<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1999.
REGISTRATION NO. 333-60755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PEROT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 75-2230700
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
12404 PARK CENTRAL DRIVE
DALLAS, TEXAS 75251
(972) 340-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
TERRY ASHWILL
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PEROT SYSTEMS CORPORATION
12404 PARK CENTRAL DRIVE
DALLAS, TEXAS 75251
(972) 340-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
ALAN J. BOGDANOW BRUCE K. DALLAS
GLEN J. HETTINGER DAVIS POLK & WARDWELL
HUGHES & LUCE, L.L.P. 450 LEXINGTON AVENUE
1717 MAIN STREET, SUITE 2800 NEW YORK, NEW YORK 10017
DALLAS, TEXAS 75201 (212) 450-4000
(214) 939-5500
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of Prospectus: one to be
used in connection with a U.S. and Canadian offering of the registrant's Class A
Common Stock (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the Class A Common Stock (the
"International Prospectus"). The International Prospectus will be identical to
the U.S. Prospectus except that it will have a different front cover page. The
U.S. Prospectus is included herein and is followed by the alternate cover page
to be used in the International Prospectus, which has been labeled "Alternate
Page for International Prospectus."
<PAGE> 3
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued January 7, 1999
5,500,000 Shares
LOGO
CLASS A COMMON STOCK
------------------------
PEROT SYSTEMS CORPORATION IS OFFERING 5,500,000 SHARES OF ITS CLASS A COMMON
STOCK. INITIALLY, THE U.S. UNDERWRITERS ARE OFFERING 4,400,000 SHARES OF OUR
CLASS A COMMON STOCK IN THE UNITED STATES AND CANADA, AND THE INTERNATIONAL
UNDERWRITERS ARE OFFERING 1,100,000 SHARES OF OUR CLASS A COMMON STOCK OUTSIDE
THE UNITED STATES AND CANADA.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR STOCK. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$11 AND $12 PER SHARE.
------------------------
WE HAVE APPLIED TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "PER."
------------------------
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
-------- ------------- -----------
<S> <C> <C> <C>
Per Share....................... $ $ $
Total........................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Perot Systems Corporation has granted the U.S. Underwriters the right to
purchase up to an additional 825,000 shares of Class A common stock to cover
over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares
of Class A common stock to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
WARBURG DILLON READ LLC
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Special Note Regarding
Forward-Looking Statements......... 14
Use of Proceeds...................... 14
Dividend Policy...................... 14
Capitalization....................... 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................. 25
Management........................... 38
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Relationships and Related
Transactions....................... 46
Principal Stockholders............... 48
Description of Capital Stock......... 50
Shares Eligible for Future Sale...... 57
Certain United States Federal Income
Tax Considerations for Non-United
States Holders..................... 58
Underwriters......................... 61
Legal Matters........................ 64
Experts.............................. 64
Additional Information............... 65
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------------------
We are a Delaware corporation. Our principal executive offices are located
at 12404 Park Central Drive, Dallas, Texas 75251, and our telephone number is
(972) 340-5000. We maintain a world wide web site at www.perotsystems.com. The
reference to our world wide web address does not constitute incorporation by
reference of the information contained at the site. In this Prospectus, the
"Company," "Perot Systems," "we," "us," and "our" refer to Perot Systems
Corporation and its subsidiaries, unless the context otherwise requires. In
addition, "Class A Common Stock" refers to our Class A common stock, $.01 par
value per share; "Class B Common Stock" refers to our Class B common stock, $.01
par value per share; and "Common Stock" refers to the Class A Common Stock and
Class B Common Stock. See "Description of Capital Stock."
You should rely only on the information contained in this Prospectus. We
have not authorized anyone to provide you with information different from that
contained in this Prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A Common Stock only in jurisdictions where offers and sales
are permitted. The information contained in this Prospectus is accurate only as
of the date of this Prospectus, regardless of the time of delivery of this
Prospectus or of any sale of the Class A Common Stock. All common share numbers
and per common share data in this Prospectus reflect a two for one stock split
effected in January 1999.
2
<PAGE> 5
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our financial statements and notes appearing elsewhere in this Prospectus.
You should carefully consider, among other things, the matters set forth in
"Risk Factors." All common share numbers and per common share data in this
Prospectus reflect a two for one stock split effected in January 1999.
THE COMPANY
We are a worldwide provider of information technology services and business
solutions to a broad range of clients. We serve our clients by delivering
services and solutions focused on each client's needs, with particular emphasis
on helping clients more effectively serve their customers.
We integrate three core disciplines in providing information technology
solutions and services to our clients:
- business integration;
- systems integration and applications development; and
- information technology infrastructure services.
Business integration services include working with clients to develop and
implement business strategy, information technology strategy, process redesign,
and change management. Systems integration and applications development include
the design and implementation of information technology systems for clients,
including both custom-developed and packaged software. Information technology
infrastructure services combine information technology outsourcing, staffing,
and infrastructure management.
Our approach is to provide clients with an "integrated service
offering" -- a combination of multiple disciplines that assists our clients in
improving their business operations or in creating new business offerings. With
this approach, we are able to create long-term relationships with our clients
that begin with an analysis of our clients' business strategies and continue
through the implementation of information technology solutions and the
realization of the clients' goals.
In marketing our services, we are primarily focused on four industries:
Financial Services, Energy, Healthcare, and Travel and Transportation. We target
these industries to capture the opportunities arising from these industries'
rapid rates of change, growth, and the increasing importance of information
technology in driving and managing this change and growth. We also have
significant clients in the Communications and Media and Manufacturing industries
and continually evaluate additional industries for future growth opportunities.
THE PEROT SYSTEMS APPROACH
We provide services on a worldwide basis that are uniquely structured to
each client. We combine the appropriate industry expertise and core disciplines
to solve the client's business problems and implement new strategies to generate
future growth. Our approach includes:
- Providing Integrated Service Offerings. We combine our business
integration, systems integration and applications development, and
information technology infrastructure services to analyze and address our
clients' business and information technology challenges and
opportunities. Rather than narrowly focusing on isolated problems, we
design our integrated service offerings to allow a client to achieve
growth and efficiencies through the implementation of broader business
solutions.
- Structuring Creative Long-Term Relationships. We seek to create long-term
relationships with clients that begin with the initial analysis of a
client's business and information technology problems and opportunities
and continue through implementation of solutions and the realization of
benefits. We strive to maximize revenues and client satisfaction by
creatively structuring contracts with economic incentives that link our
compensation to the client's business results or the level of our
performance.
3
<PAGE> 6
- Employing Multi-Disciplinary Teams. We employ multi-disciplinary teams of
associates with industry-specific expertise and associates with superior
technical skills to best formulate and implement integrated information
technology solutions for clients.
- Formulating Unbiased Client-Based Solutions. We analyze our clients'
business problems and opportunities from the perspective of the clients
and their customers. We then impartially assemble the best combination of
our services and third party products to meet the clients' needs.
PEROT SYSTEMS GROWTH STRATEGY
Our strategic objective is to become the provider of choice for information
technology services and business solutions. Key elements of our growth strategy
include:
- Expand Value-Added Service Offerings. We believe that services aimed at
growing a client's business and making a client more productive and
competitive will create more value for our clients, and accordingly
generate more growth, than traditional technology functional services.
Our strategy includes an increasing focus on systems integration and
applications development and business integration services, supported by
value-added information technology infrastructure services.
- Target Rapidly Changing Industries. We target rapidly changing industries
that are substantially affected by the increasing need for information
technology. We utilize associates with operating expertise in these
specific industries as a competitive advantage in providing superior
services to our clients.
- Create and Leverage Growth Engines. In each industry, we have the
opportunity to create "growth engines" -- sets of skills, business
processes, and know-how that, when combined, create leverageable business
solutions for clients. We can use these growth engines to build our
presence in our targeted industries and adapt them to develop or enter
other industries.
- Develop Select Clients. We believe that client selection is key to growth
and profitability. We target market leaders and aspiring market leaders
that are committed to using information technology strategically and are
willing to develop long-term relationships.
- Attract, Train, and Retain Associates with Strong Character. We believe
that attracting, training, and retaining high quality associates are
essential to our growth. We hire motivated individuals with strong
character and leadership traits and provide them with ongoing
technological and leadership skills training. We emphasize retaining our
associates through challenging work assignments and incentive programs,
including rewarding outstanding performance with equity interests. More
than 90% of our associates hold equity interests in our company.
4
<PAGE> 7
THE OFFERING
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<S> <C> <C>
Class A Common Stock offered(1):
United States offering............................. 4,400,000 shares
International offering............................. 1,100,000 shares
----------
Total........................................... 5,500,000 shares
==========
Common Stock to be outstanding after the offering:
Class A Common Stock............................... 82,634,590 shares(1)(2)
Class B Common Stock............................... 934,320 shares(3)
----------
Total........................................... 83,568,910 shares(1)(2)(3)
==========
Over-allotment option................................ 825,000 shares of Class A Common Stock
Voting rights:
Class A Common Stock............................... One vote per share
Class B Common Stock............................... Non-voting
Use of proceeds...................................... For working capital, business expansion, and
other general corporate purposes.
Dividend policy...................................... We do not anticipate paying any cash dividends
in the foreseeable future. Any future
determination to pay dividends will be at the
discretion of our Board of Directors and will be
dependent upon then existing conditions,
including our financial condition, results of
operations, contractual restrictions, capital
requirements, business prospects, and such other
factors as our Board of Directors deems
relevant.
</TABLE>
- ---------------
(1) Unless otherwise specifically stated, the information throughout this
Prospectus does not take into account the possible issuance of additional
shares of Class A Common Stock to the Underwriters pursuant to their rights
to purchase additional shares to cover over-allotments.
(2) Based on 77,134,590 shares of Class A Common Stock and 934,320 shares of
Class B Common Stock outstanding as of December 31, 1998. Excludes (i)
29,001,442 shares of Class A Common Stock subject to outstanding options as
of December 31, 1998 at a weighted average exercise price of $1.47 per share
and (ii) 10,401,040 shares of Class A Common Stock subject to options issued
to associates in 1998 at an exercise price of $11.00 per share. Subsequent
to December 31, 1998, the Company granted associates options to purchase
1,825,250 shares of Class A Common Stock at an exercise price of $11.00 per
share.
(3) Does not include 6,400,000 shares of Class B Common Stock subject to
unexercised options that were granted to UBS AG at an exercise price of
$3.65 per share. See "Business -- UBS Agreements." Each share of our Class B
Common Stock converts into one share of our Class A Common Stock for
purposes of a sale or distribution to a third party purchaser who is not an
affiliate of UBS AG. Holders of Class B Common Stock have no voting rights,
except as required by the Delaware General Corporation Law. See "Description
of Capital Stock."
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the years ended
December 31, 1997, 1996, and 1995 and the nine months ended September 30, 1998
have been derived from our consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent auditors. We derived the
following summary consolidated financial information for the nine months ended
September 30, 1997 from unaudited consolidated financial statements, which, in
our opinion, reflect all adjustments (consisting of only normal and recurring
accruals) necessary to present fairly our financial position and results of
operations for that period. Interim results do not necessarily indicate the
results that you may expect for any other interim period or for the full year.
You should read this information in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and related notes contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Revenue(2).................................................. $724.2 $556.9 $781.6 $599.4 $342.3
Direct cost of services(3).................................. 575.1 437.7 636.3 461.2 268.6
------ ------ ------ ------ ------
Gross profit................................................ 149.1 119.2 145.3 138.2 73.7
Selling, general, and administrative expenses(4)............ 103.1 95.9 125.7 92.9 52.8
Goodwill impairment(5)...................................... 3.8 -- -- -- --
Purchased research and development.......................... -- 2.0 2.0 4.0 --
------ ------ ------ ------ ------
Operating income............................................ 42.2 21.3 17.6 41.3 20.9
Interest income, net........................................ 2.8 0.4 0.6 0.8 1.3
Equity in earnings/(losses) of unconsolidated affiliates.... 4.2 0.7 4.1 (0.3) --
Write-down of nonmarketable equity securities(6)............ -- -- (3.9) -- --
Other income/(expense)(7)................................... 2.7 1.3 1.1 (1.6) (2.0)
------ ------ ------ ------ ------
Income before taxes......................................... 51.9 23.7 19.5 40.2 20.2
Provision for income taxes.................................. 23.7 10.1 8.3 19.7 9.4
------ ------ ------ ------ ------
Net income.................................................. $ 28.2 $ 13.6 $ 11.2 $ 20.5 $ 10.8
====== ====== ====== ====== ======
Basic earnings per common share(8)(9)....................... $ 0.37 $ 0.17 $ 0.14 $ 0.27 $ 0.17
Weighted average common shares outstanding(9)............... 76.7 78.9 78.3 74.1 62.3
Diluted earnings per common share(8)(9)..................... $ 0.29 $ 0.14 $ 0.12 $ 0.24 $ 0.16
Weighted average diluted common shares outstanding(9)....... 96.9 96.6 95.2 84.3 66.7
OTHER DATA:
Capital expenditures........................................ $ 18.9 $ 33.9 $ 46.1 $ 27.5 $ 18.3
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED(10)
------ ---------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $102.2 $158.8
Total assets................................................ 390.5 447.2
Long-term debt(11).......................................... 2.2 2.2
Stockholders' equity........................................ 129.2 185.9
</TABLE>
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(1) Our results of operations include the effects of business acquisitions made
in 1996 and 1997. See Note 4 of the notes to our consolidated financial
statements included elsewhere in this Prospectus.
(2) Includes recognition of $6.5 million in gains from the termination of two
contracts in 1998.
(3) During the first nine months of 1998, direct cost of services included $2.0
million in leasehold abandonment losses. During the fourth quarter of 1997,
direct cost of services included a one-time loss accrual of $10.2 million,
representing management's estimate of known future losses associated with
the termination or completion of two long-term contracts and a $2.0 million
increase for other accrued contract liabilities. Also included in fourth
quarter 1997 direct cost of services was a $3.6 million write-off of
acquired intellectual property and $3.1 million in leasehold abandonment
losses. For 1996, direct cost of services included a $4.2 million write-off
of impaired software license transfer rights.
(4) During the first nine months of 1997, selling, general, and administrative
expenses included a $2.0 million charge for executive severance and related
expenses.
(5) During September 1998, we determined that certain amounts recorded for
goodwill were impaired and no longer recoverable.
(6) In the fourth quarter of 1997, we wrote down our minority interest in two
nonmarketable equity securities to zero and recognized a $3.9 million
non-operating loss.
(7) During the first nine months of 1998, we sold an interest in a minority
investment and recognized a one-time, non-operating gain of $3.0 million.
(8) Years 1995 and 1996 and the nine month period ended September 30, 1997 are
restated for the effect of Statement of Financial Accounting Standards No.
128, "Earnings Per Share." See Note 17 of the notes to our consolidated
financial statements included elsewhere in this Prospectus.
(9) All common share numbers and per common share data reflect a two for one
stock split effected in January 1999.
(10) As adjusted amounts give effect to the issuance and sale of 5,500,000
shares of Class A Common Stock at an assumed initial public offering price
of $11.50 per share and the application of the net proceeds therefrom
(after deducting underwriting discounts and commissions and offering
expenses payable by us) as set forth under "Use of Proceeds."
(11) Amounts classified as long-term debt consist primarily of current and
long-term capital lease obligations.
6
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors and warnings
before making an investment decision. The risks described below are not the only
ones facing our company. Additional risks that we do not yet know of or that we
currently think are immaterial may also impair our business operations. If any
of the following risks actually occur, our business, financial condition, or
results of operations could be materially and adversely affected. In such case,
the trading price of our Class A Common Stock could decline, and you may lose
all or part of your investment. You should also refer to the other information
set forth in this Prospectus, including our consolidated financial statements
and the related notes.
This Prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of such terms and other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined below. These
factors may cause our actual results to differ materially from any
forward-looking statement.
LOSS OF MAJOR CLIENTS COULD ADVERSELY AFFECT OUR BUSINESS
Our ten largest clients accounted for approximately 65.4% of our revenue
for the nine month period ended September 30, 1998. For the year ended December
31, 1997, our ten largest clients accounted for approximately 64.1% of our
revenue. Only two clients, UBS and East Midlands Electricity, accounted for more
than 10% of our revenue during 1997 and the first nine months of 1998.
Our largest client is UBS. Approximately 25.4% of our revenue came from
services performed on behalf of UBS for the nine month period ended September
30, 1998. For the year ended December 31, 1997, approximately 27.2% of our
revenue came from UBS. We expect UBS to account for a substantial portion of our
revenue and earnings for the foreseeable future. See "Business -- UBS
Agreements."
Approximately 11.9% of our revenue came from services performed on behalf
of East Midlands Electricity for the nine month period ended September 30, 1998.
For the year ended December 31, 1997, approximately 10.2% of our revenue came
from East Midlands Electricity. In July 1998, PowerGen plc acquired East
Midlands Electricity from Dominion Resources, Inc. Our agreement with East
Midlands Electricity contains provisions allowing East Midlands Electricity to
terminate the contract in specified circumstances, including the sale of East
Midlands Electricity. See "Business -- Agreement with EME." We cannot assure you
that they will not cancel or modify the contract or that we will maintain our
historic level of revenue or profits from this relationship.
After UBS and East Midlands Electricity, our next eight largest customers
accounted for approximately 28.2% of our revenue in the first nine months of
1998. Our success depends substantially upon the retention of UBS, East Midlands
Electricity, and a majority of our other major clients as ongoing clients.
Generally, we may lose a client as a result of a merger or acquisition, business
failure, contract expiration, or the selection of another provider of
information technology services. Of our top ten clients as of September 30,
1998, two contracts (representing approximately $53 million in revenue during
1997) expired in the fourth quarter of 1998, one contract (representing
approximately $26 million in revenue during 1997) will expire in 1999, and none
are scheduled to expire in 2000. One of the contracts that expired in 1998 was a
short-term agreement. We are in the process of negotiating an extension of this
agreement and have obtained a temporary extension to cover the period during
which negotiations are continuing. The other expired contract has not been
renewed. We do not expect that the long-term contract that expires in 1999 will
be renewed. We cannot guarantee that we will be able to retain long-term
relationships or secure renewals of short-term relationships with our major
clients in the future. See "-- Our Contracts Contain Termination Provisions and
Pricing Risks."
7
<PAGE> 10
CHANGES IN OUR UBS RELATIONSHIP AND VARIABILITY OF PROFITS FROM UBS COULD
ADVERSELY AFFECT OUR BUSINESS
Our relationship with UBS is a long-term strategic relationship that we
formed by entering into several agreements with UBS in January 1996. These
contracts were renegotiated in April 1997 and June 1998. The April 1997
renegotiation reduced the term of the agreements from 25 years to ten years
beginning January 1997. We cannot guarantee that our current relationship with
UBS will continue on the same terms in the future.
Revenue derived from this relationship depends upon the level of services
we perform, which may vary from period to period depending on UBS's
requirements. The agreement with UBS that covers a majority of our business with
UBS entitles us to recover our costs plus an annual fee in an agreed amount with
a bonus or penalty that can cause this annual fee to vary up or down by as much
as 15%, depending on our level of performance as determined by UBS.
Determination of whether our performance merits a bonus or a penalty depends on
many subjective factors, including service quality, client satisfaction, and our
effectiveness in assisting UBS in meeting its business goals. As a result, we
cannot predict with certainty the future level of revenue or profit from our
relationship with UBS. See "Business -- UBS Agreements."
FAILURE TO RECRUIT, TRAIN, AND RETAIN SKILLED PERSONNEL COULD INCREASE COSTS OR
LIMIT GROWTH
We must continue to grow internally by hiring and training
technically-skilled people in order to perform services under our existing
contracts and new contracts that we will enter into. The people capable of
filling these positions are in great demand and recruiting and training such
personnel require substantial resources. We have to pay an increasing amount to
hire and retain a technically-skilled workforce. Our business also experiences
significant turnover of technically-skilled people. These factors create
variations and uncertainties in our compensation expense and directly affect our
profits. If we fail to attract, train, and retain sufficient numbers of these
technically-skilled people, our business, financial condition, and results of
operations will be materially and adversely affected.
We have issued a substantial number of options to purchase shares of Class
A Common Stock to our associates prior to this offering. Following this
offering, we expect to continue to issue options to our associates to reward
performance and encourage retention. The exercise of any additional options
issued by us could adversely affect the prevailing market price of the Class A
Common Stock.
WE COULD LOSE RIGHTS TO OUR COMPANY NAME
We do not own the right to our company name. In 1988, we entered into a
license agreement with Ross Perot and the Perot Systems Family Corporation that
allows us to use the name "Perot" and "Perot Systems" in our business on a
royalty-free basis. Mr. Perot and the Perot Systems Family Corporation may
terminate this agreement at any time and for any reason. Beginning one year
following such a termination, we would not be allowed to use the names "Perot"
or "Perot Systems" in our business. Mr. Perot's or the Perot Systems Family
Corporation's termination of our license agreement could materially and
adversely affect our business, financial condition, and results of operations.
See "Certain Relationships and Related Transactions."
ROSS PEROT'S STOCK OWNERSHIP PROVIDES SUBSTANTIAL CONTROL OVER OUR COMPANY
Ross Perot, our Chairman, President, and Chief Executive Officer, is the
managing general partner of HWGA, Ltd., a partnership that owned 31,705,000
shares of our Class A Common Stock as of December 31, 1998. Accordingly, upon
completion of the offering, Mr. Perot, through HWGA, Ltd., will control
approximately 38.4% of our outstanding voting common stock. As a result, Mr.
Perot, through HWGA, Ltd., will have the power to block corporate actions such
as an amendment to our Certificate of Incorporation, the consummation of any
merger, or the sale of all or substantially all of our assets. In addition, Mr.
Perot may significantly influence the election of directors and any other action
requiring shareholder approval. The other general partner of HWGA, Ltd. is Ross
Perot, Jr., a director of our company, who has the authority to manage the
partnership and direct the voting or sale of the shares of Class A Common Stock
held by HWGA, Ltd. if Ross Perot is no longer the managing general partner.
8
<PAGE> 11
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
Our success depends largely on the skills, experience, and performance of
some key members of our management, including our Chairman, President, and Chief
Executive Officer, Ross Perot. The loss of any key members of our management may
materially and adversely affect our business, financial condition, and results
of operations.
OUR CONTRACTS CONTAIN TERMINATION PROVISIONS AND PRICING RISKS
Many of the services we provide are critical to our clients' business. Some
of our contracts with clients permit termination in the event our performance is
not consistent with service levels specified in those contracts. The ability of
our clients to terminate contracts creates an uncertain revenue stream. If
clients are not satisfied with our level of performance, our reputation in the
industry may suffer, which may also materially and adversely affect our
business, financial condition, and results of operations.
Some of our contracts contain pricing provisions that require the payment
of a set fee by the client for our services regardless of the costs we incur in
performing these services, or provide for penalties in the event we fail to
achieve certain contract standards. In such situations, we are exposed to the
risk that we will incur significant unforeseen costs or such penalties in
performing the contract.
RISKS RELATED TO POTENTIAL YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR BUSINESS
Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result, some of
these systems could fail to operate or fail to produce correct results because
they may interpret "00" to mean 1900, rather than 2000 -- widely known as the
"Year 2000 Problem." These problems are likely to increase in frequency and
severity as the year 2000 approaches. The Year 2000 Problem affects some of our
computers, software, and other equipment. If we fail to properly recognize and
address the Year 2000 Problem in our systems, our business, financial condition,
and results of operations could be materially and adversely affected.
Some of our clients will be affected by the Year 2000 Problem. In some
situations, we agreed to modify, upgrade, or replace our clients' systems. We
have estimated our costs to perform these services and have taken steps to plan
for such costs, including setting up reserves and negotiating contract
provisions to address the issues. We cannot guarantee that these steps will be
sufficient, our estimates are accurate, or our reserves adequate. If we fail to
adequately assess such costs, our business, financial condition, and results of
operations could be materially and adversely affected.
The Year 2000 Problem also affects some of our major suppliers of
computers, software, and other equipment. We have discussed the Year 2000
Problem with some of these suppliers, but we cannot guarantee that these
suppliers will resolve any or all Year 2000 Problems. If our suppliers fail to
resolve Year 2000 Problems, our business could be materially disrupted.
We expect to identify and resolve all Year 2000 Problems that could
materially adversely affect our business operations. However, our management
believes that it is not possible to determine with complete certainty that all
Year 2000 Problems affecting us or our clients have been identified or
corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, no one can accurately
predict how many Year 2000 Problem-related failures will occur or the severity,
duration, or financial consequences of these perhaps inevitable failures. As a
result, our management believes that the following consequences are possible:
- a significant number of operational inconveniences and inefficiencies for
us and our clients that will divert management's time and attention and
financial and human resources from ordinary business activities;
- a lesser number of serious system failures that will require significant
efforts by us or our clients to prevent or alleviate material business
disruptions;
9
<PAGE> 12
- several routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 Problems by our clients, which will be
resolved in the ordinary course of business; and
- a few serious business disputes alleging that we failed to comply with
the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Issues."
FAILURE TO PROPERLY MANAGE GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
We have expanded our operations rapidly in recent years. We intend to
continue expansion in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems, procedures, and controls on
a timely basis. If we fail to implement these systems, our business, financial
condition, and results of operations will be materially and adversely affected.
SIGNIFICANT UNALLOCATED NET PROCEEDS
We have not designated any specific uses for the net proceeds of this
offering. Therefore, we will have broad discretion in how we use such net
proceeds, which may include working capital, business expansion, and other
general corporate purposes.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS
Our markets are intensely competitive. Our customers' requirements and the
technology available to satisfy those requirements continually change.
Our principal competitors include Andersen Consulting LLP, Cambridge
Technology Partners, Inc., Cap Gemini Group, Computer Sciences Corporation,
debis Systemhaus GmbH (the information technology division of DaimlerChrysler),
Electronic Data Systems Corporation, Ernst & Young LLP, IBM Global Services (a
division of International Business Machines Corporation), KPMG Peat Marwick LLP,
MCI Systemhouse, Oracle Corporation, PricewaterhouseCoopers LLP, and The SABRE
Group Holdings, Inc.
Many of these companies, as well as some other competitors, have greater
financial resources and a larger customer base than we do and may have larger
technical, sales, and marketing resources than we do. We expect to encounter
additional competition as we address new markets and as the computing and
communications markets converge.
We must frequently compete with a client's own internal information
technology capability, which may constitute a fixed cost for the client. This
may increase pricing pressure on us. If we are forced to lower our pricing or if
demand for our services decreases, our business, financial condition, and
results of operations will be materially and adversely affected.
We compete on the basis of a number of factors, including the
attractiveness of the business strategy and services that we offer, breadth of
services we offer, pricing, technological innovation, quality of service, and
ability to invest in or acquire assets of potential customers. Some of these
factors are outside our control. We cannot be sure that we will compete
successfully against our competitors in the future. If we fail to compete
successfully against our current or future competitors with respect to these or
other factors, our business, financial condition, and results of operations will
be materially and adversely affected.
VARIABILITY OF QUARTERLY OPERATING RESULTS
We expect our revenues and operating results to vary from quarter to
quarter. Such variations are likely to be caused by many factors that are, to
some extent, outside our control, including:
- mix and timing of client projects;
- completing client projects;
10
<PAGE> 13
- hiring, integrating, and utilizing associates;
- timing of new contracts;
- issuance of common shares and options to employees; and
- one time non-recurring and unusual charges.
Accordingly, we believe that quarter-to-quarter comparisons of operating results
for preceding quarters are not necessarily meaningful. You should not rely on
the results of one quarter as an indication of our future performance.
CHANGES IN TECHNOLOGY COULD ADVERSELY AFFECT OUR BUSINESS
The markets for our information technology services change rapidly because
of technological innovation, new product introductions, changes in customer
requirements, declining prices, and evolving industry standards, among other
factors. New products and new technology often render existing information
services or technology infrastructure obsolete, excessively costly, or otherwise
unmarketable. As a result, our success depends on our ability to timely innovate
and integrate new technologies into our service offerings. We cannot guarantee
that we will be successful at adopting and integrating new technologies into our
service offerings in a timely manner.
Advances in technology also require us to commit substantial resources to
acquiring and deploying new technologies for use in our operations. We must
continue to commit resources to train our personnel and our clients' personnel
in the use of these new technologies. We must continue to train personnel to
maintain the compatibility of existing hardware and software systems with these
new technologies. We cannot be sure that we will be able to continue to commit
the resources necessary to refresh our technology infrastructure at the rate
demanded by our markets.
INTELLECTUAL PROPERTY RIGHTS
In recent years, there has been significant litigation in the United States
involving patent and other intellectual property rights. We are not currently
involved in any material intellectual property litigation. We may, however, be a
party to intellectual property litigation in the future to protect our trade
secrets or know-how.
Our suppliers, clients, and competitors may have patents and other
proprietary rights that cover technology employed by us. Such persons may also
seek patents in the future. United States patent applications are confidential
until a patent is issued and most technologies are developed in secret.
Accordingly, we are not, and cannot, be aware of all patents or other
intellectual property rights of which our services may pose a risk of
infringement. Others asserting rights against us could force us to defend
ourselves or our clients against alleged infringement of intellectual property
rights. We could incur substantial costs to prosecute or defend any such
litigation and intellectual property litigation could force us to do one or more
of the following:
- cease selling or using products or services that incorporate the
challenged technology;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology; and
- redesign those services or products that incorporate such technology.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS, AND DELAWARE LAW COULD
DETER TAKEOVER ATTEMPTS
Our Board of Directors may issue up to 5,000,000 shares of Preferred Stock
and may determine the price, rights, preferences, privileges, and restrictions,
including voting and conversion rights, of these shares of Preferred Stock.
These determinations may be made without any further vote or action by our
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of
11
<PAGE> 14
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock may make it more difficult for a third party to
acquire a majority of our outstanding voting stock.
In addition, we have adopted a stockholders' rights plan. Under this plan,
after the occurrence of specified events that may result in a change of control,
our stockholders will be able to buy stock from us or our successor at half the
then current market price. These rights will not extend, however, to persons
participating in takeover attempts without the consent of our Board of Directors
or that our Board of Directors determines to be adverse to the interests of the
stockholders. Accordingly, this plan could deter takeover attempts. See
"Description of Capital Stock -- Provisions Relating to Change in
Control -- Stockholder Rights Plan."
Some provisions of our Certificate of Incorporation and Bylaws and of
Delaware General Corporation Law could also delay, prevent, or make more
difficult a merger, tender offer, or proxy contest involving our company. See
"Description of Capital Stock." Among other things, these provisions:
- require a 66 2/3% vote to amend our Certificate of Incorporation or
approve any merger or sale, lease, or exchange of all or substantially
all of our property and assets;
- require an 80% vote of the stockholders to amend our Bylaws;
- require advance notice for stockholder proposals and director nominations
to be considered at a vote of a meeting of stockholders;
- permit only our Chairman, President, or a majority of our Board of
Directors to call stockholder meetings, unless our Board of Directors
otherwise approves;
- prohibit actions by stockholders without a meeting, unless our Board of
Directors otherwise approves; and
- limit transactions between our company and persons that acquire
significant amounts of stock without approval of our Board of Directors.
NO DIVIDENDS
We have never declared or paid a cash dividend on our Common Stock. We do
not anticipate paying any cash dividends on our Common Stock in the foreseeable
future.
RISKS RELATED TO INTERNATIONAL OPERATIONS
We have operations in many countries around the world. Risks that affect
international operations include:
- fluctuations in currency exchange rates;
- complicated licensing and work permit requirements;
- variations in the protection of intellectual property rights;
- restrictions on the ability to convert currency; and
- additional expenses and risks inherent in conducting operations in
geographically distant locations, with customers speaking different
languages and having different cultural approaches to the conduct of
business.
To attempt to mitigate the effects of foreign currency fluctuations on the
results of our foreign operations, we sometimes use forward exchange contracts
and other hedging techniques to help protect us from large swings in currency
exchange rates.
ABSENCE OF PRIOR PUBLIC MARKET OF COMMON STOCK CREATES UNCERTAINTY IN MARKET
PRICE
Prior to this offering, you could not buy or sell our Common Stock
publicly. An active public market for the Class A Common Stock may not develop
or be sustained after the offering. We negotiated and determined
12
<PAGE> 15
the initial public offering price with the representatives of the Underwriters
based on several factors. This price may vary from the market price of the Class
A Common Stock after the offering. See "Underwriters." The market price of the
Class A Common Stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of information technology service and
solution companies;
- announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures, or capital commitments;
- loss of a major client;
- additions or departures of key personnel; and
- sales of Class A Common Stock.
In addition, the stock market experiences significant price and volume
fluctuations, which may materially and adversely affect the market price of the
Class A Common Stock.
AVAILABILITY OF SIGNIFICANT AMOUNTS OF CLASS A COMMON STOCK FOR SALE COULD
ADVERSELY AFFECT ITS MARKET PRICE
Approximately 82,634,590 shares of Class A Common Stock and 934,320 shares
of Class B Common Stock will be outstanding after consummation of this offering.
The 5,500,000 shares of Class A Common Stock being offered hereby will be
eligible for immediate resale in the public market without restriction, unless
we or one of our affiliates acquire any such shares. Following the offering,
there will be approximately 6,929,542 additional shares of Class A Common Stock
subject to currently exercisable options. We believe that substantially all of
the outstanding shares of Class A Common Stock, other than those sold in this
offering, and shares of Class A Common Stock issuable upon the exercise of such
options, will be freely tradable under Federal securities laws following this
offering, subject to some limitations. These limitations include vesting
provisions in option and restricted stock agreements, restrictions in lock-up
agreements, and volume and manner-of-sale restrictions under Rule 144. In
addition, UBS holds immediately exercisable options to purchase 6,400,000 shares
of our Class B Common Stock, all of which could be exercised and the resulting
shares sold subject to restriction under Rule 144 following the offering once
such options have vested. In addition, UBS holds 934,320 shares of Class B
Common Stock that upon vesting may be sold without restriction under Federal
Securities laws following the offering. The future sale of a substantial number
of shares of Common Stock in the public market following this offering, or the
perception that such sales could occur, could adversely affect the prevailing
market price.
We have issued a substantial number of options to purchase shares of Class
A Common Stock to our associates prior to this offering. Following this
offering, we expect to continue to issue options to our associates to reward
performance and encourage retention. The exercise of any additional options
issued by us could adversely affect the prevailing market price of the Class A
Common Stock. We have also established an employee stock purchase program for
our associates, under which we may sell up to 20,000,000 shares of Class A
Common Stock to associates at a 15% discount. Shares purchased under this
program have been registered for immediate resale under Federal securities laws
following a six month holding period required by the program.
Stockholders holding more than 90% of the outstanding Common Stock and
currently exercisable options to purchase Common Stock have executed lock-up
agreements that limit their ability to sell Common Stock. These stockholders
have agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of at least 180 days after the date of this Prospectus without the prior
written approval of Morgan Stanley & Co. Incorporated and us. Morgan Stanley &
Co. Incorporated and we may, in our sole discretion and at any time without
notice, release all of any portion of the securities subject to lock-up
agreements. See "Shares Eligible for Future Sale."
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<PAGE> 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this Prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, those listed under "Risk Factors" and elsewhere
in this Prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of such statements. We are under no duty to update any
of the forward-looking statements after the date of this Prospectus to conform
such statements to actual results.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Class A Common
Stock in this offering are estimated to be $56.7 million ($66.2 million if the
Underwriters exercise their over-allotment option in full), after deducting
estimated offering expenses of $2.2 million and underwriting discounts and
commissions payable by the Company. The principal purposes of this offering are
to create a public market for the Class A Common Stock, which will facilitate
future access by the Company to public equity markets and enhance the ability of
the Company to use its Class A Common Stock as a means for attracting and
retaining key employees, and to obtain additional capital. The Company expects
to use the net proceeds from the offering primarily for working capital,
business expansion, and other general corporate purposes. The Company will have
significant discretion in the use of the net proceeds of this offering.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on the Common Stock.
The Company currently does not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon then
existing conditions, including the Company's financial condition, results of
operations, contractual restrictions, capital requirements, business prospects,
and such other factors as the Company's Board of Directors deems relevant.
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<PAGE> 17
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the Company as of September 30, 1998 and on an as adjusted
basis to reflect the sale of the shares of Class A Common Stock offered hereby
and the application of the net proceeds received therefrom. This table should be
read in conjunction with the Company's consolidated financial statements (the
"Consolidated Financial Statements") and related Notes contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $102,153 $158,825
======== ========
Capital lease obligations and long-term debt, less current
maturities................................................ $ 1,093 $ 1,093
Other long-term liabilities................................. 1,917 1,917
-------- --------
Total long-term liabilities....................... 3,010 3,010
-------- --------
Stockholders' equity(1):
Class A Common Stock, par value $.01; 200,000,000 shares
authorized; 81,054,642 shares issued actual (86,554,642
shares as adjusted); 76,894,554 shares outstanding
actual (82,394,554 shares as adjusted)................. 811 866
Class B Common Stock, par value $.01; 24,000,000 shares
authorized; 934,320 shares outstanding actual and as
adjusted............................................... 9 9
Additional paid-in capital................................ 71,155 127,772
Retained earnings......................................... 67,242 67,242
Other stockholders' equity(2)............................. (10,037) (10,037)
-------- --------
Total stockholders' equity........................... 129,180 185,852
-------- --------
Total capitalization.............................. $132,190 $188,862
======== ========
</TABLE>
- ---------------
(1) As of December 31, 1998, 77,134,590 shares of Class A Common Stock and
934,320 shares of Class B Common Stock were outstanding. In addition, as of
December 31, 1998 a total of (i) 29,001,442 shares of Class A Common Stock
were subject to outstanding options at a weighted average exercise price of
$1.47 per share, (ii) 10,401,040 shares of Class A Common Stock were subject
to outstanding options at an exercise price of $11.00 per share, and (iii)
6,400,000 shares of Class B Common Stock were subject to unexercised options
that were granted to UBS AG at an exercise price of $3.65 per share.
Subsequent to December 31, 1998, the Company granted associates options to
purchase 1,825,250 shares of Class A Common Stock at an exercise price of
$11.00 per share.
(2) Consists of deferred compensation, treasury stock, accumulated other
comprehensive income, and notes receivable from stockholders. See the
Consolidated Statements of Changes in Stockholders' Equity included in the
Consolidated Financial Statements.
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<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the years
ended December 31, 1997, 1996, 1995, 1994, and 1993 and the nine months ended
September 30, 1998 have been derived from the Company's Consolidated Financial
Statements, which have been audited by PricewaterhouseCoopers LLP, independent
auditors. The selected consolidated financial information as of and for the nine
months ended September 30, 1997 has been derived from unaudited consolidated
financial statements, which, in management's opinion, reflect all adjustments
(consisting of only normal and recurring accruals) necessary to present fairly
the Company's financial position and results of operations for that period.
Interim results are not necessarily indicative of the results that may be
expected for any other interim period or for the full year. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and related Notes contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Revenue(2)............................................. $724.2 $556.9 $781.6 $599.4 $342.3 $292.2 $291.7
Direct cost of services(3)............................. 575.1 437.7 636.3 461.2 268.6 239.4 270.4
------ ------ ------ ------ ------ ------ ------
Gross profit........................................... 149.1 119.2 145.3 138.2 73.7 52.8 21.3
Selling, general and administrative expenses(4)........ 103.1 95.9 125.7 92.9 52.8 41.9 41.0
Goodwill impairment(5)................................. 3.8 -- -- -- -- -- --
Purchased research and development..................... -- 2.0 2.0 4.0 -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income/(loss)................................ 42.2 21.3 17.6 41.3 20.9 10.9 (19.7)
Interest income, net................................... 2.8 0.4 0.6 0.8 1.3 -- (2.0)
Equity in earnings/(losses) of unconsolidated
affiliates........................................... 4.2 0.7 4.1 (0.3) -- -- --
Write-down of nonmarketable equity securities(6)....... -- -- (3.9) -- -- -- --
Other income/(expense)(7).............................. 2.7 1.3 1.1 (1.6) (2.0) (0.8) (0.7)
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes............................. 51.9 23.7 19.5 40.2 20.2 10.1 (22.4)
Provision (benefit) for income taxes................... 23.7 10.1 8.3 19.7 9.4 3.8 (7.9)
------ ------ ------ ------ ------ ------ ------
Net income (loss)...................................... $ 28.2 $ 13.6 $ 11.2 $ 20.5 $ 10.8 $ 6.3 $(14.5)
====== ====== ====== ====== ====== ====== ======
Basic earnings (loss) per common share(8)(9)........... $ 0.37 $ 0.17 $ 0.14 $ 0.27 $ 0.17 $ 0.10 $(0.26)
Weighted average common shares outstanding(9).......... 76.7 78.9 78.3 74.1 62.3 61.4 59.8
Diluted earnings (loss) per common share(8)(9)......... $ 0.29 $ 0.14 $ 0.12 $ 0.24 $ 0.16 $ 0.09 $(0.26)
Weighted average diluted common shares
outstanding(9)....................................... 96.9 96.6 95.2 84.3 66.7 64.6 59.8
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.............................. $102.2 $ 13.0 $ 35.3 $ 27.5 $ 17.4 $ 9.2 $ 26.9
Total assets........................................... 390.5 268.1 267.1 232.2 130.5 90.3 121.3
Long-term debt(10)..................................... 2.2 3.4 2.9 5.2 6.1 10.0 18.7
Stockholders' equity................................... 129.2 93.4 93.3 70.8 42.9 32.7 25.9
OTHER DATA:
Capital expenditures................................... $ 18.9 $ 33.9 $ 46.1 $ 27.5 $ 18.3 $ 10.3 $ 15.0
</TABLE>
- ---------------
(1) The Company's results of operations include the effects of business
acquisitions made in 1996 and 1997. See Note 4 of the Notes to the
Consolidated Financial Statements included elsewhere in this Prospectus.
(2) Includes recognition of $6.5 million in gains from termination of two
contracts in 1998.
(3) During the first nine months of 1998, direct cost of services included $2.0
million in leasehold abandonment losses. During the fourth quarter of 1997,
direct cost of services included a one-time loss accrual of $10.2 million,
representing management's estimate of known future losses associated with
the termination or completion of two long-term contracts and a $2.0 million
increase for other accrued contract liabilities. Also included in fourth
quarter 1997 direct cost of services was a $3.6 million write-off of
acquired intellectual property and $3.1 million in leasehold abandonment
losses. For 1996, direct cost of services included a $4.2 million write-off
of impaired software license transfer rights. During 1994, direct cost of
services included a one-time gain of $6.7 million on the termination of a
significant contract. During 1993, the Company recorded a $19.3 million
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.
(4) During the first nine months of 1997, selling, general, and administrative
expenses included a $2.0 million charge for executive severance and related
expenses.
(5) During September 1998, the Company determined that certain amounts recorded
for goodwill were impaired and no longer recoverable.
(6) In the fourth quarter of 1997, the Company wrote-down its minority interest
in two nonmarketable equity securities to zero and recognized a $3.9
million non-operating loss.
(7) During the first nine months of 1998, the Company sold an interest in a
minority investment and recognized a one-time non-operating gain of $3.0
million.
(8) Years 1993 through 1996 and the nine month period ended September 30, 1997
are restated for the effect of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." See Note 17 of the Notes to the Consolidated
Financial Statements included elsewhere in this Prospectus.
(9) All common share numbers and per common share data reflect a two for one
stock split effected in January 1999.
(10) Amounts classified as long-term debt consist primarily of current and
long-term capital lease obligations.
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<PAGE> 19
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 related Notes contained elsewhere in
this Prospectus.
OVERVIEW
The Company is a worldwide provider of information technology services and
business solutions to a broad range of clients. The Company integrates three
core disciplines in providing solutions and services to its clients: information
technology infrastructure services, systems integration and applications
development, and business integration. Information technology infrastructure
services combine information technology outsourcing, staffing, and
infrastructure management. Systems integration and applications development
include implementation of new and existing systems, including both
custom-developed and packaged software. Business integration services include
working with clients to develop and implement business strategy, information
technology strategy, process redesign, and change management.
From 1993 through the first nine months of 1998, the Company's business mix
shifted from being predominantly an information technology infrastructure
services provider, where revenue was obtained through long-term unit-price or
fixed-price facilities management contracts, to a more balanced mix with
increased emphasis on systems integration and applications development and
business integration. Information technology infrastructure services currently
make up less than 55.0% of the Company's revenue, and newer engagements are
primarily level-of-effort based contracts that combine several service
offerings. The Company's strategy is to continue this increased focus on systems
integration and applications development and business integration services,
supported by value-added information technology infrastructure services.
During 1996 and 1997, the Company made several acquisitions. The acquired
firms added strength in the areas of business integration and consulting,
business-to-business electronic commerce over the Internet, business
reengineering, object-oriented applications development, data mining, and
systems management. These acquisitions contributed revenue of $62.0 million for
the nine months ended September 30, 1998.
The Company's top ten clients accounted for approximately 65.4% of total
revenue for the nine months ended September 30, 1998, 64.1% for the year ended
December 31, 1997, and 68.3% for the year ended December 31, 1996. See "Risk
Factors -- Loss of Major Clients Could Adversely Affect Our Business."
Approximately 35.4% of the Company's total revenue was derived from
international operations for the nine months ended September 30, 1998, 33.6% for
the year ended December 31, 1997, and 33.2% for the year ended December 31,
1996.
The Company provides services under contracts containing pricing provisions
that relate to the level of services supplied by the Company
("level-of-effort"), provide for a set fee to be received by the Company
("fixed-price"), or link the revenue to the Company to a client-specific data
point, such as the number of transactions processed or computing minutes
consumed ("unit-price"). Many of the Company's contracts combine more than one
of these types of provisions. The majority of revenue for the nine months ended
September 30, 1998 and year ended December 31, 1997 was derived from
level-of-efforts pricing. Revenue from level-of-efforts pricing is based on time
and materials, direct costs plus an administrative fee (which may be either a
fixed amount or a percentage of direct costs incurred), or a combination of
these methods and may be based on a set fee for a specified level of resources
that is adjusted for incremental resource usage. Revenue from fixed-price
contracts is recognized on the percentage-of-completion method, and is earned
based on the percentage relationship of incurred contract costs to date to total
estimated contract costs, after giving effect to the most recent estimates of
total cost. Revenue from unit-price contracts is recognized based on technology
units utilized or by number of transactions processed during a given period. For
unit-price contracts, the Company establishes a per-unit fee based on the cost
structure associated with the delivery of that unit of service.
Year 2000 engagements do not comprise a substantial portion of the
Company's business. For two Year 2000 projects, the Company uses a zero estimate
of profit with equal amounts of revenue and cost
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recognized until the final outcome of the engagement can be estimated more
precisely because of the inherent uncertainties regarding testability in the
existing system environment and client acceptance.
The Company continuously monitors its contract performance in light of
client expectations, the complexity of work, project plans, delivery schedules,
and other relevant factors. Provisions for estimated losses, if any, are made in
the period in which the loss first becomes probable and reasonably estimable.
Other contract-related accrued liabilities are also recorded to match
contract-related expenses in the period in which revenues from those contracts
are recognized.
The Company experienced substantial growth in 1996, 1997, and during the
first nine months of 1998. A significant portion of the growth in 1996 resulted
from the Company's entry into the UBS Agreements in January 1996. The Company's
operating UBS relationship comprises two main components, the IT Services
Agreement, which is a level-of-effort contract, and various project assignments.
See "Business -- UBS Agreements." During the years ended December 31, 1997 and
1996, approximately 21.7% and 22.9%, respectively, of the Company's revenues
were earned in connection with services performed under the IT Services
Agreement, and 5.5% and 5.3%, respectively, of the Company's revenues were
earned in connection with the various projects performed for UBS. For the nine
month period ended September 30, 1998, approximately 22.1% of the Company's
revenues were earned in connection with services performed under the IT Services
Agreement and approximately 3.3% of the Company's revenues were earned in
connection with other services performed for UBS.
The Company has increased its focus on expense reduction and cost control
over the last year in numerous ways. The most significant savings in
administrative expenses included reductions in executive compensation expense,
the cancellation of discretionary projects, and reductions in marketing and
promotional expenses, and non-essential travel. In addition, the Company
established more stringent expense policies and created a capital expenditures
review committee. These cost control measures contributed to a decrease in
selling, general, and administrative expenses as a percentage of revenue from
16.1% in 1997 to 14.2% for the nine months ended September 30, 1998. The Company
anticipates that expansion in the areas of recruiting, training, and business
development will increase during the remainder of 1998. As a result, the Company
expects selling, general, and administrative expenses as a percentage of revenue
will increase from their current level.
RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 1998 and 1997
Revenue increased in the nine months ended September 30, 1998 by 30.0% to
$724.2 million from $556.9 million in the nine months ended September 30, 1997,
due to the entry into two significant contracts in the third quarter of 1997
that generated a $63.8 million increase in revenue for the nine months ended
September 30, 1998 from the nine months ended September 30, 1997, $15.8 million
in additional revenue resulting from the inclusion of businesses acquired in the
first nine months of 1997 for the entire nine month period in 1998, a $87.7
million increase in revenue from other new and existing business, including
$31.2 million from East Midlands Electricity (IT) Limited (together with its
parent company, East Midlands Electricity plc, "EME") and $24.7 million from
UBS, and the recognition of $6.5 million in gains from termination of two
contracts in 1998.
Domestic revenue grew by 27.2% in the nine months ended September 30, 1998
to $468.0 million from $368.0 million in the nine months ended September 30,
1997, and decreased slightly as a percentage of total revenue to 64.6% from
66.1% over the same period.
Non-domestic revenue, comprising European and Asian operations, grew by
35.6% in the nine months ended September 30, 1998 to $256.2 million from $188.9
million in the nine months ended September 30, 1997, and increased as a
percentage of total revenue to 35.4% from 33.9%. Asian operations represented
$11.4 million, or 1.6%, and $7.0 million, or 1.3%, of total revenue for the nine
months ended September 30, 1998 and 1997, respectively.
Direct cost of services increased in the nine months ended September 30,
1998 by 31.4% to $575.1 million from $437.7 million in the nine months ended
September 30, 1997, due primarily to continued growth in
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the Company's business. Gross margin decreased slightly to 20.6% from 21.4% for
the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997, due primarily to a $13.5 million charge to address Year 2000
exposures for certain client contracts.
Selling, general, and administrative expenses increased in the nine months
ended September 30, 1998 by 7.5% to $103.1 million from $95.9 million in the
nine months ended September 30, 1997, but decreased as a percentage of total
contract revenue to 14.2% from 17.2%, respectively. The most significant savings
in administrative expenses included reductions in executive compensation, the
cancellation of discretionary projects, and reductions in marketing and
promotional expenses and non-essential travel. Operating income increased in the
nine months ended September 30, 1998 to $42.2 million from $21.3 million in the
nine months ended September 30, 1997, and operating margin (operating income as
a percentage of contract revenue) increased to 5.8% from 3.8%.
Equity in earnings of unconsolidated affiliates increased in the nine
months ended September 30, 1998 to $4.2 million from $0.7 million during the
nine months ended September 30, 1997 due to improved results at Systor AG
("Systor"), a subsidiary of UBS, and at HCL Perot Systems NV ("HPS"), a software
joint venture based in India. The equity in earnings for Systor increased to
$2.2 million from $0.6 million and equity in earnings for HPS increased to $2.0
million from $0.1 million during the nine months ended September 30, 1998 and
1997, respectively. Other income/(expense) increased in the nine months ended
September 30, 1998 to $2.7 million from $1.3 million in the nine months ended
September 30, 1997 primarily due to a $3.0 million gain on the sale of the
Company's limited partnership interest in a venture capital fund in 1998, offset
in part by a $0.8 million decrease in foreign exchange gains from the nine
months ended September 30, 1997 to the nine months ended September 30, 1998.
The increase in the effective tax rate to 45.7% for the nine months ended
September 30, 1998 from 42.5% for the nine months ended September 30, 1997 was
due to a non-deductible goodwill write-down recorded in the third quarter of
1998. Excluding the write-down, the effective rate would have been 42.5%.
Net income increased 107.4% in the nine months ended September 30, 1998 to
$28.2 million from $13.6 million in the nine months ended September 30, 1997 and
net income margin increased to 3.9% from 2.4%.
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
Revenue increased in 1997 by 30.4% to $781.6 million from $599.4 million in
1996, due to $43.6 million in revenue growth from the UBS Agreements, $60.2
million in revenue representing the inclusion of a full year's results from
certain businesses acquired in the second half of 1996 and revenue received from
businesses acquired during the first half of 1997, and a $78.4 million increase
in revenue from other new and existing contracts.
Domestic revenue grew by 29.7% in 1997 to $519.1 million from $400.2
million in 1996, and decreased slightly as a percentage of total revenue to
66.4% from 66.8% over the same periods.
Non-domestic revenue, consisting of European and Asian operations, grew by
31.8% in 1997 to $262.5 million from $199.2 million in 1996, and increased
slightly as a percentage of total revenue to 33.6%, from 33.2% over the same
periods. Asian operations represented $9.7 million, or 1.2%, and $7.3 million,
or 1.2%, of total revenue in 1997 and 1996, respectively.
Direct cost of services increased in 1997 by 38.0% to $636.3 million from
$461.2 million in 1996. Gross margin decreased to 18.6% in 1997 as compared to
23.1% in 1996. The decrease in gross margin was due in part to a margin decline
from 1996 to 1997 related to the renegotiation of the UBS Agreements, which took
effect on January 1, 1997. The Company also incurred expenses of $4.3 million in
1997 resulting from an expansion of business integration activities. In
addition, the Company incurred several special charges in 1997, including
special contract loss provisions of $10.2 million related to known termination
and contract completion losses on two 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, collectively
resulting in a 2.7% increase in direct cost of services.
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Selling, general, and administrative expenses increased in 1997 to 16.1% of
total revenue from 15.5% of total revenue in 1996, due primarily to expansion of
the sales force, staff growth in management and administrative support areas,
severance for senior executives, and increased goodwill amortization associated
with businesses acquired. 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%.
Equity in earnings of unconsolidated affiliates, net, increased in 1997 to
$4.1 million from a loss of $0.3 million in 1996 due to improved results at
Systor and HPS. The equity in earnings for Systor increased to $3.6 million from
$0.9 million and the equity in earnings of HPS increased to $0.5 million from a
loss of $1.2 million in 1997 and 1996, respectively. Other income, net,
increased in 1997 to $1.1 million from a net expense of $1.6 million in 1996.
The positive effect 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.
Net income decreased 45.4% in 1997 to $11.2 million from $20.5 million in
1996 and net income margin decreased to 1.4% from 3.4%.
Comparison of the year ended December 31, 1996 to the year ended December 31,
1995
Revenue increased in 1996 by 75.1% to $599.4 million from $342.3 million in
1995, due to $161.5 million in revenue from the UBS Agreements, $10.7 million in
revenue from businesses acquired in the second half of 1996, and a $84.9 million
increase in revenue from other new and existing business.
Domestic revenue grew by 67.6% in 1996 to $400.2 million from $238.8
million in 1995, but declined as a percentage of total revenue to 66.8% from
69.8% over the same periods. UBS accounted for $88.9 million of the domestic
revenue in 1996 compared to $2.8 million in 1995.
Non-domestic revenue, consisting of European and Asian operations, grew by
92.5% in 1996 to $199.2 million from $103.5 million in 1995, and increased as a
percentage of total revenue to 33.2% from 30.2% over the same periods. The key
factor was the UBS revenue of which $72.7 million was earned in Europe and $7.3
million in Asia. Asian operations represented $7.3 million, or 1.2%, of total
revenue in 1996, the first year the Company had operations in Asia.
Direct cost of services increased by 71.7% in 1996 to $461.2 million from
$268.6 million in 1995 and gross margin increased to 23.1% in 1996 from 21.5% in
1995, due primarily to the UBS Agreements entered into in 1996.
Selling, general, and administrative expenses increased in 1996 to 15.5% of
total revenue from 15.4% of total revenue in 1995, due primarily to significant
increases in revenue, offset by the addition of senior executives, expansion of
the sales force, and staff growth in management and administrative support
areas. As a percentage of revenues, selling, general, and administrative
expenses remained essentially unchanged. 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.
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.
Net income increased to $20.5 million in 1996 from $10.8 million in 1995.
Net income margin increased in 1996 to 3.4% from 3.2% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998, cash and cash equivalents
increased 189.5% to $102.2 million from $35.3 million at December 31, 1997
primarily due to increased cash flow from operating activities.
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Cash flow provided by operating activities increased to $65.1 million from
$15.8 million for the periods ended September 30, 1998 and 1997, respectively.
The increase in cash flow from operating activities was due primarily to the
$96.6 million increase in current liabilities such as accrued liabilities and
accrued compensation, offset in part by a $49.9 million increase in current
assets consisting primarily of increased accounts receivable.
Net cash used in investing activities was $4.8 million for the nine months
ended September 30, 1998 compared to $56.6 million for the nine months ended
September 30, 1997. Cash expenditures for property, equipment, and software
during the nine months ended September 30, 1998 was $18.9 million and was
partially offset by $7.6 million in proceeds from the sale of property,
equipment, and software and the sale of the Company's limited partnership
interest in a venture capital fund for $5.2 million. For the nine months ended
September 30, 1997, there were $33.9 million in cash expenditures for property,
equipment, and software, $13.3 million in cash used for business acquisitions
and $6.3 million for the acquisition of intellectual property rights. The
year-on-year decline of 44% in property, equipment, and software purchases was
due in part to more rigorous capital expenditure review procedures, which were
implemented in the fourth quarter of 1997.
For the nine months ended September 30, 1998, net cash provided by
financing activities was approximately $4.5 million, compared to $29.6 million
for the nine months ended September 30, 1997. This decrease was due primarily to
the fourth quarter of 1997 repayment of a $25.0 million borrowing on the
Company's line of credit at September 30, 1997. There were no subsequent
borrowings on this line of credit in 1998. In addition, the Company received
proceeds of $8.1 million from the sale of Class B Common Stock options to UBS
during the nine months ended September 30, 1997 and $3.0 million in proceeds
from the exercise of 834,320 of such stock options during the nine months ended
September 30, 1998.
As of December 31, 1998, the Company had a $40.0 million undrawn line of
credit with a financial institution that expires on January 31, 1999. The
Company does not intend to renew this line of credit and anticipates that cash
flows from operating activities will provide sufficient funds to meet its needs
for the foreseeable future. From time to time, the Company may consider
repurchasing its Class A Common Stock depending on price and availability and
alternative uses for its financial resources.
NEW ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131") effective for years beginning after December 15, 1997.
Statement 131 requires that a public company report financial and descriptive
information about its reportable operating segments pursuant to criteria that
differ from current accounting practice. Operating segments, as defined, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by management in deciding how to allocate
resources and in assessing performance. The financial information to be reported
includes segment profit or loss, certain revenue and expense items, and segment
assets and reconciliations to corresponding amounts in the financial statements.
Statement 131 also requires information about revenues from products or
services, countries where the company has operations or assets and major
customers. Management does not believe the implementation of Statement 131 will
have a material effect on the Company's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 ("Statement 133") which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Statement 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
If certain conditions are met, a derivative may be specifically designated as a
fair value hedge, a cash flow hedge, or a foreign currency hedge. A specific
accounting treatment applies to each type of hedge. Statement 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management does not believe the implementation of Statement 133 will have a
material effect on the Company's consolidated financial position or results of
operations.
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The American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," in March 1998. SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use and requires costs incurred in the application
development stage (whether internal or external) to be capitalized. This SOP is
applicable to all financial statements for fiscal years beginning after December
15, 1998, and should be applied to internal-use computer software costs incurred
in those fiscal years for all projects, including those projects in progress
upon initial application of this SOP. Costs incurred prior to initial
application of this SOP, whether or not capitalized, should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. Management does not believe the implementation of SOP
98-1 will have a material effect on the Company's consolidated financial
position or results of operations.
YEAR 2000 ISSUES
The following statements and all other statements made in this Prospectus
with respect to the Company's Year 2000 processing capabilities or readiness are
"Year 2000 Readiness Disclosures" in conformance with the Year 2000 Information
and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat. 2386).
Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "Year 2000 Problem."
Assessment. The Year 2000 Problem affects computers, software, and other
equipment used, operated, or maintained by the Company for itself and its
customers. Accordingly, the Company has organized a program team responsible for
monitoring the assessment and remediation status of the Company's Year 2000
projects and reporting such status to the Company's Board of Directors. This
project team is currently assessing the potential effect of, and costs of
remediating, the Year 2000 Problem for its internal systems and, where the
Company is contractually obligated to remediate the Year 2000 Problem, on
systems operated or maintained on behalf of its clients. In addition, the
Company is performing Year 2000 assessments for some other clients on a
project-by-project basis.
For reporting purposes, the Company is using a methodology involving the
following six phases: Discovery, Assessment, Planning, Remediation, Testing, and
Implementation. At December 31, 1998, the discovery and assessment phases were
substantially complete for all program areas. The target completion dates for
priority items by remaining steps are as follows: Planning -- March 1999;
Remediation -- September 1999; Testing -- September 1999; and
Implementation -- September 1999.
Because the Company's business involves the assessment, implementation, and
operation of computer systems, the Company has not generally obtained
verification or validation by independent third parties of its processes to
assess Year 2000 Problems, its corrections of Year 2000 Problems, or the costs
associated with these activities. However, the Company's Year 2000 program team
is reviewing the project plans prepared by each of the Company's business units
and monitoring their methods and progress against those plans.
Internal Infrastructure. The Company believes that it has identified most
of the major computers, software applications, and related equipment used in
connection with its internal operations that must be modified, upgraded, or
replaced to minimize the possibility of a material disruption to its business.
The Company has commenced the process of modifying, upgrading, and replacing
major systems that have been assessed as adversely affected, and expects to
complete this process before the occurrence of any material disruption of its
business.
Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other common devices may be affected by the Year 2000 Problem. The Company is
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currently assessing the potential effect of, and costs of remediating, the Year
2000 Problem on its office and facilities equipment.
The Company estimates the total cost to the Company of completing any
required modifications, upgrades, or replacements of these internal systems to
be approximately $1.0 million, almost all of which the Company believes will be
incurred during 1999. This estimate is being monitored and will be revised as
additional information becomes available. In addition, the Company recorded a
$13.5 million charge in direct cost of services for the nine months ended
September 30, 1998 to address Year 2000 expenses for certain client contracts.
Based on the activities described above, the Company does not believe that
the Year 2000 Problem will have a material adverse effect on the Company's
business or results of operations. In addition, the Company has not deferred any
material information technology projects as a result of its Year 2000 Problem
activities.
Client Systems. During 1997, the Company initiated assessments of the
effect of the Year 2000 Problem on computers, software, and other equipment it
operates or maintains for its customers, and its obligations to modify, upgrade,
or replace these systems. As part of this process, the Company has been
estimating the costs and revenues to the Company for performing any necessary
services. The Company is monitoring and updating this assessment on an ongoing
basis. The estimated cost associated with making clients' systems Year 2000
compliant for contracts where the Company is obligated to perform these services
at its expense generally has been and will be treated as a contract cost and is
included in the estimate of total contract costs for the respective contract
under the Company's revenue recognition policy. The Company believes that its
clients have been deferring other projects pending resolution of their Year 2000
Problems.
Suppliers. The Company has initiated communications with third party
suppliers of the major computers, software, and other equipment used, operated,
or maintained by the Company for itself or its clients to identify and, to the
extent possible, to resolve issues involving the Year 2000 Problem. However, the
Company has limited or no control over the actions of these third party
suppliers. Thus, while the Company expects that it will be able to resolve any
significant Year 2000 Problems with these systems, there can be no assurance
that these suppliers will resolve any or all Year 2000 Problems with these
systems before the occurrence of a material disruption to the business of the
Company or any of its clients. Any failure of these third parties to timely
resolve Year 2000 Problems with their systems could have a material adverse
effect on the Company's business, financial condition, and results of operation.
Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business operations. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 Problems
affecting the Company or its clients have been identified or corrected. The
number of devices that could be affected and the interactions among these
devices are simply too numerous. In addition, no one can accurately predict how
many Year 2000 Problem-related failures will occur or the severity, duration, or
financial consequences of these perhaps inevitable failures. As a result,
management believes that the following consequences are possible:
- a significant number of operational inconveniences and inefficiencies for
the Company and its clients that will divert management's time and
attention and financial and human resources from ordinary business
activities;
- a lesser number of serious system failures that will require significant
efforts by the Company or its clients to prevent or alleviate material
business disruptions;
- several routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 Problems by clients, which will be resolved in
the ordinary course of business; and
- a few serious business disputes alleging that the Company failed to
comply with the terms of contracts or industry standards of performance,
some of which could result in litigation or contract termination.
Contingency Plans. The Company is currently developing contingency plans to
be implemented if its efforts to identify and correct Year 2000 Problems
affecting its internal systems are not effective. The Company expects to
complete its contingency plans by the end of March 1999. Depending on the
systems
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affected, these plans could include accelerated replacement of affected
equipment or software; short- to medium-term use of backup sites, equipment, and
software, increased work hours for Company personnel; use of contract personnel
to correct on an accelerated schedule any Year 2000 Problems that arise or to
provide manual workarounds for information systems; and similar approaches. If
the Company is required to implement any of these contingency plans, it could
have a material adverse effect on the Company's financial condition and results
of operations.
The Company is also developing contingency plans for certain clients where
such plans are contractually required or are otherwise appropriate to be
developed. In most cases, these contingency plans are being developed jointly by
the Company and its clients. Depending on the systems affected, these plans
could include accelerated replacement of affected equipment or software; short-
to medium-term use of backup sites, equipment, and software; increased work
hours for Company personnel or use of contract personnel to correct on an
accelerated schedule any Year 2000 Problems that arise or to provide manual
workarounds for information systems; and similar approaches. If the Company is
required to implement any of these contingency plans, it could have a material
adverse effect on the Company's financial condition and results of operations.
Disclaimer. The discussion of the Company's efforts, and management's
expectations, relating to Year 2000 compliance are forward-looking statements.
The Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely affected by, among
other things, the availability and cost of programming and testing resources,
third party suppliers' ability to modify proprietary software, and unanticipated
problems identified in the ongoing compliance review.
EFFECT OF EUROPEAN MONETARY UNION
Effective January 1, 1999, the European Union adopted economic and monetary
union in Europe, resulting in the introduction of a single currency called the
EURO. The Company is currently assessing the potential effects of, and costs of
adopting, the EURO conversion for its internal systems and, where the Company is
contractually obligated to take these steps, on systems operated or maintained
on behalf of its clients. For each of these areas, the Company is using the six
phase methodology described above for the Year 2000 Problem. The Company expects
to complete the discovery phase by March 1999, but the EURO conversion is not
expected to have a material effect on the Company's operations or financial
condition or results of operation.
The discussion of the Company's efforts, and management's expectations,
relating to the EURO conversion are forward-looking statements. The Company's
ability to adapt for the EURO conversion and the level of incremental costs
associated therewith could be adversely affected by, among other things, the
availability and cost of programming and testing resources and unanticipated
problems identified in the ongoing conversion review.
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BUSINESS
OVERVIEW
The Company is a worldwide provider of information technology services and
business solutions to a broad range of clients. The Company serves its clients
by delivering services and solutions focused on each client's needs, with
particular emphasis on helping clients more effectively serve their customers.
The Company integrates three core disciplines in providing solutions and
services to its clients: (i) business integration; (ii) systems integration and
applications development; and (iii) information technology infrastructure
services. Business integration services include working with clients to develop
and implement business strategy, information technology strategy, process
redesign, and change management. Systems integration and applications
development include the design and implementation of information technology
systems for clients, including both custom-developed and packaged software.
Information technology infrastructure services combine information technology
outsourcing, staffing, and infrastructure management.
The Company's approach is to provide clients with an "integrated service
offering" -- a combination of multiple disciplines that assists its clients in
improving their business operations or in creating new business offerings. With
this approach, the Company is able to create long-term relationships with its
clients that begin with an analysis of its clients' business strategies and
continue through the implementation of information technology solutions and the
realization of the clients' goals.
In marketing its services, the Company is primarily focused on four
industries: Financial Services, Energy, Healthcare, and Travel and
Transportation. The Company targets these industries to capture the
opportunities arising from their rapid rates of change, growth, and the
increasing importance of information technology in driving and managing this
change and growth. The Company also has significant clients in the
Communications and Media and Manufacturing industries and continually evaluates
additional industries for future growth opportunities. As these opportunities
develop, the Company may allocate resources to target them as additional focal
industries. The Company's clients include: UBS, EME, National Car Rental System,
Inc., Tenet Healthcare Corporation, AT&T Corp., Volkswagen of America, Inc.,
Parsons Corporation, and Cedel Global Services, S.A.
Ross Perot and eight associates founded the Company in June 1988. Since
then, the Company has grown to over 6,000 associates with operations worldwide
as of September 30, 1998. The Company's revenues have grown from $291.7 million
in 1993 to $781.6 million in 1997 and $724.2 million for the nine months ended
September 30, 1998.
INDUSTRY BACKGROUND
Worldwide demand for information technology services and solutions is
growing at a rapid rate. According to industry sources, the aggregate worldwide
market for business integration, systems integration and applications
development, and information technology infrastructure services was an estimated
$177.8 billion in 1997 and is expected to increase to $306.6 billion in 2002,
representing a compound annual growth rate of 11.5%. These sources also indicate
that the estimated worldwide market size for 1997 and the projected market size
for 2002 for business integration is $46.3 billion and $88.4 billion,
respectively; for systems integration and applications development is $41.6
billion and $76.0 billion, respectively; and for information technology
infrastructure services is $89.9 billion and $142.2 billion, respectively. In
2002, the United States market is expected to account for 51.4% of the global
market with an estimated market size of $158.0 billion, and Western Europe is
expected to account for 27.7% of the global market with an estimated market size
of $85.1 billion.
The broad presence of technology in global markets, both in the hands of
businesses and consumers, continually changes the way businesses operate and
compete. Businesses that operate in industries characterized by rapid
technological change and consolidation, such as Financial Services, Energy,
Healthcare, and Travel and Transportation, must increasingly rely on information
technology to remain competitive.
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Several factors contribute to growth in the information technology industry
as it transitions from a back office role in business to a key driver in
competitively positioning enterprises, including the rapid pace of technological
change, the globalization and consolidation of industries, and the shift towards
the deregulation of certain industries. Using information technology as a
strategic tool enables enterprises to reduce cycle times and production costs,
improve the rate of introduction of new products, services, and pricing, and
better serve the needs of their customers. According to industry experts, the
utilities, transportation, banking and financial services, and communications
sectors are among the industries experiencing the fastest growth in information
technology services expenditures.
Designing, developing, and implementing information technology solutions
for individual businesses has become increasingly complex. Many businesses do
not have the time, resources, or expertise to keep pace with industry and
technological change or to efficiently build information technology solutions.
Globally, businesses are increasingly focusing on their core business
competencies and are turning to outside sources to provide information
technology services and skills tailored to create timely solutions and change
business processes to meet specific business objectives.
To date, it has been difficult for businesses to find solutions tailored to
their complex information technology needs. Although there are many suppliers of
information technology solutions, few are able to combine large, integrated
service offerings, global presence, and capital strength with customer focus and
a strong, cohesive culture.
THE PEROT SYSTEMS APPROACH
The Company provides services on a worldwide basis that are uniquely
structured for each client by combining the appropriate industry expertise and
core disciplines to solve the client's business problems and implement new
strategies to generate future growth. The Company's approach includes:
- Providing Integrated Service Offerings. The Company combines its business
integration, systems integration and applications development, and
information technology infrastructure services to analyze and address its
clients' business and information technology challenges and
opportunities. Rather than narrowly focusing on isolated problems, the
Company's integrated service offerings are designed to allow a client to
achieve growth and efficiencies through the implementation of broader
business solutions.
- Structuring Creative Long-Term Relationships. The Company seeks to create
long-term relationships with clients that begin with the initial analysis
of a client's business and information technology problems and
opportunities and continue through implementation of solutions and the
realization of benefits. By creatively structuring contracts with
economic incentives that link the Company's compensation to the client's
business results or the level of the Company's performance, the Company
strives to maximize revenues and client satisfaction.
- Employing Multi-Disciplinary Teams. The Company employs
multi-disciplinary teams of associates with industry-specific expertise
and associates with superior technical skills to best formulate and
implement integrated information technology solutions for clients.
- Formulating Unbiased Client-Based Solutions. The Company analyzes its
clients' business problems and opportunities from the perspective of the
clients and their customers. The Company then impartially assembles the
best combination of Company services and third party products to meet the
clients' needs.
PEROT SYSTEMS GROWTH STRATEGY
The Company's strategic objective is to become the provider of choice for
information technology services and business solutions. Key elements of the
Company's growth strategy include:
- Expand Value-Added Service Offerings. The Company believes that services
aimed at growing a client's business and making a client more productive
and competitive will create more value for the Company's clients, and
accordingly generate more growth, than traditional technology functional
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services. The Company's strategy includes an increasing focus on systems
integration and applications development and business integration
services, supported by value-added information technology infrastructure
services.
- Target Rapidly Changing Industries. The Company targets rapidly changing
industries that are substantially affected by the increasing need for
information technology. The Company utilizes associates with operating
expertise in these specific industries as a competitive advantage in
providing superior services to its clients.
- Create and Leverage Growth Engines. In each industry, the Company has the
opportunity to create "growth engines" -- sets of skills, business
processes, and know-how that, when combined, create leverageable business
solutions for clients. The Company can use these growth engines to build
its presence in its targeted industries and adapt them to develop or
enter other industries.
- Develop Select Clients. The Company believes that client selection is key
to growth and profitability. The Company targets market leaders and
aspiring market leaders that are committed to using information
technology strategically and are willing to develop long-term
relationships.
- Attract, Train, and Retain Associates with Strong Character. The Company
believes that attracting, training, and retaining high quality associates
are essential to its growth. The Company hires motivated individuals with
strong character and leadership traits and provides them with ongoing
technological and leadership skills training. The Company emphasizes
retaining its associates through challenging work assignments and
incentive programs, including rewarding outstanding performance with
equity interests in the Company. More than 90% of the Company's
associates hold equity interests in the Company.
CORE DISCIPLINES
The Company's broad range of service offerings are classified within three
core disciplines: (i) business integration; (ii) systems integration and
applications development; and (iii) information technology infrastructure
services.
[Pyramid Graphic]
[The Prospectus contains a graphic representation of a triangle divided into
three horizontal segments labeled Business Integration, Systems
Integration/Applications Development, and Infrastructure Services.]
The Company combines these disciplines into an integrated service offering
to create a customized solution for its clients. The Company believes that, in
addition to providing clients with more comprehensive information technology and
business solutions, its integrated service offerings allow the Company to
attract strategically motivated clients, focus on its clients' business
objectives, and ultimately generate higher value for its clients.
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Business Integration
In providing business integration services, the Company works with clients
to, among other things, develop and implement business strategy, information
technology strategy, process redesign, and change management. These services
include:
- Business Strategy. To help clients develop and implement business
strategies, the Company offers strategic advice designed by business and
technical experts with industry-specific knowledge to align client
capabilities with the demands of the market in which they compete.
- Information Technology Strategy. The Company helps its clients create and
implement an information technology strategy that optimizes the use of
information technology to achieve the client's business objectives. The
Company employs its extensive knowledge of information technology
architectures, infrastructures, and technologies to continually refine
and update its clients' information technology strategies.
- Process Redesign. The Company works with clients to systematically
reengineer their business processes with innovative approaches
incorporating cross-industry best practices.
- Change Management. The Company advises clients with respect to major
business and cultural changes by assessing current skills and resource
requirements, implementing organizational changes and associated
measurement systems, and creating employee communication plans.
In order to expand and further develop its business integration
capabilities, the Company has acquired several specialized businesses, including
its February 1997 acquisition of Benton International, Inc. Benton International
is a financial services consulting organization, specializing in telephone and
Internet-based direct banking and electronic payments systems. The firm employs
associates with experience in the financial services industry, including senior
positions at major financial institutions and on governmental advisory boards.
The firm provides strategic business advice to its financial clients, including
advising major retail banks on their mergers and acquisitions strategy.
Systems Integration and Applications Development
As part of its systems integration and applications development discipline,
the Company designs and implements information technology systems, including
both custom-developed and packaged software, for clients by offering the
following portfolio of services:
- Systems Integration. The Company assists clients in designing,
evaluating, and implementing information technology systems comprising
software applications and hardware components. Services performed by the
Company range from migrating systems from an existing platform to a new
platform to installing, configuring, and testing a new system, and
providing associated training support.
- Applications Development. The Company develops custom software
applications ranging from modifications and enhancements of existing
packaged software to completely custom-developed applications. These
applications are designed for various environments including web-based
systems, distributed networks, and mainframes.
- Project Management. Company associates manage client staff to perform
systems integration and applications development projects, including
project scope and change control.
In order to expand and further develop its systems integration and
applications development capabilities, the Company has acquired or established
several specialized business units, including:
The Technical Resource Connection, Inc. Acquired in October 1996, The
Technical Resource Connection has expertise in enterprise computing
architectures, distributed-object computing technologies, Internet/intranet
applications, and software engineering processes. The Technical Resource
Connection employs experienced and innovative software technologists -- software
architects, designer/developers, modelers, and systems engineers -- who focus on
software development processes and technology skills to reduce the complexity
and risk associated with building powerful business computing systems.
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Time(O with slash through it)(TM). In May 1997, the Company formed its
Time(O with slash through it) electronic commerce business unit by hiring a core
team of technologists and business experts. Time(O with slash through it) builds
business-to-business digital marketplaces to enable groups of businesses to
engage in electronic commerce. Time(O with slash through it) brings together its
proprietary software platform, customization tools, and design processes that
enable businesses to operate more efficiently and effectively by using
Internet-based electronic commerce.
Syllogic, B.V. Acquired in June 1997, Syllogic has extensive expertise in
the creation of flexible, structured, and manageable data warehouses and data
mining tools. Syllogic has created the Syllogic Data Mining Tool, a system that
combines several different data mining technologies into a single graphical user
interface. Syllogic also assists clients in managing systems and networks
through Adaptive Systems Management, a suite of applications that learns from
past experience and uses that knowledge to prevent errors from recurring.
HCL Perot Systems N.V. HPS is a joint venture currently 50% owned by each
of the Company and the HCL corporate group. HPS provides systems integration,
onsite consulting, applications development, legacy applications maintenance,
process reengineering, Year 2000 remediation, and European Monetary Union
modifications. Due to its access to a large pool of software talent in India,
HPS is able to provide international services at competitive prices. HPS has
software development centers in Noida and Bangalore, India.
Information Technology Infrastructure Services
Information technology infrastructure services combine information
technology outsourcing, staffing, and infrastructure management. The Company's
information technology infrastructure services include:
- Operations and Maintenance. The Company manages, updates, and maintains
data processing systems, networks and technical infrastructures, operates
help desks, and manages, resolves, and documents problems in the client's
computing environment. These activities can be performed at client
facilities or delivered through data processing centers maintained by the
Company. The Company also coordinates all change activities through
standardized and automated change management processes, checks and
monitors systems and networks for unauthorized use, manages various types
of storage media, and provides data backup and recovery services.
- Monitoring and Planning. The Company offers comprehensive monitoring of
and planning for information technology systems, including monitoring
network status and availability through periodic polling of network
resources. The Company also collects and analyzes data and applies
corrective measures when information technology systems and networks do
not meet requirements and measures and monitors the availability of
sufficient capacity in order to ensure continuity and quality of service.
CHANNELS TO MARKET
The Company delivers its services primarily through industry groups
representing its four targeted industries and the other industries in which the
Company has significant customers. The Company also offers services through its
geographically-based project offices.
Targeted Industries
The Company's targeted industry groups are Financial Services, Energy,
Healthcare, and Travel and Transportation. The Company targets these industries
to capture the opportunities arising from their rapid rates of change, growth,
and the increasing importance of information technology in driving and managing
this change and growth. Group associates have broad technical and operational
experience and expertise in addressing the technical and business challenges
faced by clients in these industries. The following is a brief description of
the Company's main industry groups:
Financial Services Group. The Company provides a full range of business
integration and information technology service line offerings to wholesale,
commercial, and retail banks, investment banks, private banks, asset management
companies, brokerage firms, securities clearing banks, and other financial
institutions. The financial services team includes professionals with
backgrounds in investment banking and commercial
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banking, and former senior level consultants to the financial services industry.
The Company utilizes its industry-specific and technical expertise to help
clients capitalize on emerging market opportunities as financial services
markets converge and the Internet and other technologies create new markets.
Some of the sector specific offerings are:
- Capital Markets. The financial services group provides services that
include re-engineering and automation of front and back office functions,
project management and implementation of global trading floors, and
integration and operational management of secure information technology
infrastructures.
- Retail Banking. The financial services group offers retail banks
telephone and Internet-based direct banking design services and project
implementation, assistance with customer relationship management, and
expertise in electronic payment systems. The Company also provides
infrastructure operations services to retail banks.
- Mortgage Banking. Associates in the financial services group provide
process improvement consulting and implementation to mortgage lenders and
servicers to automate the processing of mortgage applications and to
increase productivity.
Energy Services Group. The Company serves municipal and private utilities,
related service providers, new entrants in deregulated markets, and other energy
companies. The energy services group comprises experts in such key areas as
energy power systems restructuring and automation, transmission congestion
management and modeling, market simulation design analysis, and power management
system economics. Offerings in this sector include:
- Regulated Utilities. Energy services group professionals design,
implement, and operate information technology systems to support core
business functions of major utilities, including billing and collections,
customer service, and supply chain management. These associates also
advise energy industry organizations with regulatory compliance and
prepare them to take advantage of deregulating markets.
- Unregulated Markets/New Market Entrants. The energy services group
assists unregulated entities in building and operating retail systems and
infrastructure, settlements and clearing systems, trading and risk
management systems, and provides product and service innovations to
exploit competitive markets.
Healthcare Services Group. Focusing on the requirements of integrated
healthcare networks, the Company serves managed care providers, hospital groups,
healthcare product distributors, and other healthcare companies. The healthcare
services team includes physicians, nurses, health policy experts, managed care
executives, and health insurance experts. The Company assists clients with
information access and connectivity and provides tools for transaction
management, care management, decision support, and Internet-based demand
management systems. Some of the sector specific offerings are:
- Multi-Hospital Systems and Regional Integrated Delivery
Networks. Professionals in the healthcare services group advise clients
on preparing for, and assist clients in managing the business
opportunities of, acquisitions and divestitures of discrete care units.
- Managed Care Organizations. The healthcare services group offers clients
expertise in managed care administrative systems, including claims
processing, and operates an industry service bureau priced on a per
member per month basis.
- Physician Practice Management Companies. The healthcare services group
offers clients specialized knowledge of physician practice management
systems and operates a business service bureau on a transaction services
basis.
Travel and Transportation Services Group. The Company serves rental car
companies, hotels, airlines, travel agencies, and companies in other sectors of
the travel and transportation industry. The travel and transportation services
group includes former business executives from the rental car, travel agency,
and airline industries. Certain sectors served by this group are:
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- Rental Cars. Travel and transportation services group professionals
provide industry-specific expertise, systems, and processes in business
planning, reservations systems, fleet management, counter operations,
billing, and yield management.
- Hospitality. The travel and transportation services group offers
assistance with integration of hotel chain property management and
central reservation systems, travel agent commission settlement systems,
and loyalty program offerings.
Existing Business and Opportunities in Other Industries
In addition to its targeted industries, the Company has significant clients
in the Communications and Media and the Manufacturing industries. The Company
believes that its business in these areas has the potential to mature into
fully-developed targeted industry groups. Services and types of clients include:
- Communications and Media. The Company assists with business strategy,
billing, online, and customer care programs, quality assurance and
testing, and customer revenue enhancement programs to providers of voice,
data, image, video, entertainment, media, and information services
through wireless and wireline networks.
- Manufacturing. Knowledgeable associates provide industry-specific
solutions, including supply chain management, planning and scheduling,
order management and assistance with warehousing, distribution,
production, and finance applications to a variety of manufacturing
clients, including companies in the automobile manufacturing, automobile
parts manufacturing, steel, and plastics industries.
Other Channels to Market: Project Offices
The Company also offers shorter term services on a project basis, which it
typically delivers through the Company's geographically-based project offices
and its business consulting units. Project offices sell short-term business
integration, systems integration and applications development, and information
technology infrastructure services within targeted and other industries, both on
an integrated and an individual service offering basis.
The Company has project offices in Reston, Virginia; Denver, Colorado;
Dallas, Texas; Amersfoort, The Netherlands; London, England; Detroit, Michigan;
Atlanta, Georgia; and Munich, Germany. These project offices, which employ
approximately 700 associates as of September 30, 1998, also serve as a location
to provide technology training and staffing pools for the Company's long-term
relationships.
ILLUSTRATIVE RELATIONSHIPS
Some recent examples of the Company's relationships with clients in each of
the Company's targeted industries follow.
Financial Services
In January 1996, the Company entered into a long-term strategic
relationship with Swiss Bank Corporation. In June 1998, Swiss Bank Corporation
merged with Union Bank of Switzerland to form UBS. As a result, UBS is among the
world's leading financial institutions with assets of approximately $600
billion.
As part of this relationship, the Company assumed responsibility for
management of the information technology infrastructure for Warburg Dillon Read,
the investment banking division of UBS. The Company's activities have included
project management, implementation of two new Warburg Dillon Read trading floors
(in London, England and Stamford, Connecticut), and centrally engineering and
integrating Warburg Dillon Read's workstations globally. The Company is also in
the forefront of integrating information technology infrastructures as UBS
expands, including the integration of such infrastructures with the bank's joint
venture operations. The Company also provides services to UBS's private banking,
commercial banking, and asset management divisions.
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As part of its strategic relationship with UBS, the Company received a 40%
equity interest in UBS's Switzerland-based information technology subsidiary,
Systor, and UBS holds shares and an option to purchase shares of the Company's
Class B Common Stock.
The Company's strategic relationship with UBS has enabled it to develop
leading edge expertise in the design, development, and operation of global
trading infrastructures. The Company has utilized, and intends to continue to
utilize, this expertise to attract other client relationships in the financial
services industry on a world-wide basis.
Energy
In 1992, the Company signed a comprehensive, long-term information
technology outsourcing agreement with EME, one of the leading regional electric
companies in the United Kingdom in terms of distribution volume. The Company
assisted EME's reorganization from a consolidated business into separate
operating entities for energy generation, distribution, and supply.
EME's operating environment includes over 75 applications operated across
seven major hardware platforms that utilize 34 programming languages and nine
different databases.
Through project management and the integration of several disparate
computer systems, the Company assisted EME's regulated and non-regulated
businesses in meeting the challenges of the United Kingdom's deregulating energy
sector.
Through its work with EME, the Company has developed an expertise in the
emerging deregulated utility markets. The Company has utilized and intends to
use this expertise and experience as a means to attract other client
relationships, particularly in the United States utility industries, as those
markets deregulate.
Healthcare
In 1991, the Company entered into a long-term, comprehensive information
technology agreement with American Medical Holdings, Inc. ("AMH"), a large
for-profit hospital company. In March 1995, AMH was acquired by Tenet Healthcare
Corporation ("Tenet"), which is the second largest investor-owned healthcare
services company in the United States. At the time of that acquisition, Tenet
invited the Company to propose information technology assistance for the
combined company. After evaluating various approaches, Tenet entered into a
comprehensive agreement with the Company for a full range of information
technology outsourcing and other services.
Part of Tenet's strategy is to form integrated healthcare delivery systems,
including through the acquisition of hospitals and related ancillary healthcare
businesses. Tenet also occasionally closes or sells certain of its hospitals and
related ancillary healthcare operations that do not fit Tenet's strategic model.
Tenet knew that implementing this strategy would prove challenging from an
information technology perspective and required the Company to develop an
integrated layer of systems that could support the acquisition or disposition of
hospitals and related ancillary healthcare operations.
In its fiscal year ended May 31, 1996, Tenet acquired five general
hospitals, converted one general hospital to a specialty hospital and closed one
hospital. In January 1997, Tenet acquired OrNda Healthcorp and increased the
number of hospitals it owned from 77 to 127. Since that time, Tenet has
continued to change its strategic mix of hospitals. At May 31, 1998, Tenet owned
or operated 122 general hospitals and related ancillary healthcare businesses in
18 states.
As Tenet has grown, the Company has helped Tenet merge disparate networks
into a multi-protocol wide area network and consolidate multiple computing
facilities. This resulted in increased flexibility and reduced costs for Tenet.
The Company developed and implemented a "best-of-breed" applications
architecture that provided access to data from multiple sources and systems to
create unified financial, clinical, materials management, and executive
information systems.
This relationship has resulted in Tenet having a fast and flexible
information technology capability and infrastructure that provides Tenet with a
strategic advantage as it executes its growth strategy.
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This relationship also has enabled the Company to develop the knowledge and
tools to leverage efficiencies, stabilize and enhance applications, assist
others in forming integrated healthcare networks, and serve other clients in the
rapidly evolving healthcare industry. The Company intends to capitalize on this
experience and expertise to continue to pursue additional opportunities in the
healthcare market.
Travel and Transportation
The car rental industry has recently undergone significant structural
change. Most major car rental companies were previously owned by major
automobile manufacturers, which used the car rental companies to a substantial
degree as a means of purchasing their excess production and as a distribution
channel. Recently, several of the major car rental companies have been acquired
by investors that do not have a business objective of distribution of their
manufactured cars. This development has led to the emergence of new business
strategies in the industry focused more on growth, profit, customer service, and
business change.
National Car Rental is one of the largest car rental firms in the world
with operations in the United States and Europe. National is implementing a
strategic plan for fleet management and customer reservations using technology
to transform the company, provide prompt information about its performance and
markets, and differentiate and improve customer service.
National Car Rental selected the Company over several of its competitors as
its technology partner to assist in the implementation of this plan. In
addressing National's information technology requirements, the Company
successfully replicated a previously devised travel industry "growth engine."
This growth engine enabled the Company to rapidly fashion an integrated business
solution tailored to National's specific needs. The Company and National are
implementing Odyssey, an integrated reservations system, rental operations
system, fleet inventory capability, sales and marketing system, and billing and
collections package. These capabilities will enable National to expand the scope
of its operations, achieve operating efficiencies, differentiate its service
offerings, and rapidly grow its business.
The Company believes that this engagement will augment its existing
expertise and infrastructure in the car rental industry and poise the Company to
exploit other opportunities in this rapidly evolving area.
Other Industries
In February 1998, W.W. Grainger, Inc., a leading distributor of
maintenance, repair and operating supplies in North America, entered into an
agreement with the Company's Time# unit to develop a digital marketplace to
provide Grainger's small- to medium-sized business customers with one-stop
electronic purchasing of supplies, equipment, and services from multiple
vendors.
Grainger's digital marketplace will employ business processes and
technology designed to enable buyers, sellers, and others to conduct business
more efficiently and effectively. The marketplace is a collaborative engagement
that brings together extensive knowledge of customer requirements and integrated
capabilities in key technology disciplines and e-commerce expertise to create a
marketplace tailored to Grainger's specific needs.
The systems developed by Time# will facilitate and enhance customer
relationships and are intended to set a new standard for business-to-business
ordering and acquisition. Through its relationship with Grainger, other clients,
and technology partners, Time# has built a second generation of its proprietary
technology. The Company believes that this technology will provide Time# with an
engine for strong growth in Internet commerce.
PEROT SYSTEMS ASSOCIATES
The market for information technology personnel and business integration
professionals is intensely competitive. A key part of the Company's business
strategy is the hiring, training, and retention of highly motivated personnel
with strong character and leadership traits. The Company believes that employing
associates with such traits is and will continue to be an integral factor in
differentiating the Company from its
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competitors in the information technology industry. In seeking such associates,
the Company screens candidates for employment through a rigorous interview
process.
The Company devotes a significant amount of resources to training its
associates. Associates undergo continual training throughout their employment
with the Company. Entry level training programs develop the skill sets necessary
to serve the Company's clients. These entry level apprentice training programs
are augmented by engineering development programs and periodic continuing
education. In addition, the Company operates a leadership training course that
each manager and executive must complete. This program includes a workshop
stressing the fundamentals of team leadership. The Company augments its
extensive personnel and leadership training through its TRAIN (The Real-time
Associate Information Network) system, a company-wide intranet featuring
training courses that develop both technical and leadership skills.
The Company employs a performance-based incentive compensation program that
provides guidelines for career development, encourages the development of
skills, provides a tool to manage the associate development process, and
establishes compensation guidelines as part of its retention program. In
addition to competitive salaries, the Company distributes cash bonuses that are
paid promptly to reward excellent performance. The Company seeks to align the
interests of its associates with those of its stockholders by compensating
outstanding performance with equity interests in the Company, which the Company
believes fosters loyalty and commitment to Company goals. More than 90% of the
Company's associates hold equity interests in the Company.
As of September 30, 1998, the Company employed approximately 6,000
associates located in the United States and several other countries. None of the
Company's United States associates is currently employed under an agreement with
a collective bargaining unit. The Company's associates in France and Germany are
generally members of work councils and have worker representatives. The Company
believes that its relations with its associates are good.
UBS AGREEMENTS
In January 1996, the Company entered into a series of agreements to form a
strategic relationship with Swiss Bank Corporation, one of the predecessors to
UBS. This relationship involves a long-term contract (the "IT Services
Agreement"), and a separate agreement to provide services to other UBS operating
units and to permit the Company to use certain UBS assets. Other agreements with
UBS provide for the sale to UBS of stock and options in the Company, and the
transfer to the Company of a 40% stake in UBS's European information technology
subsidiary, Systor.
IT Services Agreement
Under the IT Services Agreement, the Company provides Warburg Dillon Read,
the investment banking division of UBS, with services meeting its requirements
for the operational management of its technology resources (including
mainframes, desktops, and voice and data networks), excluding hardware and
proprietary software applications development. The term of the IT Services
Agreement is 11 years beginning January 1, 1996. The Company's charges for
services provided under the IT Services Agreement are generally based on
reimbursement of all costs, other than Company corporate overhead, incurred by
the Company in the performance of services covered by the contract. In addition
to this cost reimbursement, the Company receives an agreed annual fee, subject
to bonuses and penalties of up to 15% of such fee based on the Company's
performance. UBS determines the bonus or penalty based on many subjective
factors, including service quality, client satisfaction, and the effectiveness
of the Company in assisting UBS in meeting its business goals.
Approximately 25.4% and 27.2% of the Company's revenues were earned in
connection with services performed on behalf of UBS and its affiliates for the
nine months ended September 30, 1998 and the year ended December 31, 1997,
respectively. If some competitors of UBS acquire more than 25% of the shares of
Class A Common Stock of the Company or another party (other than an affiliate of
Ross Perot) acquires more than 50% of the shares of Class A Common Stock and, if
in either case, that acquisition is reasonably likely to have a significant
adverse effect on the performance of or the charges for the services rendered by
the
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Company, UBS has the right to terminate its agreements with the Company. The
loss of UBS as a client would materially and adversely affect the Company's
business, financial condition, and results of operations.
Equity Interests
Under the Amended and Restated PSC Stock Option and Purchase Agreement (the
"Stock Agreement"), the Company sold UBS 100,000 shares of Class B Common Stock
for $3.65 a share and 7,234,320 options to purchase shares of Class B Common
Stock for $1.125 an option (the "UBS Options"). UBS can exercise the UBS Options
at any time for $3.65 a share, subject to United States bank regulatory limits
on UBS's shareholdings. UBS exercised options to purchase 834,320 shares of
Class B Common Stock in September 1998. In addition to other limits set forth in
the Stock Agreement, the number of shares of Class B Common Stock owned by UBS
and its employees may not exceed 10% of the number of shares of outstanding
Common Stock. Once the underlying shares of Class B Common Stock vest, the
corresponding UBS Options are void unless exercised by UBS within five years of
such vesting. This five-year period is tolled at any time when bank-regulatory
limits prohibit UBS from acquiring the shares.
Beginning on January 1, 1997, the shares of Class B Common Stock subject to
the UBS Options vest at a rate of 63,906 shares per month until January 1, 2002
and a rate of 58,334 shares per month thereafter until the IT Services Agreement
terminates. Upon termination of the IT Services Agreement, (i) UBS is required
to sell to the Company all unvested shares of Class B Common Stock and (ii) UBS
Options with respect to unvested shares of Class B Common Stock are void.
UBS cannot transfer the UBS Options and unvested shares of Class B Common
Stock. Subject to exceptions relating to certain transfers to UBS affiliates and
transfers in connection with widely dispersed offerings, before transferring any
shares of Class B Common Stock UBS must first offer such shares to the Company.
Because UBS has elected not to sell shares in connection with this offering, UBS
cannot sell Class B Common Stock, except for limited sales to UBS affiliates,
until the first anniversary of the closing date of this offering.
A portion of the Company's interest in Systor will be returned to UBS if
the IT Services Agreement is terminated. The portion that would be returned to
UBS upon such a termination declines ratably over a ten year period that began
on January 1, 1997.
AGREEMENT WITH EME
The Company provides systems services for EME, one of the largest regional
electricity companies in the United Kingdom in terms of distribution volume,
under an Information Technology Services Agreement initially entered into on
April 8, 1992 (as amended, the "EME Agreement"). The EME Agreement remains in
effect until either party gives eight months' prior notice to terminate on or
after March 31, 2004, unless earlier terminated in accordance with the terms of
the EME Agreement. The Company provides systems operation services on the basis
of cost reimbursement and a management fee and applications systems support,
development services, and consultancy services generally on the basis of time
and materials. The EME Agreement also provides for an incentive payment to the
Company if it is able to reduce costs from contract year to contract year.
In addition to termination rights for cause, non-payment, insolvency and an
EME change of control, the EME Agreement also provides for a good faith
termination right that gives either EME or the Company the right to terminate
the EME Agreement upon giving eight months' written notice if in the good faith
view of the terminating party certain objectives of the EME Agreement are not
being met and are unlikely to be achieved.
For the nine month period ended September 30, 1998 and the year ended
December 31, 1997, approximately 11.9% and 10.2%, respectively, of the Company's
revenues were earned in connection with services performed on behalf of EME.
In July 1998, PowerGen plc acquired EME from Dominion Resources, Inc. The
EME Agreement contains provisions allowing EME to terminate all or part of the
contract upon eight months' notice due to the
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<PAGE> 38
sale of EME. EME is obligated to pay a termination fee upon exercise of this
termination right. The Company cannot assure that EME will not cancel or modify
the contract or that the Company will maintain its historic level of revenues or
profits from this relationship.
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's principal competitors include Andersen Consulting LLP,
Cambridge Technology Partners, Inc., Cap Gemini Group, Computer Sciences
Corporation, debis Systemhaus GmbH (the information technology division of
DaimlerChrysler), Electronic Data Systems Corporation, Ernst & Young LLP, IBM
Global Services (a division of International Business Machines, Inc.), KPMG Peat
Marwick LLP, MCI Systemhouse, Oracle Corporation, PricewaterhouseCoopers LLP,
and The SABRE Group Holdings, Inc.
Many of these companies, as well as some other competitors, have greater
financial resources and larger customer bases than the Company and may have
larger technical, sales, and marketing resources than the Company. The Company
expects to encounter additional competition as it addresses new markets and as
the computing and communications markets converge. In addition, the Company must
frequently compete with a client's own internal information technology
capability, which may constitute a fixed cost for the client. This may increase
pricing pressure on the Company.
The Company competes on the basis of a number of factors, both within and
outside of its control, including the attractiveness of the business strategy
and services that the Company offers, breadth of service line offerings,
technological innovation, pricing, quality of service, and ability to invest in
or acquire assets of potential customers. The Company differentiates itself from
its competitors by providing clients with integrated service offerings,
emphasizing the creation of long-term relationships with its clients, and
working with the client to define the business problem to be solved and the
potential business opportunity from the point of view of the client and the
client's customers. There can be no assurance that the Company will be able to
compete successfully against its current or future competitors in the future or
that competition will not have a material adverse effect on the Company's
results of operations.
INTELLECTUAL PROPERTY
While the Company attempts to retain intellectual property rights arising
from client engagements, the Company's clients often have the contractual right
to retain such intellectual property. The Company relies on a combination of
nondisclosure and other contractual arrangements and trade secret, copyright,
and trademark laws to protect its proprietary rights and the proprietary rights
of third parties from whom the Company licenses intellectual property. The
Company enters into confidentiality agreements with its associates and limits
distribution of proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.
The Company licenses the right to use the names "Perot Systems" and "Perot"
(collectively, the "Perot Name") in its current and future businesses, products,
or services from the Perot Systems Family Corporation and Ross Perot. The
license is a non-exclusive, royalty-free, worldwide, non-transferable license.
The Company may also sublicense its rights to the Perot Name to its affiliates.
Under the license agreement, as amended, either party may, in their sole
discretion, terminate the license at any time, with or without cause and without
penalty, by giving the other party written notice of such termination. Upon
termination by either party, the Company must discontinue all use of the Perot
Name within one year following receipt of the notice of termination. The
termination of this license agreement may materially and adversely affect the
Company's business, financial condition, and results of operations. Except for
the license of the Company's name, 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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<PAGE> 39
PROPERTIES
As of September 30, 1998, the Company had approximately 40 locations in the
United States and five countries outside the United States, all of which were
leased. The Company's leases cover approximately 1.0 million square feet of
office and other facilities and have expiration dates ranging from 1999 to 2016.
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 client
locations throughout the world. Such space is generally occupied pursuant to the
terms of the agreement with the particular client. The Company currently
anticipates consolidating some or all of its operations located principally in
Dallas, Texas during the next two years. The Company's management believes that
its current facilities are suitable and adequate for its business.
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 September 30, 1998 are disclosed in
Note 13 to the Consolidated Financial Statements.
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.
On October 19, 1998, The Robert Plan Corporation ("Robert Plan") filed a
complaint in New York state court against the Company and Ross Perot in
connection with a September 1, 1990 contract under which the Company provides
data processing and software development needs for some of Robert Plan's
operations. The complaint, which has not yet been served on the Company or Mr.
Perot, alleges breach of the 1990 contract, misappropriation of Robert Plan's
proprietary information and business methods in connection with an imaging
system, breach of warranty, and similar claims relating to the contract.
Although the complaint seeks substantial monetary awards and injunctive relief,
the 1990 contract substantially limits each party's liability except in limited
circumstances, including for "wanton or willful misconduct." Accordingly, Robert
Plan has alleged that the Company has acted in a "wanton" and "willful" fashion,
even though Robert Plan has used and continues to use the services of the
Company under the 1990 contract. The Company believes that it has meritorious
defenses to Robert Plan's claims and intends to vigorously defend the lawsuit.
The Company does not believe that the outcome of this litigation will have a
material adverse effect on the Company.
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ross Perot(1)....................... 68 Chairman of the Board, President, and Chief Executive
Officer
James Champy........................ 56 Vice President and Director
Terry Ashwill....................... 54 Vice President and Chief Financial Officer
Peter Altabef....................... 39 Vice President, General Counsel, and Secretary
Joseph Boyd......................... 39 Vice President
Donald Drobny....................... 55 Vice President
John King........................... 52 Vice President
Ron Nash............................ 49 Vice President
Ken Scott........................... 56 Vice President
Steven Blasnik(1)................... 41 Director
William K. Gayden(2)................ 57 Director
Carl Hahn(2)........................ 72 Director
Ross Perot, Jr.(1).................. 40 Director
</TABLE>
- ---------------
(1) Executive committee member.
(2) Audit committee member.
Ross Perot, one of the Company's founders, has served as a director,
President and Chief Executive Officer of the Company since November 1997, and
Chairman of the Board since February 1998. In addition, from April 1988 to June
1992, Mr. Perot held the position of Chairman of the Company. Following his
resignation as Chairman, Mr. Perot remained a director until August 1994. Mr.
Perot was a private investor from June 1992 to the present.
James Champy joined the Company in August 1996 as a Vice President and a
director. From 1993 until 1996, Mr. Champy was Corporate Vice President and
Chairman -- Consulting Group of Computer Sciences Corporation. Mr. Champy was
one of the founders of, and from 1969 to 1996 served in a variety of capacities
for, Index (a management consulting firm) and CSC Index (the management
consulting arm of Computer Sciences Corporation formed upon the acquisition of
Index by Computer Sciences Corporation in 1988). Most recently, Mr. Champy was
Chairman and Chief Executive Officer of CSC Index.
Terry Ashwill joined the Company in January 1997 as a Vice President and
Chief Financial Officer. From August 1991 to January 1997, Mr. Ashwill served as
Executive Vice President and Chief Financial Officer of True North
Communications, Inc.
Peter Altabef joined the Company in June 1993 and was elected as a Vice
President in June 1995 and Secretary in March 1996. Mr. Altabef became General
Counsel in April 1994. From January 1991 until May 1993, Mr. Altabef was a
partner in the Dallas law firm of Hughes & Luce, L.L.P.
Joseph Boyd joined the Company in January 1990 and was elected as a Vice
President in March 1996. Mr. Boyd currently serves as the General Manager of
North American Operations for the Company. Mr. Boyd has served as the General
Manager of the Company's Healthcare Group and as an account manager.
Donald Drobny is one of the Company's founders. Mr. Drobny joined the
Company in June 1988 and was elected as a Vice President in April 1989. Mr.
Drobny currently has oversight responsibility for the Company's
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<PAGE> 41
training and recruiting activities. Previously, Mr. Drobny had oversight
responsibility for the Company's project offices.
John King is one of the Company's founders. Mr. King joined the Company in
June 1988 and was elected as a Vice President in April 1989 and currently has
responsibility for the Company's Financial Services Group.
Ron Nash joined the Company in March 1993 and was elected as a Vice
President in May 1995. From November 1985 until March 1993, Mr. Nash held a
variety of positions with Advanced Telemarketing Corporation and, following its
acquisition by ATC Communications Group, Inc., with its parent corporation. From
September 1992 to March 1993, Mr. Nash served as Vice President, International
and a director of ATC Communications Group, Inc. Immediately prior to that time,
Mr. Nash served as President, Chief Operating Officer, and a director of
Advanced Telemarketing Corporation. Mr. Nash currently has responsibility for
European major account sales.
Ken Scott joined the Company in June 1997 and was elected Vice President in
November 1998. Mr. Scott currently serves as the General Manager of European
Operations for the Company. For the seven years prior to joining the Company,
Mr. Scott was the President of the Energy Division of Electronic Data Systems
Corporation ("EDS").
Steven Blasnik was elected a director of the Company in September 1994.
Since 1987, Mr. Blasnik has served as President of Perot Investments, Inc.
("PII"), a private investment firm and an affiliate of Ross Perot. Mr. Blasnik
also serves as a director of Zonagen, Inc.
William K. Gayden was elected a director of the Company in October 1998.
Mr. Gayden founded Merit Energy Company ("Merit") in 1989 and has been President
of Merit since its founding. Mr. Gayden spent twenty years with EDS during which
time he held many senior positions including President of EDS World Corporation,
Senior Vice President of EDS, and a member of the Board of Directors of EDS.
Carl Hahn was elected a director of the Company in April 1993. Since June
1996, Mr. Hahn has been a private investor. From June 1993 until June 1996, Mr.
Hahn served as Chairman of the Board of Directors of Saurer Ltd., a manufacturer
of textile machines. Prior to that time, Mr. Hahn served as Chairman of the
Board of Management of Volkswagen AG until December 1992. Mr. Hahn also serves
as a director of PACCAR, Inc., TRW Inc., Thyssen AG, Gerling AG, Hawesko, AG,
and Sachsenring, AG.
Ross Perot, Jr. was elected a director of the Company in 1988. Since March
1988, Ross Perot, Jr. has served as Chairman of Hillwood Development
Corporation, a real estate development company. Ross Perot, Jr. is the son of
Ross Perot.
Each executive officer of the Company serves at the discretion of the Board
of Directors, subject to the provisions of any applicable employment agreements.
INSIDER PARTICIPATION IN COMPENSATION DECISIONS AND BOARD INTERLOCKS
As members of the Board of Directors, Messrs. Perot and Champy will
participate in future compensation decisions.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has established two committees to assist in the
discharge of its responsibilities: the Executive Committee and the Audit
Committee. The Executive Committee consists of Ross Perot, Ross Perot, Jr., and
Steven Blasnik. The Audit Committee consists of William Gayden and Carl Hahn.
Generally, the Executive Committee has the full power and authority of the
Board of Directors in the management of the business and affairs of the Company,
except with respect to matters that cannot be delegated under Delaware law.
The Audit Committee reviews the annual financial statements of the Company
and the professional services provided by the Company's independent public
accountants, including the scope of their audit coverage, the auditor's reports
to management and management's responses to such reports, and the
39
<PAGE> 42
independence of such accountants from the management of the Company. The Audit
Committee also reviews the scope of the Company's internal audits, the internal
auditors' reports to management and management's responses to such reports, the
effectiveness of the Company's internal audit staff, possible violations of the
Company's Standards and Ethical Principles, and such other matters with respect
to the accounting, auditing and financial reporting practices and procedures of
the Company as it may find appropriate or as have been brought to its attention.
The Board of Directors may, from time to time, establish other committees
to facilitate the management of the Company or for other purposes it may deem
appropriate.
DIRECTOR COMPENSATION
In October 1997, the Company began compensating its non-employee directors
(other than Ross Perot, Jr.) $2,000 for each meeting of the Board of Directors
attended in person. Employee directors receive no cash compensation for
attending committee meetings. Directors are also reimbursed for their reasonable
out-of-pocket expenses associated with attending Board of Directors and
committee meetings. Prior to October 1997, directors received no cash
compensation for their service on the Board of Directors or any committee of the
Board of Directors.
Except for Mr. Hahn, prior to December 1996, upon their election to the
Board of Directors, non-employee directors (other than affiliates of Ross Perot)
were offered either (i) the opportunity to purchase 120,000 restricted shares of
Class A Common Stock or (ii) the grant of an option to acquire 120,000 shares of
Class A Common Stock at a purchase or exercise price equal to the fair value of
such Class A Common Stock at the date of purchase or grant, with such restricted
shares of Class A Common Stock or options to acquire shares of Class A Common
Stock vesting ratably over a five-year period. In April 1993, Mr. Hahn received
400,000 restricted shares of Class A Common Stock at a price equal to the fair
value of such shares at the date of purchase, which vested ratably over a
five-year period.
In December 1996, the Company adopted the 1996 Non-Employee Director Stock
Option/Restricted Stock Plan (the "Non-Employee Director Plan"). The
Non-Employee Director Plan provides for the issuance of nonqualified stock
options or restricted stock to non-employee directors of the Company and any of
its majority-owned subsidiaries. The Non-Employee Director Plan is administered
by the Board of Directors, which has the authority to interpret the Non-Employee
Director Plan. Directors eligible to receive awards under the Non-Employee
Director Plan are those (other than Ross Perot, Jr.) who are not employees of
the Company. Each eligible existing director will receive comparable grants at
completion of the original vesting schedule for such director's current options
or restricted shares. Grants are made upon election to the Board of Directors
for new directors and, for existing directors, at completion of the original
vesting schedule for the director's existing options or restricted shares. The
Non-Employee Director Plan provides for a grant to each eligible director of (i)
an option to purchase 40,000 shares of Class A Common Stock or (ii) the right to
purchase 40,000 restricted shares of Class A Common Stock. (The number of shares
of Class A Common Stock or options issuable to each director were reduced from
60,000 to 40,000 on September 30, 1997.) The exercise price of options or the
purchase price of restricted shares of Class A Common Stock awarded under the
Non-Employee Director Plan must be at least equal to 100% of the fair value of a
share of Class A Common Stock on the date of the award.
Mr. Hahn purchased 40,000 shares of Restricted Stock under the Non-Employee
Director Plan in May 1998. In November 1998, the Company issued Mr. Gayden
options to purchase 40,000 shares of Class A Common Stock.
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<PAGE> 43
EXECUTIVE COMPENSATION
The Summary Compensation Table below shows compensation for the 1996, 1997,
and 1998 fiscal years of the Chief Executive Officer during 1998 and the five
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at the end of the 1998 fiscal
year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
---------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDER- ALL OTHER
------------------------------------- STOCK LYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OTHER($)(2) AWARD(S)($)(3) OPTIONS SATION($)(4)
--------------------------- ---- --------- ----------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ross Perot...................... 1998 $ -- $ -- $ -- $ -- -- $ --
Chairman, President & Chief 1997 -- -- -- -- -- --
Executive Officer(5)
James Champy.................... 1998 $500,000 $ -- $ 13,162 $ -- -- $ 23,400
Vice President(6) 1997 500,000 -- 5,738 -- -- 23,337
1996 195,192 117,115 -- --(7) -- 17,000
Terry Ashwill................... 1998 $368,754 $ -- $ -- $ -- 100,000 $ 6,400
Vice President & Chief 324,876 -- 96,276 --(9) 700,000 --
Financial 1997
Officer(8)
Ken Scott....................... 1998 $324,240 $ -- $ -- $ -- -- $ --
Vice President(10) 1997 182,740 -- -- 315,000(11) 290,000 --
John King....................... 1998 $312,000 $ -- $ 6,970 $ -- -- $ 23,523
Vice President 1997 308,000 50,000 5,293 -- -- 17,407
1996 300,000 85,000 8,543 -- -- 17,087
Don Drobny(12).................. 1998 $312,000 $ -- $ 3,830 $ -- -- $ 19,990
Vice President 1997 308,000 -- 3,884 -- -- 14,927
1996 377,195 75,000 6,725 -- -- 14,590
</TABLE>
- ---------------
(1) Bonuses relating to 1998 performance have not yet been determined. Bonus
amounts shown for 1997 were earned and paid in 1997. Bonus amounts shown
for 1996 were earned in 1996 and paid in 1997.
(2) With respect to Mr. Ashwill, represents $92,668 paid in 1997 in connection
with his relocation and $3,608 for home office equipment. With respect to
all other named executive officers, represents the payment of taxes related
to the life insurance policies referenced in Note 4 to this table.
(3) The number of restricted shares of Class A Common Stock held by the named
executive officers and the value of such shares of Class A Common Stock
(less the amount paid therefor) at December 31, 1998 were as follows: Mr.
Champy -- 800,000 shares of Class A Common Stock, $8,200,000; and Mr.
Scott -- 180,600 shares of Class A Common Stock, $1,738,275. Prior to this
offering, there was no market for the Class A Common Stock. Therefore, the
values in the preceding sentence are based on an assumed offering price of
$11.50 per share.
(4) In 1998, represents (i) $17,000, $17,123, and $13,590 in life insurance
premiums paid for the benefit of Messrs. Champy, King, and Drobny,
respectively; and (ii) $6,400 in Company contributions to the Company's
401(k) plan for the benefit of each of Messrs. Champy, Ashwill, King, and
Drobny. In 1997, represents (i) $17,000, $11,070, and $8,590 in life
insurance premiums paid for the benefit of Messrs. Champy, King, and
Drobny, respectively; and (ii) $6,337 in Company contributions to the
Company's 401(k) plan for the benefit of each of Messrs. Champy, King, and
Drobny. In 1996, represents (i) $17,000, $11,087, and $8,590, in life
insurance premiums paid for the benefit of Messrs. Champy, King, and
Drobny; and (ii) $6,000 in Company contributions to the Company's 401(k)
plan for the benefit of each of Messrs. King and Drobny.
(5) Mr. Perot has served as President and Chief Executive Officer since
November 7, 1997 and Chairman since February 25, 1998. Mr. Perot serves the
Company without compensation.
(6) Mr. Champy joined the Company as an executive officer on July 8, 1996.
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<PAGE> 44
(7) Mr. Champy purchased 1,000,000 restricted shares of Class A Common Stock
for $1.25 per share (the fair value of such shares on the date of
purchase). The shares vest ratably over a ten-year period. The first
vesting date was August 12, 1997.
(8) Mr. Ashwill joined the Company and was elected Vice President and Chief
Financial Officer as of January 28, 1997.
(9) Mr. Ashwill purchased 200,000 restricted shares of Class A Common Stock on
January 28, 1997, and an additional 40,000 restricted shares of Class A
Common Stock on February 14, 1997. In each case, the purchase price was
$1.875 per share (the fair value of such shares on the respective dates of
the purchase). The restricted shares of Class A Common Stock were scheduled
to vest ratably over a ten-year period. On December 23, 1997, Mr. Ashwill
sold all of such shares to the Company for an amount equal to the cost of
purchase plus 8% interest accrued from the respective purchase dates. The
sale was in connection with the issuance of options to purchase 240,000
shares of Class A Common Stock at an exercise price of $3.375 per share
with the same vesting schedule that had applied to the restricted stock.
(10) Mr. Scott has served as Vice President since November 1998. He joined the
Company in June 1997.
(11) Mr. Scott purchased 210,000 restricted shares of Class A Common Stock for
$1.875 per share. The fair value of such shares on the date of purchase was
$3.375 per share. The shares vest over a ten-year period. The first vesting
date was June 2, 1998.
(12) Mr. Drobny's 1996 salary included a cost-of-living adjustment paid in
connection with an overseas assignment.
STOCK OPTIONS
The following table provides information relating to option grants in 1998
to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED VALUE
-------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ---------- ------------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ross Perot....................... -- --% $ -- -- $ -- $ --
James Champy..................... -- -- -- -- -- --
Terry Ashwill.................... 100,000 0.79% $ 11 11/04/09 $781,373 $2,038,428
Ken Scott........................ -- -- -- -- -- --
John King........................ -- -- -- -- -- --
Don Drobny....................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) These amounts represent assumed rates of appreciation in value from the date
of grant until the end of the option term, at the rates set by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future appreciation, if any, in the shares of Class A
Common Stock.
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<PAGE> 45
OPTION EXERCISES AND HOLDINGS
The following table provides information regarding exercises of stock
options by named executive officers during 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE(1) OF UNEXERCISED
CLASS A UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)
ACQUIRED ON VALUE(1) --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ross Perot............. -- -- -- -- -- --
James Champy........... -- -- -- -- -- --
Terry Ashwill.......... -- -- 80,000 720,000 770,000 5,607,500
Ken Scott.............. -- -- 29,000 261,000 267,125 2,404,125
John King.............. -- -- -- -- -- --
Don Drobny............. -- -- -- -- -- --
</TABLE>
- ---------------
(1) Based on an assumed offering price of $11.50 per share.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
James Champy. Mr. Champy's associate agreement provides for a base salary
of $500,000 per year, which is to be reviewed at least annually. Mr. Champy's
associate agreement provides for additional benefits, including: (i) a bonus to
be determined in accordance with the then current bonus plan applicable to the
most senior officers of the Company, (ii) payment of life insurance premiums and
(iii) some travel benefits. Mr. Champy's associate agreement also provides that,
in the event that Mr. Champy is terminated by the Company other than for cause
or substantial misconduct (as defined in his associate agreement) or Mr. Champy
is deemed to have been constructively terminated (as defined in his associate
agreement), Mr. Champy will receive a severance payment equal to six months of
Mr. Champy's then current base salary. If Mr. Champy's employment is terminated
by either party (other than for cause by the Company) within one year of a
change in control of the Company (as defined in his associate agreement), Mr.
Champy would be entitled to receive a severance payment equal to six months of
Mr. Champy's then current base salary. Mr. Champy's employment agreement is
terminable by the Company upon 30 days' notice and payment of a severance
payment equal to six months' base pay plus benefits.
The 1,000,000 restricted shares of Class A Common Stock acquired by Mr.
Champy pursuant to his restricted stock agreement vest in equal installments
over ten years beginning on the first anniversary of the commencement of Mr.
Champy's employment by the Company. Vesting is contingent on continued
employment; provided, however, that Mr. Champy's restricted shares of Class A
Common Stock will continue to vest for limited periods following the termination
of his employment if his employment is terminated by the Company other than for
cause or substantial misconduct (as defined in his associate agreement) or Mr.
Champy is deemed to have been constructively terminated (as defined in his
associate agreement). If Mr. Champy's employment is terminated by the Company
other than for cause or substantial misconduct, Mr. Champy's restricted shares
of Class A Common Stock will continue to vest as scheduled for two years
following termination of employment. If there is a change in control of the
Company (as defined in his associate agreement) and Mr. Champy's employment is
terminated within one year of such change in control by either party (other than
for cause by the Company), all of Mr. Champy's shares of Class A Common Stock
scheduled to vest through the next two vesting dates will vest on schedule. In
the event that Mr. Champy is terminated for any reason by either party, Mr.
Champy has the right to require the Company to purchase his shares for their
original cost plus simple interest at the rate of 8% per annum.
Terry Ashwill. Pursuant to the letter agreement pursuant to which Mr.
Ashwill accepted employment with the Company, he is assured that at least
100,000 options and/or shares of the Company's stock will vest if
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<PAGE> 46
his employment is terminated (i) by Mr. Ashwill and he does not work for a
competitor of the Company for 12 months or, within six months of the date of
termination, work for a company with which he discussed employment prior to the
termination of his employment or (ii) by the Company without cause. This special
vesting provision is only applicable to the extent necessary to cause the value
of vested shares and options to be equal to $1,500,000 on the third anniversary
of his employment by the Company. In addition, the Company agreed to pay some
expenses related to Mr. Ashwill's relocation to Dallas. It is anticipated that
on January 28, 1999, as a result of scheduled vesting Mr. Ashwill will have more
than 100,000 fully vested shares of Class A Common Stock or options and,
accordingly, this agreement will have no further effect.
STOCK PLANS
The Company's currently active stock plans include: the 1991 Stock Option
Plan, Restricted Stock Plan, 1996 Non-Employee Directors Plan (the "Non-Employee
Directors Plan") and 1996 Advisors and Consultants Plan (collectively, the
"Plans"). In addition, the Company has options that remain outstanding under its
former Advisors and Consultants Plan, which was terminated in 1996.
The purpose of the Plans is to attract and retain outstanding associates,
directors, consultants, and advisors and provide them with a strong incentive to
contribute to the success of the Company by granting them options to acquire, or
allowing them to purchase, shares of Class A Common Stock. The Plans are not
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), nor do they meet the requirements of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
As of December 31, 1998, an aggregate of 12,823,244 shares of Class A
Common Stock were available for issue under the Plans (other than the
Non-Employee Directors Plan under which 680,000 shares of Class A Common Stock
were available). Shares of Class A Common Stock available under the Plans or
subject to existing Stock Option Agreements are subject to adjustment in the
event of a stock dividend, stock split, or merger or consolidation to preserve
the respective rights of the participants in the respective Plans. Subsequent to
December 31, 1998, 1,825,250 shares of Class A Common Stock have become subject
to issuance on exercise of outstanding options at an exercise price equal to
$11.00 per share.
1999 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the 1999 Employee Stock Purchase Plan (the
"1999 Employee Stock Purchase Plan") to become effective immediately after this
offering. A summary of the material features of the 1999 Employee Stock Purchase
Plan follows. Capitalized terms not defined in this Prospectus have the meaning
given them in the 1999 Employee Stock Purchase Plan.
General. The purpose of the 1999 Employee Stock Purchase Plan is to provide
employees of the Company and of majority owned subsidiaries ("Participating
Affiliates") of the Company with the opportunity and a convenient means to
purchase Common Stock of the Company at a discount from the market price through
a program of voluntary, regular payroll deductions. The Company intends to have
the 1999 Employee Stock Purchase Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Code.
A total of 20,000,000 shares of Class A Common Stock are authorized and
reserved for issuance under the 1999 Employee Stock Purchase Plan. Appropriate
adjustments in the aggregate number of shares subject to the 1999 Employee Stock
Purchase Plan will be made in the event of any merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company.
The 1999 Employee Stock Purchase Plan permits "Eligible Associates" to
participate in the plan. An Eligible Associate is generally an employee of the
Company and Participating Affiliates who works more than 20 hours per week on a
regular basis and is not engaged under an independent contractor or similar
agreement, whether or not such person is determined to be an independent
contractor. Eligible Associates who own five
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<PAGE> 47
percent or more of the Company's outstanding Class A Common Stock may not
purchase shares under the 1999 Employee Stock Purchase Plan.
The 1999 Employee Stock Purchase Plan permits Eligible Associates to
purchase, through regular payroll deductions, shares of Common Stock at a price
equal to 85% of the fair market value of one share of the Class A Common Stock
on the Exercise Date for the Offering Period.
The Board of Directors may amend the 1999 Employee Stock Purchase Plan
without notice, at any time, subject to certain restrictions set forth in the
1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan will
automatically terminate after ten years, or on the date all shares authorized to
be sold under the 1999 Employee Stock Purchase Plan have been sold, subject to
the right of the Board of Directors to terminate the 1999 Employee Stock
Purchase Plan at an earlier time.
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<PAGE> 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company licenses the right to use the Perot Name in its current and
future businesses, products, or services from the Perot Systems Family
Corporation and Ross Perot. The license is a non-exclusive, royalty-free,
non-transferable license without geographic restriction. The Company may also
sublicense its rights to the Perot Name to its affiliates. Under the License
Agreement, as amended, either party may, in their sole discretion, terminate the
license at any time, with or without cause and without penalty, by giving the
other party written notice of such termination. Upon termination by either
party, the Company must discontinue all use of the Perot Name within one year
following receipt of the notice of termination.
The Company made loans to each of Ken Scott, Ron Nash, Joseph Boyd,
Guillermo Marmol (a former executive), and Susan Fairty (a former executive) in
connection with the purchase by such persons of shares of Class A Common Stock
from the Company. Each of such loans is secured by the purchased stock. In
addition, the Company loaned $250,000 to John King secured by shares of Class A
Common Stock. All such loans accrue interest at 8% per annum. As of November 30,
1998, the total amount outstanding for each such loan (including accrued
interest) was $276,242, $198,555, $260,685, $73,130, $0, and $0 for Messrs.
King, Scott, Nash, Boyd, Marmol, and Ms. Fairty, respectively. The highest
amounts outstanding under such loans since January 1, 1996 were as follows: Mr.
King, $276,242; Mr. Scott, $198,555; Mr. Nash, $265,616; Mr. Boyd, $75,922; Mr.
Marmol, $136,288; and Ms. Fairty, $582,839.
The Company made loans to Terry Ashwill in connection with his purchase of
shares of Class A Common Stock from the Company. Mr. Ashwill's loans accrued
interest at the rate of 8% per annum and were secured by the purchased stock. On
December 23, 1997, the aggregate amount outstanding for Mr. Ashwill's loans
(including accrued interest) was $474,489, the highest amount outstanding with
respect to such loans since their inception. On December 23, 1997, the Company
repurchased the 240,000 shares of Class A Common Stock held by Mr. Ashwill for
$1.875 per share plus 8% per annum for the time that he held the stock (an
aggregate of $481,364). The Company paid the purchase price of the stock by
offsetting the amounts due Mr. Ashwill against the principal and accrued
interest on his loans and paying the remaining $6,875 in cash (which is equal to
amounts previously paid by Mr. Ashwill for interest that had accrued on his
loans). In connection with the repurchase, the Company granted Mr. Ashwill
options to purchase 240,000 shares of Class A Common Stock with an exercise
price of $3.375 per share.
The Company has made loans to James Cannavino (a former executive) secured
by his shares of Class A Common Stock. As of November 30, 1998, Mr. Cannavino
had the outstanding principal amounts of $420,000 and $1,169,024 accruing
interest at the rates of 8% per annum and 7.25% per annum, respectively. As of
November 30, 1998, the aggregate amount outstanding (including accrued interest)
relating to these loans was $1,831,736. The highest amount outstanding with
respect to such loans (including accrued interest) since its inception was
$3,679,285. The Company also loaned Mr. Cannavino $1,000,000 in connection with
his purchase of a permanent residence in Dallas. This loan is secured by a
mortgage on such residence and bears interest at 7.25% per year. As of November
30, 1998, the total amount outstanding (including accrued interest) relating to
this loan was $1,066,342. Since its inception, the highest amount outstanding
for this loan was $1,066,342.
