-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AHgb9+/+cLsGVSC/sxmhQw3ghJtzdRiG4WfqJGRq7+F3xNo+KNq9y61NB+LkUuZw B+IIlVdiIP8/KlMjqb9r8Q== 0000950134-98-002705.txt : 19980401 0000950134-98-002705.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950134-98-002705 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEROT SYSTEMS CORP CENTRAL INDEX KEY: 0000894253 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 752230700 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22495 FILM NUMBER: 98580396 BUSINESS ADDRESS: STREET 1: 12377 MERIT DRIVE STREET 2: SUITE #1100 CITY: DALLAS STATE: TX ZIP: 75251 BUSINESS PHONE: 7037093000 MAIL ADDRESS: STREET 1: 12377 MERIT DRIVE STREET 2: SUITE #1100 CITY: DALLAS STATE: TX ZIP: 75251 10-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _____ to ____ -------------------- Commission File Number 0-22495 PEROT SYSTEMS CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 75-2230700 (State of incorporation) (I.R.S. Employer Identification No.) 12377 MERIT DRIVE, SUITE 1100 75251 DALLAS, TEXAS (Address of Principal Executive Offices) (Zip Code) (972) 383-5600 (Registrant's Telephone Number) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock Par Value $0.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] There is no public market for the registrant's common equity. The number of shares outstanding of the registrant's common stock as of March 16, 1998 was 38,074,639. Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held May 8, 1998 are incorporated by reference into Part III. 2 FORM 10-K For The Year Ended December 31, 1997 INDEX
Part I Item 1. Business ...................................................................... 1 Item 2. Properties .................................................................... 5 Item 3. Legal Proceedings ............................................................. 5 Item 4. Submission of Matters to a Vote of Security Holders ........................... 6 Part II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters .................................................................... 6 Item 6. Selected Financial Data ....................................................... 7 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition ..................................................... 8 Item 8. Financial Statements and Supplementary Data ................................... 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures .................................................. 13 Part III Item 10. Directors and Executive Officers of the Registrant ............................. 13 Item 11. Executive Compensation ......................................................... 13 Item 12. Security Ownership of Certain Beneficial Owners and Management ................. 13 Item 13. Certain Relationships and Related Transactions ................................. 13 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................ 14 Signatures .................................................................................. 16
3 ITEM 1. BUSINESS Perot Systems Corporation (the "Company") was founded as a Texas corporation on June 1, 1988 by Ross Perot and eight business associates. The Company reincorporated in Delaware in December 1995. With offices located throughout North America, Europe and Asia, the Company is a worldwide provider of business and information technology ("IT") services and solutions. The Company provides business and IT solutions for clients in the financial services, healthcare, energy, telecommunications, transportation, manufacturing, retail, travel and leisure, and other industries. SERVICES The Company pursues opportunities to provide its services under long-term contracts and on shorter-term systems integration, development and consulting projects. The benefits of this approach include more efficient use of staff between large engagements, the assimilation of new industry expertise and diversification of the Company's client base. The Company's service offerings include the following: Systems Integration - The Company designs and implements IT systems for clients, including constructing network architectures, integrating system components and implementing the migration of application systems to new platforms. Systems Operation - The Company manages, operates and maintains client data processing systems, including networks, desktop computing environments, data centers, print centers and support functions. Technical Consulting - The Company assists clients with strategic decisions regarding platforms, networks and delivery media, the development of overall architectures for IT systems, the selection of vendors and planning transitions from one platform, technology or application to another. Business Consulting - The Company assists clients with business strategies, including evaluations and design of organizational structures, management of major change events, operational processes and reengineering of clients' operational processes. Software Development - The Company develops application software solutions for its clients. MARKETS The Company conducts its business and provides its services in North America, Europe and Asia through a combination of industry groups, geographically based project offices, consulting groups and groups providing specialized services. 1 4 Industry groups focus on delivering services, which are customized to the particular client and are designed by business and technical experts with extensive knowledge of the group's industry. The industry groups package and deliver services using skills and technologies within the industry group may also utilize resources from other specialized groups in the Company, in order to bring expanded technical and industry skills to the client engagement. The Company's industry groups include the following: Global Financial Services: The Global Financial Services group serves wholesale, commercial and retail banks, investment banks, brokerage firms and other financial institutions. The Global Financial Services group helps clients understand and capitalize on emerging market opportunities, including the support of global infrastructure systems, electronic commerce over the internet, customer relationship management and state-of-the-art trading and settlement systems. Healthcare: The Healthcare group serves managed care networks, hospital groups, healthcare product distributors and other healthcare companies. The Healthcare group's services emphasize the creation of integrated health networks with the tools to manage and evaluate care, cost and quality outcomes. The Healthcare group assists its clients with information access and connectivity to provide tools for transaction management, care management, decision support and internet-based demand management systems. Energy: The Energy group serves municipal and private utilities, related service providers, and other energy companies and emerging competitive market entities. The Energy group helps clients transform their businesses to commercially driven, open-competition models. In addition, the Energy group is actively involved in the creation and management of power exchange and independent service operations projects. Communications and Media: The Communications and Media group serves providers of voice, data, image, video, entertainment, media and information services through wireless and wireline networks. The Communications and Media group assists its clients with business strategy, billing, online and customer care programs, quality assurance and testing, and customer revenue enhancement programs. Manufacturing: The Manufacturing group serves a variety of manufacturing clients, including companies in the automobile manufacturing, automobile parts manufacturing, steel and plastics businesses. The group provides industry-specific solutions, including supply chain management, planning and scheduling, order management and assistance with warehousing, distribution, production and finance applications. Travel & Transportation: The Travel and Transportation group serves rental car companies, airlines, travel agencies and other companies in the travel and transportation industry. This group provides its clients with expertise in business planning, reservations systems, inventory and asset management, customer service, billing, communications and quality assurance. 2 5 The Company has project offices in Dallas, Texas, Detroit, Michigan, Reston, Virginia, Denver, Colorado, Atlanta, Georgia, Tampa, Florida, London, England, Houten, Netherlands and Munich, Germany. The project offices provide services to a wide range of clients and also provide support to the industry groups. The project offices typically pursue shorter-term systems integration, software development and technical consulting projects. The Company's object-oriented group also markets and delivers its services directly to clients. The Company's business consulting groups market and deliver their services directly to clients and as part of integrated service offerings by the Company. In addition, the Company has business consulting groups that provide leading edge services which assist clients in transforming their business, markets and processes. In addition, the Company has e-commerce and object oriented groups that market and deliver their services directly to clients and support the design and delivery of services by other groups. RELIANCE ON MAJOR CLIENTS In January 1996, the Company formed a strategic alliance with Swiss Bank Corporation ("Swiss Bank"). This alliance involves (i) a long-term contract for the Company to deliver IT services to Swiss Bank's SBC Warburg Division ("SBC Warburg"), (ii) separate agreements to provide services to other Swiss Bank operating units and to permit the Company to use certain Swiss Bank assets and (iii) the grant to Swiss Bank of options to acquire stock of the Company. In April 1997, the Company concluded the renegotiation of the terms of its strategic alliance with Swiss Bank. The terms of the new alliance were effective from January 1, 1997 through December 31, 2006. The renegotiation included (i) the restructuring of the IT services contract for SBC Warburg, (ii) the termination of all options to acquire stock of the Company that were granted in connection with the original transactions and (iii) the sale to Swiss Bank of stock of the Company and options to purchase stock of the Company. The agreements that contain the terms of the Swiss Bank alliance, as renegotiated, are collectively called the "Swiss Bank Agreements". Pursuant to the terms of the Swiss Bank Agreements, the Company also holds a 40% stake in Swiss Bank's IT subsidiary, Systor AG ("Systor"). A portion of the Company's interest in Systor will be returned to Swiss Bank if the SBC Warburg EPI Agreement is terminated. The portion that would be returned to Swiss Bank upon such a termination declines ratably over a 10-year period, which began on January 1, 1997. During the year ended December 31, 1997, approximately 27% of the Company's revenues were earned in connection with services performed on behalf of Swiss Bank and its affiliates. If certain competitors of Swiss Bank acquire more than 25% of the shares of Class A Common Stock of the Company ("Class A Common Stock," and such shares, "Class A Shares") or another party (other than an affiliate of Ross Perot) acquires more than 50% of the Class A Shares and, if in either case, that acquisition is reasonably likely to have a significant adverse impact on the performance of or the charges for the services 3 6 rendered by the Company, Swiss Bank has the right to terminate the Swiss Bank Agreements. The loss of Swiss Bank as a client would have a material adverse effect on the Company's business, financial condition and results of operations. During the year ended December 31, 1997, approximately 10% of the Company's revenues were earned in connection with services performed on behalf of East Midlands Electricity (EME). The loss of this client could have a material adverse effect on the Company's business, financial condition and results of operations. No other client accounted for more than 10% of the Company's revenue. COMPETITION The Company's markets are intensely competitive and are characterized by continuous changes in customer requirements and the technology available to satisfy those requirements. The Company has a small share of the highly-fragmented IT services market. With respect to large contracts, the Company's principal competitors include International Business Machines Corporation, Andersen Consulting LLP, Computer Sciences Corporation and Electronic Data Systems Corporation. Each of these companies, as well as some other competitors, has greater financial resources and a larger customer base than the Company and may have larger technical, sales and marketing resources than the Company. The Company expects to see additional competition as it addresses new markets and as the computing and communications markets converge. The Company competes on the basis of a number of factors both within and outside of its control, including price, technological innovation, ability to invest in or acquire assets of potential customers and strategic relationships with customers and suppliers. There can be no assurance that the Company will be able to compete successfully against its current or future competitors with respect to these or other factors in the future. In addition, there can be no assurance that competition will not have a material adverse effect on the Company's results of operations. INFORMATION REGARDING GEOGRAPHIC REGIONS For information regarding geographic regions in which the Company operates, see Note 12 to the Consolidated Financial Statements, "Certain Geographic Data and Segment Information." TRADEMARKS, PATENTS AND COPYRIGHTS The Company owns or has obtained licenses for a number of copyrights and trademarks relating to its products and services. The Company does not believe that any particular copyright, trademark or group of copyrights and trademarks is of material importance to the Company's business taken as a whole. 4 7 EMPLOYEES As of December 31, 1997, the Company employed approximately 5,500 persons located in the United States and several other countries. None of the Company's United States employees are currently employed under an agreement with a collective bargaining unit. The Company's employees in France and Germany are generally members of work councils and have worker representatives. These representatives must be consulted on any major change in operations that affects such employees. The Company believes that its relations with employees are good. ITEM 2. PROPERTIES As of December 31, 1997, the Company had approximately 40 locations in the United States and five countries outside the United States. The Company owns no real estate. The Company leases approximately 1.1 million square feet of office and warehouse facilities. Current leases have expiration dates that range from 1998 to 2012. Upon expiration of its leases, the Company does not anticipate any significant difficulty in obtaining renewals or alternative space. In addition to the leased property referred to above, the Company occupies office space at customer locations throughout the world. Such space is generally occupied pursuant to the terms of the respective customer contract. The Company's management believes that its facilities are suitable and adequate for its business. However, the Company has plans for expansion and is currently negotiating for expanded facilities for several of its locations. The Company does not anticipate any difficulty in obtaining sufficient space to accommodate the planned expansion. OPERATING LEASES AND MAINTENANCE AGREEMENTS The Company has commitments related to data processing facilities, office space and computer equipment under non-cancelable operating leases and fixed maintenance agreements for periods ranging from one to ten years. Future minimum commitments under these agreements as of December 31, 1997 are disclosed in Note 13 to the financial statements. ITEM 3. LEGAL PROCEEDINGS The Company is, from time to time, involved in various litigation matters arising in the ordinary course of its business. The Company believes that the resolution of currently pending legal proceedings, either individually or taken as a whole, will not have a material adverse effect on the Company's consolidated financial position or results of operations. 5 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended December 31, 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for the registrant's securities. As of March 16, 1998, there were 1,196 holders of record of the Class A common stock and one (1) holder of the Class B common stock. The Company has never paid cash dividends on its common stock. The Company currently intends to retain earnings for use in its business and does not anticipate paying any cash dividends in the foreseeable future. 6 9 ITEM 6. SELECTED FINANCIAL INFORMATION The following selected consolidated historical financial data as of and for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is unaudited but has been derived from the Company's Consolidated Financial Statements, which have been audited by Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), independent auditors. The Company has retained Coopers & Lybrand as its auditors for each of the five years listed in the table below. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", the Company's Consolidated Financial Statements and the Notes to the Consolidated Financial Statements, which are included herein.
As of and for the years ended December 31, 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- (in millions, except per share data) OPERATING RESULTS: Contract revenue $ 781.6 $ 599.4 $ 342.3 $ 292.2 $ 291.7 Direct cost of services 636.3 461.2 268.6 246.1 251.1 Operating income (loss) 17.6 41.3 20.9 10.9 (19.7) Income (loss) before taxes 19.5 40.2 20.3 10.1 (22.4) Net income (loss) 11.2 20.5 10.8 6.3 (14.5) Basic earnings (loss) per share (3) $ 0.29 $ 0.54 $ 0.33 $ 0.19 $ (0.51) Diluted earnings (loss) per share (3) $ 0.24 $ 0.48 $ 0.31 $ 0.18 $ (0.51) NON-RECURRING ITEMS - OPERATING: Contract loss provisions (1) $ 10.2 -- -- -- $ 19.3 Write-off of purchased R&D 2.0 $ 3.9 -- -- -- Write-off of intellectual property rights 3.6 -- -- -- -- ------- ------- ------- ------- ------- Total non-recurring items - operating $ 15.8 $ 3.9 -- -- $ 19.3 ======= ======= ======= ======= ======= NON-RECURRING ITEMS - NON-OPERATING: Write-down of non-marketable equity securities $ 3.9 -- -- -- -- ------- ------- ------- ------- ------- Total non-recurring items - non-operating $ 3.9 -- -- -- -- ======= ======= ======= ======= ======= TOTAL NON-RECURRING ITEMS - ALL $ 19.7 $ 3.9 -- -- $ 19.3 ======= ======= ======= ======= ======= BALANCE SHEET DATA: Cash and cash equivalents $ 35.3 $ 27.5 $ 17.4 $ 9.2 $ 26.9 Total assets 267.1 232.2 130.5 91.2 122.1 Long-term debt (2) 2.9 5.2 6.1 10.0 18.7
(1) During 1997, the Company recorded a charge to earnings to recognize losses on certain long-term contracts primarily due to probable contract termination costs. During 1993, the Company recorded a charge to earnings reversing amounts previously recognized as recoverable costs under the percentage-of-completion method of accounting in recognition of delays and cost overruns related to the development of a software application for a client. (2) Represents capital lease obligations. (3) Years 1993 to 1996 are restated for the effect of Statement of Financial Accounting Standards No. 128, "Earnings per share." 7 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following commentary should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements, which are included herein. RESULTS OF OPERATIONS Comparison of the year ended December 31, 1997 to the year ended December 31, 1996 Contract revenue increased in 1997 by 30% to $781.6 million from $599.4 million in 1996, due to $43.6 million in revenue growth from the Company's Swiss Bank contract, $60.2 million in revenue from businesses acquired in the second half of 1996 and the first half of 1997, and a $78.4 million increase in revenue from other new and existing business. Domestic contract revenue grew by 42% in 1997 to $519.1 million from $365.2 million in 1996, and increased as a percentage of total contract revenue to 66% from 61% over the same periods. Non-domestic contract revenue, consisting of European and Asian operations, grew by 12% in 1997 to $262.5 million from $234.2 million in 1996, and decreased as a percentage of total contract revenue to 34%, from 39% over the same periods. Direct cost of services increased in 1997 by 38% to $636.3 million from $461.2 million in 1996, due in part to general business growth. Growth in direct costs of services exceeded revenue growth due to the combination of start-up costs from sales to new clients and the integration of acquired businesses. In addition, the Company incurred several non-recurring charges in 1997, including special contract loss provisions of $10.2 million, related to known termination and contract completion losses on certain long-term contracts, a $3.6 million write-off of intellectual property rights acquired, and a $3.1 million charge related to the abandonment and sub-lease of unused office space. Selling, general and administrative expenses ("SG&A") increased in 1997 by 35% to $125.7 million from $93.0 million in 1996, due primarily to expansion of the sales force, staff growth in management and administrative support areas, severance for key executives and increased goodwill amortization associated with businesses acquired. SG&A increased as a percentage of total revenue in 1997 to 16.1% from 15.5 % in 1996. 8 11 Equity in earnings of unconsolidated affiliates, net, increased in 1997 to $4.1 million from a loss of $0.3 million in 1996 due primarily to significantly improved results from the Company's investment in Systor AG, a subsidiary of Swiss Bank. Other income, net, increased in 1997 to $1.0 million from a net expense of $1.6 million in 1996. The positive impact of the above items was substantially offset by a $3.9 million write down of non-marketable equity securities to net realizable value during 1997. The decrease in the effective tax rate to 42.5% in 1997 from 48.9% in 1996 was due to both a decrease in nondeductible amortization related to acquisitions and increased earnings in foreign jurisdictions in which the Company intends to permanently invest subsidiary profits. As a result of the factors noted above, operating income decreased in 1997 to $17.6 million from $41.3 million in 1996, and operating margin declined to 2.3% from 6.9%. Net income margin in 1997 decreased to 1.4% from 3.4% over the same period in 1996. Prior to the non-recurring charges, which included special contract loss provisions, the write-off of purchased research and development, the write-off of acquired intellectual property rights, and the write-down of non-marketable equity securities, income before taxes decreased to $39.2 million in 1997 from $44.1 million in 1996. Net income, excluding the after tax effect of these charges, increased to $22.6 million in 1997 from $22.5 million in 1996. Comparison of the year ended December 31, 1996 to the year ended December 31, 1995 Contract revenue increased in 1996 by 75% to $599.4 million from $342.3 million in 1995, due to $168.9 million in revenue from the Company's Swiss Bank contract, $10.7 million in revenue from businesses acquired in the second half of 1996, and a $77.5 million increase in revenue from other new and existing business. Domestic contract revenue grew by 53% in 1996 to $365.2 million from $238.8 million in 1995, but declined as a percentage of total contract revenue to 61% from 70% over the same periods. Swiss Bank accounted for $88.9 million of the domestic revenue in 1996. Non-domestic contract revenue, consisting of European and Asian operations, grew by 126% in 1996 to $234.2 million from $103.5 million in 1995, and increased as a percentage of total contract revenue to 39% from 30% over the same periods. The key factor was the Swiss Bank contract revenue of which $72.7 million was earned in Europe and $7.3 million in Asia. Direct cost of services increased in 1996 by 72% to $461.2 million from $268.6 million in 1995, due primarily to general business growth. 9 12 SG&A increased in 1996 by 76% to $93.0 million from $52.9 million in 1995, due primarily to the addition of key executives, expansion of the sales force, staff growth in management and administrative support areas. SG&A remained constant as a percentage of total revenue at 15.5% during 1995 and 1996. The effective tax rate increased in 1996 to 48.9% from 46.6% in 1995, due primarily to an increase in non-deductible expense items. Operating income increased in 1996 to $41.3 million from $20.9 million in 1995, reflecting business growth and other factors discussed above. Operating margin increased in 1996 to 6.9% from 6.1% in 1995, due to a decline in direct costs of services as a percentage of contract revenue in 1996 to 76.9% from 78.5% in 1995. Net income margin increased in 1996 to 3.4% from 3.2% in 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of liquidity over the past three years has been cash flow from operating activities. For the year ended December 31, 1997, operating cash flow was $71.0 million compared to $53.9 million and $24.0 million for the years ended December 31, 1996 and 1995, respectively. Although net income decreased by $9.3 million during 1997, operating cash flow increased $17.0 million over the prior year. An increase in non-cash expenses of $25.7 million, primarily depreciation and amortization, and an increase in operating net assets of $0.6 million, primarily increased collection of receivables, were the key factors driving the change. The increase in operating cash flow of $29.9 million from 1995 to 1996 was driven by an increase in net income of $9.7 million, an increase in operating net assets of $15.6 million and a $4.6 million increase in non-cash expenses. Net cash used in investing activities was $67.1 million in 1997, compared to $41.9 million in 1996 and $12.4 million in 1995. Cash expenditures for property and equipment in 1997 (net of proceeds on disposals) were $44.9 million compared to $26.8 million in 1996 reflecting staff increases and general business growth. In 1995, total net cash used in investing activities of $12.4 million was due to net capital expenditures relating to staff and general business growth. Cash paid for new businesses acquired was $13.7 million in 1997 compared to $9.5 million in 1996 and cash paid for purchases of minority interests in other entities was $2.9 million in 1997 compared to $5.5 million in 1996. The Company also purchased intellectual property rights for $6.6 million during 1997, of which $1.0 million was sold during the period. At December 31, 1997, the Company was committed to investing a maximum of $8.1 million to fund additional future capital requirements associated with minority interests in certain investments. In January 1998, the Company sold its entire minority interest in one investment for $5.1 million and thus eliminated a future capital commitment of $7.1 million out of the total of $8.1 million at December 31, 1997. 10 13 Net cash provided by financing activities of $4.4 million in 1997 was generated primarily by the sale of stock options to Swiss Bank for $8.1 million offset in part by payments on capital leases of $3.7 million and net cash purchases of treasury stock totaling $0.7 million. In 1996, total net cash used in financing activities was $4.5 million primarily due to an $8.5 million redemption of preferred stock, payments on capital leases of $2.2 million and preferred stock dividend payments of $0.9 million, offset partially by proceeds from the sale of common stock of $4.7 million and repayments of stockholder notes receivable of $2.2 million. Because of growth in its international operations, the Company, in certain instances, utilizes foreign currency exchange contracts to manage its exposure and to mitigate the effects of currency fluctuations. The Company maintained its existing line of credit of $40.0 million throughout 1997. Although the Company incurred borrowings up to $34.3 million during 1997, no borrowings were outstanding at December 31, 1997. The Company anticipates that cash flows from operating activities will provide sufficient funds to meet its needs during 1998. The Company's existing line of credit expires July 31, 1998. Although there is no assurance that the Company can extend its existing line of credit or negotiate a new line of credit, the Company anticipates that it will not have significant difficulty extending its existing line of credit or negotiating a new line of credit if the Company chooses to do so. As new contracts are commenced or existing contracts expanded, there will be increasing requirements for cash resources to fund current operations. Significant growth in the Company's business in 1998 and beyond could result in the need for private or public offerings of debt or equity instruments of the Company to provide the funds necessary to support its growth. The Company experienced substantial growth in 1996 and 1997. A significant portion of that growth resulted from the formation of the Company's strategic alliance with Swiss Bank in January 1996, which was revised in April 1997. During the years ended December 31, 1997 and 1996, approximately 27% and 28%, respectively, of the Company's revenues were earned in connection with services performed on behalf of Swiss Bank and its affiliates. 11 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements and Financial Statement Schedules
Financial Statements Page Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-6 Notes to Condensed Consolidated Financial Statements F-7 to F-37
Schedule VIII - Valuation and Qualifying Accounts The Financial Statement Schedule is submitted as Exhibit 99(a) to this Annual Report on Form 10-K. Schedules other than that listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes. 12 15 Index to Consolidated Financial Statements
Page Index F-1 Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-6 Notes to Condensed Consolidated Financial Statements F-7 to F-37
F-1 16 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Perot Systems Corporation: We have audited the accompanying consolidated balance sheets of Perot Systems Corporation and Subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Perot Systems Corporation and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Dallas, Texas March 25, 1998 F-2 17 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (dollars in thousands)
1997 1996 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 35,298 $ 27,516 Accounts receivable, net 105,230 113,804 Prepaid expenses and other 12,578 9,450 Deferred income taxes 24,962 25,935 -------- -------- Total current assets 178,068 176,705 Property, equipment and purchased software, net 50,703 35,748 Goodwill 16,596 7,293 Deferred income taxes 10,269 4,531 Other assets 11,467 7,970 -------- -------- Total assets $267,103 $232,247 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities on capital lease obligations and long-term debt $ 1,367 $ 2,377 Accounts payable 35,760 43,711 Income taxes payable 10,287 13,039 Accrued liabilities 76,040 53,343 Deferred revenue 23,258 22,003 Accrued compensation 23,449 20,240 -------- -------- Total current liabilities 170,161 154,713 Capital lease obligations and long-term debt, less current maturities 1,532 2,796 Other long-term liabilities 2,094 3,976 -------- -------- Total liabilities 173,787 161,485 -------- -------- Commitments and contingencies Stockholders' equity: Class A Common Stock; par value $.01; authorized 100,000,000 shares; outstanding 38,227,707 and 39,630,487 shares, 1997 and 1996, respectively 406 396 Class B Convertible Common Stock; par value $.01; authorized 24,000,000 shares; 50,000 and 0 shares outstanding, 1997 and 1996, respectively -- -- Additional paid-in-capital 61,546 51,461 Other stockholders' equity 31,364 18,905 -------- -------- Total stockholders' equity 93,316 70,762 -------- -------- Total liabilities and stockholders' equity $267,103 $232,247 ======== ========
