UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

PEROT SYSTEMS CORPORATION

2300 W. Plano Parkway
Plano, Texas 75075

Notice of Annual Meeting of Stockholders
Thursday, May 3, 2007
3:00 p.m.–Central Daylight Time

Perot Systems Corporation
Plano Campus Cafeteria, West Lobby
2300 West Plano Parkway
Plano, Texas 75075

March 27, 2007

To Our Stockholders

On behalf of the Board of Directors, you are cordially invited to attend the 2007 Perot Systems Corporation Annual Meeting of Stockholders. At the Annual Meeting, our stockholders will be voting on:

·       the election of our directors;

·       the approval of the Amended and Restated 2001 Long-Term Incentive Plan;

·       the ratification of the appointment of our independent registered public accounting firm for 2007; and

·       any other business properly brought before the Annual Meeting.

Voting is limited to stockholders of record at the close of business on March 5, 2007.

If you plan to attend the meeting in person, please bring to the Annual Meeting one of the admission tickets provided with these proxy materials.

	Sincerely yours,
	Ross Perot, Jr.
	Chairman

 

PEROT SYSTEMS CORPORATION

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS

Perot Systems Corporation is furnishing you this Proxy Statement on behalf of its Board of Directors to solicit proxies for its Annual Meeting of Stockholders and any adjournments or postponements of the Annual Meeting. We will hold the Annual Meeting at our Plano Campus Cafeteria, 2300 West Plano Parkway, Plano, Texas on Thursday, May 3, 2007, at 3:00 p.m. Central Daylight Time. We first mailed these proxy materials to our stockholders on or about March 27, 2007.

PURPOSE OF MEETING

We are holding the Annual Meeting for the stockholders to elect our directors, approve the Amended and Restated 2001 Long-Term Incentive Plan, ratify the appointment of our independent registered public accounting firm for 2007, and conduct any other business that properly comes before the Annual Meeting.

VOTING AND SOLICITATION

Right to Vote and Record Date

Our Class A Common Stock, par value $.01 per share, is the only type of security entitled to vote at the Annual Meeting. Each share of Class A Common Stock that you owned as of the close of business on March 5, 2007, entitles you to one vote for each of the 11 nominees for director and one vote on each other proposal properly brought before the Annual Meeting. On March 5, 2007, there were 121,016,395 shares of Class A Common Stock outstanding.

Quorum; Adjournment

The holders of at least a majority of the voting power of our issued and outstanding shares of Class A Common Stock must be present, in person or by proxy, to constitute a quorum for the transaction of business at the Annual Meeting. We count abstentions to determine whether a quorum exists for the transaction of business. We also count broker non-votes, which we describe in more detail below, as shares present or represented at the Annual Meeting for purposes of determining whether a quorum exists.

Voting at the Annual Meeting

If your shares of Class A Common Stock are registered directly with Mellon Investor Services, you are a “record holder” and may vote in person at the Annual Meeting. If you hold your shares through a broker, bank or other nominee, your shares are held in “street name” and you are the “beneficial holder.” If you hold your shares in street name, in order to vote in person at the Annual Meeting, you must obtain a proxy from your broker, bank or other nominee.

Voting by Proxy

Whether or not you are able to attend the Annual Meeting, we urge you to vote by proxy.

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Shares Held of Record

If you are a record holder, you can vote your shares using one of the following methods:

·       via the Internet website shown on the proxy card,

·       by telephone using the toll-free number shown on the proxy card, or

·       by a completed and returned written proxy card.

We must receive votes submitted through the Internet or by telephone by 11:59 p.m., Eastern Daylight Time, on May 2, 2007. Internet and telephone voting are available 24 hours a day, and if you use one of those methods, you do not need to return a proxy card. Submitting your voting instructions by any of the methods mentioned above will not affect your right to attend the Annual Meeting and vote in person.

If you vote by phone or via the Internet, please have your social security number and proxy or voting instruction card available. The sequence of numbers appearing on your proxy card and your social security number are necessary to verify your vote.

Shares Held in Street Name

If you hold your shares in street name, you should follow the directions provided by your broker or bank regarding how to instruct your broker to vote your shares. Without instructions from you, your broker or bank has discretion to vote your shares on “routine matters,” such as the election of directors and ratification of the appointment of the independent registered public accounting firm.

How the Proxy Holders Will Vote Your Proxy

The proxy holders will vote as you direct if you properly complete your proxy. If you submit a proxy but do not provide directions on how to vote, your proxy will be voted as follows:

·       FOR the nominees of the Board of Directors,

·       FOR approval of the Amended and Restated 2001 Long-Term Incentive Plan,

·       FOR ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, and

·       In the discretion of the proxy holders, with respect to any other matters that may properly come before the Annual Meeting.

Changing Your Vote

You may revoke or change your proxy at any time before the Annual Meeting. The procedures for changing your vote differ depending on how you own your shares. If you are a record holder of your Perot Systems shares, you may change your vote by:

·       submitting another proxy with a later date before the beginning of the Annual Meeting,

·       sending a written notice of revocation to the Secretary of Perot Systems at 2300 West Plano Parkway, Plano, Texas 75075 that is received before the beginning of the Annual Meeting, or

·       attending the Annual Meeting and voting in person.

If you are a beneficial holder of your Perot Systems shares, you may change your vote by submitting new voting instructions to your broker, bank or nominee.

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Vote Required

Board of Directors

The 11 nominees receiving the highest number of affirmative votes will be elected directors of Perot Systems and will serve until the next Annual Meeting or until their successors have been elected and qualified or until their earlier resignation or removal. We do not have cumulative voting for the election of directors.

Approval of the Amended and Restated 2001 Long-Term Incentive Plan

Approval of the Amended and Restated 2001 Long-Term Incentive Plan requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting.

Ratification of Independent Registered Public Accounting Firm

Ratification of our independent registered public accounting firm requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting.

Other Matters

Approval of other matters considered at the Annual Meeting generally require the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting. Our Certificate of Incorporation requires a vote of 66 2/3% of the outstanding Class A Common Stock for certain matters. As of the date of this Proxy Statement, no other matter for consideration at the Annual Meeting has been submitted to Perot Systems.

Broker Non-Votes and Abstentions

A broker non-vote occurs when a broker holds shares in street name for a customer and the customer does not direct the broker’s vote with respect to the approval of non-routine matters. With respect to the election of directors and ratification of the appointment of the independent registered public accounting firm, a broker will have discretionary authority to vote the shares if the beneficial owner has not given instructions. Without your instructions, a broker may not vote on the approval of the Amended and Restated 2001 Long-Term Incentive Plan.

Abstentions are counted as votes AGAINST for purposes of determining the approval of any matter submitted to the stockholders for a vote.

Solicitation of Proxies

Perot Systems will pay all costs of the solicitation. We will furnish copies of solicitation material to fiduciaries and custodians holding shares in street name that others beneficially own. We will conduct the original solicitation by mail or, in cases where the stockholder has previously consented to electronic delivery, by electronic means. We may supplement the original solicitation with a solicitation by telephone, telegram, or other means by our directors, officers, or associates. We will not pay additional compensation to these individuals for their services. We do not plan to solicit proxies by means other than those we have described above.

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PROPOSAL NO. 1

ELECTION OF DIRECTORS

General

Our bylaws provide that the number of our directors will not be less than one, with the exact number to be fixed by the Board of Directors. The Board of Directors has fixed the number of directors at 11. We are proposing the election of all 11 of our current directors to hold office for a term of one year, expiring at the close of the 2008 Annual Meeting of Stockholders or when their successors are elected and qualified or until their earlier resignation or removal. We have listed the nominees and their positions and offices with Perot Systems below. The proxy holders will vote all duly executed proxies received for the nominees listed below unless you instruct them otherwise. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders will vote the proxies for any nominee designated by the current Board to fill the vacancy, unless the Board reduces the number of directors to be elected at the Annual Meeting. The Board is not aware of any nominee who is unable or who will decline to serve as a director.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES LISTED BELOW.

Directors and Their Business Experience

Ross Perot is Chairman Emeritus of the Board and has served as a director of Perot Systems since November 1997. Mr. Perot served as Chairman of the Board from February 1998 until September 2004. Mr. Perot is a founder of Perot Systems, served as Perot Systems’ President and Chief Executive Officer from November 1997 through August 2000 and served as a director from April 1988 until September 1994. Mr. Perot is currently a private investor. Mr. Perot is the father of Ross Perot, Jr. Age 76.

Ross Perot, Jr. has served as Chairman of the Board of Perot Systems since September 2004 and as a director since June 1988. Mr. Perot served as President and Chief Executive Officer of Perot Systems from September 2000 until September 2004. Mr. Perot is founder of Hillwood Development Company LLC. Mr. Perot is the son of Ross Perot. Age 48.

Peter A. Altabef has served as President and Chief Executive Officer and as a director of Perot Systems since September 2004. Mr. Altabef served as Vice President, Secretary and General Counsel of Perot Systems from March 1996 until September 2004. Mr. Altabef became General Counsel in 1994 and a Vice President in 1995. Age 47.

