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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ____
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Commission File Number 0-22495
PEROT SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2230700
(State of incorporation) (I.R.S. Employer Identification No.)
12377 MERIT DRIVE, SUITE 1100 75251
DALLAS, TEXAS
(Address of Principal Executive Offices) (Zip Code)
(972) 383-5600
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock
Par Value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
There is no public market for the registrant's common equity.
The number of shares outstanding of the registrant's common stock as of March
16, 1998 was 38,074,639.
Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held May 8, 1998 are
incorporated by reference into Part III.
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FORM 10-K
For The Year Ended December 31, 1997
INDEX
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Part I
<S> <C> <C>
Item 1. Business ...................................................................... 1
Item 2. Properties .................................................................... 5
Item 3. Legal Proceedings ............................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders ........................... 6
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters .................................................................... 6
Item 6. Selected Financial Data ....................................................... 7
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition ..................................................... 8
Item 8. Financial Statements and Supplementary Data ................................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures .................................................. 13
Part III
Item 10. Directors and Executive Officers of the Registrant ............................. 13
Item 11. Executive Compensation ......................................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management ................. 13
Item 13. Certain Relationships and Related Transactions ................................. 13
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................ 14
Signatures .................................................................................. 16
</TABLE>
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ITEM 1. BUSINESS
Perot Systems Corporation (the "Company") was founded as a Texas
corporation on June 1, 1988 by Ross Perot and eight business associates. The
Company reincorporated in Delaware in December 1995. With offices located
throughout North America, Europe and Asia, the Company is a worldwide provider
of business and information technology ("IT") services and solutions. The
Company provides business and IT solutions for clients in the financial
services, healthcare, energy, telecommunications, transportation, manufacturing,
retail, travel and leisure, and other industries.
SERVICES
The Company pursues opportunities to provide its services under
long-term contracts and on shorter-term systems integration, development and
consulting projects. The benefits of this approach include more efficient use of
staff between large engagements, the assimilation of new industry expertise and
diversification of the Company's client base. The Company's service offerings
include the following:
Systems Integration - The Company designs and implements IT systems for
clients, including constructing network architectures, integrating system
components and implementing the migration of application systems to new
platforms.
Systems Operation - The Company manages, operates and maintains client
data processing systems, including networks, desktop computing environments,
data centers, print centers and support functions.
Technical Consulting - The Company assists clients with strategic
decisions regarding platforms, networks and delivery media, the development of
overall architectures for IT systems, the selection of vendors and planning
transitions from one platform, technology or application to another.
Business Consulting - The Company assists clients with business
strategies, including evaluations and design of organizational structures,
management of major change events, operational processes and reengineering of
clients' operational processes.
Software Development - The Company develops application software
solutions for its clients.
MARKETS
The Company conducts its business and provides its services in North
America, Europe and Asia through a combination of industry groups,
geographically based project offices, consulting groups and groups providing
specialized services.
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Industry groups focus on delivering services, which are customized to
the particular client and are designed by business and technical experts with
extensive knowledge of the group's industry. The industry groups package and
deliver services using skills and technologies within the industry group may
also utilize resources from other specialized groups in the Company, in order to
bring expanded technical and industry skills to the client engagement. The
Company's industry groups include the following:
Global Financial Services: The Global Financial Services group serves
wholesale, commercial and retail banks, investment banks, brokerage firms and
other financial institutions. The Global Financial Services group helps clients
understand and capitalize on emerging market opportunities, including the
support of global infrastructure systems, electronic commerce over the internet,
customer relationship management and state-of-the-art trading and settlement
systems.
Healthcare: The Healthcare group serves managed care networks, hospital
groups, healthcare product distributors and other healthcare companies. The
Healthcare group's services emphasize the creation of integrated health networks
with the tools to manage and evaluate care, cost and quality outcomes. The
Healthcare group assists its clients with information access and connectivity to
provide tools for transaction management, care management, decision support and
internet-based demand management systems.
Energy: The Energy group serves municipal and private utilities,
related service providers, and other energy companies and emerging competitive
market entities. The Energy group helps clients transform their businesses to
commercially driven, open-competition models. In addition, the Energy group is
actively involved in the creation and management of power exchange and
independent service operations projects.
Communications and Media: The Communications and Media group serves
providers of voice, data, image, video, entertainment, media and information
services through wireless and wireline networks. The Communications and Media
group assists its clients with business strategy, billing, online and customer
care programs, quality assurance and testing, and customer revenue enhancement
programs.
Manufacturing: The Manufacturing group serves a variety of
manufacturing clients, including companies in the automobile manufacturing,
automobile parts manufacturing, steel and plastics businesses. The group
provides industry-specific solutions, including supply chain management,
planning and scheduling, order management and assistance with warehousing,
distribution, production and finance applications.
Travel & Transportation: The Travel and Transportation group serves
rental car companies, airlines, travel agencies and other companies in the
travel and transportation industry. This group provides its clients with
expertise in business planning, reservations systems, inventory and asset
management, customer service, billing, communications and quality assurance.
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The Company has project offices in Dallas, Texas, Detroit, Michigan,
Reston, Virginia, Denver, Colorado, Atlanta, Georgia, Tampa, Florida, London,
England, Houten, Netherlands and Munich, Germany. The project offices provide
services to a wide range of clients and also provide support to the industry
groups. The project offices typically pursue shorter-term systems integration,
software development and technical consulting projects. The Company's
object-oriented group also markets and delivers its services directly to
clients.
The Company's business consulting groups market and deliver their
services directly to clients and as part of integrated service offerings by the
Company. In addition, the Company has business consulting groups that provide
leading edge services which assist clients in transforming their business,
markets and processes.
In addition, the Company has e-commerce and object oriented groups that
market and deliver their services directly to clients and support the design and
delivery of services by other groups.
RELIANCE ON MAJOR CLIENTS
In January 1996, the Company formed a strategic alliance with Swiss
Bank Corporation ("Swiss Bank"). This alliance involves (i) a long-term contract
for the Company to deliver IT services to Swiss Bank's SBC Warburg Division
("SBC Warburg"), (ii) separate agreements to provide services to other Swiss
Bank operating units and to permit the Company to use certain Swiss Bank assets
and (iii) the grant to Swiss Bank of options to acquire stock of the Company.
In April 1997, the Company concluded the renegotiation of the terms of
its strategic alliance with Swiss Bank. The terms of the new alliance were
effective from January 1, 1997 through December 31, 2006. The renegotiation
included (i) the restructuring of the IT services contract for SBC Warburg, (ii)
the termination of all options to acquire stock of the Company that were granted
in connection with the original transactions and (iii) the sale to Swiss Bank of
stock of the Company and options to purchase stock of the Company. The
agreements that contain the terms of the Swiss Bank alliance, as renegotiated,
are collectively called the "Swiss Bank Agreements". Pursuant to the terms of
the Swiss Bank Agreements, the Company also holds a 40% stake in Swiss Bank's IT
subsidiary, Systor AG ("Systor"). A portion of the Company's interest in Systor
will be returned to Swiss Bank if the SBC Warburg EPI Agreement is terminated.
The portion that would be returned to Swiss Bank upon such a termination
declines ratably over a 10-year period, which began on January 1, 1997.
During the year ended December 31, 1997, approximately 27% of the
Company's revenues were earned in connection with services performed on behalf
of Swiss Bank and its affiliates. If certain competitors of Swiss Bank acquire
more than 25% of the shares of Class A Common Stock of the Company ("Class A
Common Stock," and such shares, "Class A Shares") or another party (other than
an affiliate of Ross Perot) acquires more than 50% of the Class A Shares and, if
in either case, that acquisition is reasonably likely to have a significant
adverse impact on the performance of or the charges for the services
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rendered by the Company, Swiss Bank has the right to terminate the Swiss Bank
Agreements. The loss of Swiss Bank as a client would have a material adverse
effect on the Company's business, financial condition and results of operations.
During the year ended December 31, 1997, approximately 10% of the
Company's revenues were earned in connection with services performed on behalf
of East Midlands Electricity (EME). The loss of this client could have a
material adverse effect on the Company's business, financial condition and
results of operations. No other client accounted for more than 10% of the
Company's revenue.
COMPETITION
The Company's markets are intensely competitive and are characterized
by continuous changes in customer requirements and the technology available to
satisfy those requirements. The Company has a small share of the
highly-fragmented IT services market.
With respect to large contracts, the Company's principal competitors
include International Business Machines Corporation, Andersen Consulting
LLP, Computer Sciences Corporation and Electronic Data Systems Corporation. Each
of these companies, as well as some other competitors, has greater financial
resources and a larger customer base than the Company and may have larger
technical, sales and marketing resources than the Company. The Company expects
to see additional competition as it addresses new markets and as the computing
and communications markets converge. The Company competes on the basis of a
number of factors both within and outside of its control, including price,
technological innovation, ability to invest in or acquire assets of potential
customers and strategic relationships with customers and suppliers. There can be
no assurance that the Company will be able to compete successfully against its
current or future competitors with respect to these or other factors in the
future. In addition, there can be no assurance that competition will not have a
material adverse effect on the Company's results of operations.
INFORMATION REGARDING GEOGRAPHIC REGIONS
For information regarding geographic regions in which the Company
operates, see Note 12 to the Consolidated Financial Statements, "Certain
Geographic Data and Segment Information."
TRADEMARKS, PATENTS AND COPYRIGHTS
The Company owns or has obtained licenses for a number of copyrights
and trademarks relating to its products and services. The Company does not
believe that any particular copyright, trademark or group of copyrights and
trademarks is of material importance to the Company's business taken as a whole.
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EMPLOYEES
As of December 31, 1997, the Company employed approximately 5,500
persons located in the United States and several other countries. None of the
Company's United States employees are currently employed under an agreement with
a collective bargaining unit. The Company's employees in France and Germany are
generally members of work councils and have worker representatives. These
representatives must be consulted on any major change in operations that affects
such employees. The Company believes that its relations with employees are good.
ITEM 2. PROPERTIES
As of December 31, 1997, the Company had approximately 40 locations in
the United States and five countries outside the United States. The Company owns
no real estate. The Company leases approximately 1.1 million square feet of
office and warehouse facilities. Current leases have expiration dates that range
from 1998 to 2012. Upon expiration of its leases, the Company does not
anticipate any significant difficulty in obtaining renewals or alternative
space. In addition to the leased property referred to above, the Company
occupies office space at customer locations throughout the world. Such space is
generally occupied pursuant to the terms of the respective customer contract.
The Company's management believes that its facilities are suitable and
adequate for its business. However, the Company has plans for expansion and is
currently negotiating for expanded facilities for several of its locations. The
Company does not anticipate any difficulty in obtaining sufficient space to
accommodate the planned expansion.
OPERATING LEASES AND MAINTENANCE AGREEMENTS
The Company has commitments related to data processing facilities,
office space and computer equipment under non-cancelable operating leases and
fixed maintenance agreements for periods ranging from one to ten years. Future
minimum commitments under these agreements as of December 31, 1997 are disclosed
in Note 13 to the financial statements.
ITEM 3. 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the registrant's
securities. As of March 16, 1998, there were 1,196 holders of record of the
Class A common stock and one (1) holder of the Class B common stock.
The Company has never paid cash dividends on its common stock. The
Company currently intends to retain earnings for use in its business and does
not anticipate paying any cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL INFORMATION
The following selected consolidated historical financial data as of and
for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is unaudited
but has been derived from the Company's Consolidated Financial Statements, which
have been audited by Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), independent
auditors. The Company has retained Coopers & Lybrand as its auditors for each of
the five years listed in the table below. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Company's Consolidated Financial Statements and
the Notes to the Consolidated Financial Statements, which are included herein.
<TABLE>
<CAPTION>
As of and for the years ended December 31,
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Contract revenue $ 781.6 $ 599.4 $ 342.3 $ 292.2 $ 291.7
Direct cost of services 636.3 461.2 268.6 246.1 251.1
Operating income (loss) 17.6 41.3 20.9 10.9 (19.7)
Income (loss) before taxes 19.5 40.2 20.3 10.1 (22.4)
Net income (loss) 11.2 20.5 10.8 6.3 (14.5)
Basic earnings (loss) per share (3) $ 0.29 $ 0.54 $ 0.33 $ 0.19 $ (0.51)
Diluted earnings (loss) per share (3) $ 0.24 $ 0.48 $ 0.31 $ 0.18 $ (0.51)
NON-RECURRING ITEMS - OPERATING:
Contract loss provisions (1) $ 10.2 -- -- -- $ 19.3
Write-off of purchased R&D 2.0 $ 3.9 -- -- --
Write-off of intellectual property rights 3.6 -- -- -- --
------- ------- ------- ------- -------
Total non-recurring items - operating $ 15.8 $ 3.9 -- -- $ 19.3
======= ======= ======= ======= =======
NON-RECURRING ITEMS - NON-OPERATING:
Write-down of non-marketable
equity securities $ 3.9 -- -- -- --
------- ------- ------- ------- -------
Total non-recurring items - non-operating $ 3.9 -- -- -- --
======= ======= ======= ======= =======
TOTAL NON-RECURRING ITEMS - ALL $ 19.7 $ 3.9 -- -- $ 19.3
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Cash and cash equivalents $ 35.3 $ 27.5 $ 17.4 $ 9.2 $ 26.9
Total assets 267.1 232.2 130.5 91.2 122.1
Long-term debt (2) 2.9 5.2 6.1 10.0 18.7
</TABLE>
(1) During 1997, the Company recorded a charge to earnings to recognize losses
on certain long-term contracts primarily due to probable contract
termination costs. During 1993, the Company recorded a charge to earnings
reversing amounts previously recognized as recoverable costs under the
percentage-of-completion method of accounting in recognition of delays and
cost overruns related to the development of a software application for a
client.
(2) Represents capital lease obligations.
(3) Years 1993 to 1996 are restated for the effect of Statement of Financial
Accounting Standards No. 128, "Earnings per share."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements, which are included herein.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
Contract revenue increased in 1997 by 30% to $781.6 million from $599.4
million in 1996, due to $43.6 million in revenue growth from the Company's Swiss
Bank contract, $60.2 million in revenue from businesses acquired in the second
half of 1996 and the first half of 1997, and a $78.4 million increase in revenue
from other new and existing business.
Domestic contract revenue grew by 42% in 1997 to $519.1 million from
$365.2 million in 1996, and increased as a percentage of total contract revenue
to 66% from 61% over the same periods.
Non-domestic contract revenue, consisting of European and Asian
operations, grew by 12% in 1997 to $262.5 million from $234.2 million in 1996,
and decreased as a percentage of total contract revenue to 34%, from 39% over
the same periods.
Direct cost of services increased in 1997 by 38% to $636.3 million from
$461.2 million in 1996, due in part to general business growth. Growth in direct
costs of services exceeded revenue growth due to the combination of start-up
costs from sales to new clients and the integration of acquired businesses. In
addition, the Company incurred several non-recurring charges in 1997, including
special contract loss provisions of $10.2 million, related to known termination
and contract completion losses on certain long-term contracts, a $3.6 million
write-off of intellectual property rights acquired, and a $3.1 million charge
related to the abandonment and sub-lease of unused office space.
Selling, general and administrative expenses ("SG&A") increased in 1997
by 35% to $125.7 million from $93.0 million in 1996, due primarily to expansion
of the sales force, staff growth in management and administrative support areas,
severance for key executives and increased goodwill amortization associated with
businesses acquired. SG&A increased as a percentage of total revenue in 1997 to
16.1% from 15.5 % in 1996.
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Equity in earnings of unconsolidated affiliates, net, increased in
1997 to $4.1 million from a loss of $0.3 million in 1996 due primarily to
significantly improved results from the Company's investment in Systor AG, a
subsidiary of Swiss Bank. Other income, net, increased in 1997 to $1.0 million
from a net expense of $1.6 million in 1996. The positive impact of the above
items was substantially offset by a $3.9 million write down of non-marketable
equity securities to net realizable value during 1997.
The decrease in the effective tax rate to 42.5% in 1997 from 48.9% in
1996 was due to both a decrease in nondeductible amortization related to
acquisitions and increased earnings in foreign jurisdictions in which the
Company intends to permanently invest subsidiary profits.
As a result of the factors noted above, operating income decreased in
1997 to $17.6 million from $41.3 million in 1996, and operating margin declined
to 2.3% from 6.9%. Net income margin in 1997 decreased to 1.4% from 3.4% over
the same period in 1996.
Prior to the non-recurring charges, which included special contract
loss provisions, the write-off of purchased research and development, the
write-off of acquired intellectual property rights, and the write-down of
non-marketable equity securities, income before taxes decreased to $39.2 million
in 1997 from $44.1 million in 1996. Net income, excluding the after tax effect
of these charges, increased to $22.6 million in 1997 from $22.5 million in 1996.
Comparison of the year ended December 31, 1996 to the year ended December 31,
1995
Contract revenue increased in 1996 by 75% to $599.4 million from $342.3
million in 1995, due to $168.9 million in revenue from the Company's Swiss Bank
contract, $10.7 million in revenue from businesses acquired in the second half
of 1996, and a $77.5 million increase in revenue from other new and existing
business.
Domestic contract revenue grew by 53% in 1996 to $365.2 million from
$238.8 million in 1995, but declined as a percentage of total contract revenue
to 61% from 70% over the same periods. Swiss Bank accounted for $88.9 million of
the domestic revenue in 1996.
Non-domestic contract revenue, consisting of European and Asian
operations, grew by 126% in 1996 to $234.2 million from $103.5 million in 1995,
and increased as a percentage of total contract revenue to 39% from 30% over the
same periods. The key factor was the Swiss Bank contract revenue of which $72.7
million was earned in Europe and $7.3 million in Asia.
Direct cost of services increased in 1996 by 72% to $461.2 million from
$268.6 million in 1995, due primarily to general business growth.
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SG&A increased in 1996 by 76% to $93.0 million from $52.9 million in
1995, due primarily to the addition of key executives, expansion of the sales
force, staff growth in management and administrative support areas. SG&A
remained constant as a percentage of total revenue at 15.5% during 1995 and
1996.
The effective tax rate increased in 1996 to 48.9% from 46.6%
in 1995, due primarily to an increase in non-deductible expense items.
Operating income increased in 1996 to $41.3 million from $20.9 million
in 1995, reflecting business growth and other factors discussed above. Operating
margin increased in 1996 to 6.9% from 6.1% in 1995, due to a decline in direct
costs of services as a percentage of contract revenue in 1996 to 76.9% from
78.5% in 1995. Net income margin increased in 1996 to 3.4% from 3.2% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity over the past three years has
been cash flow from operating activities. For the year ended December 31, 1997,
operating cash flow was $71.0 million compared to $53.9 million and $24.0
million for the years ended December 31, 1996 and 1995, respectively. Although
net income decreased by $9.3 million during 1997, operating cash flow increased
$17.0 million over the prior year. An increase in non-cash expenses of $25.7
million, primarily depreciation and amortization, and an increase in operating
net assets of $0.6 million, primarily increased collection of receivables, were
the key factors driving the change. The increase in operating cash flow of $29.9
million from 1995 to 1996 was driven by an increase in net income of $9.7
million, an increase in operating net assets of $15.6 million and a $4.6 million
increase in non-cash expenses.
Net cash used in investing activities was $67.1 million in 1997,
compared to $41.9 million in 1996 and $12.4 million in 1995. Cash expenditures
for property and equipment in 1997 (net of proceeds on disposals) were $44.9
million compared to $26.8 million in 1996 reflecting staff increases and general
business growth. In 1995, total net cash used in investing activities of $12.4
million was due to net capital expenditures relating to staff and general
business growth. Cash paid for new businesses acquired was $13.7 million in 1997
compared to $9.5 million in 1996 and cash paid for purchases of minority
interests in other entities was $2.9 million in 1997 compared to $5.5 million in
1996. The Company also purchased intellectual property rights for $6.6 million
during 1997, of which $1.0 million was sold during the period. At December 31,
1997, the Company was committed to investing a maximum of $8.1 million to fund
additional future capital requirements associated with minority interests in
certain investments. In January 1998, the Company sold its entire minority
interest in one investment for $5.1 million and thus eliminated a future capital
commitment of $7.1 million out of the total of $8.1 million at December 31,
1997.
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Net cash provided by financing activities of $4.4 million in 1997 was
generated primarily by the sale of stock options to Swiss Bank for $8.1 million
offset in part by payments on capital leases of $3.7 million and net cash
purchases of treasury stock totaling $0.7 million. In 1996, total net cash used
in financing activities was $4.5 million primarily due to an $8.5 million
redemption of preferred stock, payments on capital leases of $2.2 million and
preferred stock dividend payments of $0.9 million, offset partially by proceeds
from the sale of common stock of $4.7 million and repayments of stockholder
notes receivable of $2.2 million.
Because of growth in its international operations, the Company, in
certain instances, utilizes foreign currency exchange contracts to manage its
exposure and to mitigate the effects of currency fluctuations.
The Company maintained its existing line of credit of $40.0 million
throughout 1997. Although the Company incurred borrowings up to $34.3 million
during 1997, no borrowings were outstanding at December 31, 1997.
The Company anticipates that cash flows from operating activities will
provide sufficient funds to meet its needs during 1998. The Company's existing
line of credit expires July 31, 1998. Although there is no assurance that the
Company can extend its existing line of credit or negotiate a new line of
credit, the Company anticipates that it will not have significant difficulty
extending its existing line of credit or negotiating a new line of credit if the
Company chooses to do so. As new contracts are commenced or existing contracts
expanded, there will be increasing requirements for cash resources to fund
current operations. Significant growth in the Company's business in 1998 and
beyond 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.
The Company experienced substantial growth in 1996 and 1997. A
significant portion of that growth resulted from the formation of the Company's
strategic alliance with Swiss Bank in January 1996, which was revised in April
1997. During the years ended December 31, 1997 and 1996, approximately 27% and
28%, respectively, of the Company's revenues were earned in connection with
services performed on behalf of Swiss Bank and its affiliates.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
Financial Statements Page
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 F-6
Notes to Condensed Consolidated Financial Statements F-7 to F-37
</TABLE>
Schedule VIII - Valuation and Qualifying Accounts
The Financial Statement Schedule is submitted as Exhibit 99(a) to this
Annual Report on Form 10-K.
Schedules other than that listed above have been omitted since they are
either not required, are not applicable, or the required information is
shown in the financial statements or related notes.
