<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-22495
PEROT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2230700
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12377 MERIT DRIVE, SUITE 1100
DALLAS, TEXAS 75251
(Address of principal executive offices) (Zip Code)
(972) 383-5600
Registrant's telephone number, including area code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X ]Yes [ ] No
As of November 7, the registrant had outstanding 38,241,105 shares of Class A
Common Stock and 50,000 shares of Class B Common Stock.
<PAGE> 2
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
<TABLE>
<CAPTION>
INDEX Page
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 1
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4-6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-9
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS. 10
ITEM 2: CHANGES IN SECURITIES. 10
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
</TABLE>
i
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,034 $ 27,516
Accounts receivable, net 127,959 113,804
Prepaid expenses and other 14,631 9,450
Deferred income taxes 20,206 25,935
------------ ------------
Total current assets 175,830 176,705
Property and equipment, net 41,814 29,335
Purchased software, net 9,096 6,413
Investments in and advances to unconsolidated affiliates 11,362 6,582
Other assets 29,985 13,212
------------ ------------
Total assets $ 268,087 $ 232,247
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities on capital lease obligations and long-term
debt $ 1,819 $ 2,377
Accounts payable 18,788 13,943
Short-term debt 25,000 138
Income taxes payable 4,374 13,039
Accrued liabilities 92,214 82,973
Deferred revenue 15,739 22,003
Accrued compensation 12,184 20,240
------------ ------------
Total current liabilities 170,118 154,713
Capital lease obligations and long-term debt, less current
maturities 1,625 2,796
Other long-term liabilities 2,905 3,976
------------ ------------
Total liabilities 174,648 161,485
------------ ------------
Stockholders' equity:
Common stock
406 396
Other stockholders' equity 93,033 70,366
------------ ------------
Total stockholders' equity 93,439 70,762
------------ ------------
Total liabilities and stockholders' equity $ 268,087 $ 232,247
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Contract revenue $ 202,784 $ 151,260 $ 556,867 $ 428,252
Costs and expenses
Direct cost of services 158,491 116,384 437,688 333,100
Selling, general and administrative expenses 34,798 26,343 97,911 65,607
------------- ------------- ------------- -------------
Operating income 9,495 8,533 21,268 29,545
Interest income 389 636 1,312 1,895
Interest expense (453) (392) (953) (604)
Equity in earnings (losses) of affiliates 489 (78) 716 (234)
Other income/(expense), net (334) 39 1,324 84
------------- ------------- ------------- -------------
Income before taxes 9,586 8,738 23,667 30,686
Provision for income taxes 4,074 4,277 10,058 15,020
------------- ------------- ------------- -------------
Net income $ 5,512 $ 4,461 $ 13,609 $ 15,666
============= ============= ============= =============
Net income attributed to common shareholders $ 5,512 $ 4,312 $ 13,609 $ 15,219
Primary and fully diluted earnings per common share:
Earnings per common share $ 0.11 $ 0.08 $ 0.26 $ 0.31
Weighted average common shares
outstanding 53,426 53,333 55,380 50,185
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,609 $ 15,666
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 24,764 12,174
Other noncash items 5,317 (6,042)
Changes in current assets (13,659) (31,829)
Changes in current liabilities (14,343) 72,213
----------- -----------
Net cash provided by operating activities 15,688 62,182
----------- -----------
Cash flows from investing activities:
Purchase of property, equipment and software (33,916) (13,048)
Proceeds from sale of property, equipment and software 538 384
Investments in and advances to unconsolidated affiliates (3,592) (4,184)
Acquisition of businesses, net of cash acquired of $650 in 1997 and $149 in 1996 (13,334) (2,106)
Acquisition of intellectual property rights (6,322) --
----------- -----------
Net cash used in investing activities (56,626) (18,954)
----------- -----------
Cash flows from financing activities:
Principal payments on debt and
capital lease obligations (3,182) (2,619)
Short-term borrowings 25,000 --
Proceeds from issuance of common stock 897 3,956
Proceeds from sale of stock options 8,139 --
Repayment of stockholder notes receivable 262 1,132
Proceeds from issuance of treasury stock 414 154
Repurchase of treasury stock (1,852) (79)
Redemption of preferred stock -- (8,500)
Dividends paid on preferred stock -- (893)
----------- -----------
Net cash provided by (used in) financing activities 29,678 (6,849)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (3,222) 1
----------- -----------
Net (decrease) increase in cash and cash equivalents (14,482) 36,380
Cash and cash equivalents at beginning of period 27,516 17,357
----------- -----------
Cash and cash equivalents at end of period $ 13,034 $ 53,737
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. GENERAL
The accompanying unaudited interim condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). The interim condensed consolidated
financial statements include the consolidated accounts of Perot Systems
Corporation and its majority-owned subsidiaries (collectively, "the Company")
with all significant inter-company transactions eliminated. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the financial position, results of operations
and cash flows for the interim periods presented have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
have been condensed or omitted pursuant to such SEC rules and regulations.
These financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1996 as filed in the
Company's Registration Statement on Form 10 filed with the SEC on April 30,
1997, as amended. Operating results for the three month and nine month periods
ended September 30, 1997 are not necessarily indicative of the results for the
year ending December 31, 1997. Dollar amounts presented are in thousands,
except as otherwise noted.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share,"
effective for fiscal years ending after December 15, 1997. SFAS 128 replaces
the presentation of primary earnings per common share with basic earnings per
share, with the principal difference being that common stock equivalents are
not considered in computing basic earnings per share. SFAS 128 also eliminates
the modified treasury stock method, and requires reconciliation of the
numerator and denominator used in computing basic and diluted earnings per
share. The Company has not yet determined the effect of SFAS 128 on the
Company's earnings per share.
NOTE 3. BUSINESS ACQUISITIONS AND ASSET PURCHASE
The Company completed a total of six acquisitions under the purchase method of
accounting in the nine months ended September 30, 1997. Collectively, total
consideration paid and goodwill recorded were:
<TABLE>
<CAPTION>
Nine months ended
September 30, 1997
------------------
<S> <C>
Cash $ 13,984
Shares of Class A Common Stock 2,701
-----------
Total Consideration 16,685
Less: Fair Market Value of
Net Assets Acquired 3,755
-----------
Goodwill $ 12,930
===========
</TABLE>
The Company issued 370,000 shares of Class A Common Stock for the nine months
ended September 30, 1997 in connection with these acquisitions.
4
<PAGE> 7
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Goodwill of $16,763 and $7,294 was included in other non-current assets as of
September 30, 1997 and December 31, 1996, respectively.
On the basis of a pro forma consolidation of the results of operations as if
the acquisitions had taken place on January 1, 1996 and January 1, 1997, the
impact on revenue, net income and earnings per share would not have been
material.
In July 1997, the Company acquired certain assets of Nets, Inc., an Internet
development company in bankruptcy, for $8,754 in cash. Included in the asset
purchase were $2,432 of property and equipment and $6,322 of intellectual
property rights. During the quarter ended September 30, 1997, the Company
expensed $2,000 of the $6,322 in intellectual property rights as purchased
research and development. This amount represented an estimate of the fair
market value of development costs related to software for which technological
feasibility had not been established and for which there was no alternative
future use.
NOTE 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company contributed $500 in additional capital to HCL Perot Systems N.V., a
related party, during the third quarter of 1997 for a total investment of
$1,254 at September 30, 1997.
The Company invested an additional $59 and $1,586 in an unconsolidated limited
partnership during the three months and nine months ended September 30, 1997,
respectively. Immaterial interests in other unconsolidated entities were
purchased during the three months ended September 30, 1997 with one purchase of
$1,000 made during the nine months ended September 30, 1997.
NOTE 5. BORROWINGS
At September 30, 1997, there was a balance of $25,000 outstanding on the
Company's $40,000 line of credit.
NOTE 6. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Common stock $ 406 $ 396
Additional paid-in-capital 59,572 51,461
Retained earnings 41,439 27,830
Cumulative translation adjustment (617) 1,009
Notes receivable from stockholders (3,616) (4,286)
Contract rights -- (4,342)
Deferred compensation -- (1,306)
Treasury stock (3,745) --
------------ ------------
Total stockholders' equity $ 93,439 $ 70,762
============ ============
</TABLE>
5
<PAGE> 8
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The primary factor causing an increase in paid-in-capital was the renegotiation
of the terms of the strategic alliance with Swiss Bank in April 1997. The
renegotiated terms of the alliance resulted in the issuance of 3,617,160
options to purchase Class B Common Stock for cash consideration of $8,139. The
contract rights relating to the original Swiss Bank agreement were eliminated
with an offsetting reduction in paid-in-capital for the unamortized balance of
$4,146 at March 31, 1997. Additionally, paid-in-capital was increased by $2,697
in connection with the issuance of common shares for business acquisitions and
by $1,436 for a net issuance of stock under benefit plans. The $3,745 increase
in treasury stock was due in part to a repurchase of 1,400,000 shares from the
Company's former President and Chief Executive Officer, upon resignation (see
Note 8), totaling $1,830 (offset against outstanding notes receivable) and
873,000 shares totaling $1,915 (net of issuances) from other employees. The
total elimination of deferred compensation was also related to the repurchase
of shares from the former President and Chief Executive Officer.
