PEROT SYSTEMS CORP, S-1/A, 1999-02-01

PEROT SYSTEMS CORP
S-1/A, 1999-02-01
EDUCATIONAL SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 1999.

REGISTRATION NO. 333-60755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 5

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PEROT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7374 75-2230700
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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12404 PARK CENTRAL DRIVE
DALLAS, TEXAS 75251
(972) 340-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

TERRY ASHWILL
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PEROT SYSTEMS CORPORATION
12404 PARK CENTRAL DRIVE
DALLAS, TEXAS 75251
(972) 340-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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Copies to:

<TABLE>
<S> <C>
ALAN J. BOGDANOW BRUCE K. DALLAS
GLEN J. HETTINGER DAVIS POLK & WARDWELL
HUGHES & LUCE, L.L.P. 450 LEXINGTON AVENUE
1717 MAIN STREET, SUITE 2800 NEW YORK, NEW YORK 10017
DALLAS, TEXAS 75201 (212) 450-4000
(214) 939-5500
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE> 2

EXPLANATORY NOTE

This registration statement contains two forms of Prospectus: one to be
used in connection with a U.S. and Canadian offering of the registrant's Class A
Common Stock (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the Class A Common Stock (the
"International Prospectus"). The International Prospectus will be identical to
the U.S. Prospectus except that it will have a different front cover page. The
U.S. Prospectus is included herein and is followed by the alternate cover page
to be used in the International Prospectus, which has been labeled "Alternate
Page for International Prospectus."
<PAGE> 3

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued February 1, 1999

6,500,000 Shares

LOGO

CLASS A COMMON STOCK
------------------------

PEROT SYSTEMS CORPORATION IS OFFERING 6,500,000 SHARES OF ITS CLASS A COMMON
STOCK. INITIALLY, THE U.S. UNDERWRITERS ARE OFFERING 5,200,000 SHARES OF OUR
CLASS A COMMON STOCK IN THE UNITED STATES AND CANADA, AND THE INTERNATIONAL
UNDERWRITERS ARE OFFERING 1,300,000 SHARES OF OUR CLASS A COMMON STOCK OUTSIDE
THE UNITED STATES AND CANADA.

THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR STOCK. THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $15.00 AND $16.00
PER SHARE.

------------------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE
UNDER THE SYMBOL "PER."
------------------------
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
PRICE $ A SHARE
------------------------

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
-------- ------------- -----------
<S> <C> <C> <C>
Per Share....................... $ $ $
Total........................... $ $ $
</TABLE>

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Perot Systems Corporation has granted the U.S. Underwriters the right to
purchase up to an additional 975,000 shares of Class A common stock to cover
over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares
of Class A common stock to purchasers on , 1999.

------------------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
WARBURG DILLON READ LLC
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
, 1999
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Special Note Regarding
Forward-Looking Statements......... 14
Use of Proceeds...................... 14
Dividend Policy...................... 14
Capitalization....................... 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................. 25
Management........................... 38
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Relationships and Related
Transactions....................... 45
Principal Stockholders............... 47
Description of Capital Stock......... 49
Shares Eligible for Future Sale...... 56
Certain United States Federal Income
Tax Considerations for Non-United
States Holders..................... 57
Underwriters......................... 60
Legal Matters........................ 63
Experts.............................. 63
Additional Information............... 63
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

------------------------

We are a Delaware corporation. Our principal executive offices are located
at 12404 Park Central Drive, Dallas, Texas 75251, and our telephone number is
(972) 340-5000. We maintain a world wide web site at www.perotsystems.com. The
reference to our world wide web address does not constitute incorporation by
reference of the information contained at the site. In this Prospectus, the
"Company," "Perot Systems," "we," "us," and "our" refer to Perot Systems
Corporation and its subsidiaries, unless the context otherwise requires. In
addition, "Class A Common Stock" refers to our Class A common stock, $.01 par
value per share; "Class B Common Stock" refers to our Class B common stock, $.01
par value per share; and "Common Stock" refers to the Class A Common Stock and
Class B Common Stock. See "Description of Capital Stock."