The accompanying notes are an integral part of these financial statements. F-3 18 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1997, 1996, and 1995 (shares and dollars in thousands, except per share data)
1997 1996 1995 --------- --------- --------- Contract revenue $ 781,621 $ 599,438 $ 342,306 Costs and expenses: Direct cost of services 636,296 461,192 268,553 Selling, general and administrative expenses 125,732 92,997 52,891 Purchased research and development 2,000 3,948 -- --------- --------- --------- Operating income 17,593 41,301 20,862 Interest income 1,916 1,540 1,988 Interest expense (1,282) (770) (650) Equity in earnings/(losses) of unconsolidated affiliates, net 4,136 (312) -- Write-down of nonmarketable equity securities (3,900) -- -- Other income/(expense) 1,045 (1,608) (1,950) --------- --------- --------- Income before taxes 19,508 40,151 20,250 Provision for income taxes 8,291 19,652 9,437 --------- --------- --------- Net income $ 11,217 $ 20,499 $ 10,813 ========= ========= ========= Net income attributed to common shareholders $ 11,217 $ 20,052 $ 10,218 Basic and diluted earnings per common share: Basic earnings per common share $ 0.29 $ 0.54 $ 0.33 Weighted average common shares outstanding 39,168 37,055 31,151 Diluted earnings per common share $ 0.24 $ 0.48 $ 0.31 Weighted average diluted common shares outstanding 47,596 42,171 33,366
The accompanying notes are an integral part of these financial statements. F-4 19 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) for the years ended December 31, 1997, 1996, 1995 (dollars in thousands)
Convertible Liquidation Preference Preferred Stock Common Stock Class A Common Stock ----------------------- ---------------------- --------------------------- Shares Amount Shares Amount Shares Amount --------- ----------- ---------- -------- ---------- ----------- Balance, December 31, 1994 4,000,000 $ 9,888 16,000,000 $ 160 14,409,616 $ 150 Issuance of shares under incentive plans -- -- -- -- 3,312,808 30 Exercise of stock options -- -- -- -- 18,540 -- Shares repurchased -- -- -- -- -- -- Deferred compensation, net of amortization -- -- -- -- -- -- Dividends paid and accrued -- (942) -- -- -- -- Note repayments -- -- -- -- -- -- Net income -- -- -- -- -- -- Translation adjustment -- -- -- -- -- --------- ----------- ---------- -------- ---------- ----------- Balance, December 31, 1995 4,000,000 $ 8,946 16,000,000 $ 160 17,740,964 $ 180 Issuance of shares for businesses acquired -- -- -- -- 1,460,372 15 Issuance of shares under incentive plans -- -- -- -- 2,604,294 27 Exercise of stock options -- -- -- -- 1,818,218 14 Shares repurchased (4,000,000) (8,500) -- -- -- -- Shares converted to Class A Common -- -- (16,000,000) (160) 16,000,000 160 Amortization of deferred compensation -- -- -- -- -- -- Options issued for contract rights -- -- -- -- -- -- Amortization of contract rights -- -- -- -- -- -- Dividends paid and accrued -- (446) -- -- -- -- Note repayments -- -- -- -- -- -- Equity investment -- -- -- -- -- -- Tax benefit of employee options exercised -- -- -- -- -- -- Net income -- -- -- -- -- -- Translation adjustment -- -- -- -- -- -- --------- ----------- ---------- -------- ---------- ----------- Balance, December 31, 1996 -- -- -- -- 39,623,848 $ 396 Issuance of shares for businesses acquired -- -- -- -- 370,000 4 Issuance of options for business acquired -- -- -- -- -- -- Issuance of shares under incentive plans -- -- -- -- 615,369 6 Exercise of stock options -- -- -- -- 654,520 -- Shares repurchased -- -- -- -- (3,036,030) -- Sale of stock and options to Swiss Bank -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- Reversal of deferred compensation -- -- -- -- -- -- Amortization of contract rights -- -- -- -- -- -- Elimination of contract rights -- -- -- -- -- -- Note repayments and other -- -- -- -- -- -- Tax benefit of employee options exercised -- -- -- -- -- -- Net income -- -- -- -- -- -- Translation adjustment -- -- -- -- -- -- --------- ----------- ---------- -------- ---------- ----------- Balance, December 31, 1997 -- -- -- -- 38,227,707 $ 406 ========= =========== ========== ======== ========== ===========
Retained Cumulative Treasury Stock Additional Earnings Translation -------------------------- Paid-in Capital (Deficit) Adjustment Shares Amount --------------- ---------- ------------ ---------- ---------- Balance, December 31, 1994 $ 26,335 $ (2,440) $ (221) (457,464) $ (317) Issuance of shares under incentive plans 3,264 -- -- 600,904 397 Exercise of stock options -- -- -- 9,560 14 Shares repurchased -- -- -- (153,000) (94) Deferred compensation, net of amortization 1,500 -- -- -- -- Dividends paid and accrued -- (595) -- -- -- Note repayments -- -- -- -- -- Net income -- 10,813 -- -- -- Translation adjustment -- -- 49 -- -- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1995 $ 31,099 $ 7,778 $ (172) -- -- Issuance of shares for businesses acquired 6,530 -- -- -- -- Issuance of shares under incentive plans 6,520 -- -- -- -- Exercise of stock options 1,167 -- -- 204,330 313 Shares repurchased -- -- -- (204,330) (313) Shares converted to Class A Common -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- Options issued for contract rights 4,544 -- -- -- -- Amortization of contract rights -- -- -- -- -- Dividends paid and accrued -- (447) -- -- -- Note repayments -- -- -- -- -- Equity investment 706 -- -- -- -- Tax benefit of employee options exercised 895 -- -- -- -- Net income -- 20,499 -- -- -- Translation adjustment -- -- 1,181 -- -- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1996 $ 51,461 $ 27,830 $ 1,009 -- -- Issuance of shares for businesses acquired 2,697 -- -- -- -- Issuance of options for business acquired 1,500 -- -- -- -- Issuance of shares under incentive plans 1,935 -- -- (105,000) 263 Exercise of stock options (350) -- -- (635,520) 1,215 Shares repurchased -- -- -- 3,039,132 (5,344) Sale of stock and options to Swiss Bank 8,503 -- -- -- -- Amortization of deferred compensation -- -- -- -- -- Reversal of deferred compensation (1,050) -- -- -- -- Amortization of contract rights -- -- -- -- -- Elimination of contract rights (4,146) -- -- -- -- Note repayments and other (88) -- -- -- (84) Tax benefit of employee options exercised 1,121 -- -- -- -- Net income -- 11,217 -- -- -- Translation adjustment (37) -- (1,803) -- -- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1997 $ 61,546 $ 39,047 $ (794) 2,298,612 $ (3,950) ========== ========== ========== ========== ==========
Notes Receivables Total From Contract Deferred Stockholders' Stockholders Rights Compensation Equity(Deficit) ------------ -------- ------------ --------------- Balance, December 31, 1994 $ (887) -- -- $ 32,668 Issuance of shares under incentive plans (901) -- -- 2,790 Exercise of stock options (2,000) -- -- (1,986) Shares repurchased -- -- -- (94) Deferred compensation, net of amortization -- -- (1,456) 44 Dividends paid and accrued -- -- -- (1,537) Note repayments 130 -- -- 130 Net income -- -- -- 10,813 Translation adjustment -- -- -- 49 -------- -------- -------- -------- Balance, December 31, 1995 $ (3,658) -- $ (1,456) $ 42,877 Issuance of shares for businesses acquired -- -- -- 6,545 Issuance of shares under incentive plans (3,065) -- -- 3,482 Exercise of stock options -- -- -- 1,494 Shares repurchased 225 -- -- (8,588) Shares converted to Class A Common -- -- -- -- Amortization of deferred compensation -- -- 150 150 Options issued for contract rights -- (4,544) -- -- Amortization of contract rights -- 202 -- 202 Dividends paid and accrued -- -- -- (893) Note repayments 2,212 -- -- 2,212 Equity investment -- -- -- 706 Tax benefit of employee options exercised -- -- -- 895 Net income -- -- -- 20,499 Translation adjustment -- -- -- 1,181 -------- -------- -------- -------- Balance, December 31, 1996 $ (4,286) $ (4,342) $ (1,306) $ 70,762 Issuance of shares for businesses acquired -- -- -- 2,701 Issuance of options for business acquired -- -- -- 1,500 Issuance of shares under incentive plans (1,427) -- -- 777 Exercise of stock options (39) -- -- 826 Shares repurchased 2,603 -- -- (2,741) Sale of stock and options to Swiss Bank -- -- -- 8,503 Amortization of deferred compensation -- -- 256 256 Reversal of deferred compensation -- -- 1,050 -- Amortization of contract rights -- 196 -- 196 Elimination of contract rights -- 4,146 -- -- Note repayments and other 210 -- -- 38 Tax benefit of employee options exercised -- -- -- 1,121 Net income -- -- -- 11,217 Translation adjustment -- -- -- (1,840) -------- -------- -------- -------- Balance, December 31, 1997 $ (2,939) -- -- $ 93,316 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 20 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1997, 1996 and 1995 (dollars in thousands)
1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Net income $ 11,217 $ 20,499 $ 10,813 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,363 18,715 14,083 Write-off of purchased research and development 2,000 3,948 -- Write-off of software license transfer rights -- 4,156 -- Write-off of intellectual property rights 3,623 -- -- Write-down of nonmarketable equity securities 3,900 -- -- Equity in (earnings)/losses of unconsolidated affiliates, net (4,136) 312 -- Change in deferred income taxes (10,423) (16,044) (3,598) Loss/(gain) on sale of property, equipment and software 455 860 (47) Changes in assets and liabilities (net of effects from acquisition of businesses): Accounts receivable 16,039 (43,184) (33,263) Prepaid expenses (3,010) (4,037) 6,760 Other assets 5,843 (837) (4,578) Accounts payable and accrued liabilities 13,244 39,401 17,790 Income taxes payable (3,550) 7,998 6,873 Deferred revenue 372 15,388 (4,685) Accrued compensation 3,295 9,852 7,155 Other long-term liabilities (3,260) (3,095) 6,746 -------- -------- -------- Total adjustments 59,755 33,433 13,236 -------- -------- -------- Net cash provided by operating activities 70,972 53,932 24,049 -------- -------- -------- Cash flows from investing activities: Purchase of property, equipment and software (47,243) (27,534) (18,342) Proceeds from sale of property, equipment and software 2,366 713 5,975 Investments in and advances to minority interests (2,891) (5,536) -- Acquisition of intellectual property rights (5,623) -- -- Acquisition of businesses, net of cash acquired of $665 in 1997 and $149 in 1996 (13,721) (9,520) -- -------- -------- -------- Net cash used in investing activities (67,112) (41,877) (12,367) -------- -------- -------- Cash flows from financing activities: Principal payments on debt and capital lease obligations (3,725) (2,162) (2,896) Proceeds from issuance of common stock 381 4,686 528 Proceeds from sale of stock options 8,139 -- -- Repayment of stockholder notes receivable 266 2,212 130 Proceeds from issuance of treasury stock 1,125 197 273 Purchase of treasury stock (1,834) (88) (94) Redemption of preferred stock -- (8,500) -- Dividends paid on preferred stock -- (893) (1,537) -------- -------- -------- Net cash provided by (used in) financing activities 4,352 (4,548) (3,596) -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (430) 2,652 28 -------- -------- -------- Net increase in cash and cash equivalents 7,782 10,159 8,114 Cash and cash equivalents at beginning of year 27,516 17,357 9,243 -------- -------- -------- Cash and cash equivalents at end of year $ 35,298 $ 27,516 $ 17,357 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-6 21 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 1. Nature of Operations and Summary of Significant Accounting Policies Perot Systems Corporation (the "Company") was originally incorporated in the state of Texas in 1988 to provide systems outsourcing, systems integration, software development, consulting, and other information technology services. On December 19, 1995, the Company reincorporated in the state of Delaware. The significant accounting policies of the Company are described below. Dollar amounts presented are in thousands, except as otherwise noted. Principles of consolidation The consolidated financial statements include the accounts of the Company and all domestic and foreign subsidiaries that are more than 50% owned and controlled. All significant intercompany balances and transactions have been eliminated. The Company's investments in 20% to 50% owned companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for by the equity method. Accordingly, the Company's share of the earnings (losses) of these companies is included in consolidated net income. Investments in unconsolidated companies and limited partnerships that are less than 20% owned, where the Company has virtually no influence over operating and financial policies, are carried at cost. The Company periodically evaluates whether impairment losses must be recorded on each investment by comparing the projection of the undiscounted future operating cash flows to the carrying amount of the investment. If this evaluation indicates that future undiscounted operating cash flows are less than the carrying amount of the investments, the underlying assets are written down by charges to expense so the carrying amount equals the future discounted cash flows. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. These estimates involve judgments with F-7 22 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- respect to, among other things, various future economic factors which are difficult to predict and are beyond the control of the Company. Therefore, actual amounts could differ from these estimates. Cash equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Revenue recognition Revenue from contracts is generally recognized based on the performance of tasks as defined in the contracts. Revenue and fees on certain cost reimbursable contracts are recognized as costs are incurred. Revenue from certain long-term contracts has been recognized by the percentage-of-completion method of accounting. Provisions for estimated losses on contracts are recorded when identified. Billings for services or products acquired for clients when the Company acts as an agent on behalf of the client are excluded from revenue. Deferred revenue is comprised of payments from customers for which services have not yet been performed, or prepayments against development work in process. These unearned revenues are deferred and recognized as future contract costs are incurred and contract services are rendered. Research and development costs Research and development costs are charged to expense as incurred and were $3,243 and $4,486 in 1997 and 1996, respectively. The write-off of purchased research and development costs made up $2,000 and $3,948 of the total in 1997 and 1996, respectively. Property and equipment Property and equipment are stated at cost. Property and equipment under capital leases are recorded at the lower of their fair market value or the present value of future minimum lease payments determined at the inception of the lease. Depreciation and amortization are calculated on a straight-line basis, using estimated useful lives of two to seven years. Leasehold F-8 23 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- improvements are amortized over the shorter of the lease term or the estimated useful life of the improvement. Property and equipment recorded under capital leases are amortized on a straight-line basis over the lease term. Upon sale or retirement of property and equipment, the costs and related accumulated depreciation are eliminated from the accounts, and any gain or loss on such disposition is reflected in the consolidated statement of operations. Expenditures for repairs and maintenance are charged to operations as incurred. Software, goodwill and other intangibles Software purchased by the Company and utilized in providing contract services is capitalized at cost and amortized on a straight-line basis over the lesser of three to five years or the term of the related contract. The cost of acquired entities is allocated first to identifiable assets based on estimated fair values. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, is recorded as goodwill and amortized on a straight-line basis over the estimated productive life of the assets acquired. Due to the fact that acquired skills and technological advantages are subject to rapid obsolescence, and thus continuous reinvestment, the Company's general policy is to amortize goodwill over a three to ten year period. The Company periodically evaluates the carrying amount of software, goodwill, other intangibles and other long-lived assets, as well as the related amortization periods, to determine whether adjustments to these amounts or useful lives are required based on current events and circumstances. The evaluation is based on the Company's projection of the undiscounted future operating cash flows of the acquired operation over the remaining useful lives of the related intangible assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related intangibles, the underlying assets are reduced by charges to expense so that the carrying amount is equal to future discounted cash flows. F-9 24 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- Income taxes The Company uses the liability method to compute the income tax provision. Under this method, deferred income taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense consists of the Company's current provision for federal and state income taxes and the change in the Company's deferred income tax assets and liabilities. The Company does not provide for foreign withholding and income taxes on the undistributed earnings amounting to $47,033 through 1997, cumulatively, for its foreign subsidiaries, as such earnings are intended to be permanently invested in those operations. The ultimate tax liability related to repatriation of such earnings is dependent upon future tax planning opportunities and is not estimable at the present time. Foreign operations The consolidated balance sheets include foreign assets and liabilities of $95,600 and $73,490, respectively, as of December 31, 1997, and $101,481 and $77,914, respectively, as of December 31, 1996. Assets and liabilities of subsidiaries located outside the United States are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenue and expenses are translated at average exchange rates during each reporting period. Translation gains and losses are recorded as a separate component of stockholders' equity. The Company periodically enters into foreign exchange forward contracts to hedge certain foreign currency transactions for periods consistent with the terms of the underlying transactions. The forward exchange contracts generally have maturities that do not exceed one year. The net foreign currency transaction gains/(losses) reflected in other income/(expense) were $736, ($1,715) and ($892) for the years ended December 31, 1997, 1996 and 1995, respectively. F-10 25 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- Concentrations of credit risk Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash equivalents and accounts receivable. The Company's cash equivalents consist primarily of short-term money market deposits. The Company has deposited its cash equivalents with reputable financial institutions, from which the Company believes the risk of loss to be remote. The Company has accounts receivable from its customers who are engaged in the banking, insurance, healthcare, manufacturing, communications, travel and energy industries, and are not concentrated in any specific geographic region. These specific industries may be affected by economic factors, and, therefore, accounts receivable may be impacted. Generally, the Company does not require collateral from its customers, since the receivables are supported by long-term contracts. Management does not believe that any single customer, industry or geographic area represents significant credit risk. One customer accounted for 11% and 27% of the Company's accounts receivables at December 31, 1997 and 1996, respectively. Financial instruments The fair value of the Company's financial instruments is estimated using bank or market quotes or discounted cash flows at year-end foreign exchange and interest rates. The fair value of the financial instruments is disclosed in the relevant notes to the financial statements. The carrying amount of short-term financial instruments (cash and cash equivalents, accounts receivable, and certain other liabilities) approximates fair value due to the short maturity of those instruments. The Company uses derivative financial instruments for the purpose of hedging specific exposures as part of its risk management program and holds all derivatives for purposes other than trading. Deferral (hedge) accounting is applied only if the derivative reduces the risk of the underlying hedged item and is designated at inception as a hedge with respect to the underlying hedged item. Additionally, the derivative must result in cash flows that are expected to be inversely correlated to those of the underlying hedged item. Such instruments to date have been limited to interest rate swap and foreign currency exchange forward contracts. Treasury stock Treasury stock transactions are accounted for under the cost method. Reclassifications Certain of the 1996 and 1995 amounts in the accompanying financial statements have been reclassified to conform to the current presentation. F-11 26 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock based compensation The Company has elected to follow Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees", and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has implemented the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation". Accounting standard issued In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income", effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company has not yet determined the impact, if any, of implementing SFAS 130. 2. Accounts Receivable Accounts receivable consist of the following as of December 31:
1997 1996 --------- --------- Amounts billed $ 77,119 $ 88,577 Amounts to be invoiced 22,409 13,548 Recoverable costs and profits 2,798 7,744 Other 4,089 10,722 Allowance for doubtful accounts (1,185) (6,787) --------- --------- $ 105,230 $ 113,804 ========= =========
With regard to amounts billed, allowances for doubtful accounts are provided based on specific identification where less than full recovery of accounts receivable is expected. Amounts to be invoiced represent revenue contractually earned for services performed, which are invoiced to the customer in the following month. Recoverable costs and profits represent amounts previously recognized as revenue, that have not yet been billed, in accordance with the contract terms. In certain cases, the period of recovery may extend beyond one year. However, classification of these amounts within current assets has been F-12 27 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- made in accordance with common industry practice. It is anticipated that $2,210 of the recoverable costs and profits as of December 31, 1997 will be billed in 1998 and $588 will be billed in 1999. 3. Property and Equipment and Purchased Software Property and equipment and purchased software consist of the following as of December 31:
1997 1996 --------- --------- Owned assets: Computer equipment $ 68,188 $ 48,500 Furniture and equipment 24,193 15,760 Leasehold improvements 11,070 5,897 Automobiles 669 -- --------- --------- 104,120 70,157 Less accumulated depreciation and amortization (62,808) (41,276) --------- --------- 41,312 28,881 --------- --------- Assets under capital leases: Computer equipment 1,735 3,930 Furniture and equipment 1,582 1,581 --------- --------- 3,317 5,511 Less accumulated depreciation (2,909) (5,057) --------- --------- 408 454 --------- --------- Property and equipment, net $ 41,720 $ 29,335 ========= ========= Purchased software $ 28,635 $ 21,322 Less accumulated amortization (19,652) (14,909) --------- --------- Purchased software, net $ 8,983 $ 6,413 ========= =========
4. Acquisitions During 1997, the Company acquired 100% of the equity interests or assets in four companies: Business Architects, LLP, ("BA"), based in Waltham, Massachusetts, a business process reengineering consulting company; Benton International, Inc. ("Benton"), a retail banking consulting firm located in New York, California and Florida; Syllogic B.V. ("Syllogic"), a company based in The Netherlands, specializing in the implementation, integration and control of information systems F-13 28 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- with expertise in data warehousing and data mining; and Stamos Associates, Inc. ("Stamos"), based in New York and California, a strategic management consulting company in the healthcare industry. Also, the Company acquired 70% of the equity interests in Icarus Consulting AG ("Icarus"), a company specializing in airline and related industry consulting. These five acquisitions were recorded under the purchase method of accounting; and accordingly, the results of operations of these companies for the periods from the date of the acquisition agreements to December 31, 1997 are included in the accompanying 1997 consolidated statement of operations. The dates of the 1997 acquisition agreements for BA, Benton, Icarus, Syllogic, and Stamos were January 15, February 14, March 21, May 27 and June 17, respectively. The purchase prices have been allocated to assets acquired and liabilities assumed based on the estimated fair values at the dates of acquisition. Under the terms and conditions of the various acquisition agreements executed in 1997, the Company paid a total of $18,587 for the equity interests acquired, $14,386 in cash, $2,701 in the form of 370,000 shares of the Company's Class A Common Stock, and $1,500 in the form of 550,000 options to purchase the Company's Class A Common Stock. The Company allocated $3,513 of the purchase price to the tangible net assets acquired and $15,074 to goodwill. During 1996, the Company acquired all of the equity interests in four companies: Rothwell International, Inc. ("Rothwell"), based in Houston, Texas, an object-oriented programming company; Doblin Group, Inc. ("Doblin"), a Chicago-based consulting company, engaging in strategic design planning and consulting for breakthrough products and services; CommSys Corporation ("CommSys"), located in Reston, Virginia, a developer of billing systems for telecommunication companies; and The Technical Resource Connection, Inc. ("TRC"), based in Tampa, Florida, specializing in object-oriented programming and software development. These four acquisitions were recorded under the purchase method of accounting; and accordingly, the results of operations of Rothwell, Doblin, CommSys, and TRC for the periods from the date of the acquisition agreements to December 31, 1997 are included in the accompanying 1996 and 1997 consolidated statements of operations. The dates of the 1996 acquisition agreements for Rothwell, Doblin, CommSys, and TRC were August 2, September 10, September 16 and October 25, respectively. The purchase prices have been allocated to assets acquired and liabilities assumed based on the estimated fair values at the dates of acquisition. In addition, portions of the purchase price of CommSys and TRC were allocated to in-process product development that had not reached technological feasibility and had no probable alternative future uses, which the Company recorded at the date of acquisition. F-14 29 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- Under the terms and conditions of the various acquisition agreements executed in 1996, the Company paid a total of $16,214 for the equity interests acquired, $9,669 in cash, and $6,545 in the form of 1,460,372 shares of the Company's Class A Common Stock. The Company allocated $4,286 of the purchase price to the tangible net assets acquired, $3,948 to expensed in-process product development and $7,980 of goodwill. The following table reflects unaudited pro forma combined results of operations of the Company and the 1997 and 1996 acquisitions on the basis that the acquisitions had taken place and the related product development expense was recorded at the beginning of the calendar year for each of the periods presented:
(Unaudited) 1997 1996 ----------- ---------- Contract revenue $ 790,174 $ 665,035 Net income 11,065 16,548 Basic earnings per common share 0.28 0.42 Diluted earnings per common share 0.23 0.37
In management's opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of 1997 and 1996, respectively, or of future operations of the combined companies under the ownership and management of the Company. At December 31, 1997 and 1996, goodwill of $16,596 and $7,293, net of $6,097 and $686 in accumulated amortization, respectively, related solely to 1997 and 1996 business acquisitions. 5. Investments in Unconsolidated Affiliates and Minority Interests At December 31, 1997, investments in and advances to unconsolidated affiliates include two equity investments made in 1996. On January 5, 1996, the Company acquired 40% of the equity interest in Systor AG ("Systor"), a Swiss information services company, from Swiss Bank Corporation as part of a larger services agreement. The Company's investment in Systor at December 31, 1997 and 1996 was $7,188 and $3,538, respectively. F-15 30 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- On March 26, 1996, the Company entered into a joint venture with HCL Corporation Limited and HCL Europe Limited whereby the Company owns 49% of HCL Perot Systems NV ("HCL"), an information services company based in India. The Company contributed capital of $500 to HCL during 1997, and is required to contribute additional capital up to a limit of $6,900, on a call basis. The Company's investment in HCL at December 31, 1997 and 1996 was $1,742 and $524, respectively. No dividends or distributions were received from investments in unconsolidated affiliates in 1997 or 1996. The amount of undistributed earnings from investments in unconsolidated affiliates recorded in retained earnings was $4,196 and ($312) for 1997 and 1996, respectively. In April 1996, the Company entered into an agreement to join a limited partnership venture capital fund, and committed to invest $10,000, representing a 2.75% interest in the fund. As of December 31, 1997 and 1996, the Company has made net capital contributions of $2,125, and $1,292, respectively. In January 1998, the Company sold its entire investment for $5,162 and recognized a gain of $2,986, and has no future commitments to the fund. In May 1996, the Company purchased 1,471,000 shares of a class of preferred stock in a software company for $2,500. The Company purchased an additional 867,000 shares of the preferred stock for $400 in June 1997, representing a total 12.3% equity interest. As part of the purchase agreement, the Company is subject to a call option, which, if exercised, would require the Company to purchase additional shares for a commitment of up to $1,000. In January 1997, the Company purchased 4,000 shares of 5% cumulative convertible preferred stock for $1,000, representing a 4.5% interest in a privately held company specializing in the electronic transmission, storage and retrieval of documents. In December 1997, the Company wrote both of these investments down by the entire book value of $3,900 due to a decline in value considered to be other than temporary. 6. Other Assets Intellectual property rights In July 1997, the Company acquired certain assets of Nets, Inc., an internet development company in bankruptcy, for $8,755 in cash. Included in the asset purchase were $2,132 of property and equipment and $6,623 of intellectual F-16 31 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- property rights ("IP rights"). The Company recorded a write-off of $2,000 of the $6,623 in IP rights as purchased research and development costs. This amount represented an estimate of the fair market value of development cost related to software for which technological feasibility had not been established and for which there was no alternative future use. The completed IP rights were capitalized due to the expectation that the assets would be used in several contracts under negotiation. During the fourth quarter of 1997, the Company determined that it was not probable that the Company would generate future undiscounted cash flows sufficient to recover the recorded value of the IP rights. The Company sold $1,000 of the intellectual property in October 1997, and charged $3,623 to direct cost of services to reflect the impairment of the remaining IP rights. Software license transfer rights In July 1996, the Company determined that certain software rights and assets placed in service in 1993 were impaired due to the market shift from mainframe systems to client/server and network based systems. In addition, the Company's business mix had gradually shifted from outsourcing to application development, systems integration, and consulting. As a result, the $7,552 of transfer rights and assets in service and the $3,396 of related accumulated amortization were written off resulting in a loss of $4,156 classified as direct cost of services. 7. Line of Credit Effective July 31, 1996, the Company re-established its bank line of credit, which allows borrowings up to $40,000 at either the adjusted Eurodollar rate plus 1%, or the bank's prime lending rate. There were no borrowings outstanding under the line at December 31, 1997. This facility expires July 31, 1998. F-17 32 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 8. Accrued Liabilities Accrued liabilities consist of the following as of December 31:
