------------------------------------------------------------------
[x] PLEASE MARK VOTES AS IN THIS EXAMPLE. CLASS E
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED BELOW.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF GENERAL MOTORS CORPORATION RECOMMENDS STOCKHOLDERS
CONSENT TO PROPOSALS 1 AND 2 BELOW.
- --------------------------------------------------------------------------------
1. APPROVAL OF THE SPLIT-OFF AND RELATED TRANSACTIONS, INCLUDING ADOPTION OF
THE MERGER AGREEMENT
The approval of the Split-Off and related transactions, including the
consummation of the Merger, the making of the Special Inter-Company Payment,
the execution and delivery of the Master Services Agreement (and certain
related agreements) and the Separation Agreement and the consummation of the
other transactions and events contemplated by the Merger Agreement, including
the adoption of the Merger Agreement.
[_] CONSENT [_] WITHHOLD CONSENT [_]ABSTAIN
2. APPROVAL OF THE AMENDED EDS INCENTIVE PLAN
The approval of the 1996 Incentive Plan of EDS, which amends and restates the
existing 1984 EDS Stock Incentive Plan.
[_] CONSENT [_] WITHHOLD CONSENT [_]ABSTAIN
When shares are held by joint tenants, both
must sign. When signing as attorney-in-fact,
executor, administrator, trustee, guardian,
corporate officer or partner, please give
full title as such. If a corporation, please
sign in corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
Signature __________________ Dated: ________________________
Signature __________________ Dated: ________________________
<PAGE>
CONSENT TO ACTION OF STOCKHOLDERS WITHOUT A MEETING
REVOCABLE CONSENT SOLICITED ON BEHALF OF
GENERAL MOTORS CORPORATION CLASS H
The undersigned, a common stockholder of General Motors Corporation ("General
Motors"), acting with respect to all of the shares of Class H Common Stock, par
value $.10 per share ("Class H Common Stock") held by the undersigned on April
10, 1996 (the "Record Date"), hereby consents, withholds consent or abstains as
specified on the reverse side with respect to the taking of corporate actions
without a meeting pursuant to Section 228 of the Delaware General Corporation
Law. All capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Solicitation Statement/Prospectus furnished
herewith to all stockholders of General Motors who hold shares of General
Motors common stock.
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED ON THE REVERSE SIDE OF THIS CARD.
Stockholders wishing to approve any or all of the actions set forth herein
should mark the appropriate "Consent" box on the reverse side of this consent
card. Those opposing any such action should register their position by marking
the appropriate "Withhold Consent" or "Abstain" box on the reverse side of this
consent card or by not returning this consent card. Unless you otherwise
indicate on this consent card, this consent card will be voted as set forth on
the reverse side with respect to all shares of Class H Common Stock held by the
undersigned on the Record Date, and if no choice is indicated but this consent
card is otherwise completed, you will be deemed to have consented to each of
the actions set forth on the reverse side of this consent card. By executing
this card the undersigned hereby revokes any and all prior consents and hereby
affirms that, as of the Record Date, the undersigned had the power to deliver a
consent for the number of shares represented by this consent.
SIGNED BUT UNMARKED CARDS WILL BE DEEMED TO GIVE CONSENT TO EACH OF THE ACTIONS
SET FORTH ON THE REVERSE SIDE OF THIS CARD.
Consummation of the Transactions is conditioned upon receiving the consent of
the holders of (i) a majority of the voting power of all outstanding shares of
all three classes of General Motors common stock, voting together as a single
class based on their respective voting rights, (ii) a majority of the
outstanding shares of General Motors $1 2/3 Common Stock, voting as a separate
class, and (iii) a majority of the outstanding shares of General Motors Class E
Common Stock, voting as a separate class. Approval of the Amended EDS Incentive
Plan will require the consent of the holders of (i) a majority of the voting
power of all outstanding shares of all three classes of General Motors common
stock, voting together as a single class based on their respective voting
rights, and (ii) a majority of the outstanding shares of General Motors Class E
Common Stock, voting as a separate class. Unless previously revoked, this
consent will be effective when and if delivered along with consents
representing the percentages of shares indicated in the two immediately
preceding sentences to General Motors.
PLEASE SIGN AND DATE ON REVERSE SIDE
- --------------------------------------------------------------------------------
[x] PLEASE MARK VOTES AS IN THIS EXAMPLE. CLASS H
FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO
ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE
CORPORATE ACTIONS DESCRIBED BELOW.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF GENERAL MOTORS CORPORATION RECOMMENDS STOCKHOLDERS
CONSENT TO PROPOSALS 1 AND 2 BELOW.
- --------------------------------------------------------------------------------
1. APPROVAL OF THE SPLIT-OFF AND RELATED TRANSACTIONS, INCLUDING ADOPTION OF
THE MERGER AGREEMENT
The approval of the Split-Off and related transactions, including the
consummation of the Merger, the making of the Special Inter-Company Payment,
the execution and delivery of the Master Services Agreement (and certain
related agreements) and the Separation Agreement and the consummation of the
other transactions and events contemplated by the Merger Agreement, including
the adoption of the Merger Agreement.