You should rely only on the information contained in this Prospectus. We
have not authorized anyone to provide you with information different from that
contained in this Prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A Common Stock only in jurisdictions where offers and sales
are permitted. The information contained in this Prospectus is accurate only as
of the date of this Prospectus, regardless of the time of delivery of this
Prospectus or of any sale of the Class A Common Stock. All common share numbers
and per common share data in this Prospectus reflect a two for one stock split
effected in January 1999.

2
<PAGE> 5

PROSPECTUS SUMMARY

You should read this summary together with the more detailed information
and our financial statements and notes appearing elsewhere in this Prospectus.
You should carefully consider, among other things, the matters set forth in
"Risk Factors." All common share numbers and per common share data in this
Prospectus reflect a two for one stock split effected in January 1999.

THE COMPANY

We are a worldwide provider of information technology services and business
solutions to a broad range of clients. We serve our clients by delivering
services and solutions focused on each client's needs, with particular emphasis
on helping clients more effectively serve their customers.

We integrate three core disciplines in providing information technology
solutions and services to our clients:

- business integration;

- systems integration and applications development; and

- information technology infrastructure services.

Business integration services include working with clients to develop and
implement business strategy, information technology strategy, process redesign,
and change management. Systems integration and applications development include
the design and implementation of information technology systems for clients,
including both custom-developed and packaged software. Information technology
infrastructure services combine information technology outsourcing, staffing,
and infrastructure management.

Our approach is to provide clients with an "integrated service
offering" -- a combination of multiple disciplines that assists our clients in
improving their business operations or in creating new business offerings. With
this approach, we are able to create long-term relationships with our clients
that begin with an analysis of our clients' business strategies and continue
through the implementation of information technology solutions and the
realization of the clients' goals.

In marketing our services, we are primarily focused on four industries:
Financial Services, Energy, Healthcare, and Travel and Transportation. We target
these industries to capture the opportunities arising from these industries'
rapid rates of change, growth, and the increasing importance of information
technology in driving and managing this change and growth. We also have
significant clients in the Communications and Media and Manufacturing industries
and continually evaluate additional industries for future growth opportunities.

THE PEROT SYSTEMS APPROACH

We provide services on a worldwide basis that are uniquely structured to
each client. We combine the appropriate industry expertise and core disciplines
to solve the client's business problems and implement new strategies to generate
future growth. Our approach includes:

- Providing Integrated Service Offerings. We combine our business
integration, systems integration and applications development, and
information technology infrastructure services to analyze and address our
clients' business and information technology challenges and
opportunities. Rather than narrowly focusing on isolated problems, we
design our integrated service offerings to allow a client to achieve
growth and efficiencies through the implementation of broader business
solutions.

- Structuring Creative Long-Term Relationships. We seek to create long-term
relationships with clients that begin with the initial analysis of a
client's business and information technology problems and opportunities
and continue through implementation of solutions and the realization of
benefits. We strive to maximize revenues and client satisfaction by
creatively structuring contracts with economic incentives that link our
compensation to the client's business results or the level of our
performance.

3
<PAGE> 6

- Employing Multi-Disciplinary Teams. We employ multi-disciplinary teams of
associates with industry-specific expertise and associates with superior
technical skills to best formulate and implement integrated information
technology solutions for clients.

- Formulating Unbiased Client-Based Solutions. We analyze our clients'
business problems and opportunities from the perspective of the clients
and their customers. We then impartially assemble the best combination of
our services and third party products to meet the clients' needs.

PEROT SYSTEMS GROWTH STRATEGY

Our strategic objective is to become the provider of choice for information
technology services and business solutions. Key elements of our growth strategy
include:

- Expand Value-Added Service Offerings. We believe that services aimed at
growing a client's business and making a client more productive and
competitive will create more value for our clients, and accordingly
generate more growth, than traditional technology functional services.
Our strategy includes an increasing focus on systems integration and
applications development and business integration services, supported by
value-added information technology infrastructure services.