1997 1996 ------- ------- Operating expenses $30,035 $23,903 Taxes other than income, insurance, rents, licenses and maintenance 3,433 3,519 Other contract-related 42,572 25,921 ------- ------- $76,040 $53,343 ======= =======
Other contract-related Other contract-related accrued liabilities represent provisions to match contract-related liabilities in the period in which revenues from those contracts are recognized. These include claims made by customers for services that require additional effort and costs by the Company to satisfy contractual requirements. An expense of $10,200 was recorded in 1997 to recognize management's estimate of known future losses associated with the termination or completion of two long-term contracts. 9. Capital Lease Obligations and Long-Term Debt Capital lease obligations and long-term debt consist of the following as of December 31:
1997 1996 ------- ------- Computer equipment and furniture capital leases containing various payment terms through August 2001 with implicit interest rates ranging from 7.9% to 17.40% $ 1,308 $ 1,777 Notes payable for software and software license transfer rights, financed at various rates from 8.35% to 10.23%, payable in monthly installments through July 2001 1,591 3,396 ------- ------- 2,899 5,173 Less current maturities (1,367) (2,377) ------- ------- $ 1,532 $ 2,796 ======= =======
Capital lease payments and long-term debt maturities for years ending after December 31, 1997, are as follows: F-18 33 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------
Capital lease Long-term obligations debt ----------- --------- 1998 $ 696 $ 848 1999 460 265 2000 207 293 2001 87 185 ------- ------- Total minimum lease payment and long-term debt maturities $ 1,450 $ 1,591 Less amounts representing interest (142) ======= ------- Present value of net minimum capital lease payments $ 1,308 =======
10. Stockholders' Equity Preferred stock At December 31, 1995, the Company had 4,000,000 shares of $2.125 par value Series A Preferred Stock outstanding. In 1996 the Company exercised its right to redeem these shares for $8,500 cash, plus accrued dividends of $298. The authorized preferred stock was subsequently removed from the Company's charter in 1997. Common stock and convertible liquidation preference common stock Class A Common Stock ("Class A") of the Company consists of 100,000,000 authorized shares of $0.01 par value common stock, of which there are 38,227,707 shares issued and outstanding as of December 31, 1997. The Company is authorized to issue, under its existing stock plans, up to 100,000,000 Class A shares, of which 33,082,562 were outstanding at year end. In addition, 7,000,000 Class A shares are reserved for future conversion of Class B Common Stock ("Class B"). Class B shares consist of 24,000,000 authorized shares of $0.01 par value common stock, of which there are 50,000 shares issued and outstanding as of December 31, 1997. The Class B shares were authorized in conjunction with the provisions of the original Swiss Bank service agreements, which were signed in January 1996. Class B shares are non-voting and convertible, but otherwise are equivalent to the Class A shares. Under the terms and conditions of the Swiss Bank agreements, each Class B share shall be converted, at the option of the holder, on a share-for-share basis, into a fully paid and non-assessable Class A share, upon sale of the share to a F-19 34 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- third-party purchaser under one of the following circumstances: 1) in a widely dispersed offering of the Class A shares; 2) to a purchaser of Class A shares who prior to the sale holds a majority of the Company's stock; 3) to a purchaser that after the sale holds less than 2% of the Company's stock; 4) in a transaction that complies with Rule 144 under the Securities Act of 1933, as amended; or 5) any sale approved by the Federal Reserve Board of the United States. At December 31, 1995, the Company had 16,000,000 shares of $0.01 par value Convertible Liquidation Preference Common Stock. In 1996, at the initiation of the holder, and under the terms of the Company's Certificate of Incorporation, the 16,000,000 outstanding shares of Convertible Liquidation Preference Common Stock were converted on a one-for-one basis into fully paid and non-assessable Class A shares. The Convertible Liquidation Preference Common Stock was removed from the Company's charter in 1997. Restricted Stock Plan In 1988, the Company adopted a Restricted Stock Plan, which was amended in 1993, to attract and retain key employees, and to reward outstanding performance. Employees selected by management may elect to become participants in the plan by entering into an agreement that provides for vesting of the Class A shares over a five-to-ten year period and establishes a two-year holding period on one-half of the shares prior to the sale of vested common stock. Each participant has voting, dividend and distribution rights with respect to all shares of both vested and unvested common stock. Prior to the Class A shares becoming publicly traded, the Company retains the right of first refusal to buy the employees' vested shares at a formula price set forth in each agreement, based on fair value or book value. After the Class A shares become publicly traded, the right of first refusal no longer exists. The Company may repurchase unvested shares, and under certain circumstances, vested shares of participants whose employment with the Company terminates. The repurchase price under these provisions is determined by the underlying agreement, generally the employees' cost plus interest at 8%. Common stock issued under the Restricted Stock Plan has been purchased by the employees at varying prices, determined by the Board of Directors and estimated to be the fair value of the shares based upon an independent third-party appraisal. The Company has from time to time financed the issuance of shares under the Restricted Stock Plan by executing promissory notes with the employees, with repayment terms ranging from one to fifteen years. These notes bear interest at 8%, payable at least annually, and are with recourse. Principal and interest payments vary from monthly to 5 years, and the loans are collateralized by the shares financed by the notes. The balance of the outstanding notes is included as a reduction to stockholders' equity. F-20 35 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 1991 Stock Option Plan In 1991, the Company adopted the 1991 Stock Option Plan (the "1991 Plan"), which was amended in 1993. Pursuant to the 1991 Plan, options to purchase the Company's Class A shares can be granted to eligible employees. The stock options are granted at a price not less than 100% of the fair value of the Company's Class A shares, as determined by the Board of Directors, based upon an independent third-party valuation. The stock options vest over a three to ten year period based on the provisions of each grant, and in some cases can be accelerated through attainment of financial performance criteria. All stock options require a two-year holding period for one half of the shares purchased once the options are exercised, and are usually exercisable from the vesting date until the eleventh anniversary from the date of grant, and unvested options are cancelled following the expiration of a certain period after the employee leaves the employment of the Company. Prior to the common stock becoming publicly traded, the Company has certain rights of first refusal to repurchase employees' shares obtained through exercise of the stock options at the employees' cost plus 8%. For options issued after April 1, 1997, the agreements provide that shares issued upon the exercise of the options may not be sold until six months following an initial public offering. Advisor Stock Option/Restricted Stock Incentive Plan In 1992, the Company adopted the Advisor Stock Option/Restricted Stock Incentive Plan (the "Advisor Plan"), which was modified in 1993, to enable non-employee directors and advisors to the Company and consultants under contract with the Company to acquire shares of the Company's Class A stock, at a price not less than 100% of the fair value of the Company's common stock, as determined by the Board of Directors, based upon an independent third-party valuation. The options and shares are subject to a vesting schedule and restrictions associated with their transfer. Under certain circumstances, the shares can be repurchased by the Company at cost plus 8% from the date of issuance. In 1996, the Board approved the 1996 Non-Employee Director Stock Option/Stock Incentive Plan and the 1996 Advisor and Consultant Stock Option/Stock Incentive Plan, which together replaced the Advisor Plan for subsequent grants of options. Provisions of the Advisor Plan will remain in effect for outstanding stock and options but no new issuances will be made pursuant to the plan. F-21 36 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 1996 Non-Employee Director Stock Option/Stock Incentive Plan In 1996, the Company adopted the 1996 Non-Employee Director Stock Option/Stock Incentive Plan (the "Director Plan"). The Director Plan provides for the issuance of up to 400,000 Class A shares or options to Board members who are not employees of the Company. Shares or options issued under the plan would be subject to five year vesting, with options expiring after an eleven year term. The purchase price for shares issued and exercise price for options issued is the fair value of the shares at the date of issuance. Other restrictions are established upon issuance. In 1997, 60,000 options were granted under the plan. 1996 Advisor and Consultant Stock Option/Stock Incentive Plan In 1996, the Company adopted the 1996 Advisor and Consultant Stock Option/Stock Incentive Plan (the "Consultant Plan"). The Consultant Plan provides for the issuance of Class A shares or options to advisors or consultants who are not employees of the Company, subject to restrictions established at time of issuance. The option exercise price is the fair value of the shares on the date of grant. The purchase price for share issuances is determined by a committee appointed by the Board of Directors. The fair value of issuances under the plan is estimated at the time of issuance and amortized ratably over the vesting period as compensation expense. In 1997, 24,000 options were granted under the plan. Other stock and option activity During 1995, options for the purchase of 2,000,000 Class A shares, with an exercise price of $1.00 per share, were granted to an executive officer of the Company when the fair value of the stock was estimated to be $1.75 per share. This resulted in deferred compensation of $1,500, which was recorded as a reduction to stockholders' equity. These options were exercised in 1995, whereby the Company received cash of $600, and a promissory note for $1,400 in consideration for the shares, under the terms of the original grant. Prior to an underwritten public offering of its common stock, the Company retains the right of first refusal to buy back the vested shares for cash at a purchase price equal to fair value, and the unvested shares at the cost paid by the shareholder. After such an offering, the right of first refusal no longer exists. The Company had the right, under certain circumstances, to repurchase certain shares at cost if employment with the Company terminates. F-22 37 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- During the third quarter of 1997, the executive terminated his employment and the Company made a non-cash repurchase of 1,400,000 shares of common stock through a reduction of $1,830 in outstanding notes receivable. The unamortized balance of deferred compensation was reclassified to additional paid-in-capital. Swiss Bank Agreement On April 24, 1997, the Company concluded the renegotiation of the terms of its strategic alliance with Swiss Bank, initially entered into in January 1996. The new terms were effective from January 1, 1997 and involve (i) a 10-year contract for the Company to provide information technology ("IT") services to SBC Warburg ("SBC Warburg EPI Agreement"), (ii) separate agreements to provide IT services to other Swiss Bank operating units and to permit the Company to use certain Swiss Bank assets, (iii) the sale to Swiss Bank of options to acquire shares of the Company's Class B stock, (iv) the sale to Swiss Bank of shares of the Company's Class B stock, and (v) the termination of all options to acquire shares of the Company's Class B stock granted under the terms and conditions of prior Swiss Bank agreements. The Company continues to hold a 40% stake in Systor. In the event of termination of the SBC Warburg EPI Agreement, a portion of the Company's interest in Systor would be returned to Swiss Bank, declining ratably over the 10-year period which began on January 1, 1997. The new terms of the SBC Warburg EPI Agreement require the Company to provide operational management for SBC Warburg's technology resources (including mainframes, desktops, and voice and data networks), excluding hardware and proprietary software applications development. The Company is to be reimbursed for all costs, excluding corporate overhead, related to services provided under the SBC Warburg EPI Agreement. In addition, the Company will receive a management fee, subject to bonuses and penalties, depending upon the achievement of certain defined performance criteria. Under the terms and conditions of the new agreement, the Company sold to Swiss Bank options to purchase 3,617,160 shares of the Company's Class B stock at a cash non-refundable purchase price of $2.25 per option. These Class B shares are subject to certain transferability and holding-period restrictions, which lapse over a defined vesting period. These options are exercisable immediately and for a period of 5 years after the date that such shares become vested, at an exercise price of $7.30 per share. In addition, the Company sold to Swiss Bank 50,000 shares of the Company's Class B stock, subject to the same transferability and holding-period restrictions, at a purchase price of $7.30 per share. These F-23 38 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- options and shares were sold in connection with the execution and delivery of the 10- year SBC Warburg EPI Agreement. Both the 50,000 shares of Class B stock and the 3,617,160 shares of Class B stock subject to options vest at a rate, in the aggregate, of 31,953 shares per month for the first five years of the agreement, and at a rate of 29,167 shares per month thereafter. In the event of termination of the SBC Warburg EPI Agreement, options to acquire unvested shares would be forfeited, and the Company would have the right to buy back any previously acquired unvested shares for the original purchase price of $7.30 per share. The Company also agreed to issue and sell to Swiss Bank additional shares and/or options to purchase Class B shares, subject to the same transferability and holding-period restrictions, up to a maximum of 3,500,000 shares, in such combination of options and shares that Swiss Bank deems appropriate, provided the Company and Swiss Bank, on or prior to December 31, 1998, enter into a second IT services agreement, having a term of 10 years, and being of a size and scope similar to that of the SBC Warburg EPI Agreement. The purchase price and exercise price for these options, as well as the purchase price for these shares will be the defined fair value as of the date of grant. These shares will vest ratably over 10 years commencing on the date of execution of the new agreement. In the event of termination, options to acquire unvested shares would be forfeited, and the Company would be required to buy back any previously acquired unvested shares for the original purchase price. Pursuant to the Bank Holding Company Act of 1965 and subsequent regulations and interpretations put forth by the Federal Reserve Board (the "regulations"), Swiss Bank's holdings in terms of shares of the Company's common stock may not reach or exceed 10% of the total of all classes of the Company's common stock. Similarly, the total consideration paid by Swiss Bank for the purchase of shares plus the purchase and exercise of options may not at any time reach or exceed 10% of the Company s consolidated stockholders' equity as determined in accordance with generally accepted accounting principles. If, however, on certain specified anniversaries of the execution date of the new agreement, beginning in 2004, the number of Class B shares, for which Swiss Bank's options are exercisable, is limited due to an insufficient number of shares outstanding, Swiss Bank has the right to initiate procedures to eliminate such deficiency. These procedures may involve (i) issuance of additional Class A shares by the Company, (ii) a formal request to the Federal Reserve Board from Swiss Bank for authorization to exceed its allowable percentage of ownership, or (iii) the purchase of Class B shares by the Company from Swiss Bank at a defined fair value. In addition, the exercise period for options to purchase vested shares would be increased beyond the normal 5 years to account for any time during such exercise period in which Swiss Bank is unable to exercise its options as a result of the regulations. F-24 39 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- Activity in Liquidation Preference Common and Class A Common Stock:
WEIGHTED RESTRICTED ADVISOR OPTION LIQUIDATION SHARE AVERAGE PLAN PLAN PLAN OTHER PREFERENCE TOTAL PRICE ---------- ------- --------- ---------- ------------ ---------- -------- BEGINNING SHARES 8,662,920 404,000 61,920 5,280,776 16,000,000 30,409,616 0.70 ISSUANCE 1,107,661 60,000 -- 2,145,147 -- 3,312,808 1.07 OPTIONS EXERCISED -- -- 18,540 -- -- 18,540 0.70 REPURCHASED -- -- -- -- -- -- -- ---------- ------- --------- ---------- ---------- ---------- DECEMBER 31, 1995 9,770,581 464,000 80,460 7,425,923 16,000,000 33,740,964 0.74 ISSUANCE 3,871,985 15,367 825 188,079 -- 4,076,256 2.92 OPTIONS EXERCISED -- -- 1,818,218 -- -- 1,818,218 0.85 CONVERSION -- -- -- 16,000,000 (16,000,000) -- 0.01 REPURCHASED (10,971) -- (619) -- -- (11,590) 2.63 ---------- ------- --------- ---------- ---------- ---------- DECEMBER 31, 1996 13,631,595 479,367 1,898,884 23,614,002 -- 39,623,848 1.01 ISSUANCE 828,000 100 -- 157,269 -- 985,369 5.42 OPTIONS EXERCISED -- 120,000 534,520 -- -- 654,520 1.02 REPURCHASED (1,635,886) -- -- (1,400,144) -- (3,036,030) 1.58 ---------- ------- --------- ---------- ---------- ---------- DECEMBER 31, 1997 12,823,709 599,467 2,433,404 22,371,127 -- 38,227,707 1.28 ========== ======= ========= ========== ========== ==========
F-25 40 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- Activity in Options for Class A Common Stock:
WEIGHTED AVERAGE ADVISOR OTHER EXERCISE 1991 PLAN PLAN OPTIONS TOTAL PRICE ---------- ------- ------- ---------- -------- 1995 OUTSTANDING AT BEGINNING OF YEAR 6,675,992 160,000 311,288 7,147,280 0.86 Granted 2,255,000 -- -- 2,255,000 1.25 Exercised (17,180) -- (1,360) (18,540) 0.70 Forfeited -- -- -- -- -- ---------- ------- ------- ---------- Outstanding at December 31, 1995 8,913,812 160,000 309,928 9,383,740 0.96 ========== ======= ======= ========== Exercisable at December 31, 1995 1,858,166 205,214 96,000 2,159,380 0.92 1996 OUTSTANDING AT BEGINNING OF YEAR 8,913,812 160,000 309,928 9,383,740 0.96 Granted 6,848,240 65,000 -- 6,913,240 1.08 Exercised (1,776,626) -- (41,592) (1,818,218) 0.84 Forfeited (41,392) -- (512) (41,904) 2.29 ---------- ------- ------- ---------- Outstanding at December 31, 1996 13,944,034 225,000 267,824 14,436,858 2.02 ========== ======= ======= ========== Exercisable at December 31, 1996 1,389,546 152,000 189,484 1,731,030 1.57 1997 OUTSTANDING AT BEGINNING OF YEAR 13,944,034 225,000 267,824 14,436,858 2.02 Granted 6,891,352 84,000 -- 6,975,352 3.55 Exercised (485,680) (120,000) (48,840) (654,520) 1.03 Forfeited (2,858,289) -- (7,184) (2,865,473) 0.66 ---------- ------- ------- ---------- Outstanding at December 31, 1997 17,491,417 189,000 211,800 17,892,217 3.15 ========== ======= ======= ========== Exercisable at December 31, 1997 2,310,825 44,500 140,192 2,495,517 2.68
F-26 41 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- The following table summarizes information about options for Class A common shares outstanding at December 31, 1997:
Weighted-Average Exercise Number Remaining Number Price Outstanding Contractual Life Exercisable -------- ----------- ---------------- ----------- $0.50 362,500 4.22 210,528 $0.75 1,204,260 6.59 658,390 $1.00 4,316,100 7.10 1,003,310 $1.75 697,044 6.33 100,978 $2.50 4,130,321 9.51 393,720 $3.00 71,500 9.69 - $3.75 3,551,542 8.97 114,306 $4.00 65,000 10.04 - $6.75 3,493,950 8.84 14,285 ---------- --------- $3.75 17,892,217 8.26 2,495,517 ========== ========= Weighted average exercise price of exercisable options $1.14
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:
1997 1996 1995 -------- ------- --------- Net income As reported $11,217 $20,499 $10,813 Pro forma $9,948 $20,063 $10,734 Basic earnings per share As reported $0.29 $0.54 $0.33 Pro forma $0.25 $0.53 $0.33 Diluted earnings per share As reported $0.24 $0.48 $0.31 Pro forma $0.21 $0.47 $0.31
All options issued by the Company in 1997, 1996 and 1995 were issued at the estimated fair value in effect at the date of issuance, vest ratably over the vesting period, and expire one year after the final vesting date. The fair value of each option F-27 42 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- grant was estimated on the date of grant using the Minimum Value option pricing model with the following assumptions for 1997, 1996 and 1995, respectively; risk free weighted average interest rates of 6.5% for 1997 and 6.8% for 1996 and 1995; dividend yield and volatility of zero for all years. The expected life for each issuance was equal to the midpoint of the vesting period, plus one year. For example, an option vesting ratably over ten years has an expected life of 6 years. The weighted-average grant-date fair value of options issued in 1997, 1996 and 1995 was $2,709, $5,938 and $1,916, respectively. The Company expects that the impact of future option issuances will be to increase overall pro forma compensation expense, thereby reducing pro forma net income reported in future periods. 11. Income Taxes Income before taxes for the years ended December 31 was as follows:
1997 1996 1995 ----------- --------- --------- Domestic $ (4,054) $ 10,151 $ 12,518 Foreign 23,562 30,000 7,732 ---------- --------- -------- $ 19,508 $ 40,151 $ 20,250 ========== ========= ========
The provision for income taxes charged to operations was as follows:
1997 1996 1995 --------- -------- -------- Current: U.S. Federal $ 9,159 $ 21,794 $ 4,444 State and local 1,383 3,583 766 Foreign 8,172 10,319 7,825 -------- -------- -------- Total current $ 18,714 $ 35,696 $ 13,035 ======== ======== ======== Deferred: U.S. Federal (8,902) (14,400) (4) State and local (1,392) (2,242) 32 Foreign (129) 598 (3,626) -------- -------- -------- Total deferred (10,423) (16,044) (3,598) -------- -------- -------- Total provision for income taxes $ 8,291 $ 19,652 $ 9,437 ======== ======== ========
F-28 43 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- Deferred tax liabilities (assets) are comprised of the following at December 31:
1997 1996 -------- -------- Deferred compensation $ 431 $ 536 Conversion of acquired entity from cash basis to accrual basis of accounting 1,171 989 Other 664 493 -------- -------- Gross deferred tax liabilities 2,266 2,018 -------- -------- Property, Plant & Equipment (11,050) (5,557) Accrued liabilities (22,958) (21,233) Equity investments (817) (517) Intangibles (1,134) (171) Deferred revenue (1,538) (4,877) Other -- (129) -------- -------- Gross deferred tax assets (37,497) (32,484) -------- -------- Net deferred tax asset $(35,231) $(30,466) ======== ========
A valuation allowance has not been established for the net deferred tax asset as of December 31, 1997 or 1996, due to a significant contract backlog and the availability of loss carrybacks. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income before taxes, as a result of the following differences:
1997 1996 1995 ---- ---- ---- Dollars Percent Dollars Percent Dollars Percent ------- ------- ------- ------- ------- ------- Statutory U.S. tax rates $ 6,828 35.0% $14,053 35.0% $ 7,087 35.0% Non-deductible items 528 2.7 3,017 7.5 1,829 9.0 State and local taxes (215) (1.1) 609 1.5 751 3.7 Nondeductible amortization and write- off of intangible assets 1,765 9.0 1,900 4.7 -- -- U.S. rates in excess of foreign rates and other (615) (3.1) 73 .2 (230) (1.1) ------- ------- ------- ------- ------- ------- Total provision for income taxes $ 8,291 42.5% $19,652 48.9% $ 9,437 46.6% ======= ======= ======= ======= ======= =======
F-29 44 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 12. Certain Geographic Data and Segment Information As defined by Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company operates in one industry segment which includes the development, implementation, operation and management of information systems. Services are provided through the parent company in the United States, and through a worldwide network of subsidiaries located in the United Kingdom, Germany, France, Switzerland, the Netherlands, Singapore, Hong Kong and Japan. Financial information by geographic region is as follows:
1997 1996 1995 ------------------------------------- United States: Total revenue $ 519,122 $ 365,211 $ 238,783 Operating income (5,507) 10,969 12,802 Identifiable assets at December 31 171,503 130,766 90,632 Europe and Asia: Total revenue 262,499 234,227 103,523 Operating income 23,100 30,332 8,060 Identifiable assets at December 31 95,600 101,481 39,841 Consolidated: Total revenue 781,621 599,438 342,306 Operating income 17,593 41,301 20,862 Identifiable assets at December 31 267,103 232,247 130,473
Greater than 10% of the Company's contract revenue was earned from two customers for the year ended December 31, 1997, one customer for the year ended December 31, 1996, and two customers for the year ended December 31, 1995. Revenue from these customers comprised 27% and 10% of total revenue in 1997, 28% of total revenue in 1996, and 12% and 10% of total revenue in 1995. F-30 45 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 13. Commitments and Contingencies Operating leases and maintenance agreements The Company has commitments related to data processing facilities, office space and computer equipment under non-cancelable operating leases and fixed maintenance agreements for periods ranging from one to ten years. Future minimum commitments under these agreements as of December 31, 1997 are as follows:
Year ending Lease and Maintenance December 31: Commitments ------------ ----------- 1998 $25,599 1999 20,559 2000 15,556 2001 10,783 2002 11,168 ------- Total $83,665 =======