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $392 and $235 for the three months ended
September 30, 1997 and 1996 and $815 and $447 for the nine months ended
September 30, 1997 and 1996, respectively. Cash paid for income taxes was
$5,115 and $10,747 for the three month period and $15,644 and $18,318 for the
nine month period ended September 30, 1997 and 1996, respectively.
NOTE 8. RESIGNATION OF THE COMPANY'S PRESIDENT AND CHIEF EXECUTIVE OFFICER
During the quarter ended September 30, 1997, $1,977 of severance related
expenses (including $191 of deferred compensation) were incurred primarily in
connection with the July 1997 resignation of the Company's President and Chief
Executive Officer. The Company also made a non-cash repurchase of 1,400,000
shares of common stock through a reduction of $1,830 in outstanding notes
receivable. Accordingly, the unamortized balance of deferred compensation was
reclassified to additional paid-in-capital.
6
<PAGE> 9
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1997 and 1996
Contract revenue increased in the third quarter of 1997 by 34% to
$202.8 million from $151.3 million in the third quarter of 1996, due to $20.1
million in revenue from businesses acquired, $15.9 million in revenue growth
from Swiss Bank, and a $15.5 million increase in revenue from other business.
Domestic contract revenue grew by 19% in the third quarter of 1997 to
$126.5 million from $105.9 million in the third quarter of 1996, but declined
as a percentage of total contract revenue to 62% from 70% over the same
periods.
Non-domestic contract revenue, consisting of European and Asian
operations, grew by 68% in the third quarter of 1997 to $76.3 million from
$45.4 million in the third quarter of 1996, and increased as a percentage of
total contract revenue to 38% from 30% over the same periods.
Direct cost of services increased in the third quarter of 1997 by 36%
to $158.5 from $116.4 million in the third quarter of 1996, due to general
business growth. Selling, general and administrative expenses ("SG&A")
increased in the third quarter of 1997 by 32% to $34.8 million from $26.3
million in the third quarter of 1996, due primarily to expansion of the sales
force, staff growth in management and administrative support areas, a one-time
charge of $2.0 million for severance costs associated with the July 1997
resignation of the President and Chief Executive Officer, $2.0 million of
purchased research and development expense (see Note 3 to the condensed
consolidated financial statements), and $1.7 million of goodwill amortization
associated with businesses acquired.
As a result of the factors noted above, operating income increased in
the third quarter of 1997 to $9.5 million from $8.5 million in the third
quarter of 1996, and operating margin declined to 4.7% from 5.6%. Net income
margin in the third quarter of 1997 decreased to 2.7% from 2.9% over the same
period in 1996.
Comparison of the nine months ended September 30, 1997 and 1996
Contract revenue increased in the nine months ended September 30, 1997
by 30% to $556.9 million from $428.3 million in the nine months ended September
30, 1996, due primarily to $48.6 million in revenue from businesses acquired,
$42.7 million in revenue growth from Swiss Bank, and a $37.3 million increase
in revenue from other business.
7
<PAGE> 10
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Domestic contract revenue grew by 24% in the nine months ended
September 30, 1997 to $357.8 million from $289.6 million in the nine months
ended September 30, 1996, but declined as a percentage of total contract
revenue to 64% from 68% over the same periods.
Non-domestic contract revenue, consisting of European and Asian
operations, grew by 44% in the nine months ended September 30, 1997 to $199.1
million from $138.7 million in the nine months ended September 30, 1996, and
increased as a percentage of total contract revenue to 36% from 32% over the
same periods.
Direct cost of services increased in the nine months ended September
30, 1997 by 31% to $437.7 million from $333.1 million in the nine months ended
September 30, 1996, due primarily to general business growth. SG&A increased in
the nine months ended September 30, 1997 by 49% to $97.9 million from $65.6
million in the nine months ended September 30, 1996, due to expansion of the
sales force and staff growth in management and administrative support areas.