- Target Rapidly Changing Industries. We target rapidly changing industries
that are substantially affected by the increasing need for information
technology. We utilize associates with operating expertise in these
specific industries as a competitive advantage in providing superior
services to our clients.

- Create and Leverage Growth Engines. In each industry, we have the
opportunity to create "growth engines" -- sets of skills, business
processes, and know-how that, when combined, create leverageable business
solutions for clients. We can use these growth engines to build our
presence in our targeted industries and adapt them to develop or enter
other industries.

- Develop Select Clients. We believe that client selection is key to growth
and profitability. We target market leaders and aspiring market leaders
that are committed to using information technology strategically and are
willing to develop long-term relationships.

- Attract, Train, and Retain Associates with Strong Character. We believe
that attracting, training, and retaining high quality associates are
essential to our growth. We hire motivated individuals with strong
character and leadership traits and provide them with ongoing
technological and leadership skills training. We emphasize retaining our
associates through challenging work assignments and incentive programs,
including rewarding outstanding performance with equity interests. More
than 90% of our associates hold equity interests in our company.

4
<PAGE> 7

THE OFFERING

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<S> <C> <C>
Class A Common Stock offered(1):
United States offering............................. 5,200,000 shares
International offering............................. 1,300,000 shares
----------
Total........................................... 6,500,000 shares
==========

Common Stock to be outstanding after the offering:
Class A Common Stock............................... 83,634,590 shares(1)(2)
Class B Common Stock............................... 934,320 shares(3)
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Total........................................... 84,568,910 shares(1)(2)(3)
==========
Over-allotment option................................ $975,000 shares of Class A Common Stock

Voting rights:
Class A Common Stock............................... One vote per share
Class B Common Stock............................... Non-voting

Use of proceeds...................................... For working capital, business expansion, and
other general corporate purposes.

Dividend policy...................................... We do not anticipate paying any cash dividends
in the foreseeable future. Any future
determination to pay dividends will be at the
discretion of our Board of Directors and will be
dependent upon then existing conditions,
including our financial condition, results of
operations, contractual restrictions, capital
requirements, business prospects, and such other
factors as our Board of Directors deems
relevant.
</TABLE>

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(1) Unless otherwise specifically stated, the information throughout this
Prospectus does not take into account the possible issuance of additional
shares of Class A Common Stock to Underwriters pursuant to their rights to
purchase additional shares to cover over-allotments.

(2) Based on 77,134,590 shares of Class A Common Stock and 934,320 shares of
Class B Common Stock outstanding as of December 31, 1998. Excludes (i)
29,001,442 shares of Class A Common Stock subject to outstanding options as
of December 31, 1998 at a weighted average exercise price of $1.47 per share
and (ii) 10,401,040 shares of Class A Common Stock subject to options issued
to associates in 1998 at an exercise price of $11.00 per share. Subsequent
to December 31, 1998, the Company granted associates options to purchase
1,825,250 shares of Class A Common Stock at an exercise price of $11.00 per
share.

(3) Does not include 6,400,000 shares of Class B Common Stock subject to
unexercised options that were granted to UBS AG at an exercise price of
$3.65 per share. See "Business -- UBS Agreements." Each share of our Class B
Common Stock converts into one share of our Class A Common Stock for
purposes of a sale or distribution to a third party purchaser who is not an
affiliate of UBS AG. Holders of Class B Common Stock have no voting rights,
except as required by the Delaware General Corporation Law. See "Description
of Capital Stock."