Steven Blasnik has served as a director of Perot Systems since September 1994. Mr. Blasnik has been employed by Perot Investments, Inc., a private investment firm affiliated with our Chairman Emeritus, Ross Perot, for more than five years. Mr. Blasnik also serves as President of Parkcentral Capital Management LP, an investment firm controlled by the Perot Family Trust, and Hill Air Company, LLC, which is wholly-owned by Ross Perot. Mr. Blasnik also serves as a director of iREIT, Inc., a private company that owns and operates internet domain names. Age 49.

John S.T. Gallagher has served as a director of Perot Systems since May 2001. Mr. Gallagher serves as a director and member of the audit and compensation committees of Netsmart Technologies, Inc. and as a director and audit committee member of American Medical Alert Corp. From November 2005 through December 2006, Mr. Gallagher served as director and Chief Executive of Stony Brook University Hospital. Mr. Gallagher served as President and Chief Executive Officer of North Shore-Long Island Jewish Health System from October 1997 through December 2001 and continues to serve on its Board of Trustees. From January 2002 to November 2005, Mr. Gallagher served as Deputy County Executive of Health and Human Services for Nassau County, New York. Age 75.

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Carl Hahn has served as a director of Perot Systems since April 1993. Since June 1996, Mr. Hahn has been a private investor. Mr. Hahn previously served as Chairman of Saurer Ltd., a manufacturer of textile machines, and Chairman of the Board of Management of Volkswagen AG. Mr. Hahn also serves as a director and member of the compensation committees of Hawesko AG and Indesit Company (formerly known as Merloni Elettrodomestici Group). Mr. Hahn is also a professor of Industrial Strategies at the University of Zwickau, Germany. Age 80.

DeSoto Jordan has served as a director of Perot Systems since February 2004. Since September 1999, Mr. Jordan has been a private investor and Chairman of Afton Holdings, LLC. From 1988 to 1999, Mr. Jordan served as Vice President of Perot Systems. Mr. Jordan also serves as a director and member of the audit committee of Argan, Inc. Age 62.

Thomas Meurer has served as a director of Perot Systems since May 2001. Mr. Meurer is Senior Vice President of Hunt Consolidated, Inc., a director and Senior Vice President of Hunt Oil Company, and has served as an executive officer and director of one or more of the Hunt affiliated entities for over five years. Age 65.

Cecil H. (C. H.) Moore, Jr. has served as a director of Perot Systems since October 2003. Mr. Moore is a private investor and has served on several public boards since his retirement from KPMG LLP in June 2000. Mr. Moore is also a partner in Moore Holdings, Ltd., a family owned partnership. From January 1990 until August 1999, he served as managing partner of the Dallas Business Unit and as an International Liaison Partner of KPMG LLP. Mr. Moore is also a director and member of the audit committee of NL Industries, Inc. and a director and chairman of the audit committee of Kronos Worldwide, Inc. Age 67.

Anthony J. Principi has served as a director of Perot Systems since December 2005. Mr. Principi has served as Chairman of QTC Management, Inc. since November 2005, and as Senior Vice President of Pfizer, Inc. since March 2006. Mr. Principi is also a director and member of the audit committee of Mutual of Omaha Insurance Company. Since March 2005, Mr. Principi has served as Chairman of the Defense Base Closure and Realignment Commission. From January 2001 until January 2005, Mr. Principi was Secretary of the United States Department of Veterans Affairs. Age 62.

Anuroop (Tony) Singh has served as a director of Perot Systems since March 2005. Mr. Singh has served as Vice Chairman of Max New York Life Insurance Company Limited, a partnership between New York Life International LLC and Max India Limited, since January 2005. Mr. Singh was CEO and managing director of Max New York Life from October 2000 through December 2004. Mr. Singh served as a director of Max India Limited from October 2000 until September 2005. Age 53.

Board and Committee Meetings

The Board met five times in 2006. During 2006, each incumbent director attended at least 75% of the Board meetings and meetings of all of the committees of which he was a member. Directors are encouraged to attend the annual meetings of our stockholders. Six members of the Board attended our annual stockholders’ meeting in May 2006.

The Board has established the Audit Committee, Human Resources and Compensation Committee, and Nominating and Governance Committee to assist in the discharge of the Board’s responsibilities. Members of the committees serve until their successors are appointed or their earlier resignation or removal.

The charters of the Audit, Human Resources and Compensation, and Nominating and Governance Committees are publicly available at the Corporate Responsibility section of our website (www.perotsystems.com/responsibility). We intend to disclose all substantive amendments to these charters on this Web site. Stockholders may request a printed copy of any of these charters from Perot Systems

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Corporation, Attn: Investor Relations, 2300 West Plano Parkway, Plano, Texas 75075, telephone 1-877-737-6973.

Presiding Director for Executive Sessions of Non-Management Directors

The Board holds meetings of its non-management directors quarterly. The presiding director for these meetings rotates January 1 of each year according to the alphabetical order of each non-management director’s last name. Mr. Hahn served in this position during fiscal 2006. Mr. Jordan is the presiding director for 2007. Stockholders and other interested parties may express any concerns regarding Perot Systems’ business practices to the presiding director or to the non-management directors as a group by sending a written communication to Perot Systems Corporation, Attn: Non-Management Directors/Corporate Secretary, 2300 West Plano Parkway, Plano, Texas 75075 or by calling our Confidential Hotline (1-800-753-9173) and requesting that the information be provided to the non-management directors.

Audit Committee

The Audit Committee consists of C. H. Moore, Jr., Carl Hahn, John S.T. Gallagher, and Anuroop (Tony) Singh. Mr. Moore, the Chairman of the Audit Committee, was appointed to the Audit Committee in December 2003. Messrs. Hahn, Gallagher and Singh were appointed in December 1994, May 2001, and April 2006, respectively. The Audit Committee met ten times in 2006. All members of the Audit Committee satisfy the requirements of independence as set forth in the listing standards of the New York Stock Exchange and Perot Systems’ Director Independence Standard and are independent within the meaning of the applicable regulations of the Securities and Exchange Commission. C. H. Moore, Jr. is qualified as an audit committee financial expert within the meaning of the Securities and Exchange Commission regulations, and the Board has determined that he has accounting and related financial management expertise within the meaning of the listing standards of the New York Stock Exchange.

The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing, and financial reporting practices. The Audit Committee does not prepare financial statements or perform audits, and its members are not auditors or certifiers of our financial statements. A charter, that the Board and Audit Committee reassess annually, governs the Audit Committee’s activities.

The Audit Committee’s primary responsibilities and duties are to review and discuss with our outside independent registered public accounting firm our financial statements and the professional services they provide, including the scope of their audit coverage, the independent registered public accounting firm’s reports to management and management’s responses to such reports, and the independence of the accounting firm from our management. In addition, the Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to legal and regulatory compliance matters. The Audit Committee also reviews and discusses with management the scope of our internal audits, summaries of the internal auditors’ reports and activities, the effectiveness of our internal audit staff, certain possible violations of our Standards and Ethical Principles, and such other matters with respect to our accounting, auditing, and financial reporting practices and procedures as it may find appropriate or as have been brought to its attention. In addition, the Board has delegated to the Audit Committee the authority to select our independent registered public accounting firm for each fiscal year.

Human Resources and Compensation Committee

The Human Resources and Compensation Committee (the “HR Committee”) consists of Carl Hahn, DeSoto Jordan, Thomas Meurer, Anthony Principi, and Anuroop (Tony) Singh. Mr. Hahn, the Chairman of the HR Committee, was appointed to the committee in March 2002. Messrs. Meurer, Jordan, Singh and

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Principi were appointed in March 2002, February 2004, June 2005, and April 2006, respectively. All members of the HR Committee satisfy the requirements of independence as set forth in the listing standards of the New York Stock Exchange and Perot Systems’ Director Independence Standard. The HR Committee met five times in 2006.

The primary areas of responsibility of the HR Committee are as follows:

·       Our human resources strategies and practices and the compensation of, and benefits available to, our associates.

·       Fair compensation for our executives based on their performance and contribution to the Company.

·       The annual report of the HR Committee to be included in the Proxy Statement for our Annual Meeting of Stockholders.

In discharging its responsibilities, the HR Committee advises management and makes recommendations and determinations with respect to salary matters, bonus and retirement plans, health and welfare plans, the 1999 Employee Stock Purchase Plan, the 2001 Long-Term Incentive Plan and other benefit plans. In addition, the HR Committee reviews and provides advice to management regarding succession planning and talent development processes, the promotion of diversity, and leadership and associate development. The HR Committee’s activities are governed by a charter that the Board and HR Committee reassess annually.