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Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Index F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 F-6
Notes to Condensed Consolidated Financial Statements F-7 to F-37
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Perot Systems Corporation:
We have audited the accompanying consolidated balance sheets of Perot
Systems Corporation and Subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Perot Systems
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 25, 1998
F-2
<PAGE> 17
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,298 $ 27,516
Accounts receivable, net 105,230 113,804
Prepaid expenses and other 12,578 9,450
Deferred income taxes 24,962 25,935
-------- --------
Total current assets 178,068 176,705
Property, equipment and purchased software, net 50,703 35,748
Goodwill 16,596 7,293
Deferred income taxes 10,269 4,531
Other assets 11,467 7,970
-------- --------
Total assets $267,103 $232,247
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities on capital lease obligations and long-term debt $ 1,367 $ 2,377
Accounts payable 35,760 43,711
Income taxes payable 10,287 13,039
Accrued liabilities 76,040 53,343
Deferred revenue 23,258 22,003
Accrued compensation 23,449 20,240
-------- --------
Total current liabilities 170,161 154,713
Capital lease obligations and long-term debt, less current maturities 1,532 2,796
Other long-term liabilities 2,094 3,976
-------- --------
Total liabilities 173,787 161,485
-------- --------
Commitments and contingencies
Stockholders' equity:
Class A Common Stock; par value $.01; authorized 100,000,000 shares;
outstanding 38,227,707 and 39,630,487 shares, 1997 and 1996,
respectively 406 396
Class B Convertible Common Stock; par value $.01; authorized 24,000,000
shares; 50,000 and 0 shares outstanding, 1997 and 1996, respectively -- --
Additional paid-in-capital 61,546 51,461
Other stockholders' equity 31,364 18,905
-------- --------
Total stockholders' equity 93,316 70,762
-------- --------
Total liabilities and stockholders' equity $267,103 $232,247
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 18
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996, and 1995
(shares and dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Contract revenue $ 781,621 $ 599,438 $ 342,306
Costs and expenses:
Direct cost of services 636,296 461,192 268,553
Selling, general and administrative expenses 125,732 92,997 52,891
Purchased research and development 2,000 3,948 --
--------- --------- ---------
Operating income 17,593 41,301 20,862
Interest income 1,916 1,540 1,988
Interest expense (1,282) (770) (650)
Equity in earnings/(losses) of unconsolidated affiliates, net 4,136 (312) --
Write-down of nonmarketable equity securities (3,900) -- --
Other income/(expense) 1,045 (1,608) (1,950)
--------- --------- ---------
Income before taxes 19,508 40,151 20,250
Provision for income taxes 8,291 19,652 9,437
--------- --------- ---------
Net income $ 11,217 $ 20,499 $ 10,813
========= ========= =========
Net income attributed to common shareholders $ 11,217 $ 20,052 $ 10,218
Basic and diluted earnings per common share:
Basic earnings per common share $ 0.29 $ 0.54 $ 0.33
Weighted average common shares outstanding 39,168 37,055 31,151
Diluted earnings per common share $ 0.24 $ 0.48 $ 0.31
Weighted average diluted common shares outstanding 47,596 42,171 33,366
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 19
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1997, 1996, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Convertible
Liquidation Preference
Preferred Stock Common Stock Class A Common Stock
----------------------- ---------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 4,000,000 $ 9,888 16,000,000 $ 160 14,409,616 $ 150
Issuance of shares under incentive plans -- -- -- -- 3,312,808 30
Exercise of stock options -- -- -- -- 18,540 --
Shares repurchased -- -- -- -- -- --
Deferred compensation, net of amortization -- -- -- -- -- --
Dividends paid and accrued -- (942) -- -- -- --
Note repayments -- -- -- -- -- --
Net income -- -- -- -- -- --
Translation adjustment -- -- -- -- --
--------- ----------- ---------- -------- ---------- -----------
Balance, December 31, 1995 4,000,000 $ 8,946 16,000,000 $ 160 17,740,964 $ 180
Issuance of shares for businesses acquired -- -- -- -- 1,460,372 15
Issuance of shares under incentive plans -- -- -- -- 2,604,294 27
Exercise of stock options -- -- -- -- 1,818,218 14
Shares repurchased (4,000,000) (8,500) -- -- -- --
Shares converted to Class A Common -- -- (16,000,000) (160) 16,000,000 160
Amortization of deferred compensation -- -- -- -- -- --
Options issued for contract rights -- -- -- -- -- --
Amortization of contract rights -- -- -- -- -- --
Dividends paid and accrued -- (446) -- -- -- --
Note repayments -- -- -- -- -- --
Equity investment -- -- -- -- -- --
Tax benefit of employee options exercised -- -- -- -- -- --
Net income -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
--------- ----------- ---------- -------- ---------- -----------
Balance, December 31, 1996 -- -- -- -- 39,623,848 $ 396
Issuance of shares for businesses acquired -- -- -- -- 370,000 4
Issuance of options for business acquired -- -- -- -- -- --
Issuance of shares under incentive plans -- -- -- -- 615,369 6
Exercise of stock options -- -- -- -- 654,520 --
Shares repurchased -- -- -- -- (3,036,030) --
Sale of stock and options to Swiss Bank -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
Reversal of deferred compensation -- -- -- -- -- --
Amortization of contract rights -- -- -- -- -- --
Elimination of contract rights -- -- -- -- -- --
Note repayments and other -- -- -- -- -- --
Tax benefit of employee options exercised -- -- -- -- -- --
Net income -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
--------- ----------- ---------- -------- ---------- -----------
Balance, December 31, 1997 -- -- -- -- 38,227,707 $ 406
========= =========== ========== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Retained Cumulative Treasury Stock
Additional Earnings Translation --------------------------
Paid-in Capital (Deficit) Adjustment Shares Amount
--------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 26,335 $ (2,440) $ (221) (457,464) $ (317)
Issuance of shares under incentive plans 3,264 -- -- 600,904 397
Exercise of stock options -- -- -- 9,560 14
Shares repurchased -- -- -- (153,000) (94)
Deferred compensation, net of amortization 1,500 -- -- -- --
Dividends paid and accrued -- (595) -- -- --
Note repayments -- -- -- -- --
Net income -- 10,813 -- -- --
Translation adjustment -- -- 49 -- --
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 $ 31,099 $ 7,778 $ (172) -- --
Issuance of shares for businesses acquired 6,530 -- -- -- --
Issuance of shares under incentive plans 6,520 -- -- -- --
Exercise of stock options 1,167 -- -- 204,330 313
Shares repurchased -- -- -- (204,330) (313)
Shares converted to Class A Common -- -- -- -- --
Amortization of deferred compensation -- -- -- -- --
Options issued for contract rights 4,544 -- -- -- --
Amortization of contract rights -- -- -- -- --
Dividends paid and accrued -- (447) -- -- --
Note repayments -- -- -- -- --
Equity investment 706 -- -- -- --
Tax benefit of employee options exercised 895 -- -- -- --
Net income -- 20,499 -- -- --
Translation adjustment -- -- 1,181 -- --
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 $ 51,461 $ 27,830 $ 1,009 -- --
Issuance of shares for businesses acquired 2,697 -- -- -- --
Issuance of options for business acquired 1,500 -- -- -- --
Issuance of shares under incentive plans 1,935 -- -- (105,000) 263
Exercise of stock options (350) -- -- (635,520) 1,215
Shares repurchased -- -- -- 3,039,132 (5,344)
Sale of stock and options to Swiss Bank 8,503 -- -- -- --
Amortization of deferred compensation -- -- -- -- --
Reversal of deferred compensation (1,050) -- -- -- --
Amortization of contract rights -- -- -- -- --
Elimination of contract rights (4,146) -- -- -- --
Note repayments and other (88) -- -- -- (84)
Tax benefit of employee options exercised 1,121 -- -- -- --
Net income -- 11,217 -- -- --
Translation adjustment (37) -- (1,803) -- --
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 $ 61,546 $ 39,047 $ (794) 2,298,612 $ (3,950)
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Notes
Receivables Total
From Contract Deferred Stockholders'
Stockholders Rights Compensation Equity(Deficit)
------------ -------- ------------ ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ (887) -- -- $ 32,668
Issuance of shares under incentive plans (901) -- -- 2,790
Exercise of stock options (2,000) -- -- (1,986)
Shares repurchased -- -- -- (94)
Deferred compensation, net of amortization -- -- (1,456) 44
Dividends paid and accrued -- -- -- (1,537)
Note repayments 130 -- -- 130
Net income -- -- -- 10,813
Translation adjustment -- -- -- 49
-------- -------- -------- --------
Balance, December 31, 1995 $ (3,658) -- $ (1,456) $ 42,877
Issuance of shares for businesses acquired -- -- -- 6,545
Issuance of shares under incentive plans (3,065) -- -- 3,482
Exercise of stock options -- -- -- 1,494
Shares repurchased 225 -- -- (8,588)
Shares converted to Class A Common -- -- -- --
Amortization of deferred compensation -- -- 150 150
Options issued for contract rights -- (4,544) -- --
Amortization of contract rights -- 202 -- 202
Dividends paid and accrued -- -- -- (893)
Note repayments 2,212 -- -- 2,212
Equity investment -- -- -- 706
Tax benefit of employee options exercised -- -- -- 895
Net income -- -- -- 20,499
Translation adjustment -- -- -- 1,181
-------- -------- -------- --------
Balance, December 31, 1996 $ (4,286) $ (4,342) $ (1,306) $ 70,762
Issuance of shares for businesses acquired -- -- -- 2,701
Issuance of options for business acquired -- -- -- 1,500
Issuance of shares under incentive plans (1,427) -- -- 777
Exercise of stock options (39) -- -- 826
Shares repurchased 2,603 -- -- (2,741)
Sale of stock and options to Swiss Bank -- -- -- 8,503
Amortization of deferred compensation -- -- 256 256
Reversal of deferred compensation -- -- 1,050 --
Amortization of contract rights -- 196 -- 196
Elimination of contract rights -- 4,146 -- --
Note repayments and other 210 -- -- 38
Tax benefit of employee options exercised -- -- -- 1,121
Net income -- -- -- 11,217
Translation adjustment -- -- -- (1,840)
-------- -------- -------- --------
Balance, December 31, 1997 $ (2,939) -- -- $ 93,316
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 20
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,217 $ 20,499 $ 10,813
-------- -------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 35,363 18,715 14,083
Write-off of purchased research and development 2,000 3,948 --
Write-off of software license transfer rights -- 4,156 --
Write-off of intellectual property rights 3,623 -- --
Write-down of nonmarketable equity securities 3,900 -- --
Equity in (earnings)/losses of unconsolidated affiliates, net (4,136) 312 --
Change in deferred income taxes (10,423) (16,044) (3,598)
Loss/(gain) on sale of property, equipment and software 455 860 (47)
Changes in assets and liabilities (net of effects from acquisition
of businesses):
Accounts receivable 16,039 (43,184) (33,263)
Prepaid expenses (3,010) (4,037) 6,760
Other assets 5,843 (837) (4,578)
Accounts payable and accrued liabilities 13,244 39,401 17,790
Income taxes payable (3,550) 7,998 6,873
Deferred revenue 372 15,388 (4,685)
Accrued compensation 3,295 9,852 7,155
Other long-term liabilities (3,260) (3,095) 6,746
-------- -------- --------
Total adjustments 59,755 33,433 13,236
-------- -------- --------
Net cash provided by operating activities 70,972 53,932 24,049
-------- -------- --------
Cash flows from investing activities:
Purchase of property, equipment and software (47,243) (27,534) (18,342)
Proceeds from sale of property, equipment and software 2,366 713 5,975
Investments in and advances to minority interests (2,891) (5,536) --
Acquisition of intellectual property rights (5,623) -- --
Acquisition of businesses, net of cash acquired of $665 in 1997 and $149 in 1996 (13,721) (9,520) --
-------- -------- --------
Net cash used in investing activities (67,112) (41,877) (12,367)
-------- -------- --------
Cash flows from financing activities:
Principal payments on debt and capital lease obligations (3,725) (2,162) (2,896)
Proceeds from issuance of common stock 381 4,686 528
Proceeds from sale of stock options 8,139 -- --
Repayment of stockholder notes receivable 266 2,212 130
Proceeds from issuance of treasury stock 1,125 197 273
Purchase of treasury stock (1,834) (88) (94)
Redemption of preferred stock -- (8,500) --
Dividends paid on preferred stock -- (893) (1,537)
-------- -------- --------
Net cash provided by (used in) financing activities 4,352 (4,548) (3,596)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (430) 2,652 28
-------- -------- --------
Net increase in cash and cash equivalents 7,782 10,159 8,114
Cash and cash equivalents at beginning of year 27,516 17,357 9,243
-------- -------- --------
Cash and cash equivalents at end of year $ 35,298 $ 27,516 $ 17,357
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 21
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
1. Nature of Operations and Summary of Significant Accounting Policies
Perot Systems Corporation (the "Company") was originally
incorporated in the state of Texas in 1988 to provide systems
outsourcing, systems integration, software development, consulting, and
other information technology services. On December 19, 1995, the
Company reincorporated in the state of Delaware. The significant
accounting policies of the Company are described below. Dollar amounts
presented are in thousands, except as otherwise noted.
Principles of consolidation
The consolidated financial statements include the
accounts of the Company and all domestic and foreign
subsidiaries that are more than 50% owned and controlled. All
significant intercompany balances and transactions have been
eliminated.
The Company's investments in 20% to 50% owned
companies in which it has the ability to exercise significant
influence over operating and financial policies are accounted
for by the equity method. Accordingly, the Company's share
of the earnings (losses) of these companies is included in
consolidated net income. Investments in unconsolidated
companies and limited partnerships that are less than 20%
owned, where the Company has virtually no influence over
operating and financial policies, are carried at cost.
The Company periodically evaluates whether impairment
losses must be recorded on each investment by comparing the
projection of the undiscounted future operating cash flows to
the carrying amount of the investment. If this evaluation
indicates that future undiscounted operating cash flows are
less than the carrying amount of the investments, the
underlying assets are written down by charges to expense so
the carrying amount equals the future discounted cash flows.
Use of estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense
during the reporting period. These estimates involve judgments
with
F-7
<PAGE> 22
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
respect to, among other things, various future economic
factors which are difficult to predict and are beyond the
control of the Company. Therefore, actual amounts could differ
from these estimates.
Cash equivalents
All highly liquid investments with original
maturities of three months or less are considered to be cash
equivalents.
Revenue recognition
Revenue from contracts is generally recognized based
on the performance of tasks as defined in the contracts.
Revenue and fees on certain cost reimbursable contracts are
recognized as costs are incurred. Revenue from certain
long-term contracts has been recognized by the
percentage-of-completion method of accounting. Provisions for
estimated losses on contracts are recorded when identified.
Billings for services or products acquired for clients when
the Company acts as an agent on behalf of the client are
excluded from revenue.
Deferred revenue is comprised of payments from
customers for which services have not yet been performed, or
prepayments against development work in process. These
unearned revenues are deferred and recognized as future
contract costs are incurred and contract services are
rendered.
Research and development costs
Research and development costs are charged to expense
as incurred and were $3,243 and $4,486 in 1997 and 1996,
respectively. The write-off of purchased research and
development costs made up $2,000 and $3,948 of the total in
1997 and 1996, respectively.
Property and equipment
Property and equipment are stated at cost. Property
and equipment under capital leases are recorded at the lower
of their fair market value or the present value of future
minimum lease payments determined at the inception of the
lease.
Depreciation and amortization are calculated on a
straight-line basis, using estimated useful lives of two to
seven years. Leasehold
F-8
<PAGE> 23
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
improvements are amortized over the shorter of the lease term
or the estimated useful life of the improvement. Property and
equipment recorded under capital leases are amortized on a
straight-line basis over the lease term.
Upon sale or retirement of property and equipment,
the costs and related accumulated depreciation are eliminated
from the accounts, and any gain or loss on such disposition is
reflected in the consolidated statement of operations.
Expenditures for repairs and maintenance are charged to
operations as incurred.
Software, goodwill and other intangibles
Software purchased by the Company and utilized in
providing contract services is capitalized at cost and
amortized on a straight-line basis over the lesser of three to
five years or the term of the related contract.
The cost of acquired entities is allocated first to
identifiable assets based on estimated fair values. The excess
of the purchase price over the fair value of identifiable
assets acquired, net of liabilities assumed, is recorded as
goodwill and amortized on a straight-line basis over the
estimated productive life of the assets acquired. Due to the
fact that acquired skills and technological advantages are
subject to rapid obsolescence, and thus continuous
reinvestment, the Company's general policy is to amortize
goodwill over a three to ten year period.
The Company periodically evaluates the carrying
amount of software, goodwill, other intangibles and other
long-lived assets, as well as the related amortization
periods, to determine whether adjustments to these amounts or
useful lives are required based on current events and
circumstances. The evaluation is based on the Company's
projection of the undiscounted future operating cash flows of
the acquired operation over the remaining useful lives of the
related intangible assets. To the extent such projections
indicate that future undiscounted cash flows are not
sufficient to recover the carrying amounts of related
intangibles, the underlying assets are reduced by charges to
expense so that the carrying amount is equal to future
discounted cash flows.
F-9
<PAGE> 24
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
Income taxes
The Company uses the liability method to compute the
income tax provision. Under this method, deferred income taxes
are determined based on the difference between the financial
statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amounts expected to be realized. Income tax expense
consists of the Company's current provision for federal and
state income taxes and the change in the Company's deferred
income tax assets and liabilities.
The Company does not provide for foreign withholding
and income taxes on the undistributed earnings amounting to
$47,033 through 1997, cumulatively, for its foreign
subsidiaries, as such earnings are intended to be permanently
invested in those operations. The ultimate tax liability
related to repatriation of such earnings is dependent upon
future tax planning opportunities and is not estimable at the
present time.
Foreign operations
The consolidated balance sheets include foreign
assets and liabilities of $95,600 and $73,490, respectively,
as of December 31, 1997, and $101,481 and $77,914,
respectively, as of December 31, 1996.
Assets and liabilities of subsidiaries located
outside the United States are translated into U.S. dollars at
current exchange rates as of the balance sheet date, and
revenue and expenses are translated at average exchange rates
during each reporting period. Translation gains and losses are
recorded as a separate component of stockholders' equity.
The Company periodically enters into foreign exchange
forward contracts to hedge certain foreign currency
transactions for periods consistent with the terms of the
underlying transactions. The forward exchange contracts
generally have maturities that do not exceed one year.
The net foreign currency transaction gains/(losses)
reflected in other income/(expense) were $736, ($1,715) and
($892) for the years ended December 31, 1997, 1996 and 1995,
respectively.
F-10
<PAGE> 25
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
Concentrations of credit risk
Financial instruments which potentially subject the
Company to concentrations of credit risk consist of cash
equivalents and accounts receivable. The Company's cash
equivalents consist primarily of short-term money market
deposits. The Company has deposited its cash equivalents with
reputable financial institutions, from which the Company
believes the risk of loss to be remote. The Company has
accounts receivable from its customers who are engaged in the
banking, insurance, healthcare, manufacturing, communications,
travel and energy industries, and are not concentrated in any
specific geographic region. These specific industries may be
affected by economic factors, and, therefore, accounts
receivable may be impacted. Generally, the Company does not
require collateral from its customers, since the receivables
are supported by long-term contracts. Management does not
believe that any single customer, industry or geographic area
represents significant credit risk.
One customer accounted for 11% and 27% of the
Company's accounts receivables at December 31, 1997 and 1996,
respectively.
Financial instruments
The fair value of the Company's financial instruments
is estimated using bank or market quotes or discounted cash
flows at year-end foreign exchange and interest rates. The
fair value of the financial instruments is disclosed in the
relevant notes to the financial statements. The carrying
amount of short-term financial instruments (cash and cash
equivalents, accounts receivable, and certain other
liabilities) approximates fair value due to the short maturity
of those instruments.
The Company uses derivative financial instruments for
the purpose of hedging specific exposures as part of its risk
management program and holds all derivatives for purposes
other than trading. Deferral (hedge) accounting is applied
only if the derivative reduces the risk of the underlying
hedged item and is designated at inception as a hedge with
respect to the underlying hedged item. Additionally, the
derivative must result in cash flows that are expected to be
inversely correlated to those of the underlying hedged item.
Such instruments to date have been limited to interest rate
swap and foreign currency exchange forward contracts.
Treasury stock
Treasury stock transactions are accounted for under
the cost method.
Reclassifications
Certain of the 1996 and 1995 amounts in the
accompanying financial statements have been reclassified to
conform to the current presentation.
F-11
<PAGE> 26
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock based compensation
The Company has elected to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for
Stock Issued to Employees", and related interpretations in
accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals
the market price of the underlying stock on the date of
grant, no compensation expense is recorded. The Company has
implemented the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation".
Accounting standard issued
In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
130 (SFAS 130), "Reporting Comprehensive Income", effective
for fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for the reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company has not yet
determined the impact, if any, of implementing SFAS 130.
2. Accounts Receivable
Accounts receivable consist of the following as of December
31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Amounts billed $ 77,119 $ 88,577
Amounts to be invoiced 22,409 13,548
Recoverable costs and profits 2,798 7,744
Other 4,089 10,722
Allowance for doubtful accounts (1,185) (6,787)
--------- ---------
$ 105,230 $ 113,804
========= =========
</TABLE>
With regard to amounts billed, allowances for doubtful
accounts are provided based on specific identification where
less than full recovery of accounts receivable is expected.
Amounts to be invoiced represent revenue contractually
earned for services performed, which are invoiced to the
customer in the following month. Recoverable costs and
profits represent amounts previously recognized as revenue,
that have not yet been billed, in accordance with the
contract terms. In certain cases, the period of recovery may
extend beyond one year. However, classification of these
amounts within current assets has been
F-12
<PAGE> 27
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
made in accordance with common industry practice. It is
anticipated that $2,210 of the recoverable costs and profits
as of December 31, 1997 will be billed in 1998 and $588 will
be billed in 1999.
3. Property and Equipment and Purchased Software
Property and equipment and purchased software consist of the
following as of December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Owned assets:
Computer equipment $ 68,188 $ 48,500
Furniture and equipment 24,193 15,760
Leasehold improvements 11,070 5,897
Automobiles 669 --
--------- ---------
104,120 70,157
Less accumulated depreciation
and amortization (62,808) (41,276)
--------- ---------
41,312 28,881
--------- ---------
Assets under capital leases:
Computer equipment 1,735 3,930
Furniture and equipment 1,582 1,581
--------- ---------
3,317 5,511
Less accumulated depreciation (2,909) (5,057)
--------- ---------
408 454
--------- ---------
Property and equipment, net $ 41,720 $ 29,335
========= =========
Purchased software $ 28,635 $ 21,322
Less accumulated amortization (19,652) (14,909)
--------- ---------
Purchased software, net $ 8,983 $ 6,413
========= =========
</TABLE>
4. Acquisitions
During 1997, the Company acquired 100% of the equity interests or
assets in four companies: Business Architects, LLP, ("BA"), based in
Waltham, Massachusetts, a business process reengineering consulting
company; Benton International, Inc. ("Benton"), a retail banking
consulting firm located in New York, California and Florida; Syllogic
B.V. ("Syllogic"), a company based in The Netherlands, specializing
in the implementation, integration and control of information systems
F-13
<PAGE> 28
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
with expertise in data warehousing and data mining; and Stamos
Associates, Inc. ("Stamos"), based in New York and California, a
strategic management consulting company in the healthcare industry.
Also, the Company acquired 70% of the equity interests in Icarus
Consulting AG ("Icarus"), a company specializing in airline and related
industry consulting.
These five acquisitions were recorded under the purchase method of
accounting; and accordingly, the results of operations of these
companies for the periods from the date of the acquisition agreements
to December 31, 1997 are included in the accompanying 1997 consolidated
statement of operations. The dates of the 1997 acquisition agreements
for BA, Benton, Icarus, Syllogic, and Stamos were January 15, February
14, March 21, May 27 and June 17, respectively. The purchase prices
have been allocated to assets acquired and liabilities assumed based on
the estimated fair values at the dates of acquisition.
Under the terms and conditions of the various acquisition
agreements executed in 1997, the Company paid a total of $18,587 for
the equity interests acquired, $14,386 in cash, $2,701 in the form of
370,000 shares of the Company's Class A Common Stock, and $1,500 in the
form of 550,000 options to purchase the Company's Class A Common Stock.
The Company allocated $3,513 of the purchase price to the tangible net
assets acquired and $15,074 to goodwill.
During 1996, the Company acquired all of the equity interests in
four companies: Rothwell International, Inc. ("Rothwell"), based in
Houston, Texas, an object-oriented programming company; Doblin Group,
Inc. ("Doblin"), a Chicago-based consulting company, engaging in
strategic design planning and consulting for breakthrough products and
services; CommSys Corporation ("CommSys"), located in Reston, Virginia,
a developer of billing systems for telecommunication companies; and The
Technical Resource Connection, Inc. ("TRC"), based in Tampa, Florida,
specializing in object-oriented programming and software development.
These four acquisitions were recorded under the purchase method of
accounting; and accordingly, the results of operations of Rothwell,
Doblin, CommSys, and TRC for the periods from the date of the
acquisition agreements to December 31, 1997 are included in the
accompanying 1996 and 1997 consolidated statements of operations. The
dates of the 1996 acquisition agreements for Rothwell, Doblin, CommSys,
and TRC were August 2, September 10, September 16 and October 25,
respectively. The purchase prices have been allocated to assets
acquired and liabilities assumed based on the estimated fair values at
the dates of acquisition. In addition, portions of the purchase price
of CommSys and TRC were allocated to in-process product development
that had not reached technological feasibility and had no probable
alternative future uses, which the Company recorded at the date of
acquisition.
F-14
<PAGE> 29
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Under the terms and conditions of the various acquisition
agreements executed in 1996, the Company paid a total of $16,214 for
the equity interests acquired, $9,669 in cash, and $6,545 in the form
of 1,460,372 shares of the Company's Class A Common Stock. The Company
allocated $4,286 of the purchase price to the tangible net assets
acquired, $3,948 to expensed in-process product development and $7,980
of goodwill.
The following table reflects unaudited pro forma combined results
of operations of the Company and the 1997 and 1996 acquisitions on the
basis that the acquisitions had taken place and the related product
development expense was recorded at the beginning of the calendar year
for each of the periods presented:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
----------- ----------
<S> <C> <C>
Contract revenue $ 790,174 $ 665,035
Net income 11,065 16,548
Basic earnings per common share 0.28 0.42
Diluted earnings per common share 0.23 0.37
</TABLE>
In management's opinion, the unaudited pro forma combined results
of operations are not indicative of the actual results that would have
occurred had the acquisitions been consummated at the beginning of 1997
and 1996, respectively, or of future operations of the combined
companies under the ownership and management of the Company.