Messrs. Nash, Drobny, Altabef, and Scott have outstanding loans with
NationsBank of Texas, N.A. ("NationsBank") in the respective principal amounts
of $207,867, $0, $126,400, and $325,809. Interest accrues on all such loans at
the rate of 9.75% for Messrs. Nash and Altabef, 9.5% for Mr. Drobny and 8.75%
for Mr. Scott. The Company had agreed that it would, at the request of
NationsBank, purchase such loans from NationsBank for an amount equal to
principal plus accrued and unpaid interest if the Company has not had an initial
public offering that results in the shares of Class A Common Stock being
publicly traded before the maturity of the notes. The maturity dates are July 1,
2000, February 26, 2000, July 20, 2000 and June 15, 1999 for amounts borrowed by
Messrs. Nash, Drobny, Altabef, and Scott, respectively. Each loan is secured by
a pledge of shares of Class A Common Stock held by the borrower.
In January 1996, the Company entered into an agreement with PII pursuant to
which the Company licensed software from PII. PII is an affiliate of Ross Perot.
Mr. Blasnik is the President of PII. The Company sublicensed such software to
The Witan Company L.P. ("Witan"). In connection with this project, Witan
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<PAGE> 49
paid a license fee of $1,000,000 directly to PII in connection with the license.
The Company had a separate contract with Witan to perform development work on
the licensed software, which was terminated in May 1997.
For the years ended December 31, 1997 and 1998, the Company paid $91,425
and $244,164, respectively, to the law firm of Locke, Liddell & Sapp for
services rendered to the Company. The spouse of Mr. Altabef is a shareholder of
that firm.
For the years ended December 31, 1996, 1997, and 1998, the Company paid to
Hughes & Luce, L.L.P. $635,665, $650,779, and $485,513, respectively, for
services rendered to the Company. A partner in that firm is a son-in-law of Mr.
Perot.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of shares of Common Stock as of December
31, 1998 for (i) all persons who are beneficial owners of five percent or more
of the Company's Common Stock, (ii) each director, (iii) the Company's Chief
Executive Officer and the other executive officers named in the Summary
Compensation Table above, and (iv) all executive officers and directors as a
group:
<TABLE>
<CAPTION>
CLASS B
COMMON
CLASS A COMMON STOCK STOCK
---------------------------------- ------------
PERCENT OF
OWNERSHIP
SHARES ------------------- SHARES
BENEFICIALLY BEFORE AFTER BENEFICIALLY
OWNED(1) OFFERING OFFERING OWNED(2)
------------ -------- -------- ------------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Ross Perot(2)........................................ 31,705,000 41.1% 38.4% --
James Champy(3)...................................... 1,000,286 1.3% 1.2% --
Terry Ashwill(4)..................................... 160,222 * * --
Ken Scott(5)......................................... 239,184 * * --
John King(6)......................................... 1,602,990 2.1% 1.9% --
Don Drobny(7)........................................ 1,526,062 2.0% 1.8%
William K. Gayden.................................... 0 * * --
Steven Blasnik(8).................................... 18,000 * * --
Carl Hahn............................................ 440,000 * * --
Ross Perot, Jr.(2)................................... 31,705,000 41.1% 38.4% --
ADDITIONAL 5% BENEFICIAL OWNERS
Morton Meyerson(9)................................... 7,996,800 10.4% 9.7% --
UBS(10).............................................. -- * * 7,334,320
ALL EXECUTIVE OFFICERS AND DIRECTORS as a Group (13
persons)........................................... 37,898,948 48.8% 45.6% --
</TABLE>
- ---------------
* Less than 1%
(1) Percentages are based on the total number of shares of Common Stock
outstanding at December 31, 1998, plus the total number of outstanding
options and warrants held by each person that are exercisable within 60 days
of such date. Shares of Common Stock issuable upon exercise of outstanding
options and warrants, however, are not deemed outstanding for purposes of
computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table, other than shared property rights created
under joint tenancy or marital property laws as between the Company's
directors and executive officers and their respective spouses, each
stockholder named in the table has sole voting and investment power with
respect to the shares of Class A Common Stock set forth opposite such
stockholder's name. The shares of Class A Common Stock listed include shares
of Class A Common Stock held by the Company's Retirement Savings Plan and
Trust for the benefit of the named individuals. Voting and investment power
over such shares of Class A Common Stock is held by the trustee of such
trust subject to the direction of the Company's 401(k) Plan Committee.
(2) Shares are owned by HWGA, Ltd. ("HWGA"). Ross Perot, Chairman, President,
and Chief Executive Officer of the Company, is the managing general partner
of HWGA. Mr. Perot has voting and investment power over such shares. Ross
Perot, Jr. is a general partner of HWGA who has authority to manage HWGA if
Ross Perot ceases to be managing general partner of HWGA. Accordingly,
shares owned by HWGA are also shown in this table as being beneficially
owned by Ross Perot, Jr. On August 5, 1998, Mr. Perot agreed to acquire an
additional 400,000 shares of Class A Common Stock from an existing
stockholder at a price per share equal to the initial public offering price
less $.10 per share. The address for Ross Perot, Ross Perot, Jr., and HWGA
is 12377 Merit Drive, Suite 1700, Dallas, Texas 75251.
(3) Includes 200,000 shares of Class A Common Stock held by the Champy Family
Irrevocable Trust (the "Champy Trust") of which Mr. Champy is a trustee. As
trustee, Mr. Champy shares voting and
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<PAGE> 51
investment power with respect to the shares of Class A Common Stock held by the
Champy Trust and, therefore, is deemed the beneficial owner of such shares of
Class A Common Stock.
(4) Includes 160,000 shares of Class A Common Stock that Mr. Ashwill has the
right to acquire upon the exercise of vested options.
(5) Includes 29,000 shares of Class A Common Stock that Mr. Scott has the right
to acquire upon the exercise of vested options.
(6) Includes 4,000 shares of Class A Common Stock held by Mr. King's spouse
with respect to which Mr. King shares voting and investment power.
(7) Includes 200,000 shares of Class A Common Stock held by the Drobny Family
Limited Partnership, 160,000 shares of Class A Common Stock held by Mr.
Drobny's son, 160,000 shares of Class A Common Stock held by Mr. Drobny's
daughter, and 4,000 shares of Class A Common Stock held by Mr. Drobny's
spouse. Mr. Drobny shares voting and investment power with the respective
holders of such shares.
(8) Includes 12,000 shares of Class A Common Stock that Mr. Blasnik has the
right to acquire upon the exercise of vested options. Includes 6,000 shares
of Class A Common Stock held by Mr. Blasnik's spouse. Mr. Blasnik disclaims
beneficial ownership of such shares.
(9) Includes 7,942,400 shares of Class A Common Stock held by the MFLP, and
54,400 shares of Class A Common Stock held by four trusts of which Mr.
Meyerson is the Trustee. The address for Mr. Meyerson is 4514 Cole Ave.,
Suite 400, Dallas, Texas 75205.
(10) Includes 6,400,000 shares of Class B Common Stock that UBS has the right to
acquire upon the exercise of options. The address for UBS AG is
Bahnhofstrasse, CH 8001, Zurich, Switzerland.
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<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
229,000,000 shares, of which 200,000,000 shares are designated as Class A Common
Stock, $.01 par value per share, 24,000,000 shares are designated as Class B
Common Stock, $.01 par value per share, and 5,000,000 shares are designated as
Preferred Stock, $.01 par value per share. As of December 31, 1998, there were
77,134,590 shares of Class A Common Stock issued and outstanding and held of
record by 1,474 stockholders, 934,320 shares of Class B Common Stock issued and
outstanding and held of record by one stockholder, and no shares of Preferred
Stock issued and outstanding. In addition, as of December 31, 1998 a total of
39,402,482 shares of Class A Common Stock and 6,400,000 shares of Class B Common
Stock are reserved for issuance upon exercise of outstanding options. Subsequent
to December 31, 1998, the Company granted associates options to purchase
1,825,250 shares of Class A Common Stock with an exercise price of $11.00 per
share.
CLASS A COMMON STOCK
Holders of shares of Class A Common Stock are entitled to one vote per
share for each share held of record on any matter submitted to the holders of
Common Stock for a vote. All shares of Class A Common Stock and Class B Common
Stock outstanding are fully paid and nonassessable, and all of the shares of
Class A Common Stock and Class B Common Stock to be outstanding upon completion
of this offering will be fully paid and nonassessable. Subject to the rights of
the holders of any outstanding shares of Preferred Stock and any restrictions
that may be imposed by any lender to the Company, holders of Class A Common
Stock are entitled to receive such dividends, if any, as may be declared by the
Board of Directors out of legally available funds. In the event of the
liquidation, dissolution or winding up of the Company, holders of Class A Common
Stock are entitled to share equally and ratably, based on the number of shares
held, in the assets, if any, remaining after payment of all of the Company's
debts and liabilities and the liquidation preference of any outstanding
Preferred Stock. The shares of Class A Common Stock are neither redeemable nor
convertible, and the holders of Class A Common Stock have no preemptive rights
to subscribe for or purchase any additional shares of capital stock issued by
the Company.
CLASS B COMMON STOCK
Holders of shares of Class B Common Stock have no voting rights, except to
the extent that the Delaware General Corporation Law requires a vote of the
Class B Common Stock with respect to an amendment to the Amended and Restated
Certificate of Incorporation that would increase or decrease the par value of
the Class B Common Stock or alter or change the powers, preferences, or special
rights of shares of Class B Common Stock so as to affect them materially and
adversely. The Amended and Restated Certificate of Incorporation provides that
the number of authorized shares of Class B Common Stock may be increased or
decreased (but not below the number of shares of Class B Common Stock then
outstanding or reserved for issuance pursuant to outstanding options, warrants
or similar rights) by the affirmative vote of the holders of a majority of the
voting stock of the Company, voting as a single class, without any vote by the
holders of the Class B Common Stock. Subject to the rights of the holders of any
outstanding shares of Preferred Stock and any restrictions that may be imposed
by any lender to the Company, holders of Class B Common Stock are entitled to
receive such dividends, if any, as may be declared by the Board of Directors out
of legally available funds. In the event of the liquidation, dissolution or
winding up of the Company, holders of Class B Common Stock are entitled to share
equally and ratably, based on the number of shares held, in the assets, if any,
remaining after payment of all of the Company's debts and liabilities and the
liquidation preference of any outstanding Preferred Stock. Each share of Class B
Common Stock is convertible, on a share for share basis, at the option of the
holder into a fully paid and nonassessable share of Class A Common Stock for the
purpose of the transfer, sale, or other disposition to a third party purchaser
that is not an affiliate of UBS if such sale is made (a) in a widely dispersed
public offering of the Class A Common Stock, (b) to a third party that, prior to
such sale, controls more than 50% of the then outstanding voting securities of
the Company, (c) to a third party that, after such sale, is the beneficial owner
of not more than 2% of the outstanding voting stock of the Company having power
to elect directors, (d) in a transaction that complies with Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"), or (e) by UBS or its
affiliates in a transaction approved in
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<PAGE> 53
advance by the Board of Governors of the Federal Reserve System. UBS is the only
holder of Class B Common Stock.
PREFERRED STOCK
The Company is authorized to issue shares of Preferred Stock in one or more
series, and to designate the rights, preferences, limitations, and restrictions
of and upon shares of each series, including voting, redemption, and conversion
rights. The Board of Directors also may designate dividend rights and
preferences in liquidation. It is not possible to state the actual effect of the
authorization and issuance of additional series of Preferred Stock upon the
rights of holders of Common Stock until the Board of Directors determines the
specific terms, rights and preferences of a series of Preferred Stock. Such
effects, however, might include, among other things, granting the holders of
Preferred Stock priority over the holders of Common Stock with respect to the
payment of dividends, diluting the voting power of the Common Stock, or granting
the holders of Preferred Stock preference with respect to liquidation rights. In
addition, under some circumstances, the issuance of Preferred Stock may render
more difficult or tend to discourage a merger, tender offer or proxy contest,
the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management.
In connection with the authorization of the Rights Plan (discussed below),
the Board of Directors has authorized the designation of 200,000 shares of
Preferred Stock as Series A Junior Participating Preferred Stock (the "Series A
Preferred"), and 10,000 shares of Preferred Stock as Series B Junior
Participating Preferred Stock (the "Series B Preferred"). The shares of Series A
Preferred and Series B Preferred have been reserved for issuance pursuant to the
Rights Plan. The following summarizes the terms of the Series A Preferred and
the Series B Preferred (together, the "Participating Preferred").
The holders of shares of Participating Preferred will generally be entitled
to receive quarterly dividends payable in cash commencing on the first quarterly
dividend payment date after the first issuance of Participating Preferred, in an
amount per share (rounded to the nearest cent) equal to the greater of (i) $0.01
and (ii) subject to adjustment, an amount equal to one thousand times the per
share amount of any distributions or dividends made with respect to the Common
Stock. Subject to adjustment, each share of Series A Preferred will entitle the
holder to a number of votes on all matters submitted to a vote of the
stockholders of the Company equal to one thousand times the number of votes per
share to which shares of Class A Common Stock are entitled. The Series B
Preferred is not entitled to vote on any matter unless required by law. Except
as otherwise provided by law, the holders of shares of Series A Preferred and
the holders of shares of Common Stock will generally vote together as one class
on all matters submitted to a vote of stockholders of the Company. If at any
time dividends on the Series A Preferred are in arrears in an amount equal to
six quarterly dividends, the occurrence of such contingency will mark the
beginning of a period (a "default period") that will extend until such time when
all accrued and unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Series A Preferred
then outstanding have been declared and paid or set apart for payment. During
each default period, all holders of Series A Preferred with dividends in arrears
in an amount equal to six quarterly dividends thereon, voting as a class,
irrespective of series, will have the right to elect, along with all other
classes of Preferred Stock as to which there exists a default period, two
directors. During the period of dividend arrearages the Company will be
prevented from declaring dividends on or making distributions to, or
repurchasing, redeeming, or otherwise acquiring, any stock ranking on parity
with or junior to the Participating Preferred.
Upon any liquidation, dissolution, or winding up of the Company, no
distribution will be made to the holders of shares of stock ranking junior to
the Participating Preferred unless, prior thereto, the holders of shares of
Participating Preferred have received an amount equal to $10.00, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (together for the Series A Preferred and
the Series B Preferred, the "Participating Preferred Liquidation Preference").
Following the payment of the full amount of the Participating Preferred
Liquidation Preference, no additional distributions will be made to the holders
of shares of Series A Preferred or Series B Preferred unless, prior thereto, the
holders of shares of Common Stock have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Participating
Preferred Liquida-
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<PAGE> 54
tion Preference by (ii) 1,000 (as appropriately adjusted). Following the payment
of the full amount of the Participating Preferred Liquidation Preference and the
Common Adjustment in respect of all outstanding shares of Participating
Preferred and Common Stock, respectively, holders of Participating Preferred and
holders of shares of Common Stock will receive their ratable and proportionate
share of the remaining assets to be distributed. As of the date of this
Prospectus, no shares of Preferred Stock are issued or outstanding.
REGISTRATION RIGHTS
Pursuant to a Stock Purchase Agreement dated August 20, 1992 between the
Company and MFLP (which Morton Meyerson, former Chairman of the Company,
controls), the Company sold to MFLP 8,000,000 shares of Class A Common Stock,
and in connection with such sale, granted MFLP "piggyback" registration rights
for such shares of Class A Common Stock. MFLP's "piggyback" registration rights
do not apply in this offering. These registration rights could arise in
connection with any other offering to the public under the Securities Act on
Form S-1, S-2, or S-3, or any successor registration form then in effect.
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in a "business
combination" with certain persons ("Interested Stockholders") for three years
following the time any such person becomes an Interested Stockholder unless (i)
before a person becomes an Interested Stockholder, the Board of Directors of the
corporation approved the transaction in which the Interested Stockholder became
an Interested Stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (iii) at or subsequent to the
time the person became an Interested Stockholder, the business combination is
approved by the Board of Directors of the corporation and authorized at a
regular or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not owned
by the Interested Stockholder.
In general, an Interested Stockholder means any person that (i) is the
beneficial owner of 15% or more of the outstanding voting stock of the
corporation or (ii) is an affiliate or associate of the corporation and was the
beneficial owner of 15% or more of the corporation's outstanding voting stock at
any time within three years before the date on which such person's status as an
Interested Stockholder is determined.
Subject to some exceptions, a business combination includes, among other
things, (i) mergers or consolidations, (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets having an aggregate market value
equal to 10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation, (iii) transactions that result in
the issuance or transfer by the corporation or any majority-owned subsidiary of
any stock of the corporation to the Interested Stockholder, except pursuant to
certain corporate distributions and issuances that do not increase the
Interested Stockholder's proportionate shareholding, (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the Interested Stockholder, or (v) any receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
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PROVISIONS RELATING TO CHANGE IN CONTROL
Stockholder Rights Plan
The Company's Board of Directors has authorized a Rights Agreement (the
"Rights Agreement") that provides one Class A right (a "Class A Right") will be
attached to each share of Class A Common Stock, and one Class B Right (a "Class
B Right" and, together with the Class A Rights, the "Rights") will be attached
to each share of Class B Common Stock as of January 7, 1999 (the "Record Date").
Each Right entitles the registered holder to purchase from the Company a unit (a
"Unit") consisting of one one-thousandth of a share of Participating Preferred
at a purchase price of $55.00 per Unit (the "Purchase Price"), subject to
adjustment. Each Class A Right entitles the registered holder to purchase Series
A Preferred and each Class B Right entitles the registered holder to purchase
Series B Preferred. The description and terms of the Rights are set forth in the
Rights Agreement between the Company and The Chase Manhattan Bank, as Rights
Agent (the "Rights Agent"). Initially, the Class A Rights will be attached to
all Class A Common Stock certificates representing shares outstanding as of the
Record Date and the Class B Rights will be attached to all Class B Common Stock
certificates representing shares outstanding as of the Record Date, and no
separate Rights Certificate will be distributed. The Rights will separate from
the Common Stock and a "Distribution Date" will occur upon the earlier of (i) 10
calendar days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common Stock or 20% or more of the outstanding shares of
Class A Common Stock (the date of announcement being the "Stock Acquisition
Date"), (ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 20% or
more of the outstanding shares of Common Stock or 20% or more of the outstanding
shares of Class A Common Stock, or (iii) the Board of Directors of the Company
determining that any person or persons have become the beneficial owner of an
amount of Common Stock that the board of directors determines to be substantial
(which amount will in no event be less than 11% of the shares of Common Stock or
Class A Common Stock outstanding) and that (a) such person or persons intend to
cause the Company to repurchase the Common Stock beneficially owned by such
person or persons or to exert pressure against the Company to take any action or
enter into any transaction or series of transactions with the intent or the
effect of providing such person or persons with short-term gains or profits
under circumstances in which the Board of Directors determines that the
long-term interests of the Company and its stockholders would not be served by
taking such action or entering into such transactions or series of transactions
or (b) beneficial ownership by such person or persons is reasonably likely to
have a material adverse effect on the business, competitive position, prospects,
business reputation, or financial condition of the Company and its subsidiaries
(an "Adverse Person").
Until the Distribution Date, (i) the Rights will be evidenced by the Common
Stock certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference; and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. The Rights Agreement provides that Ross Perot, and certain of his
successors and affiliates are excluded from the definition of Acquiring Person.
Mr. Perot and certain of his successors and affiliates are also excluded from
the definition of Adverse Person.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on January 7, 2009, unless earlier redeemed by the
Company as described below.
As soon as practicable after the Distribution Date, Rights certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock outstanding prior to the
Distribution Date will be issued with Rights.
In the event that (i) any person becomes an Acquiring Person or (ii) the
Board of Directors declares a person to be an Adverse Person, each holder of a
Class A Right will thereafter have the right to receive, upon exercise, Class A
Common Stock (or, in certain circumstances, cash, property, or other securities
of the Company) and each holder of a Class B Right will (subject to limitations
under United States banking laws)
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<PAGE> 56
thereafter have the right to receive, upon exercise, Class B Common Stock (or in
certain circumstances cash, property, or other securities of the Company),
having a value equal to two times the Exercise Price of the Right. The Exercise
Price is the Purchase Price times the number of shares of Common Stock
associated with each Right (initially, one). Notwithstanding any of the
foregoing, following the occurrence of either of the events set forth in this
paragraph (the "Flip-In Events"), all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person or any Adverse Person, or an Associate or Affiliate of any
Acquiring Person or Adverse Person, will be null and void.
For example, at an exercise price of $55.00 per Right, each Right not owned
by an Acquiring Person or an Adverse Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its holder
to purchase Common Stock with a value of $110.00 (or other consideration, as
noted above) for $55.00. Assuming that the Common Stock had a per share value of
$55.00 at such time, the holder of each valid Right would be entitled to
purchase two shares of Common Stock for $55.00.
In the event that following the Stock Acquisition Date or the date a person
becomes an Adverse Person, (i) the Company is acquired in a merger or
consolidation in which the Company is not the surviving corporation or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that have previously been voided as set forth
above) will thereafter have the right (a flip-over right) to receive, upon
exercise of the Right, Common Stock of the acquiring company having a value
equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above). With certain exceptions, no
adjustments in the Purchase Price will be required until cumulative adjustments
amount to at least 1% of the Purchase Price. No fractional units will be issued
and, in lieu thereof, an adjustment in cash will be made based on the market
price of the Preferred Stock on the last trading date prior to the date of
exercise.
The Board of Directors may redeem all of the Rights at a price of $0.001
per Right at any time prior to 10 days after the date that any person becomes an
Acquiring Person or an Adverse Person.
At any time after any person has become an Acquiring Person or an Adverse
Person (but before any person becomes the beneficial owner of 50% or more of the
Company's Common Stock), the Board of Directors may exchange all or part of the
Rights (other than the Rights beneficially owned by the Acquiring Person or
Adverse Person and certain affiliated persons) for shares of Common Stock at an
exchange ratio of one share of Common Stock per Right.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set
forth above.
For so long as the Rights are redeemable, the Rights Agreement may be
amended in any respect. At any time after the Rights are no longer redeemable,
the Rights Agreement may be amended by the Board of Directors and without the
approval of the holders of the Rights in any respect that does not (i) adversely
affect the Rights holders (other than any Acquiring Person or Adverse Person and
certain affiliated persons), (ii) cause the Rights Agreement again to become
amendable other than as described in this paragraph, or (iii) cause the Rights
again to become redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers.
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<PAGE> 57
Charter and Bylaw Provisions
The Company's Certificate of Incorporation and Bylaws contain provisions
that could have the effect of delaying, deterring, or preventing the acquisition
of control of the Company by means of tender offer, open market purchases, proxy
contest or otherwise. Set forth below is a description of those provisions.
Special Meetings of Stockholders. The Company's Bylaws provide that special
meetings of stockholders may be called only by the Chairman of the Board or the
President, or by the Chairman of the Board, President, or the Secretary at the
request in writing of a majority of the Board of Directors. Stockholders are not
permitted to call a special meeting or to require that the Board of Directors
call a special meeting unless authorized by the Board of Directors. The business
permitted to be conducted at such meetings is limited to that brought before the
meetings by or at the direction of the Board of Directors. This provision in the
Bylaws provides for the orderly conduct of all Company affairs at special
meetings of stockholders. Accordingly, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Board of Directors by
calling a special meeting of stockholders prior to the next annual meeting or
prior to such time that the Board of Directors believes such consideration to be
appropriate. This change limits a potential acquiror's ability to choose an
advantageous time to launch a takeover bid.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures for stockholder
proposals and the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election of directors. These
procedures provide that notice of stockholder proposals and stockholder
nominations for the election of directors at an annual meeting must be in
writing and received by the Secretary of the Company no less than 60 days nor
more than 90 days prior to the annual meeting; provided, however, that in the
event that less than 70 days' notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by a stockholder, to
be timely, must be received no later than the close of business on the tenth day
following the date on which such notice of the date of the annual meeting was
made or such public disclosure was made, whichever first occurs. The notice of
stockholder nominations must set forth certain information with respect to each
nominee who is not an incumbent director. Other stockholder proposals must also
set forth certain information about such proposal and about the stockholder who
proposes to bring the proposal before the meeting. These Bylaw provisions do not
give the Board of Directors any power to approve or disapprove stockholder
nominees for director or stockholder proposals. These provisions may have the
effect of (i) precluding or obstructing the inclusion of stockholder proposals
or stockholder nominees for director by requiring stockholders to act well in
advance of a particular meeting and to comply with specific procedures in order
to submit such proposals or nominees at that meeting and (ii) discouraging a
stockholder from soliciting proxies to elect its own slate of directors or
otherwise attempting to obtain control of the Company through shareholder
action, even if such proxy solicitation or attempt might be beneficial to the
Company and its stockholders.
No Action by Stockholder Consent. The Company's Certificate of
Incorporation and Bylaws provide that actions required or permitted to be taken
at any annual or special meeting of the stockholders may, unless authorized by
the Board of Directors, be taken only upon the vote of the stockholders at a
meeting duly called and may not be taken by written consent of the stockholders.
This provision increases the opportunity of all stockholders to participate in
voting on any proposed action and prevents the holders of the requisite voting
power of the Company from using the written consent procedure to take
stockholder action without a meeting. This provision eliminates the ability of
the Company's stockholders to act by written consent in lieu of a meeting
without the approval of the Board of Directors. This provision may effectively
deter or delay certain actions by a person or a group acquiring a substantial
percentage of the Company's stock, even though such actions might be desired by,
or be beneficial to, the holders of a majority of the Company's stock.
Supermajority Vote Required for Certain Actions. Any amendment to the
Certificate of Incorporation, merger or consolidation, sale, lease or exchange
of all or substantially all of the Company's property and assets or voluntary
dissolution of the Company that requires approval by the Company's stockholders
under Delaware law must be approved by the affirmative vote of the holders of at
least 66 2/3% of the outstanding
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stock of the Company entitled to vote thereon, and at least 66 2/3% of the
outstanding stock of each class entitled to vote thereon as a class.
Amendments to the Bylaws. The Bylaws require the affirmative vote of 80% of
the outstanding shares of Common Stock entitled to vote to adopt, amend, or
repeal the Bylaws. This super-majority vote requirement promotes stability for
the Company's internal operating procedures, thereby helping the Company to
attain its long term goals and manage its corporate affairs. This provision
makes it more difficult for stockholders to change the internal operating
procedures of the Company, which may further discourage potentially unfriendly
bids for shares of the Company.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services has been appointed as the transfer agent
and registrar for the Common Stock.
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<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
There was no public market for the Common Stock before this offering.
Future sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock. After this offering is completed, the number
of shares available for future sale into the public markets will be restricted
by legal and contractual restrictions, certain of which are described below. The
lapsing of these restrictions will permit sales of substantial amounts of Common
Stock in the public market or could create the perception that such sales could
occur, which could adversely affect the prevailing market price for the Common
Stock.
As of December 31, 1998, (i) approximately 77,134,590 shares of Class A
Common Stock were issued and outstanding; (ii) 39,402,482 shares of Class A
Common Stock were subject to issuance on exercise of outstanding options; (iii)
934,320 shares of Class B Common Stock were issued and outstanding; and (iv)
6,400,000 shares of Class B Common Stock were subject to issuance on exercise of
outstanding options. Subsequent to December 31, 1998, the Company granted
associates options to purchase 1,825,250 shares of Class A Common Stock with an
exercise price of $11.00 per share. Each share of Class B Common Stock is
convertible into one share Class A Common Stock for purposes of sale of such
share of Class B Common Stock. See "Description of Capital Stock -- Class B
Common Stock." The ability of the holders of options to sell or otherwise
transfer shares of Common Stock is subject to restrictions under their option
agreements.
The 5,500,000 shares of Class A Common Stock being offered by this
Prospectus may be freely sold in the public market without restriction under the
Securities Act, except for shares purchased by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act. The remaining shares of
Common Stock may be resold after termination of certain contractual
restrictions, in transactions exempt from the registration requirements of the
Securities Act (pursuant to Rule 144 or Rule 701 under the Securities Act or
otherwise) or pursuant to a registration statement filed under the Securities
Act covering the sale of such securities. In connection with this offering, all
holders of registration rights have agreed not to exercise such rights until at
least 180 days after the date of this Prospectus.
Stockholders holding more than approximately 90% of the outstanding Common
Stock and currently exercisable options to purchase Common Stock have executed
lock-up agreements (the "Lock-Up Agreements") that limit their ability to sell
Common Stock. The Lock-Up Agreements provide that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, and
the Company, the persons executing the Lock-Up Agreements will not, until at
least 180 days after the date of this Prospectus, transfer or sell any shares of
Common Stock covered thereby, and, in a substantial majority of cases, that they
will not (i) offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise for a period ending 180
days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated and the Company. The foregoing restrictions do
not apply to (a) transfers of shares of Common Stock or other securities
acquired in open market transactions after the completion of this offering or
(b) the sale to the Company of a number of shares necessary to satisfy any
obligation to pay or to withhold taxes that arises as the result of the exercise
of any option to purchase shares granted pursuant to the Company's 1991 Stock
Option Plan. In certain cases, the Lock-Up Agreements also restrict the transfer
of shares of Common Stock following such 180 day period without the consent of
the Company for certain periods of time.
Rule 144 under the Securities Act is a non-exclusive exemption from the
registration requirements of the Securities Act. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated), who has
beneficially owned "restricted securities" for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the number of shares of Common stock then
outstanding (which will equal approximately 826,345 shares immediately after
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<PAGE> 60
this offering) or (ii) the average weekly trading volume of the Common stock on
the New York Stock Exchange during the four calendar weeks preceding the filing
of a notice on form 144 with respect to such sale with the Commission. Sales
under Rule 144 are also subject to certain other requirements regarding the
manner of sale, notice, and availability of current public information about the
Company.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation, or notice provisions of Rule 144. The holding
periods referred to above do not commence to run until the full purchase price
for the Common Stock has been paid in full to the Company.
Subject to the Lock-Up Agreements and the contractual restrictions set
forth in the agreements granting stock options or restricted stock, the Company
believes that substantially all outstanding shares of Common Stock held by
persons other than HWGA may be freely sold without regard to the volume
limitations and other requirements regarding manner of sale, notice, and
availability of public information.
The Company has filed and the Commission has declared effective
registration statements on Form S-8 covering all shares of Common Stock issued
or issuable since June 30, 1997 under the terms of the Company's 1991 Stock
Option Plan, Restricted Stock Plan, 1996 Advisor and Consultant Stock
Option/Restricted Stock Incentive Plan, the Advisor Stock Option/Restricted
Stock Incentive Plan and the 1999 Employee Stock Purchase Plan and 800,000
shares of Common Stock that are issuable pursuant to the 1996 Non-Employee
Director Stock Option/Restricted Stock Incentive Plan. Subject to the terms of
the Lock-Up Agreements and the terms of the options granted under these plans,
the shares of Common Stock registered on this registration statement may,
subject to the Rule 144 volume limitations described above applicable to
affiliates of the Company, be resold in the public market without restriction.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal
income and estate tax considerations with respect to the ownership and
disposition of Common Stock applicable to Non-U.S. Holders. In general, a
"Non-U.S. Holder" is any holder other than (i) a citizen or resident of the
United States; (ii) a corporation created or organized in the United States or
under the laws of the United States or of any state; (iii) an estate, the income
of which is includable in gross income for United States federal income tax
purposes regardless of its source; or (iv) a trust if (a) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (b) one or more United States persons have the authority to
control all substantial decisions of the trust. This discussion is based on
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations promulgated thereunder, judicial opinions,
published positions of the Internal Revenue Service (the "IRS"), and all other
applicable authorities, all of which are subject to change (possibly with
retroactive effect). This discussion does not address all aspects of income and
estate taxation or any aspects of state, local, or non-United States taxes, nor
does it consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder that may be subject to special treatment under the
United States federal income tax laws (such as insurance companies, tax-exempt
organizations, financial institutions, brokers, dealers in securities, and
certain U.S. expatriates). ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL,
AND NON-UNITED STATES INCOME AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING,
AND DISPOSING OF SHARES OF COMMON STOCK.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are
effectively connected with a trade or business carried on by the Non-U.S. Holder
within the United States.
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Dividends effectively connected with such a United States trade or business
generally will not be subject to United States withholding tax if the Non-U.S.
Holder files certain forms, including IRS Form 4224 (or any successor form),
with the payor of the dividend, and generally will be subject to United States
federal income tax on a net income basis, in the same manner as if the Non-U.S.
Holder were a resident of the United States. A Non-U.S. Holder that is a
corporation may be subject to an additional branch profits tax at a rate of 30%
(or such lower rate as may be specified by an applicable income tax treaty) on
the repatriation from the United States of its "effectively connected earnings
and profits," subject to certain adjustments. To determine the applicability of
a tax treaty providing for a lower rate of withholding under the currently
effective Treasury Regulations (the "Current Regulations") and published IRS
positions, dividends paid to an address in a foreign country are presumed to be
paid to a resident of that country absent knowledge to the contrary. Under
Treasury Regulations issued on October 6, 1997 (the "Final Regulations"),
generally effective for payments made after December 31, 1999, a Non-U.S. Holder
(including, in certain cases of Non-U.S. Holders that are entities, the owner or
owners of such entities) will be required to satisfy certain certification
requirements in order to claim a reduced rate of withholding pursuant to an
applicable income tax treaty.
GAIN OR SALE OR OTHER DISPOSITION OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless (i) the gain is effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States (in which case the branch profits tax discussed above may also apply if
the Non-U.S. Holder is a corporation); (ii) the Non-U.S. Holder is an individual
who holds shares of Common Stock as a capital asset and is present in the United
States for 183 days or more in the taxable year of disposition and certain other
tests are met; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the Code regarding the taxation of U.S. expatriates or (iv) the
Company is or has been a United States real property holding corporation (a
"USRPHC") for United States Federal income tax purposes (which the Company does
not believe that it has been, currently is, or will become) at any time within
the shorter of the five-year period preceding such disposition and such Non-U.S.
Holder's holding period. If the Company were or were to become a USRPHC at any
time during this period, gains realized upon a disposition of Common Stock by a
Non-U.S. Holder that did not directly or indirectly own more than 5% of the
Common Stock during this period generally would not be subject to United States
Federal income tax, provided that the Common Stock is "regularly traded on an
established securities market (within the meaning of Section 897(c)(3) of the
Code)."
ESTATE TAX
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States Federal estate tax purposes)
of the United States at the time of death will be includable in the individual's
gross estate for United States Federal estate tax purposes unless an applicable
estate tax treaty provides otherwise, and therefore may be subject to United
States Federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING, AND OTHER REPORTING REQUIREMENTS
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.
Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that fail
to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than those
discussed above under "Dividends") generally will not apply to dividends paid on
Common Stock to a Non-U.S. holder at an address outside the United States.
Backup withholding and information reporting generally will apply, however, to
dividends paid on shares of Common Stock to a Non-U.S. Holder at an
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address in the United States, if such holder fails to establish an exemption or
to provide certain other information to the payor.
Under the Current Regulations, the payment of proceeds from the disposition
of Common Stock to or through a United States office of a broker will be subject
to information reporting and backup withholding unless the beneficial owner,
under penalties of perjury, certifies, among other things, its status as a Non-
U.S. Holder or otherwise establishes an exemption. The payment of proceeds from
the disposition of Common Stock to or through a non-U.S. office of a broker
generally will not be subject to backup withholding and information reporting
except as noted below. In the case of proceeds from a disposition of Common
Stock paid to or through a non-U.S. office of a broker that is (i) a United
States person; (ii) a "controlled foreign corporation" for United States Federal
income tax purposes; or (iii) a foreign person 50% or more of whose gross income
from certain periods is effectively connected with a United States trade or
business, information reporting (but not backup withholding) will apply unless
the broker has documentary evidence in its files that the owner is a Non-U.S.
Holder and certain other conditions are satisfied, or the beneficial owner
otherwise establishes an exemption, (and the broker has no actual knowledge to
the contrary).
Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Common Stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless such recipient
satisfies applicable certification requirements or otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded or
credited against the Non-U.S. Holder's United States Federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service in a timely manner.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Warburg Dillon Read LLC, a
subsidiary of UBS AG, Bear, Stearns & Co. Inc., and Hambrecht & Quist LLC are
acting as U.S. Representatives, and the International Underwriters named below
for whom Warburg Dillon Read, a division of UBS AG, Morgan Stanley & Co.
International Limited, Merrill Lynch International, Bear, Stearns International
Limited, and Hambrecht & Quist LLC are acting as International Representatives,
have severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Class A Common Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
Warburg Dillon Read LLC, a subsidiary of UBS AG...........
Bear, Stearns & Co. Inc...................................
Hambrecht & Quist LLC.....................................
---------
Subtotal............................................... 4,400,000
---------
International Underwriters:
Warburg Dillon Read, a division of UBS AG.................
Morgan Stanley & Co. International Limited................
Merrill Lynch International...............................
Bear, Stearns International Limited.......................
Hambrecht & Quist LLC.....................................
---------
Subtotal............................................... 1,100,000
---------
Total............................................. 5,500,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Class A Common Stock offered
hereby are subject to the approval of certain legal matters by their counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all of the shares of Class A Common Stock offered hereby (other than those
covered by the U.S. Underwriters' over-allotment option described below) if any
such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any Prospectus relating to the Shares outside the United
States or Canada or to anyone other than United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States
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or Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and (ii)
made by it in its capacity as an International Underwriter apply only to it in
its capacity as an International Underwriter. The foregoing limitations do not
apply to stabilization transactions or to certain other transactions specified
in the Agreement between U.S. and International Underwriters. As used herein,
"United States or Canadian Person" means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Class A Common Stock to be purchased by
the Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a Prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a Prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that,
62
<PAGE> 65
by purchasing such Shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of such Shares, directly or
indirectly, in Japan or to or for the account of any resident thereof except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law, and that such dealer will send to any other dealer to whom it
sells any of such Shares a notice containing substantially the same statement as
is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain other dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
825,000 additional shares of Class A Common Stock at the public offering price
set forth on the cover page hereof, less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of Class A Common Stock offered hereby. To the extent such option is
exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Class A Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Class A Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
The Company has applied for the listing of the Class A Common Stock on the
New York Stock Exchange under the symbol "PER."
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 330,000 shares of the Class A Common
Stock for directors, officers, employees, business associates, and related
persons of the Company. The number of shares of Class A Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares that are not so purchased
will be offered by the Underwriters to the general public on the same basis as
the other shares offered hereby.
Each of the Company and the directors, executive officers and certain other
stockholders of the Company, representing in the aggregate approximately 90% of
the outstanding shares and options, has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, and
the Company, it will not, during the period ending 180 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Class A Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Class A Common Stock or such other securities, in cash
or otherwise. The restrictions described in this paragraph do not apply to (A)
the sale of the Shares to the Underwriters, (B) the issuance by the Company of
shares of Class A Common Stock upon the exercise of an option or a warrant or
the conversion of a security outstanding on the date of this Prospectus of which
the Underwriters have been advised in writing, (C) shares of Common Stock or
options to purchase Common Stock that may be issued or granted from time to time
by the Company pursuant to the Plans or the 1999 Employee Stock Purchase Plan,
(D) shares of Common Stock or options to purchase Common Stock that may be
issued by the Company in connection with a merger or the acquisition by the
Company of the capital stock or assets of another entity, provided that the
recipient of such shares of Common
63
<PAGE> 66
Stock or options to purchase Common Stock shall have agreed to restrictions on
transfer substantially similar to the foregoing, or (E) transactions by any
person other than the Company relating to shares of Class A Common Stock or
other securities acquired in open market transactions after the completion of
the offering of the Shares or the sale to the Company of a number of shares
necessary to satisfy any obligation to pay or to withhold taxes that arises as
the result of the exercise of any option to purchase shares granted pursuant to
the Company's 1991 Stock Option Plan. See "Shares Eligible for Future Sale."
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters may
over-allot in connection with the offering, creating a short position in the
Class A Common Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an Underwriter or a dealer for distributing the Class A Common Stock
in the offering, if the syndicate repurchases previously distributed Class A
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Class A Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Warburg Dillon Read LLC is a subsidiary of UBS AG, the Company's largest
customer. See "Business -- UBS Agreements."
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the U.S. Representatives. Among the factors
to be considered in determining the initial public offering price will be the
future prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the Class A Common Stock will be passed upon for the
Company by Hughes & Luce, L.L.P., Dallas, Texas. A partner in Hughes & Luce,
L.L.P. is the beneficial owner of 407,552 shares of Class A Common Stock.
Certain legal matters relating to the offering of Class A Common Stock will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of Perot Systems Corporation and
Subsidiaries as of September 30, 1998, December 31, 1997 and 1996 and for the
nine months ended September 30, 1998 and each of the three years in the period
ended December 31, 1997 included in this Prospectus and the Registration
Statement, have been included herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
64
<PAGE> 67
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Class A Common Stock offered hereby. This Prospectus, which
constitutes part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement or the exhibits and
schedules thereto, certain portions having been omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus
concerning the contents of any contract, agreement, or other document referred
to herein are not necessarily complete. With respect to each such contract,
agreement, or other document filed with the Commission as an exhibit to the
Registration Statement, reference is hereby made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. The Registration Statement and such reports and
other information may be inspected without charge at the Public Reference Room
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549, at prescribed rates. Information on the operation of the Public Reference
Room is available by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains an Internet site where the Registration Statement and other
information filed with the Commission may be retrieved, and the address of such
site is http://www.sec.gov. Statements made in this Prospectus concerning the
contents of any document referred to herein are not necessarily complete.
65
<PAGE> 68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index....................................................... F-1
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of September 30, 1998 and F-3
December 31, 1997 and 1996................................
Consolidated Statements of Operations for the nine months F-4
ended September 30, 1998 and 1997 (unaudited) and for the
years ended December 31, 1997, 1996 and 1995..............
Consolidated Statements of Changes in Stockholders' Equity F-5
for the nine months ended September 30, 1998 and for the
years ended December 31, 1997, 1996 and 1995..............
Consolidated Statements of Cash Flows for the nine months F-7
ended September 30, 1998 and 1997 (unaudited) and for the
years ended December 31, 1997, 1996 and 1995..............
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
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 September 30, 1998
and December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the nine months
ended September 30, 1998 and 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 September 30, 1998 and December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the nine months ended September 30, 1998 and each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
December 18, 1998
(except for Note 18
as to which the date is January 7, 1999)
F-2
<PAGE> 70
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $102,153 $ 35,298 $ 27,516
Accounts receivable, net................................. 161,682 105,230 113,804
Prepaid expenses and other............................... 17,656 12,578 9,450
Deferred income taxes.................................... 35,663 24,962 25,935
-------- -------- --------
Total current assets............................. 317,154 178,068 176,705
Property, equipment and purchased software, net............ 39,974 50,703 35,748
Goodwill, net.............................................. 7,240 16,596 7,293
Deferred income taxes...................................... 12,221 10,269 4,531
Other assets............................................... 13,946 11,467 7,970
-------- -------- --------
Total assets..................................... $390,535 $267,103 $232,247
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities on capital lease obligations and
long-term debt........................................ $ 1,122 $ 1,367 $ 2,377
Accounts payable......................................... 55,620 35,760 43,711
Income taxes payable..................................... 26,541 10,287 13,039
Accrued liabilities...................................... 107,024 76,040 53,343
Deferred revenue......................................... 13,732 23,258 22,003
Accrued compensation..................................... 54,306 23,449 20,240
-------- -------- --------
Total current liabilities........................ 258,345 170,161 154,713
Capital lease obligations and long-term debt, less current
maturities............................................... 1,093 1,532 2,796
Other long-term liabilities................................ 1,917 2,094 3,976
-------- -------- --------
Total liabilities................................ 261,355 173,787 161,485
-------- -------- --------
Commitments and contingencies
Stockholders' equity:
Class A Common Stock; par value $.01; authorized
200,000,000 shares; outstanding 76,894,554, 76,455,414
and 79,247,696 shares, at September 30, 1998, December
31, 1997 and 1996, respectively....................... 811 811 792
Class B Convertible Common Stock; par value $.01;
authorized 24,000,000 shares; issued and outstanding
934,320 shares at September 30, 1998, 100,000 shares
at December 31, 1997, and 0 shares at December 31,
1996.................................................. 9 1 --
Additional paid-in capital............................... 71,155 61,140 51,065
Other stockholders' equity............................... 56,064 32,158 17,896
Accumulated other comprehensive income................... 1,141 (794) 1,009
-------- -------- --------
Total stockholders' equity....................... 129,180 93,316 70,762
-------- -------- --------
Total liabilities and stockholders' equity....... $390,535 $267,103 $232,247
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 71
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ------------------------------
1998 1997 1997 1996 1995
-------- ----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................................. $724,185 $556,867 $781,621 $599,438 $342,306
Costs and expenses:
Direct cost of services............... 575,083 437,688 636,296 461,192 268,553
Selling, general and administrative
expenses........................... 103,114 95,911 125,732 92,997 52,891
Goodwill impairment................... 3,845 -- -- -- --
Purchased research and development.... -- 2,000 2,000 3,948 --
-------- -------- -------- -------- --------
Operating income........................ 42,143 21,268 17,593 41,301 20,862
Interest income......................... 2,985 1,312 1,916 1,540 1,988
Interest expense........................ (184) (953) (1,282) (770) (650)
Equity in earnings/(losses) of
unconsolidated affiliates............. 4,199 716 4,136 (312) --
Write-down of nonmarketable equity
securities............................ -- -- (3,900) -- --
Other income/(expense).................. 2,742 1,324 1,045 (1,608) (1,950)
-------- -------- -------- -------- --------
Income before taxes..................... 51,885 23,667 19,508 40,151 20,250
Provision for income taxes.............. 23,690 10,058 8,291 19,652 9,437
-------- -------- -------- -------- --------
Net income.............................. $ 28,195 $ 13,609 $ 11,217 $ 20,499 $ 10,813
======== ======== ======== ======== ========
Basic and diluted earnings per common
share:
Basic earnings per common share....... $ 0.37 $ 0.17 $ 0.14 $ 0.27 $ 0.17
Weighted average common shares
outstanding........................ 76,674 78,920 78,336 74,110 62,302
Diluted earnings per common share..... $ 0.29 $ 0.14 $ 0.12 $ 0.24 $ 0.16
Weighted average diluted common shares
outstanding........................ 96,910 96,560 95,192 84,342 66,732
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 72
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
LIQUIDATION
PREFERENCE CLASS A AND B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- ----------- ------ ---------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................. 4,000,000 $9,888 32,000,000 $ 320 30,112,160 $301 $26,024
Issuance of Class A shares under incentive
plans.................................... -- -- -- -- 1,683,808 17 3,257
Exercise of stock options for Class A
shares................................... -- -- -- -- 4,017,960 40 (20)
Class A shares repurchased................ -- -- -- -- -- -- --
Deferred compensation, net of
amortization............................. -- -- -- -- -- -- 1,500
Dividends paid and accrued................ -- (942) -- -- -- -- --
Note repayments........................... -- -- -- -- -- -- --
Net income................................ -- -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- -- -- -- -- -- --
Comprehensive income......................
---------- ------- ----------- ----- ---------- ---- -------
Balance, December 31, 1995................ 4,000,000 $8,946 32,000,000 $ 320 35,813,928 $358 $30,761
Issuance of Class A shares for business
acquired................................. -- -- -- -- 2,920,744 29 6,516
Issuance of Class A shares under incentive
plans.................................... -- -- -- -- 5,285,248 53 6,494
Exercise of stock options for Class A
shares................................... -- -- -- -- 3,227,776 32 1,149
Class A shares repurchased................ (4,000,000) (8,500) -- -- -- -- --
Shares converted to Class A Common........ -- -- (32,000,000) (320) 32,000,000 320 --
Amortization of deferred compensation..... -- -- -- -- -- -- --
Options issued for contract
rights................................... -- -- -- -- -- -- 4,544
Amortization of contract rights........... -- -- -- -- -- -- --
Dividends paid and accrued................ -- (446) -- -- -- -- --
Note repayments........................... -- -- -- -- -- -- --
Equity investment......................... -- -- -- -- -- -- 706
Tax benefit of employee options
exercised................................ -- -- -- -- -- -- 895
Net income................................ -- -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- -- -- -- -- -- --
Comprehensive income......................
---------- ------- ----------- ----- ---------- ---- -------
Balance, December 31, 1996................ -- -- -- -- 79,247,696 $792 $51,065
Issuance of Class A shares for business
acquired................................. -- -- -- -- 740,000 8 2,693
Issuance of options for business
acquired................................. -- -- -- -- -- -- 1,500
Issuance of Class A shares under incentive
plans.................................... -- -- -- -- 1,026,942 11 1,930
Exercise of stock options for Class A
shares................................... -- -- -- -- 35,000 -- (350)
<CAPTION>
ACCUMULATED NOTES
OTHER TREASURY STOCK RECEIVABLE
RETAINED COMPREHENSIVE ------------------- FROM CONTRACT DEFERRED
EARNINGS INCOME SHARES AMOUNT STOCKHOLDERS RIGHTS COMPENSATION
-------- ------------- --------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................. $(2,440) $ (221) (914,928) $ (317) $ (887) -- --
Issuance of Class A shares under incentive
plans.................................... -- -- 1,201,808 397 (901) -- --
Exercise of stock options for Class A
shares................................... -- -- 19,120 14 (2,000) -- --
Class A shares repurchased................ -- -- (306,000) (94) -- -- --
Deferred compensation, net of
amortization............................. -- -- -- -- -- -- (1,456)
Dividends paid and accrued................ (595) -- -- -- -- -- --
Note repayments........................... -- -- -- -- 130 -- --
Net income................................ 10,813 -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- 49 -- -- -- -- --
Comprehensive income......................
------- ------- --------- ------- ------- ------- -------
Balance, December 31, 1995................ $ 7,778 $ (172) -- -- $(3,658) -- $(1,456)
Issuance of Class A shares for business
acquired................................. -- -- -- -- -- --
Issuance of Class A shares under incentive
plans.................................... -- -- -- (3,065) -- --
Exercise of stock options for Class A
shares................................... -- -- 408,660 313 -- -- --
Class A shares repurchased................ -- -- (408,660) (313) 225 -- --
Shares converted to Class A Common........ -- -- -- -- -- -- --
Amortization of deferred compensation..... -- -- -- -- -- -- 150
Options issued for contract
rights................................... -- -- -- -- -- (4,544) --
Amortization of contract rights........... -- -- -- -- -- 202 --
Dividends paid and accrued................ (447) -- -- -- -- -- --
Note repayments........................... -- -- -- -- 2,212 -- --
Equity investment......................... -- -- -- -- -- -- --
Tax benefit of employee options
exercised................................ -- -- -- -- -- -- --
Net income................................ 20,499 -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- 1,181 -- -- -- -- --
Comprehensive income......................
------- ------- --------- ------- ------- ------- -------
Balance, December 31, 1996................ $27,830 $ 1,009 -- -- $(4,286) $(4,342) $(1,306)
Issuance of Class A shares for business
acquired................................. -- -- -- -- -- -- --
Issuance of options for business
acquired................................. -- -- -- -- -- -- --
Issuance of Class A shares under incentive
plans.................................... -- -- 210,000 263 (1,427) -- --
Exercise of stock options for Class A
shares................................... -- -- 1,274,040 1,215 (39) -- --
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1995.................. $ 32,668
Issuance of Class A shares under incentive
plans.................................... 2,770
Exercise of stock options for Class A
shares................................... (1,966)
Class A shares repurchased................ (94)
Deferred compensation, net of
amortization............................. 44
Dividends paid and accrued................ (1,537)
Note repayments........................... 130
Net income................................ 10,813
Other comprehensive income, net of tax
Translation adjustment................... 49
--------
Comprehensive income...................... 10,862
--------
Balance, December 31, 1995................ $ 42,877
Issuance of Class A shares for business
acquired................................. 6,545
Issuance of Class A shares under incentive
plans.................................... 3,482
Exercise of stock options for Class A
shares................................... 1,494
Class A shares repurchased................ (8,588)
Shares converted to Class A Common........ --
Amortization of deferred compensation..... 150
Options issued for contract
rights................................... --
Amortization of contract rights........... 202
Dividends paid and accrued................ (893)
Note repayments........................... 2,212
Equity investment......................... 706
Tax benefit of employee options
exercised................................ 895
Net income................................ 20,499
Other comprehensive income, net of tax
Translation adjustment................... 1,181
--------
Comprehensive income...................... 21,680
--------
Balance, December 31, 1996................ $ 70,762
Issuance of Class A shares for business
acquired................................. 2,701
Issuance of options for business
acquired................................. 1,500
Issuance of Class A shares under incentive
plans.................................... 777
Exercise of stock options for Class A
shares................................... 826
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 73
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
LIQUIDATION PREFERENCE CLASS A AND B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ---------------------- ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------- ------- ------------ ------- ---------- ------ --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares
repurchased.............. -- -- -- -- -- -- -- --
Sale of Class B stock and
options to UBS AG........ -- -- -- -- 100,000 1 8,502 --
Amortization of deferred
compensation............. -- -- -- -- -- -- -- --
Reversal of deferred
compensation............. -- -- -- -- -- -- (1,050) --
Amortization of contract
rights................... -- -- -- -- -- -- -- --
Elimination of contract
rights................... -- -- -- -- -- -- (4,146) --
Note repayments and
other.................... -- -- -- -- -- -- (125) --
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,121 --
Net income................. -- -- -- -- -- -- -- 11,217
Other comprehensive income,
net of tax
Translation adjustment... -- -- -- -- -- -- -- --
Comprehensive income.......
---------- ------- ----------- ----- ---------- ---- ------- -------
Balance, December 31,
1997..................... -- -- -- -- 81,149,638 $812 $61,140 $39,047
Issuance of Class A shares
under incentive plans.... -- -- -- -- 5,004 -- 216 --
Exercise of stock options
for Class A shares....... -- -- -- -- -- -- 186 --
Exercise of stock options
for Class B shares....... -- -- -- -- 834,320 8 3,037 --
Class A shares
repurchased.............. -- -- -- -- -- -- -- --
Note repayments and
other.................... -- -- -- -- -- -- 573 --
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,976 --
Deferred compensation, net
of amortization.......... -- -- -- -- -- -- 4,027 --
Net income................. -- -- -- -- -- -- -- 28,195
Other comprehensive income,
net of tax
Translation adjustment... -- -- -- -- -- -- -- --
Comprehensive income.......
---------- ------- ----------- ----- ---------- ---- ------- -------
Balance, September 30,
1998..................... -- -- -- -- 81,988,962 $820 $71,155 $67,242
========== ======= =========== ===== ========== ==== ======= =======
<CAPTION>
ACCUMULATED NOTES
OTHER TREASURY STOCK RECEIVABLE TOTAL
COMPREHENSIVE -------------------- FROM CONTRACT DEFERRED STOCKHOLDERS'
INCOME SHARES AMOUNT STOCKHOLDERS RIGHTS COMPENSATION EQUITY
------------- ---------- ------- ------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A shares
repurchased.............. -- (6,078,264) (5,344) 2,603 -- -- (2,741)
Sale of Class B stock and
options to UBS AG........ -- -- -- -- -- -- 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.................... -- -- (84) 210 -- -- 1
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,121
Net income................. -- -- -- -- -- -- 11,217
Other comprehensive income,
net of tax
Translation adjustment... (1,803) -- -- -- -- -- (1,803)
--------
Comprehensive income....... 9,414
------- ---------- ------- ------- ------- ------- --------
Balance, December 31,
1997..................... $ (794) (4,594,224) $(3,950) $(2,939) -- -- $ 93,316
Issuance of Class A shares
under incentive plans.... -- 80,000 54 -- -- -- 270
Exercise of stock options
for Class A shares....... -- 2,047,338 1,638 (57) -- -- 1,767
Exercise of stock options
for Class B shares....... -- -- -- -- -- -- 3,045
Class A shares
repurchased.............. -- (1,693,202) (3,399) 1,075 -- -- (2,324)
Note repayments and
other.................... -- -- 11 145 -- -- 729
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,976
Deferred compensation, net
of amortization.......... -- -- -- -- -- (3,756) 271
Net income................. -- -- -- -- -- -- 28,195
Other comprehensive income,
net of tax
Translation adjustment... 1,935 -- -- -- -- -- 1,935
--------
Comprehensive income....... 30,130
------- ---------- ------- ------- ------- ------- --------
Balance, September 30,
1998..................... $ 1,141 (4,160,088) $(5,646) $(1,776) -- $(3,756) $129,180
======= ========== ======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 74
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ------------------------------
1998 1997 1997 1996 1995
-------- ----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 28,195 $ 13,609 $ 11,217 $ 20,499 $ 10,813
-------- -------- -------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 29,440 24,779 35,363 18,715 14,083
Write-off of purchased research and development......... -- 2,000 2,000 3,948 --
Write-off or impairment of software..................... 425 -- -- 4,156 --
Write-off of intellectual property rights............... 853 -- 3,623 -- --
Loss/(gain) on nonmarketable equity securities.......... (2,986) -- 3,900 -- --
Loss on sale of business................................ 291 -- -- -- --
Equity in (earnings)/losses of unconsolidated
affiliates............................................ (4,199) (796) (4,136) 312 --
Change in deferred income taxes......................... (10,299) 4,045 (10,423) (16,044) (3,598)
Loss/(gain) on sale of property, equipment and
software.............................................. 802 (74) 455 860 (47)
Changes in assets and liabilities (net of effects from
acquisition of businesses):
Accounts receivable................................... (56,522) (6,657) 16,039 (43,184) (33,263)
Prepaid expenses...................................... (5,085) (5,093) (3,010) (4,037) 6,760
Other assets.......................................... (687) (1,928) 5,843 (837) (4,578)
Accounts payable and accrued liabilities.............. 48,676 12,764 13,244 39,401 17,790
Income taxes payable.................................. 15,467 (9,377) (3,550) 7,998 6,873
Deferred revenue...................................... (9,537) (6,999) 372 15,388 (4,685)
Accrued compensation.................................. 30,361 (8,058) 3,295 9,852 7,155
Other long-term liabilities........................... (104) (2,428) (3,260) (3,095) 6,746
-------- -------- -------- -------- --------
Total adjustments................................... 36,896 2,178 59,755 33,433 13,236
-------- -------- -------- -------- --------
Net cash provided by operating activities........... 65,091 15,787 70,972 53,932 24,049
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property, equipment and software.............. (18,884) (33,916) (46,054) (27,534) (18,342)
Proceeds from sale of property, equipment and software.... 7,567 538 2,366 713 5,975
Proceeds from sale of nonmarketable equity securities..... 5,162 -- -- -- --
Proceeds from sale of business............................ 893 -- -- -- --
Investments in and advances to minority interests......... 446 (3,592) (2,891) (5,536) --
Acquisition of intellectual property rights............... -- (6,322) (5,623) -- --
Acquisition of businesses, net of cash acquired of $650 at
September 30, 1997 and $665 and $149 at December 31,
1997 and 1996, respectively............................. -- (13,334) (13,721) (9,520) --
-------- -------- -------- -------- --------
Net cash used in investing activities............... (4,816) (56,626) (65,923) (41,877) (12,367)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Principal payments on debt and capital lease
obligations............................................. (701) (3,182) (3,725) (2,162) (2,896)
Proceeds from short-term borrowings....................... -- 25,000 -- -- --
Proceeds from issuance of common stock.................... 3,045 381 381 4,686 528
Proceeds from sale of stock options....................... -- 8,139 8,139 -- --
Repayment of stockholder notes receivable................. 184 248 266 2,212 130
Proceeds from issuance of treasury stock.................. 2,926 794 1,125 197 273
Purchase of treasury stock................................ (950) (1,825) (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........................................ 4,504 29,555 4,352 (4,548) (3,596)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 2,076 (3,198) (1,619) 2,652 28
-------- -------- -------- -------- --------
Net increase/(decrease) in cash and cash equivalents........ 66,855 (14,482) 7,782 10,159 8,114
Cash and cash equivalents at beginning of period............ 35,298 27,516 27,516 17,357 9,243
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $102,153 $ 13,034 $ 35,298 $ 27,516 $ 17,357
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 75
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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 and on December 19, 1995, the Company reincorporated
in the state of Delaware. The Company provides industry-specific business
solutions and information technology services to clients on a worldwide basis.
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.
Interim financial information
The consolidated financial statements and following notes, insofar as they
are applicable to the nine-months ended September 30, 1997, are not covered by
the Report of Independent Accountants. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the September 30, 1997 interim period presented have been made.
Operating results for the nine months ended September 30, 1998, are not
necessarily indicative of the results for the year ended December 31, 1998.
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 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.
F-8
<PAGE> 76
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
Revenue recognition
The Company provides services under level-of-effort, fixed-price, and
unit-price contracts, with the length of existing contracts ranging up to 12
years. Revenue from level-of-effort pricing is based on time and materials,
direct costs plus an administrative fee (which may be either a fixed amount or a
percentage of direct costs incurred), or a combination of these methods and may
be based on a set fee for a specified level of resources that is adjusted for
incremental resource usage. Revenue from fixed-price contracts is recognized on
the percentage-of-completion method, and is earned based on the percentage
relationship of incurred contract costs to date to total estimated contract
costs, after giving effect to the most recent estimates of total cost.
Provisions for estimated losses, if any, are made in the period in which the
loss first becomes probable and reasonably estimable. Revenue from unit-price
contracts is recognized based on technology units utilized or by number of
transactions processed during a given period. For unit-price contracts, the
Company establishes a per-unit fee based on the cost structure associated with
the delivery of that unit of service, after an appropriate risk factor is
applied.
Year 2000 engagements do not comprise a substantial portion of the
Company's business. For two Year 2000 projects, the Company uses a zero estimate
of profit with equal amounts of revenue and cost recognized until the final
outcome of the engagement can be estimated more precisely because of the
inherent uncertainties regarding testability in the existing system environment
and client acceptance.
Billings for products or services for which the Company acts as an agent on
behalf of the client and bears no risk of non-performance, are excluded from the
Company's revenue, except to the extent of any mark-up added.
Deferred revenue is comprised of payments from clients 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
$653 and $2,993 for the nine months ended September 30, 1998 and 1997,
respectively, and $3,243 and $4,486 for the years ended December 31, 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 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.
F-9
<PAGE> 77
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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 and 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.
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 $54,756 at September 30, 1998 and
$47,033 at December 31, 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
$143,155 and $108,975 as of September 30, 1998, $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.
F-10
<PAGE> 78
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
The net foreign currency transaction gains/(losses) reflected in other
income/(expense) were $(70) and $715 for the nine months ended September 30,
1998 and 1997; $736, ($1,715) and ($892) for the years ended December 31, 1997,
1996 and 1995, respectively.
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.
Two customers accounted for 13% and 12% of the Company's accounts
receivables for the nine months ended September 30, 1998. 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 1997, 1996 and 1995 amounts in the accompanying financial
statements have been reclassified to conform to the current presentation.
Certain stockholders' equity share numbers for 1995, 1996 and 1997 have been
adjusted. These adjustments had no material effect on the Company's 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.
F-11
<PAGE> 79
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
Under APB 25, compensation expense is recorded when the exercise price of
employee stock options is less than the fair value of the underlying stock on
the date of grant. The Company has implemented the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation."
Accounting standards issued
The Company implemented Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" during the first quarter of
1998. The Company's total comprehensive income for nine months ended September
30, 1997 (unaudited) was as follows:
<TABLE>
<S> <C>
Net income.................................................. $13,609
Foreign currency translation adjustment..................... (1,626)
-------
Total comprehensive income.................................. $11,983
=======
</TABLE>
In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131") effective for years beginning after December 15, 1997.