As a result of SG&A growth, operating income decreased in the nine
months ended September 30, 1997 to $21.3 million from $29.5 million in the nine
months ended September 30, 1996, and operating margin declined to 3.8% from
6.9%. Net income margin in the nine months ended September 30, 1997 decreased
to 2.4% from 3.7% over the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities decreased to $15.7 million from
$62.2 million for the nine month periods ended September 30, 1997 and 1996,
respectively. The first nine months of 1996 reflected an unusual increase in
current liabilities, related in part to the Swiss Bank contract and other
business growth. During the first nine months of 1997, depreciation and
amortization increased by $12.6 million due to increased purchases of property
and equipment and the increase in goodwill amortization from acquired
businesses.
Net cash used in investing activities was $56.6 million for the first
nine months of 1997, compared to $19.0 million for the first nine months of
1996. Expenditures for property and equipment during the first nine months of
1997 totaled $33.9 million compared to $13.0 million in the prior year period,
reflecting staff increases and general business growth. Cash paid for new
businesses acquired was $13.3 million during the first nine months of 1997
compared with $2.1 million in the prior year period. The Company also paid $6.3
million to Nets, Inc. during the first nine months of 1997 for intellectual
property rights and other intangible assets (see Note 3 to the condensed
consolidated financial statements).
8
<PAGE> 11
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
For the first nine months of 1997, net cash provided by financing
activities was approximately $29.7 million, compared to net cash used in
financing activities of $6.8 million for the first nine months of 1996. This
change was due in part to a $25.0 million increase in the amount outstanding on
the Company's $40.0 million line of credit. In addition, there was an $8.1
million sale of stock options to Swiss Bank in 1997, and an $8.5 million
redemption of preferred stock in 1996.
The Company maintained its existing credit line of $40.0 million
throughout 1997 and as of September 30, 1997, $25.0 million were outstanding.
The Company anticipates that cash flows from operating activities and
unused borrowing capacity under its existing line of credit will provide
sufficient funds to meet its needs for the remainder of 1997. Significant
growth in the Company's business in 1998 could result in the need for private
or public offerings of debt or equity instruments of the Company to provide the
funds necessary to support its growth.
9
<PAGE> 12
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is, from time to time, involved in various litigation
matters arising in the ordinary course of its business. The Company believes
that the resolution of currently pending legal proceedings, either individually
or taken as a whole, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------------------------
<S> <C> <C>
10.33 Form of Stock Option Agreement for the Perot
Systems Corporation 1991 Stock Option Plan
11 Computation of Earnings per Common Share
27 Financial Data Schedule
</TABLE>
(b) Reports of Form 8-K
No reports were filed on Form 8-K during the three months
ended September 30, 1997.
10
<PAGE> 13
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEROT SYSTEMS CORPORATION
(Registrant)
Date: November 14, 1997 By /s/ TERRY ASHWILL
--------------------------------
Terry Ashwill
Vice President, Chief Financial and
Principal Accounting Officer
11
<PAGE> 14
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ---------------------------------------------------
<S> <C> <C>
10.33 Form of Stock Option Agreement for the Perot
Systems Corporation 1991 Stock Option Plan
11 Computation of Earnings per Common Share.
27 Financial Data Schedule as of September 30, 1997.
</TABLE>
<PAGE> 1
EXHIBIT 10.33
Perot Systems Corporation
1991 Stock Option Plan
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of [__________], is by and between Perot Systems
Corporation ("Perot Systems"), a Delaware corporation, and ("Participant").
WITNESSETH:
WHEREAS, Perot Systems has adopted the Perot Systems Corporation 1991 Stock
Option Plan (the "Plan") to enable employees of Perot Systems and its majority-
owned subsidiaries to acquire shares of Class A common stock, $0.01 par value,
of Perot Systems ("Common Stock") in accordance with the provisions of the
Plan; and
WHEREAS, the Committee of the Board of Directors of Perot Systems appointed to
administer the Plan (the "Committee") has selected Participant to participate
in the Plan and has determined to grant Participant the right and option to
purchase shares of Common Stock in accordance with the terms and conditions of
this Agreement, provided, that if any change is made in the shares of Common
Stock (including, but not limited to, by stock dividend, stock split, or merger
or consolidation, but not including the issuance of additional shares for
consideration), the Board of Directors or the Committee, will make such
adjustments in the number and kind of shares (which may consist of shares of a
surviving corporation to a merger) that may thereafter be optioned and sold
under the Plan and the number and kind of shares (which may consist of shares
of a surviving corporation to a merger) and purchase price per share of shares
subject to outstanding Stock Option Agreements under the Plan as the Board of
Directors or the Committee determines are equitable to preserve the respective
rights of the Participants under the Plan.
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises
and other terms and conditions set forth in this Agreement, Perot Systems and
Participant agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
have the meanings indicated:
(a) "Company" means Perot Systems and its majority-owned
subsidiaries.