Except as described below, the HR Committee reviews and makes final determinations with respect to compensation for our executive officers and reviews and makes recommendations to the Board of Directors regarding the compensation of our outside directors. The charter of the HR Committee allows the HR Committee to delegate certain of its responsibilities, where appropriate, to the chair or one or more members of the HR Committee. The HR Committee has formed the Incentive Compensation Subcommittee, which is composed solely of outside directors, to make final determinations regarding performance-based compensation, within the meaning of Section 162(m) of the Internal Revenue Code, for our executive officers. Prior to February 27, 2007, the HR Committee reviewed and made final determinations with respect to the compensation of our Chairman and Chief Executive Officer and reviewed and made recommendations to the Board of Directors with respect to the compensation of our other executive officers. In discharging its responsibilities, the HR Committee and its Incentive Compensation Subcommittee were advised by our Human Resources organization. The participation of our executive officers in the determination of salaries for named executives is described in our “Compensation Discussion and Analysis.” Our executive officers provide information and review proposals regarding, but do not recommend, non-employee director compensation levels. In addition, the HR Committee and its Incentive Compensation Subcommittee engaged and were advised by Frederic W. Cook & Co., Inc. (“F.W. Cook”). Pursuant to the directions of these committees, F.W. Cook provides them with market data, updates on compensation trends and regulatory developments, advice on program design and compensation levels, and other related items as requested by the committees. Although it gathers information from, and reviews materials with, management in completing its work, F.W. Cook works directly on behalf of the committees, does no other work for the Company or any of its senior executives, and has no other ties to the Company.

Nominating and Governance Committee

The Nominating and Governance Committee consists of Thomas Meurer, John S.T. Gallagher, DeSoto Jordan and Anthony Principi. Mr. Meurer, the Chairman of the Nominating and Governance Committee, was appointed to the committee in June 2003. Messrs. Gallagher, Jordan and Principi were appointed to the Nominating and Governance Committee in June 2003, February 2004 and April 2006, respectively. The committee met five times in 2006.

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The Board of Directors established the Nominating and Governance Committee to assist the Board in shaping our corporate governance, including the composition of the Board and its committees. The Nominating and Governance Committee identifies, evaluates and recommends to the full Board all candidates for election as a director. The committee also reviews and recommends our corporate governance principles.

Each member of the Nominating and Governance Committee satisfies the requirements of independence set forth in the listing standards of the New York Stock Exchange and Perot Systems’ Director Independence Standard. The Director Independence Standard is publicly available at the Corporate Responsibility section of our Web site (www.perotsystems.com/responsibility).

Director Independence

Pursuant to the Director Independence Standard, the Board reviewed each director’s independence in February 2007. As a result of this review, the Board affirmatively determined that each director standing for election at the Annual Meeting, except Ross Perot, Ross Perot, Jr., Peter Altabef and Steven Blasnik, has no material relationship with Perot Systems (either directly or as a partner, shareholder or officer of an organization that has a relationship with Perot Systems) and is independent of Perot Systems and its management under the Director Independence Standard, the listing standards of the New York Stock Exchange currently in effect and, with respect to members of the Audit Committee, applicable regulations of the Securities and Exchange Commission.

In connection with Mr. Meurer’s independence determination, the Board examined the personal relationships between Mr. Meurer and the Perot family. These relationships include Mr. Meurer’s service as an unpaid trustee or co-trustee for 13 trusts that benefit members of Ross Perot’s family, including Ross Perot, Jr. One of these trusts directly owns 2,050,000 shares of our Class A Common Stock and is a limited partner, which owns approximately 61.3% of the economic interest in HWGA, Ltd., a limited partnership having Ross Perot and Ross Perot, Jr. as its sole general partners. HWGA owns 29,655,000 shares of our Class A Common Stock. However, in its capacity as a limited partner of HWGA, the trust does not possess, either directly or indirectly, (i) the power to direct or cause the direction of management and policies of HWGA or (ii) voting or dispositive power over the Class A Common Stock owned by HWGA. Five of the remaining trusts, one of which has Ross Perot, Jr. as its principal beneficiary, own an aggregate of 136,800 shares (27,360 shares each) of our Class A Common Stock. After considering all relevant facts and circumstances, the Board determined Mr. Meurer’s relationships were not material and do not impair the independence of Mr. Meurer.

In connection with Mr. Gallagher’s independence determination, the Board examined Mr. Gallagher’s service as a Life Trustee on the 130-member board of trustees for North Shore—Long Island Jewish Health System, a former client of ours, and his former service as its Chief Executive Officer. After considering all relevant facts and circumstances, the Board determined that Mr. Gallagher’s relationships were not material and do not impair the independence of Mr. Gallagher.

In connection with Mr. Jordan’s independence determination, the Board examined Mr. Jordan’s role as one of our founders and his employment by us until his retirement in 1999. The Board also considered a personal loan made by Ross Perot to Mr. Jordan, which was repaid in 1999. After considering all relevant facts and circumstances, the Board determined that Mr. Jordan’s relationships were not material and do not impair the independence of Mr. Jordan.

Stockholder Nominations and Nominee Review Process

The Nominating and Governance Committee will consider director candidates recommended by our stockholders. Perot Systems’ Director Qualification Guidelines are publicly available at the Corporate Responsibility section of our Web site (www.perotsystems.com/responsibility). Perot Systems stockholders

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who wish to recommend a director candidate should mail the candidate’s resume, together with a letter from the candidate confirming his or her interest in serving as one of our directors, to Perot Systems Corporation, Attn: Nominating Committee/Corporate Secretary, 2300 West Plano Parkway, Plano, Texas 75075.

Once the Nominating and Governance Committee has identified a prospective candidate, the committee makes an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on the candidate’s resume, as well as the Nominating and Governance Committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The initial determination is also based on the likelihood that the prospective candidate meets the standards and qualifications set forth in Perot Systems’ Director Qualification Guidelines, which include:

·       the highest personal and professional ethics, integrity and values;

·       broad-based skills and experience at an executive, policy-making level in business, government or technology areas relevant to our activities;

·       a global business perspective;

·       a willingness to devote sufficient time to become knowledgeable about our business and to carry out his or her duties and responsibilities effectively;

·       a commitment to serve on the Board for five years or more at the time of his or her initial election;

·       service on no more than two boards of public companies in addition to the board of the company by which they are primarily employed or serve as Chairman, unless approved by the Board; and

·       between the ages of 40 and 70 at the time of his or her initial election.

The Nominating and Governance Committee also considers such other relevant factors as it deems appropriate, including the composition of the Board, the balance of management and independent directors, and financial or industry expertise. If the Nominating and Governance Committee determines that the candidate is qualified and interested, the committee coordinates a series of interviews between the candidate and appropriate directors, officers and other senior managers of Perot Systems. After conducting their evaluation, the Nominating and Governance Committee makes a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the committee.

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Communications with Directors

Stockholders and other interested parties may send communications to the Board of Directors, the Audit Committee, and the Nominating and Governance Committee at the addresses set forth in the table below. Our Secretary is responsible for forwarding to appropriate directors all written communications addressed to the Board or its committees. In addition, transcripts of calls to our Confidential Hotline relating to accounting and financial matters are forwarded to the members of the Audit Committee.

Directors				Address
Board of Directors				By mail: Perot Systems Corporation Attn: Board of Directors/Corporate Secretary 2300 West Plano Parkway Plano, TX 75075
Audit Committee				By mail: Perot Systems Corporation Attn: Audit Committee/Corporate Secretary 2300 West Plano Parkway Plano, TX 75075 By e-mail: PSC-AuditCommittee@ps.net Telephone: +1 (800) 753-9173 (Confidential Hotline)
Nominating and Governance Committee				By mail: Perot Systems Corporation Attn: Nominating and Governance Committee/Corporate Secretary 2300 West Plano Parkway Plano, TX 75075
Individual Directors				By mail: Perot Systems Corporation Attn: Name of Director/Corporate Secretary 2300 West Plano Parkway Plano, TX 75075

 

Director Compensation

The Director Compensation Table below shows compensation for the year 2006 for our directors other than Messrs. Ross Perot, Ross Perot, Jr. and Peter Altabef, who receive no compensation for their services as directors.

(1)          The value, calculated in accordance with FAS 123R, of options vesting or stock awards made in 2006. The assumptions used to calculate these values are set forth in Note 10 to our Consolidated Financial

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Statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2006.

(2)          Options were awarded prior to May 10, 2006 when the current compensation program for non-employee directors was implemented.

Each of the non-employee directors (other than Ross Perot) receives a $45,000 annual retainer payable in quarterly installments. These non-employee directors have the option to receive all or part of the retainer in our Class A Common Stock, which is valued at the closing price of our Class A Common Stock on the New York Stock Exchange on the last trading day of the fiscal quarter preceding the quarter with respect to which payment is due. In 2006, additional retainers for the Chairmen of the Audit Committee, the Human Resources and Compensation Committee, and the Nominating and Governance Committee were $12,000, $5,000, and $5,000, respectively. During 2006, each non-employee director (other than Ross Perot) was compensated $2,000 for each meeting of the Board of Directors attended in person or by telephone and $1,000 for each committee meeting attended in person or by telephone (including meetings held in conjunction with Board meetings). We reimburse our directors for their reasonable travel-related and other out-of-pocket expenses associated with attending Board and committee meetings. Ross Perot receives no compensation for his services.