The Company is obligated under certain operating leases for its pro rata share of the lessors' operating expenses. Rent expense was $17,958, $18,212, and $23,731 for 1997, 1996 and 1995, respectively. Letter of credit The Company had a $1,000 irrevocable letter of credit as of December 31, 1997. The letter of credit was issued in conjunction with the provisions of a certain contract. The fair value of the letter of credit is estimated to be equal to the face value based on the nature of the fee arrangements with the issuing bank. Financial instruments with off-balance sheet risk Interest rate swap In December 1993, the Company entered into an agreement with a customer to reduce future monthly billings in exchange for a non-refundable payment for work performed involving the development and installation of a major new system. Under the terms of this agreement, the F-31 46 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Company is required to make an interest sensitive payment to the customer if a defined variable interest rate ("Rate") exceeds 8.5% based upon a declining notional amount ($48,756 and $67,716 as of December 31, 1997 and 1996, respectively) over the term of the contract. If the Rate is less than 8.5%, the customer is required to pay the Company for the difference in the interest rates based upon the same declining notional amount. In January 1994, the Company entered into an interest rate swap agreement with a bank to eliminate its exposure to the interest sensitive payment. Under the terms of the swap agreement, the Company is required to pay a fixed interest rate of 7.32% to a bank in exchange for being paid the Rate. The differences to be paid or received on the interest sensitive payment and swap are included as an adjustment to direct cost of services. The Company recorded a reduction to direct cost of services of $643 and $852 for the years ended December 31, 1997 and 1996, respectively. Based on anticipated cash flows, discounted at the U.S. prime lending rate of 8.5%, the fair value of these instruments was estimated to be a $1,102 benefit as of December 31, 1997. The Company's remaining risk associated with these transactions is risk of default by the customer or the bank, which the Company believes to be remote. Foreign currency exchange forward contracts At December 31, 1997, the Company had three forward exchange contracts maturing in early 1998. Two British pound to U.S. dollar trades for $10,177 and $6,684 as of December 31, 1997 mature in February 1998 and January 1998, respectively. A third forward trade of Swiss franc to U.S. dollar totaling $8,108 matures in January 1998. The estimated fair value of the Company's forward exchange contracts using bank or market quotes and the year end foreign exchange rates was a net liability of $18 as of December 31, 1997. The Company's remaining risk associated with this transaction is the risk of default by the bank, which the Company believes to be remote. Contracts In the normal course of business, the Company provides services to its clients which may require the Company to comply with certain performance criteria. The Company believes that the ultimate liability, if any, incurred under these contracts will not have a material adverse effect on the Company's consolidated results of operations or financial position. Contingent put rights Under the terms of various stock agreements, a total of 1,463,376 shares of Class A Common Stock are subject to contingent put rights. For F-32 47 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- 600,000 and 323,376 of these shares, the holders may require the Company to repurchase the shares at fair value in the event the Company's Class A Common Stock is not publicly traded by the years 2010 and 2000, respectively. For 540,000 of these shares, the holders may require the Company to repurchase the shares at the original cost plus 8% interest, accrued from the date of purchase, in the event the holders' employment or directorship terminates. Litigation There are various claims and pending actions against the Company arising in the ordinary course of the conduct of its business. The Company believes that these claims and actions will have no material adverse effect on the Company's financial condition, results of operations or cash flow. Year 2000 The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process date fields containing a 2 digit year is commonly referred to as the Year 2000 Compliance issue. As the year 2000 approaches, such systems could be unable to accurately process certain date-based information. The Company believes it has identified all significant applications that will require modification to ensure Year 2000 Compliance and does not believe compliance with the Year 2000 requirements will have a material adverse effect on the Company's business or results of operations. The Company is performing an assessment of its obligations to make any of its clients' systems Year 2000 compliant, including an estimate of the cost and revenues to be incurred in fulfilling such obligations, and monitors this assessment on an ongoing basis. Based on such assessment, the Company does not believe that its client obligations with respect to the Year 2000 issue will have a material adverse impact on the financial position and results of operations of the Company. 14. Retirement Plan and Other Employee Trusts During 1989, the Company established the Perot Systems 401(k) Retirement Plan, a qualified defined contribution retirement plan. The plan year is January 1 to December 31 and allows eligible employees to contribute between 1% and 15% of their annual compensation, including overtime pay, bonuses and commissions. The Plan was amended effective January 1, 1996 to change the Company's contribution from 2% of the participants' defined annual compensation, to a formula matching employees' contributions at a two-thirds rate, up to a maximum Company contribution of 4%. The Company's cash contribution for the years ended December 31, 1997, 1996 and 1995 amounted to $7,388, $4,785 and $1,919, respectively. The Company's contribution of common stock for the years ended December 31, 1997, 1996 and 1995 totaled 128,795, 6,325 and 99,486 shares, respectively, which were allocated to participants' plan accounts using a formula based on compensation. Compensation expense of $631, $14, and $224, respectively, was recorded as a result of these share contributions. In 1992 the company established a European trust, for the benefit of non-U.S. based employees, to which 11,926 shares were contributed in 1995. Compensation expense of $26 was recorded in 1995 as a result of this grant. In 1996, the company contributed 162,143 shares to certain trusts established for the benefit of employees transitioning to the company pursuant to certain contracts. Compensation expense of $405 was recorded in 1996 related to these grants. F-33 48 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 15. Supplemental Cash Flow Information
1997 1996 1995 ---------- ------------ ------- Cash paid during the year for: Interest $ 1,283 $ 1,877 $ 671 ========== ============ ====== Income taxes $ 23,325 $ 28,032 $7,031 ========== ============ ====== Non-cash investing and financing activities: Issuance of common stock for acquisition of businesses $ 2,701 $ 6,545 $ -- ========== ============ ====== Issuance of stock options for acquisition of business $ 1,500 $ -- $ -- ========== ============ ====== Liabilities assumed in acquisition of businesses $ 7,693 $ 4,150 $ -- ========== ============ ====== Repurchase of shares issued under Restricted Stock Plan in exchange for reductions in notes receivable from stockholders $ 2,353 $ 225 -- ========== ============ ====== Purchase of shares financed by notes receivable from stockholders $ 1,427 $ 3,065 $ 901 ========== ============ ====== Reversal of deferred compensation $ 1,050 $ -- $ -- ========== ============ ====== Contract rights issued (cancelled) at inception and renegotiation of Swiss Bank Agreement ($ 4,146) $ 4,544 $ -- ========== ============ ====== Stock options issued for investments in and advances to unconsolidated affiliates $ -- $ 706 $ -- ========== ============ ====== Transfer of assets upon assignment of lease obligation $ -- $ -- $1,008 ========== ============ ======
F-34 49 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------- 16. Related Party Transactions During 1996 and 1997, certain officers financed the purchase of Class A Common Stock with a bank. In addition, the Company entered into an agreement with this bank under which, if the Company's Class A common shares are not publicly traded prior to the earlier of June 30, 1998 or the maturity date of the individual loans, the Company would purchase, at the bank's option, any of these loans. As of December 31, 1997, approximately $1,546 remain outstanding under these loans. All of these loans bear interest at the prime rate plus 1% (currently 9.5%) and are due at various dates between July 1, 1998 and July 22, 1999. In March 1996, the Company loaned $615 to an executive. The note bears interest at a rate of 5.98% per annum and is payable at the fifteenth anniversary of the date of the note or at an earlier date if the Company's common stock is publicly traded. In April 1997, the Company loaned an additional $2,397 to this executive. For these additional loans, up to $1,169 is collateralized by the Company's Class A common shares held by this executive and $1,000 is collateralized by a mortgage on the executive's residence. These additional loans will bear interest at the greater of 7.25% or the applicable federal rate. As of December 31, 1997, the principal balance remaining on these notes is $2,169. In July 1997, the Company repurchased 1,400,000 shares of common stock from this executive, following his resignation, through a reduction of $1,830 in outstanding notes receivable. In August 1996, an officer of the Company obtained funding in the amount of $350 from a bank. The Company entered into a third party agreement with this bank under which, if the Company's Class A common shares are not publicly traded prior to the earlier of June 30, 1998 or the maturity date of the loan, the Company will purchase the loan at the bank's option. The maturity date of this loan is February 26, 2000. In January and February 1997, the Company loaned $450 to an executive at the rate of 8%. The notes were collateralized by the executive's Class A common shares. Prior to year end, the notes and the related shares were canceled. In August 1997, the Company also loaned $250 to an executive at the rate of 8%. This note is collateralized by the executive's Class A common shares and is payable in August 2000. F-35 50 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------- A former officer of the Company has three outstanding loans totaling $349 with the Company. These loans are secured by the Company's Class A common shares held by the executive and are due by December 31, 1999. In 1996, the Company entered into an agreement with Perot Investments, Inc. ("PII") pursuant to which the Company licensed certain software from PII. The Company sublicensed such software to The Witan Company, L.P. ("Witan"). Witan paid a license fee of $1,000 directly to PII in connection with the license. The Company had a separate contract with Witan to perform development work on the licensed software. The contract was terminated in 1997. PII is an affiliate of a stockholder of the Company. 17. Earnings Per Share In 1997, the Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share", effective for fiscal years ending after December 15, 1997. SFAS 128 replaces the presentation of primary earnings per common share with basic earnings per share, with the principal difference being that common stock equivalents are not considered in computing basic earnings per share. The following chart is a reconciliation of the numerators and the denominators of the basic and diluted per-share computations. F-36 51 PEROT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------
PER-SHARE INCOME SHARES AMOUNT ------ ------ ---------- FOR THE YEAR ENDED 1995 Net income 10,813 Less preferred stock dividend (595) ------ BASIC EARNINGS PER COMMON SHARE Net income attributed to common shareholders 10,218 31,151 $ 0.33 ============== Dilutive options 2,215 ----------------- DILUTED EARNINGS PER COMMON SHARE Net income attributed to common stockholders Plus assumed conversions 10,218 33,366 $ 0.31 ============== FOR THE YEAR ENDED 1996 Net income 20,499 Less preferred stock dividend (447) ------ BASIC EARNINGS PER COMMON SHARE Net income attributed to common shareholders 20,052 37,055 $ 0.54 ============== Dilutive options 5,116 ----------------- DILUTED EARNINGS PER COMMON SHARE Net income attributed to common stockholders Plus assumed conversions 20,052 42,171 $ 0.48 ============== FOR THE YEAR ENDED 1997 Net income 11,217 Less preferred stock dividend - ------ BASIC EARNINGS PER COMMON SHARE Net income attributed to common shareholders 11,217 39,168 $ 0.29 ============== Dilutive options 8,428 ----------------- DILUTED EARNINGS PER COMMON SHARE Net income attributed to common stockholders Plus assumed conversions 11,217 47,596 $ 0.24 ==============
The effect of this accounting change on previously reported earnings per share data was as follows:
PER SHARE AMOUNTS 1996 1995 ----------------------------- Primary EPS as reported $ 0.40 $ 0.30 Effect of SFAS No. 128 0.14 0.03 ----------------------------- Basic EPS as restated $ 0.54 $ 0.33 ============================ Fully diluted EPS as reported $ 0.40 $ 0.30 Effect of SFAS No. 128 0.08 0.01 ---------------------------- Diluted EPS as restated $ 0.48 $ 0.31 ============================
F-37 52 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS All other information required by Items 10, 11, 12 and 13, is incorporated by reference to the registrant's definitive proxy statement for its Annual Meeting of Stockholders to be held on May 8, 1998, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1997. 13 53 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. (1) and (2) Financial Statements and Financial Statement Schedule The consolidated financial statements of Perot Systems Corporation and subsidiaries and the required financial statement schedule are incorporated by reference in Part II, Item 8 of this report. (3) Exhibits
Exhibit Number Description - ------ ----------- 3.1* Amended and Restated Certificate of Incorporation 3.2* Amended and Restated Bylaws 10.1* 1991 Stock Option Plan 10.2* Form Option Agreement (1991 Option Plan) 10.3* Restricted Stock Plan 10.4* Form Restricted Stock Agreement (Restricted Stock Plan) 10.5* 1996 Non-employee Director Stock Option/Restricted Stock Incentive Plan 10.6* Form Restricted Stock Agreement (Non-Employee Director Stock Option/ Restricted Stock Plan 10.7* Form Option Agreement (Non-Employee Stock Option/Restricted Stock Plan) 10.8* Advisor Stock Option/Restricted Stock Incentive Plan 10.9* Form Restricted Stock Agreement (Advisor Stock Option/Restricted Stock Plan) 10.10* Form Option Agreement (Advisor Stock Option/Restricted Stock Plan) 10.11* Stock Purchase Agreement dated as of August 20, 1992, between the Company and Meyerson Family Limited Partnership 10.12* Stock Option Grant dated as of June 27, 1995, by the Company in favor of James A. Cannavino 10.13* Employment Agreement dated as of September 16, 1995, by and between the Company and James A. Cannavino 10.14* Promissory Note dated December 18, 1995, made by James A. Cannavino in favor of the Company in the principal amount of $1,400,000 10.15* Promissory Note dated January 1, 1996, made by James A. Cannavino in favor of the Company in the principal amount of $1,500,000 10.16* Pledge Agreement made as of December 18, 1995, by James A. Cannavino in favor of the Company 10.17* Modification Agreement dated as of March 7, 1997, between the Company and James A. Cannavino 10.18* Deed of Trust dated April 15, 1997, made by James A. Cannavino in favor of the Company 10.19* Promissory note dated April 14, 1997, made by James A. Cannavino in favor of the Company 10.20* Associate Agreement dated July 8, 1996, between the Company and James Champy 10.21* Restricted Stock Agreement dated July 8, 1996, between the Company and James Champy 10.22* Letter Agreement dated July 8, 1996, between James Champy and the Company 10.23* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company 10.24* Pledge dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company 10.25* Agreement dated June17, 1996, among the Company, Guillermo Marmol and NationsBank of Texas, N.A. 10.26* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of NationsBank of Texas, N.A.
14 54 10.27* Agreement dated August 26, 1996, among the Company, Donald D. Drobny and NationsBank of Texas, N.A. 10.28* Promissory Note dated August 26, 1996, made by Donald D. Drobny in favor of NationsBank of Texas, N.A. 10.29* Promissory Note dated July 31, 1996, made by the Company in favor of NationsBank N.A. 10.30* Amended and Restated PSC Stock Option and Purchase Agreement dated as of April 24, 1997, by and between Swiss Bank Corporation and the Company 10.31* Amended and Restated Master Operating Agreement dated as of January 1, 1997, between Swiss Bank Corporation and the Company 10.32* Amended and Restated Agreement for EPI Operational Management Services dated as of January 1, 1997 10.33** Form of Stock Option Agreement for the Perot Systems Corporation 1991 Stock Option Plan 10.34*** Restricted Stock Agreement dated as of December 22, 1995, between the Company and Morton H. Meyerson 10.35*** Promissory Note in the principal amount of $187,500 dated as of January 28, 1997, made by Terry M. Ashwill payable to the Company. 10.36*** Bridge Note in the principal amount of $187,500, dated as of January 28, 1997, made by Terry M. Ashwill payable to the Company. 10.37*** Promissory Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to the Company. 10.38*** Bridge Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to the Company. 10.39*** Pledge Agreement dated as of January 28, 1997, between the Company and Terry M. Ashwill. 10.40*** Pledge Agreement dated as of February 14, 1997, between the Company and Terry M. Ashwill. 10.41*** Letter Agreement dated as of December 23, 1997, between the Company and Terry M. Ashwill. 10.42*** Letter Agreement dated as of January 4, 1997, between the Company and Terry M. Ashwill. 10.43*** Letter Agreement dated November 17, 1997, between the Company and George H. Heilmeier. 11*** Statement re Computation of Earnings Per Share 21*** Subsidiaries of the Registrant 23.1*** Consent of Coopers & Lybrand L.L.P. dated March 30, 1998. 27*** Financial Data Schedule 27.a*** Restated Financial Data Schedule for December 31, 1996 27.b*** Restated Financial Data Schedule for September 30, 1997 27.c*** Restated Financial Data Schedule for June 20, 1997 27.d*** Restated Financial Data Schedule for March 31, 1997 99(a)*** Schedule VIII -Valuation and Qualifying Accounts
*This exhibit is incorporated by reference to the Company's Form 10 Registration Statement filed with the Securities and Exchange Commission on April 30, 1997, as amended. **This exhibit is incorporated by reference to the Company's Form 10-Q filed with the Securities and Exchange Commission on November 14, 1997. ***This exhibit is filed herewith. B. There were no reports on Form 8-K filed during the fourth quarter of 1997. 15 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PEROT SYSTEMS CORPORATION Dated: March 30, 1998 By: /s/ Ross Perot ------------------------------ Ross Perot, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ ROSS PEROT Chairman, President and Chief Executive Officer (Principal Executive Officer) March 30, 1998 /s/ JAMES CHAMPY Vice President and Director March 30, 1998 /s/ TERRY ASHWILL Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) March 30, 1998 /s/ STEVE BLASNIK Director March 30, 1998 /s/ ROSS PEROT, JR. Director March 30, 1998 /s/ GEORGE H. HEILMEIER Director March 30, 1998 /s/ CARL H. HAHN Director March 30, 1998
16 56 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 3.1* Amended and Restated Certificate of Incorporation 3.2* Amended and Restated Bylaws 10.1* 1991 Stock Option Plan 10.2* Form Option Agreement (1991 Option Plan) 10.3* Restricted Stock Plan 10.4* Form Restricted Stock Agreement (Restricted Stock Plan) 10.5* 1996 Non-employee Director Stock Option/Restricted Stock Incentive Plan 10.6* Form Restricted Stock Agreement (Non-Employee Director Stock Option/Restricted Stock Plan 10.7* Form Option Agreement (Non-Employee Stock Option/Restricted Stock Plan) 10.8* Advisor Stock Option/Restricted Stock Incentive Plan 10.9* Form Restricted Stock Agreement (Advisor Stock Option/Restricted Stock Plan) 10.10* Form Option Agreement (Advisor Stock Option/Restricted Stock Plan) 10.11* Stock Purchase Agreement dated as of August 20, 1992, between the Company and Meyerson Family Limited Partnership 10.12* Stock Option Grant dated as of June 27, 1995, by the Company in favor of James A. Cannavino 10.13* Employment Agreement dated as of September 16, 1995, by and between the Company and James A. Cannavino 10.14* Promissory Note dated December 18, 1995, made by James A. Cannavino in favor of the Company in the principal amount of $1,400,000 10.15* Promissory Note dated January 1, 1996, made by James A. Cannavino in favor of the Company in the principal amount of $1,500,000 10.16* Pledge Agreement made as of December 18, 1995, by James A. Cannavino in favor of the Company 10.17* Modification Agreement dated as of March 7, 1997, between the Company and James A. Cannavino 10.18* Deed of Trust dated April 15, 1997, made by James A. Cannavino in favor of the Company 10.19* Promissory note dated April 14, 1997, made by James A. Cannavino in favor of the Company 10.20* Associate Agreement dated July 8, 1996, between the Company and James Champy 10.21* Restricted Stock Agreement dated July 8, 1996, between the Company and James Champy 10.22* Letter Agreement dated July 8, 1996, between James Champy and the Company 10.23* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company 10.24* Pledge dated June 17, 1996, made by Guillermo G. Marmol in favor of the Company 10.25* Agreement dated June 17, 1996, among the Company, Guillermo Marmol and NationsBank of Texas, N.A. 10.26* Promissory Note dated June 17, 1996, made by Guillermo G. Marmol in favor of NationsBank of Texas, N.A. 10.27* Agreement dated August 26, 1996, among the Company, Donald D. Drobny and NationsBank of Texas, N.A. 10.28* Promissory Note dated August 26, 1996, made by Donald D. Drobny in favor of NationsBank of Texas, N.A. 10.29* Promissory Note dated July 31, 1996, made by the Company in favor of NationsBank N.A. 10.30* Amended and Restated PSC Stock Option and Purchase Agreement dated as of April 24, 1997, by and between Swiss Bank Corporation and the Company 10.31* Amended and Restated Master Operating Agreement dated as of January 1, 1997, between Swiss Bank Corporation and the Company 10.32* Amended and Restated Agreement for EPI Operational Management Services dated as of January 1, 1997 10.33** Form of Stock Option Agreement for the Perot Systems Corporation 1991 Stock Option Plan 10.34*** Restricted Stock Agreement dated as of December 22, 1995, between the Company and Morton H. Meyerson 10.35*** Promissory Note in the principal amount of $187,500, dated as of January 28, 1997, made by Terry M. Ashwill payable to the Company. 10.36*** Bridge Note in the principal amount of $187,500, dated as of January 28, 1997, made by Terry M. Ashwill payable to the Company. 10.37*** Promissory Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to the Company. 10.38*** Bridge Note in the principal amount of $37,500, dated as of February 14, 1997, made by Terry M. Ashwill payable to the Company. 10.39*** Pledge Agreement dated as of January 28, 1997, between the Company and Terry M. Ashwill. 10.40*** Pledge Agreement dated as of February 14, 1997, between the Company and Terry M. Ashwill. 10.41*** Letter Agreement dated as of December 23, 1997, between the Company and Terry M. Ashwill. 10.42*** Letter Agreement dated as of January 4, 1997, between the Company and Terry M. Ashwill. 10.43*** Letter Agreement dated November 17, 1997, between the Company and George H. Heilmeier. 11*** Statement re Computation of Earnings Per Share 21*** Subsidiaries of the Registrant 23.1*** Consent of Coopers & Lybrand L.L.P. dated March 30, 1998. 27*** Financial Data Schedule 27.a*** Restated Financial Data Schedule for December 31, 1996 27.b*** Restated Financial Data Schedule for September 30, 1997 27.c*** Restated Financial Data Schedule for June 30, 1997 27.d*** Restated Financial Data Schedule for March 31, 1997 99(a)*** Schedule VIII -Valuation and Qualifying Accounts
*This exhibit is incorporated by reference to the Company's Form 10 Registration Statement filed with the Securities and Exchange Commission on April 30, 1997, as amended. **This exhibit is incorporated by reference to the Company's Form 10-Q filed with the Securities and Exchange Commission on November 14, 1997. ***This exhibit is filed herewith. EX-10.34 2 RESTRICTED STOCK AGREEMENT DATED 12/22/95 1 12/22/95 EXHIBIT 10.34 MORTON H. MEYERSON RESTRICTED STOCK RESTRICTED STOCK AGREEMENT THIS AGREEMENT, dated as of December 22, 1995, is by and between Perot Systems Corporation ("Perot Systems"), a Delaware corporation and Morton H. Meyerson ("Participant"). WITNESSETH: WHEREAS, Perot Systems has adopted the Perot Systems Corporation Restricted Stock Plan (the "Plan") to enable employees of Perot Systems and its subsidiaries to acquire shares of Common Stock, $0.01 par value, of Perot Systems ("Common Stock") in accordance with the provisions of the Plan; and WHEREAS, the Restricted Stock Committee of Perot Systems (the "Committee") has selected Participant to participate in the Plan and granted Participant the right to purchase shares of Common Stock in accordance with the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and other terms and conditions set forth in this Agreement, Perot Systems and Participant agree as follows: 1. Purchase and Sale. Subject to the terms, conditions, and restrictions set forth in this Agreement, Perot Systems hereby sells to Participant, and Participant hereby purchases from Perot Systems, for a purchase price of $1.75 per share payable contemporaneously with the execution hereof, 200,000 shares of Common Stock (such shares, together with any successor security, property or cash issued or distributed by Perot Systems or any successor entity, whether by way of merger, consolidation, share exchange, reorganization, liquidation, recapitalization, dividend or otherwise on such shares, the "Restricted Stock"). 2. Stock Repurchase. (a) Subject to Section 2(e) below, if (A) Participant voluntarily resigns from his position as a Director of Perot Systems and if Participant and Perot Systems do not reach a mutually agreeable arrangement for Participant to remain with Perot Systems or (B) the SBC Event has not occurred by September 1, 1996 (the first such event to occur the "Repurchase Event"), Perot Systems shall have the right to repurchase from the Buyer the Unvested Stock (as defined below) for the Repurchase Amount (as defined below) (the "Repurchase"). (b) Upon the occurrence of the Repurchase Event, Perot Systems shall have 30 days to give written notice (the "Repurchase Notice") to the Buyer of Perot Systems' decision to cause the Repurchase. The Repurchase Notice shall state the number of the Unvested Stock (as defined below). Subject to Section 2(c) below, the Buyer shall then have 30 days to deliver to Perot Systems stock certificates representing the number of 1 2 shares of the Unvested Stock in exchange for the payment by Perot Systems to the Buyer of the Repurchase Amount, with payment to be made by check or wire transfer of same-day funds. (d) For purposes of this Section 2, the following terms shall be defined as set forth below: (i) "SBC Event" means the occurrence of both (1) the execution by Perot Systems Corporation or its subsidiary and Swiss Bank Corporation or its subsidiary of the SBC Warburg EPI Agreement in substantially the form as provided in the December 21, 1995 draft, with such changes thereto as the officer executing the same for Perot Systems may deem appropriate, such appropriateness to be conclusively evidenced by such officer's signature thereto, and (2) to the extent that such SBC Warburg EPI Agreement contains a provision specifically permitting Swiss Bank Corporation to unwind such agreement before September 1, 1996 if approval of the Board of Governors of the Federal Reserve System is not obtained, then the expiration of such period as provided in the agreement without such an unwind, or earlier if such consent is obtained. (ii) "Repurchase Amount" means the product of (i) number of the Unvested Stock and (ii) the sum of $1.75 and interest on such $1.75 at an interest rate of 8% per annum, compounded annually, and computed from the date of this Agreement to the date of the Repurchase. (iii) "Unvested Stock" means a number of shares of Perot Systems' common stock equal to the product of (a) 200,000 minus the number of shares of Restricted Stock purchased hereunder that Participant transfers to affiliates (who may be affiliated by marriage) of employees or consultants of Perot Systems or its subsidiaries after the SBC Event and (b) 1 minus the quotient of the number of full months that Participant remains as a Director of Perot Systems commencing on the Effective Date, divided by sixty months, provided that the number of the Unvested Stock shall never be less than zero (0). (iv) "Vested Stock" means the Restricted Stock minus the Unvested Stock. (e) Notwithstanding anything in this Section 2 to the contrary, Participant shall not have voluntarily resigned from Perot Systems if his decision to resign from Perot Systems (or his inability to continue to serve Perot Systems in such capacity) is caused by one or more of the following events: (i) the death or disability of Participant or the termination of Participant by Perot Systems from his position as a Director (and disability shall occur upon the mental or physical disability of Participant that will permanently prevent Participant from performing his duties for Perot Systems); 2 3 (ii) a request to provide full-time services to the U.S. government or an agency thereof or one working for such government or agency and after consulting with Participant, Perot Systems' Board of Directors agrees to permit Participant to leave his position a Director of Perot Systems; (iii) Participant is constructively terminated from his position, such as being assigned tasks to perform work not suitable for a Director; (iv) Perot Systems requests Participant to relocate from the City of Dallas; (v) Perot Systems demands excessive travel from Participant; (vi) Perot Systems, its Board of Directors, or one of Perot Systems' officers requests Participant to engage in any conduct that is not moral or ethical or in violation of law; or (vii) the Board of Directors of Perot Systems makes a major change in corporate policy or has decided that Perot Systems should engage in a significant corporate development or transaction and Participant has voted against such decision or Participant is not present at the meeting where the decision is made; provided that (a) Participant has delivered written notice to each of the members of the Board of Directors within 5 days of the date of the Board decision (or if Participant is not present at the meeting when the decision is made, within 5 days of notice from the Board to him of its decision), requesting the Board to reverse its decision and informing the Board that he intends to resign because of such decision and (b) the Board has not reversed its decision and so informed Participant within 30 days of the receipt of the notice given by Participant. This provision will not apply to the refusal by the Board of Directors to approve a policy, development or transaction recommended by Participant. 3. Compliance with Securities Laws. Participant hereby represents and warrants that Participant has acquired the Restricted Stock for Participant's own account and not with a view to any resale or distribution thereof. Participant agrees that neither he nor any subsequent holder of the Restricted Stock will sell or otherwise transfer any shares of Restricted Stock in any way that may result in a violation of any federal or state securities laws or regulations. Participant further acknowledges and agrees that Perot Systems may require any subsequent purchaser or other transferee of shares of Restricted Stock that cannot be publicly traded to provide Perot Systems, prior to such sale or other transfer, with such representations, commitments and opinions regarding compliance with applicable securities laws and regulations as Perot Systems may deem necessary or advisable. 4. Stock Certificate. If requested by Participant, Perot Systems will issue and deliver to Participant certificates representing any shares of Vested Stock held by Participant. Perot 3 4 Systems may require that any certificates or other property representing shares of Unvested Stock remain in the possession of Perot Systems or an escrow agent designated by the Committee. Each certificate representing Vested Stock or Unvested Stock shall bear such legends as the Committee may determine to be necessary or appropriate. Whether or not certificates representing such shares have been issued or delivered, Participant shall have all the rights of a shareholder of Restricted Stock, including voting, dividend and distribution rights, with respect to all shares of Restricted Stock, both Vested Stock and Unvested Stock, held by Participant, but any and all stock and/or cash dividends (other than normal periodic cash dividends), distributions in property, or other distributions made on or in respect of the Restricted Stock, whether resulting from a subdivision, combination or reclassification of the Restricted Stock of any issuer thereof or received in exchange for Restricted Stock or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any such issuer may be a party or otherwise, and any and all cash and other property received in exchange for the Restricted Stock or received in payment of the principal of or in redemption of the Restricted Stock (either at maturity, upon call for redemption or otherwise), shall remain in the possession of Perot Systems for Unvested Stock. 5. Income Tax Withholding. Participant acknowledges and agrees that Participant shall, upon request by Perot Systems from time to time, reimburse Perot Systems for, or Perot Systems may withhold from sums otherwise payable to Participant, any amounts Perot Systems is required to remit to applicable taxing authorities as income tax withholding with respect to the Restricted Stock. If Participant fails to reimburse Perot Systems for any such amount when requested, Perot Systems shall have the right to recover that amount by selling sufficient shares of Participant's Unvested Stock. 