Statement 131 requires that a public company report financial and descriptive
information about its reportable operating segments pursuant to criteria that
differ from current accounting practice. Operating segments, as defined, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the management in deciding how to
allocate resources and in assessing performance. The financial information to be
reported includes segment profit or loss, certain revenue and expense items and
segment assets and reconciliations to corresponding amounts in the financial
statements. Statement 131 also requires information about revenues from products
or services, countries where the company has operations or assets and major
customers. Management does not believe the implementation of Statement 131 will
have a material effect on the Company's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 ("Statement 133") which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Statement 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
If certain conditions are met, a derivative may be specifically designated as a
fair value hedge, a cash flow hedge, or a foreign currency hedge. A specific
accounting treatment applies to each type of hedge. Statement 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management does not believe the implementation of Statement 133 will have a
material effect on the Company's financial position or results of operations.
The American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," in March 1998. SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use and requires costs incurred in the application
development stage (whether internal or external) to be capitalized. This SOP is
applicable to all financial statements for fiscal years beginning after December
15, 1998, and should be applied to internal-use computer software costs incurred
in those fiscal years for all projects, including those projects in progress
upon initial application of this SOP. Costs incurred prior to initial
application of this SOP, whether or not capitalized, should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. Management does not believe the implementation of SOP
98-1 will have a material effect on the Company's financial position or results
of operations.
F-12
<PAGE> 80
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Amounts billed..................................... $ 90,369 $ 77,119 $ 88,577
Amounts to be invoiced............................. 40,557 22,409 13,548
Recoverable costs and profits...................... 20,255 2,798 7,744
Other.............................................. 13,315 4,089 10,722
Allowance for doubtful accounts.................... (2,814) (1,185) (6,787)
-------- -------- --------
$161,682 $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 made in accordance with common industry practice. At December 31, 1997,
it is anticipated that $2,210 of the recoverable costs and profits will be
billed in 1998 and $588 will be billed in 1999. At September 30, 1998, it is
anticipated that $5,143 of the recoverable costs and profits will be billed in
1998, $14,875 will be billed in 1999, and $237 will be billed in 2000.
3. PROPERTY AND EQUIPMENT AND PURCHASED SOFTWARE
Property and equipment and purchased software consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Owned assets:
Computer equipment............................... $ 55,496 $ 68,188 $ 48,500
Furniture and equipment.......................... 23,897 24,193 15,760
Leasehold improvements........................... 14,870 11,070 5,897
Automobiles...................................... 648 669 --
-------- -------- --------
94,911 104,120 70,157
Less accumulated depreciation and
amortization................................ (63,920) (62,808) (41,276)
-------- -------- --------
30,991 41,312 28,881
-------- -------- --------
Assets under capital leases:
Computer equipment............................... 1,735 1,735 3,930
Furniture and equipment.......................... 1,582 1,582 1,581
-------- -------- --------
3,317 3,317 5,511
Less accumulated depreciation and
amortization................................ (3,020) (2,909) (5,057)
-------- -------- --------
297 408 454
-------- -------- --------
Property and equipment, net........................ $ 31,288 $ 41,720 $ 29,335
======== ======== ========
Purchased software................................. $ 31,890 $ 28,635 $ 21,322
Less accumulated amortization................. (23,204) (19,652) (14,909)
-------- -------- --------
Purchased software, net............................ $ 8,686 $ 8,983 $ 6,413
======== ======== ========
</TABLE>
F-13
<PAGE> 81
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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 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 740,000 shares of the Company's
Class A Common Stock, and $1,500 in the form of 1,100,000 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.
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 2,920,744 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.
In July 1998, the Company sold its equity interest in Doblin Group, Inc.
Under the terms and conditions of the divestiture agreement, the Company
received $900 in cash, $1,182 in the form of 120,000 shares of the Company's
Class A Common Stock, and a $59 note receivable. The impact of the sale was
immaterial to the results of operations for the nine months ended September 30,
1998.
F-14
<PAGE> 82
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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>
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $790,174 $665,035
Net income.................................................. 11,065 16,548
Basic earnings per common share............................. 0.14 0.21
Diluted earnings per common share........................... 0.12 0.19
</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.
During September 1998, the Company determined that certain amounts recorded
for goodwill primarily from the acquisition of Stamos Associates, Inc.
("Stamos") was impaired and no longer recoverable. The determination was made
based on management's best estimates of the undiscounted future operating cash
flows over the remaining useful life of the goodwill. From this analysis, an
impairment loss was calculated as the difference between the carrying amount of
the goodwill and the fair value of the asset, based on discounted estimated
future cash flows. Goodwill impairments included in the accompanying statement
of operations totaled $3,845 consisting of primarily a write-down of Stamos
goodwill of $3,680. The Stamos goodwill impairment was due primarily to an
expected decline in future cash flows resulting from the departure of certain
key employees during the second and third quarters of 1998. The Company believes
that the remaining Stamos goodwill balance of $338 is recoverable over the
amortization period.
At September 30, 1998 and December 31, 1997 and 1996, goodwill of $7,240,
$16,596 and $7,293, net of $15,876, $6,309 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 UBS AG as part of a larger services
agreement. The Company's investment in Systor at September 30, 1998 and at
December 31, 1997 and 1996 was $8,626, $7,188 and $3,538, respectively.
Summarized financial data for Systor is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Current assets..................................... $100,435 $ 99,976 $ 70,216
Noncurrent assets.................................. 10,030 11,134 17,134
Current liabilities................................ 89,078 95,149 79,797
Noncurrent liabilities............................. -- -- --
Revenue............................................ 111,975 142,307 126,260
Operating income................................... 9,775 8,116 3,901
Net income......................................... 6,256 9,118 1,942
</TABLE>
F-15
<PAGE> 83
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
On March 26, 1996, the Company entered into a joint venture with HCL
Corporation Limited and HCL Europe Limited whereby the Company owns 50% of HCL
Perot Systems NV ("HPS"), an information technology services company based in
India. The Company contributed capital of $500 and $1,760 to HPS during 1997 and
1996, respectively, and is required to contribute additional capital up to a
limit of $6,900, on a call basis. The Company's investment in HPS at September
30, 1998 and at December 31, 1997 and 1996 was $3,702, $1,742 and $524,
respectively.
In June 1998, Systor declared a cash dividend. The Company received the 40%
share, or $804, in August 1998. 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 at September 30, 1998 and at December 31, 1997 and 1996 was
$8,455, $5,060 and $924, 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. In 1997 and 1996, the Company made net capital
contributions of $834, 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
400,000 shares of the preferred stock for $400 in June 1997. Due to certain
anti-dilution provisions, the Company received additional shares bringing the
total number of shares to 2,394,000, representing approximately an 8% equity
interest at September 30, 1998. As part of the purchase agreement, the Company
was subject to a call option, which, if exercised, would require the Company to
purchase additional shares for a commitment of up to $1,000. During the third
quarter of 1998, the Company's commitment terminated.
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.
During the nine months ended September 30, 1998, the Company entered into a
joint venture with the Bank of Ireland whereby the Company owns 49% of Perot
Systems Information Resource (Ireland) Limited, a Dublin-based entity providing
data center and other related services. The Company made a capital contribution
of $344 to the joint venture in July 1998.
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
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
F-16
<PAGE> 84
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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 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 September 30, 1998 and December 31, 1997. This facility
expired July 31, 1998 and was renewed pursuant to the same terms until January
31, 1999. The Company does not intend to renew the facility.
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1998 1997 1996
------------- ------- -------
<S> <C> <C> <C>
Operating expenses................................... $ 50,330 $33,160 $18,203
Taxes other than income, insurance, rents, licenses
and maintenance.................................... 6,465 3,433 3,519
Other contract-related............................... 50,229 39,447 31,621
-------- ------- -------
$107,024 $76,040 $53,343
======== ======= =======
</TABLE>
Other contract-related
Other contract-related accrued liabilities represent provisions to match
contract-related expenses 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.
The Company continually monitors contract performance in light of client
expectations, the complexity of work, project plans, delivery schedules, and
other relevant factors. Provisions for estimated losses, if any, are made in the
period in which the loss first becomes probable and reasonably estimable. 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. An expense of $13,485 was recorded during the nine months
ended September 30, 1998 to address Year 2000 exposure for certain customer
contracts.
F-17
<PAGE> 85
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
9. CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT
Capital lease obligations and long-term debt consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1998 1997 1996
------------- ------- -------
<S> <C> <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%.......................................... $ 1,404 $ 1,308 $ 1,777
Notes payable for software and software license
transfer rights, financed at various rates from
8.35% to 13.92%, payable in monthly installments
through July 2001.................................. 811 1,591 3,396
------- ------- -------
2,215 2,899 5,173
Less current maturities.............................. (1,122) (1,367) (2,377)
------- ------- -------
$ 1,093 $ 1,532 $ 2,796
======= ======= =======
</TABLE>
Capital lease payments and long-term debt maturities are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE LONG-TERM
OBLIGATIONS DEBT
------------- ---------
<S> <C> <C>
Three months ending December 31, 1998....................... $ 290 $ 68
Years ending December 31,1999............................... 832 265
2000.......................... 311 293
2001.......................... 87 185
------ ----
Total minimum lease payment and long-term debt maturities... $1,520 $811
====
Less amounts representing interest.......................... (116)
------
Present value of net minimum capital lease payments......... $1,404
======
</TABLE>
10. STOCKHOLDERS' EQUITY
Preferred stock
In July 1998, the Board of Directors of the Company approved an amendment
to the Company's Certificate of Incorporation which created 5,000,000 shares of
Preferred Stock, the rights, designations, and preferences of which may be
designated from time to time by the Board of Directors.
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
In July 1998, the Board of Directors of the Company approved an amendment
to the Company's Certificate of Incorporation which included an increase in
authorized number of shares of Class A Common Stock to 200,000,000 from
100,000,000 shares. The amendment was approved by stockholders in August 1998.
At September 30, 1998 there were 81,054,642 shares issued and 76,894,554 shares
outstanding. At December 31, 1997 there were 81,049,638 shares issued and
76,455,414 shares outstanding and at December 31, 1996 there were 79,247,696
shares issued and outstanding. The Company is authorized to issue, under its
existing stock plans, up to 42,000,000 shares of Class A Common Stock. At
September 30, 1998 there were 36,043,154 shares outstanding. At December 31,
1997 there were 35,172,414 shares outstanding and at December 31, 1996 there
were 35,164,696 shares outstanding.
F-18
<PAGE> 86
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
Class B shares consist of 24,000,000 authorized shares of $0.01 par value
common stock, of which there are 934,320 shares issued and outstanding as of
September 30, 1998. At December 31, 1997 there were 100,000 shares issued and
outstanding and at December 31, 1996 there were no shares issued and
outstanding. The Class B shares were authorized in conjunction with the
provisions of the original UBS AG 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 UBS AG 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
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 32,000,000 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 32,000,000 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.
1991 Stock Option Plan
In 1991, the Company adopted the 1991 Stock Option Plan (the "1991 Plan"),
which was amended in 1993 and 1998. 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. For options
issued before
F-19
<PAGE> 87
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
July 1998, 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.
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 800,000 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, 120,000 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, 48,000 options
were granted under the plan.
Other stock and option activity
During 1995, options for the purchase of 4,000,000 Class A shares, with an
exercise price of $0.50 per share, were granted to an executive officer of the
Company when the fair value of the stock was estimated to be $0.875 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.
F-20
<PAGE> 88
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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.
During the third quarter of 1997, the executive terminated his employment
and the Company made a non-cash repurchase of 2,800,000 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.
UBS AG Agreement
On April 24, 1997, the Company concluded the renegotiation of the terms of
its strategic alliance with UBS AG, 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 UBS Warburg
("UBS Warburg EPI Agreement"), (ii) separate agreements to provide IT services
to other UBS AG operating units and to permit the Company to use certain UBS AG
assets, (iii) the sale to UBS AG of options to acquire shares of the Company's
Class B stock, (iv) the sale to UBS AG 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 UBS AG agreements. The
Company continues to hold a 40% stake in Systor. In the event of termination of
the UBS Warburg EPI Agreement, a portion of the Company's interest in Systor
would be returned to UBS AG, declining ratably over the 10-year period which
began on January 1, 1997.
The new terms of the UBS Warburg EPI Agreement require the Company to
provide operational management for UBS investment banking division, Warburg
Dillon Read, 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 UBS 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
UBS AG options to purchase 7,234,320 shares of the Company's Class B stock at a
non-refundable cash purchase price of $1.125 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 $3.65 per share. In addition, the Company sold to UBS AG
100,000 shares of the Company's Class B stock, subject to the same
transferability and holding-period restrictions, at a purchase price of $3.65
per share. These options and shares were sold in connection with the execution
and delivery of the 10-year UBS Warburg EPI Agreement. Both the 100,000 shares
of Class B stock and the 7,234,320 shares of Class B stock subject to options
vest at a rate, in the aggregate, of 63,906 shares per month for the first five
years of the agreement, and at a rate of 58,334 shares per month thereafter. In
the event of termination of the UBS 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
$3.65 per share. UBS AG exercised 834,320 options in the third quarter of 1998.
The Company also agreed to issue and sell to UBS AG additional shares
and/or options to purchase Class B shares, subject to the same transferability
and holding-period restrictions, up to a maximum of 7,000,000 shares, in such
combination of options and shares that UBS AG deems appropriate, provided the
Company and UBS AG, on or prior to December 31, 1998, enter into a second IT
services agreement, having
F-21
<PAGE> 89
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
a term of 10 years, and being of a size and scope similar to that of the UBS
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 1956 and subsequent regulations
and interpretations by the Federal Reserve Board (the "regulations"), UBS AG's
holdings in terms of shares of the Company's Class B common stock may not exceed
10% of the total of all classes of the Company's common stock. Similarly, the
total consideration paid by UBS AG for the purchase of shares plus the purchase
and exercise of options may not 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 UBS AG's options are exercisable, is limited due to an
insufficient number of shares outstanding, UBS AG 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 UBS AG for authorization to exceed the 10% limit
on ownership, or (iii) the purchase of Class B shares by the Company from UBS AG
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 UBS AG is unable to exercise
its options as a result of the regulations.
Deferred Compensation
The Company recorded $4,027 of deferred compensation expense for options
granted during the nine months ended September 30, 1998 representing the
difference between the option exercise price and the fair value of the
underlying common stock. The Company recognized $271 of compensation expense
during the nine months ended September 30, 1998 and will amortize the remaining
deferred compensation ratably over the respective vesting periods of the option
grants. Prior to any option forfeitures resulting from employee attrition, the
estimated amount of deferred compensation to be recognized during 1998 is $372
and approximately $407 for each year through 2008.
F-22
<PAGE> 90
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
Activity in Liquidation Preference Common and Class A Common Stock:
<TABLE>
<CAPTION>
Weighted
Liquidation Average
Restricted Plan Advisor Plan Option Plan Other Preference Share Total Price
--------------- ------------ ----------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning shares..... 17,703,840 808,000 123,840 10,561,552 32,000,000 61,197,232 0.35
Issuance............. 2,475,322 120,000 -- 290,294 -- 2,885,616 0.61
Options exercised.... -- -- 37,080 4,000,000 -- 4,037,080 0.50
Repurchased.......... (306,000) -- -- -- -- (306,000) 0.35
---------- --------- --------- ---------- ----------- ----------
December 31, 1995.... 19,873,162 928,000 160,920 14,851,846 32,000,000 67,813,928 0.37
Issuance............. 7,798,688 30,734 412 376,158 -- 8,205,992 1.46
Options exercised.... -- -- 3,636,436 -- -- 3,636,436 0.42
Conversion........... -- -- -- 32,000,000 (32,000,000) -- 0.01
Repurchased.......... (408,660) -- -- -- -- (408,660) 0.77
---------- --------- --------- ---------- ----------- ----------
December 31, 1996.... 27,263,190 958,734 3,797,768 47,228,004 -- 79,247,696 0.51
Issuance............. 1,662,204 200 -- 314,538 -- 1,976,942 2.71
Options exercised.... -- 240,000 1,069,040 -- -- 1,309,040 0.51
Repurchased.......... (3,277,976) -- -- (2,800,288) -- (6,078,264) 0.79
---------- --------- --------- ---------- ----------- ----------
December 31, 1997.... 25,647,418 1,198,934 4,866,808 44,742,254 -- 76,455,414 0.65
Issuance............. 40,652 -- 40,000 4,352 -- 85,004 3.52
Options exercised.... -- 87,000 1,960,338 -- -- 2,047,338 0.90
Repurchased.......... (1,607,906) -- (5,036) (80,260) -- (1,693,202) 1.13
---------- --------- --------- ---------- ----------- ----------
September 30, 1998... 24,080,164 1,285,934 6,862,110 44,666,346 -- 76,894,554 0.88
========== ========= ========= ========== =========== ==========
</TABLE>
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............................... 13,351,984 320,000 622,576 14,294,560 0.43
Granted.............................. 4,510,000 -- 4,000,000 8,510,000 0.57
Exercised............................ (34,360) -- (4,002,720) (4,037,080) 0.50
Forfeited............................ -- -- -- -- --
---------- -------- ---------- ----------
Outstanding at December 31, 1995..... 17,827,624 320,000 619,856 18,767,480 0.48
========== ======== ========== ==========
Exercisable at December 31, 1995..... 3,716,332 410,428 192,000 4,318,760 0.39
1996 Outstanding at beginning of
year............................... 17,827,624 320,000 619,856 18,767,480 0.48
Granted.............................. 13,696,480 130,000 -- 13,826,480 1.37
Exercised............................ (3,553,252) -- (83,184) (3,636,436) 0.42
Forfeited............................ (82,784) -- (1,024) (83,808) 1.15
---------- -------- ---------- ----------
Outstanding at December 31, 1996..... 27,888,068 450,000 535,648 28,873,716 0.91
========== ======== ========== ==========
Exercisable at December 31, 1996..... 2,779,092 304,000 378,968 3,462,060 0.42
</TABLE>
F-23
<PAGE> 91
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ADVISOR OTHER EXERCISE
1991 PLAN PLAN OPTIONS TOTAL PRICE
---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
1997 Outstanding at beginning of
year............................... 27,888,068 450,000 535,648 28,873,716 0.91
Granted.............................. 13,782,704 168,000 -- 13,950,704 2.70
Exercised............................ (971,360) (240,000) (97,680) (1,309,040) 0.51
Forfeited............................ (5,716,578) -- (14,368) (5,730,946) 1.55
---------- -------- ---------- ----------
Outstanding at December 31, 1997..... 34,982,834 378,000 423,600 35,784,434 1.52
========== ======== ========== ==========
Exercisable at December 31, 1997..... 4,621,650 89,000 280,384 4,991,034 0.66
1998 Outstanding at beginning of
year............................... 34,982,834 378,000 423,600 35,784,434 1.52
Granted.............................. 1,954,820 30,000 -- 1,984,820 3.32
Exercised............................ (1,904,578) (87,000) (55,760) (2,047,338) 0.90
Forfeited............................ (5,475,082) (62,400) (18,080) (5,555,562) 1.79
---------- -------- ---------- ----------
Outstanding at September 30, 1998.... 29,557,994 258,600 349,760 30,166,354 1.62
========== ======== ========== ==========
Exercisable at September 30, 1998.... 5,912,338 44,200 219,024 6,175,562 1.08
</TABLE>
The following table summarizes information about options for Class A common
shares outstanding at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- -------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.250 600,060 3.48 385,640
$0.375 2,021,030 5.01 1,277,190
$0.500 6,806,560 6.37 1,718,640
$0.875 983,184 5.21 127,816
$1.250 6,179,772 8.74 1,126,444
$1.500 -- -- --
$1.875 6,443,566 8.31 1,007,840
$2.000 130,000 9.29 --
$3.375 7,002,182 8.43 531,992
30,166,354 7.58 6,175,562
========== =========
Weighted average exercise price of
exercisable options..................... $ 1.08
</TABLE>
F-24
<PAGE> 92
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------------
1998 1997 1996 1995
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income
As reported.............................. $28,195 $11,217 $20,499 $10,813
Pro forma................................ $27,648 $10,655 $20,276 $10,771
Basic earnings per common share
As reported.............................. $ 0.37 $ 0.14 $ 0.27 $ 0.17
Pro forma................................ $ 0.36 $ 0.14 $ 0.27 $ 0.17
Diluted earnings per common share
As reported.............................. $ 0.29 $ 0.12 $ 0.24 $ 0.16
Pro forma................................ $ 0.29 $ 0.11 $ 0.24 $ 0.16
</TABLE>
All options granted by the Company in 1997, 1996 and 1995 were granted at
the estimated per share fair market value in effect on the grant date. For the
nine months ended, September 30, 1998, certain options were granted at less than
fair market value. For all years, the options vest ratably over the vesting
period, and expire one year after the final vesting date. The fair value of each
option grant was estimated on the grant date using the Minimum Value Stock
option-pricing model. The weighted-average risk free interest rates were 5.52%
for the nine months ended September 30, 1998 and 6.28% and 6.8% for the years
ended December 31, 1997 and 1996, respectively. Volatility was zero and the
expected life of each grant was equal to the midpoint of the vesting period,
plus one-year, for all periods presented. 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 granted in 1997, 1996, and 1995 was $245, $1,014, and $96,
respectively. For options granted in 1998, the weighted-average grant-date fair
value of options that were granted at fair market value and less than fair
market value was $129 and $310, respectively. The total compensation cost
recognized in income at September 30, 1998 was $270 and zero for years 1997
through 1995. The Company expects that the impact of future option grants will
increase overall pro forma compensation expense, thereby reducing pro forma net
income reported in future periods.
On August 5, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of the
Company's Class A Common Stock.
In July 1998, the Board of Directors adopted an employee stock purchase
plan (the "ESPP"), which provides for the issuance of a maximum of 20,000,000
shares of Class A Common Stock. The ESPP will become effective immediately
following the proposed initial public offering of the Company's Class A Common
Stock. Eligible employees may have up to 10% of their earnings withheld, to be
used to purchase shares of the Company's Common Stock on specified dates
determined by the Board of Directors. The price of the Common Stock purchased
under the ESPP will be equal to 85% of the fair value of the stock on the
exercise date for the offering period.
F-25
<PAGE> 93
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
11. INCOME TAXES
Income before taxes was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Domestic............................. $29,573 $ 8,956 $(4,054) $10,151 $12,518
Foreign.............................. 22,312 14,711 23,562 30,000 7,732
------- ------- ------- ------- -------
$51,885 $23,667 $19,508 $40,151 $20,250
======= ======= ======= ======= =======
</TABLE>
The provision for income taxes charged to operations was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
-------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Current:
U.S. Federal.................... $ 19,246 $ 3,025 $ 9,159 $ 21,794 $ 4,444
State and local................. 3,299 392 1,383 3,583 766
Foreign......................... 11,444 2,365 8,172 10,319 7,825
-------- ------- -------- -------- -------
Total current........... 33,989 5,782 18,714 35,696 13,035
-------- ------- -------- -------- -------
Deferred:
U.S. Federal.................... (5,689) 3,550 (8,902) (14,400) (4)
State and local................. (975) 726 (1,392) (2,242) 32
Foreign......................... (3,635) -- (129) 598 (3,626)
-------- ------- -------- -------- -------
Total deferred.......... (10,299) 4,276 (10,423) (16,044) (3,598)
-------- ------- -------- -------- -------
Total provision for
income taxes.......... $ 23,690 $10,058 $ 8,291 $ 19,652 $ 9,437
======== ======= ======== ======== =======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Deferred compensation.............................. $ 431 $ 431 $ 536
Conversion of acquired entity from cash basis to
accrual basis of accounting...................... 748 1,171 989
Other.............................................. 1,945 664 493
-------- -------- --------
Gross deferred tax liabilities..................... 3,124 2,266 2,018
-------- -------- --------
Property, plant and equipment...................... (13,884) (11,050) (5,557)
Accrued liabilities................................ (35,042) (22,958) (21,233)
Equity investments................................. (57) (817) (517)
Intangibles........................................ (1,415) (1,134) (171)
Deferred revenue................................... (610) (1,538) (4,877)
Other.............................................. -- -- (129)
-------- -------- --------
Gross deferred tax assets.......................... (51,008) (37,497) (32,484)
-------- -------- --------
Net deferred tax asset................... $(47,884) $(35,231) $(30,466)
======== ======== ========
</TABLE>
F-26
<PAGE> 94
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
A valuation allowance has not been established for the net deferred tax
asset as of September 30, 1998, 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 in dollars and
percentages as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
----------------- -------------------------
1998 1997 1997 1996 1995
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Statutory U.S. tax rates....................... $18,160 $ 8,285 $6,828 $14,053 $7,087
Non-deductible items........................... 382 536 528 3,017 1,829
State and local taxes.......................... 1,774 537 (215) 609 751
Nondeductible amortization and write-off of
intangible assets............................ 3,554 1,052 1,765 1,900 --
U.S. rates in excess of foreign rates and
other........................................ (180) (352) (615) 73 (230)
------- ------- ------ ------- ------
Total provision for income taxes............... $23,690 $10,058 $8,291 $19,652 $9,437
======= ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
--------------- -------------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Statutory U.S. tax rates......................... 35.0% 35.0% 35.0% 35.0% 35.0%
Non-deductible items............................. .7 2.3 2.7 7.5 9.0
State and local taxes............................ 3.4 2.3 (1.1) 1.5 3.7
Nondeductible amortization and write-off of
intangible assets.............................. 6.9 4.4 9.0 4.7 --
U.S. rates in excess of foreign rates and
other.......................................... (0.3) (1.5) (3.1) .2 (1.1)
----- ----- ----- ----- -----
Total provision for income taxes................. 45.7% 42.5% 42.5% 48.9% 46.6%
===== ===== ===== ===== =====
</TABLE>
12. CERTAIN GEOGRAPHIC DATA AND SEGMENT INFORMATION
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>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------
1998 1997 1996 1995
------------- -------- ------------ --------
<S> <C> <C> <C> <C>
United States:
Total revenue........................ $468,030 $519,122 $400,211 $238,783
Operating income..................... 20,999 (5,507) 10,780 12,802
Identifiable assets.................. 247,380 171,503 130,766 90,632
Europe and Asia:
Total revenue........................ 256,155 262,499 199,227 103,523
Operating income..................... 21,144 23,100 30,521 8,060
Identifiable assets.................. 143,155 95,600 101,481 39,841
Consolidated:
Total revenue........................ 724,185 781,621 599,438 342,306
Operating income..................... 42,143 17,593 41,301 20,862
Identifiable assets.................. 390,535 267,103 232,247 130,473
</TABLE>
F-27
<PAGE> 95
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
Greater than 10% of the Company's revenue was earned from two clients for
the nine months ended September 30, 1998, two clients for the year ended
December 31, 1997, one client for the year ended December 31, 1996, and two
clients for the year ended December 31, 1995. Revenue from these clients
comprised 25% and 12% of total revenue for the nine months ended September 30,
1998, 27% and 10% of total revenue in 1997, 28% of total revenue in 1996, and
12% and 10% of total revenue in 1995.
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 September 30, 1998 are as follows:
<TABLE>
<CAPTION>
LEASE AND MAINTENANCE
COMMITMENTS
---------------------
<S> <C>
Three months ending December 31, 1998....................... $ 6,861
Years ending December 31, 1999.............................. 26,438
2000.......................... 22,266
2001.......................... 16,542
2002 and thereafter........... 15,575
-------
Total............................................. $87,682
=======
</TABLE>
The Company is obligated under certain operating leases for its pro rata
share of the lessors' operating expenses. Rent expense was $18,897 and $12,604
for the nine months ended September 30, 1998 and 1997, and $17,958, $18,212, and
$23,731 for the years ended December 31, 1997, 1996 and 1995, respectively.
Additionally, in 1997, the Company established a loss accrual of $3,125 in
connection with the planned abandonment of certain leased properties. During the
nine months ended September 30, 1998, the Company revised its estimate of that
loss accrual to $5,120.
Letter of credit
The Company had a $1,000 irrevocable letter of credit as of September 30,
1998. The letter of credit was issued in conjunction with the provisions of a
certain contract. The fair value of the letter of credit was estimated to be
equal to the face value based on the nature of the fee arrangements with the
issuing bank. This letter of credit expires in December 1998 and will not be
renewed.
Financial instruments with off-balance sheet risk
Interest rate swap
In December 1993, the Company entered into an agreement with a client 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 Company was required to make an
interest-sensitive payment to the client if a defined variable interest rate
("Rate") exceeded 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 was less than 8.5%, the client was required to pay the
Company for the difference in the interest rates based upon the same declining
notional amount.
F-28
<PAGE> 96
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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 was 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 were 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 was risk of default
by the client or the bank, which the Company believed to be remote.
In April 1998, the Company paid a fee of $536 to terminate the above
interest rate swap agreement.
Foreign currency exchange forward contracts
At September 30, 1998, the Company had one British pound to U.S. dollar
forward contract in the amount of $10,033. This contract will expire on October
30, 1998. As of December 31, 1997, the Company had two British pound to U.S.
dollar forward contracts totaling $10,177 and $6,684 which matured in February
1998 and January 1998, respectively. A third forward contract of Swiss franc to
U.S. dollar totaling $8,108 matured in January 1998.
The estimated fair value of the Company's forward exchange contracts using
bank or market quotes and the month end foreign exchange rates was a net
liability of $7 as of September 30, 1998, and 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 2,846,752 and
2,926,752 shares of Class A Common Stock are subject to contingent put rights at
September 30, 1998 and December 31, 1997, respectively. For 1,200,000 and
646,752 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 1,000,000 of these
shares at September 30, 1998 and 1,080,000 at December 31, 1997, 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.
F-29
<PAGE> 97
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
License Agreement
In 1988, the Company entered into a license agreement with the Perot
Systems Family Corporation and Ross Perot that allowed the Company to use the
name "Perot" and "Perot Systems" in its business on a royalty-free basis. Mr.
Perot and the Perot Systems Family Corporation may terminate this agreement at
any time and for any reason. Beginning one year following such a termination,
the Company would not be allowed to use the "Perot" name in its business. Mr.
Perot's or the Perot Systems Family Corporation's termination of the Company's
license agreement could materially and adversely affect the Company's business,
financial condition and results of operations.
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 nine months
ended September 30, 1998 and 1997 and the years ended December 31, 1997, 1996
and 1995 amounted to $5,967; $6,162; $7,388; $4,785 and $1,919, respectively.
The Company's contribution of common stock for the nine months ended September
30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995 totaled
0; 247,590; 257,590; 12,650 and 198,972 shares, respectively, which were
allocated to participants' plan accounts using a formula based on compensation.
Compensation expense of $0, $607, $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 23,852 shares were contributed in 1995.
Compensation expense of $26 was recorded in 1995 as a result of this grant.
In 1996, the Company contributed 324,286 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-30
<PAGE> 98
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1998 1997 1996 1995
------------- ------- ------- ------
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest.......................................... $ 184 $ 1,283 $ 1,877 $ 671
======= ======= ======= ======
Income taxes...................................... $18,700 $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...................... $ 1,076 $ 2,603 $ 225 $ --
======= ======= ======= ======
Purchase of shares financed by notes receivable from
stockholders...................................... $ -- $ 1,427 $ 3,065 $ 901
======= ======= ======= ======
Deferred compensation, net of amortization.......... $ 3,756 $ -- $ -- $1,456
======= ======= ======= ======
Reclassification of deferred compensation to
paid-in-capital................................... $ -- $ 1,050 $ -- $ --
======= ======= ======= ======
Contract rights issued (cancelled) at inception and
renegotiation of UBS AG 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>
16. RELATED PARTY TRANSACTIONS
During 1996, 1997 and 1998 certain officers financed the purchase of Class
A Common Stock with a bank. All of these loans bear interest at rates between
8.75% and 9.75% and are due at various dates through September 15, 2000. The
Company had agreed that it would, at the request of NationsBank, purchase such
loans from NationsBank for an amount equal to principal plus accrued and unpaid
interest if the Company has not had an initial public offering that results in
the shares of Class A Common Stock being publicly traded before the maturity of
the notes. As of September 30, 1998 and December 31, 1997, approximately $1,768
and $1,546, respectively, of principal remain outstanding under these loans.
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 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 June 30, 1998 and December 31, 1997, the principal balance remaining on
these notes was $2,169. In July 1997, the Company repurchased 2,800,000 shares
of common stock from this executive, following his resignation, through a
reduction of $1,830 in outstanding notes receivable.
F-31
<PAGE> 99
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
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 shares are not publicly traded prior
to 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 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.
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 loaned $250 to an executive at the rate of 8%.
This note is collateralized by the executive's Class A shares and is payable in
August 2000.
In September 1997, the Company loaned $197 to an executive at the rate of
8%. This note is collateralized by the executive's Class A shares and is payable
in September 2000.
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 shares held
by the executive and are due by December 31, 1999.
In November 1997, Ross Perot became chief executive officer of the Company
and has been serving the Company without cash or non-cash compensation. For the
nine months ended September 30, 1998, the Company has recorded a compensation
expense of $585 with an offset to additional paid-in capital.
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 common 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.
<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 62,302 $0.17
=====
Dilutive options............................................ 4,430
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $10,218 66,732 $0.16
======= ====== =====
</TABLE>
F-32
<PAGE> 100
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
------- ------ ---------
<S> <C> <C> <C>
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 74,110 $0.27
=====
Dilutive options............................................ 10,232
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $20,052 84,342 $0.24
======= ====== =====
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 78,336 $0.14
=====
Dilutive options............................................ 16,856
------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $11,217 95,192 $0.12
======= ====== =====
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
Net income.................................................. $13,609
Less preferred stock dividend............................... --
-------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders................ $13,609 78,920 $0.17
=====
Dilutive options............................................ 17,640
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders Plus assumed
conversions............................................... $13,609 96,560 $0.14
======= ====== =====
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
Net income.................................................. $28,195
Less preferred stock dividend............................... --
-------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders................ $28,195 76,674 $0.37
=====
Dilutive options............................................ 20,236
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $28,195 96,910 $0.29
======= ====== =====
</TABLE>
F-33
<PAGE> 101
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
The effect of this accounting change on previously reported earnings per
share data was as follows:
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
------------- ----- -----
<S> <C> <C> <C>
PER SHARE AMOUNTS
Primary EPS as reported................................ $0.13 $0.20 $0.15
Effect of SFAS No. 128................................. 0.04 0.07 0.02
----- ----- -----
Basic EPS as restated.................................. $0.17 $0.27 $0.17
===== ===== =====
Fully diluted EPS as reported.......................... $0.13 $0.20 $0.15
Effect of SFAS No. 128................................. 0.01 0.04 0.01
----- ----- -----
Diluted EPS as restated................................ $0.14 $0.24 $0.16
===== ===== =====
</TABLE>
18. SUBSEQUENT EVENTS
On January 5, 1999, the Company's Board of Directors declared a two-for-one
stock split of the Class A and Class B Common Stock to be effected in the form
of a stock dividend. The record date for the stock dividend was January 6, 1999
and the distribution date will be January 19, 1999. All share and per share
amounts included in these consolidated financial statements have been
retroactively adjusted to reflect this stock split.
On January 5, 1999, the Company's Board of Directors authorized two series
of Preferred Stock in connection with the adoption of a Shareholder Rights Plan:
200,000 shares of Series A Junior Participating Preferred Stock, par value $.01
per share (the "Series A Preferred Stock"), and 10,000 shares of Series B Junior
Participating Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock" and, together with the Series A Preferred Stock").
The Board of Directors of Perot Systems has authorized the Company to enter
into a Stockholder Rights Plan (the "Rights Plan"), providing that one Class A
right (a "Class A Right") will be attached to each share of Class A Common Stock
and one Class B right (a "Class B Right", and together with the Class A Rights,
the "Rights") will be attached to each share of Class B Common Stock as of
January 7, 1999. Each Class A Right will entitle the registered holder to
purchase from the Company a unit consisting of one one-thousandth of a share of
Series A Preferred Stock, at a purchase price of $55.00 per share subject to
adjustment. Each Class B Right entitles the registered holder to purchase from
the Company a unit consisting of one one-thousandth of a share of Series B
Preferred Stock, at a purchase price of $55.00 per share, which price will be
subject to adjustment. The Rights will not be exercisable until the Distribution
Date and will expire on January 7, 2009, unless earlier redeemed by the Company
as described below. At any time until (i) ten days following the Stock
Acquisition Date or (ii) the date that the Board of Directors of the Company
determines a person to be an "Adverse Person," the Company may redeem the Rights
in whole, but not in part, at a price of $.001 per Right. The ten day redemption
period may be extended by the Board of Directors so long as the Rights are still
redeemable. Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.001 redemption price.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers.
F-34
<PAGE> 102
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)
During the period July 1, 1998 to December 31, 1998, the Company issued
options to associates to acquire Class A shares. There were 9,511,160,
10,401,040 and 12,226,290 of these options outstanding at September 30, 1998,
December 31, 1998 and January 6, 1999, respectively. The exercise price was set
on January 6, 1999.
F-35
<PAGE> 103
LOGO
<PAGE> 104
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued January 7, 1999
5,500,000 Shares
[PEROT SYSTEMS LOGO]
CLASS A COMMON STOCK
------------------------
PEROT SYSTEMS CORPORATION IS OFFERING 5,500,000 SHARES OF ITS CLASS A COMMON
STOCK. INITIALLY, THE INTERNATIONAL UNDERWRITERS ARE OFFERING 1,100,000 SHARES
OF OUR CLASS A COMMON STOCK OUTSIDE THE UNITED STATES AND CANADA, AND THE U.S.
UNDERWRITERS ARE OFFERING 4,400,000 SHARES OF OUR CLASS A COMMON STOCK IN THE
UNITED STATES AND CANADA.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR STOCK. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$11 AND $12 PER SHARE.
------------------------
WE HAVE APPLIED TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "PER."
------------------------
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
-------- ------------- -----------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total................................ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Perot Systems Corporation has granted the U.S. Underwriters the right to
purchase up to an additional 825,000 shares of Class A common stock to cover
over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares
of Class A common stock to purchasers on , 1999.
------------------------
WARBURG DILLON READ
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LTD
HAMBRECHT & QUIST
, 1999
<PAGE> 105
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will be
paid by the Company. All amounts are estimates, other than the registration fee,
the NASD fee, and the New York Stock Exchange listing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 33,925
NASD fee.................................................... 12,000
New York Stock Exchange listing fee......................... 504,600
Accounting fees and expenses................................ 550,000
Legal fees and expenses..................................... 550,000
Printing and engraving...................................... 250,000
Transfer Agent fees and expenses............................ 170,000
Blue sky fees and expenses.................................. 5,000
Miscellaneous expenses...................................... 74,475
----------
Total............................................. $2,150,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws provide that officers and directors who are made a party to
or are threatened to be made a party to or is otherwise involved in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was an officer or a
director of the Company or is or was serving at the request of the Company as a
director or an officer of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to an
employee benefit plan (an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer, shall be indemnified and held
harmless by the Company to the fullest extent authorized by the Delaware General
Corporation Law ("DGCL"), as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than permitted
prior thereto), against all expense, liability, and loss (including, without
limitation, attorneys' fees, judgments, fines, excise taxes or penalties, and
amounts paid or to be paid in settlement) incurred or suffered by such
indemnitee in connection therewith and such indemnification shall continue with
respect to an indemnitee who has ceased to be a director or officer and shall
inure to the benefit of the indemnitee's heirs, executors, and administrators;
provided, however, that the Company shall indemnify any such indemnitee in
connection with a proceeding initiated by such indemnitee only if such
proceeding was authorized by the Board of Directors. The right to
indemnification includes the right to be paid by the Company for expenses
incurred in defending any such proceeding in advance of its final disposition.
Officers and directors are not entitled to indemnification if such persons did
not meet the applicable standard of conduct set forth in the DGCL for officers
and directors.
DGCL Section 145 provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, agent, or employee of the Company or is or
was serving at the Company's request as a director, officer, agent, or employee
of another corporation, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit, or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit,
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the Company as well,
but only to the extent of defense expenses
II-1
<PAGE> 106
(including attorneys' fees but excluding amounts paid in settlement) actually
and reasonably incurred and not to any satisfaction of a judgment or settlement
of the claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of liability to
the Company, unless the court believes that in light of all the circumstances
indemnification should apply.
The indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws are not
exclusive of any other rights to which a person may be entitled by law,
agreement, vote of stockholders or disinterested directors or otherwise. In
addition, the Company maintains insurance on behalf of its directors and
executive officers insuring them against any liability asserted against them in
their capacities as directors or officers or arising out of such status.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In reliance on Rule 701 under the Securities Act, the Company issued
options to purchase the number of shares of Class A Common Stock to its
employees, consultants, and directors during the periods or on the dates and
with the exercise prices reflected in the table below:
<TABLE>
<CAPTION>
SHARES SUBJECT EXERCISE
DATES TO OPTION PRICE
- ----- -------------- --------
<S> <C> <C>
March 10, 1997 -- June 30, 1997............................. 5,378,000 $3.375
January 15, 1997............................................ 130,000 $ 2.00
January 13, 1997............................................ 52,800 $ 1.25
September 26, 1996 -- January 31, 1997...................... 7,638,884 $1.875
September 10, 1996.......................................... 160,000 $ 1.50
January 19, 1996 -- September 15, 1996...................... 9,632,592 $ 1.25
August 4, 1995 -- January 26, 1996.......................... 2,010,408 $0.875
</TABLE>
In reliance on Section 4(2) of the Securities Act, during the periods set
forth below the Company issued to certain employees options to purchase the
number of shares of Class A Common Stock and at the exercise prices reflected in
the table below:
<TABLE>
<CAPTION>
SHARES SUBJECT EXERCISE
DATES TO OPTION PRICE
- ----- -------------- --------
<S> <C> <C>
September 26, 1996 -- January 31, 1997...................... 610,000 $1.875
January 19, 1996 -- September 15, 1996...................... 400,000 $ 1.25
January 1, 1996 -- January 26, 1996......................... 400,000 $0.875
</TABLE>
In reliance on Rule 701 under the Securities Act, the Company sold the
number of shares of Class A Common Stock to its employees, consultants, and
directors during the periods and at the prices reflected in the table below:
<TABLE>
<CAPTION>
DATES SHARES PRICE
- ----- --------- ------
<S> <C> <C>
September 26, 1996 -- January 31, 1997...................... 576,000 $1.875
January 19, 1996 -- September 15, 1996...................... 1,963,900 $ 1.25
August 23, 1995 -- January 26, 1996......................... 350,000 $0.875
August 4, 1995 -- September 22, 1995........................ 20,000 $ 0.50
</TABLE>
In reliance on Section 4(2) of the Securities Act, the Company sold to its
employees (i) 1,500,000 shares of Class A Common Stock for $1.25 per share
between February 2, 1996 and September 15, 1996 and (ii) 240,000 shares of Class
A Common Stock for $1.875 per share between January 28, 1997 and February 14,
1997.
In reliance on Section 4(2) of the Securities Act, on January 1, 1996, the
Company issued options to purchase 21,000,000 shares of Class B Common Stock at
an exercise price of $1.25 per share to UBS AG. In connection with the
renegotiation of the agreements with UBS AG effective January 1, 1997, such
options were cancelled and, in reliance on Section 4(2) of the Securities Act,
the Company sold UBS (i) 100,000 shares of Class B Common Stock at $3.65 per
share and (ii) options, at a price of $1.125 per option, to purchase 7,234,320
shares of Class B Common Stock at an exercise price of $3.65 per share.
The Company used the proceeds of stock sales and from option exercises for
working capital and other general corporate purposes.
II-2
<PAGE> 107
In reliance on Section 4(2) of the Securities Act, the Registrant issued
the following numbers of shares of its Class A Common Stock in connection with
the acquisition of the indicated businesses.
<TABLE>
<CAPTION>
COMPANY ACQUIRED DATE SHARES ISSUED
- ---------------- ---- -------------
<S> <C> <C>
Business Architects L.L.P........................... January 15, 1997 240,000
CommSys Corporation................................. September 16, 1996 449,994
Doblin Group, Inc................................... September 10, 1996 120,000
Icarus AG........................................... March 21, 1997 63,000
Icarus GmbH......................................... March 21, 1997 77,000
Rothwell Group, Inc................................. August 2, 1996 170,750
Syllogic, B.V....................................... May 23, 1997 360,000
The Technical Resource Connection, Inc.............. October 22, 1996 2,180,000
</TABLE>
In addition, the Company issued options to purchase 1,100,000 shares to the
owners of Benton International, Inc. in reliance on Section 4(2) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1*** -- Underwriting Agreement
3.1*** -- Amended and Restated Certificate of Incorporation
3.2*** -- Amended and Restated Bylaws
4.1*** -- Specimen of Class A Common Stock Certificate
4.2*** -- Form of Rights Agreement
4.3*** -- Form of Certificate of Designation, Preferences, and
Rights of Series A Junior Participating Preferred Stock
(included as Exhibit A-1 to the Rights Agreement)
4.4*** -- Form of Certificate of Designation, Preferences, and
Rights of Series B Junior Participating Preferred Stock
(included as Exhibit A-2 to the Rights Agreement)
5.1*** -- Opinion of Hughes & Luce, L.L.P. regarding legality of
securities being registered
10.1+ -- 1991 Stock Option Plan
10.2+ -- Form of Option Agreement (1991 Option Plan)
10.3+ -- Restricted Stock Plan
10.4+ -- Form of Restricted Stock Agreement (Restricted Stock
Plan)
10.5+ -- 1996 Non-employee Director Stock Option/Restricted Stock
Plan
10.6+ -- Form of Restricted Stock Agreement (Non-employee Stock
Option/Restricted Stock Plan)
10.7+ -- Form of Option Agreement (Non-employee Stock
Option/Restricted Stock Plan)
10.8+ -- Advisor Stock Option/Restricted Stock Incentive Plan
10.9+ -- Form of Restricted Stock Option Agreement (Advisor Stock
Option/Restricted Stock Incentive Plan)
10.10+ -- Form of Option Agreement (Advisor Stock Option/Restricted
Stock Incentive 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 James A. Cannavino
</TABLE>
II-3
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 Agreement 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 G. 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+ -- Amended and Restated PSC Stock Option and Purchase
Agreement dated as of April 24, 1997 by and between Swiss
Bank Corporation and the Company (incorporated by
reference to Exhibit 10.30 to the Company's Form 10 dated
April 30, 1997)
10.28+ -- Amended and Restated Master Operating Agreement dated as
of January 1, 1997 between Swiss Bank Corporation and the
Company (incorporated by reference to Exhibit 10.31 to
the Company's Form 10 dated April 30, 1997)
10.29+ -- Amended and Restated Agreement for EPI Operational
Management Services dated as of January 1, 1997
(incorporated by reference to Exhibit 10.32 to the
Company's Form 10 dated April 30, 1997)
10.30* -- Amendment to Amended and Restated Master Operating
Agreement dated June 28, 1998 between UBS AG and the
Company
10.31* -- Amendment to Amended and Restated Agreement for EPI
Operational Management Services dated June 28, 1998
between Swiss Bank Corporation and the Company
10.32*** -- 1999 Employee Stock Purchase Plan
10.33* -- Form of Amended and Restated 1991 Stock Option Plan
10.34* -- Form of Amended Stock Option Agreement
10.35*** -- Promissory Note dated July 31, 1998 made by the Company
in favor of NationsBank of Texas, N.A.
</TABLE>
II-4
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.36* -- Promissory Note dated August 27, 1997 made by John E.
King in favor of the Company in the principal amount of
$250,000
10.37* -- Pledge Agreement dated August 27, 1997 made by John E.
King in favor of the Company
10.38+ -- Agreement dated August 26, 1996, among the Company,
Donald D. Drobny and NationsBank of Texas, N.A.
(incorporated by reference to exhibit 10.27 to the
Company's Form 10 dated April 30, 1997)
10.39+ -- Promissory Note dated August 26, 1996, made by Donald D.
Drobny in favor of NationsBank of Texas, N.A.
(incorporated by reference to exhibit 10.28 to the
Company's Form 10 dated April 30, 1997)
10.40** -- Agreement dated September 26, 1997, among the Company,
Ken Scott and NationsBank of Texas, N.A.
10.41*** -- -- Promissory Note dated September 26, 1997, made by Ken
Scott in favor of NationsBank of Texas, N.A.
10.42** -- Promissory Note dated September 26, 1997 made by Ken
Scott in favor of the Company
21.1*** -- Subsidiaries of the Company
23.1*** -- Consent of Hughes & Luce, L.L.P. (included in Exhibit
5.1)
23.2*** -- Consent of PricewaterhouseCoopers LLP
24.1* -- Power of Attorney (included in Part II to this
Registration Statement)
27.1*** -- Financial Data Schedule for the Nine Month Period Ended
September 30, 1998
27.2*** -- Financial Data Schedule for the Year Ended December 31,
1997
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
*** Filed herewith.
+ Incorporated by reference to the Company's Form 10 dated April 30, 1997 to
the exhibit of the same number except as otherwise indicated.
b. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing certificates in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification by the registrant against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 110
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on January 7, 1999.
PEROT SYSTEMS CORPORATION,
a Delaware corporation
By: /s/ TERRY ASHWILL
----------------------------------
Name: Terry Ashwill
Title: Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman, President, and Chief January 7, 1999
- ----------------------------------------------------- Executive Officer
Ross Perot
/s/ TERRY ASHWILL Vice President, Chief Financial January 7, 1999
- ----------------------------------------------------- Officer, and Principal
Terry Ashwill Accounting Officer
* Vice President and Director January 7, 1999
- -----------------------------------------------------
James Champy
* Director January 7, 1999
- -----------------------------------------------------
Steven Blasnik
* Director January 7, 1999
- -----------------------------------------------------
William K. Gayden
* Director January 7, 1999
- -----------------------------------------------------
Carl Hahn
* Director January 7, 1999
- -----------------------------------------------------
Ross Perot, Jr.
*By: /s/ TERRY ASHWILL January 7, 1999
------------------------------------------------
Terry Ashwill
Attorney-in-fact
</TABLE>
II-7
<PAGE> 112
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Perot Systems Corporation:
Our report on the consolidated financial statements of Perot Systems
Corporation and Subsidiaries is included herein. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedule of Perot Systems Corporation and Subsidiaries.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
March 25, 1998
S-1
<PAGE> 113
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF DEDUCTIONS BALANCE AT END
PERIOD ADDITIONS (WRITE-OFFS) OF 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>
S-2
<PAGE> 114
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1*** -- Underwriting Agreement
3.1*** -- Amended and Restated Certificate of Incorporation
3.2*** -- Amended and Restated Bylaws
4.1*** -- Specimen of Class A Common Stock Certificate
4.2*** -- Form of Rights Agreement
4.3*** -- Form of Certificate of Designation, Preferences, and
Rights of Series A Junior Participating Preferred Stock
(included as Exhibit A-1 to the Rights Agreement)
4.4*** -- Form of Certificate of Designation, Preferences, and
Rights of Series B Junior Participating Preferred Stock
(included as Exhibit A-2 to the Rights Agreement)
5.1*** -- Opinion of Hughes & Luce, L.L.P. regarding legality of
securities being registered
10.1+ -- 1991 Stock Option Plan
10.2+ -- Form of Option Agreement (1991 Option Plan)
10.3+ -- Restricted Stock Plan
10.4+ -- Form of Restricted Stock Agreement (Restricted Stock
Plan)
10.5+ -- 1996 Non-employee Director Stock Option/Restricted Stock
Plan
10.6+ -- Form of Restricted Stock Agreement (Non-employee Stock
Option/Restricted Stock Plan)
10.7+ -- Form of Option Agreement (Non-employee Stock
Option/Restricted Stock Plan)
10.8+ -- Advisor Stock Option/Restricted Stock Incentive Plan
10.9+ -- Form of Restricted Stock Option Agreement (Advisor Stock
Option/Restricted Stock Incentive Plan)
10.10+ -- Form of Option Agreement (Advisor Stock Option/Restricted
Stock Incentive 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 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
</TABLE>
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 Agreement 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 G. 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+ -- Amended and Restated PSC Stock Option and Purchase
Agreement dated as of April 24, 1997 by and between Swiss
Bank Corporation and the Company (incorporated by
reference to Exhibit 10.30 to the Company's Form 10 dated
April 30, 1997)
10.28+ -- Amended and Restated Master Operating Agreement dated as
of January 1, 1997 between Swiss Bank Corporation and the
Company (incorporated by reference to Exhibit 10.31 to
the Company's Form 10 dated April 30, 1997)
10.29+ -- Amended and Restated Agreement for EPI Operational
Management Services dated as of January 1, 1997
(incorporated by reference to Exhibit 10.32 to the
Company's Form 10 dated April 30, 1997)
10.30* -- Amendment to Amended and Restated Master Operating
Agreement dated June 28, 1998 between UBS AG and the
Company
10.31* -- Amendment to Amended and Restated Agreement for EPI
Operational Management Services dated June 28, 1998
between Swiss Bank Corporation and the Company
10.32*** -- 1999 Employee Stock Purchase Plan
10.33* -- Form of Amended and Restated 1991 Stock Option Plan
10.34* -- Form of Amended Stock Option Agreement
10.35*** -- Promissory Note dated July 31, 1998 made by the Company
in favor of NationsBank of Texas, N.A.
10.36* -- Promissory Note dated August 27, 1997 made by John E.
King in favor of the Company in the principal amount of
$250,000
10.37* -- Pledge Agreement dated August 27, 1997 made by John E.
King in favor of the Company
10.38+ -- Agreement dated August 26, 1996, among the Company,
Donald D. Drobny and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.27 to the
Company's Form 10 dated April 30, 1997)
10.39+ -- Promissory Note dated August 26, 1996, made by Donald D.
Drobny in favor of NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.28 to the
Company's Form 10 dated April 30, 1997)
10.40** -- Agreement dated September 26, 1997, among the Company,
Ken Scott, and NationsBank of Texas, N.A.
10.41*** -- Promissory Note dated September 26, 1997, made by Ken
Scott in favor of NationsBank of Texas, N.A.
10.42** -- Promissory Note dated September 26, 1997 made by Ken
Scott in favor of the Company
21.1*** -- Subsidiaries of the Company
23.1*** -- Consent of Hughes & Luce, L.L.P. (included in Exhibit
5.1)
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.2*** -- Consent of PricewaterhouseCoopers LLP
24.1* -- Power of Attorney (included in Part II to this
Registration Statement)
27.1*** -- Financial Data Schedule for the Nine Month Period Ended
September 30, 1998
27.2*** -- Financial Data Schedule for the Year Ended December 31,
1997
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
*** Filed herewith.
+ Incorporated by reference to the Company's Form 10 dated April 30, 1997 to
the exhibit of the same number except as otherwise indicated.
<PAGE> 1
EXHIBIT 1.1
5,500,000 Shares
PEROT SYSTEMS CORPORATION
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
UNDERWRITING AGREEMENT
January __, 1999
<PAGE> 2
January __, 1999
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Warburg Dillon Read LLC, a subsidiary
of UBS AG
Bear, Stearns & Co. Inc.
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Warburg Dillon Read, a division of UBS AG
Morgan Stanley & Co. International Limited
Merrill Lynch International
Bear, Stearns International Limited
Hambrecht & Quist LLC
c/o Warburg Dillon Read,
a division of UBS AG
1 Finsbury Avenue
London EC2M 2PA
England
Dear Sirs and Mesdames:
Perot Systems Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters (as defined below) 5,500,000 shares
of its Class A Common Stock, par value $0.01 per share (the "Firm Shares").
It is understood that, subject to the conditions hereinafter stated, 4,400,000
Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 1,100,000 Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Warburg Dillon Read LLC, a
subsidiary of UBS AG, Bear, Stearns & Co. Inc. and Hambrecht & Quist LLC shall
act as representatives (the "U.S. Representatives") of the several U.S.
Underwriters, and Warburg Dillon Read, a division of UBS AG, Morgan Stanley &
Co. International Limited, Merrill Lynch International, Bear, Stearns
International Limited and Hambrecht & Quist LLC Limited shall act as
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
<PAGE> 3
The Company also proposes to issue and sell to the several U.S. Underwriters
not more than an additional 825,000 shares of its Class A Common Stock, par
value $0.01 per share (the "Additional Shares"), if and to the extent that the
U.S. Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares." The shares of
Class A Common Stock, par value $0.01 per share, of the Company to be
outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley & Co.
Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares set
forth opposite its name on Schedule I to this Agreement, up to 330,000 shares,
for sale to certain persons designated by the Company (collectively,
"Participants"), as set forth in the Prospectus under the heading "Underwriting"
(the "Directed Share Program"). The Shares to be sold by Morgan Stanley pursuant
to the Directed Share Program (the "Directed Shares") will be sold by Morgan
Stanley pursuant to this Agreement at the public offering price. Any Directed
Shares not orally confirmed for purchase by any Participants by the end of
business day on which this Agreement is executed will be offered to the public
by Morgan Stanley as set forth in this Prospectus.
1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and
<PAGE> 4
regulations of the Commission thereunder and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except in each case to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and are owned directly by the Company, free
and clear of all liens, encumbrances, equities or claims. Set forth on
Schedule III hereto are the names of all of the subsidiaries of the
Company that is a "significant subsidiary" of the Company, as that
term is defined in Rule 1-02(w) of Regulation S-X under the Securities
Act (each, a "Material Subsidiary").
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully
paid and non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights.
<PAGE> 5
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending, or to
the knowledge of the Company threatened, to which the Company or any
of its subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus and are
not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended.
(n) Except as otherwise disclosed in writing to the Underwriters,
there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, other than as described in the Registration
Statement or as have otherwise been waived.
(o) The Company has complied with all applicable provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
<PAGE> 6
(p) Except as otherwise disclosed in writing to the Underwriters,
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, (i) the Company and its
subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction in
each case not in the ordinary course of business; (ii) the Company has
not purchased any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (iii)
there has not been any material change in the capital stock,
short-term debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).
(q) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and indefensible title to
all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of
all liens, encumbrances and defects except such as are described in
the Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries, in each case except
as described in the Prospectus.
(r) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(s) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole, except as
described in the Prospectus.
(t) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
<PAGE> 7
businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the Company
and its subsidiaries, taken as a whole, except as described in the
Prospectus.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(v) Except as described in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), the Company has not sold, issued or distributed any shares
of Common Stock during the six-month period preceding the date hereof,
including any sales pursuant to Rule 144A under, or Regulation D or S
of, the Securities Act, other than shares issued pursuant to employee,
director or consultant benefit plans, stock option plans or other
employee, director or consultant compensation plans or pursuant to
outstanding options, rights or warrants.
(w) The Company represents and warrants to Morgan Stanley that (i)
the Registration Statement, the Prospectus and any preliminary
prospectus comply in all material respects, and any further amendments
or supplements thereto will comply in all material respects, with any
applicable laws or regulations of foreign jurisdictions in which the
Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share
Program, and that (ii) no authorization, approval, consent, license,
order, registration or qualification of or with any government,
governmental instrumentality or court, other than such as have been
obtained, is necessary under the securities laws and regulations of
foreign jurisdictions in which the Directed Shares are offered outside
the United States.
(x) The Company has not offered, or caused the Underwriters to
offer, shares to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or
type of business with the Company, or (ii) a trade journalist or
publication to write or publish favorable information about the
Company or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedules I and II
hereto opposite its names at U.S.$_____ a share ("Purchase Price").
<PAGE> 8
On the basis of the representations and warranties contained in this Agreement,
and subject to its terms and conditions, the Company agrees to sell to the U.S.
Underwriters the Additional Shares, and the U.S. Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 825,000.
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on
which such shares are to be purchased. Such date may be the same as the Closing
Date (as defined below) but not earlier than the Closing Date nor later than
ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule
I hereto opposite the name of such U.S. Underwriter bears to the total number
of U.S. Firm Shares.
The Company hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 180 days after the date of the Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder, (B) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing, (C) shares of Common Stock or options to purchase Common
Stock that may be issued or granted from time to time by the Company pursuant
to the Company's 1991 Stock Option Plan, Restricted Stock Plan, 1996 Advisor
and Consultant Stock Option / Restricted Stock Incentive Plan, the Advisor
Stock Option Plan / Restricted Stock Plan Incentive Plan, 401K Plan, Employee
Benefit Trust, and the 1996 Non-Employee Director Stock Option / Restricted
Stock Incentive Plan (collectively, the "Plans") or the 1999 Employee Stock
Purchase Plan, and (D) shares of Common Stock or options to purchase Common
Stock that may be issued by the Company in connection with a merger or the
acquisition by the Company of the capital stock or assets of another entity,
provided that the recipient of such shares of Common Stock or options to
purchase Common Stock shall have agreed to restrictions on transfer
substantially similar to the foregoing.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$____ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of U.S.$____ a
share, to any Underwriter or to certain other dealers.
<PAGE> 9
4. Payment and Delivery. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on January __, 1999, or at such
other time on the same or such other date, not later than January __, 1999, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in Federal or
other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described
in Section 2 or at such other time on the same or on such other date, in any
event not later than February __, 1999, as shall be designated in writing by
the U.S. Representatives. The time and date of such payment are hereinafter
referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in definitive
form and registered in such names and in such denominations as you shall
request in writing not later than one full business day prior to the Closing
Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Shares to the Underwriters duly
paid, against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 4:30 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations
of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement) that,
in your judgment, is material and adverse and that makes it, in
your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
<PAGE> 10
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 5(a)(i) above and
to the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing
Date and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Hughes & Luce, L.L.P., outside counsel for the Company,
dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(ii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the
Prospectus;
(iii) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(iv) all of the issued shares of capital stock of each Material
Domestic Subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly by
the Company, free and clear of all liens, encumbrances, equities or
claims;
(v) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar
rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
<PAGE> 11
(vii) the statements (A) in the Prospectus under the captions
"Business-UBS Agreements," "Business-Agreement with EME," "Certain
U.S. Tax Considerations for Non-U.S. Holders," "Description of
Capital Stock" and "Underwriters" and (B) in the Registration
Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(viii) after due inquiry, such counsel does not know of any
statutes or regulations or, after inquiry of the executive officers
and the general counsel of the Company, any contracts or other
documents, in either case, that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as
required, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and
sale of the Shares by the U.S. Underwriters;
(ix) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended; and
(x) such counsel shall also state that it has participated in
conferences with the executive officers of the Company,
representatives of the independent public accountants of the
Company, and the Underwriters at which the contents of the
Registration Statement and the Prospectus and related matters were
discussed, has participated in the preparation of the Registration
Statement and the Prospectus and, although such counsel is not
passing upon, does not assume responsibility for, and has not
verified the accuracy, completeness, or fairness of the statements
contained in the Registration Statement or the Prospectus, or any
amendment thereof or thereto other than as described in paragraph
(viii) above, on the basis of the foregoing and without independent
check or verification, (A) such counsel believes that the
Registration Statement and the Prospectus (except for the financial
statements and schedules and other financial and statistical data
included therein as to which counsel need not express any belief)
comply as to form in all material respects with the Securities Act
and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for the
financial statements and schedules and other financial and
statistical data included therein as to which counsel need not
express any belief) the Registration Statement and the Prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C)
has no reason to believe that (except for the financial statements
and schedules
<PAGE> 12
and other financial and statistical data included therein as to
which counsel need not express any belief) the Prospectus contains
as of the date thereof any untrue statement of material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Peter Altabef, General Counsel of the Company, dated the
Closing Date, to the effect that:
(i) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or, to such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or, to such
counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Company or any subsidiary; and
(ii) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or, to such counsel's
knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus and
are not so described.
(e) The Underwriters shall have received on the Closing Date an
opinion of Derek Simpson, dated the Closing Date, to the effect that:
(i) each Material Subsidiary has been duly incorporated, is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power
and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(ii) all of the issued shares of capital stock of each Material
Subsidiary have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by the
Company, free and clear of all liens, encumbrances, equities or
claims;
(iii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of each Material
<PAGE> 13
Subsidiary or, to such counsel's knowledge, any agreement or other
instrument binding upon each Material Subsidiary or any of its
subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or, to such counsel's knowledge, any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary; and
(iv) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or, to such counsel's
knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus and
are not so described.
(f) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated
the Closing Date, covering the matters referred to in Sections
5(c)(v), 5(c)(vi), 5(c)(vii) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters")
and 5(c)(x) above.