Each of the non-employee directors (other than Ross Perot) participates in the 2006 Non-Employee Director Equity Compensation Plan (the “2006 Plan”), which provides for a grant to each eligible non-employee director of 5,000 shares of Class A Common Stock on each June 1 that the director is serving as a member of our Board of Directors. Upon their initial selection as directors, non-employee directors will receive an initial grant under the 2006 Plan that is a prorated portion of the 5,000 share annual grant. Shares received pursuant to the 2006 Plan are immediately vested. Directors have the option to irrevocably defer the receipt of shares received under the 2006 Plan to the date that the director’s service terminates. From June 3, 2003 to May 10, 2006, Perot Systems’ 1996 Non-Employee Director Plan provided for a grant to each eligible director of (i) an option to purchase 8,000 shares of our Class A Common Stock vesting one year after the date of grant or (ii) the right to purchase 8,000 restricted shares of our Class A Common Stock vesting one year after the date of grant. The exercise price of options or the purchase price of restricted shares of Class A Common Stock were required to be at least equal to 100% of the fair market value of the Class A Common Stock on the date of the award. The 1996 Non-Employee Director Plan terminated, except with respect to outstanding awards, upon the approval of the 2006 Plan at the 2006 Annual Meeting of Stockholders.

Corporate Governance Principles

Code of Conduct

We have adopted Standards & Ethical Principles to assist our directors, executive officers and other associates to recognize and deal with ethical issues in business situations, to provide mechanisms to report unethical conduct, and to promote a culture of honesty and accountability.

The Standards & Ethical Principles are publicly available at the Corporate Responsibility section of our Web site (www.perotsystems.com/responsibility). Stockholders may request a printed copy of these guidelines, without charge, from Perot Systems Corporation, Attn: Investor Relations, 2300 West Plano Parkway, Plano, Texas 75075, telephone 1-877-737-6973.

We intend to disclose all substantive amendments to the Standards & Ethical Principles on our Web site. In addition, we intend to disclose waivers, if any, granted to any of our directors or to our Chief Executive Officer, Chief Financial Officer, Controller and any other executive officer on our Web site.

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Governance Guidelines

We have corporate governance guidelines. These guidelines are publicly available at the Corporate Responsibility section of our Web site (www.perotsystems.com/responsibility). We intend to disclose all substantive amendments to these guidelines on this Web site. Stockholders may request a printed copy of these guidelines, without charge, from Perot Systems Corporation, Attn: Investor Relations, 2300 West Plano Parkway, Plano, Texas 75075, telephone 1-877-737-6973.

PROPOSAL NO. 2

APPROVAL OF THE AMENDED AND

RESTATED 2001 LONG-TERM INCENTIVE PLAN

On February 27, 2007, the Board amended and restated our 2001 Long-Term Incentive Plan (the “2001 Plan”), subject to stockholder approval, to enable incentive bonus payments and grants of restricted stock units made to our executive officers to qualify as performance-based compensation with respect to Section 162(m) of the Internal Revenue Code.

The Existing Plan

Under the existing 2001 Plan, associates, directors, or consultants may be granted stock options, stock appreciation rights, and restricted stock or may be issued cash awards or a combination thereof. Stock option awards under the 2001 Plan may be granted in the form of incentive stock options or non-statutory stock options. The exercise price of all stock options must be no less than the fair market value of our stock on the date of grant. The term of incentive stock options may be no longer than ten years from the date of grant, and the term of non-statutory stock options may be no longer than eleven years from the date of grant. The vesting period for all options is determined upon grant date. The options are exercisable from the vesting date, and unexercised vested options are canceled following the expiration of a certain period after the associate’s termination date.

Proposed Amendments to the 2001 Plan

The Board recommends that stockholders approve the proposed amended and restated 2001 Plan (the “Amended and Restated Plan”) which is attached as Annex 1 to this Proxy Statement.

We are not able to deduct, for federal income tax purposes, compensation paid to our Chief Executive Officer and each of the four next highest paid executive officers at the end of our fiscal year to the extent it exceeds $1,000,000 per executive officer, unless the compensation qualifies as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. The amendments included in the Amended and Restated Plan are designed to enable bonus payments and certain awards of restricted stock units and restricted stock made to our executive officers to qualify as performance-based compensation under Section 162(m).

The Amended and Restated Plan would allow the HR Committee or its Incentive Compensation Subcommittee, to which the HR Committee has delegated the authority to make determinations regarding performance-based compensation, to select from two alternative approaches to ensure that such compensation is performance-based. We refer to these alternatives as the “formula approach” and the “factors approach,” respectively.

Our Incentive Compensation Subcommittee has adopted the formula and factors approaches, subject to stockholder approval, to apply to annual bonuses and restricted stock or unit awards to our executive officers under the 2001 Plan for awards based on performance in the 2007 fiscal year and thereafter. The Amended and Restated Plan would not restrict the ability of the HR Committee to make other awards outside the 2001 Plan.

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Formula Approach

Under the proposed formula approach, no executive officer could receive bonuses and awards of restricted stock units and restricted stock under the 2001 Plan with an aggregate value of more than one percent of our Gross Profit, as reported in the Consolidated Income Statements contained in our Consolidated Financial Statements, for the performance year. However, in determining actual bonus amounts and awards of restricted stock units and restricted stock, the Incentive Compensation Subcommittee may, in its discretion, determine to award any or all of our executive officers bonuses and awards of restricted stock units and restricted stock having less than the maximum aggregate value. If the Incentive Compensation Subcommittee is using the formula approach, it will, prior to awarding any annual bonuses, restricted stock units or restricted stock for our 2007 performance and for performance in future years, evaluate our performance and determine the maximum amount that may be awarded under the formula.

Factors Approach

As an alternative to the formula approach, the Amended and Restated Plan would allow the Incentive Compensation Subcommittee to pay bonuses and award restricted stock units and restricted stock intended to qualify as performance-based compensation under Section 162(m) upon the achievement of pre-established corporate performance goals based on one or more of the following factors:

·       return on total shareholder equity;

·       earnings per share of our Class A Common Stock;

·       net income or operating income (before or after taxes);

·       earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation;

·       market to book value ratio;

·       sales or revenue targets;

·       return on assets, capital or investment;

·       cash flow or free cash flow (cash flow from operations less capital expenditures);

·       market share;

·       cost reduction goals;

·       budget comparisons;

·       measures of customer satisfaction;

·       implementation, completion or progress of projects, processes, products or product-lines strategic or critical to our business operations;

·       share price (including, but not limited to, growth measures and total shareholder return);

·       working capital;

·       economic value added;

·       percentage of sales generated by new products;

·       growth in sales of products or product-lines;

·       new product development or successful completion of research and development projects;

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·       any combination of, or a specified increase in, any of the foregoing; and

·       the formation of joint ventures, research or development collaborations, or the completion of other corporate transactions intended to enhance our revenue or profitability or enhance our customer base.

With respect to future awards made using the factors approach, the annual bonus payable to any executive officer with respect to any fiscal year cannot exceed $5,000,000 and the number of shares of our Class A Common Stock subject to restricted stock or unit awards with respect to any fiscal year cannot exceed 300,000. In addition, if the Incentive Compensation Subcommittee is using the factors approach, it will establish the corporate performance goals within the first 90 days of a performance period. Prior to awarding any annual bonuses or restricted stock units or restricted stock for performance in all years covered by the factors approach, the Incentive Compensation Subcommittee will evaluate our performance against the pre-established corporate performance goals and determine whether such goals have been achieved. In determining actual bonus amounts and awards of restricted stock units and restricted stock, the Incentive Compensation Subcommittee may, in its discretion, determine to award any or all of the executive officers bonuses and awards of restricted stock units and restricted stock having less than the maximum aggregate value that could be awarded based on achievement of the pre-established corporate performance goals.

Compensation Not Yet Earned; Historical Effect

Awards approved by the Incentive Compensation Subcommittee will be based on our performance for 2007 and later periods. No incentive compensation under these terms has yet been earned by any covered executive officer, because the performance period has not yet been completed. Accordingly, the amount of incentive compensation to be paid in the future to our current or future covered executive officers cannot be determined at this time. Actual amounts will depend on our actual performance and on whether the Incentive Compensation Subcommittee or the Board of Directors elects to reduce such amounts. Had this proposal been in effect for the 2006 performance period, the Incentive Compensation Subcommittee believes that the annual incentives would have been essentially the same as the bonus compensation and restricted stock unit awards reported in the Summary Compensation Table for our named executives.

Recommendation

We recommend the approval of the Amended and Restated Plan, including the formula approach and the factors approach, to enable us to take a federal income tax deduction for performance-based compensation paid to our Chief Executive Officer and the four next highest paid executive officers at the end of our fiscal year.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE ‘‘FOR’’ THE APPROVAL OF THE AMENDED AND RESTATED 2001 LONG-TERM INCENTIVE PLAN.

PROPOSAL NO. 3

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm to perform the audit of our financial statements for 2007. PricewaterhouseCoopers LLP was our independent registered public accounting firm for the year ended December 31, 2006.

We are asking our stockholders to ratify the selection of PricewaterhouseCoopers as our independent registered public accounting firm. Although ratification is not required, the Board is submitting the selection of PricewaterhouseCoopers to our stockholders for ratification as a matter of good corporate

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practice. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders.

PricewaterhouseCoopers’ representatives are expected to attend our 2007 Annual Stockholders’ Meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate stockholder questions.