6. Compliance with Plan. Participant acknowledges that this Agreement is entered into, and the Restricted Stock is issued, pursuant to the Plan and agrees to comply with the provisions of the Plan, as it may be amended from time to time, to the extent that such provisions are not inconsistent with the provisions of this Agreement. 7. Notices. Any notice to Perot Systems or Company that is required or permitted by this Agreement shall be addressed to the attention of the Secretary of Perot Systems at its principal office. Any notice to Participant that is required or permitted by this Agreement shall be addressed to Participant at the most recent address for Participant reflected in the appropriate records of Perot Systems. Either party may at any time change its address for notification purposes by giving the other prior written notice of the new address and the date upon which it will become effective. Whenever this Agreement requires or permits any notice from one party to another, the notice must be in writing to be effective and, if mailed, shall be deemed to have been given on the third business day after the same is enclosed in an envelope, addressed to the party to be notified at the appropriate address, properly stamped, sealed and deposited in the United States mail, and, if mailed to Perot Systems, by certified mail, return receipt requested. 4 5 8. Remedies. Perot Systems shall be entitled, in addition to any other remedies it may have at law or in equity, to temporary and permanent injunctive and other equitable relief to enforce the provisions of this Agreement. Any action to enforce the provisions of, or otherwise relating to, this Agreement may be brought in the appropriate courts in Dallas, Dallas County, Texas. 9. Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives, successors, and assigns. However, Participant shall not, and shall not have the power to, assign this Agreement or any rights relating to this Agreement without the prior written consent of Perot Systems. By signing this Agreement, Participant consents to the personal jurisdiction of such courts in any such action. 10. Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled. 11. Severability. If any provision of this Agreement is held invalid or unenforceable for any reason, the validity and enforceability of all other provisions of this Agreement shall not be affected thereby. 12. Headings. The section headings used herein are for reference and convenience only and shall not enter into the interpretation hereof. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the choice of law rules in such law. 14. Entire Agreement. This Agreement, together with the Plan and any procedures adopted by the Committee thereunder, constitutes the entire agreement between the parties hereto with respect to its subject matter and may be waived or modified only in writing. IN WITNESS WHEREOF, and intending to be legally bound hereby, Participant and a duly-authorized representative of Perot Systems have executed this Agreement as of the date first above written. PARTICIPANT PEROT SYSTEMS CORPORATION /s/ MORTON H. MEYERSON By: /s/ PETER A. ALTABEF - ---------------------------- ------------------------------------- Morton H. Meyerson Peter A. Altabef TITLE: Vice President and General Counsel 5 6 CONSENT OF SPOUSE As the spouse of Participant, I consent to be bound by this Restricted Stock Agreement and agree that this consent shall be binding on my interest under this Agreement and on my heirs, legatees and assigns. /s/ MARLENE MEYERSON --------------------------------------- SIGNATURE MARLENE MEYERSON --------------------------------------- PRINTED NAME 6 7 ATTACHMENT A NOTICE OF EXERCISE OF RIGHT TO PURCHASE SHARES OF RESTRICTED STOCK MORTON H. MEYERSON I hereby notify Perot Systems Corporation that I am exercising my right under the Restricted Stock Agreement between me and Perot Systems dated as of December 22, 1995, and purchasing 200,000 shares of Common Stock of the Corporation at $1.75 per share, of $350,000 in total, which I herewith tender in cash, by check or an executed note payable to Perot Systems Corporation. In connection with this purchase, I hereby represent to Perot Systems Corporation that I am purchasing these shares for investment and not with a view to any resale or distribution thereof. --------------------------------------- Signed --------------------------------------- Dated 7 EX-10.35 3 PROMISSORY NOTE DATED 1/28/97 1 EXHIBIT 10.35 PROMISSORY NOTE January 28, 1997 $187,500 FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot Systems Corporation, a Delaware corporation (the "Company"), or order, at the principal offices of the Company or at such other place as the holder of this Note may designate, the principal sum of $187,500 payable, along with interest calculated at eight percent per annum (8%), on or before JANUARY 28, 2000, or earlier if otherwise required pursuant to the terms of this Note. Interest, unless required to be paid earlier pursuant to the terms of this Note, will be payable annually, beginning JANUARY 28, 1998. In order to facilitate the making of payments due on this Note, Associate hereby requests the Company to make semi-monthly payroll deductions, each in the amount of $625.00, from any amount owed to him on or about the 15th and the last day of each month. The amounts so received will be debited against interest due under this Note. The Company has the right to offset amounts due under this Note against payroll payments to be made by the Company to Associate. This Note shall become immediately due and payable in full without notice or demand upon the earlier of (i) termination of Associate's employment with the Company or any subsidiary of the Company, for any reason, with or without cause, or (ii) three months after the restrictions on transfer of vested common stock set forth in Section 3(d) of the Restricted Stock Agreement of even date herewith between Associate and Company lapse. In addition, if Associate sells any of the Company common stock purchased in connection with the issuance of this Note, Associate shall, within thirty days of such sale, prepay this Note to the extent of the net proceeds of such sale, less any income taxes payable by Associate with respect to income derived from such sale. Payment of this Note is secured pursuant to a Pledge Agreement of even date herewith between PSC and Associate (the "Pledge Agreement"). Nothing in this Note shall confer upon Associate any right to continue in the employ of the Company or any subsidiary of the Company or interfere in any way with the right of the Company or any subsidiary of the Company to terminate such employment at any time. Every amount overdue under this Note shall bear interest from and after the date on which such amount first became overdue at an annual rate (compounded annually) which is the lesser of (a) two percentage points above the rate designated from time to time by NationsBank of Texas as its prime lending rate or (b) the maximum amount permitted by law. Such interest on overdue amounts under this Note shall be payable on demand and shall accrue until the obligation of Associate with respect to the payment of such interest has been discharged (whether before or after judgment). In no event shall any interest charged, collected or reserved under this Note exceed the maximum rate then permitted by applicable law and if any such payment is paid by Associate, then such excess sum shall be credited by the holder as a payment of principal. All payments by Associate under this Note shall be made without set-off or counterclaim and be free and clear and without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is imposed by law. 2 Associate agrees to pay on demand all costs of collection, including reasonable attorneys' fees, incurred by the holder in enforcing the obligations of Associate under this Note. No delay or omission on the part of the holder in exercising any right under this Note or the Pledge Agreement under which the Restricted Stock is pledged shall operate as a waiver of such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. Associate hereby waives presentment, demand, protest and notices of every kind and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person primarily or secondarily liable. This Note may be prepaid in whole or in part at any time or from time to time in the sole discretion of the holder. Any such prepayment shall be without premium or penalty. None of the terms or provisions of this Note may be waived, modified or amended except by a written instrument duly executed on behalf of the holder expressly referring to this Note and setting forth the provision so waived, modified or amended. All rights and obligations hereunder shall be governed by the laws of the State of Texas. Any action to enforce the provisions of, or otherwise relating to, this Note may be brought in the appropriate courts in Dallas County, Texas. /s/ TERRY M. ASHWILL --------------------------------- (Signature) Terry M. Ashwill --------------------------------- (Print Name of Associate) EX-10.36 4 BRIDGE NOTE DATED 1/28/97 1 EXHIBIT 10.36 BRIDGE NOTE January 28, 1997 $187,500 FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot Systems Corporation, a Delaware corporation (the "Company"), or order, at the principal offices of the Company or at such other place as the holder of this Note may designate, the principal sum of $187,500 payable, along with interest calculated at eight percent per annum (8%), on or before MARCH 31, 1997, or earlier if otherwise required pursuant to the terms of this Note. The Company has the right to offset amounts due under this Note against payroll payments to be made by the Company to Associate. This Note shall become immediately due and payable in full without notice or demand upon the termination of Associate's employment with the Company or any subsidiary of the Company, for any reason, with or without cause. Payment of this Note is secured pursuant to a Pledge Agreement of even date herewith between PSC and Associate (the "Pledge Agreement"). Nothing in this Note shall confer upon Associate any right to continue in the employ of the Company or any subsidiary of the Company or interfere in any way with the right of the Company or any subsidiary of the Company to terminate such employment at any time. Every amount overdue under this Note shall bear interest from and after the date on which such amount first became overdue at an annual rate (compounded annually) which is the lesser of (a) two percentage points above the rate designated from time to time by NationsBank of Texas as its prime lending rate or (b) the maximum amount permitted by law. Such interest on overdue amounts under this Note shall be payable on demand and shall accrue until the obligation of Associate with respect to the payment of such interest has been discharged (whether before or after judgment). In no event shall any interest charged, collected or reserved under this Note exceed the maximum rate then permitted by applicable law and if any such payment is paid by Associate, then such excess sum shall be credited by the holder as a payment of principal. All payments by Associate under this Note shall be made without set-off or counterclaim and be free and clear and without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is imposed by law. Associate agrees to pay on demand all costs of collection, including reasonable attorneys' fees incurred by the holder in enforcing the obligations of Associate under this Note. No delay or omission on the part of the holder in exercising any right under this Note or the Pledge Agreement under which the Restricted Stock is pledged shall operate as a waiver of such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. Associate hereby waives presentment, demand, protest and notices of every kind and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person primarily or secondarily liable. 2 This Note may be prepaid in whole or in part at any time or from time to time in the sole discretion of the holder. Any such prepayment shall be without premium or penalty. None of the terms or provisions of this Note may be waived, modified or amended except by a written instrument duly executed on behalf of the holder expressly referring to this Note and setting forth the provision so waived, modified or amended. All rights and obligations hereunder shall be governed by the laws of the State of Texas. Any action to enforce the provisions of, or otherwise relating to, this Note may be brought in the appropriate courts in Dallas County, Texas. /s/ TERRY M. ASHWILL ------------------------- (Signature) Terry M. Ashwill ------------------------- (Print Name of Associate) EX-10.37 5 PROMISSORY NOTE DATED 2/14/97 1 EXHIBIT 10.37 PROMISSORY NOTE --------------- February 14, 1997 $37,500 - ------- FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot Systems Corporation, a Delaware corporation (the "Company"), or order, at the principal offices of the Company or at such other place as the holder of this Note may designate, the principal sum of $37,500 payable, along with interest calculated at eight percent per annum (8%), on or before FEBRUARY 14, 2000, or earlier if otherwise required pursuant to the terms of this Note. Interest, unless required to be paid earlier pursuant to the terms of this Note, will be payable annually, beginning FEBRUARY 14, 1998. In order to facilitate the making of payments due on this Note, Associate hereby requests the Company to make semi-monthly payroll deductions, each in the amount of $125.00, from any amount owed to him on or about the 15th and the last day of each month. The amounts so received will be debited against interest due under this Note. The Company has the right to offset amounts due under this Note against payroll payments to be made by the Company to Associate. This Note shall become immediately due and payable in full without notice or demand upon the earlier of (i) termination of Associate's employment with the Company or any subsidiary of the Company, for any reason, with or without cause, or (ii) three months after the restrictions on transfer of vested common stock set forth in Section 3(d) of the Restricted Stock Agreement of even date herewith between Associate and Company lapse. In addition, if Associate sells any of the Company common stock purchased in connection with the issuance of this Note, Associate shall, within thirty days of such sale, prepay this Note to the extent of the net proceeds of such sale, less any income taxes payable by Associate with respect to income derived from such sale. Payment of this Note is secured pursuant to a Pledge Agreement of even date herewith between PSC and Associate (the "Pledge Agreement"). Nothing in this Note shall confer upon Associate any right to continue in the employ of the Company or any subsidiary of the Company or interfere in any way with the right of the Company or any subsidiary of the Company to terminate such employment at any time. Every amount overdue under this Note shall bear interest from and after the date on which such amount first became overdue at an annual rate (compounded annually) which is the lesser of (a) two percentage points above the rate designated from time to time by NationsBank of Texas as its prime lending rate or (b) the maximum amount permitted by law. Such interest on overdue amounts under this Note shall be payable on demand and shall accrue until the obligation of Associate with respect to the payment of such interest has been discharged (whether before or after judgment). In no event shall any interest charged, collected or reserved under this Note exceed the maximum rate then permitted by applicable law and if any such payment is paid by Associate, then such excess sum shall be credited by the holder as a payment of principal. All payments by Associate under this Note shall be made without set-off or counterclaim and be free and clear and without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is imposed by law. 2 Associate agrees to pay on demand all costs of collection, including reasonable attorneys fees, incurred by the holder in enforcing the obligations of Associate under this Note. No delay or omission on the part of the holder in exercising any right under this Note or the Pledge Agreement under which the Restricted Stock is pledged shall operate as a waiver of such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. Associate hereby waives presentment, demand, protest and notices of every kind and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person primarily or secondarily liable. This Note may be prepaid in whole or in part at any time or from time to time in the sole discretion of the holder. Any such prepayment shall be without premium or penalty. None of the terms or provisions of this Note may be waived, modified or amended except by a written instrument duly executed on behalf of the holder expressly referring to this Note and setting forth the provision so waived, modified or amended. All rights and obligations hereunder shall be governed by the laws of the State of Texas. Any action to enforce the provisions of, or otherwise relating to, this Note may be brought in the appropriate courts in Dallas County, Texas. /s/ TERRY M. ASHWILL ------------------------------- (Signature) Terry M. Ashwill ------------------------------- (Print Name of Associate) EX-10.38 6 BRIDGE NOTE DATED 2/14/97 1 EXHIBIT 10.38 BRIDGE NOTE ----------- February 14, 1997 $37,500 - ------- FOR VALUE RECEIVED, TERRY M. ASHWILL ("Associate"), promises to pay to Perot Systems Corporation, a Delaware corporation (the "Company"), or order, at the principal offices of the Company or at such other place as the holder of this Note may designate, the principal sum of $37,500 payable, along with interest calculated at eight percent per annum (8%), on or before APRIL 14, 1997, or earlier if otherwise required pursuant to the terms of this Note. The Company has the right to offset amounts due under this Note against payroll payments to be made by the Company to Associate. This Note shall become immediately due and payable in full without notice or demand upon the termination of Associate's employment with the Company or any subsidiary of the Company, for any reason, with or without cause. Payment of this Note is secured pursuant to a Pledge Agreement of even date herewith between PSC and Associate (the "Pledge Agreement"). Nothing in this Note shall confer upon Associate any right to continue in the employ of the Company or any subsidiary of the Company or interfere in any way with the right of the Company or any subsidiary of the Company to terminate such employment at any time. Every amount overdue under this Note shall bear interest from and after the date on which such amount first became overdue at an annual rate (compounded annually) which is the lesser of (a) two percentage points above the rate designated from time to time by NationsBank of Texas as its prime lending rate or (b) the maximum amount permitted by law. Such interest on overdue amounts under this Note shall be payable on demand and shall accrue until the obligation of Associate with respect to the payment of such interest has been discharged (whether before or after judgment). In no event shall any interest charged, collected or reserved under this Note exceed the maximum rate then permitted by applicable law and if any such payment is paid by Associate, then such excess sum shall be credited by the holder as a payment of principal. All payments by Associate under this Note shall be made without set-off or counterclaim and be free and clear and without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is imposed by law. Associate agrees to pay on demand all costs of collection, including reasonable attorneys' fees, incurred by the holder in enforcing the obligations of Associate under this Note. No delay or omission on the part of the holder in exercising any right under this Note or the Pledge Agreement under which the Restricted Stock is pledged shall operate as a waiver of such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. Associate hereby waives presentment, demand, protest and notices of every kind and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person primarily or secondarily liable. 2 This Note may be prepaid in whole or in part at any time or from time to time in the sole discretion of the holder. Any such prepayment shall be without premium or penalty. None of the terms or provisions of this Note may be waived, modified or amended except by a written instrument duly executed on behalf of the holder expressly referring to this Note and setting forth the provision so waived, modified or amended. All rights and obligations hereunder shall be governed by the laws of the State of Texas. Any action to enforce the provisions of, or otherwise relating to, this Note may be brought in the appropriate courts in Dallas County, Texas. /s/ TERRY M. ASHWILL ------------------------------- (Signature) Terry M. Ashwill ------------------------------- (Print Name of Associate) EX-10.39 7 PLEDGE AGREEMENT DATED 1/28/97 1 EXHIBIT 10.39 PLEDGE AGREEMENT This Pledge Agreement (the "Agreement") is made as of January 28, 1997, by and between Perot Systems Corporation, a Delaware corporation ("PSC"), and Terry M. Ashwill ("Pledgor"). WHEREAS, PSC has granted Pledgor the option to purchase 100,000 shares of PSC's Class A common stock pursuant to a Restricted Stock Agreement dated as of January 28, 1997 (the "Restricted Stock Agreement"); WHEREAS, PSC has extended credit to Pledgor and may extend additional credit pursuant to the terms of a Promissory Note and a Bridge Note, each of which is dated as of the date hereof and is in the amount of $187,500, for a total of $375,000, to finance the acquisition of the Restricted Stock purchased pursuant to the Restricted Stock Agreement (together the "Notes"); NOW, THEREFORE, to secure the Obligations (as defined below), Pledgor and PSC hereby agree as follows: 1. Definitions. Capitalized terms that are not otherwise defined in this Agreement have the meanings assigned to such terms in the Restricted Stock Agreement or the Notes, as appropriate. 2. Pledge of Securities. Pledgor hereby pledges and grants to PSC a security interest in the following: (a) the Restricted Stock purchased by Pledgor pursuant to the Restricted Stock Agreement, together with any other shares of capital stock of PSC that may be distributed with respect to such Restricted Stock (collectively, the "Securities"), and all rights and privileges pertaining thereto; (b) all proceeds, products, cash, securities, dividends, increases, distributions and profits received from or on the Securities (the "Proceeds"), including without limitation distributions or payments in partial or complete liquidation or redemption, or as a result of reclassifications, readjustments, reorganizations or changes in the capital structure of the issuer of the Securities; and (c) all subscriptions, warrants, options, preemptive rights and other rights issued or otherwise granted by the issuer of the Securities or any other person on or in connection with the Securities or any other item of the Collateral (as defined below); (all of such property and rights described in items (a), (b) and (c) above are herein collectively called the "Collateral"); Page 1 2 TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests, privileges and preferences appertaining to or incidental thereto, unto PSC, and its respective successors and assigns, forever, subject, however, to the terms, covenants and conditions hereinafter set forth. The security interest granted and the assignments made hereunder are made as security only and shall not subject PSC to, or transfer or in any way affect or modify, any obligation of Pledgor with respect to any of the Collateral or any transaction involving or giving rise thereto. 3. Obligations Secured. The pledge and security interest in the Collateral granted hereby secures payment and performance of the following obligations of Pledgor to PSC, whether now outstanding or incurred after the date hereof (the "Obligations"): (a) all principal, interest, fees, expenses, obligations and liabilities of Pledgor arising pursuant to or represented by the Notes; (b) all taxes, assessments, insurance premiums, brokerage fees, reasonable attorneys' fees and other expenses of sale of the Collateral; (c) Pledgor's performance of his obligations under the Notes, this Agreement and the Restricted Stock Agreement; and (d) all renewals, extensions and modifications of the indebtedness and obligations referred to in the foregoing clauses, or any part thereof. 4. Pledgor's Warranties and Indemnity. Pledgor represents, warrants and covenants to PSC (a) that Pledgor is and will be the lawful owner of the Securities, (b) that the Securities are and will remain free and clear of all liens, encumbrances and security interests other than the security interest granted by Pledgor hereunder, and (c) that Pledgor has the right and authority to pledge the Securities and otherwise to comply with the provisions hereof. If any adverse claim is asserted in respect of the Securities or any portion thereof, except such as may result from an act of PSC not authorized hereunder, Pledgor shall indemnify PSC and hold PSC harmless from and against any losses, liabilities and expenses (including reasonable counsel fees) incurred by PSC in exercising any right, power or remedy of PSC hereunder or defending, protecting or enforcing the security interests created hereunder. Any such loss, liability or expense so incurred shall be paid by Pledgor upon demand, and shall become part of the Obligations of Pledgor secured pursuant to this Agreement. Pledgor agrees to execute a stock power in blank for each certificate evidencing any of the Securities and to deliver all such Securities certificates with stock powers to PSC. PSC hereby consents to the pledge of the Securities to PSC hereunder, notwithstanding any restrictions on transfer of the Securities set forth in the Restricted Stock Agreement. 5. Negative Covenants. Pledgor covenants and agrees that, unless PSC otherwise consents in writing Pledgor will not: (a) sell, assign or transfer any rights of Pledgor in the Collateral; or (b) create any lien in, or security interest in, or otherwise encumber, the Collateral, or any part thereof, or permit the same to be or become subject to any lien, attachment, execution, sequestration, other legal or equitable process, or any encumbrance of any kind or character, except the security interest herein created in favor of PSC. 6. Dividends and Other Distributions. (a) Pledgor shall cause all non-cash dividends and distributions with respect to the Securities (including without limitation any stock dividends and any distributions made on or in respect of the Securities, whether resulting from a subdivision, Page 2 3 combination or reclassification of the Securities or received in exchange for or in respect of the Securities or any part thereof or as a result of any merger, consolidation, acquisition or other transaction) to be distributed directly to PSC, to be held by PSC as additional Collateral; and if any such distribution is made to Pledgor, he shall receive such distribution in trust for PSC and shall immediately transfer it to PSC. (b) So long as no Event of Default or Potential Default has occurred and is continuing, Pledgor shall be entitled to receive any cash dividends payable in respect of the Securities; provided that, upon receipt of any such cash dividend, Pledgor will promptly (and in any event within 30 days) pay to PSC in respect of the Obligations (to the extent of the Obligations then outstanding) the full amount of such cash dividend less any income taxes payable by Pledgor as a result of such cash dividend, and, pending such payment, such cash dividend will continue to constitute Collateral hereunder. 7. Voting Rights. So long as no Event of Default or Potential Default has occurred and is continuing, Pledgor shall be entitled to exercise any and all voting rights pertaining to the Securities for any purpose not inconsistent with the terms of the Notes or this Agreement. 8. Termination of Rights. During any period when an Event of Default has occurred and is continuing, all rights of Pledgor to receive dividends pursuant to Section 6(b) or to exercise voting rights pursuant to Section 7 shall cease and all such rights shall thereupon become vested in PSC, which shall have the sole and exclusive right and authority to dispose of the Securities and to receive dividends and exercise voting rights in respect of the Securities. Further, PSC shall have the right, during the continuance of any Event of Default, to notify and direct the issuer of the Securities to make all payments, distributions, dividends and any other distributions payable in respect thereof directly to PSC. The issuer of the Securities making any payment or distribution to PSC hereunder shall be fully protected in relying on the written statement of PSC that it then holds a security interest that entitles PSC to receive such payments and distributions. Any and all money and other property paid over to or received by PSC pursuant to the provisions of this Section 8 shall be retained by PSC as additional collateral hereunder and may be applied in accordance with the provisions hereof. 9. Rights and Remedies of PSC Upon and After Default. (a) Remedies. Upon the occurrence of an Event of Default, and in addition to any and all other rights and remedies which PSC may then have under this Agreement, the Restricted Stock Agreement, the laws of the United States or the Uniform Commercial Code, as then in effect in Texas (the "Code"), or otherwise, PSC may: (i) declare the entire unpaid balance of principal of and all accrued interest on the Obligations immediately due and payable, without notice (including notice of intention to accelerate and notice of acceleration) except as required under the Notes, demand or presentment, which are hereby waived; (ii) reduce its claim to judgment, foreclose or otherwise enforce its security interest in all or any part of the Obligations by any available judicial procedure; (iii) after notification, if any, expressly provided for herein, sell or otherwise dispose of, at the office of PSC, or elsewhere as chosen by PSC, all or Page 3 4 any part of the Collateral, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts, (it being agreed that the sale of any part of the Collateral shall not exhaust the power of sale granted hereunder, but sales may be made from time to time until all of the Collateral has been sold or until the Obligations have been paid in full), and at any such sale it shall not be necessary to exhibit the Collateral; (iv) at PSCs discretion, retain the Collateral in satisfaction of the Obligations whenever the circumstances are such that PSC is entitled to do so under the Code; (v) apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Pledgor hereby consents to any such appointment; (vi) purchase the Collateral at any public sale; (vii) purchase the Collateral at any private sale if permitted by the Code; and/or (viii) exercise the rights set forth in Section 10 hereof. (b) Sale of Securities. Pledgor recognizes that PSC may be unable to effect a public sale of any or all of the Securities by reason of certain prohibitions contained in the federal securities laws and applicable state or foreign securities laws, and thus may resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. PSC shall be under no obligation to delay a sale of any of the Securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the federal securities laws, or under applicable state securities laws, even if such issuer would agree to do so. Upon the consummation of any private or public sale, PSC shall have the right to deliver, assign, and transfer to the purchaser thereof the Securities so sold. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right of whatsoever kind, and Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. PSC shall give Pledgor notice of PSC's intention to make any such public or private sale at broker's board or on a securities exchange to the extent required hereunder or by the Code. Such notice, in case of sale at broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Securities, or that portion thereof so being sold, will first be offered for sale at such board or exchange. At any such sale the Securities may be sold in one lot as an entirety or in separate parcels, as PSC may determine. PSC shall not be obligated to make any such sale pursuant to any such notice if PSC shall determine not to do so, regardless of the fact that notice of sale of the Securities may have been given. PSC may without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Securities on credit or for future delivery, the Securities so sold may be Page 4 5 retained by PSC until the selling price is paid by the purchaser thereof, but PSC shall not incur any liability in case of the failure of such purchaser to take up and pay for the Securities so sold and, in case of any such failure, such Securities may again be sold upon like notice. PSC may also, at its discretion, proceed by a suit or suits at law, or in equity to foreclose its security interest and sell the Securities, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Securities or any part thereof, Pledgor shall execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use Pledgor's best efforts to secure the same. (c) Notification. Reasonable notification of the time and place of any public sale of the Collateral, or reasonable notification of the time after which any private sale or other intended disposition of the Collateral is to be made, shall be sent to Pledgor and to any other person entitled under the Code to notice; provided, that if the Collateral threatens to decline quickly in value, or if otherwise permitted by the Code, PSC may (but shall not be obligated to) sell or otherwise dispose of the Collateral without notification, advertisement or other notice of any kind. It is agreed that notice sent or given not less than ten calendar days prior to the taking of the action to which the notice relates is reasonable notification and notice for the purposes of this section. (d) Application of Proceeds. Upon the maturity of the Obligations or any part thereof, whether such maturity be by such terms of such instruments or through the exercise of any power of acceleration, PSC is authorized and empowered to apply any and all funds realized from the sale of the Collateral not previously credited against the Obligations first toward the payment of the costs, charges and expenses, if any, incurred in connection with the collection of such funds hereunder, and then toward the payment of the Obligations in such order as PSC, in its sole discretion, shall deem appropriate, and shall pay the balance remaining (if any) to Pledgor as prescribed by the Code or as a court of competent jurisdiction may direct. 10. Attorney-in-Fact. Pledgor hereby appoints PSC as the attorney-in-fact for Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which PSC may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, PSC shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Pledgor and included within the Collateral and to give full discharge for the same. Neither PSC nor any director or officer of the issuer of the Securities shall have any liability for the distribution to and collection of the Proceeds by PSC, but shall be fully protected in relying on the written statement of PSC as to its authorization pursuant to this paragraph. Any and all amounts collected by PSC pursuant hereto shall be applied against the Obligations in the manner that PSC shall determine, in PSC's sole and absolute discretion. Page 5 6 11. Certain Other Rights of PSC. (a) Duty of Care. PSC's only duty with respect to the Collateral shall be to exercise reasonable care to secure the safe custody thereof. PSC shall not have a duty to fix or preserve rights against prior parties to the Collateral, and shall never be liable for its failure to use diligence to collect any amount payable with respect to the Collateral, but shall be liable only to the account of Pledgor for what PSC may actually collect or receive thereon. (b) Financing Statement. PSC shall have the right at any time to execute and file this Agreement or a copy of this Agreement as a financing statement, but the failure of PSC to do so shall not impair the validity or enforceability of this Agreement. (c) Payment of Expenses. At PSC's option, PSC may discharge taxes, liens and interest, perform or cause to be performed, for and on behalf of Pledgor, any actions and conditions, obligations or covenants which Pledgor has failed or refused to perform and may pay for the repair, maintenance or preservation of any of the Collateral, and all sums so expended, including, but not limited to, attorneys' fees, court costs, agents' fee or commissions, or any other costs or expenses, shall bear interest from the date of payment at the highest legal rate and shall be deemed to constitute part of the Obligations secured by this Agreement. 12. Cumulative Rights and Remedies. All rights and remedies of PSC hereunder are cumulative of each other and of every other right or remedy which PSC may otherwise have at law or in equity or under any other contract or other writing for the enforcement of the security interest herein or the collection of the Obligations, and the exercise by PSC of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. Should Pledgor have heretofore executed or hereafter executed any other security agreement in favor of PSC in which a security interest is created as security for the debts of another or others, in respect of which Pledgor may not be personally liable, the security interest therein created and all other rights, powers and privileges vested in PSC by the terms thereof shall exist concurrently with the security interest created herein, and, in addition, all property in which PSC holds a security interest under any such other security agreement shall also be part of the Collateral hereunder, and all or any part of the proceeds of the sale or other disposition of such property may, in the discretion of PSC, be applied by PSC in accordance with the terms hereof, and of such other security agreement, or agreements, or any of them. 13. Termination. Upon payment in full by Pledgor of all Obligations in accordance with their terms, this Agreement shall terminate and PSC shall return to Pledgor all certificates evidencing the Securities (and any related stock powers) then held under this Agreement. 14. Repurchase Option. If PSC exercises its right to cancel or repurchase any of the Securities under the Restricted Stock Agreement, PSC shall be entitled to release such Securities from the pledge under this Agreement and cancel or repurchase such Securities in accordance with the terms of the Restricted Stock Agreement. Page 6 7 15. Further Assurances. Pledgor agrees to execute and deliver such further instruments and take such further actions as PSC may reasonably request from time to time to preserve or give effect to its rights under this Agreement. 16. Action by PSC. Any election, consent, waiver or other action that may be taken by PSC hereunder will be taken by the Chairman of the Board, unless Pledgor is then serving in such capacity, in which case such action will be taken by the Board. 17. Notices. Any notice to PSC that is required or permitted by this Agreement must be addressed to PSC at its principal office to the attention of the President, with a copy to the General Counsel. Any notice to Pledgor that is required or permitted by this Agreement must be addressed to Pledgor at the most recent address for Pledgor reflected in the appropriate records of PSC. Either party may at any time change its address for notification purposes by giving the other prior written notice of the new address and the date upon which it will become effective. Whenever this Agreement requires or permits any notice from one party to another, the notice must be in writing and must be sent by courier, overnight delivery service, facsimile or certified mail, return receipt requested, and such notice will be deemed to be given (a) if sent by courier, on the date actually delivered, (b) if sent by overnight delivery service, one day after being sent, (c) if sent by telecopy, on the date that confirmation of transmission is received by the sender, or (d) if sent by certified mail, on the third business day after being mailed. 18. Enforcement. This Agreement will be governed by and construed in accordance with the laws of the State of Texas, without regard to the choice of law rules thereof. PSC will be entitled, in addition to any other remedies it may have at law or in equity, to temporary and permanent injunctive and other equitable relief to enforce the provisions of this Agreement. Any action to enforce the provisions of, or otherwise relating to, this Agreement may be brought in the appropriate courts in Dallas, Dallas County, Texas, and Pledgor hereby consents to the personal jurisdiction of such courts in any such action; provided that, at the request of PSC or Pledgor, any claim or dispute arising out of or relating to this Agreement or Pledgor's employment by PSC or the termination of such employment, including any federal or state statutory claims, will be resolved without resort to the courts solely through mediation and, if mediation is not successful, through binding arbitration pursuant to the rules of the American Arbitration Association. Neither party will be liable to the other for punitive damages for any such claim or dispute. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which that party may be entitled; provided that, if Pledgor becomes liable for any such fees, costs or other disbursements, such amounts will become Obligations under the applicable Note secured by this Agreement. 19. Entire Agreement. This Agreement and the other documents and instruments specifically referenced herein constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, and except as expressly set forth herein or therein, there are no agreements or representations, written or oral, express or implied, with respect to such subject matter. No provision of this Agreement may be modified, waived or Page 7 8 discharged unless such waiver, modification or discharge is agreed to in writing signed by Pledgor and PSC. No waiver by either party hereto of any condition or provision of this Agreement to be performed by the other party will be deemed a waiver of any other provisions or conditions at the same or at any prior or subsequent time. 20. Severability. If any provision of this Agreement is held to be invalid or unenforceable for any reason, the validity and enforceability of all other provisions of this Agreement will not be affected thereby. 21. Counterparts. This Agreement may be executed in any number of multiple counterparts and by different parties on separate counterparts, all of which when taken together will constitute one and the same agreement. 22. Assignment. Pledgor may not assign this Agreement or any rights or obligations hereunder IN WITNESS WHEREOF, and intending to be legally bound, Pledgor and a duly authorized representative of PSC have executed this Agreement as of the date first above written. /s/ TERRY M. ASHWILL ---------------------------- Terry M. Ashwill, Pledgor PEROT SYSTEMS CORPORATION By: /s/ MORTON MEYERSON ------------------------- Name: Morton Meyerson ----------------------- Title: Chairman ---------------------- Page 8 EX-10.40 8 PLEDGE AGREEMENT DATED 2/14/97 1 EXHIBIT 10.40 PLEDGE AGREEMENT This Pledge Agreement (the "Agreement") is made as of February 14, 1997, by and between Perot Systems Corporation, a Delaware corporation ("PSC"), and Terry M. Ashwill ("Pledgor"). WHEREAS, PSC has granted Pledgor the option to purchase 20,000 shares of PSC's Class A common stock pursuant to a Restricted Stock Agreement dated as of February 14, 1997 (the "Restricted Stock Agreement"); WHEREAS, PSC has extended credit to Pledgor and may extend additional credit pursuant to the terms of a Promissory Note and a Bridge Note, each of which is dated as of the date hereof and is in the amount of $37,500, for a total of $75,000, to finance the acquisition of the Restricted Stock purchased pursuant to the Restricted Stock Agreement (together the "Notes"); NOW, THEREFORE, to secure the Obligations (as defined below), Pledgor and PSC hereby agree as follows: 1. Definitions. Capitalized terms that are not otherwise defined in this Agreement have the meanings assigned to such terms in the Restricted Stock Agreement or the Notes, as appropriate. 2. Pledge of Securities. Pledgor hereby pledges and grants to PSC a security interest in the following: (a) the Restricted Stock purchased by Pledgor pursuant to the Restricted Stock Agreement, together with any other shares of capital stock of PSC that may be distributed with respect to such Restricted Stock (collectively, the "Securities"), and all rights and privileges pertaining thereto; (b) all proceeds, products, cash, securities, dividends, increases, distributions and profits received from or on the Securities (the "Proceeds"), including without limitation distributions or payments in partial or complete liquidation or redemption, or as a result of reclassifications, readjustments, reorganizations or changes in the capital structure of the issuer of the Securities; and (c) all subscriptions, warrants, options, preemptive rights and other rights issued or otherwise granted by the issuer of the Securities or any other person on or in connection with the Securities or any other item of the Collateral (as defined below); (all of such property and rights described in items (a), (b) and (c) above are herein collectively called the "Collateral"); Page 1 2 TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests, privileges and preferences appertaining to or incidental thereto, unto PSC, and its respective successors and assigns, forever, subject, however, to the terms, covenants and conditions hereinafter set forth. The security interest granted and the assignments made hereunder are made as security only and shall not subject PSC to, or transfer or in any way affect or modify, any obligation of Pledgor with respect to any of the Collateral or any transaction involving or giving rise thereto. 3. Obligations Secured. The pledge and security interest in the Collateral granted hereby secures payment and performance of the following obligations of Pledgor to PSC, whether now outstanding or incurred after the date hereof (the "Obligations"): (a) all principal, interest, fees, expenses, obligations and liabilities of Pledgor arising pursuant to or represented by the Notes; (b) all taxes, assessments, insurance premiums, brokerage fees, reasonable attorneys' fees and other expenses of sale of the Collateral; (c) Pledgor's performance of his obligations under the Notes, this Agreement and the Restricted Stock Agreement; and (d) all renewals, extensions and modifications of the indebtedness and obligations referred to in the foregoing clauses, or any part thereof. 4. Pledgor's Warranties and Indemnity. Pledgor represents, warrants and covenants to PSC (a) that Pledgor is and will be the lawful owner of the Securities, (b) that the Securities are and will remain free and clear of all liens, encumbrances and security interests other than the security interest granted by Pledgor hereunder, and (c) that Pledgor has the right and authority to pledge the Securities and otherwise to comply with the provisions hereof. If any adverse claim is asserted in respect of the Securities or any portion thereof, except such as may result from an act of PSC not authorized hereunder, Pledgor shall indemnify PSC and hold PSC harmless from and against any losses, liabilities and expenses (including reasonable counsel fees) incurred by PSC in exercising any right, power or remedy of PSC hereunder or defending, protecting or enforcing the security interests created hereunder. Any such loss, liability or expense so incurred shall be paid by Pledgor upon demand, and shall become part of the Obligations of Pledgor secured pursuant to this Agreement. Pledgor agrees to execute a stock power in blank for each certificate evidencing any of the Securities and to deliver all such Securities certificates with stock powers to PSC. PSC hereby consents to the pledge of the Securities to PSC hereunder, notwithstanding any restrictions on transfer of the Securities set forth in the Restricted Stock Agreement. 5. Negative Covenants. Pledgor covenants and agrees that, unless PSC otherwise consents in writing Pledgor will not: (a) sell, assign or transfer any rights of Pledgor in the Collateral; or (b) create any lien in, or security interest in, or otherwise encumber, the Collateral, or any part thereof, or permit the same to be or become subject to any lien, attachment, execution, sequestration, other legal or equitable process, or any encumbrance of any kind or character, except the security interest herein created in favor of PSC. 6. Dividends and Other Distributions. (a) Pledgor shall cause all non-cash dividends and distributions with respect to the Securities (including without limitation any stock dividends and any distributions made on or in respect of the Securities, whether resulting from a subdivision, Page 2 3 combination or reclassification of the Securities or received in exchange for or in respect of the Securities or any part thereof or as a result of any merger, consolidation, acquisition or other transaction) to be distributed directly to PSC, to be held by PSC as additional Collateral; and if any such distribution is made to Pledgor, he shall receive such distribution in trust for PSC and shall immediately transfer it to PSC. (b) So long as no Event of Default or Potential Default has occurred and is continuing, Pledgor shall be entitled to receive any cash dividends payable in respect of the Securities; provided that, upon receipt of any such cash dividend, Pledgor will promptly (and in any event within 30 days) pay to PSC in respect of the Obligations (to the extent of the Obligations then outstanding) the full amount of such cash dividend less any income taxes payable by Pledgor as a result of such cash dividend, and, pending such payment, such cash dividend will continue to constitute Collateral hereunder. 7. Voting Rights. So long as no Event of Default or Potential Default has occurred and is continuing, Pledgor shall be entitled to exercise any and all voting rights pertaining to the Securities for any purpose not inconsistent with the terms of the Notes or this Agreement. 8. Termination of Rights. During any period when an Event of Default has occurred and is continuing, all rights of Pledgor to receive dividends pursuant to Section 6(b) or to exercise voting rights pursuant to Section 7 shall cease and all such rights shall thereupon become vested in PSC, which shall have the sole and exclusive right and authority to dispose of the Securities and to receive dividends and exercise voting rights in respect of the Securities. Further, PSC shall have the right, during the continuance of any Event of Default, to notify and direct the issuer of the Securities to make all payments, distributions, dividends and any other distributions payable in respect thereof directly to PSC. The issuer of the Securities making any payment or distribution to PSC hereunder shall be fully protected in relying on the written statement of PSC that it then holds a security interest that entitles PSC to receive such payments and distributions. Any and all money and other property paid over to or received by PSC pursuant to the provisions of this Section 8 shall be retained by PSC as additional collateral hereunder and may be applied in accordance with the provisions hereof. 9. Rights and Remedies of PSC Upon and After Default. (a) Remedies. Upon the occurrence of an Event of Default, and in addition to any and all other rights and remedies which PSC may then have under this Agreement, the Restricted Stock Agreement, the laws of the United States or the Uniform Commercial Code, as then in effect in Texas (the "Code"), or otherwise, PSC may: (i) declare the entire unpaid balance of principal of and all accrued interest on the Obligations immediately due and payable, without notice (including notice of intention to accelerate and notice of acceleration) except as required under the Notes, demand or presentment, which are hereby waived; (ii) reduce its claim to judgment, foreclose or otherwise enforce its security interest in all or any part of the Obligations by any available judicial procedure; (iii) after notification, if any, expressly provided for herein, sell or otherwise dispose of, at the office of PSC, or elsewhere as chosen by PSC, all or Page 3 4 any part of the Collateral, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts, (it being agreed that the sale of any part of the Collateral shall not exhaust the power of sale granted hereunder, but sales may be made from time to time until all of the Collateral has been sold or until the Obligations have been paid in full), and at any such sale it shall not be necessary to exhibit the Collateral; (iv) at PSC's discretion, retain the Collateral in satisfaction of the Obligations whenever the circumstances are such that PSC is entitled to do so under the Code; (v) apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Pledgor hereby consents to any such appointment; (vi) purchase the Collateral at any public sale; (vii) purchase the Collateral at any private sale if permitted by the Code; and/or (viii) exercise the rights set forth in Section 10 hereof. (b) Sale of Securities. Pledgor recognizes that PSC may be unable to effect a public sale of any or all of the Securities by reason of certain prohibitions contained in the federal securities laws and applicable state or foreign securities laws, and thus may resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. PSC shall be under no obligation to delay a sale of any of the Securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the federal securities laws, or under applicable state securities laws, even if such issuer would agree to do so. Upon the consummation of any private or public sale, PSC shall have the right to deliver, assign, and transfer to the purchaser thereof the Securities so sold. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right of whatsoever kind, and Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. PSC shall give Pledgor notice of PSC's intention to make any such public or private sale at broker's board or on a securities exchange to the extent required hereunder or by the Code. Such notice, in case of sale at broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Securities, or that portion thereof so being sold, will first be offered for sale at such board or exchange. At any such sale the Securities may be sold in one lot as an entirety or in separate parcels, as PSC may determine. PSC shall not be obligated to make any such sale pursuant to any such notice if PSC shall determine not to do so, regardless of the fact that notice of sale of the Securities may have been given. PSC may without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Securities on credit or for future delivery, the Securities so sold may be Page 4 5 retained by PSC until the selling price is paid by the purchaser thereof, but PSC shall not incur any liability in case of the failure of such purchaser to take up and pay for the Securities so sold and, in case of any such failure, such Securities may again be sold upon like notice. PSC may also, at its discretion, proceed by a suit or suits at law, or in equity to foreclose its security interest and sell the Securities, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Securities or any part thereof, Pledgor shall execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use Pledgor's best efforts to secure the same. (c) Notification. Reasonable notification of the time and place of any public sale of the Collateral, or reasonable notification of the time after which any private sale or other intended disposition of the Collateral is to be made, shall be sent to Pledgor and to any other person entitled under the Code to notice; provided, that if the Collateral threatens to decline quickly in value, or if otherwise permitted by the Code, PSC may (but shall not be obligated to) sell or otherwise dispose of the Collateral without notification, advertisement or other notice of any kind. It is agreed that notice sent or given not less than ten calendar days prior to the taking of the action to which the notice relates is reasonable notification and notice for the purposes of this section. (d) Application of Proceeds. Upon the maturity of the Obligations or any part thereof, whether such maturity be by such terms of such instruments or through the exercise of any power of acceleration, PSC is authorized and empowered to apply any and all funds realized from the sale of the Collateral not previously credited against the Obligations first toward the payment of the costs, charges and expenses, if any, incurred in connection with the collection of such funds hereunder, and then toward the payment of the Obligations in such order as PSC, in its sole discretion, shall deem appropriate, and shall pay the balance remaining (if any) to Pledgor as prescribed by the Code or as a court of competent jurisdiction may direct. 10. Attorney-in-Fact. Pledgor hereby appoints PSC as the attorney-in-fact for Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which PSC may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, PSC shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Pledgor and included within the Collateral and to give full discharge for the same. Neither PSC nor any director or officer of the issuer of the Securities shall have any liability for the distribution to and collection of the Proceeds by PSC, but shall be fully protected in relying on the written statement of PSC as to its authorization pursuant to this paragraph. Any and all amounts collected by PSC pursuant hereto shall be applied against the Obligations in the manner that PSC shall determine, in PSC's sole and absolute discretion. Page 5 6 11. Certain Other Rights of PSC. (a) Duty of Care. PSC's only duty with respect to the Collateral shall be to exercise reasonable care to secure the safe custody thereof. PSC shall not have a duty to fix or preserve rights against prior parties to the Collateral, and shall never be liable for its failure to use diligence to collect any amount payable with respect to the Collateral, but shall be liable only to the account of Pledgor for what PSC may actually collect or receive thereon. (b) Financing Statement. PSC shall have the right at any time to execute and file this Agreement or a copy of this Agreement as a financing statement, but the failure of PSC to do so shall not impair the validity or enforceability of this Agreement. (c) Payment of Expenses. At PSC's option, PSC may discharge taxes, liens and interest, perform or cause to be performed, for and on behalf of Pledgor, any actions and conditions, obligations or covenants which Pledgor has failed or refused to perform and may pay for the repair, maintenance or preservation of any of the Collateral, and all sums so expended, including, but not limited to, attorneys' fees, court costs, agents' fee or commissions, or any other costs or expenses, shall bear interest from the date of payment at the highest legal rate and shall be deemed to constitute part of the Obligations secured by this Agreement. 12. Cumulative Rights and Remedies. All rights and remedies of PSC hereunder are cumulative of each other and of every other right or remedy which PSC may otherwise have at law or in equity or under any other contract or other writing for the enforcement of the security interest herein or the collection of the Obligations, and the exercise by PSC of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. Should Pledgor have heretofore executed or hereafter executed any other security agreement in favor of PSC in which a security interest is created as security for the debts of another or others, in respect of which Pledgor may not be personally liable, the security interest therein created and all other rights, powers and privileges vested in PSC by the terms thereof shall exist concurrently with the security interest created herein, and, in addition, all property in which PSC holds a security interest under any such other security agreement shall also be part of the Collateral hereunder, and all or any part of the proceeds of the sale or other disposition of such property may, in the discretion of PSC, be applied by PSC in accordance with the terms hereof, and of such other security agreement, or agreements, or any of them. 13. Termination. Upon payment in full by Pledgor of all Obligations in accordance with their terms, this Agreement shall terminate and PSC shall return to Pledgor all certificates evidencing the Securities (and any related stock powers) then held under this Agreement. 14. Repurchase Option. If PSC exercises its right to cancel or repurchase any of the Securities under the Restricted Stock Agreement, PSC shall be entitled to release such Securities from the pledge under this Agreement and cancel or repurchase such Securities in accordance with the terms of the Restricted Stock Agreement. Page 6 7 15. Further Assurances. Pledgor agrees to execute and deliver such further instruments and take such further actions as PSC may reasonably request from time to time to preserve or give effect to its rights under this Agreement. 16. Action by PSC. Any election, consent, waiver or other action that may be taken by PSC hereunder will be taken by the Chairman of the Board, unless Pledgor is then serving in such capacity, in which case such action will be taken by the Board. 17. Notices. Any notice to PSC that is required or permitted by this Agreement must be addressed to PSC at its principal office to the attention of the President, with a copy to the General Counsel. Any notice to Pledgor that is required or permitted by this Agreement must be addressed to Pledgor at the most recent address for Pledgor reflected in the appropriate records of PSC. Either party may at any time change its address for notification purposes by giving the other prior written notice of the new address and the date upon which it will become effective. Whenever this Agreement requires or permits any notice from one party to another, the notice must be in writing and must be sent by courier, overnight delivery service, facsimile or certified mail, return receipt requested, and such notice will be deemed to be given (a) if sent by courier, on the date actually delivered, (b) if sent by overnight delivery service, one day after being sent, (c) if sent by telecopy, on the date that confirmation of transmission is received by the sender, or (d) if sent by certified mail, on the third business day after being mailed. 18. Enforcement. This Agreement will be governed by and construed in accordance with the laws of the State of Texas, without regard to the choice of law rules thereof. PSC will be entitled, in addition to any other remedies it may have at law or in equity, to temporary and permanent injunctive and other equitable relief to enforce the provisions of this Agreement. Any action to enforce the provisions of, or otherwise relating to, this Agreement may be brought in the appropriate courts in Dallas, Dallas County, Texas, and Pledgor hereby consents to the personal jurisdiction of such courts in any such action; provided that, at the request of PSC or Pledgor, any claim or dispute arising out of or relating to this Agreement or Pledgor's employment by PSC or the termination of such employment, including any federal or state statutory claims, will be resolved without resort to the courts solely through mediation and, if mediation is not successful, through binding arbitration pursuant to the rules of the American Arbitration Association. Neither party will be liable to the other for punitive damages for any such claim or dispute. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which that party may be entitled; provided that, if Pledgor becomes liable for any such fees, costs or other disbursements, such amounts will become Obligations under the applicable Note secured by this Agreement. 19. Entire Agreement. This Agreement and the other documents and instruments specifically referenced herein constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, and except as expressly set forth herein or therein, there are no agreements or representations, written or oral, express or implied, with respect to such subject matter. No provision of this Agreement may be modified, waived or Page 7 8 discharged unless such waiver, modification or discharge is agreed to in writing signed by Pledgor and PSC. No waiver by either party hereto of any condition or provision of this Agreement to be performed by the other party will be deemed a waiver of any other provisions or conditions at the same or at any prior or subsequent time. 20. Severability. If any provision of this Agreement is held to be invalid or unenforceable for any reason, the validity and enforceability of all other provisions of this Agreement will not be affected thereby. 21. Counterparts. This Agreement may be executed in any number of multiple counterparts and by different parties on separate counterparts, all of which when taken together will constitute one and the same agreement. 22. Assignment. Pledgor may not assign this Agreement or any rights or obligations hereunder. IN WITNESS WHEREOF, and intending to be legally bound, Pledgor and a duly-authorized representative of PSC have executed this Agreement as of the date first above written. /s/ TERRY M. ASHWILL ------------------------- Terry M. Ashwill, Pledgor PEROT SYSTEMS CORPORATION By:/s/ MORTON MEYERSON ---------------------- Name: Morton Meyerson Title: Chairman of the Board Page 8 EX-10.41 9 LETTER AGREEMENT DATED 12/23/97 1 EXHIBIT 10.41 December 23, 1997 Mr. Terry Ashwill 29 Windsor Ridge Frisco, Texas 75034 Dear Terry: Effective as of December 12, 1997, Perot Systems Corporation ("PSC") and you hereby agree to the following: (i) the purchase by PSC of 120,000 restricted shares (the "Restricted Shares") of PSC's Class A Common Stock, par value $.01 per share (the "Common Stock"), owned by you, (ii) the issuance to you of options to purchase 120,000 shares of Common Stock and (iii) the amendment of the vesting schedule and certain other terms of the existing stock option agreement (the "Existing Agreement") dated January 28, 1997, between PSC and you. These transactions are being be consummated on the following terms and conditions: 1. Perot Systems hereby purchases from you the Restricted Shares for $481,364.39 (the "Purchase Price"), which represents the price you paid for the shares plus 8% interest from the date of purchase. The Purchase Price will be paid by (i) issuing a check to you within 14 days of the execution by you of this letter agreement in the amount of $6,875 and (ii) offsetting against the Purchase Price the current principal balance and accrued interest on the following notes (collectively, the "Notes"): (a) Promissory Note dated January 28, 1997 in the principal amount of $187,500 made by you in favor of PSC (b) Bridge Note dated January 28, 1997 in the principal amount of $187,500 made by you in favor of PSC (c) Promissory Note dated February 14, 1997 in the principal amount of $37,500 made by you in favor of PSC (d) Bridge Note dated February 14, 1997 in the principal amount of $37,500 made by you in favor of PSC. As a result of these transactions, the Notes will be deemed paid in full and, as soon as practicable following the consummation of these transactions, will be so marked and returned to you. 2. You will execute a stock power or endorse your certificate in blank, as requested by PSC, to effect the transfer of the Restricted Shares to the Company. 3. The vesting schedule set forth as Attachment A to the Existing Agreement is hereby amended to read in its entirety as set forth on Exhibit 1. Section 3(d) of the Existing Agreement is hereby amended in its entirety to read as follows: 2 Mr. Terry Ashwill December 23, 1997 Page 2 (d) Shares of Purchased Stock may not be sold or otherwise transferred without the written consent of the underwriters of the initial underwritten public offering of Common Stock registered under the Securities Act, for the longer of (i) six months after the Common Stock is listed on a registered national securities exchange or approved for quotation in the NASDAQ system and (ii) for the same period, and under the same conditions, as the Underwriters request from the top five executive officers of Perot Systems (as designated by the Chief Executive Officer of Perot Systems) as a group. 4. PSC will issue you options to purchase 120,000 shares of Common Stock under PSC's 1991 Stock Option Plan pursuant to a Stock Option Agreement in the form of Exhibit 2. A Prospectus relating to the 1991 Stock Option Plan is included in this package for your benefit. 5. Each of the Restricted Stock Agreements and Pledge Agreements dated January 28, 1997 and February 14, 1997 between PSC and you will be of no further force and effect upon the consummation of the transactions contemplated by this letter agreement. 6. PSC makes no representations or warranties to you in connection with the repurchase of the Restricted Shares. If you agree with the foregoing, please sign both copies of this letter in the space provided below and return them to me at your earliest convenience. Sincerely yours, PEROT SYSTEMS CORPORATION By: /s/ PETER A. ALTABEF ----------------------- Peter A. Altabef General Counsel ACCEPTED AND AGREED: /s/ TERRY M. ASHWILL - -------------------------- Terry M. Ashwill - -------------------------- December 29, 1997 - -------------------------- Date 3 Exhibit 1 AMENDED ATTACHMENT A TO STOCK OPTION AGREEMENT FOR TERRY M. ASHWILL 1. Purchase Price: $3.75 per Share. 2. Expiration Date: January 29, 2008 unless earlier terminated under Section 2(a) or 2(d). 3. Vesting Schedule:
Vesting Dates Number of Dates Certain Options Vesting ------------- ---------------- January 28, 1998 40,000 January 28, 1999 40,000 January 29, 2000 40,000 January 28, 2001 40,000 January 28, 2002 40,000 January 28, 2003 30,000 ------
Total 230,000 ======= 4 Exhibit 2 Perot Systems Corporation 1991 Stock Option Plan STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of December 12, 1997, is by and between Perot Systems Corporation ("Perot Systems"), a Delaware corporation, and Terry M. Ashwill ("Participant"). WITNESSETH: WHEREAS, Perot Systems has adopted the Perot Systems Corporation 1991 Stock Option Plan (the "Plan") to enable employees of Perot Systems and its majority-owned subsidiaries to acquire shares of Class A common stock, $0.01 par value, of Perot Systems ("Common Stock") in accordance with the provisions of the Plan; and WHEREAS, the Committee of the Board of Directors of Perot Systems appointed to administer the Plan (the "Committee") has selected Participant to participate in the Plan and has determined to grant Participant the right and option to purchase shares of Common Stock in accordance with the terms and conditions of this Agreement, provided, that if any change is made in the shares of Common Stock (including, but not limited to, by stock dividend, stock split, or merger or consolidation, but not including the issuance of additional shares for consideration), the Board of Directors or the Committee, will make such adjustments in the number and kind of shares (which may consist of shares of a surviving corporation to a merger) that may thereafter be optioned and sold under the Plan and the number and kind of shares (which may consist of shares of a surviving corporation to a merger) and purchase price per share of shares subject to outstanding Stock Option Agreements under the Plan as the Board of Directors or the Committee determines are equitable to preserve the respective rights of the Participants under the Plan. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and other terms and conditions set forth in this Agreement, Perot Systems and Participant agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms have the meanings indicated: (a) "Company" means Perot Systems and its majority-owned subsidiaries. (b) "Confidential Information" means all written, machine-reproducible, oral and visual data, information and material, including but not limited to business, financial and technical information, computer programs, documents and records (including those that Participant develops in the scope of his or her employment) that (i) the Company or any of its customers or suppliers treats as proprietary or confidential through markings or otherwise, (ii) relates to the Company or any of its customers or suppliers or any of their business activities, products or services (including software programs and techniques) and is competitively sensitive or not generally known in the relevant trade or industry, or (iii) derives independent economic value from not 1 5 being generally known to, and is not readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. Confidential Information does not include any information or material that is approved by Perot Systems for unrestricted public disclosure. (c) "Expiration Date" means the date and time as of which the Option expires, which is the earlier of (i) the close of business on the date one year after the entire Option has Vested or (ii) the date and time as of which all rights to exercise the Option are terminated under Section 2(d). (d) "Market Value" of a share of Purchased Stock on a given date means (i) if the Purchased Stock is Publicly Traded, the closing sale price for Purchased Stock, as determined in good faith by the Board of Directors, on such date or, if no closing sale price is available for such date, on the most recent prior date for which a closing sale price is available or, if no closing sale price is available, the closing bid price, as so determined, on such date or, if no closing bid price is available for such date, the closing bid price on the most recent prior date for which a closing bid price is available, or (ii) if the Purchased Stock is not Publicly Traded, its fair market value, as determined in good faith by the Board of Directors, as of the most recent Valuation Date on or before such date. (e) "Net Investment Proceeds," with respect to any share of Purchased Stock sold or otherwise transferred by Participant or Participant's successor in interest, means the greater of the value of the gross proceeds received for such share or the Market Value of such share on the date of sale or transfer less, in either case, (i) the exercise price of the Option for such share plus simple interest on such amount at the rate of 8% per annum to the date of the sale or transfer, (ii) any reasonable and customary commission paid for the sale or transfer, and (iii) the verified amount of any income taxes paid or payable on the sale or transfer. (f) "Option" means the right and option evidenced by this Agreement. (g) "Publicly Traded" means Purchased Stock has been listed on a registered national securities exchange or approved for quotation in the National Association of Securities Dealers Automated Quotation ("NASDAQ") system. (h) "Purchased Stock" means any Common Stock purchased upon the exercise of this Option, together with any successor security, property or cash issued or distributed by Perot Systems or any successor entity, whether by way of merger, consolidation, share exchange, reorganization, liquidation, recapitalization or otherwise. (i) "Termination for Substantial Misconduct" means termination of employment for a felony conviction of the Participant; actions involving moral turpitude, theft, or dishonesty in a material matter; breach of any obligation under Section 5 of this Stock Option Agreement; or failure by Participant to carry out the directions, instructions, policies, rules, regulations, or decisions of the Board of Directors of 2 6 Perot Systems including, without limitation, those relating to business ethics and the ethical conduct of the business of the Company. (j) "Transfer" or "transfer" or derivations thereof includes any sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition. (k) "Valuation Date" means each June 30 and December 31 of every year, beginning on January 1, 1991, and any other date as of which the Board of Directors determines the Market Value of Purchased Stock. (l) "Vesting" or "vesting" or derivations thereof with respect to any Option issued under this Agreement, means receiving the right to exercise the Option. (m) "Vesting Period" means the period of time commencing on the date of this Agreement and ending on the date on which the entire Option has Vested. 2. Grant of Option; Purchase of Stock. (a) Subject to the terms, conditions, and restrictions set forth in the Plan and in this Agreement, Perot Systems hereby grants to Participant, and Participant hereby accepts from Perot Systems, the option to purchase from Perot Systems the number of shares of Common Stock specified on Attachment A hereto, at the purchase price so specified, which option will Vest in Participant in accordance with the Vesting Schedule set forth on Attachment A hereto. The Option shall only continue to Vest only for as long as Participant is an employee of Company, unless the Committee, in its sole discretion, agrees in writing otherwise. Participant will have the right to exercise the Vested Option and purchase Common Stock after the Option Vests as provided in Section 2(d) below. (b) The purchase price of shares as to which the Option is exercised must be paid to Perot Systems at the time of the exercise either in cash or in such other consideration as the Committee may approve having a total fair market value, as determined by the Committee, equal to the purchase price, or a combination of cash and such other consideration. (c) The Committee may elect to assist Participant in satisfying an obligation to pay or withhold taxes required as a result of the exercise of this Option by accepting shares of Purchased Stock at Market Value to satisfy the tax obligation. The shares of Purchased Stock accepted may be either shares withheld upon the exercise of this Option or other shares already owned by Participant. In determining whether to approve acceptance of Purchased Stock to satisfy such a tax obligation, the Committee may consider whether the shares proposed to be delivered are subject to any holding period or other restrictions on transfer and may waive or arrange for the waiver of any such restrictions. 3 7 (d) The Option is only exercisable as to Vested Options. Once Vested, the Option may be exercised until the Expiration Date, provided, however, (i) if the Participant ceases to be an employee for any reason other than death, the Option may be exercised only for sixty days after the date of cessation of employment, and in any case no later than the Expiration Date, and (ii) if the Participant ceases to be an Employee because of death of the Participant, the Option may be exercised by the Participant's estate only for two years after the Participant's Death and in any case no later than the Expiration Date. 3. Restrictions on Transfer. The following restrictions on transfer apply unless the Committee otherwise agrees in writing or unless the transfer is by will or the laws of descent and distribution upon Participant's death: (a) The Option may not be sold or otherwise transferred and is exercisable only by Participant during Participant's lifetime. (b) One-half of the shares of Purchased Stock purchased on any day may not be sold or otherwise transferred for two years after purchase. (c) Shares of Purchased Stock may not be sold or otherwise transferred unless the holder has given Perot Systems any notice required under Section 4(a) and Perot Systems has waived in writing any right it has to buy back the shares under Section 4(a). (d) Shares of Purchased Stock may not be sold or otherwise transferred without the written consent of the underwriters of the initial underwritten public offering of Common Stock registered under the Securities Act, for the longer of (i) six months after the Common Stock is listed on a registered national securities exchange or approved for quotation in the NASDAQ system and (ii) for the same period, and under the same conditions, as the underwriters request from the top five executive officers of Perot Systems (as designated by the Chief Executive Officer of Perot Systems) as a group. Perot Systems is not obligated to recognize any purported sale or other transfer of the Option or any Purchased Stock in violation of this Section 3 and, unless it elects to do otherwise, may treat any such purported sale or transfer as null, void, and of no effect. 4. Rights to Buy Back Purchased Stock and to Require Payback of Certain Profits. (a) At any time before the Purchased Stock is Publicly Traded, if Participant or any subsequent holder of shares of Purchased Stock desires or is obligated to sell or otherwise transfer any such shares (including any distribution to heirs or other beneficiaries of Participant's estate), the holder is required to give Perot Systems written notice of the proposed sale or transfer, including notice of the proposed purchaser or transferee, and, for a period of 30 days after receipt of such notice, Perot Systems will have the right to buy back such shares for cash at a purchase price equal to the price per share paid by Participant for the shares plus simple interest on 4 8 such amount at the rate of 8% per annum from the date of payment by Participant to the date of tender of payment by Perot Systems is set forth in Section 4(c) below. (b) If the Committee discovers that Participant has engaged in any conduct prohibited by Section 5 or if Participant ceases to be employed by the Company and the Committee, in its sole discretion, determines that Participant's cessation of employment resulted from a Termination for Substantial Misconduct or would have resulted in a Termination for Substantial Misconduct had the relevant facts been known at the time of Participant's cessation of employment, Perot Systems will have the right for 150 days after the Committee discovers the relevant facts to cancel any unexercised Option, whether or not Vested, and to buy back from Participant any shares of Purchased Stock then owned by Participant, at a purchase price equal to the price per share paid by Participant for the shares plus simple interest on such amount at the rate of 8% per annum from the date of payment by Participant to the date of tender of payment by Perot Systems as set forth in Section 4(c) below, and the right to require Participant to pay back to Perot Systems in cash the Net Investment Proceeds with respect to any shares of Purchased Stock that have been sold or otherwise transferred by Participant. (c) Whenever Perot Systems has a right to buy back shares of Purchased Stock or to require Participant to pay back to Perot Systems Participant's Net Investment Proceeds with respect to any shares of Purchased Stock under this Section 4, Perot Systems may exercise its right by notifying Participant or the subsequent holder of Perot Systems' election to exercise its right within the designated exercise period. In the case of a buyback under Section 4(a) or Section 4(b), the giving of such notice will give rise to an obligation on the part of Participant or the subsequent holder to tender to Perot Systems, within 10 days, any previously issued certificate representing shares of Purchased Stock to be bought back, duly endorsed in blank or having a duly executed stock power attached in proper form for transfer. If any such certificate is not tendered within 10 days, Perot Systems may cancel any outstanding certificate representing shares to be bought back. Perot Systems is required to tender the purchase price for shares to be bought back under this Section 4 within 20 days of giving notice of its election to exercise its right to buy back shares. If the person from whom the shares are to be bought back has not complied with an obligation to return a certificate representing shares to be bought back, however, Perot Systems is not required to tender the purchase price until 20 days after the certificate is returned or 20 days after it cancels the certificate, whichever occurs first. 5. Competition and Non-Disclosure. Participant acknowledges that: (i) in the course and as a result of employment with the Company, Participant will obtain special training and knowledge and will come in contact with the Company's current and potential customers, which training, knowledge, and contacts would provide invaluable benefits to competitors of the Company; (ii) the Company is continuously developing or receiving Confidential Information, and that during Participant's employment he or she will receive Confidential Information from the Company, its customers and suppliers and special training related to the Company's business methodologies; and (iii) Participant's employment by Company 5 9 creates a relationship of trust that extends to all Confidential Information that becomes known to Participant. Accordingly, and in consideration of Perot Systems' granting this Option to Participant, Participant agrees that Perot Systems will be entitled to terminate all rights to exercise the Option and to exercise the rights specified in Section 4 above if Participant does any of the following without the prior written consent of the Company: (a) while employed by the Company or within one year thereafter: (i) competes with, or engages in any business that is competitive with, the Company within 250 miles of any location at which Participant was employed by or provided services to the Company; (ii) solicits or performs services, as an employee, independent contractor, or otherwise, for any person (including any affiliates or subsidiaries of that person) that is or was a customer or prospect of the Company during the two years before Participant's employment with the Company ended if Participant solicited business from or performed services for that customer or prospect while employed by Company or (iii) recruits, hires, or helps anyone to recruit or hire anyone who was an employee of Perot Systems, or of any of its customers for whom Participant performed services of from whom Participant solicited business, within the six months before Participant's employment with the Company ended; or (b) discloses or uses any Confidential Information, except in connection with the good faith performance of Participant's duties as an employee; or fails to take reasonable precautions against the unauthorized disclosure or use of Confidential Information; or fails, upon Perot Systems' request, to execute and comply with a third party's agreement to protect its confidential and proprietary information, or solicits or induces the unauthorized disclosure or use of Confidential Information. If any court of competent jurisdiction finds any provision of this Section 5 to be unreasonable, then that provision shall be considered to be amended to provide the broadest scope of protection to the Company that such court would find reasonable and enforceable. 6. Compliance with Securities Laws, Participant hereby agrees that upon demand by Perot Systems, any person exercising this Option, at the time of such exercise, will deliver to Perot Systems a written representation to the effect that the shares of Purchased Stock being acquired are being acquired for investment and not with a view to any resale or distribution thereof. Participant further agrees that neither Participant nor any successor in interest of Participant will sell or otherwise transfer the Option or any shares of Purchased Stock in any way that might result in a violation of any federal or state securities laws or regulations. Participant further acknowledges and agrees that Perot Systems may require Participant or any subsequent holder of the Option or of any shares of Purchased Stock to provide Perot Systems, prior to any sale or other transfer, with such other representations, commitments, 6 10 and opinions regarding compliance with applicable securities laws and regulations as Perot Systems may deem necessary or advisable. 7. Stock Certificates: Rights as Shareholder. Perot Systems will retain for safekeeping all certificates representing shares of Purchased Stock. Each such certificate will bear such legends as the Committee determines are necessary or appropriate. Whether or not certificates representing shares of Purchased Stock have been issued or delivered, Participant will have all the rights of a shareholder of Purchased Stock, including voting, dividend and distribution rights, with respect to shares of Purchased Stock owned by Participant. Participant will not have any rights as a shareholder with respect to any shares of Purchased Stock subject to the Option before the date of issuance to Participant of shares upon exercise of the Option. 8. Income Tax Withholding. Participant shall, upon request by the Company, reimburse the Company for, or the Company may withhold from sums or property otherwise due or payable to Participant, any amounts the Company is required to remit to applicable taxing authorities as income tax withholding with respect to the Option or any Purchased Stock. If shares of Purchased Stock are withheld for such purpose, they will be withheld at Market Value. If Participant fails to reimburse the Company for any such amount when requested, the Company has the right to recover that amount by selling or canceling sufficient shares of any Purchased Stock held by Participant. 9. Compliance with Plan. Participant acknowledges receipt of a copy of the Plan and further acknowledges that this Agreement is entered into, and the Option is granted, pursuant to the Plan. If the provisions of the Plan are inconsistent with the provisions of this Agreement, the provisions of the Plan supersede the provisions of this Agreement. 10. Notices. Any notice to Perot Systems or the Company that is required or permitted by this Agreement shall be addressed to the attention of the Secretary of Perot Systems at its principal office. Any notice to Participant that is required or permitted by this Agreement shall be addressed to Participant at the most recent address for Participant reflected in the appropriate records of the Company. Either party may at any time change its address for notification purposes by giving the other written notice of the new address and the date upon which it will become effective. Whenever this Agreement requires or permits any notice from one party to another, the notice must be in writing to be effective and, if mailed, shall be deemed to have been given on the third business day after the same is enclosed in an envelope, addressed to the party to be notified at the appropriate address, properly stamped, sealed, and deposited in the United States mail, and, if mailed to the Company, by certified mail, return receipt requested. 11. Remedies. Perot Systems is entitled, in addition to any other remedies it may have at law or in equity, to temporary and permanent injunctive and otherwise equitable relief to enforce the provisions of this Agreement. Any action to enforce the provisions of, or other relating to, this Agreement may be brought in the state or federal courts having jurisdiction in Dallas, Dallas County, Texas. By signing this Agreement, Participant consents to the personal jurisdiction of such courts in any such action. 7 11 12. Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives, successors, and assigns. However, Participant does not have the power or right to assign this Agreement without the prior written consent of Perot Systems. 13. Attorneys' Fees. If any legal proceeding is brought to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled. 14. Severability. If any provision of this Agreement is held invalid or unenforceable for any reason, the validity and enforceability of all other provisions of this Agreement will not be affected. 15. Headings. The section headings used herein are for reference and convenience only and do not affect the interpretation of this Agreement. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of Texas, without regard to the choice of law rules in such law. 17. Entire Agreement. This Agreement, together with the Plan and any procedure adopted by the Committee thereunder, constitutes the entire agreement between the parties with respect to its subject matter and may be waived or modified only in writing. IN WITNESS WHEREOF, and intending to be legally bound hereby, Participant and a duly authorized representative of Perot Systems have executed this Agreement as of the date first above written. PARTICIPANT PEROT SYSTEMS CORPORATION By: --------------------------- --------------------------------- Signature Title: Chairman of the Board - ------------------------------ Printed Name 8 12 CONSENT OF SPOUSE As the spouse of Participant, I consent to be bound by this Stock Option Agreement and agree that this consent shall be binding on my interest under this Agreement and on my heirs, legatees, and assigns. -------------------------------- Signature -------------------------------- Printed Name 9 13 ATTACHMENT A TO STOCK OPTION AGREEMENT FOR TERRY M. ASHWILL 1. Purchase Price: $6.75 per Share. 2. Expiration Date: January 28, 2008, unless earlier terminated under Section 2(a) or 2(d) 3. Vesting Schedule:
Vesting Dates Number of Dates Certain Options Vesting ------------- --------------- January 28, 2004 30,000 January 28, 2005 30,000 January 28, 2006 30,000 January 28, 2007 30,000 ------ TOTAL 120,000 =======