(b) "Confidential Information" means all written,
machine-reproducible, oral and visual data, information and
material, including but not limited to business, financial and
technical information, computer programs, documents and records
(including those that Participant develops in the scope of his or
her employment) that (i) the Company or any of its customers or
suppliers treats as proprietary or confidential through markings
or otherwise, (ii) relates to the Company or any of its customers
or suppliers or any of their business activities, products or
services (including software programs and techniques) and is
competitively sensitive or not generally known in the relevant
trade or industry, or (iii) derives independent economic value
from not being generally known to, and is not readily
ascertainable by proper means by, other
<PAGE> 2
persons who can obtain economic value from its disclosure or use.
Confidential Information does not include any information or
material that is approved by Perot Systems for unrestricted
public disclosure.
(c) "Expiration Date" means the date and time as of which the Option
expires, which is the earlier of (i) the close of business on the
date one year after the entire Option has Vested or (ii) the date
and time as of which all rights to exercise the Option are
terminated under Section 2(d).
(d) "Market Value" of a share of Purchased Stock on a given date
means (i) if the Purchased Stock is Publicly Traded, the closing
sale price for Purchased Stock, as determined in good faith by
the Board of Directors, on such date or, if no closing sale price
is available for such date, on the most recent prior date for
which a closing sale price is available or, if no closing sale
price is available, the closing bid price, as so determined, on
such date or, if no closing bid price is available for such date,
the closing bid price on the most recent prior date for which a
closing bid price is available, or (ii) if the Purchased Stock is
not Publicly Traded, its fair market value, as determined in good
faith by the Board of Directors, as of the most recent Valuation
Date on or before such date.
(e) "Net Investment Proceeds," with respect to any share of Purchased
Stock sold or otherwise transferred by Participant or
Participant's successor in interest, means the greater of the
value of the gross proceeds received for such share or the Market
Value of such share on the date of sale or transfer less, in
either case, (i) the exercise price of the Option for such share
plus simple interest on such amount at the rate of 8% per annum
to the date of the sale or transfer, (ii) any reasonable and
customary commission paid for the sale or transfer, and (iii) the
verified amount of any income taxes paid or payable on the sale
or transfer.
(f) "Option" means the right and option evidenced by this Agreement.
(g) "Publicly Traded" means Purchased Stock has been listed on a
registered national securities exchange or approved for quotation
in the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system.
(h) "Purchased Stock" means any Common Stock purchased upon the
exercise of this Option, together with any successor security,
property or cash issued or distributed by Perot Systems or any
successor entity, whether by way of merger, consolidation, share
exchange, reorganization, liquidation, recapitalization or
otherwise.
(i) "Termination for Substantial Misconduct" means termination of
employment for a felony conviction of the Participant; actions
involving moral turpitude, theft, or dishonesty in a material
matter; breach of any obligation under Section 5 of this Stock
Option Agreement; or failure by Participant to carry out the
directions, instructions, policies, rules, regulations, or
decisions of the Board of Directors of
2
<PAGE> 3
Perot Systems including, without limitation, those relating to
business ethics and the ethical conduct of the business of the
Company.
(j) "Transfer" or "transfer" or derivations thereof includes any
sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition.
(k) "Valuation Date" means each June 30 and December 31 of every
year, beginning on January 1, 1991, and any other date as of
which the Board of Directors determines the Market Value of
Purchased Stock.
(l) "Vesting," or "vesting" or derivations thereof with respect to
any Option issued under this Agreement, means receiving the right
to exercise the Option.
(m) "Vesting Period" means the period of time commencing on the date
of this Agreement and ending on the date on which the entire
Option has Vested.
2. Grant of Option; Purchase of Stock.
(a) Subject to the terms, conditions, and restrictions set forth in
the Plan and in this Agreement, Perot Systems hereby grants to
Participant, and Participant hereby accepts from Perot Systems,
the option to purchase from Perot Systems the number of shares of
Common Stock specified on Attachment A hereto, at the purchase
price so specified, which option will Vest in Participant in
accordance with the Vesting Schedule set forth on Attachment A
hereto. The Option shall only continue to Vest only for as long
as Participant is an employee of Company, unless the Committee,
in its sole discretion, agrees in writing otherwise. Participant
will have the right to exercise the Vested Option and purchase
Common Stock after the Option Vests as provided in Section 2(d)
below.
(b) The purchase price of shares as to which the Option is exercised
must be paid to Perot Systems at the time of the exercise either
in cash or in such other consideration as the Committee may
approve having a total fair market value, as determined by the
Committee, equal to the purchase price, or a combination of cash
and such other consideration.