[_] CONSENT [_] WITHHOLD CONSENT [_] ABSTAIN
2. APPROVAL OF THE AMENDED EDS INCENTIVE PLAN
The approval of the 1996 Incentive Plan of EDS, which amends and restates the
existing 1984 EDS Stock Incentive Plan.
[_] CONSENT [_] WITHHOLD CONSENT [_] ABSTAIN
When shares are held by joint tenants, both
must sign. When signing as attorney-in-fact,
executor, administrator, trustee, guardian,
corporate officer or partner, please give
full title as such. If a corporation, please
sign in corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
Signature __________________ Dated: ___________________
Signature __________________ Dated: ___________________
<PAGE>
EXHIBIT 10(C)
1996 ELECTRONIC DATA SYSTEMS CORPORATION
STOCK PURCHASE PLAN
WHEREAS, General Motors Corporation ("GM") established the 1984 Electronic
Data Systems Stock Purchase Plan as a plan for the employees of Electronic Data
Systems Corporation, a Texas corporation (the "Predecessor Company"), and
certain of its subsidiaries to purchase at a discount under the requirements of
Section 423 of the Internal Revenue Code shares of General Motors Corporation
Class E Common Stock; and
WHEREAS, in connection with the merger of the Predecessor Company into
Electronic Data Systems Corporation, a Delaware Corporation ("EDS"), and the
split-off of EDS from GM, the Board of Directors of EDS has determined it in the
best interests of the employees of EDS and its subsidiaries to adopt and
establish the Plan immediately after such split-off without lapse, suspension or
interruption in participation.
NOW, THEREFORE, effective as of the consummation of the split-off of EDS
from GM, EDS hereby adopts and establishes this, the 1996 Electronic Data
Systems Corporation Stock Purchase Plan.
1. Purpose of Plan. The purpose of the Plan is to provide employees of
Electronic Data Systems Corporation, a Delaware corporation ("EDS"), and
its subsidiaries (collectively, the "Company") with a strong incentive for
individual creativity and contribution to ensure the future growth of the
Company by enabling such employees to acquire shares of common stock, $.01
par value per share (the "EDS Stock"), of EDS, in the manner contemplated
by the Plan. Rights to purchase EDS 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 for Shares. The total number
of shares of EDS Stock that may be issued pursuant to rights of purchase
granted under the Plan shall not exceed 57,500,000 shares of the authorized
EDS Stock. In the discretion of the Board of Directors of EDS (the "Board
of Directors") or its delegate, such shares may be: (i) treasury shares,
including shares acquired by EDS in open market transactions; or (ii)
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.
3. Administration. The Compensation and Benefits 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 EDS, shall
be required to be bonded and insured for errors and omissions
<PAGE>
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 authority (a) to construe offerings, the Plan and the respective rights
to purchase 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 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 EDS, 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 EDS 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 EDS and to all employees of
any subsidiary corporations 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, the following classes of employees: officers, highly
compensated employees and employees whose principal duties consist of
supervising the work of other employees; (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); and (iv)
directors and officers of EDS.
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5. Offerings. The Committee may make grants to all eligible employees of EDS
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 terms and
conditions of each offering shall state its effective date, shall define
the duration of such offering and the purchase period thereunder, shall
specify the number of shares that may be purchased thereunder, shall
specify the purchase price for such shares and shall specify what class of
employees, if any, are 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
enrolling through the Corporate Administrative System or, if unavailable to
the eligible employee, then by completing a payroll deduction authorization
form 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. 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.
7. Deductions. The Administrator will maintain a payroll deduction account for
each participating employee. 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 receives during the
purchase period specified in an offering (or during such portion thereof as
he/she may be eligible or elect to participate).
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
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<PAGE>
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) to
purchase a 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 eligibility to participate in the
offering, whichever is later, multiplied by the number of months in the
purchase 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 date of the offering in the manner
set forth in Section 12.
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 EDS 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 not be 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 of purchase is granted; or (ii) an amount
which under the terms of the option is not less than 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 EDS Stock on any given date shall be the
mean between the high and low sale prices on the New York Stock Exchange
Composite Tape for EDS 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 EDS 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 EDS
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
4
<PAGE>
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 Friday in each calendar month, except the
last calendar month of a purchase period, and as of the last day of the
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 Three Hundred and 00/100 Dollars ($300.00) or an amount equal to the
purchase price of ten (10) shares of EDS 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 then 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 refunded to such Participant. All funds in payroll
deduction accounts may be used by EDS for its general corporate purposes as
the board of directors of EDS shall determine. However, the last purchase
on the last investment date of a grant year 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-appealable court-ordered account
5
<PAGE>
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. EDS shall pay all issue or initial transfer taxes of EDS
with respect to the issuance or initial transfer of shares, as well as all
fees and expenses necessarily incurred by EDS in connection with such
issuance or initial transfer.
15. 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 18.
16. 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 EDS (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 EDS Stock on the
date the shares are offered to EDS. EDS 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.
17. 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.