At December 31, 1997 and 1996, goodwill of $16,596 and $7,293, net
of $6,097 and $686 in accumulated amortization, respectively, related
solely to 1997 and 1996 business acquisitions.
5. Investments in Unconsolidated Affiliates and Minority Interests
At December 31, 1997, investments in and advances to
unconsolidated affiliates include two equity investments made in 1996.
On January 5, 1996, the Company acquired 40% of the equity interest in
Systor AG ("Systor"), a Swiss information services company, from Swiss
Bank Corporation as part of a larger services agreement. The Company's
investment in Systor at December 31, 1997 and 1996 was $7,188 and
$3,538, respectively.
F-15
<PAGE> 30
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
On March 26, 1996, the Company entered into a joint venture with
HCL Corporation Limited and HCL Europe Limited whereby the Company owns
49% of HCL Perot Systems NV ("HCL"), an information services company
based in India. The Company contributed capital of $500 to HCL during
1997, and is required to contribute additional capital up to a limit of
$6,900, on a call basis. The Company's investment in HCL at December
31, 1997 and 1996 was $1,742 and $524, respectively.
No dividends or distributions were received from investments in
unconsolidated affiliates in 1997 or 1996. The amount of undistributed
earnings from investments in unconsolidated affiliates recorded in
retained earnings was $4,196 and ($312) for 1997 and 1996,
respectively.
In April 1996, the Company entered into an agreement to join a
limited partnership venture capital fund, and committed to invest
$10,000, representing a 2.75% interest in the fund. As of December 31,
1997 and 1996, the Company has made net capital contributions of
$2,125, and $1,292, respectively. In January 1998, the Company sold its
entire investment for $5,162 and recognized a gain of $2,986, and has
no future commitments to the fund.
In May 1996, the Company purchased 1,471,000 shares of a class of
preferred stock in a software company for $2,500. The Company purchased
an additional 867,000 shares of the preferred stock for $400 in June
1997, representing a total 12.3% equity interest. As part of the
purchase agreement, the Company is subject to a call option, which, if
exercised, would require the Company to purchase additional shares for
a commitment of up to $1,000.
In January 1997, the Company purchased 4,000 shares of 5%
cumulative convertible preferred stock for $1,000, representing a 4.5%
interest in a privately held company specializing in the electronic
transmission, storage and retrieval of documents.
In December 1997, the Company wrote both of these investments down
by the entire book value of $3,900 due to a decline in value considered
to be other than temporary.
6. Other Assets
Intellectual property rights
In July 1997, the Company acquired certain assets of Nets, Inc.,
an internet development company in bankruptcy, for $8,755 in cash.
Included in the asset purchase were $2,132 of property and equipment
and $6,623 of intellectual
F-16
<PAGE> 31
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
property rights ("IP rights"). The Company recorded a write-off of
$2,000 of the $6,623 in IP rights as purchased research and development
costs. This amount represented an estimate of the fair market value of
development cost related to software for which technological
feasibility had not been established and for which there was no
alternative future use. The completed IP rights were capitalized due to
the expectation that the assets would be used in several contracts
under negotiation.
During the fourth quarter of 1997, the Company determined that it
was not probable that the Company would generate future undiscounted
cash flows sufficient to recover the recorded value of the IP rights.
The Company sold $1,000 of the intellectual property in October 1997,
and charged $3,623 to direct cost of services to reflect the impairment
of the remaining IP rights.
Software license transfer rights
In July 1996, the Company determined that certain software rights
and assets placed in service in 1993 were impaired due to the market
shift from mainframe systems to client/server and network based
systems. In addition, the Company's business mix had gradually shifted
from outsourcing to application development, systems integration, and
consulting. As a result, the $7,552 of transfer rights and assets in
service and the $3,396 of related accumulated amortization were written
off resulting in a loss of $4,156 classified as direct cost of
services.
7. Line of Credit
Effective July 31, 1996, the Company re-established its bank line
of credit, which allows borrowings up to $40,000 at either the adjusted
Eurodollar rate plus 1%, or the bank's prime lending rate. There were
no borrowings outstanding under the line at December 31, 1997. This
facility expires July 31, 1998.
F-17
<PAGE> 32
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
8. Accrued Liabilities
Accrued liabilities consist of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Operating expenses $30,035 $23,903
Taxes other than income, insurance,
rents, licenses and maintenance 3,433 3,519
Other contract-related 42,572 25,921
------- -------
$76,040 $53,343
======= =======
</TABLE>
Other contract-related
Other contract-related accrued liabilities represent provisions to
match contract-related liabilities in the period in which revenues from
those contracts are recognized. These include claims made by customers
for services that require additional effort and costs by the Company to
satisfy contractual requirements. An expense of $10,200 was recorded in
1997 to recognize management's estimate of known future losses
associated with the termination or completion of two long-term
contracts.
9. Capital Lease Obligations and Long-Term Debt
Capital lease obligations and long-term debt consist of the
following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Computer equipment and furniture capital leases containing various
payment terms through August 2001 with implicit interest rates
ranging from 7.9% to 17.40% $ 1,308 $ 1,777
Notes payable for software and software license transfer rights,
financed at various rates from 8.35% to 10.23%, payable in
monthly installments through July 2001 1,591 3,396
------- -------
2,899 5,173
Less current maturities (1,367) (2,377)
------- -------
$ 1,532 $ 2,796
======= =======
</TABLE>
Capital lease payments and long-term debt maturities for years
ending after December 31, 1997, are as follows:
F-18
<PAGE> 33
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
<TABLE>
<CAPTION>
Capital lease Long-term
obligations debt
----------- ---------
<S> <C> <C>
1998 $ 696 $ 848
1999 460 265
2000 207 293
2001 87 185
------- -------
Total minimum lease payment and
long-term debt maturities $ 1,450 $ 1,591
Less amounts representing interest (142) =======
-------
Present value of net minimum
capital lease payments $ 1,308
=======
</TABLE>
10. Stockholders' Equity
Preferred stock
At December 31, 1995, the Company had 4,000,000 shares of $2.125
par value Series A Preferred Stock outstanding. In 1996 the Company
exercised its right to redeem these shares for $8,500 cash, plus
accrued dividends of $298. The authorized preferred stock was
subsequently removed from the Company's charter in 1997.
Common stock and convertible liquidation preference common stock
Class A Common Stock ("Class A") of the Company consists of
100,000,000 authorized shares of $0.01 par value common stock, of which
there are 38,227,707 shares issued and outstanding as of December 31,
1997. The Company is authorized to issue, under its existing stock
plans, up to 100,000,000 Class A shares, of which 33,082,562 were
outstanding at year end. In addition, 7,000,000 Class A shares are
reserved for future conversion of Class B Common Stock ("Class B").
Class B shares consist of 24,000,000 authorized shares of $0.01
par value common stock, of which there are 50,000 shares issued and
outstanding as of December 31, 1997. The Class B shares were authorized
in conjunction with the provisions of the original Swiss Bank service
agreements, which were signed in January 1996. Class B shares are
non-voting and convertible, but otherwise are equivalent to the Class A
shares.
Under the terms and conditions of the Swiss Bank agreements, each
Class B share shall be converted, at the option of the holder, on a
share-for-share basis, into a fully paid and non-assessable Class A
share, upon sale of the share to a
F-19
<PAGE> 34
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
third-party purchaser under one of the following circumstances: 1) in
a widely dispersed offering of the Class A shares; 2) to a purchaser of
Class A shares who prior to the sale holds a majority of the Company's
stock; 3) to a purchaser that after the sale holds less than 2% of the
Company's stock; 4) in a transaction that complies with Rule 144 under
the Securities Act of 1933, as amended; or 5) any sale approved by the
Federal Reserve Board of the United States.
At December 31, 1995, the Company had 16,000,000 shares of $0.01 par
value Convertible Liquidation Preference Common Stock. In 1996, at the
initiation of the holder, and under the terms of the Company's
Certificate of Incorporation, the 16,000,000 outstanding shares of
Convertible Liquidation Preference Common Stock were converted on a
one-for-one basis into fully paid and non-assessable Class A shares.
The Convertible Liquidation Preference Common Stock was removed from
the Company's charter in 1997.
Restricted Stock Plan
In 1988, the Company adopted a Restricted Stock Plan, which was
amended in 1993, to attract and retain key employees, and to reward
outstanding performance. Employees selected by management may elect to
become participants in the plan by entering into an agreement that
provides for vesting of the Class A shares over a five-to-ten year
period and establishes a two-year holding period on one-half of the
shares prior to the sale of vested common stock. Each participant has
voting, dividend and distribution rights with respect to all shares of
both vested and unvested common stock. Prior to the Class A shares
becoming publicly traded, the Company retains the right of first
refusal to buy the employees' vested shares at a formula price set
forth in each agreement, based on fair value or book value. After the
Class A shares become publicly traded, the right of first refusal no
longer exists. The Company may repurchase unvested shares, and under
certain circumstances, vested shares of participants whose employment
with the Company terminates. The repurchase price under these
provisions is determined by the underlying agreement, generally the
employees' cost plus interest at 8%. Common stock issued under the
Restricted Stock Plan has been purchased by the employees at varying
prices, determined by the Board of Directors and estimated to be the
fair value of the shares based upon an independent third-party
appraisal. The Company has from time to time financed the issuance of
shares under the Restricted Stock Plan by executing promissory notes
with the employees, with repayment terms ranging from one to fifteen
years. These notes bear interest at 8%, payable at least annually, and
are with recourse. Principal and interest payments vary from monthly to
5 years, and the loans are collateralized by the shares financed by the
notes. The balance of the outstanding notes is included as a reduction
to stockholders' equity.
F-20
<PAGE> 35
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
1991 Stock Option Plan
In 1991, the Company adopted the 1991 Stock Option Plan (the
"1991 Plan"), which was amended in 1993. Pursuant to the 1991 Plan,
options to purchase the Company's Class A shares can be granted to
eligible employees. The stock options are granted at a price not less
than 100% of the fair value of the Company's Class A shares, as
determined by the Board of Directors, based upon an independent
third-party valuation. The stock options vest over a three to ten year
period based on the provisions of each grant, and in some cases can be
accelerated through attainment of financial performance criteria. All
stock options require a two-year holding period for one half of the
shares purchased once the options are exercised, and are usually
exercisable from the vesting date until the eleventh anniversary from
the date of grant, and unvested options are cancelled following the
expiration of a certain period after the employee leaves the employment
of the Company. Prior to the common stock becoming publicly traded, the
Company has certain rights of first refusal to repurchase employees'
shares obtained through exercise of the stock options at the employees'
cost plus 8%. For options issued after April 1, 1997, the agreements
provide that shares issued upon the exercise of the options may not be
sold until six months following an initial public offering.
Advisor Stock Option/Restricted Stock Incentive Plan
In 1992, the Company adopted the Advisor Stock Option/Restricted
Stock Incentive Plan (the "Advisor Plan"), which was modified in 1993,
to enable non-employee directors and advisors to the Company and
consultants under contract with the Company to acquire shares of the
Company's Class A stock, at a price not less than 100% of the fair
value of the Company's common stock, as determined by the Board of
Directors, based upon an independent third-party valuation. The options
and shares are subject to a vesting schedule and restrictions
associated with their transfer. Under certain circumstances, the shares
can be repurchased by the Company at cost plus 8% from the date of
issuance.
In 1996, the Board approved the 1996 Non-Employee Director Stock
Option/Stock Incentive Plan and the 1996 Advisor and Consultant Stock
Option/Stock Incentive Plan, which together replaced the Advisor Plan
for subsequent grants of options. Provisions of the Advisor Plan will
remain in effect for outstanding stock and options but no new issuances
will be made pursuant to the plan.
F-21
<PAGE> 36
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
1996 Non-Employee Director Stock Option/Stock Incentive Plan
In 1996, the Company adopted the 1996 Non-Employee Director Stock
Option/Stock Incentive Plan (the "Director Plan"). The Director Plan
provides for the issuance of up to 400,000 Class A shares or options to
Board members who are not employees of the Company. Shares or options
issued under the plan would be subject to five year vesting, with
options expiring after an eleven year term. The purchase price for
shares issued and exercise price for options issued is the fair value
of the shares at the date of issuance. Other restrictions are
established upon issuance. In 1997, 60,000 options were granted under
the plan.
1996 Advisor and Consultant Stock Option/Stock Incentive Plan
In 1996, the Company adopted the 1996 Advisor and Consultant Stock
Option/Stock Incentive Plan (the "Consultant Plan"). The Consultant
Plan provides for the issuance of Class A shares or options to advisors
or consultants who are not employees of the Company, subject to
restrictions established at time of issuance. The option exercise price
is the fair value of the shares on the date of grant. The purchase
price for share issuances is determined by a committee appointed by the
Board of Directors. The fair value of issuances under the plan is
estimated at the time of issuance and amortized ratably over the
vesting period as compensation expense. In 1997, 24,000 options were
granted under the plan.
Other stock and option activity
During 1995, options for the purchase of 2,000,000 Class A
shares, with an exercise price of $1.00 per share, were granted to an
executive officer of the Company when the fair value of the stock was
estimated to be $1.75 per share. This resulted in deferred compensation
of $1,500, which was recorded as a reduction to stockholders' equity.
These options were exercised in 1995, whereby the Company received cash
of $600, and a promissory note for $1,400 in consideration for the
shares, under the terms of the original grant.
Prior to an underwritten public offering of its common stock, the
Company retains the right of first refusal to buy back the vested
shares for cash at a purchase price equal to fair value, and the
unvested shares at the cost paid by the shareholder. After such an
offering, the right of first refusal no longer exists. The Company had
the right, under certain circumstances, to repurchase certain shares at
cost if employment with the Company terminates.
F-22
<PAGE> 37
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
During the third quarter of 1997, the executive terminated his
employment and the Company made a non-cash repurchase of 1,400,000
shares of common stock through a reduction of $1,830 in outstanding
notes receivable. The unamortized balance of deferred compensation was
reclassified to additional paid-in-capital.
Swiss Bank Agreement
On April 24, 1997, the Company concluded the renegotiation of the
terms of its strategic alliance with Swiss Bank, initially entered into
in January 1996. The new terms were effective from January 1, 1997 and
involve (i) a 10-year contract for the Company to provide information
technology ("IT") services to SBC Warburg ("SBC Warburg EPI
Agreement"), (ii) separate agreements to provide IT services to other
Swiss Bank operating units and to permit the Company to use certain
Swiss Bank assets, (iii) the sale to Swiss Bank of options to acquire
shares of the Company's Class B stock, (iv) the sale to Swiss Bank of
shares of the Company's Class B stock, and (v) the termination of all
options to acquire shares of the Company's Class B stock granted under
the terms and conditions of prior Swiss Bank agreements. The Company
continues to hold a 40% stake in Systor. In the event of termination of
the SBC Warburg EPI Agreement, a portion of the Company's interest in
Systor would be returned to Swiss Bank, declining ratably over the
10-year period which began on January 1, 1997.
The new terms of the SBC Warburg EPI Agreement require the Company
to provide operational management for SBC Warburg's technology
resources (including mainframes, desktops, and voice and data
networks), excluding hardware and proprietary software applications
development. The Company is to be reimbursed for all costs, excluding
corporate overhead, related to services provided under the SBC Warburg
EPI Agreement. In addition, the Company will receive a management fee,
subject to bonuses and penalties, depending upon the achievement of
certain defined performance criteria.
Under the terms and conditions of the new agreement, the Company
sold to Swiss Bank options to purchase 3,617,160 shares of the
Company's Class B stock at a cash non-refundable purchase price of
$2.25 per option. These Class B shares are subject to certain
transferability and holding-period restrictions, which lapse over a
defined vesting period. These options are exercisable immediately and
for a period of 5 years after the date that such shares become vested,
at an exercise price of $7.30 per share. In addition, the Company sold
to Swiss Bank 50,000 shares of the Company's Class B stock, subject to
the same transferability and holding-period restrictions, at a purchase
price of $7.30 per share. These
F-23
<PAGE> 38
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
options and shares were sold in connection with the execution and
delivery of the 10- year SBC Warburg EPI Agreement. Both the 50,000
shares of Class B stock and the 3,617,160 shares of Class B stock
subject to options vest at a rate, in the aggregate, of 31,953 shares
per month for the first five years of the agreement, and at a rate of
29,167 shares per month thereafter. In the event of termination of the
SBC Warburg EPI Agreement, options to acquire unvested shares would be
forfeited, and the Company would have the right to buy back any
previously acquired unvested shares for the original purchase price of
$7.30 per share.
The Company also agreed to issue and sell to Swiss Bank additional
shares and/or options to purchase Class B shares, subject to the same
transferability and holding-period restrictions, up to a maximum of
3,500,000 shares, in such combination of options and shares that Swiss
Bank deems appropriate, provided the Company and Swiss Bank, on or
prior to December 31, 1998, enter into a second IT services agreement,
having a term of 10 years, and being of a size and scope similar to
that of the SBC Warburg EPI Agreement. The purchase price and exercise
price for these options, as well as the purchase price for these shares
will be the defined fair value as of the date of grant. These shares
will vest ratably over 10 years commencing on the date of execution of
the new agreement. In the event of termination, options to acquire
unvested shares would be forfeited, and the Company would be required
to buy back any previously acquired unvested shares for the original
purchase price.
Pursuant to the Bank Holding Company Act of 1965 and subsequent
regulations and interpretations put forth by the Federal Reserve Board
(the "regulations"), Swiss Bank's holdings in terms of shares of the
Company's common stock may not reach or exceed 10% of the total of all
classes of the Company's common stock. Similarly, the total
consideration paid by Swiss Bank for the purchase of shares plus the
purchase and exercise of options may not at any time reach or exceed
10% of the Company s consolidated stockholders' equity as determined in
accordance with generally accepted accounting principles. If, however,
on certain specified anniversaries of the execution date of the new
agreement, beginning in 2004, the number of Class B shares, for which
Swiss Bank's options are exercisable, is limited due to an insufficient
number of shares outstanding, Swiss Bank has the right to initiate
procedures to eliminate such deficiency. These procedures may involve
(i) issuance of additional Class A shares by the Company, (ii) a formal
request to the Federal Reserve Board from Swiss Bank for authorization
to exceed its allowable percentage of ownership, or (iii) the purchase
of Class B shares by the Company from Swiss Bank at a defined fair
value. In addition, the exercise period for options to purchase vested
shares would be increased beyond the normal 5 years to account for any
time during such exercise period in which Swiss Bank is unable to
exercise its options as a result of the regulations.
F-24
<PAGE> 39
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Activity in Liquidation Preference Common and Class A Common Stock:
<TABLE>
<CAPTION>
WEIGHTED
RESTRICTED ADVISOR OPTION LIQUIDATION SHARE AVERAGE
PLAN PLAN PLAN OTHER PREFERENCE TOTAL PRICE
---------- ------- --------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING SHARES 8,662,920 404,000 61,920 5,280,776 16,000,000 30,409,616 0.70
ISSUANCE 1,107,661 60,000 -- 2,145,147 -- 3,312,808 1.07
OPTIONS EXERCISED -- -- 18,540 -- -- 18,540 0.70
REPURCHASED -- -- -- -- -- -- --
---------- ------- --------- ---------- ---------- ----------
DECEMBER 31, 1995 9,770,581 464,000 80,460 7,425,923 16,000,000 33,740,964 0.74
ISSUANCE 3,871,985 15,367 825 188,079 -- 4,076,256 2.92
OPTIONS EXERCISED -- -- 1,818,218 -- -- 1,818,218 0.85
CONVERSION -- -- -- 16,000,000 (16,000,000) -- 0.01
REPURCHASED (10,971) -- (619) -- -- (11,590) 2.63
---------- ------- --------- ---------- ---------- ----------
DECEMBER 31, 1996 13,631,595 479,367 1,898,884 23,614,002 -- 39,623,848 1.01
ISSUANCE 828,000 100 -- 157,269 -- 985,369 5.42
OPTIONS EXERCISED -- 120,000 534,520 -- -- 654,520 1.02
REPURCHASED (1,635,886) -- -- (1,400,144) -- (3,036,030) 1.58
---------- ------- --------- ---------- ---------- ----------
DECEMBER 31, 1997 12,823,709 599,467 2,433,404 22,371,127 -- 38,227,707 1.28
========== ======= ========= ========== ========== ==========
</TABLE>
F-25
<PAGE> 40
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
Activity in Options for Class A Common Stock:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ADVISOR OTHER EXERCISE
1991 PLAN PLAN OPTIONS TOTAL PRICE
---------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
1995 OUTSTANDING AT BEGINNING OF YEAR 6,675,992 160,000 311,288 7,147,280 0.86
Granted 2,255,000 -- -- 2,255,000 1.25
Exercised (17,180) -- (1,360) (18,540) 0.70
Forfeited -- -- -- -- --
---------- ------- ------- ----------
Outstanding at December 31, 1995 8,913,812 160,000 309,928 9,383,740 0.96
========== ======= ======= ==========
Exercisable at December 31, 1995 1,858,166 205,214 96,000 2,159,380 0.92
1996 OUTSTANDING AT BEGINNING OF YEAR 8,913,812 160,000 309,928 9,383,740 0.96
Granted 6,848,240 65,000 -- 6,913,240 1.08
Exercised (1,776,626) -- (41,592) (1,818,218) 0.84
Forfeited (41,392) -- (512) (41,904) 2.29
---------- ------- ------- ----------
Outstanding at December 31, 1996 13,944,034 225,000 267,824 14,436,858 2.02
========== ======= ======= ==========
Exercisable at December 31, 1996 1,389,546 152,000 189,484 1,731,030 1.57
1997 OUTSTANDING AT BEGINNING OF YEAR 13,944,034 225,000 267,824 14,436,858 2.02
Granted 6,891,352 84,000 -- 6,975,352 3.55
Exercised (485,680) (120,000) (48,840) (654,520) 1.03
Forfeited (2,858,289) -- (7,184) (2,865,473) 0.66
---------- ------- ------- ----------
Outstanding at December 31, 1997 17,491,417 189,000 211,800 17,892,217 3.15
========== ======= ======= ==========
Exercisable at December 31, 1997 2,310,825 44,500 140,192 2,495,517 2.68
</TABLE>
F-26
<PAGE> 41
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
The following table summarizes information about options for Class
A common shares outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted-Average
Exercise Number Remaining Number
Price Outstanding Contractual Life Exercisable
-------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
$0.50 362,500 4.22 210,528
$0.75 1,204,260 6.59 658,390
$1.00 4,316,100 7.10 1,003,310
$1.75 697,044 6.33 100,978
$2.50 4,130,321 9.51 393,720
$3.00 71,500 9.69 -
$3.75 3,551,542 8.97 114,306
$4.00 65,000 10.04 -
$6.75 3,493,950 8.84 14,285
---------- ---------
$3.75 17,892,217 8.26 2,495,517
========== =========
Weighted average exercise price of exercisable options $1.14
</TABLE>
As previously noted, the Company has continued to account for its
stock option activity under APB 25. Had the Company elected to adopt
SFAS 123, the pro forma impact on net income and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ---------
<S> <C> <C> <C>
Net income
As reported $11,217 $20,499 $10,813
Pro forma $9,948 $20,063 $10,734
Basic earnings per share
As reported $0.29 $0.54 $0.33
Pro forma $0.25 $0.53 $0.33
Diluted earnings per share
As reported $0.24 $0.48 $0.31
Pro forma $0.21 $0.47 $0.31
</TABLE>
All options issued by the Company in 1997, 1996 and 1995 were
issued at the estimated fair value in effect at the date of issuance,
vest ratably over the vesting period, and expire one year after the
final vesting date. The fair value of each option
F-27
<PAGE> 42
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
grant was estimated on the date of grant using the Minimum Value option
pricing model with the following assumptions for 1997, 1996 and 1995,
respectively; risk free weighted average interest rates of 6.5% for
1997 and 6.8% for 1996 and 1995; dividend yield and volatility of zero
for all years. The expected life for each issuance was equal to the
midpoint of the vesting period, plus one year. For example, an option
vesting ratably over ten years has an expected life of 6 years. The
weighted-average grant-date fair value of options issued in 1997, 1996
and 1995 was $2,709, $5,938 and $1,916, respectively. The Company
expects that the impact of future option issuances will be to increase
overall pro forma compensation expense, thereby reducing pro forma net
income reported in future periods.