With respect to Section 5(c)(x) above, Hughes & Luce, L.L.P. and Davis
Polk & Wardwell may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except as
specified.
The opinions of Hughes & Luce, L.L.P. described in Section 5(c), Peter
Altabef described in Section 5(d) and Derek Simpson described in Section 5(e)
above shall be rendered to the Underwriters at the request of the Company and
shall so state therein.
(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory
to the Underwriters, from PricewaterhouseCoopers L.L.P., independent
public accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the
Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
(i) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they
may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares
and other matters related to the issuance of the Additional Shares.
<PAGE> 14
6. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) To furnish to you, without charge, seven signed copies of the
Registration Statement (including exhibits thereto) and for delivery
to each other Underwriter a conformed copy of the Registration
Statement (without exhibits thereto) and to furnish to you in New York
City, without charge, prior to 10:00 a.m. New York City time on the
business day next succeeding the date of this Agreement and during the
period mentioned in Section 6(c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to
such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to
a purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the
Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments
or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending March 31, 2000 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under
this Agreement, including: (i) the fees, disbursements and expenses
<PAGE> 15
of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities
Act and all other fees or expenses in connection with the preparation
and filing of the Registration Statement, any preliminary prospectus,
the Prospectus and amendments and supplements to any of the foregoing,
including all printing costs associated therewith, and the mailing and
delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related
to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) the cost
of printing or producing any Blue Sky memorandum in connection with
the offer and sale of the Shares under state securities laws and all
expenses in connection with the qualification of the Shares for offer
and sale under state securities laws as provided in Section 6(d)
hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky memorandum, (iv) all
filing fees and the reasonable fees and disbursements of counsel to
the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National
Association of Securities Dealers, Inc., (v) all fees and expenses in
connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and
expenses incident to listing the Shares on the NYSE, (vi) the cost of
printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations
on any "road show" undertaken in connection with the marketing of the
offering of the Shares, including, without limitation, expenses
associated with the production of road show slides and graphics, fees
and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company
and any such consultants, and the cost of any aircraft chartered by or
on behalf of the Company in connection with the road show, (ix) all
fees and disbursements of counsel incurred by the Underwriters in
connection with the Directed Share Program and stamp duties, similar
taxes or duties or other taxes, if any, incurred by the Underwriters
in connection with the Directed Share Program and (x) all other costs
and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution", and the last
paragraph of Section 9 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them
and any advertising expenses connected with any offers they may make.
(g) That in connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months
following the date of the effectiveness of the Registration Statement.
Morgan Stanley will notify the Company as to which Participants will
need to be so restricted. The Company will direct the transfer agent
to place stop transfer restrictions upon such securities for such
period of time.
<PAGE> 16
(h) To comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share
Program.
7. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto),
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers
who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Underwriter, but only
with reference to information relating to such Underwriter furnished
to the Company in writing by such Underwriter through you expressly
for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(c) The Company agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within
the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act ("Morgan Stanley Entities"), from and against any
and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
(i) caused by any untrue statement or alleged untrue statement of a
material fact contained in any prospectus wrapper material prepared by
or with the consent of the Company for distribution in foreign
jurisdictions in connection with the Directed Share Program attached
to the Prospectus or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable
preliminary prospectus, not misleading; (ii) caused by the failure of
any Participant to pay for and accept delivery of the shares which,
immediately following the effectiveness of the Registration Statement,
were subject to a properly confirmed agreement to purchase; or (iii)
related to, arising out of, or in connection with the Directed Share
Program, provided that, the Company shall not be responsible under
this subparagraph (iii) for any losses, claim, damages or liabilities
(or expenses relating thereto) that are finally judicially determined
to have resulted from the bad faith or gross negligence of the Morgan
Stanley Entities.
<PAGE> 17
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 7(a), 7(b) or 7(c),
such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party")
in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the
indemnifying party may designate in and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the
case of parties indemnified pursuant to Section 7(a) or Section 7(c),
and by the Company, in the case of parties indemnified pursuant to
Section 7(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such
settlement or judgment. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to Section 7(c) hereof in respect of
such action or proceeding, then in addition to such separate firm for
the indemnified parties, the indemnifying party shall be liable for
the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for Morgan Stanley for the defense
of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control Morgan
Stanley within the meaning of either Section 15 of the Act or Section
20 of the Exchange Act.
(e) To the extent the indemnification provided for in Section 7(a),
7(b) or 7(c) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from
the offering of the Shares or (ii) if the allocation provided by
clause 7(e)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause 7(e)(i) above but also the relative
<PAGE> 18
fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the
other hand in connection with the offering of the Shares shall be
deemed to be in the same respective proportions as the net proceeds
from the offering of the Shares (before deducting expenses) received
by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table
on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not
joint.
(f) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 were
determined by pro rataallocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 7(e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds
the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 7 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of
the Company contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of
the Shares.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities
<PAGE> 19
of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any one
or more of the Underwriters shall fail or refuse to purchase Shares that it has
or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate
number of the Shares to be purchased on such date, the other Underwriters shall
be obligated severally in the proportions that the number of Firm Shares set
forth opposite their respective names in Schedule I or Schedule II bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify,
to purchase the Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase on such date; provided that in no event shall
the number of Shares that any Underwriter has agreed to purchase pursuant to
this Agreement be increased pursuant to this Section 9 by an amount in excess
of one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements satisfactory
to you and the Company for the purchase of such Firm Shares are not made within
36 hours after such default, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriter or the Company. In any such case
either you or the Company shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Additional
Shares to be purchased, the non-defaulting Underwriters shall have the option
to (i) terminate their obligation hereunder to purchase Additional Shares or
(ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the
absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by
the Underwriters, or any of them, because of any failure or refusal on the part
of the Company to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to perform its
obligations under this Agreement, the Company will reimburse the Underwriters
or such Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Underwriters in
connection with this Agreement or the offering contemplated hereunder.
<PAGE> 20
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
12. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
PEROT SYSTEMS CORPORATION
By:
Name:
Title:
<PAGE> 21
Accepted as of the date hereof
MORGAN STANLEY & CO.
INCORPORATED
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
WARBURG DILLON READ LLC,
a subsidiary of UBS AG
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST LLC
Acting severally on behalf of themselves and the several U.S.
Underwriters named in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
Name:
Title:
WARBURG DILLON READ,
a division of UBS AG
MORGAN STANLEY & CO.
INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
HAMBRECHT & QUIST LLC
Acting severally on behalf of themselves and the
several International Underwriters named in
Schedule II hereto.
By: Warburg Dillon Read, a division of UBS AG
By:
Name:
Title:
<PAGE> 22
SCHEDULE I
U.S. UNDERWRITERS
Underwriter
Number of Firm Shares
To Be Purchased
Morgan Stanley & Co. Incorporated. . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith
Incorporated. . . . . . . . . . . . . . . . . . .
Warburg Dillon Read LLC,
a subsidiary of UBS AG. . . . . . . . . . . . . .
Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . .
Hambrecht & Quist LLC. . . . . . . . . . . . . . . . .
Total U.S. Firm Shares. . . . . . . . . . . . . .
<PAGE> 23
SCHEDULE II
INTERNATIONAL UNDERWRITERS
Underwriter
Number of Firm Shares
To Be Purchased
Warburg Dillon Read, a division of UBS AG. . . . . . .
Morgan Stanley & Co. International Limited . . . . . .
Merrill Lynch International. . . . . . . . . . . . . .
Bear, Stearns International Limited. . . . . . . . . .
Hambrecht & Quist LLC. . . . . . . . . . . . . . . . .
Total International Firm Shares . . . . . . . . .
<PAGE> 24
SCHEDULE III
MATERIAL SUBSIDIARIES
Perot Systems Europe Limited
Perot Systems Europe (Energy Services) Limited
<PAGE> 25
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 1998
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Warburg Dillon Read LLC,
a subsidiary of UBS AG
Bear, Stearns & Co. Inc.
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Warburg Dillon Read,
a division of UBS AG
Morgan Stanley & Co. International Limited
Merrill Lynch International
Bear, Stearns International Limited
Hambrecht & Quist LLC
c/o Warburg Dillon Read,
a division of UBS AG
1 Finsbury Avenue
London EC2M 2PA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and Warburg Dillon Read, a division of UBS AG ("Warburg Dillon
Read"), propose to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Perot Systems Corporation, a Delaware corporation (the
"Company") providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley and Warburg Dillon Read (the
"Underwriters") of ___ shares (the "Shares") of the Class A Common Stock, par
value $0.01 per share of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock, or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of
<PAGE> 26
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement or (b) transactions relating to shares
of Common Stock or other securities acquired in open market transactions after
the completion of the Public Offering. In addition, the undersigned agrees
that, without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for
Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
Name
Address
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PEROT SYSTEMS CORPORATION
Perot Systems Corporation, a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Perot Systems Corporation.
Perot Systems Corporation was originally incorporated under the same name, and
the Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on December 19, 1995.
2. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
3. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
ARTICLE I
The name of the Corporation is Perot Systems Corporation.
ARTICLE II
The name of the Corporation's registered agent and the address of its
registered office in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, New Castle County, Delaware 19805.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
A. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 229,000,000 shares, consisting of:
(i) 200,000,000 shares of Class A Common Stock, par value
$0.01 per share;
(ii) 24,000,000 shares of Class B Common Stock, par value
$0.01 per share; and
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<PAGE> 2
(iii) 5,000,000 shares of Preferred Stock, par value $0.01
per share.
B. Class B Common Stock.
(i) Shares of Class B Common Stock will have no voting rights,
except to the extent that the Delaware General Corporation Law requires a vote
of the Class B Common Stock with respect to an amendment to the Certificate of
Incorporation that would increase or decrease the par value of the Class B
Common Stock or alter or change the powers, preferences or special rights of
shares of Class B Common Stock so as to affect them materially and adversely.
No authorization or issuance of any capital stock of the Corporation will be
considered to alter or change the powers, preferences or special rights of
shares of Class B Common Stock. The number of authorized shares of Class B
Common Stock may be increased or decreased (but not below the number of shares
of Class B Common Stock then outstanding or reserved for issuance pursuant to
outstanding options, warrants or similar rights) by the affirmative vote of the
holders of a majority of the voting stock of the Corporation, voting as a
single class, without any vote by holders of the Class B Common Stock.
(ii) (a) Each share of Class B Common Stock shall be
convertible, on a share for share basis, at the option of the holder thereof,
into a fully paid and nonassessable share of Class A Common Stock upon
satisfaction of the terms of Section 1(b) below for the purpose of the
transfer, sale or other disposition thereof (a "sale") to a third party
purchaser that is not an "affiliate" (as defined in Rule 144(a)(1) under the
Securities Act of 1933, as amended) of the holder thereof (a "Third Party") if
such sale is made (a) in a widely dispersed public offering of the Class A
Common Stock; (b) to a Third Party that, prior to such sale, controls more than
50% of the then outstanding voting securities (as defined in the Bank Holding
Company Act of 1956, as amended, or in Regulation Y of the Board of Governors
of the Federal Reserve System) of the Corporation; (c) to a Third Party that,
after such sale, is the beneficial owner (directly or indirectly) of not more
than two percent (2%) of the outstanding voting stock of the Corporation having
power to elect directors; (d) in a transaction that complies with Rule 144 (or
any successor thereto) under the Securities Act of 1933, as amended; or (e) by
Swiss Bank Corporation or its affiliates in a transaction approved in advance
by the Board of Governors of the Federal Reserve System as being in compliance
with the requirements of the Bank Holding Company Act of 1956, as amended, and
any rules and regulations or interpretations promulgated by the Board of
Governors of the Federal Reserve System pursuant thereto (each, a "Qualifying
Sale").
(b) The conversion of Class B Common Stock into Class A
Common Stock for the purpose of making a Qualifying Sale will be effective only
after receipt by the Corporation of a certificate, executed by the holder of
the Class B Common Stock that is the subject of the sale, stating that the
proposed sale is a Qualifying Sale.
(c) As promptly as practicable after receipt by the
Corporation of the certificate referred to in Section B (ii)(b) and delivery to
the Corporation of the certificate or certificates evidencing any shares so
converted, duly endorsed for transfer, the Corporation shall issue and deliver
to the Third Party (or, if necessary for purposes of effecting the Qualifying
2
<PAGE> 3
Sale, to the holder of the shares to be converted) a certificate or
certificates for the number of shares of Class A Common Stock that are the
subject of the Qualifying Sale. If only a portion of the shares of Class B
Common Stock represented by a certificate are transferred in a Qualifying Sale,
the Corporation shall issue and deliver to the holder of such Class B Common
Stock a new certificate representing the Class B Common Stock retained by such
holder.
(d) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Class A Common Stock, solely for
the purpose of effecting the conversion of the Class B Common Stock, the number
of shares of Class A Common Stock deliverable upon the conversion of all Class
B Common Stock from time to time outstanding. The Corporation shall from time
to time (subject to obtaining necessary director and stockholder action), in
accordance with the laws of the State of Delaware, increase the authorized
amount of its Class A Common Stock if at any time the authorized number of
shares of its Class A Common Stock remaining unissued shall not be sufficient
to permit the conversion of all of the shares of Class B Common Stock at the
time outstanding.
C. Required Vote. Any amendment to the Certificate of
Incorporation, merger or consolidation, sale, lease or exchange of all or
substantially all of the Corporation's property and assets or voluntary
dissolution of the Corporation that (in any such case) requires approval by the
Corporation's stockholders under Delaware law must be approved by the
affirmative vote of the holders of at least 66-2/3% of the outstanding stock of
the Corporation entitled to vote thereon, and at least 66-2/3% of the
outstanding stock of each class entitled to vote thereon as a class.
D. Preferred Stock. The Board of Directors is expressly
authorized at any time, and from time to time, to provide for the issuance of
the Preferred Stock in one or more series, each with such voting powers, full
or limited, or without voting powers, and with such designations, preference
and relative participating, conversion, optional or other rights, and such
qualifications, limitation or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issue thereof adopted by the Board
of Directors, and as are not stated in this Certificate of Incorporation, or
any amendments thereto, including (but without limiting the generality of the
foregoing) the following:
(i) The distinctive designation and number of shares comprising
such series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below the
number of shares then outstanding) from time to time by action of the Board of
Directors.
(ii) The dividend rate or rates on the shares of such series and
the relation which such dividends shall bear to the dividends payable on any
other class of capital stock or on any other series of preferred stock, the
terms and conditions upon which and the period in respect of which dividends
shall be payable, whether and upon what conditions such dividends shall be
cumulative and, if cumulative, the date or dates from which dividends shall
accumulate.
(iii) Whether the shares of such series shall be redeemable, and, if
redeemable, whether redeemable for cash, property or rights, including
securities of any other corporation,
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<PAGE> 4
and whether redeemable at the option of the holder or the Corporation or upon
the happening of a specified event, the limitations and restrictions with
respect to such redemption, the time or times when, the price or prices or rate
or rates at which, the adjustments with which and the manner in which such
shares shall be redeemable, including the manner of selecting shares of such
series for redemption if less than all shares are to be redeemed.
(iv) The rights to which the holders of shares of such series shall
be entitled, and the preferences, if any, over any other series (or for any
other series over such series), upon the voluntary or involuntary liquidation,
dissolution, which rights may vary depending on whether such liquidation,
dissolution, distribution or winding up is voluntary or involuntary, and, if
voluntary, may vary at different dates.
(v) Whether the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and, if so, whether and
upon what conditions such fund shall be cumulative or noncumulative, the extent
to which and the manner in which such fund shall be applied to the purchase or
redemption of the shares of such series for retirement or to other corporation
purposes and the terms and provisions relative to the operation thereof.
(vi) Whether the shares of such series shall be convertible into or
exchangeable for shares of any other class or of any other series of any class
of capital stock of the Corporation, and, if so convertible or exchangeable,
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and conditions of
such conversion or exchange.
(vii) The voting powers, full and/or limited, if any, of the shares
of such series, and whether and under what conditions the shares of such series
(alone or together with the shares of one or more other series having similar
provisions) shall be entitled to vote separately as a single class, for the
election of one or more additional directors of the Corporation in case of
dividend arrearages or other specified events, or upon other matters.
(viii) Whether the issuance of any additional shares of such series,
or of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers, preferences or rights of any such other series.
(ix) Any other preferences, privileges and powers and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
4
<PAGE> 5
ARTICLE V
In furtherance and not limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors is expressly authorized to
alter, amend or repeal the bylaws of the Corporation or to adopt new bylaws.
ARTICLE VI
Except as otherwise provided in the resolutions of the Board of
Directors designating any series of Preferred Stock or otherwise authorized by
the Board of Directors, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders and may not be effected by a consent in writing
by any such stockholders.
Subject to the rights of holders of any class or series of Preferred
Stock, special meetings of stockholders may be called only by the Chairman of
the Board or President of the Corporation or by the Chairman of the Board,
President or the Secretary at the request in writing of a majority of the Board
of Directors. Stockholders of the Corporation are not permitted to call a
special meeting or to require that the Board call a special meeting of
stockholders unless authorized by the Board of Directors. The business
permitted at any special meeting of stockholders shall be limited to the
business brought before the meeting by or at the direction of the Board of
Directors.
ARTICLE VII
Subject to the rights of holders of any class or series of Preferred
Stock, nominations for the election of directors, and business proposed to be
brought before an annual meeting of stockholders may be made only by the Board
of Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally. However,
any such stockholder may nominate one or more persons for election as directors
only at an annual meeting or propose business to be brought before an annual
meeting, or both, only if such stockholder has given timely notice in proper
written form of his or her intent to make such nomination or nominations or to
propose such business. To be timely, a stockholder's notice must be delivered
to or mailed and received by the Secretary of the Corporation not less than
sixty (60) days nor more than ninety (90) days prior to the annual meeting;
provided, however, that in the event that less than seventy (70) days notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder, to be timely, must be received no later
than the close of business on the tenth (10th) day following the date on which
such notice of the date of the annual meeting was made or such public
disclosure was made, whichever first occurs. To be in proper written form, a
stockholder's notice to the Secretary shall set forth:
A. the name and address of the stockholder who intends
to make the nominations or propose the business and, as the case may
be, of the person or persons to be nominated or of the business to be
proposed;
5
<PAGE> 6
B. a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
C. if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder;
D. such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed, by the Board of Directors, and
such other information about the nominee as the Board of Directors
deems appropriate, including, without limitation, the nominee's age,
business and residence addresses, principal occupation and the class
and number of shares of Common Stock beneficially owned by the
nominee, or such other information about the business to be proposed
and about the stockholder making such business proposal before the
annual meeting as the Board of Directors deems appropriate, including,
without limitation, the class and number of shares of Common Stock
beneficially owned by such stockholder; and
E. if applicable, the consent of each nominee to serve
as director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination
of any person or any proposal to transact any business not made in compliance
with the foregoing procedure.
ARTICLE VIII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after the filing of this Second Amended and Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
6
<PAGE> 7
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE IX
A. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving as a director or
officer, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than permitted prior thereto), against all
expense, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, excise taxes or penalties and amounts paid or to be paid in
settlement) incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue with respect to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in paragraph (B) hereof with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding initiated by such indemnitee only if
such proceeding was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article IX shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified
for such expenses under this Article IX or otherwise.
B. Right of Indemnitee to Bring Suit. If a claim under paragraph
(A) of this Article IX is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation (except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days), the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, the indemnitee shall also be
entitled to be paid the expense of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
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<PAGE> 8
advancement of expenses) it shall be a defense that, and (ii) in any suit by
the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the Corporation shall be entitled to recover such expenses upon
a final adjudication that, the indemnitee has not met the applicable standard
of conduct set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by
the indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled under this Article IX or otherwise to be
indemnified, or to such advancement of expenses, shall be on the Corporation.
C. Non-Exclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred in this Article IX shall not be
exclusive of any other right which any person may have or hereafter acquire
under this Certificate of Incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
D. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any indemnitee against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
E. Indemnity of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article IX or as otherwise permitted under the Delaware
General Corporation Law with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed by Peter A. Altabef, its authorized officer this 15th day of
September, 1998.
/s/ PETER A. ALTABEF
----------------------------------------
Peter A. Altabef
Secretary
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EXHIBIT 3.2
SECOND AMENDED AND RESTATED BYLAWS
OF
PEROT SYSTEMS CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders may be held
at such time and place, within or without the State of Delaware, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meetings. An annual meeting of stockholders shall
be held on such day in each fiscal year of the corporation and at such time and
place as may be fixed by the Board of Directors, at which meeting the
stockholders shall elect a Board of Directors and transact such other business
as may properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written or printed notice of
the annual meeting, stating the place, day and hour thereof, shall be given to
each stockholder entitled to vote thereat at such address as appears on the
books of the corporation, not less than ten days nor more than sixty days
before the date of the meeting.
Section 4. Advance Notice of Stockholder Nominations and Proposals.
Subject to the rights of holders of any class or series of Preferred Stock,
(a) nominations for the election of directors, and
(b) business proposed to be brought before an annual meeting of
stockholders
may be made only by the Board of Directors or a committee appointed by
the Board of Directors or by any stockholder entitled to vote in the election
of directors generally.
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Notwithstanding anything to the contrary, a stockholder may nominate one or
more persons for election as directors only at an annual meeting or propose
business to be brought before an annual meeting, or both, and only if such
stockholder has given timely notice in proper written form of his or her intent
to make such nomination or nominations or to propose such business. To be
timely, a stockholder's notice must be delivered to or mailed and received by
the Secretary of the corporation not less than sixty (60) days nor more than
ninety (90) days prior to the annual meeting; provided, however, that in the
event that less than seventy (70) days notice or prior public disclosure of the
date of the annual meeting is given or made to stockholders, notice by a
stockholder, to be timely, must be received no later than the close of business
on the tenth (10th) day following the date on which such notice of the date of
the annual meeting was made or such public disclosure was made, whichever first
occurs. To be in proper written form, a stockholder's notice to the Secretary
shall set forth:
(i) the name and address of the stockholder who intends
to make the nominations or propose the business and, as the case may
be, of the person or persons to be nominated or of the business to be
proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed, by the Board of Directors, and
such other information about the nominee as the Board of Directors
deems appropriate, including, without limitation, the nominee's age,
business and residence addresses, principal occupation and the class
and number of shares of Common Stock beneficially owned by the
nominee, or such other information about the business to be proposed
and about the stockholder making such business proposal before the
annual meeting as the Board of Directors deems appropriate, including,
without limitation, the class and number of shares of Common Stock
beneficially owned by such stockholder; and
(v) if applicable, the consent of each nominee to serve
as director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the
nomination of any person or any proposal to transact any business not
made in compliance with the foregoing procedure.
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Section 5. Special Meetings. Subject to the rights of holders of
any class or series of Preferred Stock, special meetings of stockholders may be
called only by the Chairman of the Board or President of the corporation or by
the Chairman of the Board, President or the Secretary at the request in writing
of a majority of the Board of Directors. Stockholders of the corporation are
not permitted to call a special meeting or to require that the Board call a
special meeting of stockholders unless authorized by the Board of Directors.
Section 6. Notice of Special Meetings. Written or printed notice of
a special meeting of stockholders, stating the place, day and hour and purpose
or purposes thereof, shall be given to each stockholder entitled to vote
thereat at such address as appears on the books of the corporation, not less
than ten days nor more than sixty days before the date of the meeting.
Section 7. Business at Special Meetings. The business permitted at
any special meeting of stockholders shall be limited to the business brought
before the meeting by or at the direction of the Board of Directors.
Section 8. Stockholder List. At least ten days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of voting shares held by each, shall be prepared by
the Secretary. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for
such ten day period, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the meeting.
Section 9. Quorum. The holders of a majority of the votes attributed
to the shares of capital stock issued and outstanding and entitled to vote
thereat, represented in person or by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as
otherwise provided by statute, the certificate of incorporation or these
bylaws. The stockholders present may adjourn the meeting despite the absence
of a quorum. When a meeting is adjourned for less than thirty days in any one
adjournment and a new record date is not fixed for the adjourned meeting, it
shall not be necessary to give any notice of the adjourned meeting if the time
and place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken, and at the adjourned meeting any business may
be transacted that might have been transacted on the original date of the
meeting. When a meeting is adjourned for thirty days or more, or when after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given as in the case of an original meeting.
Section 10. Majority Vote. When a quorum is present at any meeting,
the vote of the holders of a majority of the shares having voting power
represented in person or by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of
statute, the certificate of incorporation or these bylaws, a different vote is
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required, in which case such express provision shall govern and control the
decision of such question.
Section 11. Proxies. (a) Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for
him by proxy, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period.
(b) Without limiting the manner in which a stockholder
may authorize another person or persons to act for him as proxy pursuant to
subsection (a) of this Section 11, the following shall constitute a valid means
by which a stockholder may grant such authority:
(i) A stockholder may execute a writing
authorizing another person or persons to act for him as proxy.
Execution may be accomplished by the stockholder or his or its
authorized officer, director, employee or agent signing such writing
or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile
signature.
(ii) A stockholder may authorize another person or
persons to act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the
proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined
that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making
that determination shall specify the information upon which they
relied.
(c) Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to
subsection (b) of this Section 11 may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
Section 12. Voting. Unless otherwise provided by statute or the
certificate of incorporation, each stockholder shall have one vote for each
share of stock having voting power, registered in his name on the books of the
corporation.
Section 13. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided in the resolutions of the Board of Directors designating any
series of Preferred Stock or otherwise authorized by the Board of Directors,
any action required or permitted to be taken by the
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stockholders of the corporation must be effected at a duly called annual or
special meeting of stockholders and may not be effected by a consent in writing
by any such stockholders.
Section 14. Inspectors. (a) The corporation may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of
shares outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the inspectors
after the closing of the polls unless the Delaware Court of Chancery, upon
application by a stockholder, shall determine otherwise.
(d) In determining the validity and counting of proxies
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
accordance with Article II, Section 11(b)(ii), ballots and the regular books
and records of the corporation, except that the inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
that represent more votes than the holder of a proxy is authorized by the
record owner to cast, or more votes than the stockholder holds of record. If
the inspectors consider other reliable information for the limited purpose
permitted herein, the inspectors at the time they make their certification
pursuant to subsection (b)(v) of this Section shall specify the precise
information considered by them including the person or persons from whom they
obtained the information, when the information was obtained, the means by which
the information was obtained and the basis for the inspector's belief that such
information is accurate and reliable.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the corporation shall
be managed by a Board of Directors. The Board may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute,
by the certificate of incorporation or these bylaws directed or required to be
exercised or done by the stockholders.
Section 2. Number of Directors. The number of directors which shall
constitute the whole Board shall be fixed from time to time by resolution of
the Board of Directors, provided that such number shall not be less than one
(1).
Section 3. Election and Term. Except as provided in Section 4 of this
Article III, directors shall be elected at the annual meeting of the
stockholders, and each director shall be elected to serve until the next annual
meeting and until his successor shall have been elected and shall qualify, or
until his death, resignation, or removal from office. Directors need not be
stockholders of the corporation.
Section 4. Vacancies and Newly Created Directorships. If the office
of any director or directors becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office, or otherwise, or the number
of directors constituting the whole Board shall be increased, a majority of the
remaining or existing directors, though less than a quorum, may choose a
successor or successors, or the director or directors to fill the new
directorship or directorships, who shall hold office for the unexpired term in
respect to which such vacancy occurred or in the case of a new directorship or
directorships, until the next annual meeting of the stockholders.
Section 5. Removal. The stockholders may remove a director either
for or without cause at any meeting of stockholders, provided notice of the
intention to act upon such matter shall have been given in the notice calling
such meeting.
ARTICLE IV
MEETINGS OF THE BOARD
Section 1. First Meeting. The first meeting of each newly elected
Board of Directors shall be held at the location of and immediately following
the annual meeting of stockholders, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present; or the Board may meet at such
place and time as shall be fixed by the consent in writing of all the
directors. All meetings of the Board of Directors may be held at such place,
either within or without the State of Delaware, as from time to time shall be
determined by the Board of Directors.
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Section 2. Regular Meetings. Regular meetings of the Board may be
held at such time and place and on such notice, if any, as shall be determined
from time to time by the Board.
Section 3. Special Meetings. Special meetings of the Board may be
called by the President or the Chairman of the Board on twenty-four hours'
notice to each director, delivered either personally or by mail or by telegram
or telecopier. Special meetings shall be called by the President or the
Secretary in like manner and on like notice on the written request of one
director.
Section 4. Quorum and Voting. At all meetings of the Board, a
majority of the directors at the time in office shall be necessary and
sufficient to constitute a quorum for the transaction of business; and the act
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, the certificate of incorporation or these
bylaws. If a quorum shall not be present at any meeting of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 5. Telephone Meetings. Directors may attend any meeting of
the Board or any committee thereof by conference telephone, radio, television
or similar means of communication by means of which all persons participating
in the meeting can hear each other, and all members so attending shall be
deemed present at the meeting for all purposes including the determination of
whether a quorum is present.
Section 6. Action by Written Consent. Any action required or
permitted to be taken by the Board or any committee thereof, under the
applicable provisions of any statute, the certificate of incorporation, or
these bylaws, may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed by all the members of the Board or
committee, as the case may be.
ARTICLE V
COMMITTEES
Section 1. Executive Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board, may designate one or more
directors to constitute an Executive Committee, which Committee, to the extent
provided in such resolution, shall have and may exercise all of the authority
of the Board of Directors in the business and affairs of the corporation except
where action by the Board of Directors is expressly required by statute. The
Executive Committee shall keep regular minutes of its proceedings and report
the same to the Board when required.
Section 2. Other Committees. The Board of Directors may similarly
create other committees for such terms and with such powers and duties as the
Board deems appropriate.
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Section 3. Committee Rules; Quorum. Each committee may adopt rules
governing the method of calling and time and place of holding its meetings.
Unless otherwise provided by the Board of Directors, a majority of any
committee shall constitute a quorum for the transaction of business, and the
act of a majority of the members of such committee present at a meeting at
which a quorum is present shall be the act of such committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The Board of Directors shall have authority to determine, from time to
time, the amount of compensation, if any, which shall be paid to its members
for their services as directors and as members of committees. The Board shall
also have power in its discretion to provide for and to pay to directors
rendering services to the corporation not ordinarily rendered by directors as
such, special compensation appropriate to the value of such services as
determined by the Board from time to time. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
ARTICLE VII
NOTICES
Section 1. Methods of Notice. Whenever any notice is required to be
given to any stockholder, director or committee member under the provisions of
any statute, the certificate of incorporation or these bylaws, such notice
shall be delivered personally or shall be given in writing by mail addressed to
such stockholder, director or committee member at such address as appears on
the books of the corporation, and such notice shall be deemed to be given at
the time when the same shall be deposited in the United States mail with
postage thereon prepaid. Notice to directors and committee members may also be
given by telegram, which notice shall be deemed to be given at the time it is
delivered to the telegraph office, or by telecopy, which notice shall be deemed
to be given at the time it is transmitted or in person, which notice shall be
deemed to be given when received.
Section 2. Waiver of Notice. Whenever any notice is required to be
given to any stockholder, director or committee member under the provisions of
any statute, the certificate of incorporation or these bylaws, a waiver thereof
in writing signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance at any meeting shall constitute a waiver of
notice thereof except as otherwise provided by statute.
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ARTICLE VIII
OFFICERS
Section 1. Executive Officers. The executive officers of the
corporation shall consist of at least a President and a Secretary, each of whom
shall be elected by the Board of Directors. The Board of Directors may also
elect as officers of the corporation a Chairman of the Board, a President, one
or more Vice Presidents, one or more of whom may be designated Executive or
Senior Vice Presidents and may also have such descriptive titles as the Board
shall deem appropriate, and a Treasurer. Any two or more offices may be held
by the same person.
Section 2. Election and Qualification. The Board of Directors at its
first meeting after each annual meeting of stockholders shall elect the
officers of the corporation.
Section 3. Other Officers and Agents. The Board may elect or appoint
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, and
such other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board of Directors.
Section 4. Salaries. The salaries of all officers of the corporation
shall be fixed by the Board of Directors except as otherwise directed by the
Board.
Section 5. Term, Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualify.
Any officer or agent of the corporation may be removed at any time by the
affirmative vote of a majority of the Board of Directors, or by the President.
Any vacancy occurring in any office of the corporation may be filled by the
Board of Directors or otherwise as provided in this Article VIII.
Section 6. Execution of Instruments. The Chairman of the Board and
the President (and such other officers as are authorized thereunto by
resolution of the Board of Directors) may execute in the name of the
corporation bonds, notes, debentures and other evidences of indebtedness, stock
certificates, deeds, mortgages, deeds of trust, indentures, contracts, leases,
agreements and other instruments, requiring a seal under the seal of the
corporation, and may execute such documents where not requiring a seal, except
where such documents are required by law to be otherwise signed and executed,
and except where the signing and execution thereof shall be exclusively
delegated to some other officer or agent of the corporation.
Section 7. Duties of Officers. The duties and powers of the officers
of the corporation shall be as provided in these bylaws, or as provided for
pursuant to these bylaws, or (except to the extent inconsistent with these
bylaws or with any provision made pursuant hereto) shall be those customarily
exercised by corporate officers holding such offices.
Section 8. Chairman of the Board. The Chairman of the Board shall
preside when present at all meetings of the Board of Directors and the
stockholders. The Chairman shall advise and counsel the other officers of the
corporation, shall exercise such powers and perform such
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duties as shall be assigned to or required of him from time to time by the Board
of Directors and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The Chairman of the Board shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President, and may perform such other duties as requested by the
President. The Chairman of the Board may, from time to time, delegate all, or
any, of his powers and duties to the President.
Section 9. President. The President shall advise and counsel the
other officers of the corporation and shall exercise such powers and perform
such duties as shall be assigned to or required of him from time to time by the
Board of Directors. The President shall be ex-officio a member of all standing
committees. The President shall, in the absence or disability of the Chairman
of the Board, perform all the duties and have all the powers of the Chairman of
the Board.
Section 10. Vice Presidents. The Vice Presidents, in the order
determined by the Board of Directors, shall, in the absence or disability of
the President, perform the duties and exercise the powers of the President, and
shall perform such other duties as the Board of Directors, the Chairman of the
Board or the President may prescribe.
Section 11. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all
votes and the minutes of all proceedings in a book to be kept for that purpose
and shall perform like duties for the committees of the Board of Directors
when required. Except as may be otherwise provided in these bylaws, he shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors and the President. He shall
keep in safe custody the seal of the corporation, if any, and shall have
authority to affix the same to any instrument requiring it, and when so affixed
it may be attested by his signature. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature. In the absence of the Treasurer and all
Assistant Treasurers, the Secretary shall perform all the duties and have all
the powers of the Treasurer.
Section 12. Assistant Secretaries. The Assistant Secretaries in the
order determined by the Board of Directors shall, in the absence or disability
of the Secretary, perform the duties and exercise the powers of the Secretary
and shall perform such other duties as the Board of Directors, the Chairman of
the Board or the President may prescribe. Assistant secretaries may be
appointed by the President without prior approval of the Board of Directors.
Section 13. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to
the Board of Directors, the Chairman
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of the Board or the President, whenever any of them may require it, an account
of all of his transactions as Treasurer and of the financial condition of the
corporation.
Section 14. Assistant Treasurers. The Assistant Treasurers in the
order determined by the Board of Directors shall, in the absence or disability
of the Treasurer, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties as the Board of Directors, the Chairman of
the Board or the President may prescribe.
ARTICLE IX
SHARES AND STOCKHOLDERS
Section 1. Shares. The shares of the corporation shall be represented
by certificates or shall be uncertificated. Each registered holder of shares,
upon request to the corporation, shall be provided with a certificate of stock,
representing the number of shares owned by such holder. Absent a specific
request for such a certificate by the registered owner or transferee thereof,
all shares (other than shares with restrictions on transfer) shall be
uncertificated upon the original issuance thereof by the corporation or upon the
surrender of the certificate representing such shares to the corporation.
Section 2. Certificates Representing Shares. The certificates for
shares of stock of the corporation shall be in such form, not inconsistent with
the certificate of incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by, or in the name of the
corporation by, the Chairman or Vice Chairman of the Board of Directors, or the
President or a Vice President and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation, certifying the number of
shares owned by him in the corporation. The signature of any such officer may be
facsimile. In case any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of its issuance. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of the State of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock a statement that the corporation will furnish without charge to each
stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class or series thereof
and the qualifications, limitations or restrictions of such preferences and/or
rights.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the corporation.
Except as hereinafter provided, all certificates surrendered to the
corporation for transfer shall be canceled and no new certificates or
uncertificated shares shall be issued until former certificates for the same
number of shares have been surrendered and canceled.
Section 3. Lost, Stolen or Destroyed Certificates. Whenever a person
owning a certificate for shares of stock of the corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the corporation
an affidavit setting forth, to the best of his knowledge and belief,
the time, place and circumstances of the loss, theft, or destruction, and if
required by the Board of Directors or the transfer agent of the corporation, a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of a new certificate in
replacement therefor. Thereupon the corporation may cause to be issued to such
person uncertificated shares or, if requested by such person, a new certificate
in replacement for the certificate alleged to have been lost, stolen or
destroyed. Upon the stub of every new certificate so issued shall be noted the
fact of such issue and the number, date and the name of the registered owner of
the lost, stolen or destroyed certificate in lieu of which the new certificate
is issued.
11
<PAGE> 12
Section 4. Transfer of Shares. Subject to valid transfer restrictions
and to stop-transfer orders directed in good faith by the corporation to any
transfer agent to prevent possible violations of federal or state securities
laws, rules or regulations, or for any other lawful purpose, upon surrender to
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue or cause to be issued uncertificated shares
or, if requested by the appropriate person, a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books. Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares shall be canceled and issuance
or new equivalent uncertificated shares shall be made to the person entitled
thereto and the transaction shall be recorded upon the books of the corporation.
Section 5. Fractional Shares. The Company by action of its Board of
Directors may, but shall not be obligated to, issue a certificate for a
fractional share, and, by action of the Board of Directors may issue in lieu of
such certificate scrip in registered or bearer form which shall entitle the
holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share. A certificate for a fractional share shall, but
scrip shall not, unless otherwise provided, entitle the holder in proportion to
such holders fractional shares to exercise voting rights, to receive dividends,
and to participate in any of the assets of the corporation in the event of
liquidation. The Board of Directors may cause such scrip to be issued subject to
the condition that it shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the condition
that the shares for which such scrip is exchangeable may be sold by the
corporation and the proceeds distributed to the holders of such scrip, or
subject to any other conditions which the Board of Directors may deem advisable.
Section 6. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of uncertificated shares or certificates
for shares of stock of the corporation.
Section 7. Statements Relating to Uncertificated Securities. Within
two business days after an issuance, transfer, pledge or release from a pledge
of uncertificated shares has been registered, the corporation shall send to the
registered owner thereof and, if shares are or were subject to a registered
pledge, to the registered pledgee, a written notice, signed (if required by law)
in the same manner as a certificate for shares may be signed in accordance with
Section 2 of this Article IX, stating (a) that the Company shall furnish to such
person(s) upon request and without charge a full statement of the designation,
relative rights, preferences and limitations of the shares of each class of the
corporation's stock authorized to be issued and the designation, relative
rights, preferences and limitations of each series of Preferred Stock so far as
the same has been fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other series, (b)
that the corporation is formed under the laws of the State of Delaware, (c) the
number of shares and a description of the issue of which such shares are a part
including the class of shares, and the designation of the series, if any, which
have been issued, transferred, pledged or released from a pledge, as the case
may be, (d) the name, address and taxpayer identification number, if any, of the
person or persons to which such shares have been issued or transferred, and, in
the case of registration of a pledge or a release from a pledge, of the
registered owner and the registered pledgee whose interest is being granted or
released, (e) any liens or restrictions of the corporation, and any adverse
claims (i) which are embodied in a restraining order, injunction or other legal
process served upon the corporation at a time and in a manner which afforded it
a reasonable opportunity to act on it in accordance with applicable law, (ii) of
which the corporation has received written notification from the registered
owner or the registered pledgee at a time and in a manner which afforded it a
reasonable opportunity to act on it in accordance with applicable law, (iii) to
which the registration of transfer to the present registered owner was subject
and so noted in a statement sent to such person under this paragraph, including
restrictions on transfer not imposed by the corporation and (iv) of which the
corporation is charged with notice from a controlling instrument which the
corporation has elected to required as assurance that a necessary endorsement or
instruction is genuine and effective, to which the shares are subject, or a
statement that there are no such liens, restrictions or adverse claims, and (f)
the date the issuance, transfer, pledge or release from a pledge, as the case
may be, was registered. The corporation shall maintain a printed copy of the
most recent statement sent to a person with respect to uncertificated shares
pursuant to this paragraph.
Within two business days after a transfer of uncertificated shares has
been registered, the corporation shall send to the former registered owner and
the former registered pledgee, if any, a written notice stating (a) the number
of shares and a description of the issue of which such shares are a part,
including the class of shares, and the designation of the series, if any, which
have been transferred, (b) the name, address and taxpayer identification number,
if any, of the former registered owner and of the former registered pledgee, if
any and (c) the date the transfer was registered.
The corporation shall send to each registered holder and registered
pledgee of uncertificated shares, no less frequently than annually, and at any
time upon the reasonable written request of any such person, a dated written
notice stating (a) if such notice is to the registered owner, the number of
shares and a description of the issue of which such shares are a part, including
the class of shares and the designation of the series, if any, registered in the
name of such registered owner on the date of the statement, (b) the name,
address and taxpayer identification number, if any, of the registered owner, (c)
the name, address and taxpayer identification number, if any, of any registered
pledgee and the number of shares subject to the pledge, and (d) any liens or
restrictions of the corporation and any adverse claims (i) which are embodied in
a restraining order, injunction or other legal process served upon the
corporation at a time and in a manner which afforded it a reasonable opportunity
to act on it in accordance with applicable law, (ii) of which the corporation
has received written notification from the registered owner or the registered
pledgee at a time and in a manner which afforded it a reasonable opportunity to
act on it in accordance with applicable law, (iii) to which the registration of
transfer to the present registered owner was subject and so noted in a statement
sent to such person under this paragraph, including restrictions on transfer not
imposed by the corporation and (iv) of which the corporation is charged with
notice from a controlling instrument which the corporation has elected to
require as assurance that a necessary endorsement or instruction is genuine and
effective, to which the shares are subject, or a statement that there are no
such liens, restrictions or adverse claims.
Each notice sent pursuant to this Section 7 shall bear a conspicuous
legend reading substantially as follows: "This statement is merely a record of
the rights of the addressee as of the time of its issuance. Delivery of the
statement, of itself, confers no rights onto the recipient. This statement is
neither a negotiable instrument nor a security."
12
<PAGE> 13
Section 8. Fixing Record Date.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
date on which notice is given, or, if notice is waived, at the close of business
on the date next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by this Section, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by statute, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to receive any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 9. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of any share or shares to receive dividends, and to vote as such owner,
and for all other purposes as such owner; and the corporation shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
ARTICLE X
INDEMNIFICATION
(a) Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director or officer of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director or officer
or in any other capacity while serving as a director or officer, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including, without limitation, attorneys' fees, judgments,
fines, excise taxes or penalties and amounts paid or to be paid in settlement)
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue with respect to an indemnitee who has ceased to
be a director or officer and shall inure to the benefit of the indemnitee's
heirs, executors and administrators; provided, however, that, except as
provided in paragraph (b) of this Article X with respect to proceedings to
enforce rights to indemnification, the corporation shall indemnify any such
indemnitee in connection with a proceeding initiated by such indemnitee only if
such proceeding was authorized by the Board of Directors of the corporation.
The right to indemnification conferred in this Article X shall be a contract
right and shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee shall be made only upon delivery to the corporation of an
undertaking (hereinafter an
13
<PAGE> 14
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Article X or otherwise.
(b) If a claim under paragraph (a) of this Article X is not paid
in full by the corporation within sixty days after a written claim has been
received by the corporation (except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty days), the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, the indemnitee shall also be entitled to be paid the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder or by the corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the burden of proving that the indemnitee is
not entitled under this Article X or otherwise to be indemnified, or to such
advancement of expenses, shall be on the corporation.
(c) The rights to indemnification and to the advancement of
expenses conferred in this Article X shall not be exclusive of any other right
which any person may have or hereafter acquire under the certificate of
incorporation or any bylaw of the corporation, agreement, vote of stockholders
or disinterested directors or otherwise.
(d) The corporation may maintain insurance, at its expense, to
protect itself and any indemnitee against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
(e) The corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the corporation to the
fullest extent of the provisions of this Article X or as otherwise permitted
under the Delaware General Corporation Law with respect to the indemnification
and advancement of expenses of directors and officers of the corporation.
14
<PAGE> 15
ARTICLE XI
GENERAL
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, or of the resolutions, if any, providing for any series of stock, may be
declared by the Board of Directors at any meeting thereof, or by the Executive
Committee at any meeting thereof. Dividends may be paid in cash, in property
or in shares of the capital stock of the corporation, subject to the provisions
of the certificate of incorporation or of the resolutions, if any, providing
for any series of stock.
Section 2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose or purposes as the Board of Directors
shall think conducive to the interests of the corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
Section 3. Shares of Other Corporations. Each of the Chairman of the
Board, the President and any Vice President is authorized to vote, represent
and exercise on behalf of the corporation all rights incident to any and all
shares of any other corporation or other entity standing in the name of the
corporation. The authority herein granted to said officer may be exercised
either by said officer in person or by any person authorized so to do by proxy
or power of attorney duly executed by said officer. Notwithstanding the above,
however, the Board of Directors, in its discretion, may designate by resolution
any additional person to vote or represent said shares of other corporations
and other entities.
Section 4. Checks. All checks, drafts, bills of exchange or demands
for money of the corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to time
designate.
Section 5. Corporate Records. The corporation shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders giving the names and
addresses of all stockholders and the number and class and series, if any, of
shares held by each. All other books and records of the corporation may be
kept at such place or places within or without the State of Delaware as the
Board of Directors may from time to time determine.
Section 6. Fiscal Year. The fiscal year of the corporation shall be
fixed by the Board of Directors; if not so fixed, it shall be the calendar
year.
15
<PAGE> 16
ARTICLE XII
AMENDMENTS
In furtherance, and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend, change, add
to or repeal the bylaws of the corporation and shall have the right (which, to
the extent exercised, shall be exclusive) to establish the rights, powers,
duties, rules and procedures that from time to time shall govern the Board of
Directors and each of its members, including, without limitation, the vote
required for any action by the Board of Directors, and that from time to time
shall affect the directors' powers to manage the business and affairs of the
corporation, provided that such bylaws are not inconsistent with the General
Corporation Law of the State of Delaware or the certificate of incorporation,
as amended, and such bylaws related to the business of the corporation, the
conduct of its affairs, and its rights or powers or the rights or powers of its
stockholders, directors, officers or employees. In addition, the bylaws of the
corporation may not be adopted, repealed, altered, amended or rescinded by the
holders of stock of the corporation except by the affirmative vote of eighty
percent (80%) of the outstanding stock of the corporation entitled to vote
generally in the election of directors, voting as a single class, provided that
such bylaws are not inconsistent with the General Corporation Law of the State
of Delaware or the certificate of incorporation, and such bylaws relate to the
business of the corporation, the conduct of its affairs, and its rights or
powers, or the rights or powers of its stockholders, directors, officers or
employees. In addition to the powers and authority herein before or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the corporation, subject, to the provisions of the General Corporation Law of
the State of Delaware, the certificate of incorporation, and any bylaws adopted
by the stockholders; provided, however, that no bylaws hereafter adopted by the
stockholders shall invalidate any prior act of the directors that would have
been valid if such bylaws had not been adopted.
If any Bylaw regulating an impending election of directors is made, altered,
amended, changed, added or repealed by the Board of Directors, there shall be
set forth in the notice of the next meeting of stockholders for the election of
directors the Bylaw so made, altered, amended, changed or repealed, together
with a concise statement of the changes made.
16
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
PS NUMBER PEROT SYSTEMS CORPORATION CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE
SHARES
INCORPORATED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY, AND RIDGEFIELD PARK, NJ SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
AND LEGENDS
CUSIP 714265 10 5
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK OF
Perot Systems Corporation, transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to the
provisions of the laws of the State of Delaware and to all of the provisions in the Certificate of Incorporation and the Bylaws of
the Corporation, as amended from time to time (copies of which are on file at the office of the Corporation), to all of which the
holder of this certificate by acceptance hereof assents. This certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.
In Witness Whereof, the Corporation has caused this certificate to be signed by its duly authorized officers and its
corporate seal to be hereto affixed.
CERTIFICATE OF STOCK
Dated
/s/ ROSS PEROT
- -------------------------------------------------
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER
[SEAL]
PEROT CORPORATION COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
/s/ PETER ALTABEF TRANSFER AGENT AND REGISTRAR
- -------------------------------------------------
SECRETARY
By
perotsystems(TM) AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
PEROT SYSTEMS CORPORATION
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF WHICH
THE CORPORATION IS AUTHORIZED TO ISSUE AND THE QUALIFICATIONS LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE
ADDRESSED TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR TO THE
TRANSFER AGENT.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER TO CERTAIN
RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN PEROT SYSTEMS CORPORATION
(THE "COMPANY") AND THE CHASE MANHATTAN BANK (THE "RIGHTS AGENT") DATED AS OF
________ __, 1999 (AS AMENDED FROM TIME TO TIME, THE "RIGHTS AGREEMENT"), THE
TERMS OF WHICH ARE HEREBY INCORPORATED IN THIS CERTIFICATE BY REFERENCE AND A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS MAY BE
EVIDENCED BY SEPARATE CERTIFICATES AND NO LONGER BE EVIDENCED BY THIS
CERTIFICATE, MAY BE REDEEMED OR EXCHANGED OR MAY EXPIRE. THE COMPANY WILL MAIL
TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT, AS IN EFFECT
ON THE DATE OF MAILING, WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN
REQUEST. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY ANY PERSON WHO IS, WAS, OR BECOMES AN ACQUIRING PERSON OR
AN ADVERSE PERSON OR ANY AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON OR AN
ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER
CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY
BECOME NULL AND VOID.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ----------- -----------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
--------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For Value Received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]_________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
________________________________________________________________________ Shares
of Class A Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint ___________________________________________
Attorney to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated _______________________________________
<TABLE>
<S> <C> <C>
X__________________________________________
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
OF THE REGISTERED OWNER(S) AS WRITTEN ->
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER. X__________________________________________
(SIGNATURE)
_____________________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
_____________________________________________________________________________
SIGNATURE(S) GUARANTEED BY:
_____________________________________________________________________________
________________________________________________________________________ __________________________________________________________
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: BELINDA BECK: 215-830-2198
680 BLAIR MILL ROAD PROOF OF DECEMBER 9, 1998
HORSHAM, PA 19044 PEROT SYSTEMS CORPORATION
(215) 657-3480 H 59867 BACK
- ------------------------------------------------------------------------ ----------------------------------------------------------
SALES: M. GARRETT: 214-823-2700 OPERATOR: lr/koshy
- ------------------------------------------------------------------------ ----------------------------------------------------------
/NET/BANKNOTE/HOME 14 PEROT H59867 NEW
________________________________________________________________________ __________________________________________________________
</TABLE>
<PAGE> 1
EXHIBIT 4.2
-------------------------
FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
PEROT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2230700
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
12404 Park Central Drive, Dallas, Texas 75251
(Address of Principal Executive Offices) (Zip Code)
-------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which each class is
to be registered to be registered
------------------- ----------------------
<S> <C>
None None
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act: Preferred
Stock Purchase Rights.
<PAGE> 2
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
On January 5, 1998, the Board of Directors of Perot Systems Corporation
(the "Company") adopted a Stockholder Rights Plan, providing that one Class A
right (a "Class A Right") will be attached to each share of Class A common
stock, par value $.01 per share, of the Company (the "Class A Common Stock") and
one Class B right (a "Class B Right" and, together with the Class A Rights, the
"Rights") will be attached to each share of Class B Common Stock, par value $.01
per share, of the Company (the "Class B Common Stock" and, together with the
Class A Common Stock, the "Common Stock") as of the close of business on January
7, 1999 (the "Record Date"). Each Class A Right entitles the registered holder
to purchase from the Company a unit consisting of one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $0.01 per share (the
"Series A Preferred Stock"), at a Purchase Price of $110.00 per unit (the
"Purchase Price"), subject to adjustment. Each Class B Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-thousandth of a share of Series B Junior Participating Preferred Stock, par
value $0.01 per share (the "Series B Preferred Stock" and, together with the
Series A Preferred Stock, the "Preferred Stock"), at the Purchase Price of
$110.00 per unit (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in the Rights Agreement (the "Rights
Agreement"), dated as of January __, 1999, between the Company and The Chase
Manhattan Bank as Rights Agent (the "Rights Agent").
Initially, the Class A Rights will be attached to all Class A Common
Stock certificates representing shares outstanding as of the Record Date and the
Class B Rights will be attached to all Class B Common Stock certificates
representing shares outstanding as of the Record Date, and no separate Rights
Certificates will be distributed. The Rights will separate from the Common Stock
and a Distribution Date will occur upon the earlier of (i) 10 calendar days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock or 20% or more of the outstanding shares of Class A Common Stock
(the date of such announcement being the "Stock Acquisition Date"), (ii) 10
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 20% or more of the
outstanding shares of Common Stock or 20% or more of the outstanding shares of
Class A Common Stock, or (iii) the Board of Directors of the Company determining
that any Person or Persons have become the Beneficial Owner of an amount of
Common Stock that the Board of Directors determines to be substantial (which
amount will in no event be less than 11% of the shares of Common Stock or Class
A Common Stock outstanding) and that (a) such Person or Persons intend to cause
the Company to repurchase the Common Stock beneficially owned by such Person or
Persons or to exert pressure against the Company to take any action or enter
into any transaction or series of transactions with the intent or the effect of
providing such Person or Persons
<PAGE> 3
with short-term gains or profits under circumstances in which the Board of
Directors determines that the long-term interests of the Company and its
stockholders would not be served by taking such action or entering into such
transactions or series of transactions or (b) beneficial ownership by such
Person or Persons is reasonably likely to have a material adverse effect on the
business, competitive position, prospects, business reputation, or financial
condition of the Company and its subsidiaries (an "Adverse Person"). Until the
Distribution Date, (i) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference; and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.
The Rights Agreement provides that Ross Perot, and certain of his
successors and affiliates, who together will be beneficial owners of more than
____% of the Common Stock of the Company outstanding on January __, 1999, are
excluded from the definition of "Acquiring Person." Mr. Perot and certain of his
successors and affiliates are also excluded from the definition of "Adverse
Person."
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on January 7, 2009, unless earlier redeemed by
the Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock outstanding prior to the
Distribution Date will be issued with Rights.
In the event that (i) any person becomes an Acquiring Person or (ii)
the Board of Directors declares a person to be an Adverse Person, each holder of
a Class A Right will thereafter have the right to receive, upon exercise, Class
A Common Stock (or, in certain circumstances, cash, property, or other
securities of the Company) and each holder of a Class B Right will thereafter
(subject to limitations on ownership under the Bank Holding Company Act of 1956)
have the right to receive, upon exercise, Class B Common Stock (or in certain
circumstances cash, property or other securities of the Company), having a value
equal to two times the Exercise Price of the Right. The Exercise Price is the
Purchase Price times the number of shares of Common Stock associated with each
Right (initially, one). Notwithstanding any of the foregoing, following the
occurrence of either of the events set forth in this paragraph (the "Flip-In
Events"), all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person or any
Adverse Person, or an Associate or Affiliate of any Acquiring Person or Adverse
Person, will be null and void.
<PAGE> 4
For example, at an exercise price of $110 per Right, each Right not
owned by an Acquiring Person or an Adverse Person (or by certain related
parties) following an event set forth in the preceding paragraph would entitle
its holder to purchase Common Stock with a value of $220 (or other
consideration, as noted above) for $110. Assuming that the Common Stock had a
per share value of $110 at such time, the holder of each valid Right would be
entitled to purchase 2.0 shares of Common Stock for $110.
In the event that following the Stock Acquisition Date or the date a
person becomes an Adverse Person, (i) the Company is acquired in a merger or
consolidation in which the Company is not the surviving corporation or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that have previously been voided as set forth
above) will thereafter have the right (a flip-over right) to receive, upon
exercise of the Right, Common Stock of the acquiring company having a value
equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrants to subscribe for Preferred Stock or convertible securities at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above). With certain exceptions, no
adjustments in the Purchase Price will be required until cumulative adjustments
amount to at least 1% of the Purchase Price. No fractional units will be issued
and, in lieu thereof, an adjustment in cash will be made based on the market
price of the Preferred Stock on the last trading date prior to the date of
exercise.
The Board of Directors may redeem all of the Rights at a price of
$0.001 per Right at any time prior to 10 days after the date that any person
becomes an Acquiring Person or an Adverse Person.
At any time after any person has become an Acquiring Person or an
Adverse Person (but before any person becomes the beneficial owner of 50% or
more of the Company's Common Stock), the Board of Directors may exchange all or
part of the Rights (other than the Rights beneficially owned by the Acquiring
Person or Adverse Person and certain affiliated persons) for shares of Common
Stock at an exchange ratio of one share of Common Stock per Right.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances,
<PAGE> 5
recognize taxable income in the event that the Rights become exercisable for
Common Stock (or other consideration) of the Company as set forth above.
For so long as the Rights are redeemable, the Rights Agreement may be
amended in any respect. At any time after the Rights are no longer redeemable,
the Rights Agreement may be amended by the Board of Directors (without approval
of the holders of the Rights) in any respect that does not (i) adversely affect
the Rights holders (other than any Acquiring Person or Adverse Person and
certain affiliated persons), (ii) cause the Rights Agreement again to become
amendable other than in accordance with this paragraph, or (iii) cause the
Rights again to become redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers.
The Rights Agreement between the Company and the Rights Agent
specifying the terms of the Rights, which includes as Exhibit B the Form of
Rights Certificate, is attached as an exhibit and incorporated by reference. The
foregoing description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
<PAGE> 6
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
PEROT SYSTEMS CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Date: , 1999
-------------
<PAGE> 7
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Second Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement of Form S-1 (Registration No.
333-60755))
2 Certificate of Designation, Rights, Preferences, and Rights of Series A
Junior Participating Preferred Stock of the Registrant (included as
Exhibit A-1 in Exhibit 3 filed herewith).
3 Certificate of Designation, Rights, Preferences, and Rights of Series B
Junior Participating Preferred Stock of the Registrant (included as
Exhibit A-2 in Exhibit 3 filed herewith).
4 Rights Agreement dated as of January __, 1999 between the Registrant
and The Chase Manhattan Bank, as the Rights Agent (filed herewith).
</TABLE>
<PAGE> 8
EXHIBIT 3 TO FORM 8-A
PEROT SYSTEMS CORPORATION
and
THE CHASE MANHATTAN BANK,
as Rights Agent
Rights Agreement
January __, 1999
<PAGE> 9
Table of Contents
<TABLE>
<CAPTION>
Section
<S> <C> <C>
1. Certain Definitions................................................
2. Appointment of Rights Agent........................................
3. Issue of Rights Certificates.......................................
4. Form of Rights Certificates........................................
5. Countersignature and Registration..................................
6. Transfer, Split Up, Combination, and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost, or
Stolen Rights Certificates.........................................
7. Exercise of Rights; Purchase Price;
Expiration Date of Rights..........................................
8. Cancellation and Destruction of Rights Certificates................
9. Reservation and Availability of
Capital Stock......................................................
10. Preferred Stock Record Date........................................
11. Adjustment of Purchase Price, Number, and Kind of
Shares or Number of Rights.........................................
12. Certificate of Adjusted Purchase Price or Number
of Shares..........................................................
13. Consolidation, Merger, or Sale or Transfer of Assets
or Earning Power...................................................
14. Fractional Rights and Fractional Shares............................
15. Rights of Action...................................................
16. Agreement of Rights Holders........................................
17. Rights Certificate Holder Not Deemed a Stockholder.................
18. Concerning the Rights Agent........................................
19. Merger or Consolidation or Change of Name of Rights Agent..........
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
20. Duties of Rights Agent.............................................
21. Change of Rights Agent.............................................
22. Issuance of New Rights Certificates................................
23. Redemption and Termination.........................................
24. Notice of Certain Events...........................................
25. Notices............................................................
26. Supplement and Amendments..........................................
27. Successors.........................................................
28. Determinations and Actions by the Board of Directors, Etc..........
29. Benefits of this Agreement.........................................
30 Severability.......................................................
31. Governing Law......................................................
32. Counterparts.......................................................
33. Interpretation.....................................................
34. Establishment of Fund for Directors ...............................
35. Exchange
</TABLE>
Exhibit A-1 -- Form of Certificate of Designation, Preferences, and Rights of
Series A Junior Participating Preferred Stock
Exhibit A-2 -- Form of Certificate of Designation, Preferences, and Rights of
Series B Junior Participating Preferred Stock
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
<PAGE> 11
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of January __, 1999 (the "Agreement"),
between Perot Systems Corporation, a Delaware corporation (the "Company"), and
The Chase Manhattan Bank, a _____________ (the "Rights Agent").
BACKGROUND
On January __, 1999 (the "Rights Dividend Declaration Date"), the Board
of Directors of the Company authorized and declared a dividend distribution of
one Class A Right (the "Class A Rights") for each share of Class A common stock,
par value $.01 per share, of the Company (the "Class A Common Stock") and one
Class B Right (the "Class B Rights" and, together with the Class A Rights, the
"Rights") for each share of Class B Common Stock, par value $.01 per share, of
the Company (the "Class B Common Stock" and together with the Class A Common
Stock, the "Common Stock") outstanding at the Close of Business on January 7,
1999 (the "Record Date"), and has authorized the issuance of one Class A Right
(as such number may be adjusted pursuant to the provisions of SECTION 11(p)) for
each share of Class A Common Stock of the Company and one Class B Right (as such
number may be adjusted pursuant to the provisions of SECTION 11(p)) for each
share of Class B Common Stock of the Company issued between the Record Date
(whether originally issued or delivered from the Company's treasury) and the
Distribution Date. Each Class A Right initially will represent the right to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock of the Company having the rights, powers, and preferences set
forth in the form of Certificate of Designation, Preferences, and Rights
attached to this Agreement as EXHIBIT A-1, upon the terms and subject to the
conditions set forth below. Each Class B Right initially will represent the
right to purchase one one-thousandth of a share of Series B Junior Participating
Preferred Stock of the Company having the rights, powers, and preferences set
forth in the form of Certificate of Designation, Preferences, and Rights
attached to this Agreement as EXHIBIT A-2, upon the terms and subject to the
conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth in this Agreement, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" means any Person that, together with
all Affiliates and Associates of such Person, is the Beneficial Owner
of 20% or more of the shares of Common Stock then outstanding or 20% or
more of the shares of Class A Common Stock then outstanding, but does
not include (i) any Exempt Person; (ii) any Perot Family Excluded
Person; (iii) any Person that has reported
<PAGE> 12
or is required to report such beneficial ownership (but less than 22%)
on Schedule 13G (or any comparable or successor report) or on Schedule
13D under the Exchange Act (or any comparable or successor report)
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which Schedule 13D does not state any intention to, or reserve
the right to, control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 (or
successor item) of such Schedule 13D (other than the disposition of the
Common Stock) and, within five (5) Business Days of being requested by
the Company to advise it regarding the same, certifies to the Company
that such Person acquired beneficial ownership of shares of Common
Stock in excess of 19.9% inadvertently or without knowledge of the
terms of the Rights and such certification is accepted as true by the
Board of Directors acting in good faith and that, together with all of
such Person's Affiliates and Associates, thereafter does not acquire
additional shares of Common Stock while the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding or 20% or more of
the shares of Class A Common Stock then outstanding; (iv) any Person
that becomes an Acquiring Person solely as a result of a reduction in
the number of outstanding shares of Common Stock in a transaction that
is approved by the Board of Directors; provided that such Person will
immediately be an Acquiring Person in the event such Person thereafter
acquires any additional shares of Common Stock (other than pursuant to
a dividend or distribution paid to made by the Company on the
outstanding Common Stock or pursuant to a split or subdivision of the
outstanding Common Stock) while the Beneficial Owner of 20% or more of
the shares of Common Stock then outstanding or 20% or more of the
Shares of Class A Common Stock then outstanding; and (v) any Person
that is the Beneficial Owner as of the date of this Agreement of in
excess of 20% of the outstanding Common Stock or 20% or more of the
outstanding Class A Common Stock that has publicly disclosed such
Beneficial Ownership; provided that such Person will immediately be an
Acquiring Person in the event such Person thereafter acquires any
additional shares of Common Stock (other than pursuant to a dividend or
distribution paid to made by the Company on the outstanding Common
Stock or pursuant to a split or subdivision of the outstanding Common
Stock) while the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding or 20% or more of the Shares of Class A
Common Stock then outstanding.
