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The following table includes all GE stock-based holdings, as of February 15, 2002, of the
Company's directors and six most highly compensated executive officers. This table indicates
the alignment of the named individuals' financial interests with the interests of the Company's
share owners because the value of their total GE holdings will increase or decrease in line with
the price of GE's stock.
Board of Directors and Committees
The Board of Directors held ten meetings during 2001. The average attendance by directors at
Board meetings, and Committee meetings they were scheduled to attend, was over 93%.
Among the committees of the Board of Directors are a Nominating Committee,
a Management Development and Compensation Committee, and an Audit Committee.
Members of the Nominating Committee are Directors Penske (Chairman),
Cathcart, Gonzalez, Jung, Langone, Michelson, Sigler and Warner. This committee's responsibilities
include the selection of potential candidates for director and the recommendation of candidates
to the Board. It also makes recommendations to the Board concerning the structure and membership
of the other Board Committees. The Nominating Committee held three meetings during 2001. This
committee will consider share owner recommendations for director sent to the Nominating Committee,
c/o Benjamin W. Heineman, Jr., Secretary, General Electric Company, Fairfield, CT 06431.
Members of the Management Development and Compensation Committee are
Directors Sigler (Chairman), Cathcart, Gonzalez, Langone, Michelson, Nunn, Penske and Rhodes.
This committee has two primary responsibilities:(1) to monitor the Company's management
resources, structure, succession planning, development and selection process as well as the
performance of key executives; and (2) to review and approve executive compensation and changes.
It also serves as the committee administering the GE 1990 Long-Term Incentive Plan and the
Incentive Compensation Plan. This committee met eight times during 2001.
Members of the Audit Committee are Directors Gonzalez (Chairman),
Cathcart, Fudge, McNealy, Michelson, Penske, Rhodes, Sigler and Warner. This committee is
primarily concerned with the effectiveness of the audits of GE by its internal audit staff
and by the independent auditors. Its duties include: (1) recommending the selection of
independent auditors; (2) reviewing the scope of the audit to be conducted by them, as
well as the results of their audit; (3) reviewing the organization and scope of GE's
internal system of audit and financial controls; (4) appraising GE's financial reporting
activities (including its Proxy Statement and Annual Report) and the accounting standards
and principles followed; and (5) examining other reviews relating to compliance by employees
with important GE policies and applicable laws. There were four meetings of the Audit
Committee during 2001.
Non-employee directors are paid an annual retainer of $75,000 plus a
fee of $2,000 for each Board meeting and for each Board Committee meeting attended. Half of
any portion of the annual retainer that a director has not elected to defer is paid in GE
common stock. A director may make an irrevocable election each year to defer all or a portion
of annual retainer and fees. At the director's option, his or her account is credited with
units accounted for as GE common stock or the dollar amount of the deferral. Accounts are
also credited with common stock dividend equivalents or interest equivalents based on the
yield for long-term U.S. government bonds. Participants will receive payments from their
account in cash or GE stock, in either a lump sum or annual installments, after termination
of Board service. Non-employee directors are also paid a travel allowance for attendance at
Board meetings.
In 2000, the Board of Directors replaced the non-employee directors
retirement program with a contingent stock unit award for directors who join the Board
after the 2001 Annual Meeting. All non-employee directors elected to the Board at the 2001
Annual Meeting, who retire directly from the Board at age 65 or older after at least five
years of service, will continue to be eligible to elect to receive: (1) an annual retirement
benefit for the lives of the director and eligible surviving spouse in the amount of the
retainer fee in effect at retirement; or (2) in lieu thereof, a life insurance benefit in
the amount of $450,000. All non-employee directors who are initially elected to the Board
after the 2001 Annual Meeting will receive a one-time contingent award of 5,000 GE stock
units, to be accounted for as GE common stock including dividends, payable only if the
director retires from the Board at age 65 or older and after at least five years of service
on the Board. GE also provides each non-employee director with group life and accidental
death insurance in the aggregate amount of $150,000. The non-employee directors are not
eligible to participate in GE's Incentive Compensation Plan, employee stock option plans
or in any pension plans of GE or its subsidiaries. It is the Board's policy that directors
should not stand for re-election after their 73rd birthday.
GE has provided liability insurance for its directors and officers
since 1968. Zurich Insurance Company and Executive Risk Speciality Insurance Company are
the principal underwriters of the current coverage, which extends until June 11, 2002. The
annual cost of this coverage is approximately $5.8 million.
As part of the Company's overall support for charitable institutions,
and in order to preserve its ability to attract directors with outstanding experience and ability,
the Company maintains a plan which permits each director to recommend up to five charitable
organizations that would share in a $1 million contribution to be made by the Company upon the
director's retirement or death. The directors will not receive any financial benefit from this
program since the charitable deductions accrue solely to the Company. The overall program will
not result in a material cost to the Company.