11. Income Taxes
Income before taxes for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Domestic $ (4,054) $ 10,151 $ 12,518
Foreign 23,562 30,000 7,732
---------- --------- --------
$ 19,508 $ 40,151 $ 20,250
========== ========= ========
</TABLE>
The provision for income taxes charged to operations was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Current:
U.S. Federal $ 9,159 $ 21,794 $ 4,444
State and local 1,383 3,583 766
Foreign 8,172 10,319 7,825
-------- -------- --------
Total current $ 18,714 $ 35,696 $ 13,035
======== ======== ========
Deferred:
U.S. Federal (8,902) (14,400) (4)
State and local (1,392) (2,242) 32
Foreign (129) 598 (3,626)
-------- -------- --------
Total deferred (10,423) (16,044) (3,598)
-------- -------- --------
Total provision for income taxes $ 8,291 $ 19,652 $ 9,437
======== ======== ========
</TABLE>
F-28
<PAGE> 43
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
Deferred tax liabilities (assets) are comprised of the following
at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred compensation $ 431 $ 536
Conversion of acquired entity from
cash basis to accrual basis of
accounting 1,171 989
Other 664 493
-------- --------
Gross deferred tax liabilities 2,266 2,018
-------- --------
Property, Plant & Equipment (11,050) (5,557)
Accrued liabilities (22,958) (21,233)
Equity investments (817) (517)
Intangibles (1,134) (171)
Deferred revenue (1,538) (4,877)
Other -- (129)
-------- --------
Gross deferred tax assets (37,497) (32,484)
-------- --------
Net deferred tax asset $(35,231) $(30,466)
======== ========
</TABLE>
A valuation allowance has not been established for the net
deferred tax asset as of December 31, 1997 or 1996, due to a
significant contract backlog and the availability of loss carrybacks.
The provision for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income
tax rate to income before taxes, as a result of the following
differences:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rates $ 6,828 35.0% $14,053 35.0% $ 7,087 35.0%
Non-deductible items 528 2.7 3,017 7.5 1,829 9.0
State and local taxes (215) (1.1) 609 1.5 751 3.7
Nondeductible
amortization and write-
off of intangible assets 1,765 9.0 1,900 4.7 -- --
U.S. rates in excess of
foreign rates and other (615) (3.1) 73 .2 (230) (1.1)
------- ------- ------- ------- ------- -------
Total provision for
income taxes $ 8,291 42.5% $19,652 48.9% $ 9,437 46.6%
======= ======= ======= ======= ======= =======
</TABLE>
F-29
<PAGE> 44
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
12. Certain Geographic Data and Segment Information
As defined by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
the Company operates in one industry segment which includes the
development, implementation, operation and management of information
systems. Services are provided through the parent company in the United
States, and through a worldwide network of subsidiaries located in the
United Kingdom, Germany, France, Switzerland, the Netherlands,
Singapore, Hong Kong and Japan. Financial information by geographic
region is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
United States:
Total revenue $ 519,122 $ 365,211 $ 238,783
Operating income (5,507) 10,969 12,802
Identifiable assets at December 31 171,503 130,766 90,632
Europe and Asia:
Total revenue 262,499 234,227 103,523
Operating income 23,100 30,332 8,060
Identifiable assets at December 31 95,600 101,481 39,841
Consolidated:
Total revenue 781,621 599,438 342,306
Operating income 17,593 41,301 20,862
Identifiable assets at December 31 267,103 232,247 130,473
</TABLE>
Greater than 10% of the Company's contract revenue was earned from
two customers for the year ended December 31, 1997, one customer for
the year ended December 31, 1996, and two customers for the year ended
December 31, 1995. Revenue from these customers comprised 27% and 10%
of total revenue in 1997, 28% of total revenue in 1996, and 12% and 10%
of total revenue in 1995.
F-30
<PAGE> 45
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
13. Commitments and Contingencies
Operating leases and maintenance agreements
The Company has commitments related to data processing
facilities, office space and computer equipment under
non-cancelable operating leases and fixed maintenance agreements
for periods ranging from one to ten years. Future minimum
commitments under these agreements as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Year ending Lease and Maintenance
December 31: Commitments
------------ -----------
<S> <C>
1998 $25,599
1999 20,559
2000 15,556
2001 10,783
2002 11,168
-------
Total $83,665
=======
</TABLE>
The Company is obligated under certain operating leases for
its pro rata share of the lessors' operating expenses. Rent
expense was $17,958, $18,212, and $23,731 for 1997, 1996 and 1995,
respectively.
Letter of credit
The Company had a $1,000 irrevocable letter of credit as of
December 31, 1997. The letter of credit was issued in conjunction
with the provisions of a certain contract. The fair value of the
letter of credit is estimated to be equal to the face value based
on the nature of the fee arrangements with the issuing bank.
Financial instruments with off-balance sheet risk
Interest rate swap
In December 1993, the Company entered into an agreement with
a customer to reduce future monthly billings in exchange for a
non-refundable payment for work performed involving the
development and installation of a major new system. Under the
terms of this agreement, the
F-31
<PAGE> 46
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
Company is required to make an interest sensitive payment to
the customer if a defined variable interest rate ("Rate") exceeds
8.5% based upon a declining notional amount ($48,756 and $67,716
as of December 31, 1997 and 1996, respectively) over the term of
the contract. If the Rate is less than 8.5%, the customer is
required to pay the Company for the difference in the interest
rates based upon the same declining notional amount.
In January 1994, the Company entered into an interest rate
swap agreement with a bank to eliminate its exposure to the
interest sensitive payment. Under the terms of the swap agreement,
the Company is required to pay a fixed interest rate of 7.32% to a
bank in exchange for being paid the Rate.
The differences to be paid or received on the interest
sensitive payment and swap are included as an adjustment to direct
cost of services. The Company recorded a reduction to direct cost
of services of $643 and $852 for the years ended December 31, 1997
and 1996, respectively. Based on anticipated cash flows,
discounted at the U.S. prime lending rate of 8.5%, the fair value
of these instruments was estimated to be a $1,102 benefit as of
December 31, 1997. The Company's remaining risk associated with
these transactions is risk of default by the customer or the bank,
which the Company believes to be remote.
Foreign currency exchange forward contracts
At December 31, 1997, the Company had three forward exchange
contracts maturing in early 1998. Two British pound to U.S. dollar
trades for $10,177 and $6,684 as of December 31, 1997 mature in
February 1998 and January 1998, respectively. A third forward
trade of Swiss franc to U.S. dollar totaling $8,108 matures in
January 1998.
The estimated fair value of the Company's forward exchange
contracts using bank or market quotes and the year end foreign
exchange rates was a net liability of $18 as of December 31, 1997.
The Company's remaining risk associated with this transaction is
the risk of default by the bank, which the Company believes to be
remote.
Contracts
In the normal course of business, the Company provides
services to its clients which may require the Company to comply
with certain performance criteria. The Company believes that the
ultimate liability, if any, incurred under these contracts will
not have a material adverse effect on the Company's consolidated
results of operations or financial position.
Contingent put rights
Under the terms of various stock agreements, a total of
1,463,376 shares of Class A Common Stock are subject to contingent
put rights. For
F-32
<PAGE> 47
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
600,000 and 323,376 of these shares, the holders may require the
Company to repurchase the shares at fair value in the event the
Company's Class A Common Stock is not publicly traded by the years
2010 and 2000, respectively. For 540,000 of these shares, the
holders may require the Company to repurchase the shares at the
original cost plus 8% interest, accrued from the date of purchase,
in the event the holders' employment or directorship terminates.
Litigation
There are various claims and pending actions against the
Company arising in the ordinary course of the conduct of its
business. The Company believes that these claims and actions will
have no material adverse effect on the Company's financial
condition, results of operations or cash flow.
Year 2000
The inability of computers, software and other equipment
utilizing microprocessors to recognize and properly process date
fields containing a 2 digit year is commonly referred to as the
Year 2000 Compliance issue. As the year 2000 approaches, such
systems could be unable to accurately process certain date-based
information. The Company believes it has identified all
significant applications that will require modification to ensure
Year 2000 Compliance and does not believe compliance with the Year
2000 requirements will have a material adverse effect on the
Company's business or results of operations. The Company is
performing an assessment of its obligations to make any of its
clients' systems Year 2000 compliant, including an estimate of the
cost and revenues to be incurred in fulfilling such obligations,
and monitors this assessment on an ongoing basis. Based on such
assessment, the Company does not believe that its client
obligations with respect to the Year 2000 issue will have a
material adverse impact on the financial position and results of
operations of the Company.
14. Retirement Plan and Other Employee Trusts
During 1989, the Company established the Perot Systems 401(k)
Retirement Plan, a qualified defined contribution retirement plan. The
plan year is January 1 to December 31 and allows eligible employees to
contribute between 1% and 15% of their annual compensation, including
overtime pay, bonuses and commissions. The Plan was amended effective
January 1, 1996 to change the Company's contribution from 2% of the
participants' defined annual compensation, to a formula matching
employees' contributions at a two-thirds rate, up to a maximum Company
contribution of 4%. The Company's cash contribution for the years ended
December 31, 1997, 1996 and 1995 amounted to $7,388, $4,785 and $1,919,
respectively. The Company's contribution of common stock for the years
ended December 31, 1997, 1996 and 1995 totaled 128,795, 6,325 and
99,486 shares, respectively, which were allocated to participants' plan
accounts using a formula based on compensation. Compensation expense of
$631, $14, and $224, respectively, was recorded as a result of these
share contributions.
In 1992 the company established a European trust, for the benefit
of non-U.S. based employees, to which 11,926 shares were contributed in
1995. Compensation expense of $26 was recorded in 1995 as a result of
this grant.
In 1996, the company contributed 162,143 shares to certain trusts
established for the benefit of employees transitioning to the company
pursuant to certain contracts. Compensation expense of $405 was
recorded in 1996 related to these grants.
F-33
<PAGE> 48
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
15. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------------ -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 1,283 $ 1,877 $ 671
========== ============ ======
Income taxes $ 23,325 $ 28,032 $7,031
========== ============ ======
Non-cash investing and financing activities:
Issuance of common stock for acquisition
of businesses $ 2,701 $ 6,545 $ --
========== ============ ======
Issuance of stock options for acquisition
of business $ 1,500 $ -- $ --
========== ============ ======
Liabilities assumed in acquisition of businesses $ 7,693 $ 4,150 $ --
========== ============ ======
Repurchase of shares issued under Restricted
Stock Plan in exchange for reductions in
notes receivable from stockholders $ 2,353 $ 225 --
========== ============ ======
Purchase of shares financed by notes
receivable from stockholders $ 1,427 $ 3,065 $ 901
========== ============ ======
Reversal of deferred compensation $ 1,050 $ -- $ --
========== ============ ======
Contract rights issued (cancelled) at inception
and renegotiation of Swiss Bank Agreement ($ 4,146) $ 4,544 $ --
========== ============ ======
Stock options issued for investments in
and advances to unconsolidated
affiliates $ -- $ 706 $ --
========== ============ ======
Transfer of assets upon assignment of lease obligation $ -- $ -- $1,008
========== ============ ======
</TABLE>
F-34
<PAGE> 49
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
16. Related Party Transactions
During 1996 and 1997, certain officers financed the purchase of
Class A Common Stock with a bank. In addition, the Company entered into
an agreement with this bank under which, if the Company's Class A
common shares are not publicly traded prior to the earlier of June 30,
1998 or the maturity date of the individual loans, the Company would
purchase, at the bank's option, any of these loans. As of December 31,
1997, approximately $1,546 remain outstanding under these loans. All of
these loans bear interest at the prime rate plus 1% (currently 9.5%)
and are due at various dates between July 1, 1998 and July 22, 1999.
In March 1996, the Company loaned $615 to an executive. The note
bears interest at a rate of 5.98% per annum and is payable at the
fifteenth anniversary of the date of the note or at an earlier date if
the Company's common stock is publicly traded. In April 1997, the
Company loaned an additional $2,397 to this executive. For these
additional loans, up to $1,169 is collateralized by the Company's Class
A common shares held by this executive and $1,000 is collateralized by
a mortgage on the executive's residence. These additional loans will
bear interest at the greater of 7.25% or the applicable federal rate.
As of December 31, 1997, the principal balance remaining on these notes
is $2,169. In July 1997, the Company repurchased 1,400,000 shares of
common stock from this executive, following his resignation, through a
reduction of $1,830 in outstanding notes receivable.
In August 1996, an officer of the Company obtained funding in the
amount of $350 from a bank. The Company entered into a third party
agreement with this bank under which, if the Company's Class A common
shares are not publicly traded prior to the earlier of June 30, 1998 or
the maturity date of the loan, the Company will purchase the loan at
the bank's option. The maturity date of this loan is February 26, 2000.
In January and February 1997, the Company loaned $450 to an
executive at the rate of 8%. The notes were collateralized by the
executive's Class A common shares. Prior to year end, the notes and the
related shares were canceled.
In August 1997, the Company also loaned $250 to an executive at
the rate of 8%. This note is collateralized by the executive's Class A
common shares and is payable in August 2000.
F-35
<PAGE> 50
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------
A former officer of the Company has three outstanding loans
totaling $349 with the Company. These loans are secured by the
Company's Class A common shares held by the executive and are due by
December 31, 1999.
In 1996, the Company entered into an agreement with Perot
Investments, Inc. ("PII") pursuant to which the Company licensed
certain software from PII. The Company sublicensed such software to The
Witan Company, L.P. ("Witan"). Witan paid a license fee of $1,000
directly to PII in connection with the license. The Company had a
separate contract with Witan to perform development work on the
licensed software. The contract was terminated in 1997. PII is an
affiliate of a stockholder of the Company.
17. Earnings Per Share
In 1997, the Company adopted 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.
The following chart is a reconciliation of the numerators and the
denominators of the basic and diluted per-share computations.
F-36
<PAGE> 51
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
<TABLE>
<CAPTION>
PER-SHARE
INCOME SHARES AMOUNT
------ ------ ----------
<S> <C> <C> <C>
FOR THE YEAR ENDED 1995
Net income 10,813
Less preferred stock dividend (595)
------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders 10,218 31,151 $ 0.33
==============
Dilutive options 2,215
-----------------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common stockholders
Plus assumed conversions 10,218 33,366 $ 0.31
==============
FOR THE YEAR ENDED 1996
Net income 20,499
Less preferred stock dividend (447)
------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders 20,052 37,055 $ 0.54
==============
Dilutive options 5,116
-----------------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common stockholders
Plus assumed conversions 20,052 42,171 $ 0.48
==============
FOR THE YEAR ENDED 1997
Net income 11,217
Less preferred stock dividend -
------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders 11,217 39,168 $ 0.29
==============
Dilutive options 8,428
-----------------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common stockholders
Plus assumed conversions 11,217 47,596 $ 0.24
==============
</TABLE>
The effect of this accounting change on previously reported earnings
per share data was as follows:
<TABLE>
<CAPTION>
PER SHARE AMOUNTS 1996 1995
-----------------------------
<S> <C> <C>
Primary EPS as reported $ 0.40 $ 0.30
Effect of SFAS No. 128 0.14 0.03
-----------------------------
Basic EPS as restated $ 0.54 $ 0.33
============================
Fully diluted EPS as reported $ 0.40 $ 0.30
Effect of SFAS No. 128 0.08 0.01
----------------------------
Diluted EPS as restated $ 0.48 $ 0.31
============================
</TABLE>
F-37
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All other information required by Items 10, 11, 12 and 13, is incorporated by
reference to the registrant's definitive proxy statement for its Annual Meeting
of Stockholders to be held on May 8, 1998, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1997.
13
<PAGE> 53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. (1) and (2) Financial Statements and Financial Statement Schedule
The consolidated financial statements of Perot Systems Corporation and
subsidiaries and the required financial statement schedule are
incorporated by reference in Part II, Item 8 of this report.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
10.1* 1991 Stock Option Plan
10.2* Form Option Agreement (1991 Option Plan)
10.3* Restricted Stock Plan
10.4* Form Restricted Stock Agreement (Restricted Stock Plan)
10.5* 1996 Non-employee Director Stock Option/Restricted Stock Incentive Plan
10.6* Form Restricted Stock Agreement (Non-Employee Director Stock Option/ Restricted Stock Plan
10.7* Form Option Agreement (Non-Employee Stock Option/Restricted Stock Plan)
10.8* Advisor Stock Option/Restricted Stock Incentive Plan
10.9* Form Restricted Stock Agreement (Advisor Stock Option/Restricted Stock Plan)
10.10* Form Option Agreement (Advisor Stock Option/Restricted Stock Plan)
10.11* Stock Purchase Agreement dated as of August 20, 1992, between the Company and Meyerson Family Limited Partnership
10.12* Stock Option Grant dated as of June 27, 1995, by the Company in favor of James A. Cannavino
10.13* Employment Agreement dated as of September 16, 1995, by and between the Company and James A. Cannavino
10.14* Promissory Note dated December 18, 1995, made by James A. Cannavino in favor of the Company in the principal amount of
$1,400,000
10.15* Promissory Note dated January 1, 1996, made by James A. Cannavino in favor of the Company in the principal amount of
$1,500,000
10.16* Pledge Agreement made as of December 18, 1995, by James A. Cannavino in favor of the Company
10.17* Modification Agreement dated as of March 7, 1997, between the Company and James A. Cannavino
10.18* Deed of Trust dated April 15, 1997, made by James A. Cannavino in favor of the Company
10.19* Promissory note dated April 14, 1997, made by James A. Cannavino in favor of the Company
10.20* Associate Agreement dated July 8, 1996, between the Company and James Champy
10.21* Restricted Stock Agreement dated July 8, 1996, between the Company and James Champy
10.22* Letter Agreement dated July 8, 1996, between James Champy and the Company
10.23* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company
10.24* Pledge dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company
10.25* Agreement dated June17, 1996, among the Company, Guillermo Marmol and NationsBank of Texas, N.A.
10.26* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of NationsBank of Texas, N.A.
</TABLE>
14
<PAGE> 54
<TABLE>
<S> <C>
10.27* Agreement dated August 26, 1996, among the Company, Donald D. Drobny and NationsBank of Texas, N.A.
10.28* Promissory Note dated August 26, 1996, made by Donald D. Drobny in favor of NationsBank of Texas, N.A.
10.29* Promissory Note dated July 31, 1996, made by the Company in favor of NationsBank N.A.
10.30* Amended and Restated PSC Stock Option and Purchase Agreement dated as of April 24, 1997, by and between Swiss Bank
Corporation and the Company
10.31* Amended and Restated Master Operating Agreement dated as of January 1, 1997, between Swiss Bank Corporation and the
Company
10.32* Amended and Restated Agreement for EPI Operational Management Services dated as of January 1, 1997
10.33** Form of Stock Option Agreement for the Perot Systems Corporation 1991 Stock Option Plan
10.34*** Restricted Stock Agreement dated as of December 22, 1995, between the Company and Morton H. Meyerson
10.35*** Promissory Note in the principal amount of $187,500 dated as of January 28, 1997, made by Terry M. Ashwill payable to the
Company.
10.36*** Bridge Note in the principal amount of $187,500, dated as of January 28, 1997, made by Terry M. Ashwill payable to the
Company.
10.37*** Promissory Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to
the Company.
10.38*** Bridge Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to the
Company.
10.39*** Pledge Agreement dated as of January 28, 1997, between the Company and Terry M. Ashwill.
10.40*** Pledge Agreement dated as of February 14, 1997, between the Company and Terry M. Ashwill.
10.41*** Letter Agreement dated as of December 23, 1997, between the Company and Terry M. Ashwill.
10.42*** Letter Agreement dated as of January 4, 1997, between the Company and Terry M. Ashwill.
10.43*** Letter Agreement dated November 17, 1997, between the Company and George H. Heilmeier.
11*** Statement re Computation of Earnings Per Share
21*** Subsidiaries of the Registrant
23.1*** Consent of Coopers & Lybrand L.L.P. dated March 30, 1998.
27*** Financial Data Schedule
27.a*** Restated Financial Data Schedule for December 31, 1996
27.b*** Restated Financial Data Schedule for September 30, 1997
27.c*** Restated Financial Data Schedule for June 20, 1997
27.d*** Restated Financial Data Schedule for March 31, 1997
99(a)*** Schedule VIII -Valuation and Qualifying Accounts
</TABLE>
*This exhibit is incorporated by reference to the Company's Form 10 Registration
Statement filed with the Securities and Exchange Commission on April 30, 1997,
as amended.
**This exhibit is incorporated by reference to the Company's Form 10-Q filed
with the Securities and Exchange Commission on November 14, 1997.
***This exhibit is filed herewith.
B. There were no reports on Form 8-K filed during the fourth quarter of 1997.
15
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 30, 1998
By: /s/ Ross Perot
------------------------------
Ross Perot,
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ ROSS PEROT Chairman, President and
Chief Executive Officer
(Principal Executive
Officer) March 30, 1998
/s/ JAMES CHAMPY Vice President and
Director March 30, 1998
/s/ TERRY ASHWILL Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer) March 30, 1998
/s/ STEVE BLASNIK Director March 30, 1998
/s/ ROSS PEROT, JR. Director March 30, 1998
/s/ GEORGE H. HEILMEIER Director March 30, 1998
/s/ CARL H. HAHN Director March 30, 1998
</TABLE>
16
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
10.1* 1991 Stock Option Plan
10.2* Form Option Agreement (1991 Option Plan)
10.3* Restricted Stock Plan
10.4* Form Restricted Stock Agreement (Restricted Stock Plan)
10.5* 1996 Non-employee Director Stock Option/Restricted Stock Incentive Plan
10.6* Form Restricted Stock Agreement (Non-Employee Director Stock Option/Restricted Stock Plan
10.7* Form Option Agreement (Non-Employee Stock Option/Restricted Stock Plan)
10.8* Advisor Stock Option/Restricted Stock Incentive Plan
10.9* Form Restricted Stock Agreement (Advisor Stock Option/Restricted Stock Plan)
10.10* Form Option Agreement (Advisor Stock Option/Restricted Stock Plan)
10.11* Stock Purchase Agreement dated as of August 20, 1992, between the Company and Meyerson Family Limited Partnership
10.12* Stock Option Grant dated as of June 27, 1995, by the Company in favor of James A. Cannavino
10.13* Employment Agreement dated as of September 16, 1995, by and between the Company and James A. Cannavino
10.14* Promissory Note dated December 18, 1995, made by James A. Cannavino in favor of the Company in the principal amount of
$1,400,000
10.15* Promissory Note dated January 1, 1996, made by James A. Cannavino in favor of the Company in the principal amount of
$1,500,000
10.16* Pledge Agreement made as of December 18, 1995, by James A. Cannavino in favor of the Company
10.17* Modification Agreement dated as of March 7, 1997, between the Company and James A. Cannavino
10.18* Deed of Trust dated April 15, 1997, made by James A. Cannavino in favor of the Company
10.19* Promissory note dated April 14, 1997, made by James A. Cannavino in favor of the Company
10.20* Associate Agreement dated July 8, 1996, between the Company and James Champy
10.21* Restricted Stock Agreement dated July 8, 1996, between the Company and James Champy
10.22* Letter Agreement dated July 8, 1996, between James Champy and the Company
10.23* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company
10.24* Pledge dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company
10.25* Agreement dated June 17, 1996, among the Company, Guillermo Marmol and NationsBank of Texas, N.A.
10.26* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of NationsBank of Texas, N.A.
10.27* Agreement dated August 26, 1996, among the Company, Donald D. Drobny and NationsBank of Texas, N.A.
10.28* Promissory Note dated August 26, 1996, made by Donald D. Drobny in favor of NationsBank of Texas, N.A.
10.29* Promissory Note dated July 31, 1996, made by the Company in favor of NationsBank N.A.
10.30* Amended and Restated PSC Stock Option and Purchase Agreement dated as of April 24, 1997, by and between Swiss Bank
Corporation and the Company
10.31* Amended and Restated Master Operating Agreement dated as of January 1, 1997, between Swiss Bank Corporation and the
Company
10.32* Amended and Restated Agreement for EPI Operational Management Services dated as of January 1, 1997
10.33** Form of Stock Option Agreement for the Perot Systems Corporation 1991 Stock Option Plan
10.34*** Restricted Stock Agreement dated as of December 22, 1995, between the Company and Morton H. Meyerson
10.35*** Promissory Note in the principal amount of $187,500, dated as of January 28, 1997, made by Terry M. Ashwill payable to the
Company.