5
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data for the years ended
December 31, 1997, 1996, and 1995 and the nine months ended September 30, 1998
have been derived from our consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent auditors. We derived the
following summary consolidated financial information for the nine months ended
September 30, 1997 from unaudited consolidated financial statements, which, in
our opinion, reflect all adjustments (consisting of only normal and recurring
accruals) necessary to present fairly our financial position and results of
operations for that period. Interim results do not necessarily indicate the
results that you may expect for any other interim period or for the full year.
You should read this information in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and related notes contained elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Revenue(2).................................................. $724.2 $556.9 $781.6 $599.4 $342.3
Direct cost of services(3).................................. 575.1 437.7 636.3 461.2 268.6
------ ------ ------ ------ ------
Gross profit................................................ 149.1 119.2 145.3 138.2 73.7
Selling, general, and administrative expenses(4)............ 103.1 95.9 125.7 92.9 52.8
Goodwill impairment(5)...................................... 3.8 -- -- -- --
Purchased research and development.......................... -- 2.0 2.0 4.0 --
------ ------ ------ ------ ------
Operating income............................................ 42.2 21.3 17.6 41.3 20.9
Interest income, net........................................ 2.8 0.4 0.6 0.8 1.3
Equity in earnings/(losses) of unconsolidated affiliates.... 4.2 0.7 4.1 (0.3) --
Write-down of nonmarketable equity securities(6)............ -- -- (3.9) -- --
Other income/(expense)(7)................................... 2.7 1.3 1.1 (1.6) (2.0)
------ ------ ------ ------ ------
Income before taxes......................................... 51.9 23.7 19.5 40.2 20.2
Provision for income taxes.................................. 23.7 10.1 8.3 19.7 9.4
------ ------ ------ ------ ------
Net income.................................................. $ 28.2 $ 13.6 $ 11.2 $ 20.5 $ 10.8
====== ====== ====== ====== ======
Basic earnings per common share(8)(9)....................... $ 0.37 $ 0.17 $ 0.14 $ 0.27 $ 0.17
Weighted average common shares outstanding(9)............... 76.7 78.9 78.3 74.1 62.3
Diluted earnings per common share(8)(9)..................... $ 0.29 $ 0.14 $ 0.12 $ 0.24 $ 0.16
Weighted average diluted common shares outstanding(9)....... 96.9 96.6 95.2 84.3 66.7
OTHER DATA:
Capital expenditures........................................ $ 18.9 $ 33.9 $ 46.1 $ 27.5 $ 18.3
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED(10)
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(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $102.2 $196.7
Total assets................................................ 390.5 485.1
Long-term debt(11).......................................... 2.2 2.2
Stockholders' equity........................................ 129.2 223.8
</TABLE>

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(1) Our results of operations include the effects of business acquisitions made
in 1996 and 1997. See Note 4 of the notes to our consolidated financial
statements included elsewhere in this Prospectus.
(2) Includes recognition of $6.5 million in gains from the termination of two
contracts in 1998.
(3) During the first nine months of 1998, direct cost of services included $2.0
million in leasehold abandonment losses. During the fourth quarter of 1997,
direct cost of services included a one-time loss accrual of $10.2 million,
representing management's estimate of known future losses associated with
the termination or completion of two long-term contracts and a $2.0 million
increase for other accrued contract liabilities. Also included in fourth
quarter 1997 direct cost of services was a $3.6 million write-off of
acquired intellectual property and $3.1 million in leasehold abandonment
losses. For 1996, direct cost of services included a $4.2 million write-off
of impaired software license transfer rights.
(4) During the first nine months of 1997, selling, general, and administrative
expenses included a $2.0 million charge for executive severance and related
expenses.
(5) During September 1998, we determined that certain amounts recorded for
goodwill were impaired and no longer recoverable.
(6) In the fourth quarter of 1997, we wrote down our minority interest in two
nonmarketable equity securities to zero and recognized a $3.9 million
non-operating loss.
(7) During the first nine months of 1998, we sold an interest in a minority
investment and recognized a one-time, non-operating gain of $3.0 million.
(8) Years 1995 and 1996 and the nine month period ended September 30, 1997 are
restated for the effect of Statement of Financial Accounting Standards No.
128, "Earnings Per Share." See Note 17 of the notes to our consolidated
financial statements included elsewhere in this Prospectus.
(9) All common share numbers and per common share data reflect a two for one
stock split effected in January 1999.

