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As discussed in the Compensation Committee Report beginning on page 16 (Compensation Committee Report),
stock options were granted in 2001 as incentives for future superior performance leading to
increased share owner value. Each stock option permits the holder, generally for a period of
ten years, to purchase one share of GE stock from the Company at the market price of GE stock
on the date of grant. The relationship between the potential gains in share owner value and the
stock options granted to employees in 2001 is illustrated in the examples set forth in the first
table on page 24 (Stock Options Granted in 2001).
That table shows, among other data, hypothetical potential gains from stock options
granted in 2001 and the corresponding hypothetical potential gains in total share owner value.
These hypothetical gains are based entirely on assumed annual growth rates of 5% and 10% in the
value of the Company's stock price over the ten-year life of the stock options granted in 2001
(which would equal a total increase in stock price of 63% and 159%, respectively). These assumed
rates of growth were selected by the Securities and Exchange Commission for illustration purposes
only and are not intended to predict future stock prices, which will depend upon market conditions
and the Company's future performance and prospects.
The stock options granted to Mr. Immelt in 2001, for example, would produce the aggregate pre-tax gain of $78,399,379 shown in the first table only if the Company's stock price rises to more than $113 per share before Mr. Immelt exercises the stock options. Based on the number of shares of GE stock outstanding at the end of 2001, such an increase in the Company's stock price would produce a corresponding aggregate pre-tax gain of more than $649,000,000,000 for the Company's share owners. In other words, Mr. Immelt's potential gain from stock options granted in 2001 would equal about one-hundredths of one percent (i.e., 0.01%) of the potential gain to all share owners resulting from the assumed future stock price increases.
The second table on page 24 (Aggregated SARs/Stock Options) provides information on previously granted Stock Appreciation Rights (SARs) and stock options exercised by the six most highly compensated executive officers during 2001, as well as information on their SAR and stock option holdings at the end of 2001. In 1996, the Committee changed its practice and began granting stock options instead of SARs to executive officers and also replaced all outstanding SARs that had not become exercisable in 1996 with stock options. The replacement stock options have grant prices, forfeiture provisions, and vesting and expiration dates identical to the SARs they replaced in order to provide the same incentive values as the original SARs without increasing the economic benefit to any executive officer. SARs expire ten years after the date of grant and permit the executive officer to receive an amount of cash, before tax, equal to the difference between the grant price of the SAR (which is equal to the closing price of the Company's common stock on the date of grant) and the highest closing price of the Company's common stock during a ten-business-day period, beginning on the third business day following the public release of the Company's quarterly summary statement of sales and earnings in which the SAR is exercised.
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