Fees Paid to PricewaterhouseCoopers LLP

The following table shows the aggregate fees PricewaterhouseCoopers has billed or is expected to bill us for services rendered in 2006 and 2005.

(1)          Fees for our annual audit and review of interim financial statements, various statutory audits, and consultations on the accounting for existing transactions.

(2)          Fees for services including audits of an employee benefit plan, audits in connection with acquisitions, and consultations on the accounting for prospective transactions.

(3)          Fees for compliance and tax advisory services.

(4)          Subscription fee to an online accounting research tool and a salary survey for operations in a certain foreign country.

(5)          Amounts include estimates that have not been billed.

In 2006, all audit related services, tax services and other services were pre-approved by the Audit Committee or its Chairman. The Audit Committee concluded that the provision of such services by PricewaterhouseCoopers was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. See “Report of Audit Committee.” Our policy restricting the engagement of our independent registered public accounting firm requires that all audit, review and attestation services must be approved by the Audit Committee prior to us engaging the audit firm.

In addition, our policy regarding the engagement of our independent registered public accounting firm provides that the Audit Committee or its Chairman may pre-approve engagement of the accounting firm for services in designated areas for fees that do not exceed the pre-approved limit. For 2007, the Audit Committee has approved the following types of services:

·       Audit Related Services—pension and benefit plan audits, separate audit reports on subsidiaries and other statutory reports not included in audit services.

·       Tax Services—tax accounting advice on international, federal, and state tax matters, assistance with tax examinations, tax advice on prospective transactions and business combinations, and compliance reviews.

·       Other Services—annual subscription fee for accounting research tool and a salary survey for operations in a certain foreign country.

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Our policy requires quarterly reports to the Audit Committee on billings for pre-approved services. All amounts in excess of pre-approved amounts for these services must be specifically approved by the Chairman of the Audit Committee and reported to the full Audit Committee no later than its next regular meeting.

The Audit Committee or its Chairman may also approve specific engagements for non-audit services. Following such approval, we may engage the auditor to perform those services. Any approval by the Chairman must be reported to the full Audit Committee no later than its next regular meeting.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE ‘‘FOR’’ THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS PEROT SYSTEMS’ INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table shows the number of shares of Class A Common Stock beneficially owned as of March 5, 2007 by:

·       each person who we know beneficially owns more than 5% of our Class A Common Stock;

·       each director;

·       the Chief Executive Officer, the Chief Financial Officer, and the other executive officers required to be named in the Summary Compensation Table; and

·       all executive officers and directors as a group.

                 * Less than 1%

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       (1) Percentages are based on the total number of shares of Class A Common Stock outstanding at March 5, 2007, plus the total number of outstanding options, warrants held by each person that are exercisable, and restricted stock units that vest, within 60 days of such date. We do not consider shares of Class A Common Stock issuable upon exercise of outstanding options and warrants, and unvested restricted stock units, to be outstanding for purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table, other than shared property rights created under joint tenancy or marital property laws between our directors and executive officers and their respective spouses, each stockholder named in the table has sole voting and investment power with respect to the shares of Class A Common Stock set forth opposite such stockholder’s name. The shares of Class A Common Stock listed include shares held by our Retirement Savings Plan and Trust for the benefit of the named individuals. Participants in the plan have investment and voting power over shares held for their benefit.

       (2) Includes 248,000 shares of Class A Common Stock that Mr. Altabef has the right to acquire upon the exercise of vested options.

       (3) Includes 335,000 shares of Class A Common Stock that Mr. Freeman has the right to acquire upon the exercise of vested options.

       (4) Includes 29,655,000 shares of Class A Common Stock owned by HWGA, Ltd.; 10,000 shares owned by The Perot Foundation; 5,000 shares owned by Ross Perot, Jr.’s spouse; and 1,160,000 shares that Ross Perot, Jr. has the right to acquire upon the exercise of vested options. Ross Perot, Jr. disclaims beneficial ownership of the shares his spouse holds. Ross Perot, Jr. is a general partner of HWGA. Ross Perot, our Chairman Emeritus, is the managing general partner of HWGA. If Ross Perot ceases to be managing general partner, Ross Perot, Jr. will have authority to manage HWGA. Accordingly, the table also shows Ross Perot beneficially owning the shares that HWGA owns. Ross Perot, Jr. is a director of The Perot Foundation. The address for Ross Perot, Jr. is 2300 West Plano Parkway, Plano, Texas 75075, and the address of HWGA and The Perot Foundation is P.O. Box 269014, Plano, Texas 75026-9014.

       (5) Includes 165,500 shares of Class A Common Stock that Mr. Lyles has the right to acquire upon the exercise of vested options.

       (6) Includes 200,000 shares of Class A Common Stock the Champy Family Irrevocable Trust, of which Mr. Champy is a trustee, holds. As trustee, Mr. Champy shares voting and investment power with respect to the shares of Class A Common Stock the Champy Family Irrevocable Trust holds, and therefore, the table shows him as the beneficial owner of such shares of Class A Common Stock. Includes 72,000 shares of Class A Common Stock that Mr. Champy has the right to acquire upon the exercise of vested options.

       (7) Includes 32,000 shares of Class A Common Stock that Mr. Blasnik has the right to acquire upon the exercise of vested options and 6,000 shares of Class A Common Stock that Mr. Blasnik’s spouse holds. Mr. Blasnik disclaims beneficial ownership of the shares that his spouse holds.

       (8) Includes 40,000 shares of Class A Common Stock that Mr. Gallagher has the right to acquire upon the exercise of vested options.

       (9) Includes 24,000 shares of Class A Common Stock that Mr. Hahn has the right to acquire upon the exercise of vested options.

(10) Includes 24,000 shares of Class A Common Stock that Mr. Jordan has the right to acquire upon the exercise of vested options.

(11) Includes 2,050,000 shares owned by the Perot Family Trust and 136,800 shares owned by Perot Investment Trusts I—V of which Mr. Meurer is trustee. As trustee, Mr. Meurer holds or shares voting

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and investment power with respect to the shares of Class A Common Stock held by the Trusts, and therefore, the table shows him as the beneficial owner of such shares of Class A Common Stock. Also includes 40,000 shares of Class A Common Stock that Mr. Meurer has the right to acquire upon the exercise of vested options.

(12) Includes 24,000 shares of Class A Common Stock that Mr. Moore has the right to acquire upon the exercise of vested options.

(13) Includes 29,655,000 shares of Class A Common Stock owned by HWGA, Ltd.; 10,000 shares owned by The Perot Foundation; 4,000 shares owned by Petrus Financial Services Limited, a Texas limited partnership; and 100 shares owned by Ross Perot’s spouse with respect to which Mr. Perot disclaims beneficial ownership. Ross Perot, our Chairman Emeritus, is the managing general partner of HWGA. Ross Perot has voting and investment power over shares owned by HWGA. Ross Perot, Jr., our Chairman of the Board, is a general partner of HWGA and has authority to manage HWGA if Ross Perot ceases to be managing general partner of HWGA. Accordingly, the table also shows Ross Perot, Jr. beneficially owning the shares that HWGA owns. Mr. Perot is a director and officer of The Perot Foundation. Petrus Financial Services Limited is an affiliate of Ross Perot. The address for Ross Perot, HWGA, The Perot Foundation and Petrus Financial Services Limited is P.O. Box 269014, Plano, Texas 75026-9014.

(14) Includes 8,000 shares of Class A Common Stock that Mr. Principi has the right to acquire upon the exercise of vested options.

(15) Includes 16,000 shares of Class A Common Stock that Mr. Singh has the right to acquire upon the exercise of vested options.

(16) In addition to the 14 listed executive officers and directors, Darcy Anderson, James C. Ballard, John King, Padma Ravichander, Jeff Renzi and Thomas D. Williams are executive officers and are therefore included in the group of 20 persons. Includes 2,439,700 shares of Class A Common Stock that the Executive Officers and Directors have the right to acquire upon the exercise of vested options.

(17) Shares are also shown as beneficially owned by Ross Perot and Ross Perot, Jr.

(18) This data is based on information contained in Amendment No. 5 to Schedule 13G filed by Royce & Associates, LLC with the Securities and Exchange Commission on January 24, 2007. The address for Royce & Associates, LLC is 1414 Avenue of the Americas, New York, NY 10019.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This compensation discussion and analysis (“CD&A”) is intended to provide information about our compensation objectives and policies for our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers (“named executives”) that will place in perspective the information contained in the tables that follow this discussion. Our CD&A is organized as follows:

·       Objectives of Our Compensation Program.   In this section, we describe our compensation philosophy, related operating principles, and activities we have undertaken in benchmarking compensation against market practices.

·       Share Ownership and Retention Guidelines.   We provide a description of the share ownership and retention guidelines applicable to our named executives as well as our policy on hedging the economic risk of ownership of our common stock.

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·       Role of Executive Officers in Compensation Decisions.   We describe the role of our executive officers in making compensation decisions.

·       Elements of Compensation.   We describe the types of compensation payable to our named executives.