(c) The Committee may elect to assist Participant in satisfying an
obligation to pay or withhold taxes required as a result of the
exercise of this Option by accepting shares of Purchased Stock at
Market Value to satisfy the tax obligation. The shares of
Purchased Stock accepted may be either shares withheld upon the
exercise of this Option or other shares already owned by
Participant. In determining whether to approve acceptance of
Purchased Stock to satisfy such a tax obligation, the Committee
may consider whether the shares proposed to be delivered are
subject to any holding period or other restrictions on transfer
and may waive or arrange for the waiver of any such restrictions.
3
<PAGE> 4
(d) The Option is only exercisable as to Vested Options. Once Vested,
the Option may be exercised until the Expiration Date, provided,
however, (i) if the Participant ceases to be an employee for any
reason other than death, the Option may be exercised only for
sixty days after the date of cessation of employment, and in any
case no later than the Expiration Date, and (ii) if the
Participant ceases to be an Employee because of death of the
Participant, the Option may be exercised by the Participant's
estate only for two years after the Participant's Death and in
any case no later than the Expiration Date.
3. Restrictions on Transfer. The following restrictions on transfer apply
unless the Committee otherwise agrees in writing or unless the transfer
is by will or the laws of descent and distribution upon Participant's
death:
(a) The Option may not be sold or otherwise transferred and is
exercisable only by Participant during Participant's lifetime.
(b) One-half of the shares of Purchased Stock purchased on any day
may not be sold or otherwise transferred for two years after
purchase.
(c) Shares of Purchased Stock may not be sold or otherwise
transferred unless the holder has given Perot Systems any notice
required under Section 4(a) and Perot Systems has waived in
writing any right it has to buy back the shares under Section
4(a).
(d) Shares of Purchased Stock may not be sold or otherwise
transferred for six months after the Purchased Stock (or stock of
the same class as the Purchased Stock) is Publicly Traded.
Perot Systems is not obligated to recognize any purported sale or other
transfer of the Option or any Purchased Stock in violation of this
Section 3 and, unless it elects to do otherwise, may treat any such
purported sale or transfer as null, void, and of no effect.
4. Rights to Buy Back Purchased Stock and to Require Payback of Certain
Profits.
(a) At any time before the Purchased Stock is Publicly Traded, if
Participant or any subsequent holder of shares of Purchased Stock
desires or is obligated to sell or otherwise transfer any such
shares (including any distribution to heirs or other
beneficiaries of Participant's estate), the holder is required to
give Perot Systems written notice of the proposed sale or
transfer, including notice of the proposed purchaser or
transferee, and, for a period of 30 days after receipt of such
notice, Perot Systems will have the right to buy back such shares
for cash at a purchase price equal to the price per share paid by
Participant for the shares plus simple interest on such amount at
the rate of 8% per annum from the date of payment by Participant
to the date of tender of payment by Perot Systems is set forth in
Section 4(c) below.
(b) If the Committee discovers that Participant has engaged in any
conduct prohibited by Section 5 or if Participant ceases to be
employed by the Company and the
4
<PAGE> 5
Committee, in its sole discretion, determines that Participant's
cessation of employment resulted from a Termination for
Substantial Misconduct or would have resulted in a Termination
for Substantial Misconduct had the relevant facts been known at
the time of Participant's cessation of employment, Perot Systems
will have the right for 150 days after the Committee discovers
the relevant facts to cancel any unexercised Option, whether or
not Vested, and to buy back from Participant any shares of
Purchased Stock then owned by Participant, at a purchase price
equal to the price per share paid by Participant for the shares
plus simple interest on such amount at the rate of 8% per annum
from the date of payment by Participant to the date of tender of
payment by Perot Systems as set forth in Section 4(c) below, and
the right to require Participant to pay back to Perot Systems in
cash the Net Investment Proceeds with respect to any shares of
Purchased Stock that have been sold or otherwise transferred by
Participant.