To further align the non-employee directors' interests with the
long-term interests of the share owners, the share owners approved the 1996 Stock
Option Plan for Non-Employee Directors, which automatically provides yearly grants
of options from 1997 through 2003 (with each grant becoming exercisable in four equal
annual installments) to each non-employee director who is serving on the Board at the
time of such grant. Each annual grant permits the holder to purchase from GE up to
18,000 shares of GE's common stock at the fair market value of such shares on the date
the option was granted. Under the terms of the Plan, grants were made on January 31,
2001, at an exercise price of $46.00 per share, and on January 31, 2002, at an exercise
price of $37.15 per share. The final grant under this plan will be made on the last day
of trading of GE stock in January 2003. The options expire ten years after the date they
were granted or at such earlier date as may be provided by the Plan provisions upon
retirement, disability, death or other termination of service. The Plan is administered
by a committee of employee directors, none of whom is eligible to receive awards under
the Plan.
Pursuant to the indemnification provisions of the By-laws,
the Company paid a total of $260,226 in defense costs incurred since 1991 by the directors
who were serving on the board in 1991 and certain officers who were defendants in a civil
suit purportedly brought on behalf of the Company as a share owner derivative action
(the McNeil action) in New York State Supreme Court, New York County, in 1991 in
connection with the design and construction of containment systems for nuclear power
plants. The dismissal of the suit in 2000 was affirmed by the New York appellate
court last year.
Certain Relationships and Related Transactions
This section discusses certain direct and indirect relationships and transactions involving
the Company and any director or executive officer. Given the Company's size and diversity,
the Company has business relationships with many leading business and professional entities,
and many of the most qualified candidates for the Board often are associated with such
entities. GE had established relationships with most of the entities noted below before
the related director joined the Board. GE does not extend loans to its executive officers
except when needed in connection with a relocation. There are no such loans outstanding at
this time.
Mr. Penske has an indirect financial interest in Penske Truck Leasing Co., L.P., a limited partnership formed in
1988 between a subsidiary of Penske Corporation and a subsidiary of GE Capital Corporation (GE Capital) in order to operate
a truck leasing and rental business. In connection with a 1996 restructuring that increased GE Capital's interest in the partnership
from 50% to 79%, the Penske Corporation subsidiary will receive annual payments, declining from $11.3 million to
$9.3 million over a ten-year period, with the majority of such payments contingent upon the partnership achieving
certain revenue thresholds. GE Capital also extends acquisition and working capital loans and guarantees to the
partnership, which totaled about $4.9 billion at the end of 2001, a portion of which relates to the partnership's
acquisition of Rollins Truck Leasing Corp. in 2001 for approximately $2 billion in cash and assumed debt. GECS
provides this funding on the same terms as those extended to its operating subsidiaries. Mr. Penske also has a
direct financial interest in and controls Penske Capital Partners, LLC, which in 1997 entered into an investment
agreement with GE Capital's GE Equity business and other investors. The agreement permitted GE Capital to invest
up to $100 million of equity in transactions involving selected transportation-related companies in return for its
agreement to pay Penske Capital Partners an annual fee of up to $1.5 million for evaluating and, as appropriate,
managing such investments. GE Capital also agreed that, after it recovered its investments and received a
preferred return on any such investments, Penske Capital Partners would then receive a 20% interest in the
remaining profits from the GE Capital investments. During the term of this agreement, which expired in 2000,
GE Capital invested a total of about $18 million in three transactions. The agreement was replaced by a revised
investment agreement among the same investors which permits GE Capital to invest up to $67 million in return
for its agreement to pay Penske Capital Partners an annual fee of up to $1 million. The term of the revised
agreement is three years with annual termination options. All other significant terms remain the same.
GE has, for a number of years, used the services of the law firm of
King & Spalding, in which Mr. Nunn is a partner, for a variety of matters. Also, GE and
its subsidiaries have obtained investment banking and other financial services from J.P.
Morgan Chase & Co., of which Mr. Warner was Chairman of the Board until the end of
2001, and from certain of its subsidiaries and predecessors. Similarly, GE has obtained
brokerage services from, and GE and its subsidiaries have participated in investments
with, Invemed Associates, LLC, of which Mr. Langone is Chairman, President and Chief
Executive Officer and in which he holds a controlling ownership interest. For several
years, GE and its subsidiaries have purchased computer equipment and related services
from Sun Microsystems, Inc. In 2001, GE Capital's Information Technology Solutions business,
a Sun distributor and value-added reseller, purchased over $1.6 billion of Sun products and
services for resale. GE Capital also has a global vendor financing agreement with Sun which
expires in 2004 under which GE Capital offers to provide loan and lease financing to Sun's
customers. Mr. McNealy is Chairman of the Board and Chief Executive Officer of Sun. GE and
its subsidiaries also have purchase, lease, finance, insurance and other transactions and
relationships in the normal course of business with companies and organizations with which
GE directors are associated, but which are not sufficiently significant to be reportable.
Management believes that all of these transactions and relationships during 2001 were on
terms that were reasonable and in the best interest of the Company. Additional transactions
and relationships of this nature may be expected to take place in the ordinary course of
business in the future.
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