(b) "Adverse Person" means a Person (alone or together with
any other Person) as to which the Board of Directors has, after
consultation with such advisors and such other investigation as it
considers necessary, made the following determinations: (i) such Person
or Persons any time after the Rights Dividend Declaration Date have
become the Beneficial Owner of a substantial (but in no event less than
11% of the shares of Common Stock then outstanding) amount of Common
Stock; and (ii) (A) such Person or Persons intend to cause the Company
or its Affiliates to repurchase such Common Stock or Class A Common
Stock beneficially owned by such Person or Persons or to exert pressure
against the Company or its Affiliates to take any action or enter into
any
2
<PAGE> 13
transaction or series of transactions with the intent or effect of
providing such Person or Persons with short-term gains or profits under
circumstances in which the Board of Directors of the Company determines
that the long-term interests of the Company and its stockholders would
not be served by taking such action or entering into such transaction
or series of transactions; or (B) beneficial ownership of Common Stock
by such Person or Persons is reasonably likely to have a material
adverse effect on the business, competitive position, prospects,
business reputation, or financial condition of the Company and its
Subsidiaries; provided, however, that no Perot Family Excluded Person
will be an Adverse Person under the terms of this Agreement. No delay
or failure by the Board of Directors to make a determination that any
Person is an Adverse Person will in any way waive or otherwise
adversely affect the power of the Board of Directors to declare any
Person an Adverse Person.
(c) "Affiliate" and "Associate" and "Control" have the
respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act as in effect on the date
of this Agreement.
(d) A Person will be deemed the "Beneficial Owner" of, and
will be deemed to "beneficially own," any securities that:
(i) such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire
(whether such right is exercisable immediately or only upon
the occurrence of certain events or the passage of time or
both) pursuant to any agreement, arrangement, or
understanding, other than customary agreements with and
between underwriters and selling group members with respect to
a bona fide public offering of securities, (in each case,
whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person will not be deemed
the "Beneficial Owner" of, or to "beneficially own," (A)
securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, (B) securities that such Person has a
right to acquire upon exercise of Rights at any time prior to
the occurrence of a Triggering Event, or (C) securities
issuable upon exercise of Rights from and after the occurrence
of a Triggering Event, which Rights were acquired by such
Person or any of such Person's Affiliates or Associates prior
to the Distribution Date or pursuant to SECTION 3(a) or
SECTION 22 (the "Original Rights") or pursuant to SECTION
11(i) or SECTION 11(p) in connection with an adjustment made
with respect to any Original Rights;
(ii) such Person or any of such Person's Affiliates
or Associates, directly or indirectly, has the right to vote
or dispose of or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 of the
3
<PAGE> 14
General Rules and Regulations under the Exchange Act),
including pursuant to any agreement, arrangement, or
understanding (whether or not in writing and whether or not
such right is exercisable immediately or only upon the
occurrence of certain events or the passage of time or both);
provided, however, that a Person will not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this SECTION 1(d)(ii) as a result of an agreement,
arrangement, or understanding to vote such security if such
agreement, arrangement, or understanding: (1) arises solely
from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with,
the applicable provisions of the General Rules and Regulations
under the Exchange Act, and (2) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate of such
Person) with respect to which such Person (or any of such
Person's Affiliates or Associates) has any agreement,
arrangement, or understanding, other than customary agreements
with and between underwriters and selling group members with
respect to a bona fide public offering of securities (in each
case, whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso in SECTION 1(d)(ii)), or
disposing of any voting securities of the Company;
provided, however, that no Person who is an officer, director or
employee of an Exempt Person or a Perot Family Excluded Person will be
deemed, solely by reason of such Person's status or authority as such,
to be the "Beneficial Owner" of, to have "beneficial ownership" of or
to "beneficially own" any securities that are "beneficially owned,"
including, without limitation, in a fiduciary capacity, by an Exempt
Person or a Perot Family Excluded Person or by any other such officer,
director, or employee of an Exempt Person or a Perot Family Excluded
Person.
(e) "Business Day" means any day other than a Saturday,
Sunday, or a day on which banking institutions in Dallas, Texas are
authorized or obligated by law or executive order to close.
(f) "Close of Business" on any given date will mean 5:00 p.m.,
Delaware time, on such date; provided, however, that if such date is
not a Business Day it will mean 5:00 p.m., Dallas, Texas time, on the
next succeeding Business Day.
(g) "Common Stock" has the meaning set forth in the recital to
this Agreement, except that "Common Stock" when used with reference to
any Person other than the Company will mean the capital stock of such
Person with
4
<PAGE> 15
the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such
Person.
(h) "Exempt Person" means the Company or any Subsidiary of the
Company, in each case including, without limitation, in its fiduciary
capacity, or any employee benefit plan of the Company or of any
Subsidiary of the Company, or any entity or trustee holding Common
Stock for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for
employees of the Company or of any Subsidiary of the Company.
(i) "Perot Family Excluded Person" means each of (i) Ross
Perot and his spouse; (ii) Ross Perot's lineal descendants and their
spouses with respect to Beneficial Ownership of Common Stock received
from Ross Perot, Ross Perot's spouse, Ross Perot's lineal descendants
or their spouses, or any entity referred to in CLAUSES (iii) or (iv);
(iii) any Person established by one or more of the Persons referred to
in CLAUSES (i) or (ii) for charitable or estate planning purposes; (iv)
HWGA, Ltd. or any other Person controlled by one or more persons
referred to in CLAUSES (i), (ii), or (iii) or in which the Persons
referred to in CLAUSES (i), (ii), or (iii) beneficially own in excess
of 51% of the beneficial interest.
(j) "Person" means any individual, firm, corporation,
partnership, or other public or private entity.
(k) "Preferred Stock" means (i) shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the
Company and (ii) shares of Series B Junior Participating Preferred
Stock, par value $0.01 per share, of the Company, and, to the extent
that there are not a sufficient number of shares of Series A Junior
Participating Preferred Stock or Series B Junior Participating
Preferred Stock authorized to permit the full exercise of the Rights,
any other series of preferred stock of the Company designated for such
purpose containing terms substantially similar to the terms of the
Series A Junior Participating Preferred Stock or the or Series B Junior
Participating Preferred Stock, as the case may be.
(l) "Section 11(a)(ii) Event" means any event described in
SECTION 11(a)(ii).
(m) "Section 13 Event" means any event described in clauses
(x), (y), or (z) of SECTION 13(a).
(n) "Stock Acquisition Date" means the first date of public
announcement (which, for purposes of this definition, will include,
without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the
5
<PAGE> 16
Company or an Acquiring Person that an Acquiring Person has become an
Acquiring Person.
(o) "Subsidiary" means, with reference to any Person, any
entity of which an amount of voting securities sufficient to elect at
least a majority of the directors or similar Persons of such entity is
beneficially owned, directly or indirectly, by such Person, or
otherwise controlled by such Person.
(p) "Triggering Event" means any Section 11(a)(ii) Event or
any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights in
accordance with the terms and conditions of this Agreement, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable. The Rights Agent will
have no duty to supervise, and in no event will be liable for, the acts or
omissions of any such co-Rights Agent.
Section 3. Issue of Rights Certificates.
(a) Until the earlier of (i) the Close of Business on the
tenth calendar day after the Stock Acquisition Date (or, if the tenth
calendar day after the Stock Acquisition Date occurs before the Record
Date, the Close of Business on the Record Date); (ii) the Close of
Business on the tenth Business Day (or such later date as may be
designated prior to the occurrence of a Section 11(a)(ii) Event by
action of the Board of Directors) after the date that a tender offer or
exchange offer by any Person (other than the Company or any Exempt
Person) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act,
if upon consummation thereof, such Person would be an Acquiring Person;
or (iii) the Close of Business on the day (or such later date as may be
designated prior to the occurrence of a Section 11(a)(ii) Event by
action of the Board of Directors) that a Person has become an Adverse
Person (the earlier of the times referred to in CLAUSES (i), (ii), and
(iii) being referred to as the "Distribution Date"), (x) the Class A
Rights will be evidenced (subject to the provisions of this SECTION
3(a)) by the certificates for the Class A Common Stock registered in
the names of the holders of the Class A Common Stock (which
certificates for Class A Common Stock will be deemed also to be
certificates for Class A Rights), and the Class B Rights will be
evidenced (subject to the provisions of this SECTION 3(a)) by the
certificates for Class B Common Stock registered in the names of the
holders of the Class B Common Stock (which certificates for Class B
Common Stock will be deemed also to be certificates for Class B
Rights), and, in each such case, not by separate certificates, and (y)
the Rights will be transferable only in connection with the transfer of
the underlying shares of Common Stock (including a transfer to the
Company). As soon as practicable after the Distribution Date, the
Rights
6
<PAGE> 17
Agent upon receipt by it of all necessary information will send by
first-class, insured, postage prepaid mail, to each record holder of
the Common Stock as of the Close of Business on the Distribution Date,
at the address of such holder shown on the records of the Company, one
or more rights certificates, in substantially the form of EXHIBIT B
(the "Rights Certificates"), evidencing one Right for each share of
Common Stock so held, subject to adjustment as provided in this
Agreement. In the event that an adjustment in the number of Rights per
share of Common Stock has been made pursuant to SECTION 11(p), at the
time of distribution of the Rights Certificates, the Company will make
the necessary and appropriate rounding adjustments (in accordance with
SECTION 14(a)) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights
will be evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights, in substantially the
form of EXHIBIT C, by first-class, postage prepaid mail, to each record
holder of the Common Stock as of the Close of Business on the Record
Date, at the address of such holder shown on the records of the
Company. With respect to certificates for the Common Stock outstanding
as of the Record Date, until the Distribution Date, the Rights will be
evidenced by such certificates for the Common Stock and the registered
holders of the Common Stock will also be the registered holders of the
associated Rights. Until the earlier of the Distribution Date and the
Expiration Date (as defined in SECTION 7), the transfer of any
certificates representing shares of Common Stock in respect of which
Rights have been issued will also constitute the transfer of the Rights
associated with such shares of Common Stock.
(c) Rights will be issued in respect of all shares of Common
Stock that are issued (whether originally issued or from the Company's
treasury) after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date. Certificates representing
such shares of Common Stock will also be deemed to be certificates for
Rights, and will bear the following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER TO
CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN
PEROT SYSTEMS CORPORATION (THE "COMPANY") AND THE CHASE
MANHATTAN BANK (THE "RIGHTS AGENT") DATED AS OF ________ __,
1999 (AS AMENDED FROM TIME TO TIME, THE "RIGHTS AGREEMENT"),
THE TERMS OF WHICH ARE HEREBY INCORPORATED IN THIS CERTIFICATE
BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICES OF THE COMPANY. UNDER CERTAIN CIRCUMSTANCES, AS SET
FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS MAY BE EVIDENCED BY
SEPARATE CERTIFICATES AND NO LONGER BE EVIDENCED BY THIS
CERTIFICATE, MAY BE REDEEMED OR EXCHANGED OR MAY EXPIRE. THE
COMPANY WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF
THE
7
<PAGE> 18
RIGHTS AGREEMENT, AS IN EFFECT ON THE DATE OF MAILING, WITHOUT
CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST. UNDER
CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS BENEFICIALLY OWNED BY ANY PERSON WHO IS, WAS, OR
BECOMES AN ACQUIRING PERSON OR AN ADVERSE PERSON OR ANY
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON OR AN ADVERSE
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT),
WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY
ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse of the rights
certificates) will each be substantially in the form set forth in
EXHIBIT B and may have such marks of identification or designation and
such legends, summaries, or endorsements as the Company may deem
appropriate (but that do not change or alter the rights or duties of
the Rights Agent) and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any applicable law
or with any rule or regulation made pursuant thereto or with any rule
or regulation of any stock exchange or quotation system on which the
Rights may from time to time be listed, or to conform to usage. Subject
to the provisions of SECTION 11 and SECTION 22, the Rights
Certificates, whenever distributed, will be dated as of the Record Date
and on their face will entitle the holders of such Rights Certificates
to purchase such number of one one-thousandths of a share of Preferred
Stock as is set forth in such Rights Certificates at the price set
forth in such Rights Certificates (such exercise price per one
one-thousandth of a share, the "Purchase Price"), but the amount and
type of securities purchasable upon the exercise of each Right and the
Purchase Price will be subject to adjustment as provided in this
Agreement.
(b) Any Rights Certificate issued pursuant to SECTION 3(a) or
SECTION 22 that represents Rights beneficially owned by (i) an
Acquiring Person or an Adverse Person or any Associate or Affiliate of
an Acquiring Person or an Adverse Person, (ii) a transferee from an
Acquiring Person or an Adverse Person (or from any Associate or
Affiliate of an Acquiring Person or an Adverse Person) that becomes a
transferee after the Acquiring Person or an Adverse Person becomes an
Acquiring Person or an Adverse Person, or (iii) a transferee from an
Acquiring Person or an Adverse Person (or of any Associate or Affiliate
of an Acquiring Person or an Adverse Person) that becomes a transferee
prior to or concurrently with the Acquiring Person or an Adverse Person
becoming an Acquiring Person or an Adverse Person and receives such
Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or Adverse Person to holders
of equity interests in such Acquiring Person or Adverse Person or to
any Person with whom such Acquiring Person or Adverse Person has any
continuing agreement, arrangement, or understanding regarding
8
<PAGE> 19
the transferred Rights or (B) a transfer that the Board of Directors of
the Company has determined is part of an agreement, plan, arrangement,
or understanding that has as a substantial purpose or effect avoidance
of SECTION 7(e), and any Rights Certificate issued pursuant to SECTION
6 or SECTION 11 upon transfer, exchange, replacement, or adjustment of
any other Rights Certificate referred to in this SECTION 4(b), will
contain (to the extent the Rights Agent has knowledge thereof and to
the extent feasible), and the Company will have the right to affix
thereto, the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO IS, WAS, OR BECAME AN
ACQUIRING PERSON OR AN ADVERSE PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS
RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN THE
RIGHTS AGREEMENT.
Section 5. Countersignature and Registration.
(a) The Rights Certificates will be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its
Chief Operating Officer, its President, or any Vice President, either
manually or by facsimile signature; will have affixed thereto the
Company's seal or a facsimile thereof; and will be attested by the
Secretary or an Assistant Secretary of the Company, either manually or
by facsimile signature. The Rights Certificates will be countersigned
by the Rights Agent, either manually or by facsimile signature and will
not be valid for any purpose unless so countersigned. In case any
officer of the Company who has signed any of the Rights Certificates
ceases to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights
Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect
as though the Person who signed such Rights Certificates had not ceased
to be such officer of the Company, and any Rights Certificate may be
signed on behalf of the Company by any Person who, at the actual date
of the execution of such Rights Certificate, is a proper officer of the
Company to sign such Rights Certificate, although at the date of the
execution of such Rights Certificate any such Person was not such an
officer.
(b) Following the Distribution Date and after receipt by the
Rights Agent of all necessary information, the Rights Agent will keep
or cause to be kept, at its principal office or offices designated as
the appropriate place for surrender of Rights Certificates upon
exercise or transfer, books for registration and transfer of the Rights
Certificates issued under this Agreement. Such books will show the
names and addresses of the respective holders of the Rights
9
<PAGE> 20
Certificates, the number of Rights evidenced on the face of the Rights
Certificates, and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination, and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost, or Stolen Rights Certificates.
(a) Subject to the provisions of SECTION 4(b), SECTION 7(e),
and SECTION 14, at any time after the Distribution Date, and at or
prior to the Expiration Date, any Rights Certificate or Certificates
may be transferred, split up, combined, or exchanged for another Rights
Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of one one-thousandths of a share of Preferred
Stock (or, following a Triggering Event, Common Stock, other
securities, cash, or other property, as the case may be) as the Rights
Certificate or Rights Certificates surrendered then entitled such
holder (or former holder in the case of a transfer) to purchase. Any
registered holder desiring to transfer, split up, combine, or exchange
any Rights Certificate or Rights Certificates will make such request in
writing delivered to the Rights Agent, and will surrender the Rights
Certificate or Rights Certificates to be transferred, split up,
combined, or exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the
Company will be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Rights Certificate until the
registered holder has completed and signed the certificate contained in
the form of assignment on the reverse side of such Rights Certificate
and has provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company requests in good faith. Thereupon,
the Rights Agent will, subject to SECTION 4(b), SECTION 7(e), and
SECTION 14, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with
any transfer, split up, combination, or exchange of any Rights
Certificate.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction, or mutilation of a Rights Certificate, and, in case of
loss, theft, or destruction, of indemnity or security satisfactory to
them, and reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Rights Certificate if mutilated,
the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the
registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed, or mutilated.
10
<PAGE> 21
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) The registered holder of any Rights Certificate may
exercise the Rights evidenced thereby (except as otherwise provided in
this Agreement including, without limitation, the restrictions on
exercisability set forth in SECTION 7(e), SECTION 7(f), SECTION 9(c),
SECTION 11(a)(iii), and SECTION 35) in whole or in part at any time
after the Distribution Date upon surrender of the Rights Certificate,
with the form of election to purchase and the certificate on the
reverse side of the Rights Certificate duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated
for such purpose, together with payment of the aggregate Purchase Price
with respect to the total number of one one-thousandths of a share of
Preferred Stock (or other securities, cash, or other property, as the
case may be) as to which such surrendered Rights are then exercisable,
at or prior to the earlier of (i) the Close of Business on the tenth
anniversary of the Record Date) (the "Final Expiration Date"), and (ii)
the time at which the Rights are redeemed as provided in SECTION 23
(the earlier of the times referred to in CLAUSES (i) and (ii) being
referred to as the "Expiration Date")).
(b) The Purchase Price for each one one-thousandth of a share
of Preferred Stock pursuant to the exercise of a Right will initially
be $110.00; will be subject to adjustment from time to time as provided
in SECTION 11, and SECTION 13(a); and will be payable in accordance
with SECTION 7(c).
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the
certificate duly executed, accompanied by payment, with respect to each
Right so exercised, of the Purchase Price per one one-thousandth of a
share of Preferred Stock (or other shares, securities, cash, or other
property, as the case may be) to be purchased as set forth below and an
amount equal to any applicable transfer tax, the Rights Agent will,
subject to SECTION 20(k), promptly (i) (A) requisition from any
transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates
for the total number of one one-thousandths of a share of Preferred
Stock to be purchased, (the Company hereby irrevocably authorizing its
transfer agent to comply with all such requests), or (B) if the Company
has elected to deposit the total number of shares of Preferred Stock
issuable upon exercise of the Rights with a depository agent,
requisition from the depository agent depository receipts representing
such number of one one-thousandths of a share of Preferred Stock as are
to be purchased (in which case certificates for the shares of Preferred
Stock represented by such receipts will be deposited by the transfer
agent with the depository agent) and the Company will direct the
depository agent to comply with such request; (ii) requisition from the
Company the amount of cash, if any, to be paid in lieu of fractional
shares in accordance with SECTION 14; (iii) after receipt of such
certificates or depository receipts, cause such certificates or
depository receipts to be delivered to or upon the order of the
registered holder
11
<PAGE> 22
of such Rights Certificate, registered in such name or names as may be
designated by such holder; and (iv) after receipt thereof, deliver such
cash, if any, to or upon the order of the registered holder of such
Rights Certificate. The payment of the Purchase Price (as such amount
may be reduced pursuant to SECTION 11(a)(iii)) will be made in cash or
by certified bank check or bank draft payable to the order of the
Company. In the event that the Company is obligated to issue other
securities (including Common Stock) of the Company, pay cash, or
distribute other property pursuant to SECTION 11(a), the Company will
make all arrangements necessary so that such other securities, cash, or
other property are available for distribution by the Rights Agent, if
and when necessary to comply with this Agreement. The Company reserves
the right to require prior to the occurrence of a Triggering Event
that, upon any exercise of Rights, a number of Rights be exercised so
that only whole shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate
exercises less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining
unexercised will be issued by the Rights Agent and delivered to, or
upon the order of, the registered holder of such Rights Certificate,
registered in such name or names as may be designated by such holder,
subject to the provisions of SECTION 6 AND SECTION 14.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii)
Event, any Rights beneficially owned by any Person referred to in
CLAUSES (i) through (iii) below will become null and void without any
further action, and no holder of such Rights will have any rights
whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise: (i) an Acquiring Person or an Adverse
Person or an Associate or Affiliate of an Acquiring Person or an
Adverse Person, (ii) a transferee from an Acquiring Person or an
Adverse Person (or from any Associate or Affiliate of an Acquiring
Person or Adverse Person) that becomes a transferee after the Acquiring
Person or an Adverse Person becomes such, or (iii) a transferee from an
Acquiring Person or an Adverse Person (or of any such Associate or
Affiliate) that becomes a transferee prior to or concurrently with the
Acquiring Person or Adverse Person becoming such and that receives such
Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or the Adverse Person to
holders of equity interests in such Acquiring Person or Adverse Person
or to any Person with whom the Acquiring Person or Adverse Person has
any continuing agreement, arrangement, or understanding regarding the
transferred Rights or (B) a transfer that the Board of Directors of the
Company has determined is part of an agreement, arrangement, or
understanding that has as a substantial purpose or effect the avoidance
of this SECTION 7(e). The Company will notify the Rights Agent promptly
when this SECTION 7(e) applies and will use reasonable efforts to
insure that the provisions of this SECTION 7(e) and SECTION 4(b) are
complied with, but neither the Company nor the Rights Agent will have
any liability under this Agreement to any
12
<PAGE> 23
holder of Rights Certificates or other Person as a result of any
failure to make any determinations with respect to an Acquiring Person,
an Adverse Person, or any of their Affiliates, Associates, or
transferees.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company will be obligated to
undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this SECTION 7
unless such registered holder has (i) properly completed and signed the
certificate contained in the form of election to purchase set forth on
the reverse side of the Rights Certificate surrendered for such
exercise, (ii) not indicated an affirmative response to clause 1 or 2
thereof, and (iii) provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company or the Rights Agent requests in good
faith.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination, or exchange will, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, will be canceled by it, and no Rights
Certificates will be issued in lieu thereof except as expressly permitted by any
of the provisions of this Agreement. The Company will deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent will so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent will deliver all
canceled Rights Certificates to the Company, or will, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case will
deliver a certificate of destruction to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares
of Preferred Stock (and, following the occurrence of a Triggering
Event, out of its authorized and unissued shares of Common Stock or
other securities or out of its authorized and issued shares held in its
treasury), the number of shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock or other securities)
that (as provided in this Agreement including, without limitation,
SECTION 11(a)(iii)), will be sufficient to permit the exercise in full
of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock or other securities)
issuable and deliverable upon the exercise of the Rights may be listed
on any national securities exchange or automated quotation system, the
Company will use its reasonable efforts to cause, from and after such
time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange
13
<PAGE> 24
or automated quotation system upon official notice of issuance upon
such exercise.
(c) The Company will use its best reasonable efforts to (i)
file, as soon as practicable following the earliest date after the
first occurrence of a Section 11(a)(ii) Event on which the
consideration to be delivered by the Company upon exercise of the
Rights has been determined in accordance with SECTION 11(a)(iii), a
registration statement under the Securities Act of 1933, as amended
(the "Act"), with respect to the securities purchasable upon exercise
of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing,
and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of
the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or
"blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for
a period of time not to exceed ninety (90) days after the date set
forth in clause (i) of the first sentence of this SECTION 9(c), the
exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company will issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no
longer in effect. In addition, if the Company determines that a
registration statement is required following the Distribution Date, the
Company may temporarily suspend the exercisability of the Rights until
such time as a registration statement has been declared effective.
Notwithstanding any provision of this Agreement to the contrary, the
Rights will not be exercisable in any jurisdiction if the requisite
qualification in such jurisdiction has not been obtained, the exercise
of such Rights is not permitted under applicable law, or a registration
statement has not been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all shares of Preferred
Stock (and, following the occurrence of a Triggering Event, Common
Stock or other securities) delivered upon exercise of Rights will, at
the time of delivery of the certificates for such shares (subject to
payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and
charges that may be payable in respect of the issuance or delivery of
the Rights Certificates and of any certificates for a number of one
one-thousandths of a share of Preferred Stock (or Common Stock or other
securities, as the case may be) upon the exercise of Rights. The
Company will not, however, be required to pay any transfer tax that may
be payable in respect of any transfer or delivery of Rights
14
<PAGE> 25
Certificates to a Person other than, or the issuance or delivery of a
number of one one-thousandths of a share of Preferred Stock (or Common
Stock or other securities, as the case may be) in respect of a name
other than that of, the registered holder of the Rights Certificates
evidencing Rights surrendered for exercise or to issue or deliver any
certificates for a number of one one-thousandths of a share of
Preferred Stock (or Common Stock or other securities, as the case may
be) in a name other than that of the registered holder upon the
exercise of any Rights until such tax has been paid (any such tax being
payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock or other securities, as the case may be) is issued upon the
exercise of Rights will for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock or other
securities, as the case may be) represented thereby on, and such certificate
will be dated, the date upon which the Rights Certificate evidencing such Rights
was duly surrendered and payment of the Purchase Price (and all applicable
transfer taxes) was made; provided, however, that if the date of such surrender
and payment is a date upon which the Preferred Stock (or Common Stock or other
securities, as the case may be) transfer books of the Company are closed, such
Person will be deemed to have become the record holder of such shares
(fractional or otherwise) on, and such certificate will be dated, the next
succeeding Business Day on which the Preferred Stock (or Common Stock or other
securities, as the case may be) transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Rights Certificate
will not be entitled to any rights of a stockholder of the Company with respect
to shares for which the Rights is exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions, or to exercise
any preemptive rights, and will not be entitled to receive any notice of any
proceedings of the Company, except as provided in this Agreement.
Section 11. Adjustment of Purchase Price, Number, and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this SECTION 11.
(a) (i) In the event the Company at any time after the date of
this Agreement (A) pays a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivides the
outstanding Preferred Stock, (C) combines the outstanding
Preferred Stock into a smaller number of shares, or (D) issues
any shares of its capital stock in a reclassification of the
Preferred Stock (including, without limitation, any such
reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving
corporation), except as otherwise provided in this SECTION
11(a) and SECTION 7(e), the Purchase Price in effect at the
time
15
<PAGE> 26
of the record date for such dividend or of the effective date
of such subdivision, combination, or reclassification, and the
number and kind of shares of Preferred Stock or capital stock,
as the case may be, issuable on such date, will be
proportionately adjusted so that the holder of any Right
exercised after such time will be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate
number and kind of shares of Preferred Stock or capital stock,
as the case may be, that, if such Right had been exercised
immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled
to receive by virtue of such dividend, subdivision,
combination, or reclassification. If an event occurs that
would require an adjustment under both this SECTION 11(a)(i)
and SECTION 11(a)(ii), the adjustment provided for in this
SECTION 11(a)(i) will be in addition to, and will be made
prior to, any adjustment required pursuant to SECTION
11(a)(ii).
(ii) In the event that:
(A) any Person, at any time after the Rights
Dividend Declaration Date, becomes an Acquiring
Person; or
(B) the Board of Directors of the Company
declares any Person to be an Adverse Person;
then, promptly following the first occurrence of a Section 11(a)(ii)
Event, proper provision will be made so that (A) each holder of a Class
A Right (except as provided below in this SECTION 11(a)(ii) and in
SECTION 7(e)) will thereafter have the right to receive, upon exercise
of such Right at the then current Purchase Price in accordance with the
terms of this Agreement, in lieu of a number of one one-thousandths of
a share of Preferred Stock, such number of shares of Class A Common
Stock of the Company as equals the result obtained by (x) multiplying
the then current Purchase Price by the then number of one
one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, and (y) dividing that product (which, following such
first occurrence, will thereafter be referred to as the "Purchase
Price" for each Class A Right and for all purposes of this Agreement)
by 50% of the Current Market Price (determined pursuant to SECTION
11(d)) per share of Class A Common Stock on the date of such first
occurrence (such number of shares, the "Class A Adjustment Shares") and
(B) each holder of a Class B Right (except as provided below in this
SECTION 11(a)(ii) and in SECTION 7(e)) will thereafter have the right
to receive, upon exercise of such Right at the then current Purchase
Price in accordance with the terms of this Agreement, in lieu of a
number of one one-thousandths of a share of Preferred Stock, such
number of shares of Class B Common Stock of the Company as equals the
result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-thousandths of a share of
16
<PAGE> 27
Preferred Stock for which a Right was exercisable immediately prior to
the first occurrence of a SECTION 11(a)(ii) Event, and (y) dividing
that product (which, following such first occurrence, will thereafter
be referred to as the "Purchase Price" for each Class B Right and for
all purposes of this Agreement) by 50% of the Current Market Price
(determined pursuant to SECTION 11(d)) per share of Class A Common
Stock on the date of such first occurrence (such number of shares, the
"Class B Adjustment Shares" and, together with the Class A Adjustment
Shares, the "Adjustment Shares"); provided that if the transaction that
would otherwise give rise to the foregoing adjustment is also subject
to the provisions of SECTION 13, then only the provisions of SECTION 13
will apply and no adjustment will be made pursuant to this SECTION
11(a)(ii).
(iii) In the event that the number of shares of
Common Stock that are authorized by the Company's articles of
incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights is not
sufficient to permit the exercise in full of the Rights in
accordance with SECTION 11(a)(ii), the Company will (A)
determine the value of the Adjustment Shares issuable upon the
exercise of a Class A Right or Class B Right, as the case may
be (the "Current Value"), and (B) with respect to each Right
(subject to SECTION 7(e)), make adequate provision to
substitute for the Adjustment Shares, upon the exercise of a
Right and payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the Purchase Price, (3) Common Stock or
other equity securities of the Company (including, without
limitation, shares, or units of shares, of preferred stock,
such as the Preferred Stock, that the Board of Directors has
deemed to have essentially the same value or economic rights
as shares of Common Stock (such securities being referred to
as "Common Stock Equivalents")), (4) debt securities of the
Company, (5) other assets or property, or (6) any combination
of the foregoing, having an aggregate value equal to the
Current Value (less the amount of any reduction in the
Purchase Price), where such aggregate value has been
conclusively determined based upon the advice of a nationally
recognized investment banking firm; provided, however, that if
the Company has not made adequate provision to deliver value
pursuant to CLAUSE (B) above within thirty (30) days following
the first occurrence of a Section 11(a)(ii) Event then the
Company will be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the
Purchase Price, shares of Class A Common Stock or Class B
Common Stock, as the case may be, (to the extent available)
and then, if necessary, cash, which shares or cash have an
aggregate value equal to the Spread. For purposes of the
preceding sentence, the term "Spread" means the excess of (i)
the Current Value over (ii) the Purchase Price. To the extent
that action is to be taken pursuant to the first sentence of
this SECTION 11(a)(iii), the Company (1) will provide, subject
to SECTION 7(e), that such action will apply uniformly to all
outstanding Rights, and (2) may suspend the exercisability of
the Rights until the expiration of the 30-day
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<PAGE> 28
period above in order to determine the appropriate form of
distribution to be made pursuant to such first sentence and to
determine the value of such distribution. In the event of any
such suspension, the Company will issue a public announcement
stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect. For
purposes of this SECTION 11(a)(iii), the value of each
Adjustment Share will be the Current Market Price per share of
the Class A Common Stock or the Class B Common Stock, as the
case may be, on the date of the first occurrence of a Section
11(a)(ii) Event and the per share or per unit value of any
Common Stock Equivalent will be deemed to equal the Current
Market Price per share of the Class A Common Stock or the
Class B Common Stock, as the case may be, on such date; and
the value of other securities or assets shall be determined
pursuant to SECTION 11(d)(iii). In carrying out the provisions
of this CLAUSE (iii), the Company will, to the fullest extent
possible, provide that the issuance of property, assets,
securities, or rights to the holders of Class B rights will be
effected in a manner that does not cause the holders of Class
B Rights to be in violation of the Bank Holding Company Act of
1956, as amended, and the regulations and interpretations
under such act (the "BHCA"). Notwithstanding the preceding
sentence, to the extent that the Company, after use of all
commercially reasonable efforts, is unable to effect the
distributions contemplated by CLAUSE (iii) within two years of
the date of distribution without causing holders of Class B
Rights to be in violation of the BHCA, the holders of Class B
Rights will cease to have the right to any distribution under
CLAUSE (iii) that would cause such violation.
(b) In case the Company fixes a record date for the issuance
of rights, options, or warrants to holders of any class or series of
Preferred Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five (45) calendar days after such record
date) Preferred Stock (or securities having the same rights,
privileges, and preferences as the shares of Preferred Stock
("Equivalent Preferred Stock")) or securities convertible into
Preferred Stock or Equivalent Preferred Stock at a price per share of
Preferred Stock or per share of Equivalent Preferred Stock (or having a
conversion price per share, if a security convertible into Preferred
Stock or Equivalent Preferred Stock) less than the Current Market Price
(as determined pursuant to SECTION 11(d)) per share of Preferred Stock
on such record date, the Purchase Price to be in effect after such
record date will be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the
numerator of which is the number of shares of Preferred Stock
outstanding on such record date, plus the number of shares of Preferred
Stock that the aggregate offering price of the total number of shares
of Preferred Stock or Equivalent Preferred Stock so to be offered (or
the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such Current Market Price, and the
denominator of which is the number of shares of Preferred Stock
outstanding on
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<PAGE> 29
such record date, plus the number of additional shares of Preferred
Stock or Equivalent Preferred Stock to be offered for subscription or
purchase (or into the maximum number of shares into which the
convertible securities so to be offered are initially convertible). In
the event that the number of shares of Preferred Stock or Equivalent
Preferred Stock issuable under the terms of a convertible security, or
the conversion or exercise price of such convertible security, changes
after the initial issuance of such convertible security, an adjustment
will be made to the Purchase Price that conforms with the adjustment
set forth in this SECTION 11(b). In case such subscription price may be
paid by delivery of consideration part or all of which may be in a form
other than cash, the value of such consideration will be as
conclusively determined in good faith by the Board of Directors, whose
determination will be described in a statement filed with the Rights
Agent and will be binding on the Rights Agent and the holders of the
Rights. Shares of Preferred Stock owned by or held for the account of
the Company will be deemed not to be outstanding for the purpose of any
such computation. Such adjustment will be made successively whenever
such a record date is fixed, and in the event that such rights,
options, or warrants are not so issued, the Purchase Price will be
adjusted to be the Purchase Price that would then be in effect if such
record date had not been fixed.
(c) In case the Company fixes a record date for a distribution
to holders of any class or series of Preferred Stock (including any
such distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation) of evidences of
indebtedness, cash (other than a regular quarterly cash dividend out of
the earnings or retained earnings of the Company), assets (other than a
dividend payable in Preferred Stock, but including any dividend payable
in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in SECTION 11(b)), the Purchase Price to
be in effect after such record date will be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which is the Current Market Price (as
determined pursuant to SECTION 11(d)) per share of Preferred Stock on
such record date, less the fair market value (as conclusively
determined in good faith by the Board of Directors, whose determination
will be described in a statement filed with the Rights Agent) of the
portion of the cash, assets, or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a
share of Preferred Stock and the denominator of which is such Current
Market Price (as determined pursuant to SECTION 11(d)) per share of
Preferred Stock). Such adjustments will be made successively whenever
such a record date is fixed, and in the event that such distribution is
not so made, the Purchase Price will be adjusted to be the Purchase
Price that would have been in effect if such record date had not been
fixed.
(d) (i) For the purpose of any computation under this
Agreement, other than computations made pursuant to SECTION
11(a)(iii), the "Current Market Price" per share of Common
Stock on any date will be deemed to
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<PAGE> 30
be the average of the daily closing prices per share of Common
Stock for the thirty (30) consecutive Trading Days (as defined
below) immediately prior to such date, and for purposes of
computations made pursuant to SECTION 11(a)(iii), the "Current
Market Price" per share of Common Stock on any date will be
deemed to be the average of the daily closing prices per share
of Common Stock for the ten (10) consecutive Trading Days
immediately following such date; provided, however, that in
the event that the Current Market Price per share of the
Common Stock is determined during a period following the
announcement by the issuer of Common Stock of (A) a dividend
or distribution on such Common Stock payable in shares of such
Common Stock or securities convertible into shares of such
Common Stock (other than the Rights), or (B) any subdivision,
combination, or reclassification of such Common Stock, and the
ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination, or
reclassification has not occurred prior to the commencement of
the requisite thirty (30) Trading Day or ten (10) Trading Day
period, as set forth above, then, and in each such case, the
Current Market Price will be properly adjusted to take into
account ex-dividend trading. The closing price for each day
will be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the shares of Common Stock are not
listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction
reporting system with respect to securities listed on the
principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not listed or admitted to trading
on any national securities exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use, or, if on any such date the
shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in
the Common Stock selected by the Board of Directors. If on any
such date no market maker is making a market in the Common
Stock, the fair value of such shares on such date as
determined in good faith by a nationally recognized investment
banking firm will be used. The term "Trading Day" means a day
on which the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of
Common Stock are not listed or admitted to trading on any
national securities exchange, a Business Day. If the Common
Stock is not publicly held or not so listed or traded, Current
Market Price per share will mean the fair value per share as
determined in good faith by a nationally recognized investment
banking firm, the determination of which will be
20
<PAGE> 31
described in a statement filed with the Rights Agent and will
be conclusive for all purposes. The Current Market Price of
the Class B Common Stock will be equal to the Current Market
Price of the Class A Common Stock.
(ii) For the purpose of any computation under this
Agreement, the "Current Market Price" per share of any class
or series of Preferred Stock will be determined in the same
manner as set forth above for the Common Stock in SECTION
11(d)(i) (other than the last sentence thereof). If the
Current Market Price per share of Preferred Stock cannot be
determined in the manner provided above or if the Preferred
Stock is not publicly held or listed or traded in a manner
described in SECTION 11(d)(i), the Current Market Price per
share of Preferred Stock will be conclusively deemed to be an
amount equal to one thousand (1,000) (as such number may be
appropriately adjusted for such events as stock splits, stock
dividends, and recapitalizations with respect to the Common
Stock occurring after the date of this Agreement) multiplied
by the Current Market Price per share of the Common Stock. If
neither the Common Stock nor the Preferred Stock is publicly
held or so listed or traded, Current Market Price per share of
the Preferred Stock will mean the fair value per share as
determined in good faith by a nationally recognized investment
banking firm, whose determination will be described in a
statement filed with the Rights Agent and will be conclusive
for all purposes. For all purposes of this Agreement, the
Current Market Price of one one-thousandth of a share of
Preferred Stock will be equal to the Current Market Price of
one share of Preferred Stock divided by one thousand (1,000).
(iii) For the purpose of any computation hereunder,
the value of any securities or assets other than Common Stock
or Preferred Stock will be the fair value as determined by a
nationally recognized investment banking firm, which
determination will be described in a statement filed with the
Rights Agent and will be conclusive for all purposes.
(e) Anything in this Agreement to the contrary
notwithstanding, no adjustment in the Purchase Price will be required
unless such adjustment would require an increase or decrease of at
least one percent (1%) in the Purchase Price; provided, however, that
any adjustments that by reason of this SECTION 11(e) are not required
to be made will be carried forward and taken into account in any
subsequent adjustment. All calculations under this SECTION 11 will be
made to the nearest cent or to the nearest ten-thousandth of a share of
Common Stock or other share or one-millionth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this
SECTION 11(e), any adjustment required by this SECTION 11 will be made
no later than the earlier of (i) three (3) years from the date of the
transaction that mandates such adjustment or (ii) the Expiration Date.
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<PAGE> 32
(f) If, as a result of an adjustment made pursuant to SECTION
11(a)(ii) or SECTION 13(a), the holder of any Right thereafter
exercised becomes entitled to receive any shares of capital stock other
than Preferred Stock, then the number of such other shares so
receivable upon exercise of any Right and the Purchase Price will be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Preferred Stock contained in SECTIONS 11(a), (b), (c), (e), (g), (h),
(i), (j), (k) and (m) and the provisions of SECTIONS 7, 9, 10, 13, and
14 with respect to the Preferred Stock will apply on like terms to any
such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price under this Agreement will
evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-thousandths of a share of Preferred Stock purchasable
from time to time under this Agreement upon exercise of the Rights, all
subject to further adjustment as provided in this Agreement.
(h) Unless the Company has exercised its election as provided
in SECTION 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in SECTIONS 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment will
thereafter evidence the right to purchase, at the adjusted Purchase
Price, that number of one one-thousandths of a share of Preferred Stock
(calculated to the nearest one-millionth) obtained by (i) multiplying
(x) the number of one one-thousandths of a share covered by a Right
immediately prior to this adjustment, by (y) the Purchase Price in
effect immediately prior to such adjustment of the Purchase Price, and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in
lieu of any adjustment in the number of one one-thousandths of a share
of Preferred Stock purchasable upon the exercise of a Right. Each of
the Rights outstanding after such an adjustment in the number of Rights
will be exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of
the number of Rights will become that number of Rights (calculated to
the nearest one ten-thousandth) obtained by dividing the Purchase Price
in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company will make a public announcement of its election to
adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to
be made. This record date may be the date on which the Purchase Price
is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, will be at least ten (10) days later than the date of the
public announcement. If Rights Certificates have been issued, upon each
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<PAGE> 33
adjustment of the number of Rights pursuant to this SECTION 11(i), the
Company will, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights
Certificates evidencing, subject to SECTION 14, the additional Rights
to which such holders are entitled as a result of such adjustment, or,
at the option of the Company, will cause to be distributed to such
holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights
Certificates evidencing all the Rights to which such holders are
entitled after such adjustment. Rights Certificates so to be
distributed will be issued, executed, and countersigned in the manner
provided for in this Agreement (and may bear, at the option of the
Company, the adjusted Purchase Price) and will be registered in the
names of the holders of record of Rights Certificates on the record
date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a share of Preferred
Stock issuable upon the exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the Purchase
Price per one one-thousandth of a share and the number of one
one-thousandths of a share that were expressed in the initial Rights
Certificates issued under this Agreement.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of the
number of one one-thousandths of a share of Preferred Stock issuable
upon exercise of the Rights, the Company will take any corporate action
that may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue such number of fully paid and
nonassessable one one-thousandths of a share of Preferred Stock at such
adjusted Purchase Price.
(l) In any case in which this SECTION 11 requires that an
adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right
exercised after such record date the number of one one-thousandths of a
share of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the number
of one one-thousandths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company will deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares (fractional or otherwise) or securities
upon the occurrence of the event requiring such adjustment.
(m) Anything in this SECTION 11 to the contrary
notwithstanding, the Company will be entitled to make such reductions
in the Purchase Price, in
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<PAGE> 34
addition to those adjustments expressly required by this SECTION 11, as
and to the extent that, in its good faith judgment, the Board of
Directors of the Company determines it to be advisable in order that
any (i) consolidation or subdivision of the Preferred Stock, (ii)
issuance wholly for cash of any shares of Preferred Stock at less than
the current market price, (iii) issuance wholly for cash of shares of
Preferred Stock or securities that by their terms are convertible into
or exchangeable for shares of Preferred Stock, (iv) stock dividends, or
(v) issuance of rights, options, or warrants referred to in this
SECTION 11, hereafter made by the Company to holders of its Preferred
Stock will not be taxable to such stockholders.
(n) The Company covenants and agrees that it will not, at any
time after the Distribution Date, (i) consolidate with any other Person
(other than a Subsidiary of the Company in a transaction that complies
with SECTION 11(o)), (ii) merge with, from, or into any other Person
(other than a Subsidiary of the Company in a transaction that complies
with SECTION 11(o)), or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction, or a series of
related transactions, assets or earning power aggregating more than 50%
of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the
Company or any of its Subsidiaries in one or more transactions each of
which complies with SECTION 11(o)), if (x) at the time of or
immediately after such consolidation, merger, sale, or transfer, there
are any rights, warrants, or other instruments or securities
outstanding or agreements in effect that could reasonably be expected
to substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights or (y) prior to, simultaneously with, or
immediately after, such consolidation, merger, sale, or transfer, the
stockholders of the Person that constitutes, or would constitute, the
"Principal Party" for purposes of SECTION 13(a) has received a
distribution of Rights previously owned by such Person or any of its
Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by SECTION 23 or
SECTION 26, take (or permit any Subsidiary to take) any action if at
the time such action is taken it is reasonably foreseeable that such
action will diminish substantially or otherwise eliminate the benefits
intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i)
declares a dividend on the outstanding shares of Common Stock payable
in shares of Common Stock, (ii) subdivides the outstanding shares of
Common Stock, or (iii) combines the outstanding shares of Common Stock
into a smaller number of shares, the number of Rights associated with
each share of Common Stock then outstanding, or issued or delivered
thereafter but prior to the Distribution Date, will be proportionately
adjusted so that the number of Rights thereafter associated with each
share of
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<PAGE> 35
Common Stock following any such event will equal the result obtained by
multiplying the number of Rights associated with each share of Common
Stock immediately prior to such event by a fraction the numerator of
which is the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of
which is the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in SECTION 11 or SECTION 13, the
Company will (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts and computations accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each transfer
agent for the Preferred Stock and the Common Stock, a copy of such certificate,
and (c) mail a brief summary thereof to each holder of a Rights Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock) in accordance with SECTION 25. The Rights Agent will be
fully protected in relying on any such certificate and on any adjustment
contained in such certificate and will have no duty with respect to and will not
be deemed to have knowledge of any adjustment unless and until it has received
such a certificate.
Section 13. Consolidation, Merger, or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following (i) a Stock Acquisition Date
or (ii) the time that an Adverse Person has been declared to exist and
continues to exist, directly or indirectly, (x) the Company
consolidates with, or merges from, with, or into, any other Person
(other than a Subsidiary of the Company in a transaction that complies
with SECTION 11(o)), and the Company is not the continuing or surviving
Person of such consolidation or merger; (y) any Person (other than a
Subsidiary of the Company in a transaction that complies with SECTION
11(o)) consolidates with, or merges from, with, or into, the Company,
and the Company is the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding shares of Common Stock of the
Company is changed into or exchanged for stock or other securities of
any other Person or cash or any other property; or (z) the Company
sells or otherwise transfers (or one or more of its Subsidiaries sells
or otherwise transfers), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or any
Subsidiary of the Company in one or more transactions each of which
complies with SECTION 11(o)), then, and in each such case, proper
provision will be made so that (i) each holder of a Right, except as
provided in SECTION 7(e) or SECTION 13(d), will thereafter have the
right to receive, upon the exercise of such Right at the then current
Purchase Price in accordance with the terms of this Agreement, such
number of validly
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<PAGE> 36
authorized and issued, fully paid, nonassessable, and freely tradable
shares of Common Stock of the Principal Party (as defined below), not
subject to any liens, encumbrances, preemptive rights, rights of first
refusal, or other adverse claims, as are equal to the result obtained
by (1) multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is
exercisable immediately prior to the first occurrence of a Section 13
Event (or, if a Section 11(a)(ii) Event has occurred prior to the first
occurrence of a Section 13 Event, multiplying the number of such one
one-thousandths of a share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event
by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, will be referred to as the "Purchase
Price" for each Right and for all purposes of this Agreement) by (2)
50% of the Current Market Price (determined pursuant to SECTION
11(d)(i)) per share of the Common Stock of such Principal Party on the
date of consummation of such Section 13 Event; (ii) such Principal
Party will thereafter be liable for, and will assume, by virtue of such
Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" will thereafter be
deemed to refer to such Principal Party, it being specifically intended
that the provisions of SECTION 11 will apply only to such Principal
Party following the first occurrence of a Section 13 Event; (iv) such
Principal Party will take such steps (including, but not limited to,
the reservation of a sufficient number of shares of its Common Stock)
in connection with the consummation of any such transaction as may be
necessary to assure that the provisions of this Agreement will
thereafter be applicable, as nearly as may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the
Rights; and (v) the provisions of SECTION 11(a)(ii) will be of no
effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" means
(i) in the case of any transaction described in
CLAUSE (x) or (y) of the first sentence of SECTION 13(a), the
Person that is the issuer of any securities into which shares
of Common Stock of the Company are converted in such merger or
consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in
CLAUSE (z) of the first sentence of SECTION 13(a), the Person
that is the party receiving the greatest portion of the assets
or earning power transferred pursuant to such transaction or
transactions;
provided, however, that in any such case, (1) if the Common
Stock of such Person is not at such time and has not been
continuously over the preceding twelve (12) month period
registered under Section 12 of the
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<PAGE> 37
Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and
has been so registered, "Principal Party" will refer to such
other Person; and (2) in case such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common
Stocks of two or more of which are and have been so
registered, "Principal Party" will refer to whichever of such
Persons is the issuer of the Common Stock having the greatest
aggregate market value.
(c) The Company will not consummate any such consolidation,
merger, sale, or transfer unless the Principal Party has a sufficient
number of authorized shares of its Common Stock that have not been
issued or reserved for issuance to permit the exercise in full of the
Rights in accordance with this SECTION 13 and unless prior thereto the
Company and such Principal Party have executed and delivered to the
Rights Agent a supplemental agreement providing for the Principal Party
to assume and perform the terms set forth in SECTIONS 13(a) and (b) and
further providing that, as soon as practicable after the date of any
consolidation, merger, or transfer mentioned in SECTION 13(a), the
Principal Party will
(i) prepare and file a registration statement under
the Act, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate
form, and will cause such registration statement to (A) become
effective as soon as practicable after such filing and (B)
remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its
Affiliates that comply in all respects with the requirements
for registration on Form 10 under the Exchange Act.
The provisions of this SECTION 13 will similarly apply to successive mergers,
consolidations, and sales or other transfers. In the event that a Section 13
Event occurs at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights that have not theretofore been exercised will thereafter become
exercisable in the manner described in SECTION 13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Company will not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in SECTION
11(p), or to distribute Rights Certificates that evidence fractional
Rights. In lieu of such fractional Rights, there will be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal
to the same fraction of the current market value of a whole Right. For
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purposes of this SECTION 14(a), the current market value of a whole
Right will be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price of the Rights for any
day will be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted
to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system
then in use or, if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights
selected by the Board of Directors. If on any such date no such market
maker is making a market in the Rights the fair value of the Rights on
such date as conclusively determined in good faith by a nationally
recognized investment banking firm will be used.
(b) The Company will not be required to issue fractions of
shares of Preferred Stock (other than fractions that are integral
multiples of one one-thousandth of a share of Preferred Stock) upon
exercise of the Rights or to distribute certificates that evidence
fractional shares of Preferred Stock (other than fractions that are
integral multiples of one one-thousandth of a share of Preferred
Stock). In lieu of fractional shares of Preferred Stock that are not
integral multiples of one one-thousandth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at
the time such Rights are exercised as provided in this Agreement an
amount in cash equal to the same fraction of the current market value
of one one-thousandth of a share of Preferred Stock. For purposes of
this SECTION 14(b), the current market value of one one-thousandth of a
share of Preferred Stock will be one one-thousandth of the closing
price of a share of Preferred Stock (as determined pursuant to SECTION
11(d)(ii)) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of a Triggering Event or upon any
exchange pursuant to SECTION 35, the Company will not be required to
issue fractions of shares of Common Stock upon exercise of the Rights
or to distribute certificates that evidence fractional shares of Common
Stock. In lieu of fractional shares of Common Stock, the Company may
pay to the registered holders of Rights Certificates at the time such
Rights are exercised or exchanged as provided in this Agreement an
amount in cash equal to the same fraction of the current market value
of one share of Common Stock. For purposes of this
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SECTION 14(c), the current market value of one share of Common Stock
will be the Current Market Value of one share of Common Stock (as
determined pursuant to SECTION 11(d)(i)) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right, by the acceptance of the Rights,
expressly waives the right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this
SECTION 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action, or proceeding
against the Company to enforce, or otherwise act in respect of, its right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under this Agreement and injunctive relief against actual or
threatened violations of the obligations under this Agreement of any Person
subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the Rights consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper
instrument of transfer, and with the appropriate forms and certificates
fully executed;
(c) subject to SECTION 6(a) and SECTION 7(f), the Company and
the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner of the Rights
evidenced thereby (notwithstanding any notations of ownership or
writing on the Rights Certificates or the associated Common Stock
certificate made by anyone other than the Company or the Rights Agent)
for all purposes whatsoever, and neither the
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<PAGE> 40
Company nor the Rights Agent, subject to the last sentence of SECTION
7(e), will be required to be affected by any notice to the contrary;
and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent will have any
liability to any holder of a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order,
decree, or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory, or administrative agency or commission, or
any statute, rule, regulation, or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligation; provided, however, the
Company will use its reasonable best efforts to have any such order,
decree, or ruling lifted or otherwise overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate will be entitled to vote or receive
dividends or be deemed for any purpose the holder of the number of one
one-thousandths of a share of Preferred Stock or any other securities of the
Company that may at any time be issuable on the exercise of the Rights
represented thereby, nor will anything contained in this Agreement or in any
Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in SECTION 24), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Rights Certificate have
been exercised in accordance with the provisions of this Agreement.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it under this Agreement and,
from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other disbursements
incurred in the preparation, execution, delivery, amendment, and
administration of this Agreement and the exercise and performance of
its duties under this Agreement. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, fine, penalty, claim, demand, settlement cost, or
expense, incurred without gross negligence, bad faith, or willful
misconduct on the part of the Rights Agent, for any action taken or
suffered or omitted to be done by the Rights Agent in connection with
the acceptance and administration of this Agreement, including, without
limitation, the costs and expenses of defending against any claim of
liability. In no case will the Rights Agent be liable for special,
indirect, incidental, cumulative or consequential loss or damages of
any
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<PAGE> 41
kind whatsoever, even if the Rights Agent has been advised or is
otherwise aware of the likelihood of such loss or damage.
(b) The Rights Agent will be protected and will incur no
liability for or in respect of any action taken, suffered, or omitted
by it in connection with its acceptance and administration of this
Agreement in reliance upon any Rights Certificate or certificate for
Common Stock or for other securities of the Company, instrument of
assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed,
executed, and, where necessary, verified or acknowledged, by the proper
Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any Person into or with which the Rights Agent or any
successor Rights Agent may be merged or with which it may be
consolidated, or any Person resulting from any merger or consolidation
to which the Rights Agent or any successor Rights Agent is a party, or
any Person succeeding to the corporate trust or shareholder services
business of the Rights Agent or any successor Rights Agent, will be the
successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any
of the parties to this Agreement; provided, however, that such Person
would be eligible for appointment as a successor Rights Agent under the
provisions of SECTION 21. In case at the time such successor Rights
Agent succeeds to the agency created by this Agreement, any of the
Rights Certificates have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of a predecessor
Rights Agent and deliver such Rights Certificates so countersigned; and
in case at that time any of the Rights Certificates not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of
the successor Rights Agent; and in all such cases such Rights
Certificates will have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is
changed and at such time any of the Rights Certificates have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates
so countersigned; and in case at that time any of the Rights
Certificates have not been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in its
changed name, and in all such cases such Rights Certificates will have
the full force provided in the Rights Certificates and in this
Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all
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of which the Company and the holders of Rights Certificates, by their acceptance
of such Rights Certificates, will be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the advice or opinion of such
counsel will be full and complete authorization and protection to the
Rights Agent as to any action taken, suffered, or omitted by it in good
faith and in accordance with such advice or opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent deems it necessary or desirable that any
fact or matter (including, without limitation, the identity of any
Acquiring Person or Adverse Person and the determination of "Current
Market Price") be proved or established by the Company prior to taking
or suffering any action under this Agreement, such fact or matter
(unless other evidence in respect of such fact or matter is
specifically prescribed in this Agreement) may be deemed to be
conclusively proved and established by a certificate signed by the
Chairman of the Board, the Chief Executive Officer, the Chief Operating
Officer, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary, or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate will be
full authorization to the Rights Agent and the Rights Agent will incur
no liability for any action taken, omitted, or suffered in good faith
by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent will be liable under this Agreement only
for its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent will not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement
or in the Rights Certificates or be required to verify the same (except
as to its countersignature on such Rights Certificates), but all such
statements and recitals are and will be deemed to have been made by the
Company only.
(e) The Rights Agent will not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
of this Agreement (except the due execution of this Agreement by the
Rights Agent) or in respect of the validity or execution of any Rights
Certificate (except its countersignature); nor will it be responsible
for any breach by the Company of any covenant or condition contained in
this Agreement or in any Rights Certificate; nor will it be responsible
for any adjustment required under the provisions of SECTION 11 or
SECTION 13, or responsible for the manner, method, or amount of any
such adjustment or the ascertaining of the existence of facts that
would require any such adjustment (except with respect to the exercise
of Rights evidenced by Rights Certificates after actual notice of any
such adjustment); nor will it by any act under this Agreement be deemed
to make any representation or warranty as
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<PAGE> 43
to the authorization or reservation of any shares of Common Stock or
Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock or Preferred
Stock will, when so issued, be validly authorized or issued, fully
paid, or nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge, and deliver or cause to be performed, executed,
acknowledged, and delivered all such further and other acts,
instruments, and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties under
this Agreement from the Chairman of the Board, the Chief Executive
Officer, the Chief Operating Officer, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer, or
any Assistant Treasurer of the Company, and to apply to such officers
for advice or instructions in connection with its duties, and it will
not be liable for any action taken, omitted, or suffered to be taken by
it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, affiliate, director,
officer, or employee of the Rights Agent may buy, sell, or deal in any
of the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
contract with or lend money to the Company, or otherwise act as fully
and freely as though it were not Rights Agent under this Agreement.
Nothing in this Agreement will preclude the Rights Agent from acting in
any other capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the
rights or powers vested by this Agreement in it or perform any duty
under this Agreement either itself or by or through its attorneys or
agents, and the Rights Agent will not be answerable or accountable for
any act, default, neglect, or misconduct of any such attorneys or
agents or for any loss to the Company or any other Person resulting
from any such act, default, neglect, or misconduct; provided, however,
reasonable care was exercised in the selection and continued employment
of such Person.
(j) No provision of this Agreement will require the Rights
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties under this Agreement
or in the exercise of its rights if it believes that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to
the form of assignment or form of election to purchase, as the case may
be, has either not been
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<PAGE> 44
completed or indicates an affirmative response to clause 1 or 2 of such
certificate, the Rights Agent will not take any further action with
respect to such requested exercise of transfer without first consulting
with the Company.
(l) The Company will promptly give the Rights Agent notice of
any election, public announcement, suspension, deferral, or notice to
Rights holders made by it under or pursuant to any section under this
Agreement.
(m) Whenever this Agreement calls for the Company to take
certain actions, including, without limitation, actions under SECTION
6(a) and 14 of this Agreement, the Rights Agent will have no duty or
obligation to perform, monitor, or enforce such actions, unless
specifically directed in writing by the Company and provided with all
necessary information (and funds, if applicable) to perform such
actions.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent resigns or is
removed or otherwise becomes incapable of acting, the Company will appoint a
successor to the Rights Agent. If the Company fails to make such appointment
within a period of thirty (30) days after giving notice of such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights Certificate
(who will, with such notice, submit such holder's Rights Certificate for
inspection by the Company), then any registered holder of any Rights Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, will be a corporation organized and doing business under the laws
of the United States or a State of the United States, in good standing, that is
subject to supervision or examination by federal or state authority and that has
at the time of its appointment as Rights Agent a combined capital and surplus of
at least $50,000,000. After appointment, the successor Rights Agent will be
vested with the same powers, rights, duties, and responsibilities as if it had
been originally named as Rights Agent without further act or deed, except that
the predecessor Rights Agent will deliver and transfer to the successor Rights
Agent any property at the time held by it under this Agreement and execute and
deliver any further assurance, conveyance, act, or deed necessary for the
purpose. Not later than the effective date of any such appointment, the Company
will file notice of such appointment in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock and the Preferred Stock, and
mail a notice of such appointment in writing to the registered holders of the
Rights Certificates. Failure to give any notice provided for in this SECTION 21,
however, or any defect in such notice, will not affect the legality or validity
of the
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<PAGE> 45
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, in its discretion, issue new Rights Certificates evidencing Rights in such
form as may be approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
will, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion, or
exchange of securities issued by the Company, and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (y) no such Rights
Certificate will be issued if, and to the extent that, the Company is advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (z) no such Rights Certificate will be issued if, and to
the extent that, appropriate adjustment has otherwise been made in lieu of the
issuance of such Rights Certificate.
Section 23. Redemption and Termination. The Company may, at its option,
by action of its Board of Directors at any time prior to the earlier of (i) the
Close of Business on the tenth day following the occurrence of a Section
11(a)(ii) Event and (ii) the Final Expiration Date, redeem all but not less than
all the then outstanding Rights at a redemption price of $0.001 (one-tenth of
one cent) per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend, or similar transaction occurring after the date of
this Agreement (such redemption price being referred to as the "Redemption
Price"). Notwithstanding anything in this Agreement to the contrary, the Rights
will not be exercisable after the first occurrence of a Section 11(a)(ii) Event
except during the period that the Company's right of redemption under this
Agreement has expired. The Company may, at its option, pay the Redemption Price,
in cash, shares of Common Stock (based on the Current Market Price as defined in
SECTION 11(d)(i), of the Common Stock at the time of redemption) or any other
form of consideration deemed appropriate by the Board of Directors. Immediately
upon the action of the Board of Directors of the Company ordering the redemption
of the Rights, evidence of which has been filed with the Rights Agent and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
will be to receive the Redemption Price for each Right so held. Promptly after
the action of the Board of Directors ordering the redemption of the Rights, the
Company will give notice of such redemption to the Rights Agent and the holders
of the then outstanding Rights by mailing such notice to all such holders at
each holder's last address as it appears upon the registry books of the Rights
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<PAGE> 46
Agent or, prior to the Distribution Date, on the registry books of the transfer
agent for the Common Stock. Any notice that is mailed in the manner in this
Agreement provided will be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
Section 24. Notice of Certain Events.
(a) In case the Company proposes, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any
class to the holders of Preferred Stock or to make any other
distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend out of earnings or retained earnings of the
Company); (ii) to offer to the holders of Preferred Stock rights or
warrants to subscribe for or to purchase any additional shares of
Preferred Stock or shares of stock of any class or any other
securities, rights, or options; (iii) to effect any reclassification of
its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock); (iv) to effect
any consolidation or merger from, into, or with any other Person (other
than a Subsidiary of the Company in a transaction that complies with
SECTION 11(o)), or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer),
in one transaction or a series of related transactions, of more than
50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the
Company or any of its Subsidiaries in one or more transactions each of
which complies with SECTION 11(o)); or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the
Company will give to each holder of a Rights Certificate, to the extent
feasible and in accordance with SECTION 25, a notice of such proposed
action, which will specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on
which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice will be so
given in the case of any action covered by CLAUSE (i) or (ii) above at
least twenty (20) days prior to the record date for determining holders
of the shares of Preferred Stock for purposes of such action, and in
the case of any such other action, at least twenty (20) days prior to
the date of the taking of such proposed action or the date of
participation in such proposed action by the holders of the shares of
Preferred Stock, whichever is the earlier.