(10) As adjusted amounts give effect to the issuance and sale of 6,500,000
shares of Class A Common Stock at an assumed initial public offering price
of $16.00 per share and the application of the net proceeds therefrom
(after deducting underwriting discounts and commissions and offering
expenses payable by us) as set forth under "Use of Proceeds."

(11) Amounts classified as long-term debt consist primarily of current and
long-term capital lease obligations.

6
<PAGE> 9

RISK FACTORS

You should carefully consider the following risk factors and warnings
before making an investment decision. The risks described below are not the only
ones facing our company. Additional risks that we do not yet know of or that we
currently think are immaterial may also impair our business operations. If any
of the following risks actually occur, our business, financial condition, or
results of operations could be materially and adversely affected. In such case,
the trading price of our Class A Common Stock could decline, and you may lose
all or part of your investment. You should also refer to the other information
set forth in this Prospectus, including our consolidated financial statements
and the related notes.

This Prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of such terms and other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined below. These
factors may cause our actual results to differ materially from any
forward-looking statement.

LOSS OF MAJOR CLIENTS COULD ADVERSELY AFFECT OUR BUSINESS

Our ten largest clients accounted for approximately 65.4% of our revenue
for the nine month period ended September 30, 1998. For the year ended December
31, 1997, our ten largest clients accounted for approximately 64.1% of our
revenue. Only two clients, UBS and East Midlands Electricity, accounted for more
than 10% of our revenue during 1997 and the first nine months of 1998.

Our largest client is UBS. Approximately 25.4% of our revenue came from
services performed on behalf of UBS for the nine month period ended September
30, 1998. For the year ended December 31, 1997, approximately 27.2% of our
revenue came from UBS. We expect UBS to account for a substantial portion of our
revenue and earnings for the foreseeable future. See "Business -- UBS
Agreements."

Approximately 11.9% of our revenue came from services performed on behalf
of East Midlands Electricity for the nine month period ended September 30, 1998.
For the year ended December 31, 1997, approximately 10.2% of our revenue came
from East Midlands Electricity. In July 1998, PowerGen plc acquired East
Midlands Electricity from Dominion Resources, Inc. Our agreement with East
Midlands Electricity contains provisions allowing East Midlands Electricity to
terminate the contract in specified circumstances, including the sale of East
Midlands Electricity. See "Business -- Agreement with EME." We cannot assure you
that they will not cancel or modify the contract or that we will maintain our
historic level of revenue or profits from this relationship.

After UBS and East Midlands Electricity, our next eight largest customers
accounted for approximately 28.2% of our revenue in the first nine months of
1998. Our success depends substantially upon the retention of UBS, East Midlands
Electricity, and a majority of our other major clients as ongoing clients.
Generally, we may lose a client as a result of a merger or acquisition, business
failure, contract expiration, or the selection of another provider of
information technology services. Of our top ten clients as of September 30,
1998, two contracts (representing approximately $53 million in revenue during
1997) expired in the fourth quarter of 1998, one contract (representing
approximately $26 million in revenue during 1997) will expire in 1999, and none
are scheduled to expire in 2000. One of the contracts that expired in 1998 was a
short-term agreement. We are in the process of negotiating an extension of this
agreement and have obtained a temporary extension to cover the period during
which negotiations are continuing. The other expired contract has not been
renewed. We do not expect that the long-term contract that expires in 1999 will
be renewed. We cannot guarantee that we will be able to retain long-term
relationships or secure renewals of short-term relationships with our major
clients in the future. See "-- Our Contracts Contain Termination Provisions and
Pricing Risks."