10.36*** Bridge Note in the principal amount of $187,500, dated as of January 28, 1997, made by Terry M. Ashwill payable to the
Company.
10.37*** Promissory Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to
the Company.
10.38*** Bridge Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to the
Company.
10.39*** Pledge Agreement dated as of January 28, 1997, between the Company and Terry M. Ashwill.
10.40*** Pledge Agreement dated as of February 14, 1997, between the Company and Terry M. Ashwill.
10.41*** Letter Agreement dated as of December 23, 1997, between the Company and Terry M. Ashwill.
10.42*** Letter Agreement dated as of January 4, 1997, between the Company and Terry M. Ashwill.
10.43*** Letter Agreement dated November 17, 1997, between the Company and George H. Heilmeier.
11*** Statement re Computation of Earnings Per Share
21*** Subsidiaries of the Registrant
23.1*** Consent of Coopers & Lybrand L.L.P. dated March 30, 1998.
27*** Financial Data Schedule
27.a*** Restated Financial Data Schedule for December 31, 1996
27.b*** Restated Financial Data Schedule for September 30, 1997
27.c*** Restated Financial Data Schedule for June 30, 1997
27.d*** Restated Financial Data Schedule for March 31, 1997
99(a)*** Schedule VIII -Valuation and Qualifying Accounts
</TABLE>
*This exhibit is incorporated by reference to the Company's Form 10 Registration
Statement filed with the Securities and Exchange Commission on April 30, 1997,
as amended.
**This exhibit is incorporated by reference to the Company's Form 10-Q filed
with the Securities and Exchange Commission on November 14, 1997.
***This exhibit is filed herewith.
<PAGE> 1
12/22/95
EXHIBIT 10.34
MORTON H. MEYERSON
RESTRICTED STOCK
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated as of December 22, 1995, is by and between Perot Systems
Corporation ("Perot Systems"), a Delaware corporation and Morton H. Meyerson
("Participant").
WITNESSETH:
WHEREAS, Perot Systems has adopted the Perot Systems Corporation Restricted
Stock Plan (the "Plan") to enable employees of Perot Systems and its
subsidiaries to acquire shares of Common Stock, $0.01 par value, of Perot
Systems ("Common Stock") in accordance with the provisions of the Plan; and
WHEREAS, the Restricted Stock Committee of Perot Systems (the "Committee") has
selected Participant to participate in the Plan and granted Participant the
right to purchase shares of Common Stock in accordance with the terms and
conditions of this Agreement;
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. Purchase and Sale. Subject to the terms, conditions, and restrictions
set forth in this Agreement, Perot Systems hereby sells to
Participant, and Participant hereby purchases from Perot Systems, for
a purchase price of $1.75 per share payable contemporaneously with the
execution hereof, 200,000 shares of Common Stock (such shares,
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, dividend or otherwise on such shares, the
"Restricted Stock").
2. Stock Repurchase.
(a) Subject to Section 2(e) below, if (A) Participant
voluntarily resigns from his position as a Director of Perot Systems
and if Participant and Perot Systems do not reach a mutually agreeable
arrangement for Participant to remain with Perot Systems or (B) the
SBC Event has not occurred by September 1, 1996 (the first such event
to occur the "Repurchase Event"), Perot Systems shall have the right
to repurchase from the Buyer the Unvested Stock (as defined below) for
the Repurchase Amount (as defined below) (the "Repurchase").
(b) Upon the occurrence of the Repurchase Event, Perot
Systems shall have 30 days to give written notice (the "Repurchase
Notice") to the Buyer of Perot Systems' decision to cause the
Repurchase. The Repurchase Notice shall state the number of the
Unvested Stock (as defined below). Subject to Section 2(c) below, the
Buyer shall then have 30 days to deliver to Perot Systems stock
certificates representing the number of
1
<PAGE> 2
shares of the Unvested Stock in exchange for the payment by Perot
Systems to the Buyer of the Repurchase Amount, with payment to be made
by check or wire transfer of same-day funds.
(d) For purposes of this Section 2, the following terms
shall be defined as set forth below:
(i) "SBC Event" means the occurrence of
both (1) the execution by Perot Systems Corporation or its
subsidiary and Swiss Bank Corporation or its subsidiary of the
SBC Warburg EPI Agreement in substantially the form as
provided in the December 21, 1995 draft, with such changes
thereto as the officer executing the same for Perot Systems
may deem appropriate, such appropriateness to be conclusively
evidenced by such officer's signature thereto, and (2) to the
extent that such SBC Warburg EPI Agreement contains a
provision specifically permitting Swiss Bank Corporation to
unwind such agreement before September 1, 1996 if approval of
the Board of Governors of the Federal Reserve System is not
obtained, then the expiration of such period as provided in
the agreement without such an unwind, or earlier if such
consent is obtained.
(ii) "Repurchase Amount" means the
product of (i) number of the Unvested Stock and (ii) the sum
of $1.75 and interest on such $1.75 at an interest rate of 8%
per annum, compounded annually, and computed from the date of
this Agreement to the date of the Repurchase.
(iii) "Unvested Stock" means a number of
shares of Perot Systems' common stock equal to the product of
(a) 200,000 minus the number of shares of Restricted Stock
purchased hereunder that Participant transfers to affiliates
(who may be affiliated by marriage) of employees or
consultants of Perot Systems or its subsidiaries after the SBC
Event and (b) 1 minus the quotient of the number of full
months that Participant remains as a Director of Perot Systems
commencing on the Effective Date, divided by sixty months,
provided that the number of the Unvested Stock shall never be
less than zero (0).
(iv) "Vested Stock" means the Restricted
Stock minus the Unvested Stock.
(e) Notwithstanding anything in this Section 2 to the
contrary, Participant shall not have voluntarily resigned from Perot
Systems if his decision to resign from Perot Systems (or his inability
to continue to serve Perot Systems in such capacity) is caused by one
or more of the following events:
(i) the death or disability of
Participant or the termination of Participant by Perot Systems
from his position as a Director (and disability shall occur
upon the mental or physical disability of Participant that
will permanently prevent Participant from performing his
duties for Perot Systems);
2
<PAGE> 3
(ii) a request to provide full-time
services to the U.S. government or an agency thereof or one
working for such government or agency and after consulting
with Participant, Perot Systems' Board of Directors agrees to
permit Participant to leave his position a Director of Perot
Systems;
(iii) Participant is constructively
terminated from his position, such as being assigned tasks to
perform work not suitable for a Director;
(iv) Perot Systems requests Participant
to relocate from the City of Dallas;
(v) Perot Systems demands excessive
travel from Participant;
(vi) Perot Systems, its Board of
Directors, or one of Perot Systems' officers requests
Participant to engage in any conduct that is not moral or
ethical or in violation of law; or
(vii) the Board of Directors of Perot Systems
makes a major change in corporate policy or has decided that
Perot Systems should engage in a significant corporate
development or transaction and Participant has voted against
such decision or Participant is not present at the meeting
where the decision is made; provided that (a) Participant has
delivered written notice to each of the members of the Board
of Directors within 5 days of the date of the Board decision
(or if Participant is not present at the meeting when the
decision is made, within 5 days of notice from the Board to
him of its decision), requesting the Board to reverse its
decision and informing the Board that he intends to resign
because of such decision and (b) the Board has not reversed
its decision and so informed Participant within 30 days of
the receipt of the notice given by Participant. This provision
will not apply to the refusal by the Board of Directors to
approve a policy, development or transaction recommended by
Participant.
3. Compliance with Securities Laws. Participant hereby represents and
warrants that Participant has acquired the Restricted Stock for
Participant's own account and not with a view to any resale or
distribution thereof. Participant agrees that neither he nor any
subsequent holder of the Restricted Stock will sell or otherwise
transfer any shares of Restricted Stock in any way that may result in
a violation of any federal or state securities laws or regulations.
Participant further acknowledges and agrees that Perot Systems may
require any subsequent purchaser or other transferee of shares of
Restricted Stock that cannot be publicly traded to provide Perot
Systems, prior to such sale or other transfer, with such
representations, commitments and opinions regarding compliance with
applicable securities laws and regulations as Perot Systems may deem
necessary or advisable.
4. Stock Certificate. If requested by Participant, Perot Systems will
issue and deliver to Participant certificates representing any shares
of Vested Stock held by Participant. Perot
3
<PAGE> 4
Systems may require that any certificates or other property
representing shares of Unvested Stock remain in the possession of
Perot Systems or an escrow agent designated by the Committee. Each
certificate representing Vested Stock or Unvested Stock shall bear
such legends as the Committee may determine to be necessary or
appropriate. Whether or not certificates representing such shares have
been issued or delivered, Participant shall have all the rights of a
shareholder of Restricted Stock, including voting, dividend and
distribution rights, with respect to all shares of Restricted Stock,
both Vested Stock and Unvested Stock, held by Participant, but any and
all stock and/or cash dividends (other than normal periodic cash
dividends), distributions in property, or other distributions made on
or in respect of the Restricted Stock, whether resulting from a
subdivision, combination or reclassification of the Restricted Stock
of any issuer thereof or received in exchange for Restricted Stock or
any part thereof or as a result of any merger, consolidation,
acquisition or other exchange of assets to which any such issuer may
be a party or otherwise, and any and all cash and other property
received in exchange for the Restricted Stock or received in payment
of the principal of or in redemption of the Restricted Stock (either
at maturity, upon call for redemption or otherwise), shall remain in
the possession of Perot Systems for Unvested Stock.
5. Income Tax Withholding. Participant acknowledges and agrees that
Participant shall, upon request by Perot Systems from time to time,
reimburse Perot Systems for, or Perot Systems may withhold from sums
otherwise payable to Participant, any amounts Perot Systems is
required to remit to applicable taxing authorities as income tax
withholding with respect to the Restricted Stock. If Participant fails
to reimburse Perot Systems for any such amount when requested, Perot
Systems shall have the right to recover that amount by selling
sufficient shares of Participant's Unvested Stock.
6. Compliance with Plan. Participant acknowledges that this Agreement is
entered into, and the Restricted Stock is issued, pursuant to the Plan
and agrees to comply with the provisions of the Plan, as it may be
amended from time to time, to the extent that such provisions are not
inconsistent with the provisions of this Agreement.
7. Notices. Any notice to Perot Systems or 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 Perot Systems. Either party
may at any time change its address for notification purposes by giving
the other prior 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, properly stamped, sealed and deposited in the United States
mail, and, if mailed to Perot Systems, by certified mail, return
receipt requested.
4
<PAGE> 5
8. Remedies. Perot Systems shall be entitled, in addition to any other
remedies it may have at law or in equity, to temporary and permanent
injunctive and other equitable relief to enforce the provisions of
this Agreement. Any action to enforce the provisions of, or otherwise
relating to, this Agreement may be brought in the appropriate courts
in Dallas, Dallas County, Texas.
9. 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 shall
not, and shall not have the power to, assign this Agreement or any
rights relating to this Agreement without the prior written consent of
Perot Systems. By signing this Agreement, Participant consents to the
personal jurisdiction of such courts in any such action.
10. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which that party may
be entitled.
11. 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 shall not be affected thereby.
12. Headings. The section headings used herein are for reference and
convenience only and shall not enter into the interpretation hereof.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without regard to the
choice of law rules in such law.
14. Entire Agreement. This Agreement, together with the Plan and any
procedures adopted by the Committee thereunder, constitutes the entire
agreement between the parties hereto 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
/s/ MORTON H. MEYERSON By: /s/ PETER A. ALTABEF
- ---------------------------- -------------------------------------
Morton H. Meyerson Peter A. Altabef
TITLE: Vice President and
General Counsel
5
<PAGE> 6
CONSENT OF SPOUSE
As the spouse of Participant, I consent to be bound by this Restricted Stock
Agreement and agree that this consent shall be binding on my interest under
this Agreement and on my heirs, legatees and assigns.
/s/ MARLENE MEYERSON
---------------------------------------
SIGNATURE
MARLENE MEYERSON
---------------------------------------
PRINTED NAME
6
<PAGE> 7
ATTACHMENT A
NOTICE OF EXERCISE OF RIGHT TO PURCHASE SHARES
OF RESTRICTED STOCK
MORTON H. MEYERSON
I hereby notify Perot Systems Corporation that I am exercising my right under
the Restricted Stock Agreement between me and Perot Systems dated as of
December 22, 1995, and purchasing 200,000 shares of Common Stock of the
Corporation at $1.75 per share, of $350,000 in total, which I herewith tender
in cash, by check or an executed note payable to Perot Systems Corporation.
In connection with this purchase, I hereby represent to Perot Systems
Corporation that I am purchasing these shares for investment and not with a
view to any resale or distribution thereof.
---------------------------------------
Signed
---------------------------------------
Dated
7
<PAGE> 1
EXHIBIT 10.35
PROMISSORY NOTE
January 28, 1997
$187,500
FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot
Systems Corporation, a Delaware corporation (the "Company"), or order, at the
principal offices of the Company or at such other place as the holder of this
Note may designate, the principal sum of $187,500 payable, along with interest
calculated at eight percent per annum (8%), on or before JANUARY 28, 2000, or
earlier if otherwise required pursuant to the terms of this Note. Interest,
unless required to be paid earlier pursuant to the terms of this Note, will be
payable annually, beginning JANUARY 28, 1998.
In order to facilitate the making of payments due on this Note, Associate
hereby requests the Company to make semi-monthly payroll deductions, each in
the amount of $625.00, from any amount owed to him on or about the 15th and the
last day of each month. The amounts so received will be debited against
interest due under this Note.
The Company has the right to offset amounts due under this Note
against payroll payments to be made by the Company to Associate.
This Note shall become immediately due and payable in full without
notice or demand upon the earlier of (i) termination of Associate's employment
with the Company or any subsidiary of the Company, for any reason, with or
without cause, or (ii) three months after the restrictions on transfer of
vested common stock set forth in Section 3(d) of the Restricted Stock Agreement
of even date herewith between Associate and Company lapse. In addition, if
Associate sells any of the Company common stock purchased in connection with
the issuance of this Note, Associate shall, within thirty days of such sale,
prepay this Note to the extent of the net proceeds of such sale, less any
income taxes payable by Associate with respect to income derived from such
sale.
Payment of this Note is secured pursuant to a Pledge Agreement of even
date herewith between PSC and Associate (the "Pledge Agreement").
Nothing in this Note shall confer upon Associate any right to continue
in the employ of the Company or any subsidiary of the Company or interfere in
any way with the right of the Company or any subsidiary of the Company to
terminate such employment at any time.
Every amount overdue under this Note shall bear interest from and
after the date on which such amount first became overdue at an annual rate
(compounded annually) which is the lesser of (a) two percentage points above
the rate designated from time to time by NationsBank of Texas as its prime
lending rate or (b) the maximum amount permitted by law. Such interest on
overdue amounts under this Note shall be payable on demand and shall accrue
until the obligation of Associate with respect to the payment of such interest
has been discharged (whether before or after judgment).
In no event shall any interest charged, collected or reserved under
this Note exceed the maximum rate then permitted by applicable law and if any
such payment is paid by Associate, then such excess sum shall be credited by
the holder as a payment of principal.
All payments by Associate under this Note shall be made without
set-off or counterclaim and be free and clear and without any deduction or
withholding for any taxes or fees of any nature whatever, unless the obligation
to make such deduction or withholding is imposed by law.
<PAGE> 2
Associate agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of Associate under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement under which the Restricted Stock is
pledged shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion.
Associate hereby waives presentment, demand, protest and notices of every kind
and assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of collateral, and
to the addition or release of any other party or person primarily or
secondarily liable.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be waived, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so waived,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of
the State of Texas. Any action to enforce the provisions of, or otherwise
relating to, this Note may be brought in the appropriate courts in Dallas
County, Texas.
/s/ TERRY M. ASHWILL
---------------------------------
(Signature)
Terry M. Ashwill
---------------------------------
(Print Name of Associate)
<PAGE> 1
EXHIBIT 10.36
BRIDGE NOTE
January 28, 1997
$187,500
FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot
Systems Corporation, a Delaware corporation (the "Company"), or order, at the
principal offices of the Company or at such other place as the holder of this
Note may designate, the principal sum of $187,500 payable, along with interest
calculated at eight percent per annum (8%), on or before MARCH 31, 1997, or
earlier if otherwise required pursuant to the terms of this Note.
The Company has the right to offset amounts due under this Note
against payroll payments to be made by the Company to Associate.
This Note shall become immediately due and payable in full without
notice or demand upon the termination of Associate's employment with the
Company or any subsidiary of the Company, for any reason, with or without
cause.
Payment of this Note is secured pursuant to a Pledge Agreement of
even date herewith between PSC and Associate (the "Pledge Agreement").
Nothing in this Note shall confer upon Associate any right to
continue in the employ of the Company or any subsidiary of the Company or
interfere in any way with the right of the Company or any subsidiary of
the Company to terminate such employment at any time.
Every amount overdue under this Note shall bear interest from and
after the date on which such amount first became overdue at an annual rate
(compounded annually) which is the lesser of (a) two percentage points above
the rate designated from time to time by NationsBank of Texas as its prime
lending rate or (b) the maximum amount permitted by law. Such interest on
overdue amounts under this Note shall be payable on demand and shall accrue
until the obligation of Associate with respect to the payment of such
interest has been discharged (whether before or after judgment).
In no event shall any interest charged, collected or reserved under
this Note exceed the maximum rate then permitted by applicable law and if any
such payment is paid by Associate, then such excess sum shall be credited by
the holder as a payment of principal.
All payments by Associate under this Note shall be made without
set-off or counterclaim and be free and clear and without any deduction or
withholding for any taxes or fees of any nature whatever, unless the
obligation to make such deduction or withholding is imposed by law.
Associate agrees to pay on demand all costs of collection, including
reasonable attorneys' fees incurred by the holder in enforcing the obligations
of Associate under this Note.
No delay or omission on the part of the holder in exercising any
right under this Note or the Pledge Agreement under which the Restricted Stock
is pledged shall operate as a waiver of such right or of any other right of
such holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future
occasion. Associate hereby waives presentment, demand, protest and notices of
every kind and assents to any extension or postponement of the time of payment
or any other indulgence, to any substitution, exchange or release of collateral,
and to the addition or release of any other party or person primarily or
secondarily liable.
<PAGE> 2
This Note may be prepaid in whole or in part at any time or from
time to time in the sole discretion of the holder. Any such prepayment
shall be without premium or penalty.
None of the terms or provisions of this Note may be waived,
modified or amended except by a written instrument duly executed on behalf
of the holder expressly referring to this Note and setting forth the
provision so waived, modified or amended.
All rights and obligations hereunder shall be governed by the
laws of the State of Texas. Any action to enforce the provisions of, or
otherwise relating to, this Note may be brought in the appropriate courts
in Dallas County, Texas.
/s/ TERRY M. ASHWILL
-------------------------
(Signature)
Terry M. Ashwill
-------------------------
(Print Name of Associate)
<PAGE> 1
EXHIBIT 10.37
PROMISSORY NOTE
---------------
February 14, 1997
$37,500
- -------
FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot
Systems Corporation, a Delaware corporation (the "Company"), or order, at the
principal offices of the Company or at such other place as the holder of this
Note may designate, the principal sum of $37,500 payable, along with interest
calculated at eight percent per annum (8%), on or before FEBRUARY 14, 2000, or
earlier if otherwise required pursuant to the terms of this Note. Interest,
unless required to be paid earlier pursuant to the terms of this Note, will be
payable annually, beginning FEBRUARY 14, 1998.
In order to facilitate the making of payments due on this Note, Associate
hereby requests the Company to make semi-monthly payroll deductions, each in
the amount of $125.00, from any amount owed to him on or about the 15th and the
last day of each month. The amounts so received will be debited against
interest due under this Note.
The Company has the right to offset amounts due under this Note
against payroll payments to be made by the Company to Associate.
This Note shall become immediately due and payable in full without
notice or demand upon the earlier of (i) termination of Associate's employment
with the Company or any subsidiary of the Company, for any reason, with or
without cause, or (ii) three months after the restrictions on transfer of
vested common stock set forth in Section 3(d) of the Restricted Stock Agreement
of even date herewith between Associate and Company lapse. In addition, if
Associate sells any of the Company common stock purchased in connection with
the issuance of this Note, Associate shall, within thirty days of such sale,
prepay this Note to the extent of the net proceeds of such sale, less any
income taxes payable by Associate with respect to income derived from such
sale.
Payment of this Note is secured pursuant to a Pledge Agreement of even
date herewith between PSC and Associate (the "Pledge Agreement").
Nothing in this Note shall confer upon Associate any right to continue
in the employ of the Company or any subsidiary of the Company or interfere in
any way with the right of the Company or any subsidiary of the Company to
terminate such employment at any time.
Every amount overdue under this Note shall bear interest from and
after the date on which such amount first became overdue at an annual rate
(compounded annually) which is the lesser of (a) two percentage points above
the rate designated from time to time by NationsBank of Texas as its prime
lending rate or (b) the maximum amount permitted by law. Such interest on
overdue amounts under this Note shall be payable on demand and shall accrue
until the obligation of Associate with respect to the payment of such interest
has been discharged (whether before or after judgment).
In no event shall any interest charged, collected or reserved under
this Note exceed the maximum rate then permitted by applicable law and if any
such payment is paid by Associate, then such excess sum shall be credited by
the holder as a payment of principal.
All payments by Associate under this Note shall be made without
set-off or counterclaim and be free and clear and without any deduction or
withholding for any taxes or fees of any nature whatever, unless the obligation
to make such deduction or withholding is imposed by law.
<PAGE> 2
Associate agrees to pay on demand all costs of collection, including
reasonable attorneys fees, incurred by the holder in enforcing the obligations
of Associate under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement under which the Restricted Stock is
pledged shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion.
Associate hereby waives presentment, demand, protest and notices of every kind
and assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of collateral, and
to the addition or release of any other party or person primarily or
secondarily liable.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be waived, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so waived,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of
the State of Texas. Any action to enforce the provisions of, or otherwise
relating to, this Note may be brought in the appropriate courts in Dallas
County, Texas.
/s/ TERRY M. ASHWILL
-------------------------------
(Signature)
Terry M. Ashwill
-------------------------------
(Print Name of Associate)
<PAGE> 1
EXHIBIT 10.38
BRIDGE NOTE
-----------
February 14, 1997
$37,500
- -------
FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot
Systems Corporation, a Delaware corporation (the "Company"), or order, at the
principal offices of the Company or at such other place as the holder of this
Note may designate, the principal sum of $37,500 payable, along with interest
calculated at eight percent per annum (8%), on or before APRIL 14, 1997, or
earlier if otherwise required pursuant to the terms of this Note.
The Company has the right to offset amounts due under this Note
against payroll payments to be made by the Company to Associate.
This Note shall become immediately due and payable in full without
notice or demand upon the termination of Associate's employment with the
Company or any subsidiary of the Company, for any reason, with or without
cause.
Payment of this Note is secured pursuant to a Pledge Agreement of even
date herewith between PSC and Associate (the "Pledge Agreement").
Nothing in this Note shall confer upon Associate any right to continue
in the employ of the Company or any subsidiary of the Company or interfere in
any way with the right of the Company or any subsidiary of the Company to
terminate such employment at any time.
Every amount overdue under this Note shall bear interest from and
after the date on which such amount first became overdue at an annual rate
(compounded annually) which is the lesser of (a) two percentage points above
the rate designated from time to time by NationsBank of Texas as its prime
lending rate or (b) the maximum amount permitted by law. Such interest on
overdue amounts under this Note shall be payable on demand and shall accrue
until the obligation of Associate with respect to the payment of such interest
has been discharged (whether before or after judgment).
In no event shall any interest charged, collected or reserved under
this Note exceed the maximum rate then permitted by applicable law and if any
such payment is paid by Associate, then such excess sum shall be credited by
the holder as a payment of principal.
All payments by Associate under this Note shall be made without
set-off or counterclaim and be free and clear and without any deduction or
withholding for any taxes or fees of any nature whatever, unless the obligation
to make such deduction or withholding is imposed by law.
Associate agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of Associate under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement under which the Restricted Stock is
pledged shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion.
Associate hereby waives presentment, demand, protest and notices of every kind
and assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of collateral, and
to the addition or release of any other party or person primarily or
secondarily liable.
<PAGE> 2
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be waived, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so waived,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of
the State of Texas. Any action to enforce the provisions of, or otherwise
relating to, this Note may be brought in the appropriate courts in Dallas
County, Texas.