(b) In case any of the events set forth in SECTION 11(a)(ii)
occurs, then, in any such case, (i) the Company will as soon as
practicable give to each holder of a Rights Certificate, to the extent
feasible and in accordance with SECTION 25, a notice of the occurrence
of such event, which will specify the event and the consequences of the
event to holders of Rights under SECTION 11(a)(ii), and (ii)
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all references in SECTION 24(a) to Preferred Stock will be deemed
thereafter to refer to Common Stock or, if appropriate, other
securities.
Section 25. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company will be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Perot Systems Corporation
12404 Park Central Drive
Dallas, Texas 75251
Attention: Chief Executive Officer
with a copy to:
Perot Systems Corporation
12404 Park Central Drive
Dallas, Texas 75251
Attention: General Counsel
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Glen Hettinger
Subject to the provisions of SECTION 21, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent will be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
The Chase Manhattan Bank
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Attention:
----------------------------
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) will be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
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Section 26. Supplement and Amendments. For so long as the Rights are
redeemable, the Company may, and the Rights Agent will, if the Company so
directs, supplement or amend any provision of this Agreement in any respect
without the approval of any holders of certificates representing shares of
Common Stock, except that no amendment or supplement will alter or change the
duties, rights, obligations, or liabilities of the Rights Agent. At any time
when the Rights are no longer redeemable, the Company may, and the Rights Agent
will if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights, except that no such supplement or amendment
may (a) adversely affect the interests of the holders of Rights as such (other
than an Acquiring Person or an Adverse Person or an Affiliate or Associate of an
Acquiring Person or Adverse Person), (b) cause this Agreement again to become
amendable other than in accordance with this sentence, or (c) cause the Rights
again to become redeemable and, except that no amendment or supplement will
alter or change the duties, rights, obligations, or liabilities of the Rights
Agent. Upon the delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section, the Rights Agent will execute such supplement or
amendment.
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent will bind and
inure to the benefit of their respective successors and assigns under this
Agreement.
Section 28. Determinations and Actions by the Board of Directors, Etc.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, will be made in accordance with the
last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement. The Board of
Directors of the Company will have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (a) interpret the provisions of this Agreement, and (b) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including, without limitation, a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of CLAUSE (y) below,
all omissions with respect to the foregoing) that are done or made by the Board
in good faith, will (x) be final, conclusive, and binding on the Company, the
Rights Agent, the holders of the Rights, and all other Persons, and (y) not
subject the Board to any liability to the holders of the Rights. The Rights
Agent is entitled to always assume the Company's Board of Directors acted in
good faith and will be fully protected and incur no liability in reliance on
such assumption
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Section 29. Benefits of this Agreement. Nothing in this Agreement will
be construed to give to any Person other than the Company, the Rights Agent, and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy, or claim under this Agreement; and this Agreement will
be for the sole and exclusive benefit of the Company, the Rights Agent, and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, or unenforceable, the remainder of the
terms, provisions, covenants, and restrictions of this Agreement will remain in
full force and effect and will in no way be affected, impaired, or invalidated.
Section 31. Governing Law. This Agreement, each Right, and each Rights
Certificate issued under this Agreement will be deemed to be a contract made
under the laws of the State of Delaware and for all purposes will be governed by
and construed in accordance with the laws of such State applicable to contracts
made and to be performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts will for all purposes be deemed to
be an original, and all such counterparts will together constitute but one and
the same instrument.
Section 33. Interpretation. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and will not
control or affect the meaning or construction of any of the provisions of this
Agreement. References in this Agreement to Sections and Exhibits are references
to the Sections of and Exhibits to this Agreement unless the context requires
otherwise. In this Agreement, the word "or" is not exclusive.
Section 34. Establishment of Fund for Directors. The Board may, at any
time it deems appropriate, establish or set aside one or more funds, whether in
trust, escrow or otherwise (and regardless of whether such fund is combined with
any other fund established or set aside by the Company), for the purpose of
assuring that adequate resources are available to the Board of Directors in
order to enable them to carry out their prescribed functions under this
Agreement and to fulfill their fiduciary obligations to stockholders of the
Company.
Section 35. Exchange.
(a) The Company may, at its option by action of its Board of
Directors, at any time after the first occurrence of a Section
11(a)(ii) Event, exchange all or part of the then outstanding and
exercisable Rights (other than Rights that have become void as provided
in SECTION 7(e)) for shares of Common Stock at an
39
<PAGE> 50
exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend, or similar
transaction occurring after the date hereof (the "Exchange Number").
Notwithstanding the foregoing, the Company will not be empowered to
effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any such Subsidiary or any Person organized, appointed
or established by the Company or any of its Subsidiaries for or
pursuant to any such plan), together with all Affiliates and Associates
of such Person, becomes the Beneficial Owner of 50% or more of the
shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to SECTION 35(a), and
without any further action and without any notice, the right to
exercise such Rights will terminate and the only right of a holder of
such Rights will be to receive that number of shares of Common Stock,
Preferred Stock, or units of other property equal to the number of such
Rights held by such holder multiplied by the Exchange Number. Promptly
after the action of the Company ordering the exchange of the Rights,
the Company will give notice to the Rights Agent and the holders of the
Rights to be exchanged in the manner set forth in SECTION 26; provided
that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. Any notice that is mailed in the
manner provided in this SECTION 35(b) will be deemed given, whether or
not the holder receives the notice. Each such notice or exchange will
state the method by which the exchange will be effected and, in the
event of any partial exchange, the number of Rights that will be
exchanged. Any partial exchange will be effected pro rata based on the
number of Rights (other than Rights that have become void as provided
in SECTION 7(e)) held by each holder of Rights.
(c) In any exchange pursuant to this SECTION 35, the Company,
at its option, may substitute Common Stock Equivalents for shares of
Common Stock exchangeable for Rights, at the initial rate of one Common
Stock Equivalent for each share of Common Stock, as appropriately
adjusted to reflect adjustments in dividend, liquidation, and voting
rights of Common Stock Equivalents pursuant to the terms thereof, so
that each Common Stock Equivalent delivered in lieu of each share of
Common Stock will have essentially the same dividend, liquidation, and
voting rights as one share of Common Stock.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
40
<PAGE> 51
Attest: PEROT SYSTEMS CORPORATION
------------------------
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
Attest: THE CHASE MANHATTAN BANK
------------------------
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
41
<PAGE> 52
Exhibit A-1
to Rights Agreement
[FORM OF]
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
PEROT SYSTEMS CORPORATION
Pursuant to Section 151, of the General Corporation Law of the State of
Delaware
The undersigned officers of Perot Systems Corporation (the
"Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 151, thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Second Amended and Restated Certificate of Incorporation of such
Corporation, such Board of Directors on January __, 1999, adopted the
resolutions set forth below creating a series of 200,000 shares of Preferred
Stock designated as "Series A Junior Participating Preferred Stock":
That no shares of Series A Junior Participating Preferred Stock have
heretofore been issued.
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Second
Amended and Restated Certificate of Incorporation, a series of Preferred Stock
of the Corporation be and it hereby is created, and that the designation and
amount thereof and the voting powers, preferences, and relative, participating,
optional, and other special rights of the shares of such series, and the
qualifications, limitations, or restrictions thereof are as follows:
(1) Designation and Amount. The shares of such series will be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series will be 200,000. Such number of shares of Series
A Junior Participating Preferred Stock may be increased or decreased by
resolution of the Board of Directors; provided that no decrease shall reduce the
number of shares of Series A Junior Participating Preferred Stock to a number
less than the number of shares then outstanding plus the number of shares
issuable upon exercise or conversion of outstanding rights, options, or other
securities issued by the Corporation.
<PAGE> 53
(2) Dividends and Distributions.
(a) The holders of shares of Series A Junior
Participating Preferred Stock will be entitled to receive, when, as,
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
last day of March, June, September, and December in each year (each
such date being referred to as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (i) $0.01 and (ii) subject to the
provision for adjustment set forth below, one thousand times the
aggregate per share amount of all cash dividends, and one thousand
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in
shares of Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") or the Class B Common Stock, par value $.01 per share
(the "Class B Common Stock") (the Class A Common Stock and the Class B
Common Stock are referred to together as the "Common Stock") or a
subdivision of the outstanding shares of Class A Common Stock or Class
B Common Stock (by reclassification or otherwise), declared on the
Class A Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series A Junior Participating Preferred Stock. In the event the
Corporation at any time after January ___, 1999 (the "Rights
Declaration Date") (i) pays any dividend on the Class A Common Stock
payable in shares of Common Stock, (ii) subdivides the outstanding
Class A Common Stock, or (iii) combines the outstanding Class A Common
Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under
clause (ii) of the preceding sentence will be adjusted by multiplying
such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock
that were outstanding immediately prior to such event.
(b) The Corporation will declare a dividend or
distribution on the Series A Junior Participating Preferred Stock as
provided in Section 2(a) above immediately after it declares a dividend
or distribution on the Class A Common Stock or Class B Common Stock
(other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution has been declared on the
Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $0.01 per share on the Series A Junior Participating
Preferred Stock will nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
A-1-2
<PAGE> 54
(c) Dividends will begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock
from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series A Junior Participating Preferred Stock,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares will begin to accrue from the date of issue of such shares,
or unless the date of issue is a Quarterly Dividend Payment Date or is
a date after the record date for the determination of holders of shares
of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends will begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends will not bear interest. Dividends paid on the shares
of Series A Junior Participating Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares will be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A
Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date will be no
more than 30 days prior to the date fixed for the payment thereof.
(3) Voting Rights. In addition to any other voting rights
required by law, the holders of shares of Series A Junior Participating
Preferred Stock will have the following voting rights:
(a) Subject to the provision for adjustment set forth
below, each share of Series A Junior Participating Preferred Stock will
entitled the holder to a number of votes on all matters submitted to a
vote of the stockholders of the Corporation equal to one thousand times
the number of votes per share to which shares of Class A Common Stock
are entitled. In the event the Corporation at any time after the Rights
Declaration Date (i) pays any dividend on Class A Common Stock payable
in shares of Class A Common Stock, (ii) subdivides the outstanding
Class A Common Stock, or (iii) combines the outstanding Class A Common
Stock into a smaller number of shares, then in each such case the
number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such
event will be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Class A Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Class A Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided in this Agreement or by
law, the holders of shares of Series A Junior Participating Preferred
Stock and the holders of shares of Common Stock will vote together as
one class on all matters submitted to a vote of stockholders of the
Corporation.
A-1-3
<PAGE> 55
(c) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock are in arrears in an amount
equal to six (6) quarterly dividends thereon, the occurrence
of such contingency will mark the beginning of a period (a
"default period") that will extend until such time when all
accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period
on all shares of Series A Junior Participating Preferred Stock
then outstanding have been declared and paid or set apart for
payment. During each default period, all holders of preferred
stock of the Corporation (the "Preferred Stock") (including
holders of the Series A Junior Participating Preferred Stock)
with dividends in arrears in an amount equal to six (6)
quarterly dividends thereon, voting as a class, irrespective
of series, will have the right to elect two (2) Directors.
(ii) During any default period, such voting right of
the holders of Series A Junior Participating Preferred Stock
may be exercised initially at a special meeting called
pursuant to Section 3(c)(iii) or at any annual meeting of
stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right nor the
right of the holders of any other series of Preferred Stock,
if any, to increase, in certain cases, the authorized number
of Directors will be exercised unless the holders of ten
percent (10%) in number of shares of Preferred Stock
outstanding are present in person or by proxy. The absence of
a quorum of the holders of Common Stock will not affect the
exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock
exercise such voting right initially during an existing
default period, they will have the right, voting as a class,
to elect Directors to fill such vacancies, if any, in the
Board of Directors as may then exist up to two (2) Directors
or, if such right is exercised at an annual meeting, to elect
two (2) Directors. If the number that may be so elected at any
special meeting does not amount to the required number, the
holders of the Preferred Stock will have the right to make
such increase in the number of Directors as is necessary to
permit the election by them of the required number. After the
holders of the Preferred Stock have exercised their right to
elect Directors in any default period and during the
continuance of such period, the number of Directors will not
be increased or decreased except by vote of the holders of
Preferred Stock as provided herein or pursuant to the rights
of any equity securities ranking senior to or pari passu with
the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock, during
an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or
any stockholder or stockholders owning in the aggregate not
less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may
request,
A-1-4
<PAGE> 56
the calling of a special meeting of the holders of Preferred
Stock, which meeting will thereupon be called by the Chief
Executive Officer, the Chief Operating Officer, the President,
a Vice-President, or the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this Section
3(c)(iii) will be given to each holder of record of Preferred
Stock by mailing a copy of such notice such holder at such
holder's last address as it appears on the books of the
Corporation. Such meeting will be called for a time not
earlier than 20 days and not later than 60 days after such
order or request or in default of the calling of such meeting
within 60 days after such order or request, such meeting may
be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this Section 3(c)(iii), no
such special meeting will be called during the period within
60 days immediately preceding the date fixed for the next
annual meeting of the stockholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if
applicable, will continue to be entitled to elect the whole
number of Directors until the holders of Preferred Stock have
exercised their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock will continue in
office until their successors have been elected by such
holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided
in Section 3(c)(ii)) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the
class of stock that elected the Director whose office has
become vacant. References in this Section 3(c) to Directors
elected by the holders of a particular class of stock will
include Directors elected by such Directors to fill vacancies
as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a
class to elect Directors will cease, (y) the term of any
Directors elected by the holders of Preferred Stock as a class
will terminate, and (z) the number of Directors will be such
number as may be provided for in the certificate of
incorporation or by-laws irrespective of any increase made
pursuant to the provisions of Section 3(c)(ii) (such number
being subject, however, to change thereafter in any manner
provided by law or in the articles of incorporation or
by-laws). Any vacancies in the Board of Directors effected by
the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining
Directors.
A-1-5
<PAGE> 57
Except as set forth herein, holders of Series A Junior Participating
Preferred Stock will have no special voting rights and their consent will not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
(4) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred
Stock as provided in Section 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Junior Participating Preferred Stock
outstanding have been paid in full, the Corporation will not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution, or winding
up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution, or
winding up) with the Series A Junior Participating Preferred
Stock, except dividends paid ratably on the Series A Junior
Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either
as to dividends or upon liquidation, dissolution, or winding
up) with the Series A Junior Participating Preferred Stock,
provided that the Corporation may at any time redeem,
purchase, or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution,
liquidation, or winding up) to the Series A Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock,
or any shares of stock ranking on a parity with the Series A
Junior Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, determines in good faith
A-1-6
<PAGE> 58
will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation will not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
Section 4(a), purchase or otherwise acquire such shares at such time
and in such manner.
(5) Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever will be retired and canceled promptly after the acquisition thereof.
All such shares will upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(6) Liquidation, Dissolution, or Winding Up.
(a) Upon any liquidation (voluntary or otherwise),
dissolution, or winding up of the Corporation, no distribution will be
made to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution, or winding up) to the
Series A Junior Participating Preferred Stock unless, prior thereto,
the holders of shares of Series A Junior Participating Preferred Stock
have received an amount equal to $10.00, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the Series A
Liquidation Preference, no additional distributions will be made to the
holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock have
received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference
by (ii) 1,000 (as appropriately adjusted as set forth in Section 6(c)
to reflect such events as stock splits, stock dividends, and
recapitalizations with respect to the Common Stock) (such number in
clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Junior
Participating Preferred Stock and Common Stock, respectively, holders
of Series A Junior Participating Preferred Stock and holders of shares
of Common Stock will receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a
per share basis, respectively.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
preferred stock, if any, that rank on a
A-1-7
<PAGE> 59
parity with the Series A Junior Participating Preferred Stock, then
such remaining assets will be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment,
then such remaining assets will be distributed ratably to the holders
of Common Stock.
(c) In the event the Corporation at any time after the
Rights Declaration Date (i) pays any dividend on Class A Common Stock
or Class B Common Stock payable in shares of Class A Common Stock and
Class B Common Stock, (ii) subdivides the outstanding Class A Common
Stock or Class B Common Stock, or (iii) combines the outstanding Class
A Common Stock or Class B Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect immediately
prior to such event will be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation enters
into any consolidation, merger, combination, or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash, and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock will at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment set forth below) equal to one thousand times the aggregate amount of
stock, securities, cash, and/or any other property (payable in kind), as the
case may be, into which or for which each share of Class A Common Stock is
changed or exchanged. In the event the Corporation at any time after the Rights
Declaration Date (i) pays any dividend on Class A Common Stock or Class B Common
Stock payable in shares of Class A Common Stock or Class B Common Stock, (ii)
subdivides the outstanding Class A Common Stock or Class B Common Stock, or
(iii) combines the outstanding Class A Common Stock or Class B Common Stock into
a smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Junior Participating Preferred Stock will be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(8) No Redemption. The shares of Series A Junior Participating
Preferred Stock will not be redeemable.
(9) Amendment. The Second Amended and Restated Certificate of
Incorporation of the Corporation will not be further amended in any manner
(whether by merger or otherwise) that would materially alter or change the
powers, preferences, or special rights of the Series A Junior Participating
Preferred Stock so as to affect them
A-1-8
<PAGE> 60
adversely without the affirmative vote of the holders of a majority or more of
the outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
(10) Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share that entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions, and to have the benefit of all other
rights of holders of Series A Junior Participating Preferred Stock.
(11) Rank. The Series A Junior Participating Preferred Stock shall
rank junior (as to dividends and upon liquidation, dissolution and winding up)
to all other series of the Corporation's preferred stock except any series that
specifically provides that such series shall rank junior to the Series A Junior
Participating Preferred Stock. The Series A Junior Participating Preferred Stock
will ranked equal as to dividends and upon liquidation, dissolution, and winding
up with the Series B Junior Participating Preferred Stock, par value $0.01 per
share, of the Company.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this __ day
of January __, 1999.
PEROT SYSTEMS CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
The foregoing instrument was acknowledged before me by
____________________ and ____________________ on the ___ day of January __,
1999, in the capacities indicated.
-----------------------------------
(Notary)
A-1-9
<PAGE> 61
Exhibit A-2
to Rights Agreement
[FORM OF]
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF SERIES B JUNIOR
PARTICIPATING PREFERRED STOCK
of
PEROT SYSTEMS CORPORATION
Pursuant to Section 151, of the General Corporation Law of the State of
Delaware
The undersigned officers of Perot Systems Corporation (the
"Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 151, thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Second Amended and Restated Certificate of Incorporation of such
Corporation, such Board of Directors on January __, 1999, adopted the
resolutions set forth below creating a series of 10,000 shares of Preferred
Stock designated as "Series B Junior Participating Preferred Stock":
That no shares of Series B Junior Participating Preferred Stock have
heretofore been issued.
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Second
Amended and Restated Certificate of Incorporation, a series of Preferred Stock
of the Corporation be and it hereby is created, and that the designation and
amount thereof and the voting powers, preferences, and relative, participating,
optional, and other special rights of the shares of such series, and the
qualifications, limitations, or restrictions thereof are as follows:
(1) Designation and Amount. The shares of such series will be
designated as "Series B Junior Participating Preferred Stock" and the number of
shares constituting such series will be 10,000. Such number of shares of Series
B Junior Participating Preferred Stock may be increased or decreased by
resolution of the Board of Directors; provided that no decrease shall reduce the
number of shares of Series B Junior Participating Preferred Stock to a number
less than the number of shares then outstanding plus the number of shares
issuable upon exercise or conversion of outstanding rights, options, or other
securities issued by the Corporation.
A-2-1
<PAGE> 62
(2) Dividends and Distributions.
(a) The holders of shares of Series B Junior
Participating Preferred Stock will be entitled to receive, when, as,
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
last day of March, June, September, and December in each year (each
such date being referred to as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series B Junior
Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (i) $0.01 and (ii) subject to the
provision for adjustment set forth below, one thousand times the
aggregate per share amount of all cash dividends, and one thousand
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in
shares of Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") or the Class B Common Stock, par value $.01 per share
(the "Class B Common Stock") (the Class A Common Stock and the Class B
Common Stock are referred to together as the "Common Stock") or a
subdivision of the outstanding shares of Class A Common Stock or Class
B Common Stock (by reclassification or otherwise), declared on the
Class B Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series B Junior Participating Preferred Stock. In the event the
Corporation at any time after January __, 1999 (the "Rights Declaration
Date") (i) pays any dividend on the Class B Common Stock payable in
shares of Common Stock, (ii) subdivides the outstanding Class B Common
Stock, or (iii) combines the outstanding Class B Common Stock into a
smaller number of shares, then in each such case the amount to which
holders of shares of Series B Junior Participating Preferred Stock were
entitled immediately prior to such event under clause (ii) of the
preceding sentence will be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Class B Common Stock that were outstanding
immediately prior to such event.
(b) The Corporation will declare a dividend or
distribution on the Series B Junior Participating Preferred Stock as
provided in Section 2(a) above immediately after it declares a dividend
or distribution on the Class A Common Stock or Class B Common Stock
(other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution has been declared on the
Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $0.01 per share on the Series B Junior Participating
Preferred Stock will nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
A-2-2
<PAGE> 63
(c) Dividends will begin to accrue and be cumulative on
outstanding shares of Series B Junior Participating Preferred Stock
from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series B Junior Participating Preferred Stock,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares will begin to accrue from the date of issue of such shares,
or unless the date of issue is a Quarterly Dividend Payment Date or is
a date after the record date for the determination of holders of shares
of Series B Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends will begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends will not bear interest. Dividends paid on the shares
of Series B Junior Participating Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares will be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series B
Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date will be no
more than 30 days prior to the date fixed for the payment thereof.
(3) Voting Rights. Except as required by law, the holders of
shares of Series B Junior Participating Preferred Stock will have no voting
rights. In any case where the Series B Participating Preferred Stock is
required by law to vote, the holders of shares of Series B Junior Participating
Preferred Stock and the holders of shares of Common Stock will, except as
provided in the Certificate of Incorporation (as amended form time to time) of
the Corporation or as required by law, vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(4) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Junior Participating Preferred
Stock as provided in Section 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series B Junior Participating Preferred Stock
outstanding have been paid in full, the Corporation will not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution, or winding
up) to the Series B Junior Participating Preferred Stock;
A-2-3
<PAGE> 64
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution, or
winding up) with the Series B Junior Participating Preferred
Stock, except dividends paid ratably on the Series B Junior
Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either
as to dividends or upon liquidation, dissolution, or winding
up) with the Series B Junior Participating Preferred Stock,
provided that the Corporation may at any time redeem,
purchase, or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution,
liquidation, or winding up) to the Series B Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series B Junior Participating Preferred Stock,
or any shares of stock ranking on a parity with the Series B
Junior Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, determines in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation will not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
Section 4(a), purchase or otherwise acquire such shares at such time
and in such manner.
(5) Reacquired Shares. Any shares of Series B Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever will be retired and canceled promptly after the acquisition thereof.
All such shares will upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(6) Liquidation, Dissolution, or Winding Up.
(a) Upon any liquidation (voluntary or otherwise),
dissolution, or winding up of the Corporation, no distribution will be
made to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation,
A-2-4
<PAGE> 65
dissolution, or winding up) to the Series B Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series
B Junior Participating Preferred Stock have received an amount equal to
$10.00, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such
payment (the "Series B Liquidation Preference"). Following the payment
of the full amount of the Series B Liquidation Preference, no
additional distributions will be made to the holders of shares of
Series B Junior Participating Preferred Stock unless, prior thereto,
the holders of shares of Common Stock have received an amount per share
(the "Common Adjustment") equal to the quotient obtained by dividing
(i) the Series B Liquidation Preference by (ii) 1,000 (as appropriately
adjusted as set forth in Section 6(c) to reflect such events as stock
splits, stock dividends, and recapitalizations with respect to the
Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series B Liquidation
Preference and the Common Adjustment in respect of all outstanding
shares of Series B Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series B Junior Participating Preferred
Stock and holders of shares of Common Stock will receive their ratable
and proportionate share of the remaining assets to be distributed in
the ratio of the Adjustment Number to 1 with respect to such Preferred
Stock and Common Stock, on a per share basis, respectively.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series B Liquidation
Preference and the liquidation preferences of all other series of
preferred stock, if any, that rank on a parity with the Series B Junior
Participating Preferred Stock, then such remaining assets will be
distributed ratably to the holders of such parity shares in proportion
to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets will be
distributed ratably to the holders of Common Stock.
(c) In the event the Corporation at any time after the
Rights Declaration Date (i) pays any dividend on Class A Common Stock
or Class B Common Stock payable in shares of Class A Common Stock and
Class B Common Stock, (ii) subdivides the outstanding Class A Common
Stock or Class B Common Stock, or (iii) combines the outstanding Class
A Common Stock or Class B Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect immediately
prior to such event will be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation enters
into any consolidation, merger, combination, or other transaction in which the
shares of
A-2-5
<PAGE> 66
Common Stock are exchanged for or changed into other stock or securities, cash,
and/or any other property, then in any such case the shares of Series B Junior
Participating Preferred Stock will at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment set
forth below) equal to one thousand times the aggregate amount of stock,
securities, cash, and/or any other property (payable in kind), as the case may
be, into which or for which each share of Class A Common Stock is changed or
exchanged. In the event the Corporation at any time after the Rights Declaration
Date (i) pays any dividend on Class A Common Stock or Class B Common Stock
payable in shares of Class A Common Stock or Class B Common Stock, (ii)
subdivides the outstanding Class A Common Stock or Class B Common Stock, or
(iii) combines the outstanding Class A Common Stock or Class B Common Stock into
a smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series B
Junior Participating Preferred Stock will be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(8) No Redemption. The shares of Series B Junior Participating
Preferred Stock will not be redeemable.
(9) Amendment. The Second Amended and Restated Certificate of
Incorporation of the Corporation will not be further amended in any manner
(whether by merger or otherwise) that would materially alter or change the
powers, preferences, or special rights of the Series B Junior Participating
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series B Junior
Participating Preferred Stock, voting separately as a class.
(10) Fractional Shares. Series B Junior Participating Preferred
Stock may be issued in fractions of a share that entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions, and to have the benefit of all other
rights of holders of Series B Junior Participating Preferred Stock.
(11) Rank. The Series B Junior Participating Preferred Stock shall
rank junior (as to dividends and upon liquidation, dissolution and winding up)
to all other series of the Corporation's preferred stock except any series that
specifically provides that such series shall rank junior to the Series B Junior
Participating Preferred Stock. The Series B Junior Participating Preferred
Stock will ranked equal as to dividends and upon liquidation, dissolution, and
winding up with the Series A Junior Participating Preferred Stock, par value
$0.01 per share, of the Company.
A-2-6
<PAGE> 67
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this __ day
of January __, 1999.
PEROT SYSTEMS CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
The foregoing instrument was acknowledged before me by
____________________ and ____________________ on the ___ day of January __,
1999, in the capacities indicated.
-----------------------------------
(Notary)
A-2-7
<PAGE> 68
Exhibit B
to Rights Agreement
Form of Rights Certificate
Certificate No. R-[A] [B](1)-Class [A] [B] Rights
NOT EXERCISABLE AFTER JANUARY __, 2009 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$0.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ADVERSE
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON OR ADVERSE PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO IS, WAS, OR BECAME AN
ACQUIRING PERSON OR AN ADVERSE PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SUCH
AGREEMENT.](2)
Rights Certificate
PEROT SYSTEMS CORPORATION
This certifies that _____________, or registered assigns, is the
registered owner of the number of Class [A] [B] Rights set forth above, each of
which entitles the owner thereof, subject to the terms, provisions, and
conditions of the Rights Agreement, dated as of January __, 1999 (as amended
from time to time, the "Rights Agreement"), between Perot Systems Corporation, a
Delaware corporation (the "Company"), and The Chase Manhattan Bank, (the "Rights
Agent"), to purchase from the Company at any time prior to 5:00 p.m. (Delaware
time) on January __, 2009 at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
one-thousandth of a fully paid, nonassessable share of Series [A] [B] Junior
Participating Preferred Stock (the "Preferred Stock") of the Company, at a
purchase price of $[__________] per one one-thousandth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The number
of Rights evidenced by this Rights Certificate (and the number of shares that
may be purchased upon exercise
- ----------------------
(1) Wherever the designation [A] [B] is used, the form A should be inserted for
Class A Rights and the form B should be inserted for Class B Rights.
(2) The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE> 69
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of January __, 1999 based on the Preferred
Stock as constituted at such date. The Company reserves the right to require
prior to the occurrence of a Triggering Event (as such term is defined in the
Rights Agreement) that a number of Rights be exercised so that only whole shares
of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Adverse
Person or an Affiliate or Associate of any such Acquiring Person or Adverse
Person (as such terms are defined in the Rights Agreement), (ii) a transferee of
any such Acquiring Person, Adverse Person, Associate, or Affiliate, or (iii)
under certain circumstances specified in the Rights Agreement, a transferee of a
Person who, after such transfer, became an Acquiring Person or an Adverse
Person, or an Affiliate or Associate of an Acquiring Person or an Adverse
Person, such Rights will become null and void and no holder of this certificate
will have any right with respect to such Rights from and after the occurrence of
such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, that may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions, and
conditions of the Rights Agreement, which terms, provisions, and conditions are
hereby incorporated in this Rights Certificate by reference and made a part of
this certificate and to which Rights Agreement reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties, and
immunities hereunder of the Rights Agent, the Company, and the holders of the
Rights Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under the certain circumstances
set forth in the Rights Agreement. Copies of the Rights Agreement are on file at
the above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered have entitled such holder to purchase. If this Rights Certificate is
exercised in part, the holder will be entitled to receive upon surrender of this
Rights Certificate another Class [A] [B] Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
B-2
<PAGE> 70
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its option at a redemption
price of $0.001 per Right at any time prior to the earlier of the Close of
Business on (i) the tenth day following the occurrence of a Section 11(a)(ii)
Event (as such time may be extended pursuant to the Rights Agreement) and (ii)
the Final Expiration Date. In addition, in certain circumstances the Rights may
be exchanged, in whole or in part, for shares of the Class [A] [B] Common Stock,
or shares of preferred stock of the Company having essentially the same value or
economic rights as such shares. Immediately upon the action of the Board of
Directors of the Company authorizing any such exchange, and without any further
action or any notice, the Rights (other than Rights that are not subject to such
exchange) will terminate and the Rights will only enable holders to receive the
shares issuable upon such exchange.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions that are
integral multiples of one one-thousandth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depository receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate will be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company that may at any time be issuable
on the exercise hereof, nor will anything contained in the Rights Agreement or
herein be construed to confer upon the holder of this certificate, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate have been exercised as provided in the Rights Agreement.
B-3
<PAGE> 71
This Rights Certificate will not be valid or obligatory for any purpose
until it has been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of _________________
ATTEST: PEROT SYSTEMS CORPORATION
By:
- --------------------- ---------------------------------
Title:
------------------------------
Countersigned:
THE CHASE MANHATTAN BANK
By
---------------------------
Authorized Signature
B-4
<PAGE> 72
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Rights Certificate.)
FOR VALUE RECEIVED hereby sells, assigns, and transfer unto
(Please print name and address of transferee)
This Rights Certificate, together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint _________________
attorney, to transfer the within Class [A] [B] Rights Certificate on the books
of the within-named Company, with full power of substitution.
Dated:__________________, ____
----------------------------------
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned, or
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Adverse Person or an Affiliate or Associate of any such Acquiring Person or
Adverse Person (as such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [
] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was, or subsequently became an Acquiring Person or an Adverse
Person or an Affiliate or Associate of an Acquiring Person or an Adverse Person.
Dated:__________________, ____
----------------------------------
Signature
Signature Guaranteed:
B-5
<PAGE> 73
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
To: PEROT SYSTEMS CORPORATION:
The undersigned hereby irrevocably elects to exercise __________ Class
[A] [B] Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other Person that may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security or other identifying number
(please print name and address)
If such number of Rights are not all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights will
be registered in the name of and delivered to:
please insert social security
or other identifying number
(please print name and address)
Dated:__________________, ____
----------------------------------
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Adverse Person or an Affiliate or Associate of any such Acquiring Person or
an Adverse Person (as such terms are defined in the Rights Agreement);
B-6
<PAGE> 74
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or Adverse Person or an
Affiliate or Associate of an Acquiring Person or an Adverse Person.
Dated:__________________, ____
----------------------------------
Signature
Signature Guaranteed:
B-7
<PAGE> 75
Exhibit C
to Rights Agreement
FORM OF SUMMARY OF RIGHTS
On January 5, 1998, the Board of Directors of Perot Systems
Corporation (the "Company") adopted a Stockholder Rights Plan, providing
that one Class A right (a "Class A Right") will be attached to each share of
Class A common stock, par value $.01 per share, of the Company (the "Class A
Common Stock") and one Class B right (a "Class B Right" and, together with the
Class A Rights, the "Rights") will be attached to each share of Class B Common
Stock, par value $.01 per share, of the Company (the "Class B Common Stock" and,
together with the Class A Common Stock, the "Common Stock") as of the close of
business on January 7, 1999 (the "Record Date"). Each Class A Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock"), at a Purchase Price of
$110.00 per unit (the "Purchase Price"), subject to adjustment. Each Class B
Right entitles the registered holder to purchase from the Company a unit
consisting of one one-thousandth of a share of Series B Junior Participating
Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock" and,
together with the Series A Preferred Stock, the "Preferred Stock"), at the
Purchase Price of $110.00 per unit (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in the Rights
Agreement (the "Rights Agreement"), dated as of January __, 1999, between the
Company and The Chase Manhattan Bank as Rights Agent (the "Rights Agent").
Initially, the Class A Rights will be attached to all Class
A Common Stock certificates representing shares outstanding as of the Record
Date and the Class B Rights will be attached to all Class B Common Stock
certificates representing shares outstanding as of the Record Date, and no
separate Rights Certificates will be distributed. The Rights will separate from
the Common Stock and a Distribution Date will occur upon the earlier of (i) 10
calendar days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common Stock or 20% or more of the outstanding shares of
Class A Common Stock (the date of such announcement being the "Stock Acquisition
Date"), (ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 20% or
more of the outstanding shares of Common Stock or 20% or more of the outstanding
shares of Class A Common Stock, or (iii) the Board of Directors of the Company
determining that any Person or Persons have become the Beneficial Owner of an
amount of Common Stock that the Board of Directors determines to be substantial
(which amount will in no event be less than 11% of the shares of Common Stock or
Class A Common Stock outstanding) and that (a) such Person or Persons intend to
cause the Company to repurchase the Common Stock beneficially owned by such
Person or Persons or to exert pressure against the Company to take any action or
enter into any transaction or
C-1
<PAGE> 76
series of transactions with the intent or the effect of providing such Person or
Persons with short-term gains or profits under circumstances in which the Board
of Directors determines that the long-term interests of the Company and its
stockholders would not be served by taking such action or entering into such
transactions or series of transactions or (b) beneficial ownership by such
Person or Persons is reasonably likely to have a material adverse effect on the
business, competitive position, prospects, business reputation, or financial
condition of the Company and its subsidiaries (an "Adverse Person"). Until the
Distribution Date, (i) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference; and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.
The Rights Agreement provides that Ross Perot, and certain
of his successors and affiliates, who together will be beneficial owners of
more than ____% of the Common Stock of the Company outstanding on January __,
1999, are excluded from the definition of "Acquiring Person." Mr. Perot and
certain of his successors and affiliates are also excluded from the definition
of "Adverse Person."
The Rights are not exercisable until the Distribution Date
and will expire at the close of business on January 7, 2009, unless earlier
redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date and, thereafter, the separate
Rights Certificates alone will represent the Rights. Except as otherwise
determined by the Board of Directors, only shares of Common Stock outstanding
prior to the Distribution Date will be issued with Rights.
In the event that (i) any person becomes an Acquiring
Person or (ii) the Board of Directors declares a person to be an Adverse Person,
each holder of a Class A Right will thereafter have the right to receive, upon
exercise, Class A Common Stock (or, in certain circumstances, cash, property, or
other securities of the Company) and each holder of a Class B Right will
thereafter (subject to limitations on ownership under the Bank Holding Company
Act of 1956) have the right to receive, upon exercise, Class B Common Stock (or
in certain circumstances cash, property or other securities of the Company),
having a value equal to two times the Exercise Price of the Right. The Exercise
Price is the Purchase Price times the number of shares of Common Stock
associated with each Right (initially, one). Notwithstanding any of the
foregoing, following the occurrence of either of the events set forth in this
paragraph (the "Flip-In Events"), all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person or any Adverse Person, or an Associate or Affiliate of any
Acquiring Person or Adverse Person, will be null and void.
C-2
<PAGE> 77
For example, at an exercise price of $110 per Right, each
Right not owned by an Acquiring Person or an Adverse Person (or by certain
related parties) following an event set forth in the preceding paragraph would
entitle its holder to purchase Common Stock with a value of $220 (or other
consideration, as noted above) for $110. Assuming that the Common Stock had a
per share value of $110 at such time, the holder of each valid Right would be
entitled to purchase 2.0 shares of Common Stock for $110.
In the event that following the Stock Acquisition Date or
the date a person becomes an Adverse Person, (i) the Company is acquired in a
merger or consolidation in which the Company is not the surviving corporation or
(ii) 50% or more of the Company's assets or earning power is sold or
transferred, each holder of a Right (except Rights that have previously been
voided as set forth above) will thereafter have the right (a flip-over right) to
receive, upon exercise of the Right, Common Stock of the acquiring company
having a value equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of units of
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock
are granted certain rights or warrants to subscribe for Preferred Stock or
convertible securities at less than the current market price of the Preferred
Stock, or (iii) upon the distribution to holders of the Preferred Stock of
evidences of indebtedness or assets (excluding regular quarterly cash dividends)
or of subscription rights or warrants (other than those referred to above). With
certain exceptions, no adjustments in the Purchase Price will be required until
cumulative adjustments amount to at least 1% of the Purchase Price. No
fractional units will be issued and, in lieu thereof, an adjustment in cash will
be made based on the market price of the Preferred Stock on the last trading
date prior to the date of exercise.
The Board of Directors may redeem all of the Rights at a
price of $0.001 per Right at any time prior to 10 days after the date that any
person becomes an Acquiring Person or an Adverse Person.
At any time after any person has become an Acquiring Person
or an Adverse Person (but before any person becomes the beneficial owner of
50% or more of the Company's Common Stock), the Board of Directors may exchange
all or part of the Rights (other than the Rights beneficially owned by the
Acquiring Person or Adverse Person and certain affiliated persons) for shares of
Common Stock at an exchange ratio of one share of Common Stock per Right.
Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends. While the distribution of
the Rights will not be taxable to stockholders or to the Company, stockholders
may, depending upon the circumstances,
C-3
<PAGE> 78
recognize taxable income in the event that the Rights become exercisable for
Common Stock (or other consideration) of the Company as set forth above.
For so long as the Rights are redeemable, the Rights
Agreement may be amended in any respect. At any time after the Rights are no
longer redeemable, the Rights Agreement may be amended by the Board of Directors
(without approval of the holders of the Rights) in any respect that does not (i)
adversely affect the Rights holders (other than any Acquiring Person or Adverse
Person and certain affiliated persons), (ii) cause the Rights Agreement again to
become amendable other than in accordance with this paragraph, or (iii) cause
the Rights again to become redeemable.
The Rights have certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group that attempts to acquire
the Company in certain circumstances. Accordingly, the existence of the Rights
may deter certain acquirors from making takeover proposals or tender offers.
The Rights Agreement between the Company and the Rights Agent
specifying the terms of the Rights, which includes as Exhibit B the Form of
Rights Certificate, is attached as an exhibit and incorporated by reference. The
foregoing description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
[The Rights Agreement between the Company and the Rights Agent
specifying the terms of the Rights, which includes as Exhibit B the Form of
Rights Certificate, is attached as an exhibit and incorporated by reference. The
foregoing description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.]*
- ------------------------
* This paragraph to be included only in the Form 8-A to be filed with the
Commission.
C-4
<PAGE> 1
EXHIBIT 5.1
[HUGHES & LUCE, L.L.P. LETTERHEAD]
January 7, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have acted as counsel to Perot Systems Corporation, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of five and one half million shares of the
Company's Class A common stock, par value $0.01 per share (the "Common Stock"),
and up to an additional eight hundred twenty-five thousand shares of Common
Stock subject to an over-allotment option as described in the Registration
Statement of the Company on Form S-1 (No. 333-60755) (the "Registration
Statement") filed with the Securities and Exchange Commission. Upon
effectiveness, the Company proposes to sell such shares to the underwriters
(the "Underwriters") listed in the final Prospectus (the "Prospectus") that
forms a part of the Registration Statement.
In rendering this opinion, we have examined and relied upon executed
originals, counterparts or copies of such documents, records and certificates
(including certificates of public officials and officers of the Company) as we
considered necessary or appropriate for enabling us to express the opinions set
forth herein. In all such examinations, we have assumed the authenticity and
completeness of all documents submitted to us as originals and the conformity
to originals and completeness of all documents submitted to us as photostatic,
conformed, notarized or certified copies.
Based on the foregoing, we are of the opinion that the Common Stock, when
issued and sold to the Underwriters as described in the Registration Statement,
will be validly issued, fully paid and nonassessable.
This opinion may be filed as an exhibit to the Registration Statement. We
also consent to the reference to this firm as having passed on the validity of
the Common Stock under the caption "Legal Matters" in the Prospectus. In giving
this consent, we do not admit that we are included in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ HUGHES & LUCE, L.L.P.
<PAGE> 1
EXHIBIT 10.32
PEROT SYSTEMS CORPORATION
1999 Employee Stock Purchase Plan
Effective as of July 17, 1998
(As Amended and Restated as of January 7, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PURPOSE OF THE PLAN
1.1 General ...............................................................................1
1.2 Tax Treatment .........................................................................1
1.3 Parallel Plans ........................................................................1
2. PARTICIPATION IN THE PLAN
2.1 Eligibility ...........................................................................1
2.2 Enrollment to Buy Stock ...............................................................2
2.3 Designation of Beneficiary ............................................................2
2.4 Contributions; Payroll Deductions; Account; No Interest ...............................2
2.5 Changes in Contributions ..............................................................2
2.6 Withdrawal ............................................................................3
2.7 Termination of Employment; Leave of Absence ...........................................3
2.8 Transferability .......................................................................4
3. PURCHASE OF STOCK
3.1 Offering Periods ......................................................................4
3.2 Grant of Option; Exercise Price .......................................................4
3.3 Automatic Exercise of Option ..........................................................4
3.4 Payment for Stock .....................................................................5
3.5 Delivery of Shares; Voting ............................................................5
3.6 Periodic Reports ......................................................................5
3.7 No Rights in Stock Prior to Exercise ..................................................6
4. OPERATION OF THE PLAN
4.1 Effective Date and Term of Plan .......................................................6
4.2 Shares Authorized for Sale and Issuance Under the Plan ................................6
4.3 Conditions Upon Issuance of Shares ....................................................6
4.4 Administration; Committee .............................................................7
4.5 Amendment or Termination ..............................................................9
4.6 Approval of the Stockholders ..........................................................9
4.7 No Liability for Good Faith Determinations ............................................9
5. MISCELLANEOUS LEGAL PROVISIONS
5.1 Definitions ..........................................................................10
5.2 Adjustments Upon Changes in Capitalization ...........................................12
</TABLE>
1999 Employee Stock Purchase Plan Page ii
<PAGE> 3
<TABLE>
<S> <C> <C>
5.3 Notices; Waiver of Notice ............................................................13
5.4 Severability .........................................................................13
5.5 Successors and Assigns ...............................................................13
5.6 Headings .............................................................................13
5.7 Governing Law ........................................................................14
5.8 No Right to Employment ...............................................................14
</TABLE>
1999 Employee Stock Purchase Plan Page ii
<PAGE> 4
PEROT SYSTEMS CORPORATION
1999 Employee Stock Purchase Plan
1. PURPOSE OF THE PLAN
1.1 General. Perot Systems has adopted this Plan to provide Eligible Associates
with the opportunity and a convenient means to purchase Common Stock as an
incentive (i) to exert their maximum efforts for the success of the Company, and
(ii) to remain employed with the Company.
1.2 Tax Treatment. Perot Systems intends that options to purchase stock
granted under this Plan qualify as options granted under an "employee stock
purchase plan" as defined in Section 423(b) of the Tax Code, and this Plan will
be construed so as to extend and limit participation in a manner consistent with
the requirements of that Section.
1.3 Parallel Plans. If (i) the economic and tax benefits extended under this
Plan to Eligible Associates who reside outside the United States are materially
lower due to local tax laws and regulations, with the exception of tax rates,
than those enjoyed by Eligible Associates who reside in the United States under
the Tax Code, or (ii) revisions to this Plan are necessary to comply with local
employment, labor, securities or other laws or regulations (or, in the sole
discretion of Perot Systems, business customs) of jurisdictions other than the
United States in which a Participating Affiliate is organized or does business,
the Stock Administrator may implement separate plans (or country-specific
addenda implementing revisions to this Plan) for those Eligible Associates that
are revised as necessary to conform to local laws and regulations and business
customs.
2. PARTICIPATION IN THE PLAN
2.1 Eligibility. Each Eligible Associate who is employed by an Employer on an
Enrollment Date may participate in the Plan during the relevant Offering
Period, unless the Tax Code prohibits his or her participation in that
Offering Period because:
(a) The Eligible Associate (together with certain affiliates of the
Eligible Associate described in Section 424(d) of the Tax Code), would be
deemed to own a number of shares of stock and certain exercisable options
to purchase stock that together represent 5% or more of the total combined
voting power or value of all classes of stock of Perot Systems or any
Participating Affiliate (computed in accordance with Section 423(b)(3) of
the Tax Code; or
(b) The Eligible Associate would have the right to purchase under all the
employee stock purchase plans described in Section 423 of the Tax Code of
the Company and its Subsidiaries more than $25,000 of stock (computed based
on the fair market value on the Enrollment Date in accordance with Section
423(b)(3) of the Tax Code) during the calendar year of that Offering
Period.
1999 Employee Stock Purchase Plan Page 1
<PAGE> 5
2.2 Enrollment to Buy Stock. Each Eligible Associate who:
(a) completes an Enrollment Agreement in the form, format, and as otherwise
required by the Stock Administrator, and
(b) delivers that Enrollment Agreement to the Stock Administrator at least
10 business days before the Enrollment Date for an Offering Period, or
(c) calls the Plan Custodian's automated phone system and completes the
enrollment process,
may purchase Common Stock on the Exercise Date for that Offering Period,
subject to the other provisions of this Plan.
2.3 Designation of Beneficiary. Each Participant may from time to time
designate a beneficiary by filing a written beneficiary designation form with
the Stock Administrator. Such beneficiary shall receive any refunds of amounts
not used to purchase Shares and any Shares issued to the Participant. If no
beneficiary was designated, any cash refunds and transfers of Shares shall be
made to the appropriate representative of Participant's estate.
2.4 Contributions; Payroll Deductions; Account; No Interest.
(a) The Company will withhold from each Participant's paycheck (or, in
jurisdictions where payroll deductions are not allowed, will allow each
Participant to contribute) the percentage (not to exceed 10%) of Eligible
Compensation specified in his or her then-current Enrollment Agreement
commencing on the first pay date after the next Enrollment Date of an
Offering Period and continuing throughout that Offering Period and each
future Offering Period until he or she ceases to be a Participant.
(b) Perot Systems will hold and use the amounts withheld from each
Participant's paycheck (or otherwise contributed by each Participant) until
the earlier of the date those amounts are (i) used to purchase Common
Stock, or (ii) refunded to the Participant. Perot Systems will not be
required to segregate any of these funds from its general corporate funds,
and will not pay interest on any of these funds unless otherwise required
by applicable law.
(c) If the funds in the Participant Account of a Participant are in a
currency other than United States dollars on any Exercise Date, for
purposes of determining the maximum number of whole and fractional shares
that may be purchased under this Plan, such funds will be deemed to have
been converted into United States dollars based upon the foreign exchange
selling rates, as reported by the Dow Jones News/Retrieval Service of Dow
Jones and Company, Inc., on such date, or if not so reported on such date,
as reported on the next preceding date on which such rates are reported.
2.5 Changes in Contributions. During an Offering Period, a Participant may not
change the percentage of Eligible Compensation to be withheld from his or her
paycheck (or otherwise to be
1999 Employee Stock Purchase Plan Page 2
<PAGE> 6
contributed), except by withdrawing from the Plan.
2.6 Withdrawal.
(a) A Participant may stop participating in the current Offering Period
and each future Offering Period by delivering a Withdrawal Agreement to the
Stock Administrator or calling the Plan Custodian's automated phone system
and completing the withdrawal process at least 10 business days before the
Exercise Date for then-current Offering Period. Delivery of a Withdrawal
Agreement or completing the withdrawal process will:
(i) permanently and irrevocably terminate the Withdrawing Associate's
participation in the then-current Offering Period, and
(ii) suspend the Withdrawing Associate's participation in any future
Offering Periods until he or she delivers an Enrollment Agreement to
the Stock Administrator.
An election to stop participating in one Offering Period will not prevent
an Eligible Associate from participating in any future Offering Period or
in any other Plan adopted by Perot Systems, provided that the Eligible
Associate will not participate in any future Offering Period until he or
she submits a new Enrollment Agreement.
(b) As soon as practical after receiving a Withdrawal Agreement, Perot
Systems will:
(i) stop withholding the applicable percentage of Eligible
Compensation from the Withdrawing Associate's paychecks or otherwise
accepting contributions to the Withdrawing Associate's Participant
Account, and
(ii) refund to the Withdrawing Associate all amounts previously
withheld from his or her paychecks or otherwise contributed to the
Withdrawing Associate's Participant Account during the then-current
Offering Period.
2.7 Termination of Employment; Leave of Absence.
(a) If a Participant's employment with the Company terminates (other than
by death) on or before an Exercise Date, he or she will be deemed to have
elected to withdraw from the applicable Offering Period effective as of the
date his or her employment terminated.
(b) As soon as practical after a Participant's termination of employment,
Perot Systems will:
(i) refund all amounts withheld from his or her paycheck or otherwise
contributed under this Plan that have not been used to purchase Common
Stock from Perot Systems or otherwise refunded; and
1999 Employee Stock Purchase Plan Page 3
<PAGE> 7
(ii) distribute, or direct the Plan Custodian to distribute, any
Shares held by the Employer or the Plan Custodian on the Participant's
behalf to the Participant or his or her designee.
(c) If a Participant begins an approved leave of absence from his or her
Employer or dies on or before an Exercise Date, he or she will remain in
the Plan for the applicable Offering Period, but will be deemed to have
elected to stop participating in the Plan for each future Offering Period
until, in the case of an approved leave of absence, he or she returns to
work and submits a new Enrollment Form.
2.8 Transferability. Neither any monies credited to Participant's Participant
Account nor any rights with regard to the exercise of an option to purchase
Common Stock under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way (other than by will or the laws of descent and
distribution) by the Participant. Any such attempt at assignment, transfer,
pledge, or other disposition will be without effect, except that Perot Systems
will treat such act as an election to withdraw funds in accordance with Section
2.6.
3. PURCHASE OF STOCK
3.1 Offering Periods. Except for the first Offering Period, each Offering
Period will start on the first day of the second month of a calendar quarter and
end on the last day of the first month of the next calendar quarter. The first
Offering Period will start on the first day of the calendar month occurring at
least 30 days after the date public trading of the Stock commences or such other
date specified by the Board and end on the last day of the first month of the
next calendar quarter occurring at least 60 days after the Offering Period has
started.
3.2 Grant of Option; Exercise Price.
(a) On each Enrollment Date, Perot Systems will grant each Participant an
option to purchase on the next Exercise Date a number of whole and
fractional Shares equal to (i) his or her then-current Withholding
Percentage, multiplied by his or her Eligible Compensation for the Offering
Period, divided by the Exercise Price for the next Exercise Date, minus
(ii) the number of whole and fractional Shares, if any, necessary to
prevent (A) that Participant from exceeding the limits referred to in
Section 2.1(a), or (B) the Plan from issuing more shares than are
authorized as provided in Section 4.2.
(b) The Exercise Price for each Offering Period will be 85% of the fair
market value of one share of the Common Stock on the Exercise Date for that
Offering Period.
3.3 Automatic Exercise of Option. On each Exercise Date, each Participant's
option to purchase Shares will be exercised automatically to purchase:
(a) the maximum number of whole and fractional Shares that may be bought
with the funds withheld from his or her paycheck other otherwise
contributed during the applicable Offering Period, minus
1999 Employee Stock Purchase Plan Page 4
<PAGE> 8
(b) any number of Shares required to comply with any limitations described
in Section 2.1 of this Plan on the maximum number of Shares that may be
purchased by that Participant.
3.4 Payment for Stock. Immediately upon each exercise of each Participant's
option to purchase shares, the amount held by Perot Systems for the benefit of
that Participant will be reduced by the Exercise Price multiplied by the number
of whole and fractional Shares of Common Stock purchased by that Participant in
that exercise.
3.5 Delivery of Shares; Voting.
(a) Subject to the restrictions of Section 3.5(b), as soon as practical
after each Exercise Date, a stock certificate will be issued to each
Participant or to the Plan Custodian for the benefit of each Participant
for the Shares purchased on that Exercise Date. Such certificate may be
issued in nominee name.
(b) All Shares purchased under this Plan will be held by Perot Systems or
the Plan Custodian until the earlier of (i) a request for delivery of the
shares by the Participant, or (ii) the termination of the Participant's
employment by the Employer.
(i) As soon as practical after termination of a Participant's
employment by an Employer, certificates representing shares purchased
under the Plan will be issued in the name of that Participant or, if
timely requested by that Participant in a form approved by the Plan
Custodian, his or her designee.
(ii) All Shares purchased under this Plan shall be nontransferable and
nonassignable for six months after the date such Shares are issued to
the Participant. Any attempt to sell, gift, pledge or otherwise
transfer any Shares prior to the expiration of six months from
issuance shall be ineffective and void.
Perot Systems will pay all issue or initial transfer taxes of the Company
with respect to the issuance or initial transfer of shares, as well as all
fees and expenses necessarily incurred by the Company in connection with
such issuance or initial transfer.
3.6 Periodic Reports. As soon as practical after each Exercise Date, a
statement will be sent to each person who has been a Participant under this
Plan, which statement will include (i) the total amount, in United States
dollars or local currency, of all payroll deductions or other contributions made
during the applicable Offering Period or otherwise held under this Plan for the
benefit of that person by Perot Systems, and any applicable currency conversion
rate, (ii) the number of Shares purchased by that person on each applicable
Exercise Date, (iii) the per share and aggregate purchase price per Share for
those Shares, (iv) the remaining cash balance, if any held by any Employer for
the benefit of that person, and (v) such other information as the Stock
Administrator or Plan Custodian deems appropriate.
1999 Employee Stock Purchase Plan Page 5
<PAGE> 9
3.7 No Rights in Stock Prior to Exercise. Neither a Participant nor his or her
beneficiaries will have any interest or voting right in Common Stock covered by
an option granted this Plan until such option has been exercised and the Shares
purchased.
4. OPERATION OF THE PLAN
4.1 Effective Date and Term of Plan. This Plan will become effective upon its
adoption by the Board, provided that no Offering Period may commence until the
later of (i) the day on which the Common Stock is listed for trading (including
any listing on a when-issued basis) on a national securities exchange or the
national market system of the National Association of Securities Dealers
Automated Quotation system, or (ii) the day on which a Registration Statement
under the Securities Act of 1933, as amended, covering the shares to be issued
under the Plan becomes effective. This Plan will remain effective for a term of
ten years after the date this Plan was adopted by the Board, unless sooner
terminated under Section 4.5.
4.2 Shares Authorized for Sale and Issuance Under the Plan.
(a) The maximum number of Shares that may be sold and issued under this
Plan will be 20,000,000 Shares, which number will be adjusted as provided
in Section 5.2 below. If any option to purchase Shares granted under this
Plan is not exercised for any reason, the Shares subject to that option
will remain available to be sold and issued under this Plan.
(b) If, for any reason, the number of Shares available for sale and
issuance under this Plan under Section 4.2(a) is less than the number of
Shares to be sold and issued under Section 3.3 on an Exercise Date, Perot
Systems will allocate the Shares available for sale and issuance pro rata
among the Participants in as uniform a manner as it determines to be
equitable. In such event, the Stock Administrator or Plan Custodian will
notify each Participant of the reduction in the number of Shares and the
reason for such reduction.
(c) Shares sold and issued under this Plan may, in the sole and absolute
discretion of the Board, be either authorized and unissued Shares or
treasury Shares that are bought or otherwise acquired in public or private
transactions.
4.3 Conditions Upon Issuance of Shares.
(a) Compliance With Laws. Perot Systems will not be required to grant an
option or to sell or issue any Shares under this Plan to any Eligible
Associate unless that option and the sale, issuance and delivery of Shares
upon exercise of that option complies, in the opinion of Perot Systems'
counsel, with all laws and regulations of each applicable country and other
jurisdiction, including, but not limited to, the Securities Act of 1933 and
the rules and regulations of the United States Securities Exchange
Commission, and all rules and regulations of the New York Stock Exchange or
other applicable stock exchange upon which the Common Stock is listed.
1999 Employee Stock Purchase Plan Page 6
<PAGE> 10
(b) Investment Intent. As a condition to the exercise of an option, Perot
Systems may require the person exercising such option to represent and
warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required by any of the aforementioned applicable
provisions of law.
4.4 Administration; Committee.
(a) Board of Directors. This Plan will be administered by the Board. Unless
otherwise provided in this Plan, the Board has the power:
(i) To determine when and how rights to purchase Shares will be
granted and the provisions of each offering of such rights (which need
not be identical).
(ii) To designate Participating Affiliates.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan, in a manner and to
the extent it will deem necessary or expedient to make the Plan fully
effective.
(iv) To amend or terminate this Plan as provided in Section 4.5.
(v) To delegate administration of this Plan to a Committee of two or
more members of the Board.
(vii) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests
of Perot Systems.
(b) Committee. If administration of this Plan is delegated to a Committee,
it will have all the powers of the Board with respect to this Plan, subject
to any limitations on such powers stated in the Board's resolutions
delegating administration to the Committee. Whether or not the Board
delegates administration of this Plan to a Committee, the Board retains the
final power to determine all questions of policy, procedure, and expediency
that arise in the administration of this Plan.
(c) Participation by Members of the Board or Committee. Members of the
Board who are Eligible Associates are permitted to participate in this
Plan; provided that (A) no member of the Board who participates in this
Plan may vote on any matter affecting the administration of, or the grant
of any option pursuant to, this Plan, and (B) if a Committee is appointed
to administrate this Plan, no member of the Committee will be eligible to
participate in this Plan.
1999 Employee Stock Purchase Plan Page 7
<PAGE> 11
(d) Stock Administrator. Perot Systems' day to day obligations under this
Plan will be managed by the Stock Administrator, subject to the Board's
final power to determine all questions of policy, procedure, and expediency
that arise in the administration of this Plan. The Stock Administrator will
have all of the following powers of the Board:
(i) To manage, or select and direct a Plan Custodian to manage,
the daily operations of this Plan in accordance with its terms;
(ii) To adopt rules of procedure and regulations necessary for the
operation of this Plan, provided they are consistent with the terms of
this Plan;
(iii) To determine all questions with regard to rights of Eligible
Associates and Participants under the Plan, including, but not limited
to, the eligibility of any person to participate in the Plan;
(iv) To enforce the terms, rules and regulations of this Plan;
(v) To direct the distribution of the Shares purchased hereunder;
(vi) To furnish the Company with information which it requires for
tax or other purposes;
(vii) To engage the service of counsel (who may, if appropriate, be
counsel for the Company) and a Plan Custodian or other agents it deems
advisable to assist it with the performance of its duties;
(viii) To prescribe procedures to be followed by Participants in
electing to participate in this Plan;
(ix) To receive from each Company and Eligible Associate any
information necessary to administer or manage this Plan;
(x) To maintain, or cause Perot Systems, the Employer or the Plan
Custodian to maintain, an account in the name of each Participant to
reflect his or her participation in this Plan;
(xi) To interpret and construe the Plan; and
(xii) To make any changes or modifications necessary to administer
and implement the provisions of this Plan in any country other than
the United States to the fullest extent possible, including but not
limited to creation of parallel plans as contemplated by Section 1.3.
1999 Employee Stock Purchase Plan Page 8
<PAGE> 12
4.5 Amendment or Termination.
(a) The Board may amend or terminate this Plan without notice, provided
that the Board will not, without the approval of the stockholders of Perot
Systems, (i) increase the maximum number of Shares that may be sold or
issued under this Plan (except pursuant to Section 5.2) or (ii) amend the
requirements as to the class of Eligible Associates eligible to purchase
Shares under this Plan (except to the extent necessary to comply with any
applicable law), or, if a Committee is appointed to administer this Plan,
permit the members of the Committee to participate in this Plan.
(i) Except as specifically provided in this Plan, as required to
comply with Code section 423, or as required to obtain a favorable
ruling from the Internal Revenue Service, no amendment may make any
change in any option granted under this Plan that adversely affects
the rights of any Participant without the consent of that Participant.
(b) This Plan will automatically terminate on the Exercise Date that
Participants become entitled to purchase a number of Shares greater than
the number available for purchase under Section 4.2. In the event of an
automatic termination, reserved Shares remaining as of such Exercise Date
will be sold to Participants on a pro rata basis, as described in Section
4.2(b).
4.6 Approval of the Stockholders. Commencement of the Plan will be subject to
approval by the stockholders of the Company within 12 months after the date the
Plan is adopted. Notwithstanding any provision to the contrary, failure to
obtain such stockholder approval will void the Plan, any options granted under
the Plan, any Share purchases pursuant to the Plan, and all rights of all
Participants.
4.7 No Liability for Good Faith Determinations. Neither the members of the
Board, the Stock Administrator nor the Plan Custodian (nor their delegates) will
be liable for any act, omission, or determination taken or made in good faith
with respect to the Plan or any right to purchase Shares granted under it.
Members of the Board and the Stock Administrator (and their delegates) will be
entitled to indemnification and reimbursement by Perot Systems in respect of any
claim, loss, damage, or expense (including attorneys' fees, the costs of
settling any suit, provided such settlement is approved by independent legal
counsel selected by Perot Systems, and amounts paid in satisfaction of a
judgment, except a judgment based on a finding of bad faith) arising therefrom
to the full extent permitted by law and under any directors and officers
liability or similar insurance coverage that may from time to time be in effect.
1999 Employee Stock Purchase Plan Page 9
<PAGE> 13
5. MISCELLANEOUS LEGAL PROVISIONS
5.1 Definitions.
(1) "Board" means the Board of Directors of Perot Systems or a duly
appointed committee of the Board.
(2) "Committee" means a committee of the Board appointed to administer this
Plan.
(3) "Common Stock" means the Class A Common Stock, $.01 par value per
share, of Perot Systems.
(4) "Company" means Perot Systems, its subsidiaries and affiliates.
(5) "Eligible Associate" means a natural person who on an Enrollment Date
is (i) customarily employed as an employee of an Employer (A) on a
full-time basis, (B) for more than 20 hours per week on a regular basis by
an Employer for more than five months per calendar year, or (C) on such
other basis as is appropriate under applicable law, and (ii) not engaged
under an independent contractor or similar agreement, whether or not such
person is determined to be an independent contractor.
(6) "Eligible Compensation" means the total compensation paid to a
Participant by any Employer during an Offering Period, including wages,
salary, bonuses and commission, but shall not include relocation assistance
payments, geographical hardship pay, noncash prizes and awards, automobile
allowances, severance type payments and nonqualified deferred executive
compensation.
Eligible Compensation includes the amount of a Participant's elective
contributions that are made by the Employer on behalf of that Participant
that are not includable in gross income under Tax Code Sections 125,
402(e)(3), 402(h), and 401(k).
(7) "Employer" means Perot Systems or the Participating Affiliate by which
an Eligible Associate is employed.
(8) "Enrollment Agreement" means the agreement submitted to the Stock
Administrator pursuant to Section 2.2.