7
<PAGE> 10

CHANGES IN OUR UBS RELATIONSHIP AND VARIABILITY OF PROFITS FROM UBS COULD
ADVERSELY AFFECT OUR BUSINESS

Our relationship with UBS is a long-term strategic relationship that we
formed by entering into several agreements with UBS in January 1996. These
contracts were renegotiated in April 1997 and June 1998. The April 1997
renegotiation reduced the term of the agreements from 25 years to ten years
beginning January 1997. We cannot guarantee that our current relationship with
UBS will continue on the same terms in the future.

Revenue derived from this relationship depends upon the level of services
we perform, which may vary from period to period depending on UBS's
requirements. The agreement with UBS that covers a majority of our business with
UBS entitles us to recover our costs plus an annual fee in an agreed amount with
a bonus or penalty that can cause this annual fee to vary up or down by as much
as 15%, depending on our level of performance as determined by UBS.
Determination of whether our performance merits a bonus or a penalty depends on
many subjective factors, including service quality, client satisfaction, and our
effectiveness in assisting UBS in meeting its business goals. As a result, we
cannot predict with certainty the future level of revenue or profit from our
relationship with UBS. See "Business -- UBS Agreements."

FAILURE TO RECRUIT, TRAIN, AND RETAIN SKILLED PERSONNEL COULD INCREASE COSTS OR
LIMIT GROWTH

We must continue to grow internally by hiring and training
technically-skilled people in order to perform services under our existing
contracts and new contracts that we will enter into. The people capable of
filling these positions are in great demand and recruiting and training such
personnel require substantial resources. We have to pay an increasing amount to
hire and retain a technically-skilled workforce. Our business also experiences
significant turnover of technically-skilled people. These factors create
variations and uncertainties in our compensation expense and directly affect our
profits. If we fail to attract, train, and retain sufficient numbers of these
technically-skilled people, our business, financial condition, and results of
operations will be materially and adversely affected.

WE COULD LOSE RIGHTS TO OUR COMPANY NAME

We do not own the right to our company name. In 1988, we entered into a
license agreement with Ross Perot and the Perot Systems Family Corporation that
allows us to use the name "Perot" and "Perot Systems" in our business on a
royalty-free basis. Mr. Perot and the Perot Systems Family Corporation may
terminate this agreement at any time and for any reason. Beginning one year
following such a termination, we would not be allowed to use the names "Perot"
or "Perot Systems" in our business. Mr. Perot's or the Perot Systems Family
Corporation's termination of our license agreement could materially and
adversely affect our business, financial condition, and results of operations.
See "Certain Relationships and Related Transactions."

ROSS PEROT'S STOCK OWNERSHIP PROVIDES SUBSTANTIAL CONTROL OVER OUR COMPANY

Ross Perot, our Chairman, President, and Chief Executive Officer, is the
managing general partner of HWGA, Ltd., a partnership that owned 31,705,000
shares of our Class A Common Stock as of December 31, 1998. Accordingly, upon
completion of the offering, Mr. Perot, through HWGA, Ltd., will control
approximately 37.9% of our outstanding voting common stock. As a result, Mr.
Perot, through HWGA, Ltd., will have the power to block corporate actions such
as an amendment to our Certificate of Incorporation, the consummation of any
merger, or the sale of all or substantially all of our assets. In addition, Mr.
Perot may significantly influence the election of directors and any other action
requiring shareholder approval. The other general partner of HWGA, Ltd. is Ross
Perot, Jr., a director of our company, who has the authority to manage the
partnership and direct the voting or sale of the shares of Class A Common Stock
held by HWGA, Ltd. if Ross Perot is no longer the managing general partner.

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<PAGE> 11

LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS

Our success depends largely on the skills, experience, and performance of
some key members of our management, including our Chairman, President, and Chief
Executive Officer, Ross Perot. The loss of any key members of our management may
materially and adversely affect our business, financial condition, and results
of operations.