(c) Whenever Perot Systems has a right to buy back shares of
Purchased Stock or to require Participant to pay back to Perot
Systems Participant's Net Investment Proceeds with respect to any
shares of Purchased Stock under this Section 4, Perot Systems may
exercise its right by notifying Participant or the subsequent
holder of Perot Systems' election to exercise its right within
the designated exercise period. In the case of a buyback under
Section 4(a) or Section 4(b), the giving of such notice will give
rise to an obligation on the part of Participant or the
subsequent holder to tender to Perot Systems, within 10 days, any
previously issued certificate representing shares of Purchased
Stock to be bought back, duly endorsed in blank or having a duly
executed stock power attached in proper form for transfer. If
any such certificate is not tendered within 10 days, Perot
Systems may cancel any outstanding certificate representing
shares to be bought back. Perot Systems is required to tender
the purchase price for shares to be bought back under this
Section 4 within 20 days of giving notice of its election to
exercise its right to buy back shares. If the person from whom
the shares are to be bought back has not complied with an
obligation to return a certificate representing shares to be
bought back, however, Perot Systems is not required to tender the
purchase price until 20 days after the certificate is returned or
20 days after it cancels the certificate, whichever occurs first.
5. Competition and Non-Disclosure. Participant acknowledges that: (i) in
the course and as a result of employment with the Company, Participant
will obtain special training and knowledge and will come in contact with
the Company's current and potential customers, which training,
knowledge, and contacts would provide invaluable benefits to competitors
of the Company; (ii) the Company is continuously developing or receiving
Confidential Information, and that during Participant's employment he or
she will receive Confidential Information from the Company, its
customers and suppliers and special training related to the Company's
business methodologies; and (iii) Participant's employment by Company
creates a relationship of trust that extends to all Confidential
Information that becomes known to Participant. Accordingly, and in
consideration of Perot Systems' granting this Option to Participant,
Participant agrees that Perot Systems will be entitled to terminate all
rights to exercise the Option and to exercise the rights specified in
Section 4 above if Participant does any of the following without the
prior written consent of the Company:
5
<PAGE> 6
(a) while employed by the Company or within one year thereafter:
(i) competes with, or engages in any business that is
competitive with, the Company within 250 miles of any
location at which Participant was employed by or provided
services to the Company;
(ii) solicits or performs services, as an employee, independent
contractor, or otherwise, for any person (including any
affiliates or subsidiaries of that person) that is or was
a customer or prospect of the Company during the two years
before Participant's employment with the Company ended if
Participant solicited business from or performed services
for that customer or prospect while employed by Company or
(iii) recruits, hires, or helps anyone to recruit or hire anyone
who was an employee of Perot Systems, or of any of its
customers for whom Participant performed services of from
whom Participant solicited business, within the six months
before Participant's employment with the Company ended; or
(b) discloses or uses any Confidential Information, except in
connection with the good faith performance of Participant's
duties as an employee; or fails to take reasonable precautions
against the unauthorized disclosure or use of Confidential
Information; or fails, upon Perot Systems' request, to execute
and comply with a third party's agreement to protect its
confidential and proprietary information; or solicits or induces
the unauthorized disclosure or use of Confidential Information.
If any court of competent jurisdiction finds any provision of this
Section 5 to be unreasonable, then that provision shall be considered to
be amended to provide the broadest scope of protection to the Company
that such court would find reasonable and enforceable.
6. Compliance with Securities Laws. Participant hereby agrees that, upon
demand by Perot Systems, any person exercising this Option, at the time
of such exercise, will deliver to Perot Systems a written representation
to the effect that the shares of Purchased Stock being acquired are
being acquired for investment and not with a view to any resale or
distribution thereof. Participant further agrees that neither
Participant nor any successor in interest of Participant will sell or
otherwise transfer the Option or any shares of Purchased Stock in any
way that might result in a violation of any federal or state securities
laws or regulations. Participant further acknowledges and agrees that
Perot Systems may require Participant or any subsequent holder of the
Option or of any shares of Purchased Stock to provide Perot Systems,
prior to any sale or other transfer, with such other representations,
commitments, and opinions regarding compliance with applicable
securities laws and regulations as Perot Systems may deem necessary or
advisable.
7. Stock Certificates; Rights as Shareholder. Perot Systems will retain
for safekeeping all certificates representing shares of Purchased Stock.
Each such certificate will bear such legends as the Committee determines
are necessary or appropriate. Whether or not
6
<PAGE> 7
certificates representing shares of Purchased Stock have been issued or
delivered, Participant will have all the rights of a shareholder of
Purchased Stock, including voting, dividend and distribution rights,
with respect to shares of Purchased Stock owned by Participant.
Participant will not have any rights as a shareholder with respect to
any shares of Purchased Stock subject to the Option before the date of
issuance to Participant of shares upon exercise of the Option.