·       Analysis of 2006 Compensation.   Following the general explanation of our various pay elements in this section, we provide more detail on the basis of compensation for our named executives in 2006.

·       Regulatory Considerations.   In this section we discuss the impact of various regulatory requirements on decisions regarding executive compensation.

We provide information about our HR Committee and the processes it uses in determining the compensation of our named executives in the section of the Proxy Statement dealing with corporate governance matters.

Objectives of our Compensation Programs

Perot Systems is a global information technology services company. We have a growth strategy and our goal as a company is to effectively execute this business strategy to create value for our investors, serve our customers and provide opportunities for our associates. We base our compensation programs on our business needs and challenges and intend for those programs to support the achievement of our strategy and shareholder value creation through the following:

·       A linkage between compensation and performance, including business results as well as individual performance;

·       The use of equity compensation to align our senior leaders’ financial interests with those of shareholders;

·       Compensation levels consistent with market practices that enable us to recruit and retain associates capable of executing our business strategies;

·       Limited use of perquisites and other forms of non-cash benefits in order to avoid an entitlement mentality, reduce costs, and reinforce a pay-for-performance philosophy; and

·       Flexibility to adjust to changing business needs in a fast-paced business environment.

Market Benchmarking

We consider market pay levels as one of the important factors in assessing the supply of and demand for senior leadership. Our objective is to position ourselves around the middle of market practice with the flexibility to recognize different levels of performance, experience and contribution. To provide a frame of reference in evaluating the reasonableness and competitiveness of compensation, information on market pay levels is obtained from various sources, including nationally recognized compensation surveys, information taken from Securities and Exchange Commission filings of selected, publicly-traded benchmark companies, and first-hand experience obtained from the marketplace in hiring associates.

F.W. Cook, our HR Committee’s consultant, annually gathers information on pay levels and practices for a group of comparable, publicly-traded information technology services companies that are based in the United States. Our management and the HR Committee’s consultant periodically review and evaluate the benchmark companies in light of our development and growth, as well as merger and acquisition activity in the industry. For 2006, this group included all U.S.-based companies in the Hemscott Group Information Technology Services Index, except those that are substantially smaller than us, as well as other comparable companies with which we compete. The benchmark companies in 2006 included Accenture, Affiliated Computer Services, Alliance Data Systems, Anteon International, BearingPoint, CACI

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International, Cerner, CIBER, Cognizant Technology Solutions, Computer Sciences, Electronic Data Systems, First Consulting Group, Fiserv, Keane, NCR, and Unisys. For each comparable company, the HR Committee’s consultant collects information regarding total compensation levels for named executives (including base salary, annual bonus, long-term incentives, and other compensation), dilution from stock incentives, share usage under stock incentive plans (including the number of shares granted annually as a percentage of total shares outstanding and the expense of all stock awards granted annually as a percentage of market capitalization), retirement practices, and other related items. The HR Committee’s consultant summarizes and reviews this information with the HR Committee, as well as information from leading published compensation surveys.

Share Ownership and Retention Guidelines

We believe that our named executives should have a significant equity interest in the Company. In order to promote equity ownership and further align the interests of our named executives with our shareholders, we have restricted the ability of our named executives to sell a portion of the shares of our Class A Common Stock received upon the vesting of their restricted stock units until the applicable stock ownership guideline is met. Our stock ownership guidelines vary based upon position and are expressed as a number of shares, ranging from 150,000 shares for our Chief Executive Officer to 50,000 shares for other named executives. Until the applicable guideline is met, each named executive is required to retain 30% of any shares received upon the vesting of his or her restricted stock units. Only shares actually owned by the named executive are counted for purposes of determining whether the applicable ownership guideline is met. The program is subject to periodic review by the HR Committee. All named executives are in compliance with the terms of this program.

The Company prohibits the purchase or sale of uncovered options, puts, calls, or other derivative securities in the Company’s Class A Common Stock by its associates. However, we do not have a policy prohibiting named executives from hedging risk in our securities by purchasing or selling options, puts, calls, or other derivative securities.

Role of Executive Officers in Compensation Decisions

Our associates, including executive officers, prepare and assemble materials for the HR Committee. Our Chief Executive Officer also annually reviews and rates the performance of each of the named executives (other than the Chairman and the Chief Executive Officer, each of whose performance is assessed by the HR Committee). Following a review with the members of the our Executive Committee, which includes our Chairman, the Chief Executive Officer recommends to the HR Committee and its Incentive Compensation Subcommittee salary adjustment, annual bonus and long-term award amounts for each such named executive based on market information, that named executive’s performance review, and on the Chief Executive Officer’s view of the named executive’s role in the Company, scope of responsibilities, experience and skills and, with respect to annual bonus awards, the factors set forth in “Analysis of 2006 Compensation—Short Term Incentive Program.” In 2006, the final determination of salary adjustments, annual bonuses, and equity awards was made by the Board, the HR Committee or the Incentive Compensation Subcommittee, as appropriate, for each of the named executives.

Elements of Compensation

This section describes each element of executive compensation, the objective of each element and how it fits into our overall program, and the basis for allocations among elements. We discuss details on the application of our compensation policies and programs to named executives’ compensation for 2006 in the following section “Analysis of 2006 Compensation.”

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Long-Term Stock Incentives

Stock incentive awards are a critical element of the total compensation program for our named executives. We have designed this element of compensation to reward recipients for increases in our stock price over time. We believe that stock incentive awards are a key element in driving the creation of value for investors. In addition, these awards assist us in attracting and retaining senior leadership capable of effectively executing our business strategies. Stock awards vary depending on the named executive’s role in the Company, scope of responsibilities, and experience and skills.

We award stock incentive compensation because we believe that it supports our key compensation objectives in the following ways:

·       Linking compensation and the performance of the Company;

·       Aligning the named executives’ interests with those of shareholders;

·       Assisting in the retention of named executives by providing compensation that is subject to the satisfaction of multi-year service requirements; and

·       Attracting named executives interested in building long-term value for our shareholders, as stock compensation is a key element of competitive pay packages for named executives.

Our long-term incentive program currently consists of a blend of two types of awards:

·       Stock Options—We set the exercise price of stock options at the closing market price of our stock on the date of grant, with options generally vesting in annual installments over five years beginning one year after grant. We believe that this design gives executives an incentive to increase share price and requires continued service over several years in order to realize potential gains; and

·       Restricted Stock Units—As with stock options, restricted stock units generally vest in annual installments over five years beginning one year after grant. In addition to continued service, the vesting of restricted stock units for any year is contingent upon the receipt of a satisfactory performance review for the prior year. We intend for restricted stock units to encourage the retention of named executives, while providing a continuing incentive to increase shareholder value and achieve individual performance objectives.

Beginning in 2006, the HR Committee, upon the recommendation of our management (including certain of our named executives), established a practice of awarding grants concurrent with an open trading window for our Section 16 officers, as well as for our principal annual grant to our other associates. This practice is designed to minimize the possibility that awards will be made while we are in possession of material non-public information. Trading windows open two days after each earnings release and remain open for 21 calendar days.

While stock is a major component of executive compensation, we use other elements to provide an integrated and competitive total pay package.

Base Salary

Base salaries are a significant portion of a named executive’s compensation and are based on a named executive’s role in the Company, scope of responsibilities, and experience and skills. We also consider market practices in setting salaries. We intend base salaries to assist us in attracting executives and recognizing differing levels of responsibility and contribution among named executives. Salary represents a smaller percentage of total compensation for more senior executives than for less senior executives, with a greater percentage of more senior executives’ compensation being tied to performance and share price. The timing of changes in base salaries is based on the timing of our individual performance reviews.

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Annual Incentive Bonuses

In addition to stock compensation and salary, annual bonuses paid in cash are the other significant piece of total compensation for our named executives. We design the annual bonus program to reward the achievement of our financial goals and other corporate and business unit goals, including customer satisfaction, associate retention and training, and individual performance. We pay annual bonuses to reward the achievement of goals and because they are a key tool in attracting and retaining executives due to their market prevalence. In addition, annual bonuses add a variable component to our overall cost structure. The timing of our annual bonuses is based on the timing of our individual performance reviews and the determination of whether we have achieved our financial and business goals for the year. The HR Committee exercises discretion in determining whether the goals have been achieved and the final amount of annual bonuses for the named executives.

We do not have a policy on the adjustment or recovery of awards or payments if the relevant measures on which the awards or payments are based are restated in the future.

Retirement Benefits

We do not have a traditional pension program. Our retirement program for U.S. associates consists of a 401(k) program, which named executives participate in under the same terms and provisions as other eligible associates. We match the individual associate’s contribution to the program, up to 4% of the associate’s cash compensation. Associate contributions to the 401(k) program for our named executives, as well as other more highly compensated associates are limited by federal law. We have not made up for the impact of these statutory limitations on named executives through any type of nonqualified deferred compensation or other program.

Other Benefits and Perquisites

In general, we have historically avoided the use of perquisites and other types of non-cash benefits for named executives in an effort to avoid an entitlement mentality and to reinforce a pay-for-performance orientation.