OUR CONTRACTS CONTAIN TERMINATION PROVISIONS AND PRICING RISKS

Many of the services we provide are critical to our clients' business. Some
of our contracts with clients permit termination in the event our performance is
not consistent with service levels specified in those contracts. The ability of
our clients to terminate contracts creates an uncertain revenue stream. If
clients are not satisfied with our level of performance, our reputation in the
industry may suffer, which may also materially and adversely affect our
business, financial condition, and results of operations.

Some of our contracts contain pricing provisions that require the payment
of a set fee by the client for our services regardless of the costs we incur in
performing these services, or provide for penalties in the event we fail to
achieve certain contract standards. In such situations, we are exposed to the
risk that we will incur significant unforeseen costs or such penalties in
performing the contract.

RISKS RELATED TO POTENTIAL YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR BUSINESS

Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result, some of
these systems could fail to operate or fail to produce correct results because
they may interpret "00" to mean 1900, rather than 2000 -- widely known as the
"Year 2000 Problem." These problems are likely to increase in frequency and
severity as the year 2000 approaches. The Year 2000 Problem affects some of our
computers, software, and other equipment. If we fail to properly recognize and
address the Year 2000 Problem in our systems, our business, financial condition,
and results of operations could be materially and adversely affected.

Some of our clients will be affected by the Year 2000 Problem. In some
situations, we agreed to modify, upgrade, or replace our clients' systems. We
have estimated our costs to perform these services and have taken steps to plan
for such costs, including setting up reserves and negotiating contract
provisions to address the issues. We cannot guarantee that these steps will be
sufficient, our estimates are accurate, or our reserves adequate. If we fail to
adequately assess such costs, our business, financial condition, and results of
operations could be materially and adversely affected.

The Year 2000 Problem also affects some of our major suppliers of
computers, software, and other equipment. We have discussed the Year 2000
Problem with some of these suppliers, but we cannot guarantee that these
suppliers will resolve any or all Year 2000 Problems. If our suppliers fail to
resolve Year 2000 Problems, our business could be materially disrupted.

We expect to identify and resolve all Year 2000 Problems that could
materially adversely affect our business operations. However, our management
believes that it is not possible to determine with complete certainty that all
Year 2000 Problems affecting us or our clients have been identified or
corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, no one can accurately
predict how many Year 2000 Problem-related failures will occur or the severity,
duration, or financial consequences of these perhaps inevitable failures. As a
result, our management believes that the following consequences are possible:

- a significant number of operational inconveniences and inefficiencies for
us and our clients that will divert management's time and attention and
financial and human resources from ordinary business activities;

- a lesser number of serious system failures that will require significant
efforts by us or our clients to prevent or alleviate material business
disruptions;

9
<PAGE> 12

- several routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 Problems by our clients, which will be
resolved in the ordinary course of business; and

- a few serious business disputes alleging that we failed to comply with
the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Issues."

FAILURE TO PROPERLY MANAGE GROWTH COULD ADVERSELY AFFECT OUR BUSINESS

We have expanded our operations rapidly in recent years. We intend to
continue expansion in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems, procedures, and controls on
a timely basis. If we fail to implement these systems, our business, financial
condition, and results of operations will be materially and adversely affected.

SIGNIFICANT UNALLOCATED NET PROCEEDS

We have not designated any specific uses for the net proceeds of this
offering. Therefore, we will have broad discretion in how we use such net
proceeds, which may include working capital, business expansion, and other
general corporate purposes.

WE OPERATE IN HIGHLY COMPETITIVE MARKETS

Our markets are intensely competitive. Our customers' requirements and the
technology available to satisfy those requirements continually change.

Our principal competitors include Andersen Consulting LLP, Cambridge
Technology Partners, Inc., Cap Gemini Group, Computer Sciences Corporation,
debis Systemhaus GmbH (the information technology division of DaimlerChrysler),
Electronic Data Systems Corporation, Ernst & Young LLP, IBM Global Services (a
division of International Business Machines Corporation), KPMG Peat Marwick LLP,
MCI Systemhouse, Oracle Corporation, PricewaterhouseCoopers LLP, and The SABRE
Group Holdings, Inc.