8. Income Tax Withholding. Participant shall, upon request by the Company,
reimburse the Company for, or the Company may withhold from sums or
property otherwise due or payable to Participant, any amounts the
Company is required to remit to applicable taxing authorities as income
tax withholding with respect to the Option or any Purchased Stock. If
shares of Purchased Stock are withheld for such purpose, they will be
withheld at Market Value. If Participant fails to reimburse the Company
for any such amount when requested, the Company has the right to recover
that amount by selling or canceling sufficient shares of any Purchased
Stock held by Participant.
9. Compliance with Plan. Participant acknowledges receipt of a copy of the
Plan and further acknowledges that this Agreement is entered into, and
the Option is granted, pursuant to the Plan. If the provisions of the
Plan are inconsistent with the provisions of this Agreement, the
provisions of the Plan supersede the provisions of this Agreement.
10. Notices. Any notice to Perot Systems or the Company that is required or
permitted by this Agreement shall be addressed to the attention of the
Secretary of Perot Systems at its principal office. Any notice to
Participant that is required or permitted by this Agreement shall be
addressed to Participant at the most recent address for Participant
reflected in the appropriate records of the Company. Either party may
at any time change its address for notification purposes by giving the
other written notice of the new address and the date upon which it will
become effective. Whenever this Agreement requires or permits any
notice from one party to another, the notice must be in writing to be
effective and, if mailed, shall be deemed to have been given on the
third business day after the same is enclosed in an envelope, addressed
to the party to be notified at the appropriate address, property
stamped, sealed, and deposited in the United States mail, and, if mailed
to the Company, by certified mail, return receipt requested.
11. Remedies. Perot Systems is entitled, in addition to any other remedies
it may have at law or in equity, to temporary and permanent injunctive
and otherwise equitable relief to enforce the provisions of this
Agreement. Any action to enforce the provisions of, or other relating
to, this Agreement may be brought in the state or federal courts having
jurisdiction in Dallas, Dallas County, Texas. By signing this
Agreement, Participant consents to the personal jurisdiction of such
courts in any such action.
12. Assignment. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, personal
representatives, successors, and assigns. However, Participant does not
have the power or right to assign this Agreement without the prior
written consent of Perot Systems.
7
<PAGE> 8
13. Attorneys' Fees. If any legal proceeding is brought to enforce or
interpret the terms of this Agreement, the prevailing party will be
entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which that party may be
entitled.
14. Severability. If any provision of this Agreement is held invalid or
unenforceable for any reason, the validity and enforceability of all
other provisions of this Agreement will not be affected.
15. Headings. The section headings used herein are for reference and
convenience only and do not affect the interpretation of this Agreement.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Texas, without regard to the
choice of law rules in such law.
17. Entire Agreement. This Agreement, together with the Plan and any
procedure adopted by the Committee thereunder, constitutes the entire
agreement between the parties with respect to its subject matter and may
be waived or modified only in writing.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Participant and a
duly-authorized representative of Perot Systems have executed this Agreement as
of the date first above written.
PARTICIPANT PEROT SYSTEMS CORPORATION
By:
- ---------------------------- ----------------------------------
Signature Title: Chairman of the Board
- ----------------------------
Printed Name
8
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Dollars and share amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net income ........................................ $ 5,512 $ 4,461 $ 13,609 $ 15,666
Preferred stock dividend .......................... -- (149) -- (447)
Modified treasury stock method adjustment ......... 359 132 682 508
---------- ---------- ---------- ----------
$ 5,871 $ 4,444 $ 14,291 $ 15,727
========== ========== ========== ==========
Average common shares outstanding ................. 38,832 37,553 39,438 36,330
Common stock equivalents .......................... 14,594 15,780 15,942 13,855
---------- ---------- ---------- ----------
Weighted average common shares outstanding ........ 53,426 53,333 55,380 50,185
========== ========== ========== ==========
Primary and fully diluted earnings per common share $ 0.11 $ 0.08 $ 0.26 $ 0.31
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,034
<SECURITIES> 0
<RECEIVABLES> 132,339
<ALLOWANCES> 4,380
<INVENTORY> 0
<CURRENT-ASSETS> 175,830
<PP&E> 100,950
<DEPRECIATION> 59,136
<TOTAL-ASSETS> 268,087
<CURRENT-LIABILITIES> 170,118
<BONDS> 0
0
0
<COMMON> 406
<OTHER-SE> 93,033
<TOTAL-LIABILITY-AND-EQUITY> 268,087
<SALES> 556,867
<TOTAL-REVENUES> 556,867
<CGS> 437,688
<TOTAL-COSTS> 534,883
<OTHER-EXPENSES> (1,324)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 953
<INCOME-PRETAX> 23,667
<INCOME-TAX> 10,058
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,609
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