/s/ TERRY M. ASHWILL
-------------------------------
(Signature)
Terry M. Ashwill
-------------------------------
(Print Name of Associate)
<PAGE> 1
EXHIBIT 10.39
PLEDGE AGREEMENT
This Pledge Agreement (the "Agreement") is made as of January 28,
1997, by and between Perot Systems Corporation, a Delaware corporation ("PSC"),
and Terry M. Ashwill ("Pledgor").
WHEREAS, PSC has granted Pledgor the option to purchase 100,000 shares
of PSC's Class A common stock pursuant to a Restricted Stock Agreement dated as
of January 28, 1997 (the "Restricted Stock Agreement");
WHEREAS, PSC has extended credit to Pledgor and may extend additional
credit pursuant to the terms of a Promissory Note and a Bridge Note, each of
which is dated as of the date hereof and is in the amount of $187,500, for a
total of $375,000, to finance the acquisition of the Restricted Stock purchased
pursuant to the Restricted Stock Agreement (together the "Notes");
NOW, THEREFORE, to secure the Obligations (as defined below), Pledgor
and PSC hereby agree as follows:
1. Definitions. Capitalized terms that are not otherwise defined
in this Agreement have the meanings assigned to such terms in the Restricted
Stock Agreement or the Notes, as appropriate.
2. Pledge of Securities. Pledgor hereby pledges and grants to PSC
a security interest in the following:
(a) the Restricted Stock purchased by Pledgor pursuant to
the Restricted Stock Agreement, together with any other shares of
capital stock of PSC that may be distributed with respect to such
Restricted Stock (collectively, the "Securities"), and all rights and
privileges pertaining thereto;
(b) all proceeds, products, cash, securities, dividends,
increases, distributions and profits received from or on the
Securities (the "Proceeds"), including without limitation
distributions or payments in partial or complete liquidation or
redemption, or as a result of reclassifications, readjustments,
reorganizations or changes in the capital structure of the issuer of
the Securities; and
(c) all subscriptions, warrants, options, preemptive
rights and other rights issued or otherwise granted by the issuer of
the Securities or any other person on or in connection with the
Securities or any other item of the Collateral (as defined below);
(all of such property and rights described in items (a), (b) and (c)
above are herein collectively called the "Collateral");
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<PAGE> 2
TO HAVE AND TO HOLD the Collateral, together with all rights, titles,
interests, privileges and preferences appertaining to or incidental thereto,
unto PSC, and its respective successors and assigns, forever, subject, however,
to the terms, covenants and conditions hereinafter set forth. The security
interest granted and the assignments made hereunder are made as security only
and shall not subject PSC to, or transfer or in any way affect or modify, any
obligation of Pledgor with respect to any of the Collateral or any transaction
involving or giving rise thereto.
3. Obligations Secured. The pledge and security interest in the
Collateral granted hereby secures payment and performance of the following
obligations of Pledgor to PSC, whether now outstanding or incurred after the
date hereof (the "Obligations"): (a) all principal, interest, fees, expenses,
obligations and liabilities of Pledgor arising pursuant to or represented by
the Notes; (b) all taxes, assessments, insurance premiums, brokerage fees,
reasonable attorneys' fees and other expenses of sale of the Collateral; (c)
Pledgor's performance of his obligations under the Notes, this Agreement and
the Restricted Stock Agreement; and (d) all renewals, extensions and
modifications of the indebtedness and obligations referred to in the foregoing
clauses, or any part thereof.
4. Pledgor's Warranties and Indemnity. Pledgor represents,
warrants and covenants to PSC (a) that Pledgor is and will be the lawful owner
of the Securities, (b) that the Securities are and will remain free and clear
of all liens, encumbrances and security interests other than the security
interest granted by Pledgor hereunder, and (c) that Pledgor has the right and
authority to pledge the Securities and otherwise to comply with the provisions
hereof. If any adverse claim is asserted in respect of the Securities or any
portion thereof, except such as may result from an act of PSC not authorized
hereunder, Pledgor shall indemnify PSC and hold PSC harmless from and against
any losses, liabilities and expenses (including reasonable counsel fees)
incurred by PSC in exercising any right, power or remedy of PSC hereunder or
defending, protecting or enforcing the security interests created hereunder.
Any such loss, liability or expense so incurred shall be paid by Pledgor upon
demand, and shall become part of the Obligations of Pledgor secured pursuant to
this Agreement. Pledgor agrees to execute a stock power in blank for each
certificate evidencing any of the Securities and to deliver all such Securities
certificates with stock powers to PSC. PSC hereby consents to the pledge of the
Securities to PSC hereunder, notwithstanding any restrictions on transfer of
the Securities set forth in the Restricted Stock Agreement.
5. Negative Covenants. Pledgor covenants and agrees that, unless
PSC otherwise consents in writing Pledgor will not: (a) sell, assign or
transfer any rights of Pledgor in the Collateral; or (b) create any lien in, or
security interest in, or otherwise encumber, the Collateral, or any part
thereof, or permit the same to be or become subject to any lien, attachment,
execution, sequestration, other legal or equitable process, or any encumbrance
of any kind or character, except the security interest herein created in favor
of PSC.
6. Dividends and Other Distributions.
(a) Pledgor shall cause all non-cash dividends and
distributions with respect to the Securities (including
without limitation any stock dividends and any distributions
made on or in respect of the Securities, whether resulting
from a subdivision,
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<PAGE> 3
combination or reclassification of the Securities or received
in exchange for or in respect of the Securities or any part
thereof or as a result of any merger, consolidation,
acquisition or other transaction) to be distributed directly
to PSC, to be held by PSC as additional Collateral; and if any
such distribution is made to Pledgor, he shall receive such
distribution in trust for PSC and shall immediately transfer
it to PSC.
(b) So long as no Event of Default or Potential
Default has occurred and is continuing, Pledgor shall be
entitled to receive any cash dividends payable in respect of
the Securities; provided that, upon receipt of any such cash
dividend, Pledgor will promptly (and in any event within 30
days) pay to PSC in respect of the Obligations (to the extent
of the Obligations then outstanding) the full amount of such
cash dividend less any income taxes payable by Pledgor as a
result of such cash dividend, and, pending such payment, such
cash dividend will continue to constitute Collateral
hereunder.
7. Voting Rights. So long as no Event of Default or Potential
Default has occurred and is continuing, Pledgor shall be entitled to exercise
any and all voting rights pertaining to the Securities for any purpose not
inconsistent with the terms of the Notes or this Agreement.
8. Termination of Rights. During any period when an Event of
Default has occurred and is continuing, all rights of Pledgor to receive
dividends pursuant to Section 6(b) or to exercise voting rights pursuant to
Section 7 shall cease and all such rights shall thereupon become vested in PSC,
which shall have the sole and exclusive right and authority to dispose of the
Securities and to receive dividends and exercise voting rights in respect of
the Securities. Further, PSC shall have the right, during the continuance of
any Event of Default, to notify and direct the issuer of the Securities to make
all payments, distributions, dividends and any other distributions payable in
respect thereof directly to PSC. The issuer of the Securities making any
payment or distribution to PSC hereunder shall be fully protected in relying on
the written statement of PSC that it then holds a security interest that
entitles PSC to receive such payments and distributions. Any and all money and
other property paid over to or received by PSC pursuant to the provisions of
this Section 8 shall be retained by PSC as additional collateral hereunder and
may be applied in accordance with the provisions hereof.
9. Rights and Remedies of PSC Upon and After Default.
(a) Remedies. Upon the occurrence of an Event of
Default, and in addition to any and all other rights and
remedies which PSC may then have under this Agreement, the
Restricted Stock Agreement, the laws of the United States or
the Uniform Commercial Code, as then in effect in Texas (the
"Code"), or otherwise, PSC may: (i) declare the entire unpaid
balance of principal of and all accrued interest on the
Obligations immediately due and payable, without notice
(including notice of intention to accelerate and notice of
acceleration) except as required under the Notes, demand or
presentment, which are hereby waived; (ii) reduce its claim to
judgment, foreclose or otherwise enforce its security interest
in all or any part of the Obligations by any available
judicial procedure; (iii) after notification, if any,
expressly provided for herein, sell or otherwise dispose of,
at the office of PSC, or elsewhere as chosen by PSC, all or
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<PAGE> 4
any part of the Collateral, and any such sale or other
disposition may be as a unit or in parcels, by public or
private proceedings, and by way of one or more contracts, (it
being agreed that the sale of any part of the Collateral shall
not exhaust the power of sale granted hereunder, but sales may
be made from time to time until all of the Collateral has been
sold or until the Obligations have been paid in full), and at
any such sale it shall not be necessary to exhibit the
Collateral; (iv) at PSCs discretion, retain the Collateral in
satisfaction of the Obligations whenever the circumstances are
such that PSC is entitled to do so under the Code; (v) apply
by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Pledgor
hereby consents to any such appointment; (vi) purchase the
Collateral at any public sale; (vii) purchase the Collateral
at any private sale if permitted by the Code; and/or (viii)
exercise the rights set forth in Section 10 hereof.
(b) Sale of Securities. Pledgor recognizes that
PSC may be unable to effect a public sale of any or all of the
Securities by reason of certain prohibitions contained in the
federal securities laws and applicable state or foreign
securities laws, and thus may resort to one or more private
sales thereof to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a
view to the distribution or resale thereof. Pledgor
acknowledges and agrees that any such private sale may result
in prices and other terms less favorable to the seller than if
such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner.
PSC shall be under no obligation to delay a sale of any of the
Securities for the period of time necessary to permit the
issuer of such securities to register such securities for
public sale under the federal securities laws, or under
applicable state securities laws, even if such issuer would
agree to do so. Upon the consummation of any private or public
sale, PSC shall have the right to deliver, assign, and
transfer to the purchaser thereof the Securities so sold. Each
purchaser at any such sale shall hold the property sold
absolutely free from any claim or right of whatsoever kind,
and Pledgor hereby waives (to the extent permitted by law) all
rights of redemption, stay and/or appraisal which it has or
may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. PSC shall give
Pledgor notice of PSC's intention to make any such public or
private sale at broker's board or on a securities exchange to
the extent required hereunder or by the Code. Such notice, in
case of sale at broker's board or on a securities exchange,
shall state the board or exchange at which such sale is to be
made and the day on which the Securities, or that portion
thereof so being sold, will first be offered for sale at such
board or exchange. At any such sale the Securities may be sold
in one lot as an entirety or in separate parcels, as PSC may
determine. PSC shall not be obligated to make any such sale
pursuant to any such notice if PSC shall determine not to do
so, regardless of the fact that notice of sale of the
Securities may have been given. PSC may without notice or
publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made
at any time or place to which the same may be so adjourned. In
case of any sale of all or any part of the Securities on
credit or for future delivery, the Securities so sold may be
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<PAGE> 5
retained by PSC until the selling price is paid by the
purchaser thereof, but PSC shall not incur any liability in
case of the failure of such purchaser to take up and pay for
the Securities so sold and, in case of any such failure, such
Securities may again be sold upon like notice. PSC may also,
at its discretion, proceed by a suit or suits at law, or in
equity to foreclose its security interest and sell the
Securities, or any portion thereof, under a judgment or decree
of a court or courts of competent jurisdiction. If any
consent, approval or authorization of any state, municipal or
other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the
Securities or any part thereof, Pledgor shall execute all such
applications and other instruments as may be required in
connection with securing any such consent, approval or
authorization, and will otherwise use Pledgor's best efforts
to secure the same.
(c) Notification. Reasonable notification of the
time and place of any public sale of the Collateral, or
reasonable notification of the time after which any private
sale or other intended disposition of the Collateral is to be
made, shall be sent to Pledgor and to any other person
entitled under the Code to notice; provided, that if the
Collateral threatens to decline quickly in value, or if
otherwise permitted by the Code, PSC may (but shall not be
obligated to) sell or otherwise dispose of the Collateral
without notification, advertisement or other notice of any
kind. It is agreed that notice sent or given not less than ten
calendar days prior to the taking of the action to which the
notice relates is reasonable notification and notice for the
purposes of this section.
(d) Application of Proceeds. Upon the maturity of
the Obligations or any part thereof, whether such maturity be
by such terms of such instruments or through the exercise of
any power of acceleration, PSC is authorized and empowered to
apply any and all funds realized from the sale of the
Collateral not previously credited against the Obligations
first toward the payment of the costs, charges and expenses,
if any, incurred in connection with the collection of such
funds hereunder, and then toward the payment of the
Obligations in such order as PSC, in its sole discretion,
shall deem appropriate, and shall pay the balance remaining
(if any) to Pledgor as prescribed by the Code or as a court of
competent jurisdiction may direct.
10. Attorney-in-Fact. Pledgor hereby appoints PSC as the
attorney-in-fact for Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which PSC may
deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, PSC shall have the right and power to receive,
endorse and collect all checks and other orders for the payment of money made
payable to Pledgor and included within the Collateral and to give full
discharge for the same. Neither PSC nor any director or officer of the issuer
of the Securities shall have any liability for the distribution to and
collection of the Proceeds by PSC, but shall be fully protected in relying on
the written statement of PSC as to its authorization pursuant to this
paragraph. Any and all amounts collected by PSC pursuant hereto shall be
applied against the Obligations in the manner that PSC shall determine, in
PSC's sole and absolute discretion.
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<PAGE> 6
11. Certain Other Rights of PSC.
(a) Duty of Care. PSC's only duty with respect to the
Collateral shall be to exercise reasonable care to secure the safe
custody thereof. PSC shall not have a duty to fix or preserve rights
against prior parties to the Collateral, and shall never be liable for
its failure to use diligence to collect any amount payable with
respect to the Collateral, but shall be liable only to the account of
Pledgor for what PSC may actually collect or receive thereon.
(b) Financing Statement. PSC shall have the right at any
time to execute and file this Agreement or a copy of this Agreement as
a financing statement, but the failure of PSC to do so shall not
impair the validity or enforceability of this Agreement.
(c) Payment of Expenses. At PSC's option, PSC may
discharge taxes, liens and interest, perform or cause to be performed,
for and on behalf of Pledgor, any actions and conditions, obligations
or covenants which Pledgor has failed or refused to perform and may
pay for the repair, maintenance or preservation of any of the
Collateral, and all sums so expended, including, but not limited to,
attorneys' fees, court costs, agents' fee or commissions, or any other
costs or expenses, shall bear interest from the date of payment at the
highest legal rate and shall be deemed to constitute part of the
Obligations secured by this Agreement.
12. Cumulative Rights and Remedies. All rights and remedies of PSC
hereunder are cumulative of each other and of every other right or remedy which
PSC may otherwise have at law or in equity or under any other contract or other
writing for the enforcement of the security interest herein or the collection
of the Obligations, and the exercise by PSC of one or more rights or remedies
shall not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies. Should Pledgor have heretofore executed or hereafter
executed any other security agreement in favor of PSC in which a security
interest is created as security for the debts of another or others, in respect
of which Pledgor may not be personally liable, the security interest therein
created and all other rights, powers and privileges vested in PSC by the terms
thereof shall exist concurrently with the security interest created herein,
and, in addition, all property in which PSC holds a security interest under any
such other security agreement shall also be part of the Collateral hereunder,
and all or any part of the proceeds of the sale or other disposition of such
property may, in the discretion of PSC, be applied by PSC in accordance with
the terms hereof, and of such other security agreement, or agreements, or any
of them.
13. Termination. Upon payment in full by Pledgor of all
Obligations in accordance with their terms, this Agreement shall terminate and
PSC shall return to Pledgor all certificates evidencing the Securities (and any
related stock powers) then held under this Agreement.
14. Repurchase Option. If PSC exercises its right to cancel or
repurchase any of the Securities under the Restricted Stock Agreement, PSC
shall be entitled to release such Securities from the pledge under this
Agreement and cancel or repurchase such Securities in accordance with the terms
of the Restricted Stock Agreement.
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15. Further Assurances. Pledgor agrees to execute and deliver such
further instruments and take such further actions as PSC may reasonably request
from time to time to preserve or give effect to its rights under this
Agreement.
16. Action by PSC. Any election, consent, waiver or other action
that may be taken by PSC hereunder will be taken by the Chairman of the Board,
unless Pledgor is then serving in such capacity, in which case such action will
be taken by the Board.
17. Notices. Any notice to PSC that is required or permitted by
this Agreement must be addressed to PSC at its principal office to the
attention of the President, with a copy to the General Counsel. Any notice to
Pledgor that is required or permitted by this Agreement must be addressed to
Pledgor at the most recent address for Pledgor reflected in the appropriate
records of PSC. Either party may at any time change its address for
notification purposes by giving the other prior 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 and must be sent by courier, overnight delivery service,
facsimile or certified mail, return receipt requested, and such notice will be
deemed to be given (a) if sent by courier, on the date actually delivered, (b)
if sent by overnight delivery service, one day after being sent, (c) if sent by
telecopy, on the date that confirmation of transmission is received by the
sender, or (d) if sent by certified mail, on the third business day after being
mailed.
18. Enforcement. This Agreement will be governed by and construed
in accordance with the laws of the State of Texas, without regard to the choice
of law rules thereof. PSC will be entitled, in addition to any other remedies
it may have at law or in equity, to temporary and permanent injunctive and
other equitable relief to enforce the provisions of this Agreement. Any action
to enforce the provisions of, or otherwise relating to, this Agreement may be
brought in the appropriate courts in Dallas, Dallas County, Texas, and Pledgor
hereby consents to the personal jurisdiction of such courts in any such action;
provided that, at the request of PSC or Pledgor, any claim or dispute arising
out of or relating to this Agreement or Pledgor's employment by PSC or the
termination of such employment, including any federal or state statutory
claims, will be resolved without resort to the courts solely through mediation
and, if mediation is not successful, through binding arbitration pursuant to
the rules of the American Arbitration Association. Neither party will be liable
to the other for punitive damages for any such claim or dispute. If any action
at law or in equity is necessary 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; provided that, if Pledgor becomes liable for any such
fees, costs or other disbursements, such amounts will become Obligations under
the applicable Note secured by this Agreement.
19. Entire Agreement. This Agreement and the other documents and
instruments specifically referenced herein constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
thereof, and except as expressly set forth herein or therein, there are no
agreements or representations, written or oral, express or implied, with
respect to such subject matter. No provision of this Agreement may be modified,
waived or
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discharged unless such waiver, modification or discharge is agreed to in
writing signed by Pledgor and PSC. No waiver by either party hereto of any
condition or provision of this Agreement to be performed by the other party
will be deemed a waiver of any other provisions or conditions at the same or at
any prior or subsequent time.
20. Severability. If any provision of this Agreement is held to be
invalid or unenforceable for any reason, the validity and enforceability of all
other provisions of this Agreement will not be affected thereby.
21. Counterparts. This Agreement may be executed in any number of
multiple counterparts and by different parties on separate counterparts, all of
which when taken together will constitute one and the same agreement.
22. Assignment. Pledgor may not assign this Agreement or any
rights or obligations hereunder
IN WITNESS WHEREOF, and intending to be legally bound, Pledgor and a
duly authorized representative of PSC have executed this Agreement as of the
date first above written.
/s/ TERRY M. ASHWILL
----------------------------
Terry M. Ashwill, Pledgor
PEROT SYSTEMS CORPORATION
By: /s/ MORTON MEYERSON
-------------------------
Name: Morton Meyerson
-----------------------
Title: Chairman
----------------------
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<PAGE> 1
EXHIBIT 10.40
PLEDGE AGREEMENT
This Pledge Agreement (the "Agreement") is made as of February 14,
1997, by and between Perot Systems Corporation, a Delaware corporation ("PSC"),
and Terry M. Ashwill ("Pledgor").
WHEREAS, PSC has granted Pledgor the option to purchase 20,000 shares
of PSC's Class A common stock pursuant to a Restricted Stock Agreement dated as
of February 14, 1997 (the "Restricted Stock Agreement");
WHEREAS, PSC has extended credit to Pledgor and may extend additional
credit pursuant to the terms of a Promissory Note and a Bridge Note, each of
which is dated as of the date hereof and is in the amount of $37,500, for a
total of $75,000, to finance the acquisition of the Restricted Stock purchased
pursuant to the Restricted Stock Agreement (together the "Notes");
NOW, THEREFORE, to secure the Obligations (as defined below), Pledgor
and PSC hereby agree as follows:
1. Definitions. Capitalized terms that are not otherwise defined
in this Agreement have the meanings assigned to such terms in the Restricted
Stock Agreement or the Notes, as appropriate.
2. Pledge of Securities. Pledgor hereby pledges and grants to PSC
a security interest in the following:
(a) the Restricted Stock purchased by Pledgor pursuant to
the Restricted Stock Agreement, together with any other shares of
capital stock of PSC that may be distributed with respect to such
Restricted Stock (collectively, the "Securities"), and all rights and
privileges pertaining thereto;
(b) all proceeds, products, cash, securities, dividends,
increases, distributions and profits received from or on the
Securities (the "Proceeds"), including without limitation
distributions or payments in partial or complete liquidation or
redemption, or as a result of reclassifications, readjustments,
reorganizations or changes in the capital structure of the issuer of
the Securities; and
(c) all subscriptions, warrants, options, preemptive
rights and other rights issued or otherwise granted by the issuer of
the Securities or any other person on or in connection with the
Securities or any other item of the Collateral (as defined below);
(all of such property and rights described in items (a), (b) and (c)
above are herein collectively called the "Collateral");
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<PAGE> 2
TO HAVE AND TO HOLD the Collateral, together with all rights, titles,
interests, privileges and preferences appertaining to or incidental thereto,
unto PSC, and its respective successors and assigns, forever, subject, however,
to the terms, covenants and conditions hereinafter set forth. The security
interest granted and the assignments made hereunder are made as security only
and shall not subject PSC to, or transfer or in any way affect or modify, any
obligation of Pledgor with respect to any of the Collateral or any transaction
involving or giving rise thereto.
3. Obligations Secured. The pledge and security interest in the
Collateral granted hereby secures payment and performance of the following
obligations of Pledgor to PSC, whether now outstanding or incurred after the
date hereof (the "Obligations"): (a) all principal, interest, fees, expenses,
obligations and liabilities of Pledgor arising pursuant to or represented by
the Notes; (b) all taxes, assessments, insurance premiums, brokerage fees,
reasonable attorneys' fees and other expenses of sale of the Collateral; (c)
Pledgor's performance of his obligations under the Notes, this Agreement and
the Restricted Stock Agreement; and (d) all renewals, extensions and
modifications of the indebtedness and obligations referred to in the foregoing
clauses, or any part thereof.
4. Pledgor's Warranties and Indemnity. Pledgor represents,
warrants and covenants to PSC (a) that Pledgor is and will be the lawful owner
of the Securities, (b) that the Securities are and will remain free and clear
of all liens, encumbrances and security interests other than the security
interest granted by Pledgor hereunder, and (c) that Pledgor has the right and
authority to pledge the Securities and otherwise to comply with the provisions
hereof. If any adverse claim is asserted in respect of the Securities or any
portion thereof, except such as may result from an act of PSC not authorized
hereunder, Pledgor shall indemnify PSC and hold PSC harmless from and against
any losses, liabilities and expenses (including reasonable counsel fees)
incurred by PSC in exercising any right, power or remedy of PSC hereunder or
defending, protecting or enforcing the security interests created hereunder.
Any such loss, liability or expense so incurred shall be paid by Pledgor upon
demand, and shall become part of the Obligations of Pledgor secured pursuant to
this Agreement. Pledgor agrees to execute a stock power in blank for each
certificate evidencing any of the Securities and to deliver all such Securities
certificates with stock powers to PSC. PSC hereby consents to the pledge of the
Securities to PSC hereunder, notwithstanding any restrictions on transfer of
the Securities set forth in the Restricted Stock Agreement.
5. Negative Covenants. Pledgor covenants and agrees that, unless
PSC otherwise consents in writing Pledgor will not: (a) sell, assign or
transfer any rights of Pledgor in the Collateral; or (b) create any lien in, or
security interest in, or otherwise encumber, the Collateral, or any part
thereof, or permit the same to be or become subject to any lien, attachment,
execution, sequestration, other legal or equitable process, or any encumbrance
of any kind or character, except the security interest herein created in favor
of PSC.