(9) "Enrollment Date" means the first day of the applicable Offering
Period.
(10) "Exercise Date" means the last day of the applicable Offering Period.
(11) "Exercise Price" means the price defined in Section 3.2(b).
(12) "Fair Market Value" of one share of Common Stock on a particular date
will be (i)
1999 Employee Stock Purchase Plan Page 10
<PAGE> 14
if the Common Stock is listed or admitted to trading on the New York Stock
Exchange, then (a) if sales of Common Stock occurred on that date, the
closing selling price per share of Common Stock on the New York Stock
Exchange Composite Tape for that date (1) as reported by the Dow Jones
News/Retrieval Service of Dow Jones and Company, Inc., or (2) if not so
reported, in a newspaper of national circulation or other authoritative
source selected by the Board, or (b) if no sales of Common Stock occurred
on that date, the closing selling price per share of Common Stock as of the
next preceding date for which the price is reported on the New York Stock
Exchange Composite Tape on that date, or (ii) in all other cases,
determined in a reasonable way selected by the Board for that purpose.
(13) "Offering Period" means each period commencing on the first day of the
second month following the end of a calendar quarter (except as provided in
Section 3.1), and ending on the last day of the first month following the
end of the calendar quarter, during which a Participant has an option to
purchase Common Stock.
(14) "Participant" means an Eligible Associate who has elected to
participate in any Offering Period and continues to participate in that
Offering Period through its Exercise Date.
(15) "Participant Account" means any account or accounting entry
maintained by Perot Systems, the Employer or the Plan Custodian to record
the amount that a Participant has contributed to the Plan during an
Offering Period and the Common Stock purchased under this Plan.
(16) "Participating Affiliate" means (1) each corporation, domestic or
foreign, of which Perot Systems, directly or indirectly, holds, on the
applicable Enrollment Date, not less than 50% of the total combined voting
power of all classes of stock, whether or not such corporation now exists
or is hereafter organized or acquired by Perot Systems or any of its
subsidiaries which are approved by the Board to participate in this Plan,
including but not limited to those identified in Exhibit A, and (2) each
other corporation joint venture, general or limited partnership, limited
liability company or other business entity, domestic or foreign; both (1)
and (2) as approved by the Board to participate in this Plan, provided that
the Board will not approve any business entity for participation in this
Plan (although such participation may be approved in a parallel plan as
contemplated in Section 1.3) if its participation would disqualify this
Plan under the Tax Code, and any such attempted approval shall be deemed as
creating a parallel plan as contemplated in Section 1.3.
(17) "Perot Systems" means Perot Systems Corporation, a Delaware
corporation, or any successor in interest that adopts this Plan.
(18) "Plan" means this Perot Systems Corporation 1999 Employee Stock
Purchase Plan, as amended from time to time.
(19) "Plan Custodian" means the third party administrator appointed by
Perot Systems to
1999 Employee Stock Purchase Plan Page 11
<PAGE> 15
manage this Plan in accordance with its terms.
(20) "Share" means one share of Common Stock.
(21) "Stock Administrator" means the Stock Administration or Human
Resources Department of Perot Systems.
(22) "Tax Code" means the Internal Revenue Code of 1986, as amended.
(23) "Withdrawal Agreement" means the agreement submitted to the Stock
Administrator pursuant to Section 2.2.
(24) "Withdrawing Associate" means a Participant who withdraws from this
Plan as provided in Section 2.6(a).
(25) "Withholding Percentage" means the percentage of Eligible Compensation
that a Participant elects, from time to time, to have withheld as his or
her contribution during an Offering Period.
5.2 Adjustments Upon Changes in Capitalization.
(a) If any change is made in the Common Stock, or subject to any rights
granted under the Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash,
stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company), the Plan and outstanding
rights will be appropriately adjusted in the class(es) and maximum number
of Shares subject to the Plan and the class(es) and number of Shares and
price per Share of Common Stock subject to outstanding rights. Such
adjustments will be made by the Board, the determination of which will be
final, binding and conclusive. The conversion of any convertible securities
of the Company will not be treated as a "transaction not involving the
receipt of consideration by the Company."
(b) If (1) a dissolution or liquidation of Perot Systems or a sale of all
or substantially all of Perot Systems' assets; (2) a merger or
consolidation in which Perot Systems is not the surviving corporation; (3)
a reverse merger in which Perot Systems is the surviving corporation but
the shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form
of securities, cash or otherwise; or (4) any other capital reorganization
in which more than 50% of the shares of the Company entitled to vote are
exchanged, is proposed to be consummated, then, the Exercise Date for the
applicable Offering Period will be accelerated to the date such transaction
is consummated, and the payroll deductions of the Participants made through
the Exercise Date will be used to purchase Common Stock immediately prior
to such transaction and all further rights of the Participants will
terminate, unless otherwise provided by the
1999 Employee Stock Purchase Plan Page 12
<PAGE> 16
Board in its sole discretion.
5.3 Notices; Waiver of Notice.
(a) To a Participant. All notices or other communications relating to the
Plan given to a Participant or former Participant by the Board, Perot
Systems, or any Employer will be deemed delivered on the day the notice or
other communication is (1) personally delivered to that person, (2)
electronically transmitted to a person who on the date of that transmission
either is an Eligible Associate or has consented to receiving notices by
electronic transmission to the last known electronic transmission address
of that person, or (3) placed in the official government mail of the
country of the sender in an envelope addressed to the last known address of
that person, whichever is earlier.
(b) By a Participant. All notices or other communications relating to the
Plan given to the Board, Perot Systems, or an Employer will be deemed
delivered on the day the notice or other communication is (1) received in
tangible written form by the Stock Administrator at Perot Systems'
Corporate Headquarters address, or (2) electronically transmitted by an
Eligible Associate to the Stock Administrator by means of Perot Systems'
internal corporate e-mail or intranet system, provided that such notice is
in the form specified by Perot Systems and is acknowledged by the Stock
Administrator.
(c) CONSENT TO ELECTRONIC DELIVERY OF NOTICES, PLAN DOCUMENTS AND
PROSPECTUSES. BY REQUESTING TO PARTICIPATE IN THE PLAN, AN ELIGIBLE
ASSOCIATE WILL BE DEEMED TO CONSENT TO RECEIVING COPIES OF ALL NOTICES AND
OTHER COMMUNICATIONS RELATING TO THE PLAN BY ELECTRONIC TRANSMISSION,
INCLUDING BUT NOT LIMITED TO THE PROSPECTUS RELATING TO THE PLAN, ALL
ENROLLMENT AND OTHER PARTICIPATION MATERIALS, AND ALL OTHER DOCUMENTS
REQUIRED TO BE DELIVERED IN CONNECTION WITH THE PLAN. UPON REQUEST, PEROT
SYSTEMS WILL PROVIDE ANY SUCH DOCUMENTS TO ANY ELIGIBLE ASSOCIATE IN
TANGIBLE WRITTEN FORM.
(d) Waiver of Notice. Any person entitled to notice under the Plan may
waive the notice.
5.4 Severability. If any provision of this Plan is held to be illegal or
invalid for any reason, the illegality or invalidity will not affect the other
provisions of this Plan, but will be fully severable and the Plan will be
construed and enforced as if the illegal or invalid provision had never been
included in this Plan.
5.5 Successors and Assigns. The Plan is binding on all Participants and their
respective heirs, legatees, and legal representatives, including but not limited
to their estate and the executors, any receiver, trustee in bankruptcy or
representative of creditors of such person, and upon the Employer, its
successors and assigns.
5.6 Headings. The titles and headings of the paragraphs are included for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
1999 Employee Stock Purchase Plan Page 13
<PAGE> 17
5.7 Governing Law. This Plan and rights to purchase Shares that may be granted
under this Plan will be governed by and construed in accordance with the laws of
the State of Texas, without giving effect to any conflicts-of-law rules or
principles that might require the application of the laws of another
jurisdiction, except to the extent this Plan or those rights are governed by the
Delaware General Corporation Law, or the Federal law of the United States.
5.8 No Right to Employment. Nothing in this Plan, any amendment to this Plan,
or the creation of any Participant Account, the execution or submission of any
Enrollment Agreement or Withdrawal Agreement, or the issuance of any Shares of
Common Stock, will give any Eligible Associate any right (i) to continue
employment with any Employer, (ii) any legal or equitable right against Perot
Systems or any Employer, or any officer, director, or Associate of Perot
Systems or its Participating Affiliates, in connection with his or her
employment by the Company, or (iii) interfere in any way with the Employer's
right to terminate or otherwise modify his or her employment at any time,
except as expressly provided by the Plan or by applicable law.
This 1999 Employee Stock Purchase Plan has been adopted in accordance with a
resolution of the Board of Directors of Perot Systems on July 17, 1998, and
approved by the stockholders of Perot Systems on September.
PEROT SYSTEMS CORPORATION
By:
----------------------------------------
John Harper, Treasurer
Date:
--------------------------------------
1999 Employee Stock Purchase Plan Page 14
<PAGE> 18
Perot Systems Corporation
1999 Employee Stock Purchase Plan
Participating Affiliates
The following corporations are approved by the Board as Participating Affiliates
to participate in this Plan (or, to the extent determined appropriate by the
Stock Administrator, a parallel plan).
Benton International Incorporated
Deutsche Perot Systems GmbH
Icarus Consulting A.G.
Icarus Consulting GmbH
Perot Systems A.G.
Perot Systems Asia Pacific Pte Ltd.
Perot Systems B.V.
Perot Systems (Canada) Corporation
Perot Systems Communication Services, Inc.
Perot Systems Europe (Energy Services) Limited
Perot Systems Europe Limited
Perot Systems Holdings Pte Ltd.
Perot Systems Investments BV
Perot Systems (Japan) Ltd.
Perot Systems Monaco S.A.M.
Perot Systems S.A.
Persys Ireland Limited
Syllogic B.V.
Syllogic Limited
Syllogic Ireland Limited
The Technical Resource Connection, Inc.
1999 Employee Stock Purchase Plan Page 1
<PAGE> 1
EXHIBIT 10.35
[NATIONSBANK LOGO]
NationsBank, N.A. PROMISSORY NOTE
Date July 31, 1998
Amount $40,000,000.00
FOR VALUE RECEIVED, the undersigned ("Borrower") unconditionally (and jointly
and severally, if more than one) promise(s) to pay to the order of NationsBank,
N.A. ("Bank"), _______________________ (Banking Center) without setoff, at its
offices at Charlotte, North Carolina, or at such other place as may be
designated by Bank, the principal amount of Forty Million and 00/100 Dollars
($40,000,000.00), or so much thereof as may be advanced from time to time in
immediately available funds, together with interest computed daily on the
outstanding principal balance hereunder, at an annual interest rate, and in
accordance with the payment schedule, indicated below. [This Note contains some
provisions preceded by boxes. Mark only those boxes beside provisions which
will be applicable to this transaction. A box which is not marked means that
the provision beside it is not applicable to this transaction.]
RATE
[ ] PRIME RATE. The rate shall be the Prime Rate, plus _________ percent, per
annum. The "Prime Rate" is the fluctuating rate of interest established by
Bank from time to time, at its discretion, whether or not such rate shall be
otherwise published. The Prime Rate is established by Bank as an index or
base rate and may or may not at any time be the best or lowest rate charged
by Bank on any loan.
[ ] FIXED RATE. The Rate shall be fixed at ____________ percent, per annum.
[ ] TREASURY SECURITIES RATE. The Rate shall be the Treasury Securities Rate,
plus ___________ percent, per annum. The "Treasury Securities Rate" is a
fluctuating rate of interest applied by Bank from time to time, based on the
most recent monthly average of daily yields on all outstanding United States
Treasury Securities adjusted to a constant maturity of __________ years, as
made available by the Federal Reserve Board, rounded upwards to the nearest
one-eighth of one percentage point (0.125%).
[X] OTHER. The Rate shall be (i) Adjusted Eurodollar Rate plus one percent (1%)
or (ii) the Prime Rate as provided in the Addendum. INTEREST WILL BE PAYABLE
IN ARREARS.
Notwithstanding any other provision contained in this Note, Bank does not
intend to charge and Borrower shall not be required to pay any amount of
interest or other fees or charges that is in excess of the maximum permitted by
applicable law. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the option of Bank. SEE ADDENDUM FOR
ADDITIONAL PROVISIONS.
ACCRUAL METHOD
Interest at the Rate set forth above, unless otherwise indicated, will be
calculated on the basis of the 365/360 method, which computes a daily amount of
interest for a hypothetical year of 360 days, then multiplies such amount by
the actual number of days elapsed in an interest calculation period. If
interest is not to be computed using this method, the method to be used shall
be: ________________________________________________________________________.
RATE CHANGE DATE
Any Rate based on a fluctuating index or base rate will change, unless
otherwise provided, each time and as of the date that the index or base rate
changes. If the Rate is to change on any other date or at any other interval,
describe: __________________________________________________________________
____________________________________________________________________________.
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
PAYMENT SCHEDULE
All payments received hereunder shall be applied first to the payment of any
expense or charges payable hereunder or under any other documents executed in
connection with this Note ("Loan Documents"), then to interest due and payable,
with the balance being applied to principal, or in such other order as Bank
shall determine at its option.
[ ] PRINCIPAL Principal shall be paid in __________________ (____) equal:
PLUS [ ] monthly, [ ] quarterly or [ ] _______________ installments
INTEREST of $________________ each, commencing on __________________,
19____, together with accrued interest thereon and continuing
on the same day of each successive month/quarter/or other
period (as applicable) thereafter, with a final payment of all
unpaid principal and interest thereon on ____________________,
19____.
[ ] PRINCIPAL Principal shall be paid in __________________ (____) equal:
PLUS [ ] monthly, [ ] quarterly or [ ] _______________ installments
INTEREST of $________________ each, commencing on __________________,
19____, and continuing on the same day of each successive
month/quarter/or other period (as applicable) thereafter, with
a final payment of all unpaid principal and interest thereon on
____________________, 19____; provided that, if accrued
interest on any payment date exceeds the installment amount set
forth above, Borrower will pay an additional amount equal to
such excess interest.
[X] SINGLE Principal shall be paid in full in a single payment on January
PRINCIPAL 31, 1999. Interest thereon shall be paid: [ ] at maturity, [X]
PAYMENT monthly, [ ] quarterly, or [ ] ____________________ commencing
on August 31, 1998, and continuing on the same day of each
successive month/quarter or other period (as applicable)
thereafter, with a final payment of all unpaid interest at the
stated maturity of this Note. AS PROVIDED IN THE ADDENDUM
[ ] DEMAND. NOTWITHSTANDING ANY PROVISIONS CONTAINED HEREIN
WHICH MAY BE INCONSISTENT WITH A DEMAND NOTE,
INCLUDING BUT NOT LIMITED TO ANY REFERENCES TO
INSTALLMENTS, A MATURITY DATE, ACCELERATION OR
EVENTS OF DEFAULT, BORROWER ACKNOWLEDGES THAT BANK
MAY DEMAND PAYMENT AT ANY TIME, IN ITS SOLE
DISCRETION.
[ ] OTHER _______________________________________________________________
_______________________________________________________________
REVOLVING FEATURE
[X] Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note; provided, however, that Borrower is not in default under
any provision of this Note, any Loan Document, or any other obligation of
Borrower to Bank, and provided that the borrowings hereunder do not exceed any
borrowing base or other limitations on borrowings by Borrower. Bank shall have
no liability for its refusal to advance funds based upon its determination that
any conditions of such further advances have not been met. Bank records of the
amounts borrowed from time to time shall be conclusive proof thereof.
[ ] Uncommitted Facility. Borrower acknowledges and agrees that
notwithstanding any provisions of this Note or the Loan Documents, Bank
has no obligation to make any advance, and that all advances are at the
sole discretion of Bank.
AUTOMATIC PAYMENT
[ ] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrowers account number ______________________.
This authorization shall not affect the obligation of Borrower to pay such sums
when due, without notice, if there are insufficient funds in such account to
make such payment in full on the due date thereof, or if Bank fails to debit
the account.
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE, INCLUDING THE ADDITIONAL TERMS AND CONDITIONS SET
FORTH ON THE REVERSE SIDE OF THIS NOTE, AND HEREBY EXECUTES THIS NOTE UNDER
SEAL.
BORROWER
(SEAL)
------------------------------------
Print Individual's Name:
(SEAL)
------------------------------------
Print Individual's Name:
PEROT SYSTEMS CORPORATION
------------------------------------------
Corporate Borrower or Partnership: (Name of Corporation, Partnership, etc.)
By: /s/ TERRY ASHWILL (SEAL)
- ---------------------------------- --------------------------------
Attest (If Applicable) Terry Ashwill, Chief Financial Officer
(Corporate Seal) --------------------------------------
Print Name and Title:
7-28-98
<PAGE> 2
ADDITIONAL TERMS AND CONDITIONS SEE ADDENDUM FOR ADDITIONAL PROVISIONS
WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser, or guarantor hereof or
any other party hereto (collectively "Obligors") and each of them jointly and
severally, do waive presentment, demand, notice of demand, notice of intent to
accelerate, and notice of acceleration of maturity, protest, notice of protest,
notice of nonpayment, notice of dishonor, and any other notice required to be
given under the law to any of Obligors, in connection with the delivery,
acceptance, performance, default or enforcement of this Note, any indorsement or
guaranty of this Note or of any Loan Documents; (b) consent to any and all
delays, extensions, renewals or other modifications of this Note or the Loan
documents, or waivers of any term hereof or of the Loan Documents, or releases
or discharge by Bank of any of Obligors or release, substitution, or exchange of
any security for the payment hereof, or the failure to act on the part of Bank
or any indulgence shown by Bank, from time to time and in one or more instances
(without notice to or further assent from any of Obligors) and agree that no
such action, failure to act or failure to exercise any right or remedy on the
part of Bank shall in any way affect or impair the obligations of any Obligors
or be construed as a waiver by Bank of, or otherwise affect, any of Bank's
rights under this Note, under any indorsement or guaranty of this Note or under
any of the loan Documents; and (c) agree to pay, on demand, all costs and
expenses of collection of this Note or of any indorsement or guaranty hereof
and/or the enforcement of Bank's rights with respect to, or the administration,
supervision, preservation, protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any trial, arbitration, bankruptcy, appeal or
other proceeding, in the amount of 15% of the outstanding balance of this Note.
INDEMNIFICATION. Obligors agree to promptly pay, indemnify and hold Bank
harmless from all state and federal taxes of any kind and other liabilities with
respect to or resulting from advances made pursuant to this Note. If this Note
has a revolving feature and is secured by a mortgage, Obligors expressly consent
to the deduction of any applicable taxes from each taxable advance extended by
Bank.
PREPAYMENTS. Prepayments may be made in whole or in part at any time on any loan
for which the Rate is based on the Prime Rate. All prepayments of principal
shall be applied in the inverse order of maturity, or in such other order as
Bank shall determine in its sole discretion. Except as expressly permitted by
law, no prepayment of any other loan shall be permitted without the prior
written consent of Bank. Notwithstanding such prohibition, if there is a
prepayment of any such loan, whether by consent of Bank, or because of
acceleration or otherwise, Borrower shall, within 15 days of any request by
Bank, pay to Bank any loss or expense which Bank may incur or sustain as a
result of such prepayment. For the purposes of calculating the amounts owed
only, it shall be assumed that Bank actually funded or committed to fund the
loan through the purchase of an underlying deposit in an amount and for a term
comparable to the loan, and such determination by Bank shall be conclusive,
absent a manifest error in computation.
EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate of Bank, whether under this Note or any
other Agreement, note or instrument now or hereafter existing, as and when due
(whether upon demand, at maturity or by acceleration); (b) the failure to pay
or perform any other obligation, liability or indebtedness of any of Obligors
whether to Bank or some other party, the security for which institutes an
encumbrance on the security for this Note; (c) death of any Obligor (if an
individual), or a proceeding being filed or commenced against any Obligor for
dissolution or liquidation, or any Obligor voluntarily or involuntarily
terminating or dissolving or being terminated or dissolved; (d) insolvency of,
business failure of, the appointment of a custodian, trustee, liquidator or
receiver for or for any of the property of, or an assignment for the benefit of
creditors by, or the filing of a petition under bankruptcy, insolvency or
debtor's relief law or for any adjustment of indebtedness, composition or
extension by or against any Obligor; (e) any lien or additional security
interest being placed upon any of the property which is security for this Note;
(f) acquisition at any time or from time to time of title to the whole of or
any part of the property which is security for this Note by any person,
partnership, corporation or other entity; (g) Bank determining that any
representation or warranty made by any Obligor in any Loan Documents or
otherwise to Bank is, or was, untrue or materially misleading; (h) failure of
any Obligor to timely deliver such financial statements, including tax returns,
and other statements of condition or other information as Bank shall request
from time to time; (i) any default under any Loan Documents; (j) entry of a
judgment against any Obligor which Bank deems to be of a material nature, in
Bank's sole discretion; (k) the seizure or forfeiture of, or the issuance of
any writ of possession, garnishment or attachment, or any turnover order for
any property of any obligor; (l) Bank reasonably deeming itself insecure for
any reason; (m) the determination by Bank that a material adverse change has
occurred in the financial condition of any obligor; or, (n) the failure to
comply with any law or regulation regulating the operation of Borrower's
business.
REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the
entire balance outstanding and all other obligations of Obligor to Bank
(however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable, and/or (b) to the extent permitted by law, the
Rate of interest on the unpaid principal shall, at the option of the Bank, be
increased at Bank's discretion up to the greater of (i) three percent (3%) over
the contract rate (as shown on the face of this Note) or (ii) three Percent
(3%) over the Prime Rate of Bank ("Default Rate"); and/or (c) to the extent
permitted by law, a delinquency charge may be imposed in an amount not to
exceed four percent (4%) of the paid portion of any payment in default for more
than fifteen days. Unless the terms of this Note call for repayment of the
entire balance of this Note (both principal and interest) a single payment (and
not for installments of interest or principal and interest), the four percent
(4%) delinquency charge may be imposed not only with respect to regular
installments of principal, interest, or interest and principal, but also with
respect to any other payment in default (other than a previous delinquency
charge) for more than fifteen days, including without limitation, a single
payment of principal due at maturity of this Note. In the event that any
installment, or portion thereof, is not paid in a timely fashion, subsequent
payments will be applied first to the past due balance (which shall not include
any previous delinquency charges), specifically to the oldest maturing
installment, and a separate delinquency charge will be imposed for each payment
that becomes due until the default is cured. The provisions herein for a
Default Rate or a delinquency charge shall not be deemed to extend the time for
any payment hereunder or to constitute a "grace period" giving the Obligors a
right to cure any default. At Bank's option, any accrued and paid interest,
fees or charges may, for purposes of computing and accruing interest on a daily
basis after the due date of the Note or any installment thereof, be deemed to
be a part of the principal balance, and interest shall accrue on a daily
compounded basis after such date at the rate provided in this Note until the
entire outstanding balance of principal and interest is paid in full. Bank is
hereby authorized at any time to set off and charge against any deposit
accounts of any Obligor, as well as any other property of such party at or
under the control of Bank, without notice or demand, any and all obligations
due hereunder.
NON-WAIVER. The failure at any time of Bank to exercise any of its options or
any other rights hereunder shall not constitute a waiver thereof, nor shall it
be a bar to the exercise of any of its options or rights at a later date. All
rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of
Bank's rights under this Note. No waiver of any of its rights hereunder, and
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Obligor to Bank in any other respect at any other time.
APPLICABLE LAW. This Note is delivered in and shall be construed under the
internal laws and judicial decisions of the State of North Carolina, and the
laws of the United States as the same may be applicable.
PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of this
Note shall not affect the enforceability or the validity of any other provision
herein and the validity or unenforceability of any provision of this Note or of
the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as may apply to other persons or
circumstances.
JURISDICTION AND VENUE. In any litigation in connection with or to enforce this
Note or any indorsement or guaranty of this Note or any Loan Documents,
Obligors, and each of them, irrevocably consent to and confer personal
jurisdiction on the courts of the State of North Carolina or the United States
courts located within the State of North Carolina, and expressly waive any
objections as to venue in any such courts, and agree that service of process may
be made on Obligors by mailing a copy of the summons and complaint by registered
or certified mail, return receipt requested, to their respective addresses.
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available by applicable law.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR AN
RELATED NOTES OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN
ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OR
JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY CONSISTENCY, THE SPECIAL RULES SHALL
CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION, ANY PARTY TO THE NOTE MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH
THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
BORROWER'S DOMICILE AT THE TIME OF THIS NOTE'S EXECUTION AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR AN
ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS NOTE; OR (II) BE A WAIVER BY THE BANK
OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SECTION 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO
ADJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSURE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS NOTE. NEITHER
THE EXERCISE OR SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
BINDING EFFECT. This note shall be binding upon and inure to the benefit of
Borrower, Obligors and Bank and their respective successor, assigns, heirs and
personal representatives, provided, however, that no obligations of the Borrower
or the Obligor hereunder can be assigned without prior written consent of Bank.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE AND ANY OTHER DOCUMENTS
EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
<PAGE> 3
ADDENDUM TO
$40,000,000 DEMAND PROMISSORY NOTE DATED JULY 31,1998
OF PEROT SYSTEMS CORPORATION
IN FAVOR OF
NATIONSBANK, N.A.
The above-referenced Note is amended and modified to include the following
terms:
LOAN
Commitment. During the Commitment Period, subject to the terms and
conditions hereof, the Bank agree to make revolving loans to the Borrower upon
request up to an aggregate principal amount of FORTY MILLION DOLLARS
($40,000,000) at any time outstanding. The loans hereunder may consist of Base
Rate Loans or Eurodollar Loans, or a combination thereof; provided that no more
than 8 Eurodollar Loans may be outstanding at any time. The obligation of the
Bank to make loans hereunder and to extend, or convert loans into, Eurodollar
Loans is subject to the condition that the Representations and Warranties set
forth herein are true and correct in all material respects.
Notices. Requests by the Borrower for loans hereunder, and for extensions
or conversions of loans hereunder, shall be made by written notice (or telephone
notice promptly confirmed in writing) by 12:00 Noon Charlotte, North Carolina
time on (i) the Business Day prior to the requested borrowing, extension or
conversion in the case of Base Rate Loans and (ii) the third Business Day prior
to the requested borrowing, extension or conversion in the case of Eurodollar
Loans. Each request shall be in a minimum principal amount of $1,000,000 in the
case of Eurodollar Loans and $ 100,000 in the case of Base Rate Loans and, in
each case, integral multiples of $100,000 in excess thereof, and shall specify
the date of the requested borrowing, extension or conversion, the aggregate
amount to be borrowed, extended or converted and if an extension of conversion,
the loan which is being extended or converted, and whether the borrowing,
extension or conversion shall consist of Eurodollar Loans, Base Rate Loans or
combination thereof. If the Borrower shall fail to specify (A) the type of Loan
requested for a borrowing, the request shall be deemed a request for a Base Rate
Loan, (B) the duration of the applicable Interest Period in the case of
Eurodollar Loans, the request shall be deemed to be a request for an Interest
Period of one month. Each request for a borrowing, extension or conversion
hereunder shall be deemed a reaffirmation that the Representations and
Warranties set forth herein are true and correct in all material respects as of
such date. Unless extended in accordance with the provisions hereof, Eurodollar
Loans shall be converted to Base Rate Loans at the end of the applicable
Interest Period.
RATE
The Rate shall be either (i) the Adjusted Eurodollar Rate plus one percent
or (ii) the Prime Rate, as the Borrower may elect. Interest will be payable in
arrears on each Interest Payment Date.
Capital Adequacy. If the Bank has reasonably determined, after the date
hereof, that the adoption or the becoming effective of, or any change in, or any
change by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof in the interpretation or
administration of, any applicable law, rule or regulation regarding capital
adequacy, in each case after the date hereof, or compliance by the Bank with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, after the date
hereof, has or would have the effect of reducing the rate of return on the
Bank's capital or assets as a consequence of its commitments or obligations
hereunder to a level below that which the Bank could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration the
Bank's policies with respect to capital adequacy), then, upon notice from the
Bank to the Borrower, the Borrower shall be obligated to pay to the Bank such
additional amount or amounts as will compensate the Bank for such reduction.
Each determination by the Bank of amounts owing under this paragraph shall,
absent manifest error, be conclusive and binding on the parties hereto. The Bank
shall not be entitled to any payments or compensation under this paragraph for
any period of time more than 90 days prior to the date of any request by the
Bank for compensation under this paragraph.
<PAGE> 4
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
Inability To Determine Interest Rate. If prior to the first day of any
Interest Period, the Bank shall have reasonably determined (which determination
shall be conclusive and binding upon the Borrower absent manifest error) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, the Bank shall give telecopy or telephonic notice thereof to
the Borrower. If such notice is given (x) any Eurodollar Loans requested to be
made on the first day of such Interest Period shall be made as Base Rate Loans,
(y) any Loans that were to have been converted on the first day of such Interest
Period to or continued as Eurodollar Loans shall be converted to or continued as
Base Rate Loans and (z) any outstanding Eurodollar Loans shall be converted, on
the last day of such Interest Period, to Base Rate Loans. Until such notice has
been withdrawn by the Bank, no further Eurodollar Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Base Rate
Loans to Eurodollar Loans.
Illegality. Notwithstanding any other provision herein, if the adoption of
or any change in any Requirement of Law or in the interpretation or application
thereof occurring after the date hereof shall make it unlawful for the Bank to
make or maintain Eurodollar Loans as contemplated hereunder, (a) the Bank shall
promptly give written notice of such circumstances to the Borrower (which notice
shall be withdrawn whenever such circumstances no longer exist), (b) the
commitment, if any, of the Bank hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert a Base Rate Loan to Eurodollar Loans shall
forthwith be canceled and, until such time as it shall no longer be unlawful for
the Bank to make or maintain Eurodollar Loans, the Bank shall then have a
commitment only to make a Base Rate Loan when a Eurodollar Loan is requested and
(c) the Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to Base Rate Loans on the respective last days or the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to the Bank such amounts, if any, as may be
required pursuant to the paragraph entitled "Indemnity".
Requirements of Law. If, after the date hereof, the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
applicable to the Bank, or compliance by the Bank with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority, in each case made after the date hereof:
(a) shall subject the Bank to any tax of any kind whatsoever with
respect to any Eurodollar Loans made by it or its obligation to make
Eurodollar Loans, or change the basis of taxation of payments to the Bank
in respect thereof (except for Non-Excluded Taxes covered by the paragraph
entitled "Taxes" (including Non-Excluded Taxes imposed solely by reason of
any failure of the Bank to comply with its obligations under the paragraph
entitled "Taxes") and changes in taxes measured by or imposed upon the
overall net income, or franchise tax (imposed in lieu of such net income
tax), of the Bank or its applicable lending office, branch, or any
affiliate thereof);
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of the Bank which is not otherwise included in the determination of
the Eurodollar Rate hereunder; or
(c) shall impose on the Bank any other condition (excluding any tax of
any kind whatsoever);
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, upon notice to the
Borrower from the Bank, the
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-----------
-2-
<PAGE> 5
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
Borrower shall be obligated to promptly pay the Bank, upon its demand, any
additional amounts necessary to compensate the Bank for such increased cost or
reduced amount receivable, provided that, in any such case, the Borrower may
elect to convert the Eurodollar Loans hereunder to Base Rate Loans by giving the
Bank at least one Business Day's notice of such election, in which case the
Borrower shall promptly pay to the Bank, upon demand, without duplication, such
amounts, if any, as may be required pursuant to the paragraph entitled
"Indemnity". If the Bank becomes entitled to claim any additional amounts
pursuant to this subsection, it shall provide prompt notice thereof to the
Borrower certifying (x) that one of the events described in paragraph (a) has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to
the additional amount demanded by the Bank and a reasonably detailed explanation
of the calculation thereof. Such a certificate as to any additional amounts
payable pursuant to this subsection submitted by the Bank hereunder shall be
conclusive and binding on the parties hereto in the absence of manifest error.
This covenant shall survive the termination of this Note and the payment of the
Loans and all other amounts payable hereunder. The Bank shall not be entitled to
any payments or compensation under this paragraph for any period of time more
than 90 days prior to the date of any request by the Bank for compensation under
this paragraph.
Taxes. Except as provided below in this subsection, all payments made by
the Borrower under this Note shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any court, or governmental body, agency or other official, excluding taxes
measured by or imposed upon the overall net income of the Bank or its applicable
lending office, or any branch or affiliate thereof, and all franchise taxes,
branch taxes, taxes on doing business or taxes on the overall capital or net
worth of the Bank or its applicable lending office, or any branch or affiliate
thereof, in each case imposed in lieu of net income taxes, imposed: (i) by the
jurisdiction under the laws of which the Bank, applicable lending office, branch
or affiliate is organized or is located, or in which its principal executive
office is located, or any nation within which such jurisdiction is located or
any political subdivision thereof; or (ii) by reason of any connection between
the jurisdiction imposing such tax and the Bank, applicable lending office,
branch or affiliate other than a connection arising solely from the Bank having
executed, delivered or performed its obligations, or received payment under or
enforced, this Note. If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to the Bank hereunder or under any Notes,
(A) the amounts so payable to the Bank shall be increased to the extent
necessary to yield to the Bank (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Note, and (B) as promptly as possible thereafter the
Borrower shall send to the Bank for its own account a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Bank the required receipts or other
required documentary evidence, the Borrower shall indemnify the Bank for any
incremental taxes, interest or penalties that may become payable by the Bank as
a result of any such failure. The agreements in this subsection shall survive
the termination of this Note and the payment of the Loans and all other amounts
payable hereunder. The Bank shall not be entitled to payment or compensation
under this paragraph unless demand is made hereunder within 90 days of the Bank
having actual knowledge of facts or circumstances entitling the Bank to
compensation under this paragraph.
Indemnity. The Borrower promises to indemnify the Bank and to hold the Bank
harmless from any loss or expense which the Bank may sustain or incur (other
than through the Bank's gross negligence or willful misconduct) as a consequence
of (a) default by the Borrower in making a borrowing of, conversion into or
continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Note, (b) default
by the Borrower in making any prepayment of a Eurodollar Loan with respect to
which the Borrower has given a notice in accordance with the provisions of this
Note or (c) the making of a prepayment of Eurodollar Loans on a day which is not
the last day of an Interest Period with respect thereto. With
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-3-
<PAGE> 6
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
respect to Eurodollar Loans, such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of the applicable Interest Period (or, in the case of a
failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Eurodollar Loans provided for herein (excluding, however, the
Applicable Percentage included therein, if any) over (ii) the amount of interest
(as reasonably determined by the Bank) which would have accrued to the Bank on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank Eurodollar market. The covenants of the Borrower
set forth in this paragraph shall survive the termination of this Note and the
payment of the Loans hereunder and all other amounts payable hereunder.
FACILITY FEE
The Borrower agrees to pay a facility fee to the Bank in an amount equal to
one-fourth of one percent (1/4%) per annum on the average daily unused portion
of the maximum amount available under this Note. This fee shall be payable
quarterly in arrears on the 15th day following the last day of each calendar
quarter for the prior calendar quarter and on the Termination Date.
PAYMENT SCHEDULE
Principal shall be paid in a single payment on the Termination Date;
interest thereon shall be paid in arrears on each Interest Payment Date.
Voluntary Prepayments. The Borrower may make prepayment on the Loans in
whole or in part, subject to the provisions of the paragraph entitled
"Indemnity", but otherwise without premium or penalty; provided, however that
Eurodollar Loans may be prepaid only on three Business Days' prior written
notice and prepayments shall be in a minimum principal amount of $1,000,000 in
the case of Eurodollar Loans and $100,000 in the case of Base Rate Loans and, in
each case, integral multiples of $100,000 in excess thereof. Amounts prepaid
hereunder may be reborrowed subject to the terms hereof.
REPRESENTATIONS AND WARRANTIES
Financial Condition. The financial statements provided to the Bank,
consisting of
(i) an audited consolidated balance sheet of the Borrower and its
consolidated subsidiaries dated as of December 31, 1997 together with
related consolidated statements of income and cash flows certified by
Coopers & Lybrand LLP, certified public accountants, and
(ii) company-prepared consolidated and consolidating balance sheets of
the Borrower and its consolidated subsidiaries dated as of March 30, 1998
together with related consolidated and consolidating statements of income
and cash flows,
copies of which have been provided to the Bank, are complete and correct in all
material respects and present fairly the financial condition and results from
operations of the entities and for the periods specified, subject in the case of
interim company-prepared statements to normal year-end adjustments.
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-----------
-4-
<PAGE> 7
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
No Change. Since December 31, 1997 there has been no development or event
which has had a material adverse effect on the condition (financial or
otherwise), operations, business or prospects of the Borrower and its
subsidiaries taken as a whole.
Corporate Organization. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of its
incorporation, is qualified to do business in each jurisdiction where failure to
so qualify would have a material adverse effect on the Borrower and its
subsidiaries taken as a whole and is in compliance with all Requirements of Law
except to the extent that failure to be in compliance would not have a material
adverse effect on the Borrower and its subsidiaries taken as a whole.
Enforceable Obligation. The Borrower has the power and authority and legal
right to enter into, deliver and perform under this Note and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of this Note. This Note constitutes a legal, valid and binding obligation
of the Borrower enforceable against it in accordance with its terms except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
No Default. No Event of Default or event or condition which with notice or
lapse of time, or both, would constitute an Event of Default, presently exists.
Federal Regulations. No part of the proceeds of any Loan hereunder will be
used, directly or indirectly, for any purpose in violation of Regulation U of
the Board of Governors of the Federal Reserve System, as amended, modified or
replaced.
Year 2000 Compliance. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Company or any of its subsidiaries (or
suppliers, vendors and customers) may be unable to recognize and perform
property date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable. Based on the foregoing, the Borrower believes
that all computer applications (including, those of its suppliers, vendors and
customers) that are material to its or any of its Subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
(that is, be a "Year 2000 compliant"), except to the extent that a failure to do
so could not reasonably be expected to have a material adverse effect in the
condition (financial or otherwise), operations, business or prospects of the
Borrower and its subsidiaries taken as a whole.
COVENANTS
The Borrower covenants and agrees to:
Financial Statements. Furnish, or cause to be furnished, to the Bank:
(i) Annual Audited Statements. As soon as available, but in any event
within 120 days after the end of each fiscal year, audited consolidated and
company-prepared consolidating balance sheets of the Borrower and its
subsidiaries and related statements audited consolidated and
company-prepared consolidating statements of income, retained earnings and
cash flows, audited by a nationally recognized independent public
accounting firm reasonably acceptable to the Bank, setting forth
comparative
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<PAGE> 8
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated My 31, 1998
information for the previous year, and reported without a "going concern"
or like qualification or exception, or qualification indicating limitation
of the scope of the audit; and
(ii) Quarterly Statements. As soon as available, and in any event
within 45 days after the end of the first three fiscal quarters, a
company-prepared consolidated and consolidating balance sheet of the
Borrower and its subsidiaries and related company-prepared consolidated and
consolidating statements of income, retained earnings and cash flows for
the quarter and for the portion of the year with comparative information
for the corresponding periods for the previous year.
All such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal recurring
year-end audit adjustments) and to be prepared in reasonable detail and, in the
case of the annual and quarterly financial statements provided in accordance
with subsections (a) and (b) above, in accordance with GAAP applied consistently
throughout the periods reflected therein (except as approved by such accountants
and disclosed therein) and further accompanied by a description of, and an
estimation of the effect on the financial statements on account of, a change in
the application of accounting principles from a prior period.
Certificates and Notices. Furnish, or cause to be furnished, and give
notice to the Bank:
Officer's Certificate. Concurrently with the annual and quarterly
financial statements referenced above, a certificate of a responsible
officer of the Borrower stating that to the best of his knowledge and
belief, (i) the financial statements fairly present in all material
respects the financial condition of the parties to which such statements
relate and (ii) the Borrower is in compliance with the provisions of this
Note in all material respects and no Event of Default, or event or
condition which with notice or lapse of time, or both, would constitute an
Event of Default exists hereunder.
Public and Other Information. Copies of reports and information which
the Borrower or its subsidiaries sends to its stockholders or files with
the Securities and Exchange Commission, and any other financial or other
information as the Bank may reasonably request.
Notice of Default. Promptly upon becoming aware thereof notice of the
occurrence of an Event of Default hereunder.
Compliance with Laws. Comply will all Requirements of Law applicable to it
except to the extent that failure to comply therewith would not have a material
adverse effect on the Borrower and its subsidiaries taken as a whole.
Year 2000 Compliance. The Borrower will promptly notify the Bank in the
event the Borrower discovers or determines that any computer application
(including those of its suppliers, vendors and customers) that is material to
its or any of its subsidiaries' business and operations will not be Year 2000
compliant, except to the extent that such failure could not reasonably be
expected to have a material adverse effect in the condition (financial or
otherwise), operations, business or prospects of the Borrower and its
subsidiaries taken as a whole.
Books and Records. Keep proper books and records in conformity with GAAP
and all Requirements of Law and permit the Bank upon reasonable notice to visit
and inspect such books and records.
Merger and Consolidation. The Borrower will not merge or consolidate with
any other entity unless after giving effect thereto (i) the Borrower shall be
the surviving corporation and (ii) no Event of Default, or event or
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-6-
<PAGE> 9
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
condition which on notice or lapse of time, or both, would constitute an Event
of Default, shall exist immediately before or after giving effect thereto.
Financial Covenants.
(a) Consolidated Tangible Net Worth. There shall be maintained at all
times a minimum Consolidated Tangible Net Worth of not less than
$34,000,000; provided that the minimum Consolidated Tangible Net Worth
required hereunder shall be increased (but not decreased) on the last day
of each fiscal year, beginning with the first such date occurring after the
date hereof, in an amount equal to 50% of Consolidated Net Income for the
fiscal year then ending.
(b) Interest Coverage Ratio. There shall be maintained, as of the end
of each fiscal quarter, an Interest Coverage Ratio of at least 3.0:1.0.
(c) Funded Debt Ratio. There shall be maintained, as of the end of each
fiscal quarter, a Funded Debt Ratio of not greater than 2.5:1.0.
ADDITIONAL TERMS AND PROVISIONS
CHOICE OF LAW AND CONSENT TO JURISDICTION
Reference is made to paragraph 2 of the Section entitled "Additional Terms
and Provisions". Notwithstanding provisions to the contrary contained therein or
elsewhere in the Note, the Note and this Addendum shall be delivered in and
shall be construed under the internal laws and judicial decisions of the
Commonwealth of Virginia, and the laws of the United States as the same might be
applicable, and the Borrower consents to jurisdiction in the Commonwealth of
Virginia and waives objection to venue of the courts therein as provided in
paragraph 2. References in paragraph 2 and elsewhere in the Note to "North
Carolina" shall be deemed to mean, and be references instead to, "Virginia".
EVENTS OF DEFAULT
Reference is made to paragraph 3 of the Section entitled "Additional Terms
and Provisions". The Event of Default described in subsection (i) is modified to
read as follows:
"(i) the failure to pay or perform any obligation, liability or
indebtedness of any of the Obligors to the Bank, whether under this Note or
under any other agreement, note or agreement now or hereafter existing, as
and when due (whether upon demand, at maturity or by acceleration, no prior
demand therefor by Bank being necessary), provided however that in the case
of a good faith failure to perform a covenant hereunder on account of an
acquisition, merger or consolidation, the Borrower shall have a period of
30 days to cure those events or conditions giving rise to the
nonperformance which are susceptible to cure;"
Upon the occurrence of any of the Events of Default the Bank may by notice
to the Borrower, terminate the commitments hereunder and declare the loans and
other amounts owing hereunder immediately due and payable as provided in
paragraph 4(i); provided that the commitments hereunder shall be immediately
terminated and the loans and other amounts shall be immediately due and payable
upon the occurrence of an event described in paragraph 3(iv) without the
necessity of giving any notice or other action by the Bank.
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-7-
<PAGE> 10
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
LATE FEE
Reference is made to paragraph 4 of the Section entitled "Additional Terms
and Provisions". No Late Fee (as referenced and defined in paragraph 4 and as
distinguished from the Default Rate) shall be imposed on the Borrower under the
Note and all references to the Late Fee shall be deemed deleted. A Default Rate,
on the other hand, may be imposed as provided in the Note.
DEFINITIONS
As used herein:
"Adjusted Eurodollar Rate" means:
Eurodollar Rate
Adjusted Eurodollar Rate = ---------------------------------
1 - Eurodollar Reserve Percentage
"Base Rate Loans" means a Loan hereunder bearing interest at a rate
determined by reference to the Prime Rate.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in Charlotte, North Carolina or Reston, Virginia are
authorized or required by law to close, except that, when used in connection
with a Eurodollar Loan, such day shall also be a day on which dealings between
banks are carried on in U.S. dollar deposits in London, England and New York,
New York.
"Commitment Period" means the period from and including the date hereof to
but excluding the earlier of (i) the Termination Date, or (ii) the date on which
the commitments hereunder shall have been terminated in accordance with the
provisions hereof
"Consolidated EBITDA" means for any period, the sum of Consolidated EBIT
plus depreciation, amortization and other non-cash charges, for the Borrower and
its subsidiaries on a consolidated basis determined in each case in accordance
with GAAP applied on a consistent basis. Except as expressly provided otherwise,
the applicable period shall be for the four consecutive quarters ending as of
the date of determination.
"Consolidated EBIT" means for any period, the sum of Consolidated Net
Income plus Consolidated Interest Expense plus all provisions for any Federal,
state or other income taxes, for the Borrower and its subsidiaries on a
consolidated basis determined in accordance with GAAP applied on a consistent
basis. Except as expressly provided otherwise, the applicable period shall be
for the four consecutive quarters ending as of the date of determination.
"Consolidated Interest Expense" means for any period, all interest expense,
including the amortization of debt discount and premium and the interest
component under Capital Leases for the Borrower and its subsidiaries on a
consolidated basis determined in accordance with GAAP applied on a consistent
basis. The applicable period shall be for the four consecutive quarters ending
as of the date of determination.
"Consolidated Net Income" means for any period, the net income of the
Borrower and its subsidiaries on a consolidated basis determined in accordance
with GAAP applied on a consistent basis,
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-8-
<PAGE> 11
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
but excluding for purposes of determining the Interest Coverage Ratio, any
extraordinary gains or losses, and any taxes on such excluded gains and any tax
deductions or credits on account of any such excluded losses. The applicable
period shall be for the four consecutive quarters ending as of the date of
computation.
"Consolidated Tangible Net Worth" means total stockholders' equity of the
Borrower and its subsidiaries on a consolidated basis as determined in
accordance with GAAP applied on a consistent basis, less and except goodwill,
patents, trade names, trademarks, copyrights, franchises, experimental expense,
organizational expense, unamortized debt discount and expense, deferred assets
other than prepaid insurance and prepaid taxes, the excess of cost of shares
acquired over book value of related assets and such other assets as are properly
classified as "intangible assets" in accordance with GAAP.
"Consolidated Funded Debt" means Funded Debt of the Borrower and its
subsidiaries on a consolidated basis determined in accordance with GAAP applied
on a consistent basis.
"Eurodollar Loan" means a Loan hereunder bearing interest at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Reserve Percentage" means for any day, that percentage
(expressed as a decimal) which is in effect from time to time under Regulation D
of the Board of Governors of the Federal Reserve System (or any successor), as
such regulation may be amended from time to time or any successor regulation, as
the maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable with respect
to Eurocurrency liabilities as that term is defined in Regulation D (or against
any other category of liabilities that includes deposits by reference to which
the interest rate of Eurodollar Loans is determined), whether or not Bank has
any Eurocurrency liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as
such shall be deemed subject to reserve requirements without benefits of credits
for proration, exceptions or offsets that may be available from time to time to
Bank. The Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurodollar Reserve Percentage.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100th of 1%) appearing on Telerate Page 3750 (or any successor page) as London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period. If for any reason such rate is
not available, the term "Eurodollar Rate" shall mean, for any Eurodollar Loan
for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) appearing, on Reuters Screen LIBO Page
as the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided however
if more than one rate is specified on Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates.
"Event of Default" means any event or condition described in paragraph 3 of
the "Additional Terms and Conditions" section hereof
"Funded Debt" means (i) all indebtedness for borrowed money (including
without limitation, indebtedness evidenced by promissory notes, bonds,
debentures and similar instruments and further any
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-9-
<PAGE> 12
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 3 1, 1998
portion of the purchase price for assets or acquisitions permitted hereunder
which may be financed by the seller), (ii) all purchase money indebtedness,
(iii) all capital lease obligations, (iv) all guaranty obligations with respect
to Funded Debt of another Person, (v) all Funded Debt of another Person secured
by a Lien on any Property of the Borrower or a subsidiary, whether or not such
Funded Debt has been guaranteed or assumed, (vi) the maximum amount available to
be drawn under standby letters of credit and bankers' acceptances issued or
created, (vii) all preferred stock the terms of which require it to be redeemed,
or for which mandatory sinking fund payments are due, by a fixed date, (viii)
the aggregate net amount of indebtedness or obligations relating to uncollected
accounts receivable subject at such time to a sale of receivables (or other
similar transaction) regardless of whether such transaction is effected without
recourse or in a manner which would not be reflected on the balance sheet in
accordance with GAAP, and (ix) the principal balance outstanding under any
synthetic lease, tax retention operating lease, off-balance sheet loan or
similar off-balance sheet financing product to which such Person is a party,
where such transaction is considered borrowed money indebtedness for tax
purposes but is classified as an operating lease in accordance with GAAP. For
purposes hereof, Funded Debt shall include Funded Debt of any partnership or
joint venture in which such Person is a general partner or joint venturer.
"Funded Debt Ratio" means, as of the last day of any fiscal quarter, the
ratio of Consolidated Funded Debt to Consolidated EBITDA for the period of four
consecutive fiscal quarters ending as of such date.
"GAAP" means generally accepted accounting principles in the United States
applied on a consistent basis.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental agency, authority, instrumentality or regulatory body.
"Interest Coverage Ratio" means for any period, the ratio of Consolidated
EBIT to Consolidated Interest Expense.
"Interest Payment Date" means (i) as to any Base Rate Loan, the last day of
each month, the date of repayment of principal of such Loan and the Termination
Date and (ii) as to any Eurodollar Loan, the last day of each Interest Period
for such Loan, the date of repayment of principal of such Loan and on the
Termination Date, and in addition where the applicable Interest Period is more
than 3 months, then also on the date 3 months from the beginning of the Interest
Period, and each 3 months thereafter. If an Interest Payment Date falls on a
date which is not a Business Day, such Interest Payment Date shall be deemed to
be the next succeeding Business Day, except that in the case of Eurodollar Loans
where the next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding Business Day.
"Interest Period" means as to any Eurodollar Loan, a period of one, two,
three or six month's duration, as the Borrower may elect, commencing in each
case, on the date of the borrowing (including conversions, extensions and
renewals); provided however (A) if any Interest Period would end on a day which
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day (except that in the case of Eurodollar Loans where the
next succeeding Business Day falls in the next succeeding calendar month, then
on the next preceding Business Day), (B) no Interest Period shall extend beyond
the Termination Date, and (C) in the case of Eurodollar Loans, where an Interest
Period begins on a day for which there is no numerically corresponding day in
the calendar month in which the Interest Period is to end. such Interest Period
shall end on the last day of such calendar month.
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-10-
<PAGE> 13
Addendum to
$40,000,000 Demand Note
Perot Systems Corporation
dated July 31, 1998
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its material property is subject.
"Termination Date" means January 31, 1999, or any such later date as to
which the Bank, in its sole discretion may agree.
[Remainder of Page Intentionally Left Blank]
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-11-
<PAGE> 1
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[NATIONSBANK LOGO]
NationsBank of Texas N.A. FIXED OR VARIABLE RATE
- -----------------------------------------------------------------------------------------------------------------------------------
901 MAIN STREET Officer Account Number Date of Note
PO BOX 831400
DALLAS TX 75283-1400 [ILLEGIBLE]
80 29 1715097 DALLAS COUNTY 8521 0001019311479 97/09/26
- ----------------------------------------------------------------------------------------------------------------------------------
Borrower's Name & Address Interest Rate
KENNETH Z. SCOTT -------------------------------------------------------------------------------------------
17121 CLUB HILL DR [ ] Fixed Rate of % per annum or The Consumer Base Rate or Other Rate
[ ] Lender's Consumer Base Rate plus % are defined to be that named rate as
per annum or announced or published by the entity
DALLAS TX 75248 [X] Other Rate NATIONSBANK PRIME indicated in the adjoining box from
PLUS 1.00% PER ANNUM time to time and which may not be the
lowest interest rate charged by
Lender. For purposes of this Note,
the Interest Rate will be deemed to
be at least 3.00% per annum even if
the actual rate is lower.
- ----------------------------------------------------------------------------------------------------------------------------------
I promise to pay to the order of NationsBank of Texas, N.A. ("Lender") the principal of $325,808.53 ("Amount of Note") plus
interest on the unpaid principal balance at the interest rate indicated above. The Amount of Note will be advanced to me in one
lump sum. Payment(s) will be made at the address shown above and in accordance with the Payment Schedule set out in the Federal
Truth in Lending Disclosure. I also agree to pay any other charges authorized by this Promissory Note. Items preceded by a box are
applicable only if checked.
==================================================================================================================================
FEDERAL TRUTH IN LENDING DISCLOSURE
==================================================================================================================================
ANNUAL PERCENTAGE RATE FINANCE CHARGE AMOUNT FINANCED TOTAL OF PAYMENTS
The cost of my credit as a yearly The dollar amount the credit The amount of credit provided The amount I will have
rate. will cost me. to me or on my behalf. paid after I have made
all payments as scheduled.
9.500 % $ 53,169.28 $ 325,808.53 $ 378,977.81
==================================================================================================================================
MY PAYMENT SCHEDULE WILL BE:
- ----------------------------------------------------------------------------------------------------------------------------------
No. of Payments Amount of Payments When Payments are due
- ----------------------------------------------------------------------------------------------------------------------------------
1 $6,783.95 FIRST PAYMENT DUE DECEMBER 15, 1997
5 VARIES QUARTERLY BEGINNING MARCH 15, 1998
1 $333,610.08 FINAL PAYMENT DUE JUNE 15, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
[X] The amount of each payment varies because a finance charge is applied to the unpaid Amount of Note and the largest payment
is $7,801.56
and the smallest payment is $7,631.96
Security: I am giving a security interest in:
[X] Goods or Property Being Purchased
[ ]
Collateral securing other loans with you may also secure this loan, except that my primary dwelling will not secure this loan.
VARIABLE RATE: If this is a variable rate loan, the Interest Rate may increase during the term of this transaction if your
Consumer Base Rate or Other Rate increases. Any increase will take form of: [ ] higher payment amounts, or
[X] a larger amount due at maturity. For this Promissory Note, the Interest Rate will never be less than
5.00% per annum.
If my loan were for $6,000.00 at 14.00% for 48 months, and the rate increased 1% at the end of 12 months, my
regular payment would increase by $ N/A, or my final payment would increase by $105.44.
The variable rate index used to determine your Other Rate, if applicable, is indicated in the Promissory Note
above this Federal Truth in Lending Disclosure.
PREPAYMENT: If I pay this loan off early, I will not have to pay a penalty. Filing Fees: $ N/A
I will see this Promissory Note and other loan documents for additional information about nonpayment, default, any required
repayment in full before the scheduled date, prepayment refunds and penalties and for further information about Lender's
security interest.
==================================================================================================================================
ITEMIZATION OF THE AMOUNT FINANCED
1. Amount given to me directly (PAY DIRECTLY TO PEROT SYSTEMS CORP) $ 325,808.53
2. Amount paid on my Bank loan account $ .00
3. Amount paid to others on my behalf:
A. For Credit Life and A/H Insurance To: Insurance Company $ .00
B. Filing Fees To: Public Officials $ .00
C. Attorney Fees To: $ .00
D. For: To: $ .00
E. For: To: $ .00
F. For: To: $ .00
G. For: To: $ .00
Total A through G $ .00
TOTAL AMOUNT FINANCED (Add 1, 2 and 3) $ 325,808.53
- ----------------------------------------------------------------------------------------------------------------------------------
I hereby authorize you to draft my Account Number Signature
deposit account for the loan payments. N/A
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INSURANCE: I am not requried to take credit life or credit accident and health insurance to obtain this loan. Such coverage
will not be provided unless I sign the request below and agree to pay the additional cost. The amount of insurance coverage I have
will be the amount stated in the insurance policy/certificate or the Total of Payments, whichever is less and the premium for this
insurance is included in the Amount Financed. If a Co-Borrower also signs this Promissory Note, he or she is only entitled to
take joint credit life insurance.
- ----------------------------------------------------------------------------------------------------------------------------------
INSURANCE Premium Term Premium Term
- ----------------------------------------------------------------------------------------------------------------------------------
Credit Life N/A N/A Accident and Health N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
I elect the insurance indicated by the premiums shown above. Signature _________________________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
[ ] REQUIRED PROPERTY INSURANCE-IF THIS BOX IS CHECKED, PROPERTY INSURANCE IS REQUIRED IN CONNECTION WITH THIS LOAN AND I HAVE
THE OPTION OF FURNISHING THE REQUIRED INSURANCE EITHER THROUGH EXISTING POLICIES OF INSURANCE OWNED OR CONTROLLED BY ME OR OF
PROCURING AND FURNISHING EQUIVALENT INSURANCE COVERAGES THROUGH ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN
TEXAS.
- ----------------------------------------------------------------------------------------------------------------------------------
COLLATERAL & SECURITY AGREEMENT
Collateral will consist of: ______________________________________________________________________________________________________
LETTER OF BUYBACK & STOCK
Collateral will be used by the primarily for: [X] Personal, Family, or Household Purposes or [ ] Business
Collateral will be located in DALLAS County at [X] Borrower's Address [ ] Other Address:
I grant to you a security interest in the above described Collateral, together with all parts and equipment used in connection
therewith, additions, replacements, accessions, proceeds, products, and similar after-acquired property: provided this security
interest shall not attach to after-acquired consumer goods, except accessions, unless I acquire rights in such after-acquired
consumer goods within ten days after you give value. This security interest is given to secure payment of all my present and
future indebtedness of any type to you, including without limitation; future advances; all expenditures by you for taxes,
insurance, repairs to and maintenance of Collateral; and the reasonable cost for repossessing, storing, preparing for sale, or
selling the Collateral. The terms of this Security Agreement include the provisions printed on the reverse side.
SIGNATURES FOR PARTY SIGNING SECURITY AGREEMENT ONLY. I grant Lender/Secured Party a security interest in the Collateral but do
not assume personal liability on the Promissory Note. (Warning: I will not sign here if I signed below): X _____________________
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL TERMS OF THE PROMISSORY NOTE (Words not defined elsewhere in this Promissory Note have the meanings shown in the
Federal Truth in Lending Disclosure.)
AMOUNT OF PAYMENTS: The Amount of Payments shown in the Federal Truth in Lending Disclosure assumes I will make the payments
exactly when they are due and if the Interest Rate is tied to your Consumer Base Rate or Other Rate, that such Rates do not change.
I will make payments in the Amount of Payments shown in the Federal Truth in Lending Disclosure. If this Promissory Note is payable
in equal monthly installments (except for a final balloon payment, if any), and the Interest Rate is tied to your Consumer Base Rate
or Other Rate, the amount of my monthly payment may change at the end of each 12-month period to an amount sufficient to repay in
full at the then-current Interest Rate, in substantially equal monthly installments, the unpaid balance as if this Note were to be
due and payable N/A months from its date. In such event, you will send me a new payment book specifying the new payment amount.
If payments vary, I will pay the fixed part of the Amount of Payments as set out in the Truth in Lending Disclosure on each
payment date plus all accrued and unpaid interest. If payments are equal, each payment shall be applied first to interest due and
then to the unpaid Amount Financed. In any event, I will pay the unpaid principal balance of the Promissory Note plus all accrued
and unpaid interest on the final payment due date as set out in the Truth in Lending Disclosure. If the Interest Rate is tied to
your Consumer Base Rate or Other Rate, the Interest Rate shall change with each change in your Consumer Base Rate or Other Rate as
of the date of any such change without notice to me, but shall not exceed the higher of the indicated rate ceiling in effect from
time to time under Article 5069-1.04 of V.A.T.S. or any ceiling authorized by any other applicable law.
PLEASE READ THE ADDITIONAL TERMS OF THIS PROMISSORY NOTE ON THE REVERSE SIDE BEFORE SIGNING.
- ----------------------------------------------------------------------------------------------------------------------------------
NOTICE TO CONSUMER: UNDER TEXAS LAW, IF YOU CONSENT TO THIS AGREEMENT, YOU MAY BE SUBJECT TO A FUTURE RATE AS HIGH AS 24% PER YEAR
(NOTICE NOT APPLICABLE TO FIXED RATE NOTES.)
BORROWER'S SIGNATURE(S) FOR PROMISSORY NOTE AND SECURITY AGREEMENT. I/We agree to the terms of this Promissory Note and Security
Agreement ("this Agreement") and acknowledge receiving a completed copy of this Agreement and all other documents signed by
Borrower in connection with this loan. The terms and conditions on the reverse side are made a part of this Agreement and are
incorporated herein by reference. If signing as a Co-Borrower, I/We acknowledge reading the Notice to Cosigner on the reverse side.
As used in this Promissory Note, the words "you", "your", "yours" mean the Lender. The words, "I", "we", "my", "our", "me", "mine",
mean each Borrower or Co-Borrower, jointly and severally, if there is more than one Borrower.
/s/ KENNETH Z. SCOTT
- ----------------------------------- ----------------------------------------------------------------------------------------------
KENNETH Z. SCOTT
</TABLE>
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation or
Company Name Organization
------------ ----------------
<S> <C>
Benton International, Incorporated.......................... California
Deutsche Perot Systems GmbH................................. Germany
HCL Perot Systems N.V....................................... The Netherlands
HCL Perot Systems Private Limited (India)................... India
HCL Perot Systems Pte. Limited (Singapore).................. Singapore
HCL Perot Systems (Mauritius) Pvt. Ltd...................... Mauritius
HPS America, Inc............................................ Delaware
HPS Europe Limited.......................................... United Kingdom
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.......................... Canada
Perot Systems Communication Services, Inc................... Delaware
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 Holding 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........................................... France
Persys Ireland Limited...................................... Ireland
PSC Government Services Corporation......................... Delaware
PSC Health Care, Inc........................................ Delaware
PS Information Resource (Ireland) Limited................... Ireland
RothWell International, Inc................................. Texas
Stamos Associates Inc....................................... California
Syllogic Ireland Limited.................................... Ireland
Syllogic B.V................................................ The Netherlands
Syllogic Limited............................................ United Kingdom
The Technical Resource Connection, Inc...................... Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
our reports dated December 18, 1998 (except for Note 18 as to which the date is
January 7, 1999), and March 25, 1998, on our audits of the consolidated
financial statements and financial statement schedule, respectively, of Perot
Systems Corporation and Subsidiaries. We also consent to the references to our
firm under the captions "Experts", "Summary Consolidated Financial Data" and
"Selected Consolidated Financial Data."
/s/ PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
January 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 102,153
<SECURITIES> 0
<RECEIVABLES> 164,496
<ALLOWANCES> 2,814
<INVENTORY> 0
<CURRENT-ASSETS> 317,154
<PP&E> 130,119
<DEPRECIATION> 90,145
<TOTAL-ASSETS> 390,535
<CURRENT-LIABILITIES> 258,345
<BONDS> 0
0
0
<COMMON> 820
<OTHER-SE> 128,360
<TOTAL-LIABILITY-AND-EQUITY> 390,535
<SALES> 724,185
<TOTAL-REVENUES> 724,185
<CGS> 575,083
<TOTAL-COSTS> 682,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 51,885
<INCOME-TAX> 23,690
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,195
<EPS-PRIMARY> .37
<EPS-DILUTED> .29
</TABLE>
<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> 812
<OTHER-SE> 92,504
<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> .14
<EPS-DILUTED> .12
</TABLE>