Change-in-Control and Severance Benefits

We have entered into change-in-control severance agreements with each of our named executives. In the event that we have a change in control and a named executive’s employment is terminated without cause or the named executive terminates his employment for good reason, the named executive would be entitled to receive the payments and benefits described under “Employment Contracts and Change-in-Control Agreements—Change-in-Control and Severance Agreements” below. We selected a double trigger for change-in-control benefits to provide named executives with protection from the financial consequences of sudden termination without cause following a change in control and to enable us to retain the services of the named executive during the period in which there is a change-in-control transaction under consideration. In addition, we believe that this protection is important to our ability to recruit and retain named executives. However, we did not consider it necessary to provide for change-in-control benefits that would be realized by a named executive absent an actual or constructive termination of his or her employment.

In the event of a termination not involving a change-in-control and a termination without cause or by Mr. Champy for good reason, Mr. Champy would be entitled to receive six months’ of his base salary as severance under his employment agreement which was entered into in 1996. Our other named executives do not have contractual severance rights absent a change in control of the Company, and the amount of any severance would be determined at the time of the named executive’s departure.

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Mix of Total Compensation

In regard to the allocation of the various pay elements within the total compensation program, the HR Committee reviews and considers the information described above under “Market Benchmarking,” but does not apply  a formula or specific weighting to determine the mix or relationship of compensation elements. In our compensation of named executives, we emphasize incentive compensation, including both equity compensation and an annual bonus program. We seek to balance the long-term incentives of our equity program with rewards for performance during the past year under the annual bonus program. Our cash compensation programs emphasize pay that varies based on company and individual performance. Therefore, depending on performance, annual bonuses may exceed base salaries for our named executives. The named executives receive almost no compensation beyond salary, bonus opportunities, and equity incentives because we do not maintain a traditional pension plan or nonqualified, deferred compensation program.

Analysis of 2006 Compensation

This section discusses and analyzes the compensation actions that were taken in 2006 for our named executives, as summarized in the following compensation tables.

Base Salary

The HR Committee reviews the base salaries of our named executives each year and, as appropriate, at the time of a promotion or other change in responsibility. In 2006, the HR Committee made the final determination of base salary adjustments for our Chairman and Chief Executive Officer and recommended base salary adjustments for the remaining named executives to our Board of Directors, which approved the HR Committee’s recommendations. The HR Committee and the Board usually approve salary adjustments in February or March with adjustments effective March 1.

Each named executives’ base salary level reflects this level of experience and individual contribution as evaluated during the annual performance review process. The HR Committee reviewed and considered information on median market pay levels, including the information described above under “Market Benchmarking,” and expected market increases for the coming year during the salary review process in making salary adjustments. However, the HR Committee did not apply a formula or specific weighting or relationship to determine the amount of base salary adjustments for the named executives in 2006.

Salary adjustments for our named executives in 2006 included annual merit increases and, where appropriate, competitive market pay adjustments to align pay with external benchmarks. Salaries for 2006 for our named executives and the percentage increase from 2005 are summarized in the table below. Our Chief Executive Officer’s salary was increased by 9.1% based on the HR Committee’s evaluation of his performance and a review of his salary level against market benchmarks. Approved salary increases for the other named executives averaged 4.8% of salary for 2006.

 

Short-Term Incentive Program

Our short-term incentive program provides our named executives the opportunity to earn pay-for-performance cash bonuses. The HR Committee annually reviews the plan design, performance measures

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and goals, and target bonuses for our named executives. The HR Committee provides for annual incentives (or bonuses) for named executives based on whether we achieve financial performance and other targets, except with respect to our Chairman who does not participate in our short-term incentive program. In determining the appropriate bonus, the HR Committee considers corporate performance, operating unit performance, the performance of the shared services team as applicable, the named executive’s individual performance, and market factors.

The HR Committee established a target bonus for each of the participating named executives during the first quarter of 2006 equal to a percentage of the named executive’s base salary. In determining the appropriate percentage for each named executive, the HR Committee considered relevant factors, including position level, scope of responsibility and the ability of such individual to drive our results, market practices, levels at which related performance goals have been established, and salary and relative total compensation levels. For 2006, individual target bonuses for participating named executives ranged from 125% (for our Chief Executive Officer) to 50% of base salary.

The HR Committee determined the performance factors to be used in adjusting the target bonus for each participating named executive, which included corporate performance, operating unit performance, and performance of the shared services team, as applicable. The HR Committee determined that for our Chief Executive Officer and Vice President—Chairman of Consulting, 50% of the target bonus would be adjusted based on corporate performance factors and 50% of the target bonus would be adjusted based on the weighted average of operating unit performance factors. For any named executive with responsibility for leading an operating unit, the HR Committee determined that 50% of the target bonus would be adjusted based on corporate performance factors and 50% of the target bonus would be adjusted based on such operating unit’s performance factors. For any named executive leading a portion of the shared services team, the HR Committee determined that 50% of the target bonus would be adjusted based on corporate performance factors, 25% of the target bonus would be adjusted based on the weighted average of operating unit performance factors, and 25% of the target bonus would be adjusted based on shared service performance factors.

In determining corporate performance in 2006, the HR Committee compared adjusted, diluted earnings per share to our target earnings per share to make the initial bonus adjustment, then increased the result by 10% for each secondary factor that exceeded the range specified by the HR Committee and decreased the result by 10% for each secondary factor that was less than the range determined by the HR Committee. No adjustment was made for performance within the range for a secondary factor. The HR Committee used revenue, free cash flow (which can be calculated by subtracting capital expenditures from operating cash flow), and total contract value of new contracts signed during the year as its secondary metrics. Our goal for earnings per share in 2006 was $0.89 per share. The ranges for secondary factors were as follows:  $2.25 billion to $2.37 billion for revenue, $65.0 million to $95.0 million for free cash flow, and $1.4 billion to $2.1 billion for total contract value signed during the year.

In determining corporate performance, the HR Committee and the Board, as applicable, have historically excluded items that they determined were not indicative of the performance of the named executives for such year. During 2006, the HR Committee excluded net charges of $48.6 million, which included an asset impairment of $43.7 million related to a contract restructuring. In 2005, the HR Committee and the Board, upon management’s recommendation, excluded tax benefits and certain customer payments that management, the HR Committee and the Board determined were not indicative of management’s performance for such year. In 2004, management recommended, and the HR Committee and the Board implemented a discretionary reduction in the bonuses of the named executives. Absent these exclusions and discretionary adjustments, we would have paid substantially larger bonuses for named executives in 2004 and 2005. Therefore, the methodology of excluding certain items from the determination of whether corporate goals were achieved in making past bonus determinations was a factor considered by the HR Committee in determining whether to exclude charges from the bonus

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determination in 2006. For 2006, our adjusted, diluted earnings per share were $0.90, revenue was $2.30 billion, free cash flow was $119.7 million, and total contract value of new contracts signed was $2.68 billion. Our results, as determined by the HR Committee, exceeded the earnings per share target and the range for our free cash flow and total contract value secondary factors. We performed within the range for the revenue factor.

With respect to operating unit performance, performance is measured on a balanced scorecard approach with an overall score of 100 representing the overall achievement of the operating unit’s performance goals. Managed net before tax profit (which excludes allocated corporate costs) was the primary scorecard metric for operating unit performance with secondary factors consisting of the operating unit’s revenue, total contract value signed, revenue with services delivered by our other business units, free cash flow, customer satisfaction, associate retention and associate training. Our operating unit goals include competitively sensitive information. We believe that achieving the operating and shared services goals were somewhat more difficult than achieving our corporate goals. Mr. Lyles’ operating unit exceeded 100 on its balanced scorecard. The weighted average of operating unit performance on the operating unit balanced scorecards was 90.

In addition to the performance adjustments described above, the HR Committee was provided with the results of our Chief Executive Officer’s annual performance review of each of the named executives (other than the Chairman and the Chief Executive Officer) and recommended formula adjustments based on those ratings. The Chief Executive Officer also provided the HR Committee with recommendations for any discretionary adjustments with respect to the incentive compensation for such named executives that he believed appropriate. The HR Committee then applied its discretion to determine the final bonus to be paid to the named executive; provided that the HR Committee capped any bonus payable with respect to 2006 at 200% of the named executive’s target bonus. The discretionary adjustments ranged from -5.9% to 0.1% from the formula derived bonus amounts with respect to the named executives.

The bonuses to our named executives as approved for 2006 are shown in the Summary Compensation Table below. The Chief Executive Officer’s bonus represented 121% of his target bonus, or 151% of salary. Bonuses for other participating named executives ranged from 104% to 131% of the applicable target bonus, or 52% to 114% of the applicable base salary.

Long-Term Stock Incentives

For 2006, we continued our practice of awarding a blend of stock options and restricted stock units to our named executives, with the exception of our Chairman who has received no equity grants since 2001 because his awards in 2000 and 2001 were designed to provide for long-term equity compensation. The value shown in the stock option column in the Summary Compensation Table below for our Chairman is related to the stock option awards he received as our CEO in 2000 and 2001. With respect to other named executives, awards are generally intended to be evaluated independently from past and future awards. Therefore, with the exception of the awards to our Chairman referenced above, the HR Committee reviewed, but did not significantly weigh, past awards in determining stock awards for named executives in 2006.