EX-10.42 10 LETTER AGREEMENT DATED 1/4/97 1 EXHIBIT 10.42 [PEROT SYSTEMS CORPORATION LETTERHEAD] January 4, 1997 Mr. Terry Ashwill 255 15 North Forest Road Unit 16 Rio Verde, AZ 85263 Dear Terry: It is my sincere pleasure to extend an offer of employment to you for the position of Chief Financial Officer, effective as soon as practicable in January 1997. This offer of employment includes a base salary of $29,167.00 per month. You will also be eligible for an annual incentive bonus as an executive, payable in February, 1998. Your target plan bonus for 1997 is 25% of base pay, subject to adjustment up or down based on company and individual performance. In addition, in light of your potential to contribute to the long-term success of Perot Systems Corporation, upon signing an Associate Agreement you will be granted 300,000 stock options to purchase shares of Perot Systems stock, vesting annually over ten years and 50,000 stock options vesting annually over 5 years. Details outlining the Perot Systems Stock Option Plan and your stock option agreement, which govern the terms and conditions of the grant, will be distributed under separate cover. If you wish, you may instead purchase restricted stock instead of receiving options, provided that you purchase the shares in January 1997. 2 Mr. Terry Ashwill January 4, 1997 Page 2 We will also offer to you a special termination provision if you leave Perot Systems for certain reasons during your first 2 years with us. This will apply (a "Triggering Event") if during this two year period (a) you terminate your employment with Perot Systems and you neither (I) within twelve months from the termination, work for a competitor of Perot Systems, or (II) within six months from the termination, work for a company with which you had discussions or communications (directly or through third parties) concerning or relating to employment while you were employed at Perot Systems or (b) you are terminated by Perot Systems other than for Cause. Cause means termination of employment for a felony conviction, actions involving moral turpitude, theft, or dishonesty in a material matter; or material breach of your obligations to maintain information on a confidential basis. The protection you will receive is as follows: If a Triggering Event occurs during the first two years of your employment with Perot Systems, so many shares or options up to 50,000 shares/options of Perot Systems stock (the "Triggering Event Shares") will vest under the option or restricted stock agreements mentioned above, regardless of whether such shares would otherwise have vested under the normal ten year and five year prorata vesting schedules under those agreements, if such shares are required so that, on the Measurement Date, the Value of the Triggering Event Shares is $1,500,000. The Measurement Date will be the third anniversary of your effective date of employment with Perot Systems. The Value will be (a) if Perot Systems shares are listed on a registered national securities exchange or approved for quotation on the 3 Mr. Terry Ashwill January 4, 1997 Page 3 National Association of Securities Dealers Automated Quotation ("NASDAQ") system, the closing sale price of such shares on such date, as determined in good faith by Perot Systems, or if no closing sale price is available for such date, on the most recent prior date for which a closing sale price is available or, if no closing sale price is available, the closing bid price, as so determined, on such date, or, if no closing bid price is available for such date, the closing bid price on the most recent prior date for which a closing bid price is available, or (ii) if the shares are not so publicly traded, the fair market value, as determined in good faith by the Board of Directors, as of the most recent Perot Systems appraisal, provided that such appraisal will not discount the value of the stock because it is not publicly traded. The protection above is in addition to, and does not otherwise affect, the normal ten year and five year prorata vesting provided by the stock/option agreements. As an example, if a Triggering Event occurs prior to your first year anniversary with Perot Systems, you will not have vested any shares/options and the maximum amount of "protection" shares/options available to you will be 50,000. If a Triggering Event occurs between your first anniversary and your second anniversary with Perot Systems, and you will otherwise have vested 40,000 shares/options under the normal ten year and five year prorata provisions of the contract, the maximum amount of "protection" shares/options available to you will be 10,000. In the event that such 40,000 shares/options vested during that year but are repurchased due to violation of the standard provisions of those agreements but which otherwise does not violate this letter, then the maximum number of "protection" shares/options available to you will be 50,000. 4 Mr. Terry Ashwill January 4, 1997 Page 4 The company sponsored benefits plan includes medical, vision and dental benefits, life insurance, short term and long term disability insurance, 401(k) plan, tuition reimbursement, and Flexible Spending Accounts. In addition to the above, during your first year with Perot Systems, Perot Systems will reimburse you for up to $4,000 (on an after tax basis) in personal finance expertise assistance. In connection with your relocation to Dallas, Perot Systems agrees to purchase your current personal residence at terms consistent with the Perot Systems executive relocation program. This will include transportation of your personal household items to Dallas, up to 90 days storage for those items, and insurance during this move and storage. Perot Systems will also reimburse you for temporary living expenses in Dallas during this ninety day period. Perot Systems will not require you to relocate from Dallas. This offer is for employment at will, which means that either you or Perot Systems can terminate the employment at any time, with or without cause, and is contingent upon execution of an Associate Agreement. 5 Mr. Terry Ashwill January 4, 1997 Page 5 The terms and conditions of this offer shall override any conflicting language in any Perot Systems stock or option plans or agreements or other related documents, with respect to matters specifically addressed in this offer letter. Perot Systems will consult with you on the form and content of any public announcement of your joining Perot Systems, and will only issue the public announcement after receiving your consent to the timing and the final form and content of the announcement. I trust that you will accept this offer to become Chief Financial Officer of Perot Systems. I look forward to working with you. Sincerely yours, Acceptance: /s/ PETER A. ALTABEF /s/ TERRY ASHWILL ------------------------------ Peter A. Altabef Terry Ashwill Perot Systems Corporation January 10, 1997 ------------------------------ Date EX-10.43 11 LETTER AGREEMENT DATED 11/17/97 1 EXHIBIT 10.43 [PEROTSYSTEMS LETTERHEAD] November 17, 1997 Dr. George H. Heilmeier Chairman and CEO Bellcore 445 South Street Morristown, NJ 07960 Dear George: Perot Systems Corporation ("Perot Systems") is pleased to engage you as a consultant for approximately 20% of your time, in addition to the time that you will devote as a Board member. As a consultant, you will work on the development and implementation of the company's business and technology strategies and on the structure of major business relationships, as well as other projects. We will work with you to coordinate the timing of your services consistent with your other business commitments. We will pay you $12,500 per month for your consulting services and reimburse you for your reasonable, allocated travel expenses, consistent with Perot Systems' policies. In addition, we will grant you options to buy 20,000 shares of Perot Systems common stock at an exercise price of $6.75 per share, with 4,000 of the options vesting on each of the first five anniversaries of the date of this letter for as long as this agreement remains in effect, in accordance with the enclosed Stock Option Agreement and Plan. You are furnishing services to Perot Systems as an independent contractor. This letter agreement is not intended to create an employer-employee or agent relationship between Perot Systems and you. Perot Systems is not responsible for withholding any amounts for your income tax, Social Security or any other taxes. If you inform Perot Systems in writing that any consulting services Perot Systems asks you to perform would conflict with Section 5 of your retirement agreement as attached to your letter to me dated September 22, 1997, Perot Systems will immediately withdraw its request. The term of this agreement will be from November 17, 1997, to November 16, 2002, provided that either party may terminate this agreement prior to November 16, 2002, at the terminating parties sole discretion, and for any or no reason, on one month's notice. Upon termination of this agreement you will cease to receive compensation and the vesting of your options shall cease. 2 This agreement incorporates by reference the terms of Attachment A ("Confidentiality and Proprietary Rights Agreement") and constitutes the final, entire, and exclusive agreement between Perot Systems and you with respect to your consulting for Perot Systems and may only be amended in a writing signed by both parties. If you agree to the terms of this agreement, please sign both copies of this letter and both copies of Attachment A, keep one copy of each for your records, and return the other copies to Patti Karn, our Stock Administrator, in the enclosed return envelope. Please also sign the enclosed Stock Option Agreement, return it to Patti, and she will return a signed copy to you. Separately you have received and executed a Stock Option Agreement for 30,000 shares vesting over five years as compensation for your service on the Board of Directors, and the Plan governing that Option Agreement. We are very excited about the prospect of working with you. Very truly yours, /s/ PETER ALTABEF - ----------------------- Peter Altabef ACCEPTED AND AGREED: By: /s/ GEORGE H. HEILMEIER ------------------------------- George H. Heilmeier Date: 11/19/97 ----------------------------- 2 3 Attachment A CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT This Confidentiality and Proprietary Rights Agreement (the "Agreement") is entered into between Dr. George H. Heilmeier ("Consultant"), and Perot Systems Corporation, a Delaware corporation ("Perot Systems"). 1. In order for the parties to carry out their consulting agreement pursuant to the letter dated November 17, 1997, to which this Agreement is attached and of which it is part, Perot Systems may disclose confidential information to Consultant regarding its business activities and plans ("Confidential Information"). Confidential Information includes, but is not limited to: (a) the names of Perot Systems' customers and the nature of Perot Systems' relationships with its customers; (b) Perot Systems' computer programs; (c) compilations of data and information selected or arranged by Perot Systems; (d) developments, improvements, processes, procedures, inventions, and trade secrets that are produced by Perot Systems or its employees or contractors in the course of Perot Systems' business; and (e) information and materials provided to Perot Systems by its customers, alliance partners, and vendors. 2. Consultant shall use his best efforts to keep Perot Systems' Confidential Information secret. 3. Consultant has no obligation with respect to any Confidential Information which Consultant can establish (a) he independently developed; (b) is or becomes publicly known without a breach of this Agreement by Consultant; (c) is disclosed to Consultant by a third person who is not required to maintain its confidentiality; or (d) is approved for release by Perot Systems in writing. 4. Consultant shall and hereby does assign to Perot Systems all of his rights, title, and interest in any Confidential Information that he develops or helps to develop while working for Perot Systems as an independent contractor or employee and shall promptly and fully inform Perot Systems in writing of any such Confidential Information. Consultant shall provide, at Perot Systems' request and expense, such cooperation and documentation as Perot Systems reasonably requests to establish or confirm Perot Systems' proprietary rights in any of the Confidential Information. 5. Consultant shall not disclose Confidential Information to any agent or other non-party without the prior written consent of Perot Systems. 6. Consultant shall not use Confidential Information for competing with Perot Systems or for any purpose not in furtherance of the business relationship between them. 7. Upon the termination of the consulting agreement or at Perot Systems' request, whichever is sooner, Consultant shall return all copies of the Confidential Information in any form and shall destroy all notes or memoranda in any form that are based wholly or partly on Confidential Information. 3 4 8. If Consultant becomes legally obligated to disclose any Confidential Information, he shall notify Perot Systems in writing immediately, shall cooperate with Perot Systems in seeking a protective order or other appropriate remedy, and shall use his best efforts to protect the confidential or proprietary status of any disclosed Confidential Information. 9. In the event of a breach or threatened breach by Consultant of the provisions of this Agreement, Perot Systems may have no adequate remedy in damages and, accordingly, shall be entitled to an injunction in addition to any other legal or equitable remedies. 10. This Agreement is governed by the laws of Texas without regard to its rules on conflicts of law, and Consultant consents to the exclusive personal jurisdiction of the state and federal courts in Texas. Consultant may not assign his rights or obligations under this Agreement. No modification or waiver of any provision of this Agreement shall be effective unless in writing and signed by the party sought to be bound. This Agreement shall expire two years after the termination of the consulting agreement to which this Agreement is attached. ACCEPTED AND AGREED: By: ----------------------------- George H. Heilmeier Date: --------------------------- 4 5 PEROT SYSTEMS CORPORATION 1996 ADVISOR AND CONSULTANT STOCK OPTION/RESTRICTED STOCK INCENTIVE PLAN STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of, November 17,1997, is by and between Perot Systems Corporation, a Delaware corporation ("Perot Systems" or the "Company"), and George H. Heilmeier ("Participant"). WITNESSETH WHEREAS, Perot Systems has adopted the Perot Systems Corporation 1996 Advisor and Consultant Stock Option/ Restricted Stock Incentive Plan (the "Plan") to enable nonemployee advisors of the Company, and consultants under contract with the Company, to acquire shares of Class A Common Stock, $0.01 par value, of the Company ("Common Stock") in accordance with the provisions of the Plan; and WHEREAS, the Committee of the Board of Directors of Perot Systems with responsibility for administering this Plan (the "Committee") has selected Participant to participate in the Plan and has determined to grant Participant the option to purchase shares of Common Stock in accordance with the terms and conditions of this Agreement, provided, that if any change is made in the shares of Common Stock (including, but not limited to, by stock dividend, stock split, or merger or consolidation, but not including the issuance of additional shares for consideration), the Board of Directors or the Committee will make such adjustments in the number and kind of shares (which may consist of shares of a surviving corporation to a merger) and purchase price per share of shares subject to outstanding options issued under the Plan as the Board of Directors or the Committee determines are equitable to preserve the respective rights of the Participants under the Plan; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and other terms and conditions set forth in this Agreement, Perot Systems and Participant agree as follows: 1. Award. (a) Subject to the terms, conditions, and restrictions set forth in the Plan and in this Agreement, Perot Systems hereby awards and grants to Participant, and Participant hereby accepts from Perot Systems, the option to purchase from Perot Systems the number of shares of Common Stock, at the purchase price, and in accordance with the schedule specified on Attachment A hereto. - 1 - 6 (b) The option may be exercised only with respect to vested options. Once vested, the options may be exercised until the expiration date set forth on Exhibit A hereto (unless such right to exercise is earlier terminated pursuant to Section 3 hereunder), by delivering written notice of the exercise to Perot Systems specifying the number of shares to be purchased and paying in full the purchase price for such shares either (i) in cash or check in United States dollars or (ii) by tendering to Perot Systems shares of the same class as the shares being acquired that have been owned by the person exercising the option for any period necessary to avoid a charge to Perot Systems' earnings and having a fair market value on the date of exercise equal to such purchase price, or (iii) by a combination of such cash and shares. (c) For purposes of this Agreement, the term "fair market value" means, with respect to any Purchased Stock means, (i) if the Purchased Stock is publicly traded, the closing sale price on the date of determination in the market in which the shares are principally traded (which may be a stock exchange) or, if no such closing sale price is available for such date, on the most recent previous date for which such a closing sale price is available or, if no closing sale price is available, the closing bid price on such date as quoted in the National Association of Securities Dealers Automated Quotation ("NASDAQ") system, or by the National Quotation Bureau, Inc., if not so quoted, or, if no such closing bid price is available for such date, the closing bid price on the most recent previous date for which such a closing bid price is available, or (ii) if Purchased Stock is not publicly traded, their fair market value, determined by reference to the most recent appraisal of the Common Stock conducted by appraisers selected by the Board of Directors of Perot Systems. (d) For purposes of this Agreement, the term "publicly traded" means Purchased Stock has been listed on a registered national securities exchange or approved for quotation in the NASDAQ system. (e) For purposes of this Agreement, the term "Purchased Stock" means any Common Stock or other security purchased upon the exercise of this option, together with any successor security, property or cash issued or distributed by Perot Systems or any successor entity, whether by way of merger, consolidation, share exchange, reorganization, liquidation, recapitalization, or otherwise. - 2 - 7 2. Restrictions on Transfer of Option and Purchased Stock. (a) The option evidenced by this Agreement may not be sold or otherwise transferred, and is exercisable only by Participant. (b) Shares of Purchased Stock may not be sold or otherwise transferred for six months after stock of the same class as the Purchased Stock is publicly traded. (c) Perot Systems is not obligated to recognize any purported sale or other transfer of the option or Purchased Stock in violation of this Section 2 and may treat any such purported sale or transfer as null, void, and of no effect. 3. Cessation of Service to Perot Systems. Any invested options evidenced by this Agreement will terminate and, except to the extent set forth in this Section 3, will cease being exercisable if Participant, for any reason whatsoever, is no longer serving Perot Systems in at least one of the following capacities: a consultant under contract to Perot Systems, or full time employee of Perot Systems (a "Termination Event"), unless the Committee, in its sole discretion, agrees in writing otherwise. If a Termination Event occurs by reason other than the death of Participant, Participant will have sixty days after the Termination Event to exercise all vested options hereunder, but in no event later than the expiration date set forth on Attachment A hereto. If a Termination Event occurs by reason of the death of Participant, Participant's estate will have two years after the Termination Event to exercise all vested options hereunder, but in no event later than the expiration date set forth on Attachment A hereto. 4. Company's Right of First Refusal. (a) Unless and until shares of Purchased Stock are publicly traded, Perot Systems will have a right of first refusal to purchase such shares purchased hereunder if the holder of the shares desires or is obligated to sell or otherwise transfer the shares, but this right will not apply to a transfer upon Participant's death by will or by the laws of descent and distribution. (b) Any holder of such shares who desires or is obligated to sell or otherwise transfer them before shares of Purchased Stock are publicly traded must give Perot Systems written notice of the proposed sale or other transfer. The notice must include the name of the proposed purchaser or transferee and describe the circumstances of the transfer. Perot Systems may purchase any or all of the shares proposed to be sold or transferred by notifying the holder within 30 days of its - 3 - 8 receipt of the notice of its election to exercise its right of first refusal and tendering the purchase price of the shares as soon as reasonably practicable thereafter. (c) The purchase price at which Perot Systems will purchase shares under its right of first refusal will be their fair market value, determined by reference to the most recent appraisal of the Common Stock conducted by appraisers selected by the Board of Directors of Perot on or before the date of receipt of the notice of the proposed sale or transfer. 5. Compliance with Securities Laws. (a) Participant acknowledges that the option evidenced by this Agreement and the shares to be issued upon exercise of the option have not been registered under the Securities Act of 1933, that Perot Systems has no present intention to so register them, that such shares may be deemed "restricted securities" under Rule 144 of the Act, that the holder of restricted securities may be required to hold them for an indefinite period of time unless they are registered for sale under the Act or an exemption from registration is available, and that routine sales of restricted securities under Rule 144 can only be made if Perot Systems meets certain requirements, including a requirement to make certain information publicly available, and then only in limited amounts and in a specified manner in accordance with the terms and conditions of Rule 144. (b) Upon demand by Perot Systems, any person exercising the option evidenced by this Agreement, at the time of such exercise, will deliver to Perot Systems a written representation to the effect that the shares being acquired are being acquired for investment and not with a view to any resale or distribution thereof. (c) Neither Participant nor any successor in interest of Participant will sell or otherwise transfer the option evidenced by this Agreement or any shares acquired upon exercise of the option in any way that might result in a violation of any federal or state securities laws or regulations. (d) Perot Systems may require Participant or any subsequent holder of the option or of any shares acquired upon exercise of the option to provide Perot Systems, before any sale or other transfer, with such representations, commitments, and opinions regarding compliance with applicable securities laws and regulations as Perot Systems may deem necessary or advisable. 6. Stock Certificates; Rights as Shareholder. Perot Systems will retain for safekeeping all certificates representing shares purchased upon exercise of the option evidenced by this Agreement. Each such certificate will bear such legends as the Board - 4 - 9 determines are necessary or appropriate. Whether or not certificates representing such shares have been issued or delivered, Participant will have all the rights of a shareholder of Common Stock, including voting, dividend and distribution rights, with respect to such shares owned by Participant. Participant will not have any rights as a shareholder with respect to any shares subject to the option before the date of issuance to Participant of shares upon exercise of the option. 7. Income Tax Withholding. Participant (or any person entitled to act on Participant's behalf) shall, upon request by the Company, pay to Perot Systems, or Perot Systems may withhold from sums or property otherwise due or payable to Participant (or such person), such amount as Perot Systems may request for the purpose of satisfying any liability to withhold federal, state, local, or foreign income or other taxes. If shares of stock are withheld for such purpose, they will be withheld at fair market value, as defined in Section 1(c), as of the date of accrual of the liability. 8. Compliance with Plan. Participant acknowledges receipt of a copy of the Plan and further acknowledges that this Agreement is entered into, and the option has been awarded, pursuant to the Plan. If the provisions of the Plan are inconsistent with the provisions of this Agreement, the provisions of the Plan govern and supersede the provisions of this Agreement. 9. Notices. Any notice to Perot Systems or the Company that is required or permitted by this Agreement shall be addressed to the attention of the Secretary of Perot Systems at 12377 Merit Drive, Suite 1100, Dallas, Texas 75251. Any notice to Participant that is required or permitted by this Agreement shall be addressed to Participant at the most recent address for Participant reflected in the appropriate records of the Company. Either party may at any time change its address for notification purposes by giving the other written notice of the new address and the date upon which it will become effective. Whenever this Agreement requires or permits any notice from one party to another, this notice must be in writing to be effective and, if mailed, shall be deemed to have been given on the third business day after the same is enclosed in an envelope, addressed to the party to be notified at the appropriate address, properly stamped, sealed, and deposited in the United States mail, and, if mailed to the Company, by certified mail, return receipt requested. 10. Remedies. Perot Systems is entitled, in addition to any other remedies it may have at law or in equity, to temporary and permanent injunctive and other equitable relief to enforce the provisions of this Agreement. Any action to enforce the provisions of, or otherwise relating to, this Agreement may be brought in the state or federal courts having jurisdiction in Dallas, Dallas County, Texas. By signing - 5 - 10 this Agreement, Participant consents to the personal jurisdiction of such courts in any such action. 11. Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives and permitted successors and assigns. However, Participant does not have the power or right to assign this Agreement without the prior written consent of Perot Systems. 12. Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled. 13. Severability. If any provision of this Agreement is held invalid or unenforceable for any reason, the validity and enforceability of all other provisions of this Agreement will not be affected. 14. Headings. The section headings used herein are for reference and convenience only and do not affect the interpretation of this Agreement. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of Texas, without regard to that state's choice of law rules. 16. Entire Agreement. This Agreement, together with the Plan and any rules and regulations adopted by the Board or Committee thereunder, constitutes the entire agreement between the parties with respect to its subject matter. 17. Amendment. This Agreement may be amended only in a manner that is consistent with the Plan and only by a written instrument signed by both Perot Systems and Participant. IN WITNESS WHEREOF, and intending to be legally bound hereby, Participant and a duly-authorized representative of Perot Systems have executed this Agreement as of the date first above written. PARTICIPANT PEROT SYSTEMS CORPORATION /s/ By: - -------------------------------- ------------------------------ George H. Heilmeier Title: Chairman Of The Board - 6 - 11 CONSENT OF SPOUSE As the spouse of Participant, I consent to be bound by this Stock Option Agreement and agree that this consent shall be binding on any interest I may have under this Agreement and on my heirs, legatees, and assigns. By: ------------------------------ Signature --------------------------------- Printed Name --------------------------------- Date - 7 - 12 ATTACHMENT A TO STOCK OPTION AGREEMENT FOR GEORGE H. HEILMEIER 1. Purchase Price: $6.75 per Share 2. Expiration Date: November 16, 2003 3. Vesting Schedule:
Date Option Vests Shares as to which Option Vests ----------------- ------------------------------- Percentage Number ---------- ------ November 16,1998 20 4,000 ----------------- --------- ----------- November 16,1999 20 4,000 ----------------- --------- ----------- November 16, 2000 20 4,000 ----------------- --------- ----------- November 16, 2001 20 4,000 ----------------- --------- ----------- November 16, 2002 20 4,000 ----------------- --------- ----------- Shares Covered by Option: 100% 20,000 --------- -----------
- 8 - EX-11 12 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE Dollars and share amounts in thousands, except per share data
1997 1996 1995 ------------------------------- Net Income $11,217 $20,499 $10,813 Preferred Stock Dividend -- 447 595 ------- ------- ------- $11,217 $20,052 $10,218 ======= ======= ======= Weighted Average Common Shares Outstanding 39,168 37,055 31,151 Common Stock Equivalents 8,428 5,116 2,215 ------- ------- ------- Weighted Average Diluted Common Shares Outstanding 47,596 42,171 33,366 ======= ======= ======= Basic Earnings per Common Share $ 0.29 $ 0.54 $ 0.33 Diluted Earnings per Common Share $ 0.24 $ 0.48 $ 0.31
17 EX-21 13 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF SUBSIDIARY INCORPORATION Benton International, Incorporated California Deutsche Perot Systems GmbH Germany Doblin Group, Inc. Illinois HCL Perot Systems N.V. The Netherlands HCL Perot Systems Private Limited (India) India HCL Perot Systems Pte. Limited (Singapore) Singapore HPS America, Inc. Delaware HPS Europe Limited England HCL Perot Systems (Mauritius) Pvt. Ltd. Mauritius Icarus Consulting A.G. Switzerland Icarus Consulting GmbH Germany Perot Systems A.G. Switzerland Perot Systems Asia Pacific Pte Ltd. Singapore Perot Systems B.V. The Netherlands Perot Systems (Canada) Corporation, Corporation Systemes Perot Canada Perot Systems Communication Services, Inc. Delaware Perot Systems (Deutschland) GMBH Germany Perot Systems Europe (Energy Services), Limited United Kingdom Perot Systems Europe Limited ("PSEL") United Kingdom Perot Systems Field Services Corporation Delaware Perot Systems Financial Services Corporation Delaware Perot Systems Holdings Pte Ltd. Singapore Perot Systems Investments B.V. The Netherlands Perot Systems (Japan) Ltd. Japan Perot Systems Monaco S.A.M. Monaco Perot Systems Realty Corporation Texas Perot Systems S.A. (formerly Perot Systems (France) SARL) France PSC Government Services Corporation Delaware PSC Health Care, Inc. Delaware Rothwell International, Inc. Texas Stamos Associates Inc. California Syllogic B.V. The Netherlands Syllogic Systems B.V. The Netherlands Syllogic Applications B.V. The Netherlands Syllogic Ireland Limited Ireland The Technical Resource Connection, Inc. Delaware
18 EX-23.1 14 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Perot Systems Corporation on Form S-8 (File No. 333-30401) of our report dated March 25, 1998 on our audits of the consolidated financial statements of Perot Systems Corporation as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995. /s/ Coopers & Lybrand L.L.P. Dallas, Texas March 30, 1998 EX-27 15 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 35,298 0 106,415 1,185 0 178,068 136,072 85,369 267,103 170,161 0 0 0 406 92,910 267,103 781,621 781,621 636,296 764,028 1,045 0 1,282 19,508 8,291 0 0 0 0 11,217 .29 .24
EX-27.A 16 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 DEC-31-1996 27,516 0 120,591 (6,787) 0 176,705 96,990 (61,242) 232,247 154,713 0 0 0 396 70,366 232,247 0 599,438 461,192 558,137 (1,608) 0 770 40,151 19,652 20,499 0 0 0 20,499 0.54 0.48
EX-27.B 17 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 13,034 0 132,339 4,380 0 175,830 100,950 59,136 268,087 170,118 0 0 0 406 93,033 268,087 556,867 556,867 437,688 534,883 (1,324) 0 953 23,667 10,058 0 0 0 0 13,609 .14 .12
EX-27.C 18 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 16,983 0 116,373 7,883 0 162,661 95,680 55,795 248,146 153,320 0 0 0 406 88,793 248,146 354,082 354,082 277,841 342,083 (1,441) 0 500 14,082 5,984 0 0 0 0 8,098 .04 .03
EX-27.D 19 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 32,100 0 115,055 6,204 0 177,616 84,478 50,026 244,720 161,624 0 0 0 403 77,255 244,720 169,071 169,071 129,714 160,152 (1,574) 0 227 10,871 4,188 0 0 0 0 6,683 .17 .14
EX-99.(A) 20 SCHEDULE VIII 1 Exhibit 99(a) Schedule VIII - Valuation and Qualifying Accounts VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR UNCOLLECTIBLES (In 000's)
Balance at Balance at Beginning Deductions End of of Period Additions (Write-offs) Period ---------- --------- ------------ ---------- 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
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