6. Dividends and Other Distributions.
(a) Pledgor shall cause all non-cash dividends and
distributions with respect to the Securities (including without
limitation any stock dividends and any distributions made on or in
respect of the Securities, whether resulting from a subdivision,
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<PAGE> 3
combination or reclassification of the Securities or received in
exchange for or in respect of the Securities or any part thereof or as
a result of any merger, consolidation, acquisition or other
transaction) to be distributed directly to PSC, to be held by PSC as
additional Collateral; and if any such distribution is made to
Pledgor, he shall receive such distribution in trust for PSC and shall
immediately transfer it to PSC.
(b) So long as no Event of Default or Potential Default
has occurred and is continuing, Pledgor shall be entitled to receive
any cash dividends payable in respect of the Securities; provided
that, upon receipt of any such cash dividend, Pledgor will promptly
(and in any event within 30 days) pay to PSC in respect of the
Obligations (to the extent of the Obligations then outstanding) the
full amount of such cash dividend less any income taxes payable by
Pledgor as a result of such cash dividend, and, pending such payment,
such cash dividend will continue to constitute Collateral hereunder.
7. Voting Rights. So long as no Event of Default or Potential
Default has occurred and is continuing, Pledgor shall be entitled to exercise
any and all voting rights pertaining to the Securities for any purpose not
inconsistent with the terms of the Notes or this Agreement.
8. Termination of Rights. During any period when an Event of
Default has occurred and is continuing, all rights of Pledgor to receive
dividends pursuant to Section 6(b) or to exercise voting rights pursuant to
Section 7 shall cease and all such rights shall thereupon become vested in PSC,
which shall have the sole and exclusive right and authority to dispose of the
Securities and to receive dividends and exercise voting rights in respect of
the Securities. Further, PSC shall have the right, during the continuance of
any Event of Default, to notify and direct the issuer of the Securities to make
all payments, distributions, dividends and any other distributions payable in
respect thereof directly to PSC. The issuer of the Securities making any
payment or distribution to PSC hereunder shall be fully protected in relying on
the written statement of PSC that it then holds a security interest that
entitles PSC to receive such payments and distributions. Any and all money and
other property paid over to or received by PSC pursuant to the provisions of
this Section 8 shall be retained by PSC as additional collateral hereunder and
may be applied in accordance with the provisions hereof.
9. Rights and Remedies of PSC Upon and After Default.
(a) Remedies. Upon the occurrence of an Event of Default,
and in addition to any and all other rights and remedies which PSC may
then have under this Agreement, the Restricted Stock Agreement, the
laws of the United States or the Uniform Commercial Code, as then in
effect in Texas (the "Code"), or otherwise, PSC may: (i) declare the
entire unpaid balance of principal of and all accrued interest on the
Obligations immediately due and payable, without notice (including
notice of intention to accelerate and notice of acceleration) except
as required under the Notes, demand or presentment, which are hereby
waived; (ii) reduce its claim to judgment, foreclose or otherwise
enforce its security interest in all or any part of the Obligations by
any available judicial procedure; (iii) after notification, if any,
expressly provided for herein, sell or otherwise dispose of, at the
office of PSC, or elsewhere as chosen by PSC, all or
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<PAGE> 4
any part of the Collateral, and any such sale or other disposition may
be as a unit or in parcels, by public or private proceedings, and by
way of one or more contracts, (it being agreed that the sale of any
part of the Collateral shall not exhaust the power of sale granted
hereunder, but sales may be made from time to time until all of the
Collateral has been sold or until the Obligations have been paid in
full), and at any such sale it shall not be necessary to exhibit the
Collateral; (iv) at PSC's discretion, retain the Collateral in
satisfaction of the Obligations whenever the circumstances are such
that PSC is entitled to do so under the Code; (v) apply by appropriate
judicial proceedings for appointment of a receiver for the Collateral,
or any part thereof, and Pledgor hereby consents to any such
appointment; (vi) purchase the Collateral at any public sale; (vii)
purchase the Collateral at any private sale if permitted by the Code;
and/or (viii) exercise the rights set forth in Section 10 hereof.
(b) Sale of Securities. Pledgor recognizes that PSC may
be unable to effect a public sale of any or all of the Securities by
reason of certain prohibitions contained in the federal securities
laws and applicable state or foreign securities laws, and thus may
resort to one or more private sales thereof to a restricted group of
purchasers who will be obliged to agree, among other things, to
acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Pledgor
acknowledges and agrees that any such private sale may result in
prices and other terms less favorable to the seller than if such sale
were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a
commercially reasonable manner. PSC shall be under no obligation to
delay a sale of any of the Securities for the period of time necessary
to permit the issuer of such securities to register such securities
for public sale under the federal securities laws, or under applicable
state securities laws, even if such issuer would agree to do so. Upon
the consummation of any private or public sale, PSC shall have the
right to deliver, assign, and transfer to the purchaser thereof the
Securities so sold. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right of whatsoever
kind, and Pledgor hereby waives (to the extent permitted by law) all
rights of redemption, stay and/or appraisal which it has or may at any
time in the future have under any rule of law or statute now existing
or hereafter enacted. PSC shall give Pledgor notice of PSC's intention
to make any such public or private sale at broker's board or on a
securities exchange to the extent required hereunder or by the Code.
Such notice, in case of sale at broker's board or on a securities
exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Securities, or that portion thereof
so being sold, will first be offered for sale at such board or
exchange. At any such sale the Securities may be sold in one lot as an
entirety or in separate parcels, as PSC may determine. PSC shall not
be obligated to make any such sale pursuant to any such notice if PSC
shall determine not to do so, regardless of the fact that notice of
sale of the Securities may have been given. PSC may without notice or
publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or any
part of the Securities on credit or for future delivery, the
Securities so sold may be
Page 4
<PAGE> 5
retained by PSC until the selling price is paid by the purchaser
thereof, but PSC shall not incur any liability in case of the failure
of such purchaser to take up and pay for the Securities so sold and,
in case of any such failure, such Securities may again be sold upon
like notice. PSC may also, at its discretion, proceed by a suit or
suits at law, or in equity to foreclose its security interest and sell
the Securities, or any portion thereof, under a judgment or decree of
a court or courts of competent jurisdiction. If any consent, approval
or authorization of any state, municipal or other governmental
department, agency or authority should be necessary to effectuate any
sale or other disposition of the Securities or any part thereof,
Pledgor shall execute all such applications and other instruments as
may be required in connection with securing any such consent, approval
or authorization, and will otherwise use Pledgor's best efforts to
secure the same.
(c) Notification. Reasonable notification of the time and
place of any public sale of the Collateral, or reasonable notification
of the time after which any private sale or other intended disposition
of the Collateral is to be made, shall be sent to Pledgor and to any
other person entitled under the Code to notice; provided, that if the
Collateral threatens to decline quickly in value, or if otherwise
permitted by the Code, PSC may (but shall not be obligated to) sell or
otherwise dispose of the Collateral without notification,
advertisement or other notice of any kind. It is agreed that notice
sent or given not less than ten calendar days prior to the taking of
the action to which the notice relates is reasonable notification and
notice for the purposes of this section.
(d) Application of Proceeds. Upon the maturity of the
Obligations or any part thereof, whether such maturity be by such
terms of such instruments or through the exercise of any power of
acceleration, PSC is authorized and empowered to apply any and all
funds realized from the sale of the Collateral not previously credited
against the Obligations first toward the payment of the costs, charges
and expenses, if any, incurred in connection with the collection of
such funds hereunder, and then toward the payment of the Obligations
in such order as PSC, in its sole discretion, shall deem appropriate,
and shall pay the balance remaining (if any) to Pledgor as prescribed
by the Code or as a court of competent jurisdiction may direct.
10. Attorney-in-Fact. Pledgor hereby appoints PSC as the
attorney-in-fact for Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which PSC may
deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, PSC shall have the right and power to receive,
endorse and collect all checks and other orders for the payment of money made
payable to Pledgor and included within the Collateral and to give full
discharge for the same. Neither PSC nor any director or officer of the issuer
of the Securities shall have any liability for the distribution to and
collection of the Proceeds by PSC, but shall be fully protected in relying on
the written statement of PSC as to its authorization pursuant to this
paragraph. Any and all amounts collected by PSC pursuant hereto shall be
applied against the Obligations in the manner that PSC shall determine, in
PSC's sole and absolute discretion.
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<PAGE> 6
11. Certain Other Rights of PSC.
(a) Duty of Care. PSC's only duty with respect to the
Collateral shall be to exercise reasonable care to secure the safe
custody thereof. PSC shall not have a duty to fix or preserve rights
against prior parties to the Collateral, and shall never be liable for
its failure to use diligence to collect any amount payable with
respect to the Collateral, but shall be liable only to the account of
Pledgor for what PSC may actually collect or receive thereon.
(b) Financing Statement. PSC shall have the right at any
time to execute and file this Agreement or a copy of this Agreement as
a financing statement, but the failure of PSC to do so shall not
impair the validity or enforceability of this Agreement.
(c) Payment of Expenses. At PSC's option, PSC may
discharge taxes, liens and interest, perform or cause to be performed,
for and on behalf of Pledgor, any actions and conditions, obligations
or covenants which Pledgor has failed or refused to perform and may
pay for the repair, maintenance or preservation of any of the
Collateral, and all sums so expended, including, but not limited to,
attorneys' fees, court costs, agents' fee or commissions, or any other
costs or expenses, shall bear interest from the date of payment at the
highest legal rate and shall be deemed to constitute part of the
Obligations secured by this Agreement.
12. Cumulative Rights and Remedies. All rights and remedies of PSC
hereunder are cumulative of each other and of every other right or remedy which
PSC may otherwise have at law or in equity or under any other contract or other
writing for the enforcement of the security interest herein or the collection
of the Obligations, and the exercise by PSC of one or more rights or remedies
shall not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies. Should Pledgor have heretofore executed or hereafter
executed any other security agreement in favor of PSC in which a security
interest is created as security for the debts of another or others, in respect
of which Pledgor may not be personally liable, the security interest therein
created and all other rights, powers and privileges vested in PSC by the terms
thereof shall exist concurrently with the security interest created herein,
and, in addition, all property in which PSC holds a security interest under any
such other security agreement shall also be part of the Collateral hereunder,
and all or any part of the proceeds of the sale or other disposition of such
property may, in the discretion of PSC, be applied by PSC in accordance with
the terms hereof, and of such other security agreement, or agreements, or any
of them.
13. Termination. Upon payment in full by Pledgor of all
Obligations in accordance with their terms, this Agreement shall terminate and
PSC shall return to Pledgor all certificates evidencing the Securities (and
any related stock powers) then held under this Agreement.
14. Repurchase Option. If PSC exercises its right to cancel or
repurchase any of the Securities under the Restricted Stock Agreement, PSC
shall be entitled to release such Securities from the pledge under this
Agreement and cancel or repurchase such Securities in accordance with the terms
of the Restricted Stock Agreement.
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<PAGE> 7
15. Further Assurances. Pledgor agrees to execute and deliver such
further instruments and take such further actions as PSC may reasonably request
from time to time to preserve or give effect to its rights under this
Agreement.
16. Action by PSC. Any election, consent, waiver or other action
that may be taken by PSC hereunder will be taken by the Chairman of the Board,
unless Pledgor is then serving in such capacity, in which case such action will
be taken by the Board.
17. Notices. Any notice to PSC that is required or permitted by
this Agreement must be addressed to PSC at its principal office to the
attention of the President, with a copy to the General Counsel. Any notice to
Pledgor that is required or permitted by this Agreement must be addressed to
Pledgor at the most recent address for Pledgor reflected in the appropriate
records of PSC. Either party may at any time change its address for
notification purposes by giving the other prior 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 and must be sent by courier, overnight delivery service,
facsimile or certified mail, return receipt requested, and such notice will be
deemed to be given (a) if sent by courier, on the date actually delivered, (b)
if sent by overnight delivery service, one day after being sent, (c) if sent by
telecopy, on the date that confirmation of transmission is received by the
sender, or (d) if sent by certified mail, on the third business day after being
mailed.
18. Enforcement. This Agreement will be governed by and construed
in accordance with the laws of the State of Texas, without regard to the choice
of law rules thereof. PSC will be entitled, in addition to any other remedies
it may have at law or in equity, to temporary and permanent injunctive and
other equitable relief to enforce the provisions of this Agreement. Any action
to enforce the provisions of, or otherwise relating to, this Agreement may be
brought in the appropriate courts in Dallas, Dallas County, Texas, and Pledgor
hereby consents to the personal jurisdiction of such courts in any such action;
provided that, at the request of PSC or Pledgor, any claim or dispute arising
out of or relating to this Agreement or Pledgor's employment by PSC or the
termination of such employment, including any federal or state statutory
claims, will be resolved without resort to the courts solely through mediation
and, if mediation is not successful, through binding arbitration pursuant to
the rules of the American Arbitration Association. Neither party will be liable
to the other for punitive damages for any such claim or dispute. If any action
at law or in equity is necessary 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; provided that, if Pledgor becomes liable for any such
fees, costs or other disbursements, such amounts will become Obligations under
the applicable Note secured by this Agreement.
19. Entire Agreement. This Agreement and the other documents and
instruments specifically referenced herein constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
thereof, and except as expressly set forth herein or therein, there are no
agreements or representations, written or oral, express or implied, with
respect to such subject matter. No provision of this Agreement may be modified,
waived or
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<PAGE> 8
discharged unless such waiver, modification or discharge is agreed to in
writing signed by Pledgor and PSC. No waiver by either party hereto of any
condition or provision of this Agreement to be performed by the other party
will be deemed a waiver of any other provisions or conditions at the same or at
any prior or subsequent time.
20. Severability. If any provision of this Agreement is held to be
invalid or unenforceable for any reason, the validity and enforceability of all
other provisions of this Agreement will not be affected thereby.
21. Counterparts. This Agreement may be executed in any number of
multiple counterparts and by different parties on separate counterparts, all of
which when taken together will constitute one and the same agreement.
22. Assignment. Pledgor may not assign this Agreement or any
rights or obligations hereunder.
IN WITNESS WHEREOF, and intending to be legally bound, Pledgor and a
duly-authorized representative of PSC have executed this Agreement as of the
date first above written.
/s/ TERRY M. ASHWILL
-------------------------
Terry M. Ashwill, Pledgor
PEROT SYSTEMS CORPORATION
By:/s/ MORTON MEYERSON
----------------------
Name: Morton Meyerson
Title: Chairman of the Board
Page 8
<PAGE> 1
EXHIBIT 10.41
December 23, 1997
Mr. Terry Ashwill
29 Windsor Ridge
Frisco, Texas 75034
Dear Terry:
Effective as of December 12, 1997, Perot Systems Corporation ("PSC") and you
hereby agree to the following: (i) the purchase by PSC of 120,000 restricted
shares (the "Restricted Shares") of PSC's Class A Common Stock, par value $.01
per share (the "Common Stock"), owned by you, (ii) the issuance to you of
options to purchase 120,000 shares of Common Stock and (iii) the amendment of
the vesting schedule and certain other terms of the existing stock option
agreement (the "Existing Agreement") dated January 28, 1997, between PSC and
you. These transactions are being be consummated on the following terms and
conditions:
1. Perot Systems hereby purchases from you the Restricted Shares for
$481,364.39 (the "Purchase Price"), which represents the price you
paid for the shares plus 8% interest from the date of purchase. The
Purchase Price will be paid by (i) issuing a check to you within 14
days of the execution by you of this letter agreement in the amount of
$6,875 and (ii) offsetting against the Purchase Price the current
principal balance and accrued interest on the following notes
(collectively, the "Notes"):
(a) Promissory Note dated January 28, 1997 in the principal amount
of $187,500 made by you in favor of PSC
(b) Bridge Note dated January 28, 1997 in the principal amount of
$187,500 made by you in favor of PSC
(c) Promissory Note dated February 14, 1997 in the principal
amount of $37,500 made by you in favor of PSC
(d) Bridge Note dated February 14, 1997 in the principal amount of
$37,500 made by you in favor of PSC.
As a result of these transactions, the Notes will be deemed paid in
full and, as soon as practicable following the consummation of these
transactions, will be so marked and returned to you.
2. You will execute a stock power or endorse your certificate in blank,
as requested by PSC, to effect the transfer of the Restricted Shares
to the Company.
3. The vesting schedule set forth as Attachment A to the Existing
Agreement is hereby amended to read in its entirety as set forth on
Exhibit 1. Section 3(d) of the Existing Agreement is hereby amended in
its entirety to read as follows:
<PAGE> 2
Mr. Terry Ashwill
December 23, 1997
Page 2
(d) Shares of Purchased Stock may not be sold or otherwise
transferred without the written consent of the underwriters of
the initial underwritten public offering of Common Stock
registered under the Securities Act, for the longer of (i) six
months after the Common Stock is listed on a registered
national securities exchange or approved for quotation in the
NASDAQ system and (ii) for the same period, and under the same
conditions, as the Underwriters request from the top five
executive officers of Perot Systems (as designated by the
Chief Executive Officer of Perot Systems) as a group.
4. PSC will issue you options to purchase 120,000 shares of Common Stock
under PSC's 1991 Stock Option Plan pursuant to a Stock Option
Agreement in the form of Exhibit 2. A Prospectus relating to the 1991
Stock Option Plan is included in this package for your benefit.
5. Each of the Restricted Stock Agreements and Pledge Agreements dated
January 28, 1997 and February 14, 1997 between PSC and you will be of
no further force and effect upon the consummation of the transactions
contemplated by this letter agreement.
6. PSC makes no representations or warranties to you in connection with
the repurchase of the Restricted Shares.
If you agree with the foregoing, please sign both copies of this letter in the
space provided below and return them to me at your earliest convenience.
Sincerely yours,
PEROT SYSTEMS CORPORATION
By: /s/ PETER A. ALTABEF
-----------------------
Peter A. Altabef
General Counsel
ACCEPTED AND AGREED:
/s/ TERRY M. ASHWILL
- --------------------------
Terry M. Ashwill
- --------------------------
December 29, 1997
- --------------------------
Date
<PAGE> 3
Exhibit 1
AMENDED
ATTACHMENT A
TO
STOCK OPTION AGREEMENT
FOR
TERRY M. ASHWILL
1. Purchase Price: $3.75 per Share.
2. Expiration Date: January 29, 2008
unless earlier terminated
under Section 2(a) or 2(d).
3. Vesting Schedule:
<TABLE>
<CAPTION>
Vesting Dates Number of
Dates Certain Options Vesting
------------- ----------------
<S> <C>
January 28, 1998 40,000
January 28, 1999 40,000
January 29, 2000 40,000
January 28, 2001 40,000
January 28, 2002 40,000
January 28, 2003 30,000
------
</TABLE>
Total 230,000
=======
<PAGE> 4
Exhibit 2
Perot Systems Corporation
1991 Stock Option Plan
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of December 12, 1997, is by and between Perot Systems
Corporation ("Perot Systems"), a Delaware corporation, and Terry M. Ashwill
("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
1
<PAGE> 5
being generally known to, and is not readily ascertainable by
proper means by, other 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> 6
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> 7
(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 without the written consent of the underwriters of
the initial underwritten public offering of Common Stock
registered under the Securities Act, for the longer of (i) six
months after the Common Stock is listed on a registered
national securities exchange or approved for quotation in the
NASDAQ system and (ii) for the same period, and under the same
conditions, as the underwriters request from the top five
executive officers of Perot Systems (as designated by the
Chief Executive Officer of Perot Systems) as a group.
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
4
<PAGE> 8
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 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
5
<PAGE> 9
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:
(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,
6
<PAGE> 10
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 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,
properly 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.
7
<PAGE> 11
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.
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> 12
CONSENT OF SPOUSE
As the spouse of Participant, I consent to be bound by this Stock Option
Agreement and agree that this consent shall be binding on my interest under
this Agreement and on my heirs, legatees, and assigns.
--------------------------------
Signature
--------------------------------
Printed Name
9
<PAGE> 13
ATTACHMENT A
TO
STOCK OPTION AGREEMENT
FOR
TERRY M. ASHWILL
1. Purchase Price: $6.75 per Share.
2. Expiration Date: January 28, 2008, unless
earlier terminated under
Section 2(a) or 2(d)
3. Vesting Schedule:
<TABLE>
<CAPTION>
Vesting Dates Number of
Dates Certain Options Vesting
------------- ---------------
<S> <C>
January 28, 2004 30,000
January 28, 2005 30,000
January 28, 2006 30,000
January 28, 2007 30,000
------
TOTAL 120,000
=======
</TABLE>
<PAGE> 1
EXHIBIT 10.42
[PEROT SYSTEMS CORPORATION LETTERHEAD]
January 4, 1997
Mr. Terry Ashwill
255 15 North Forest Road
Unit 16
Rio Verde, AZ 85263
Dear Terry:
It is my sincere pleasure to extend an offer of employment to you for the
position of Chief Financial Officer, effective as soon as practicable in
January 1997. This offer of employment includes a base salary of $29,167.00 per
month. You will also be eligible for an annual incentive bonus as an executive,
payable in February, 1998. Your target plan bonus for 1997 is 25% of base pay,
subject to adjustment up or down based on company and individual performance.
In addition, in light of your potential to contribute to the long-term success
of Perot Systems Corporation, upon signing an Associate Agreement you will be
granted 300,000 stock options to purchase shares of Perot Systems stock,
vesting annually over ten years and 50,000 stock options vesting annually over
5 years. Details outlining the Perot Systems Stock Option Plan and your stock
option agreement, which govern the terms and conditions of the grant, will be
distributed under separate cover. If you wish, you may instead purchase
restricted stock instead of receiving options, provided that you purchase the
shares in January 1997.
<PAGE> 2
Mr. Terry Ashwill
January 4, 1997
Page 2
We will also offer to you a special termination provision if you leave Perot
Systems for certain reasons during your first 2 years with us. This will apply
(a "Triggering Event") if during this two year period (a) you terminate your
employment with Perot Systems and you neither (I) within twelve months from the
termination, work for a competitor of Perot Systems, or (II) within six months
from the termination, work for a company with which you had discussions or
communications (directly or through third parties) concerning or relating to
employment while you were employed at Perot Systems or (b) you are terminated
by Perot Systems other than for Cause. Cause means termination of employment
for a felony conviction, actions involving moral turpitude, theft, or
dishonesty in a material matter; or material breach of your obligations to
maintain information on a confidential basis.
The protection you will receive is as follows: If a Triggering Event occurs
during the first two years of your employment with Perot Systems, so many
shares or options up to 50,000 shares/options of Perot Systems stock (the
"Triggering Event Shares") will vest under the option or restricted stock
agreements mentioned above, regardless of whether such shares would otherwise
have vested under the normal ten year and five year prorata vesting schedules
under those agreements, if such shares are required so that, on the Measurement
Date, the Value of the Triggering Event Shares is $1,500,000. The Measurement
Date will be the third anniversary of your effective date of employment with
Perot Systems. The Value will be (a) if Perot Systems shares are listed on a
registered national securities exchange or approved for quotation on the
<PAGE> 3
Mr. Terry Ashwill
January 4, 1997
Page 3
National Association of Securities Dealers Automated Quotation ("NASDAQ")
system, the closing sale price of such shares on such date, as determined in
good faith by Perot Systems, 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 shares are not so publicly traded, the
fair market value, as determined in good faith by the Board of Directors, as of
the most recent Perot Systems appraisal, provided that such appraisal will not
discount the value of the stock because it is not publicly traded.
The protection above is in addition to, and does not otherwise affect, the
normal ten year and five year prorata vesting provided by the stock/option
agreements. As an example, if a Triggering Event occurs prior to your first
year anniversary with Perot Systems, you will not have vested any
shares/options and the maximum amount of "protection" shares/options available
to you will be 50,000. If a Triggering Event occurs between your first
anniversary and your second anniversary with Perot Systems, and you will
otherwise have vested 40,000 shares/options under the normal ten year and five
year prorata provisions of the contract, the maximum amount of "protection"
shares/options available to you will be 10,000. In the event that such 40,000
shares/options vested during that year but are repurchased due to violation of
the standard provisions of those agreements but which otherwise does not
violate this letter, then the maximum number of "protection" shares/options
available to you will be 50,000.
<PAGE> 4
Mr. Terry Ashwill
January 4, 1997
Page 4
The company sponsored benefits plan includes medical, vision and dental
benefits, life insurance, short term and long term disability insurance, 401(k)
plan, tuition reimbursement, and Flexible Spending Accounts.
In addition to the above, during your first year with Perot Systems, Perot
Systems will reimburse you for up to $4,000 (on an after tax basis) in personal
finance expertise assistance.