In determining stock incentives, the HR Committee annually approves a pool of shares that may be awarded based on a review of our historical practices against those of the benchmark IT services companies, supplemented with other market information from time to time. The total available pool as approved is allocated among business units and associate levels based on market practices and internal considerations. Individual awards to the named executives are based on various factors including position level, scope of responsibility, individual performance and contribution, salary level, and market practices. In addition, the HR Committee also considers related accounting expense, and total compensation for each named executive before approving awards.

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Using this process, the HR Committee approved the awards for our named executives for 2006 which are shown in the “Grants of Plan-Based Awards” table below. Grants of options and restricted stock units vest in equal annual installments beginning on the first anniversary of the date of grant. The vesting of restricted stock units is contingent upon the named executive receiving at least a satisfactory performance rating in the prior year. The total value of the awards granted in 2006 is shown in the Grant Date Fair Value of Stock and Option Awards column, as determined in accordance with the Statement of Financial Accounting Standards No. 123(R) (“FAS 123R”). The number of options compared to the number of restricted stock units awarded to each named executive is based on balancing the level of performance incentive for options versus restricted stock units, their comparative compensation expense resulting under FAS 123R, their comparative value to the named executives, and the effect of options compared to restricted stock units on dilution.

Regulatory Considerations

The Internal Revenue Code contains a provision that limits the tax deductibility of certain compensation paid to our named executives to the extent it is not considered performance-based compensation under the Internal Revenue Code. We have adopted policies and practices to facilitate compliance with Section 162(m) of the Internal Revenue Code of our stock option awards and are taking additional steps to comply in 2007, including the proposed amendments to the 2001 Long-Term  Incentive Plan.

In making decisions about executive compensation, we also consider the impact of other regulatory provisions, including the provisions of Section 409A of the Internal Revenue Code regarding non-qualified deferred compensation and the change-in-control provisions of Section 280G of the Internal Revenue Code. In making decisions about executive compensation, we also consider how various elements of compensation will impact our financial results including the impact of FAS 123R which requires us to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. FAS 123R was a consideration in adopting restricted stock units as a long-term equity incentive.

Compensation Committee Interlocks and Insider Participation

DeSoto Jordan served as one of our Vice Presidents until 1999.

REPORT OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION

The Human Resources and Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis section of this Proxy Statement with the Company’s management and, based on such review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

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Summary of Cash and Certain Other Compensation

The Summary Compensation Table below shows compensation of the named executives for the year 2006.

Summary Compensation Table

(1)                 Bonus amounts shown include bonuses earned in 2006 and paid in 2007.

(2)                 The value, calculated in accordance with FAS 123R, of options or restricted stock units vesting in 2006. The assumptions used to calculate these values are set forth in Note 10 to our Consolidated Financial Statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2006.

(3)                 Represents, with respect to Messrs. Altabef, Freeman and Perot, and includes, with respect to Messrs. Lyles and Champy, $8,800 in contributions to our 401(k) plan for the benefit of each of the named executives.

(4)                 Includes $2,761 gross up for state taxes due to travel requirements.

(5)                 Includes $17,000 in life insurance premiums and $26,905 in taxes paid on such insurance policy for the benefit of Mr. Champy.

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Grants of Plan-Based Awards

The following table provides information relating to equity awards in 2006 to the named executives. All awards relate to our Class A Common Stock and were made pursuant to our 2001 Long-Term Incentive Plan. All options are non-qualified stock options.

Grants of Plan-Based Awards

(1)     Mr. Altabef’s award was approved at the September 27, 2006 meeting of the Incentive Compensation Subcommittee. The remaining awards were approved at the September 28, 2006 meeting of the Board of Directors. In each case, the Board and Incentive Compensation Subcommittee respectively made the grants on the first day of the first trading window under our Insider Trading Policy following approval of the awards.

(2)     Vests in five equal annual installments beginning on the first anniversary of the grant. Vesting in each year is contingent upon the individual achieving a satisfactory performance rating in the prior year.

(3)     Vests in five equal annual installments beginning on the first anniversary of the grant.

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Outstanding Equity Awards Value at Fiscal Year-End

The following table provides information regarding the value of all unexercised options and unvested restricted stock units previously awarded to our named executives.

Outstanding Equity Awards at Fiscal Year-End

				Option Awards																		Stock Awards
Name				# of Securities Underlying Unexercised Options Exercisable (#)				# of Securities Underlying Unexercised Options Unexercisable (#)				Equity Incentive Plan Awards: # of Securities Underlying Unexercised Unearned Options (#)				Option Exercise Price ($)				Option Expiration Date		# of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)(1)				Equity Incentive Plan Awards: # of Unearned Shares, Units or Other Rights That Have Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Peter A. Altabef					104,000				0				—				13.00			1-31-2011			—				—				—				—
					15,000				0				—				20.07			5-7-2012			—				—				—				—
					45,000				45,000	(2)			—				9.63			10-18-2012			—				—				—				—
					24,000				16,000	(3)			—				13.15			12-9-2010			8,000	(11)			131,120				—				—
					40,000				60,000	(4)			—				15.93			12-13-2011			60,000	(12)			983,400				—				—
					20,000				80,000	(5)			—				13.63			10-13-2012			40,000	(13)			655,600				—				—
					0				100,000	(6)			—				14.87			11-2-2013			75,000	(14)			1,229,250				—				—
Russell Freeman					6,000				0				—				1.25			7-1-2007			—				—				—				—
					42,000				12,000	(7)			—				11.00			7-20-2009			—				—				—				—
					12,000				6,000	(8)			—				13.50			1-28-2010			—				—				—				—
					152,000				0				—				10.94			12-8-2010			—				—				—				—
					20,000				0				—				20.07			5-7-2012			—				—				—				—
					50,000				50,000	(2)			—				9.63			10-18-2012			—				—				—				—
					24,000				16,000	(3)			—				13.15			12-9-2010			8,000	(11)			131,120				—				—
					18,000				27,000	(4)			—				15.93			12-13-2011			13,500	(12)			221,265				—				—
					9,000				36,000	(5)			—				13.63			10-13-2012			18,000	(13)			295,020				—				—
					0				55,000	(6)			—				14.87			11-2-2013			27,500	(14)			450,725				—				—
Ross Perot, Jr					760,000				0				—				9.50			10-23-2011			—				—				—				—
					190,000				0				—				9.94			10-23-2011			—				—				—				—
					210,000				840,000	(9)			—				14.40			10-23-2011			—				—				—				—
Charles A. Lyles					22,000				8,800	(7)			—				11.00			7-20-2009			—				—				—				—
					53,000				0				—				14.25			8-27-2011			—				—				—				—
					24,000				6,000	(10)			—				16.85			1-29-2012			—				—				—				—
					14,000				0				—				20.07			4-1-2012			—				—				—				—
					20,000				5,000	(2)			—				9.63			10-18-2012			—				—				—				—
					7,500				5,000	(3)			—				13.15			12-9-2010			2,500	(11)			40,975				—				—
					13,000				19,500	(4)			—				15.93			12-13-2011			9,750	(12)			159,803				—				—
					6,000				24,000	(5)			—				13.63			10-13-2012			12,000	(13)			196,680				—				—
					0				45,000	(6)			—				14.87			11-2-2013			22,500	(14)			368,775				—				—
James Champy					32,000				8,000	(2)			—				9.63			10-18-2012			—				—				—				—
					24,000				16,000	(3)			—				13.15			12-9-2010			8,000	(11)			131,120				—				—
					12,000				18,000	(4)			—				15.93			12-13-2011			9,000	(12)			147,510				—				—
					4,000				16,000	(5)			—				13.63			10-13-2012			8,000	(13)			131,120				—				—
					0				20,000	(6)			—				14.87			11-2-2013			10,000	(14)			163,900				—				—

    (1) Based on the market value of $16.39 per share of the Class A Common Stock as of December 29, 2006.

    (2) Vests on October 18, 2007.

    (3) Vests in two equal annual installments beginning December 9, 2007.  

    (4) Vests in three equal annual installments beginning December 13, 2007.

    (5) Vests in four equal annual installments beginning October 13, 2007.

    (6) Vests in five equal annual installments beginning November 2, 2007.

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    (7) Vests in two equal annual installments beginning July 20, 2007.

    (8) Vests in three equal annual installments beginning January 28, 2007.

    (9) Vests in four equal annual installments beginning October 23, 2007.

  (10) Vested on January 29, 2007.

  (11) Vests in two equal annual installments beginning December 9, 2007; provided that each installment vests only if the holder achieved a satisfactory individual performance rating for the year prior to scheduled vesting.

  (12) Vests in three equal annual installments beginning December 13, 2007; provided that each installment vests only if the holder achieved a satisfactory individual performance rating for the year prior to scheduled vesting.

  (13) Vests in four equal annual installments beginning October 13, 2007; provided that each installment vests only if the holder achieved a satisfactory individual performance rating for the year prior to scheduled vesting.

  (14) Vests in five equal annual installments beginning November 2, 2007; provided that each installment vests only if the holder achieved a satisfactory individual performance rating for the year prior to scheduled vesting.

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