18. 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, 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); provided further that in no event shall
any adjustment be made that would render any offering other than an
offering pursuant to an employee stock purchase plan within the meaning of
Section 423 of the Code; and provided further that the issuance by EDS of
up to 120,000,000 shares of the EDS Stock, either pursuant to or outside
the ambit of the Plan, shall not require adjustment pursuant to this
Section.
19. 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
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<PAGE>
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.
20. Amendment of the Plan. This Plan may be amended at any time by the
Committee, provided that, without the approval of the stockholders of EDS
entitled to vote thereon, no such 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 requirements as to eligibility for
participation in the Plan.
21. Termination of the Plan. The Plan and all rights of employees hereunder
shall terminate: (i) on the investment date that participating employees
become entitled to purchase a number of shares greater than the number of
shares remain available for purchase under the Plan; or (ii) in the
discretion of the Committee, upon the completion of any purchase period. In
the event that the Plan terminates under circumstances described in (i)
above, shares remaining available for purchase under the Plan as of the
termination date shall be issued to Participants on a pro rata basis. 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.
22. 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.
23. 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.
24. General Provisions. The Plan shall neither impose any obligation on EDS 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 EDS 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 the regulations and rulings interpreting
such Section. For
7
<PAGE>
purposes of the Plan, the transfer of an employee from employment with EDS
to employment with a subsidiary of EDS, 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.
25. 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 Texas.
26. Effective Date. The Plan shall be deemed effective upon its approval by the
Board of Directors; provided, however, that no purchase period under the
Plan may begin until a Registration Statement under the Securities Act of
1993, as amended, covering the shares to be issued under the Plan has
become effective.
27. Dividend Reinvestment. Any employee or any employee who, upon separation
from EDS, was eligible for an early or normal retirement benefit from the
EDS Retirement Plan ("Retiree"), and who, pursuant to Sections 6 and 28,
has any shares to his benefit in the Plan for which certificates have not
been issued pursuant to Section 14, may elect to have any and all dividends
issued on such shares reinvested in additional shares at full fair market
value. The Administrator shall establish and communicate all procedures
necessary for employees or Retirees to reinvest dividends, including the
charging of any reasonable fee to participating employees or Retirees for
reinvesting dividends in accordance herewith.
28. Deposit of Certificated Shares. Any employee of EDS who holds EDS Stock
certificates issued in any manner specified in Section 14(i)-(iii)
representing shares of EDS Stock, may deposit the EDS Stock certificates
into 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, but shall be eligible to
invest dividends earned on such shares transferred pursuant to this Section
in accordance with Section 27.
29. 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 and
elect to invest the dividends earned therein in accordance with Section 27
but may not purchase any additional shares pursuant to Sections 6 and 7.
8
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
GENERAL MOTORS CORPORATION:
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-02543 on Form S-4 of Electronic Data Systems
Holding Corporation of our reports dated January 29, 1996, appearing in the
Annual Report on Form 10-K of General Motors Corporation for the year ended
December 31, 1995, as amended, and to the references to us under the headings
"General Motors Summary Consolidated Historical and Pro Forma Financial Data"
and "Experts" in the Preliminary Solicitation Statement/Prospectus, which is
part of this Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Detroit, Michigan
April 19, 1996
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT AUDITORS
THE BOARDS OF DIRECTORS
ELECTRONIC DATA SYSTEMS HOLDING CORPORATION
GENERAL MOTORS CORPORATION:
We consent to the use of our reports included and incorporated by reference
herein and to the references to our firm under the headings "EDS Summary
Consolidated Historical and Pro Forma Financial Data" and "Experts" in the
Solicitation Statement/Prospectus, which is part of this Registration
Statement.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
April 18, 1996
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Lester M. Alberthal, Jr.,
John R. Castle, Jr., Gary J. Fernandes, and Joseph M. Grant, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement on Form S-4 of Electronic Data Systems
Holding Corporation (the "Company") with respect to the split-off of the Company
from General Motors Corporation, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or his or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Date: April 9, 1996 /s/ Paul J. Chiapparone
-----------------------
Paul J. Chiapparone
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Lester M. Alberthal, Jr.,
John R. Castle, Jr., Paul J. Chiapparone, and Joseph M. Grant, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement on Form S-4 of Electronic Data Systems
Holding Corporation (the "Company") with respect to the split-off of the Company
from General Motors Corporation, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or his or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Date: April 15, 1996 /s/ Gary J. Fernandes
---------------------
Gary J. Fernandes
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Lester M. Alberthal, Jr.,
Paul J. Chiapparone, Gary J. Fernandes, and Joseph M. Grant, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement on Form S-4 of Electronic Data Systems
Holding Corporation (the "Company") with respect to the split-off of the Company
from General Motors Corporation, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or his or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Date: April 8, 1996 /s/ John R. Castle, Jr.
-----------------------
John R. Castle, Jr.
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Lester M. Alberthal, Jr.,
John R. Castle, Jr., Gary J. Fernandes, and Paul J. Chiapparone, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement on Form S-4 of Electronic Data Systems
Holding Corporation (the "Company") with respect to the split-off of the Company
from General Motors Corporation, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or his or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Date: April 9, 1996 /s/ Joseph M. Grant
-------------------
Joseph M. Grant