In connection with your relocation to Dallas, Perot Systems agrees to purchase
your current personal residence at terms consistent with the Perot Systems
executive relocation program. This will include transportation of your personal
household items to Dallas, up to 90 days storage for those items, and insurance
during this move and storage. Perot Systems will also reimburse you for
temporary living expenses in Dallas during this ninety day period.
Perot Systems will not require you to relocate from Dallas.
This offer is for employment at will, which means that either you or Perot
Systems can terminate the employment at any time, with or without cause, and is
contingent upon execution of an Associate Agreement.
<PAGE> 5
Mr. Terry Ashwill
January 4, 1997
Page 5
The terms and conditions of this offer shall override any conflicting language
in any Perot Systems stock or option plans or agreements or other related
documents, with respect to matters specifically addressed in this offer letter.
Perot Systems will consult with you on the form and content of any public
announcement of your joining Perot Systems, and will only issue the public
announcement after receiving your consent to the timing and the final form and
content of the announcement.
I trust that you will accept this offer to become Chief Financial Officer of
Perot Systems. I look forward to working with you.
Sincerely yours, Acceptance:
/s/ PETER A. ALTABEF /s/ TERRY ASHWILL
------------------------------
Peter A. Altabef Terry Ashwill
Perot Systems Corporation
January 10, 1997
------------------------------
Date
<PAGE> 1
EXHIBIT 10.43
[PEROTSYSTEMS LETTERHEAD]
November 17, 1997
Dr. George H. Heilmeier
Chairman and CEO
Bellcore
445 South Street
Morristown, NJ 07960
Dear George:
Perot Systems Corporation ("Perot Systems") is pleased to engage you as a
consultant for approximately 20% of your time, in addition to the time that you
will devote as a Board member. As a consultant, you will work on the development
and implementation of the company's business and technology strategies and on
the structure of major business relationships, as well as other projects. We
will work with you to coordinate the timing of your services consistent with
your other business commitments.
We will pay you $12,500 per month for your consulting services and reimburse you
for your reasonable, allocated travel expenses, consistent with Perot Systems'
policies. In addition, we will grant you options to buy 20,000 shares of Perot
Systems common stock at an exercise price of $6.75 per share, with 4,000 of the
options vesting on each of the first five anniversaries of the date of this
letter for as long as this agreement remains in effect, in accordance with the
enclosed Stock Option Agreement and Plan.
You are furnishing services to Perot Systems as an independent contractor. This
letter agreement is not intended to create an employer-employee or agent
relationship between Perot Systems and you. Perot Systems is not responsible for
withholding any amounts for your income tax, Social Security or any other taxes.
If you inform Perot Systems in writing that any consulting services Perot
Systems asks you to perform would conflict with Section 5 of your retirement
agreement as attached to your letter to me dated September 22, 1997, Perot
Systems will immediately withdraw its request.
The term of this agreement will be from November 17, 1997, to November 16, 2002,
provided that either party may terminate this agreement prior to November 16,
2002, at the terminating parties sole discretion, and for any or no reason, on
one month's notice. Upon termination of this agreement you will cease to receive
compensation and the vesting of your options shall cease.
<PAGE> 2
This agreement incorporates by reference the terms of Attachment A
("Confidentiality and Proprietary Rights Agreement") and constitutes the final,
entire, and exclusive agreement between Perot Systems and you with respect to
your consulting for Perot Systems and may only be amended in a writing signed by
both parties.
If you agree to the terms of this agreement, please sign both copies of this
letter and both copies of Attachment A, keep one copy of each for your records,
and return the other copies to Patti Karn, our Stock Administrator, in the
enclosed return envelope. Please also sign the enclosed Stock Option Agreement,
return it to Patti, and she will return a signed copy to you.
Separately you have received and executed a Stock Option Agreement for 30,000
shares vesting over five years as compensation for your service on the Board of
Directors, and the Plan governing that Option Agreement.
We are very excited about the prospect of working with you.
Very truly yours,
/s/ PETER ALTABEF
- -----------------------
Peter Altabef
ACCEPTED AND AGREED:
By: /s/ GEORGE H. HEILMEIER
-------------------------------
George H. Heilmeier
Date: 11/19/97
-----------------------------
2
<PAGE> 3
Attachment A
CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT
This Confidentiality and Proprietary Rights Agreement (the "Agreement") is
entered into between Dr. George H. Heilmeier ("Consultant"), and Perot Systems
Corporation, a Delaware corporation ("Perot Systems").
1. In order for the parties to carry out their consulting agreement pursuant
to the letter dated November 17, 1997, to which this Agreement is attached
and of which it is part, Perot Systems may disclose confidential
information to Consultant regarding its business activities and plans
("Confidential Information"). Confidential Information includes, but is not
limited to:
(a) the names of Perot Systems' customers and the nature of Perot Systems'
relationships with its customers;
(b) Perot Systems' computer programs;
(c) compilations of data and information selected or arranged by Perot
Systems;
(d) developments, improvements, processes, procedures, inventions, and
trade secrets that are produced by Perot Systems or its employees or
contractors in the course of Perot Systems' business; and
(e) information and materials provided to Perot Systems by its customers,
alliance partners, and vendors.
2. Consultant shall use his best efforts to keep Perot Systems' Confidential
Information secret.
3. Consultant has no obligation with respect to any Confidential Information
which Consultant can establish (a) he independently developed; (b) is or
becomes publicly known without a breach of this Agreement by Consultant;
(c) is disclosed to Consultant by a third person who is not required to
maintain its confidentiality; or (d) is approved for release by Perot
Systems in writing.
4. Consultant shall and hereby does assign to Perot Systems all of his rights,
title, and interest in any Confidential Information that he develops or
helps to develop while working for Perot Systems as an independent
contractor or employee and shall promptly and fully inform Perot Systems in
writing of any such Confidential Information. Consultant shall provide, at
Perot Systems' request and expense, such cooperation and documentation as
Perot Systems reasonably requests to establish or confirm Perot Systems'
proprietary rights in any of the Confidential Information.
5. Consultant shall not disclose Confidential Information to any agent or
other non-party without the prior written consent of Perot Systems.
6. Consultant shall not use Confidential Information for competing with Perot
Systems or for any purpose not in furtherance of the business relationship
between them.
7. Upon the termination of the consulting agreement or at Perot Systems'
request, whichever is sooner, Consultant shall return all copies of the
Confidential Information in any form and shall destroy all notes or
memoranda in any form that are based wholly or partly on Confidential
Information.
3
<PAGE> 4
8. If Consultant becomes legally obligated to disclose any Confidential
Information, he shall notify Perot Systems in writing immediately, shall
cooperate with Perot Systems in seeking a protective order or other
appropriate remedy, and shall use his best efforts to protect the
confidential or proprietary status of any disclosed Confidential
Information.
9. In the event of a breach or threatened breach by Consultant of the
provisions of this Agreement, Perot Systems may have no adequate remedy in
damages and, accordingly, shall be entitled to an injunction in addition to
any other legal or equitable remedies.
10. This Agreement is governed by the laws of Texas without regard to its rules
on conflicts of law, and Consultant consents to the exclusive personal
jurisdiction of the state and federal courts in Texas. Consultant may not
assign his rights or obligations under this Agreement. No modification or
waiver of any provision of this Agreement shall be effective unless in
writing and signed by the party sought to be bound. This Agreement shall
expire two years after the termination of the consulting agreement to which
this Agreement is attached.
ACCEPTED AND AGREED:
By:
-----------------------------
George H. Heilmeier
Date:
---------------------------
4
<PAGE> 5
PEROT SYSTEMS CORPORATION
1996 ADVISOR AND CONSULTANT
STOCK OPTION/RESTRICTED STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of, November 17,1997, is by and between Perot Systems
Corporation, a Delaware corporation ("Perot Systems" or the "Company"), and
George H. Heilmeier ("Participant").
WITNESSETH
WHEREAS, Perot Systems has adopted the Perot Systems Corporation 1996 Advisor
and Consultant Stock Option/ Restricted Stock Incentive Plan (the "Plan") to
enable nonemployee advisors of the Company, and consultants under contract with
the Company, to acquire shares of Class A Common Stock, $0.01 par value, of the
Company ("Common Stock") in accordance with the provisions of the Plan; and
WHEREAS, the Committee of the Board of Directors of Perot Systems with
responsibility for administering this Plan (the "Committee") has selected
Participant to participate in the Plan and has determined to grant Participant
the 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) and purchase price per share of shares
subject to outstanding options issued 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. Award.
(a) Subject to the terms, conditions, and restrictions set forth in the
Plan and in this Agreement, Perot Systems hereby awards and grants to
Participant, and Participant hereby accepts from Perot Systems, the option
to purchase from Perot Systems the number of shares of Common Stock, at the
purchase price, and in accordance with the schedule specified on Attachment
A hereto.
- 1 -
<PAGE> 6
(b) The option may be exercised only with respect to vested options. Once
vested, the options may be exercised until the expiration date set forth on
Exhibit A hereto (unless such right to exercise is earlier terminated
pursuant to Section 3 hereunder), by delivering written notice of the
exercise to Perot Systems specifying the number of shares to be purchased
and paying in full the purchase price for such shares either
(i) in cash or check in United States dollars or
(ii) by tendering to Perot Systems shares of the same class as the
shares being acquired that have been owned by the person exercising the
option for any period necessary to avoid a charge to Perot Systems'
earnings and having a fair market value on the date of exercise equal
to such purchase price, or
(iii) by a combination of such cash and shares.
(c) For purposes of this Agreement, the term "fair market value" means,
with respect to any Purchased Stock means,
(i) if the Purchased Stock is publicly traded, the closing sale price on the
date of determination in the market in which the shares are principally traded
(which may be a stock exchange) or, if no such closing sale price is available
for such date, on the most recent previous date for which such a closing sale
price is available or, if no closing sale price is available, the closing bid
price on such date as quoted in the National Association of Securities Dealers
Automated Quotation ("NASDAQ") system, or by the National Quotation Bureau,
Inc., if not so quoted, or, if no such closing bid price is available for such
date, the closing bid price on the most recent previous date for which such a
closing bid price is available, or
(ii) if Purchased Stock is not publicly traded, their fair market value,
determined by reference to the most recent appraisal of the Common Stock
conducted by appraisers selected by the Board of Directors of Perot Systems.
(d) For purposes of this Agreement, the term "publicly traded" means
Purchased Stock has been listed on a registered national securities
exchange or approved for quotation in the NASDAQ system.
(e) For purposes of this Agreement, the term "Purchased Stock" means any
Common Stock or other security 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.
- 2 -
<PAGE> 7
2. Restrictions on Transfer of Option and Purchased Stock.
(a) The option evidenced by this Agreement may not be sold or otherwise
transferred, and is exercisable only by Participant.
(b) Shares of Purchased Stock may not be sold or otherwise transferred for
six months after stock of the same class as the Purchased Stock is publicly
traded.
(c) Perot Systems is not obligated to recognize any purported sale or other
transfer of the option or Purchased Stock in violation of this Section 2
and may treat any such purported sale or transfer as null, void, and of no
effect.
3. Cessation of Service to Perot Systems.
Any invested options evidenced by this Agreement will terminate and, except
to the extent set forth in this Section 3, will cease being exercisable if
Participant, for any reason whatsoever, is no longer serving Perot Systems
in at least one of the following capacities: a consultant under contract to
Perot Systems, or full time employee of Perot Systems (a "Termination
Event"), unless the Committee, in its sole discretion, agrees in writing
otherwise. If a Termination Event occurs by reason other than the death of
Participant, Participant will have sixty days after the Termination Event
to exercise all vested options hereunder, but in no event later than the
expiration date set forth on Attachment A hereto. If a Termination Event
occurs by reason of the death of Participant, Participant's estate will
have two years after the Termination Event to exercise all vested options
hereunder, but in no event later than the expiration date set forth on
Attachment A hereto.
4. Company's Right of First Refusal.
(a) Unless and until shares of Purchased Stock are publicly traded, Perot
Systems will have a right of first refusal to purchase such shares
purchased hereunder if the holder of the shares desires or is obligated to
sell or otherwise transfer the shares, but this right will not apply to a
transfer upon Participant's death by will or by the laws of descent and
distribution.
(b) Any holder of such shares who desires or is obligated to sell or
otherwise transfer them before shares of Purchased Stock are publicly
traded must give Perot Systems written notice of the proposed sale or other
transfer. The notice must include the name of the proposed purchaser or
transferee and describe the circumstances of the transfer. Perot Systems
may purchase any or all of the shares proposed to be sold or transferred by
notifying the holder within 30 days of its
- 3 -
<PAGE> 8
receipt of the notice of its election to exercise its right of first
refusal and tendering the purchase price of the shares as soon as
reasonably practicable thereafter.
(c) The purchase price at which Perot Systems will purchase shares under
its right of first refusal will be their fair market value, determined by
reference to the most recent appraisal of the Common Stock conducted by
appraisers selected by the Board of Directors of Perot on or before the
date of receipt of the notice of the proposed sale or transfer.
5. Compliance with Securities Laws.
(a) Participant acknowledges that the option evidenced by this Agreement
and the shares to be issued upon exercise of the option have not been
registered under the Securities Act of 1933, that Perot Systems has no
present intention to so register them, that such shares may be deemed
"restricted securities" under Rule 144 of the Act, that the holder of
restricted securities may be required to hold them for an indefinite period
of time unless they are registered for sale under the Act or an exemption
from registration is available, and that routine sales of restricted
securities under Rule 144 can only be made if Perot Systems meets certain
requirements, including a requirement to make certain information publicly
available, and then only in limited amounts and in a specified manner in
accordance with the terms and conditions of Rule 144.
(b) Upon demand by Perot Systems, any person exercising the option
evidenced by this Agreement, at the time of such exercise, will deliver to
Perot Systems a written representation to the effect that the shares being
acquired are being acquired for investment and not with a view to any
resale or distribution thereof.
(c) Neither Participant nor any successor in interest of Participant will
sell or otherwise transfer the option evidenced by this Agreement or any
shares acquired upon exercise of the option in any way that might result in
a violation of any federal or state securities laws or regulations.
(d) Perot Systems may require Participant or any subsequent holder of the
option or of any shares acquired upon exercise of the option to provide
Perot Systems, before any sale or other transfer, with such
representations, commitments, and opinions regarding compliance with
applicable securities laws and regulations as Perot Systems may deem
necessary or advisable.
6. Stock Certificates; Rights as Shareholder. Perot Systems will retain for
safekeeping all certificates representing shares purchased upon exercise of
the option evidenced by this Agreement. Each such certificate will bear
such legends as the Board
- 4 -
<PAGE> 9
determines are necessary or appropriate. Whether or not certificates
representing such shares have been issued or delivered, Participant will
have all the rights of a shareholder of Common Stock, including voting,
dividend and distribution rights, with respect to such shares owned by
Participant. Participant will not have any rights as a shareholder with
respect to any shares subject to the option before the date of issuance to
Participant of shares upon exercise of the option.
7. Income Tax Withholding. Participant (or any person entitled to act on
Participant's behalf) shall, upon request by the Company, pay to Perot
Systems, or Perot Systems may withhold from sums or property otherwise due
or payable to Participant (or such person), such amount as Perot Systems
may request for the purpose of satisfying any liability to withhold
federal, state, local, or foreign income or other taxes. If shares of stock
are withheld for such purpose, they will be withheld at fair market value,
as defined in Section 1(c), as of the date of accrual of the liability.
8. Compliance with Plan. Participant acknowledges receipt of a copy of the
Plan and further acknowledges that this Agreement is entered into, and the
option has been awarded, pursuant to the Plan. If the provisions of the
Plan are inconsistent with the provisions of this Agreement, the provisions
of the Plan govern and supersede the provisions of this Agreement.
9. 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 12377 Merit Drive, Suite 1100, Dallas, Texas
75251. 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, this 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, properly stamped, sealed,
and deposited in the United States mail, and, if mailed to the Company, by
certified mail, return receipt requested.
10. 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
other equitable relief to enforce the provisions of this Agreement. Any
action to enforce the provisions of, or otherwise relating to, this
Agreement may be brought in the state or federal courts having jurisdiction
in Dallas, Dallas County, Texas. By signing
- 5 -
<PAGE> 10
this Agreement, Participant consents to the personal jurisdiction of such
courts in any such action.
11. Assignment. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, personal
representatives and permitted successors and assigns. However, Participant
does not have the power or right to assign this Agreement without the prior
written consent of Perot Systems.
12. Attorneys' Fees. If any action at law or in equity is necessary 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.
13. 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.
14. Headings. The section headings used herein are for reference and
convenience only and do not affect the interpretation of this Agreement.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Texas, without regard to that
state's choice of law rules.
16. Entire Agreement. This Agreement, together with the Plan and any rules and
regulations adopted by the Board or Committee thereunder, constitutes the
entire agreement between the parties with respect to its subject matter.
17. Amendment. This Agreement may be amended only in a manner that is
consistent with the Plan and only by a written instrument signed by both
Perot Systems and Participant.
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
/s/ By:
- -------------------------------- ------------------------------
George H. Heilmeier Title: Chairman Of The Board
- 6 -
<PAGE> 11
CONSENT OF SPOUSE
As the spouse of Participant, I consent to be bound by this Stock Option
Agreement and agree that this consent shall be binding on any interest I may
have under this Agreement and on my heirs, legatees, and assigns.
By:
------------------------------
Signature
---------------------------------
Printed Name
---------------------------------
Date
- 7 -
<PAGE> 12
ATTACHMENT A
TO
STOCK OPTION AGREEMENT
FOR
GEORGE H. HEILMEIER
1. Purchase Price: $6.75 per Share
2. Expiration Date: November 16, 2003
3. Vesting Schedule:
<TABLE>
<CAPTION>
Date Option Vests Shares as to which Option Vests
----------------- -------------------------------
Percentage Number
---------- ------
<S> <C> <C>
November 16,1998 20 4,000
----------------- --------- -----------
November 16,1999 20 4,000
----------------- --------- -----------
November 16, 2000 20 4,000
----------------- --------- -----------
November 16, 2001 20 4,000
----------------- --------- -----------
November 16, 2002 20 4,000
----------------- --------- -----------
Shares Covered by Option: 100% 20,000
--------- -----------
</TABLE>
- 8 -
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Dollars and share amounts in thousands, except per share data
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Net Income $11,217 $20,499 $10,813
Preferred Stock Dividend -- 447 595
------- ------- -------
$11,217 $20,052 $10,218
======= ======= =======
Weighted Average Common Shares Outstanding 39,168 37,055 31,151
Common Stock Equivalents 8,428 5,116 2,215
------- ------- -------
Weighted Average Diluted Common Shares Outstanding 47,596 42,171 33,366
======= ======= =======
Basic Earnings per Common Share $ 0.29 $ 0.54 $ 0.33
Diluted Earnings per Common Share $ 0.24 $ 0.48 $ 0.31
</TABLE>
17
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
<S> <C>
Benton International, Incorporated California
Deutsche Perot Systems GmbH Germany
Doblin Group, Inc. Illinois
HCL Perot Systems N.V. The Netherlands
HCL Perot Systems Private Limited (India) India
HCL Perot Systems Pte. Limited (Singapore) Singapore
HPS America, Inc. Delaware
HPS Europe Limited England
HCL Perot Systems (Mauritius) Pvt. Ltd. Mauritius
Icarus Consulting A.G. Switzerland
Icarus Consulting GmbH Germany
Perot Systems A.G. Switzerland
Perot Systems Asia Pacific Pte Ltd. Singapore
Perot Systems B.V. The Netherlands
Perot Systems (Canada) Corporation, Corporation Systemes Perot Canada
Perot Systems Communication Services, Inc. Delaware
Perot Systems (Deutschland) GMBH Germany
Perot Systems Europe (Energy Services), Limited United Kingdom
Perot Systems Europe Limited ("PSEL") United Kingdom
Perot Systems Field Services Corporation Delaware
Perot Systems Financial Services Corporation Delaware
Perot Systems Holdings Pte Ltd. Singapore
Perot Systems Investments B.V. The Netherlands
Perot Systems (Japan) Ltd. Japan
Perot Systems Monaco S.A.M. Monaco
Perot Systems Realty Corporation Texas
Perot Systems S.A. (formerly Perot Systems (France) SARL) France
PSC Government Services Corporation Delaware
PSC Health Care, Inc. Delaware
Rothwell International, Inc. Texas
Stamos Associates Inc. California
Syllogic B.V. The Netherlands
Syllogic Systems B.V. The Netherlands
Syllogic Applications B.V. The Netherlands
Syllogic Ireland Limited Ireland
The Technical Resource Connection, Inc. Delaware
</TABLE>
18
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Perot Systems Corporation on Form S-8 (File No. 333-30401) of our report
dated March 25, 1998 on our audits of the consolidated financial statements of
Perot Systems Corporation as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996 and 1995.
/s/ Coopers & Lybrand L.L.P.
Dallas, Texas
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 35,298
<SECURITIES> 0
<RECEIVABLES> 106,415
<ALLOWANCES> 1,185
<INVENTORY> 0
<CURRENT-ASSETS> 178,068
<PP&E> 136,072
<DEPRECIATION> 85,369
<TOTAL-ASSETS> 267,103
<CURRENT-LIABILITIES> 170,161
<BONDS> 0
0
0
<COMMON> 406
<OTHER-SE> 92,910
<TOTAL-LIABILITY-AND-EQUITY> 267,103
<SALES> 781,621
<TOTAL-REVENUES> 781,621
<CGS> 636,296
<TOTAL-COSTS> 764,028
<OTHER-EXPENSES> 1,045
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,282
<INCOME-PRETAX> 19,508
<INCOME-TAX> 8,291
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,217
<EPS-PRIMARY> .29
<EPS-DILUTED> .24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 27,516
<SECURITIES> 0
<RECEIVABLES> 120,591
<ALLOWANCES> (6,787)
<INVENTORY> 0
<CURRENT-ASSETS> 176,705
<PP&E> 96,990
<DEPRECIATION> (61,242)
<TOTAL-ASSETS> 232,247
<CURRENT-LIABILITIES> 154,713
<BONDS> 0
0
0
<COMMON> 396
<OTHER-SE> 70,366
<TOTAL-LIABILITY-AND-EQUITY> 232,247
<SALES> 0
<TOTAL-REVENUES> 599,438
<CGS> 461,192
<TOTAL-COSTS> 558,137
<OTHER-EXPENSES> (1,608)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 770
<INCOME-PRETAX> 40,151
<INCOME-TAX> 19,652
<INCOME-CONTINUING> 20,499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,499
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> .14
<EPS-DILUTED> .12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,983
<SECURITIES> 0
<RECEIVABLES> 116,373
<ALLOWANCES> 7,883
<INVENTORY> 0
<CURRENT-ASSETS> 162,661
<PP&E> 95,680
<DEPRECIATION> 55,795
<TOTAL-ASSETS> 248,146
<CURRENT-LIABILITIES> 153,320
<BONDS> 0
0
0
<COMMON> 406
<OTHER-SE> 88,793
<TOTAL-LIABILITY-AND-EQUITY> 248,146
<SALES> 354,082
<TOTAL-REVENUES> 354,082
<CGS> 277,841
<TOTAL-COSTS> 342,083
<OTHER-EXPENSES> (1,441)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 500
<INCOME-PRETAX> 14,082
<INCOME-TAX> 5,984
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,098
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 32,100
<SECURITIES> 0
<RECEIVABLES> 115,055
<ALLOWANCES> 6,204
<INVENTORY> 0
<CURRENT-ASSETS> 177,616
<PP&E> 84,478
<DEPRECIATION> 50,026
<TOTAL-ASSETS> 244,720
<CURRENT-LIABILITIES> 161,624
<BONDS> 0
0
0
<COMMON> 403
<OTHER-SE> 77,255
<TOTAL-LIABILITY-AND-EQUITY> 244,720
<SALES> 169,071
<TOTAL-REVENUES> 169,071
<CGS> 129,714
<TOTAL-COSTS> 160,152
<OTHER-EXPENSES> (1,574)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227
<INCOME-PRETAX> 10,871
<INCOME-TAX> 4,188
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,683
<EPS-PRIMARY> .17
<EPS-DILUTED> .14
</TABLE>
<PAGE> 1
Exhibit 99(a)
Schedule VIII - Valuation and Qualifying Accounts
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(In 000's)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Deductions End of
of Period Additions (Write-offs) Period
---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
December 31, 1997 ....... $6,787 $1,167 $6,769 $1,185
December 31, 1996 ....... $1,352 $5,625 $ 190 $6,787
December 31, 1995 ....... $ 382 $1,068 $ 98 $1,352
</TABLE>
24