Many of these companies, as well as some other competitors, have greater
financial resources and a larger customer base than we do and may have larger
technical, sales, and marketing resources than we do. We expect to encounter
additional competition as we address new markets and as the computing and
communications markets converge.

We must frequently compete with a client's own internal information
technology capability, which may constitute a fixed cost for the client. This
may increase pricing pressure on us. If we are forced to lower our pricing or if
demand for our services decreases, our business, financial condition, and
results of operations will be materially and adversely affected.

We compete on the basis of a number of factors, including the
attractiveness of the business strategy and services that we offer, breadth of
services we offer, pricing, technological innovation, quality of service, and
ability to invest in or acquire assets of potential customers. Some of these
factors are outside our control. We cannot be sure that we will compete
successfully against our competitors in the future. If we fail to compete
successfully against our current or future competitors with respect to these or
other factors, our business, financial condition, and results of operations will
be materially and adversely affected.

VARIABILITY OF QUARTERLY OPERATING RESULTS

We expect our revenues and operating results to vary from quarter to
quarter. Such variations are likely to be caused by many factors that are, to
some extent, outside our control, including:

- mix and timing of client projects;

- completing client projects;
10
<PAGE> 13

- hiring, integrating, and utilizing associates;

- timing of new contracts;

- issuance of common shares and options to employees; and

- one time non-recurring and unusual charges.

Accordingly, we believe that quarter-to-quarter comparisons of operating results
for preceding quarters are not necessarily meaningful. You should not rely on
the results of one quarter as an indication of our future performance.

CHANGES IN TECHNOLOGY COULD ADVERSELY AFFECT OUR BUSINESS

The markets for our information technology services change rapidly because
of technological innovation, new product introductions, changes in customer
requirements, declining prices, and evolving industry standards, among other
factors. New products and new technology often render existing information
services or technology infrastructure obsolete, excessively costly, or otherwise
unmarketable. As a result, our success depends on our ability to timely innovate
and integrate new technologies into our service offerings. We cannot guarantee
that we will be successful at adopting and integrating new technologies into our
service offerings in a timely manner.

Advances in technology also require us to commit substantial resources to
acquiring and deploying new technologies for use in our operations. We must
continue to commit resources to train our personnel and our clients' personnel
in the use of these new technologies. We must continue to train personnel to
maintain the compatibility of existing hardware and software systems with these
new technologies. We cannot be sure that we will be able to continue to commit
the resources necessary to refresh our technology infrastructure at the rate
demanded by our markets.

INTELLECTUAL PROPERTY RIGHTS

In recent years, there has been significant litigation in the United States
involving patent and other intellectual property rights. We are not currently
involved in any material intellectual property litigation. We may, however, be a
party to intellectual property litigation in the future to protect our trade
secrets or know-how.

Our suppliers, clients, and competitors may have patents and other
proprietary rights that cover technology employed by us. Such persons may also
seek patents in the future. United States patent applications are confidential
until a patent is issued and most technologies are developed in secret.
Accordingly, we are not, and cannot, be aware of all patents or other
intellectual property rights of which our services may pose a risk of
infringement. Others asserting rights against us could force us to defend
ourselves or our clients against alleged infringement of intellectual property
rights. We could incur substantial costs to prosecute or defend any such
litigation and intellectual property litigation could force us to do one or more
of the following:

- cease selling or using products or services that incorporate the
challenged technology;

- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology; and

- redesign those services or products that incorporate such technology.

PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS, AND DELAWARE LAW COULD
DETER TAKEOVER ATTEMPTS

Our Board of Directors may issue up to 5,000,000 shares of Preferred Stock
and may determine the price, rights, preferences, privileges, and restrictions,
including voting and conversion rights, of these shares of Preferred Stock.
These determinations may be made without any further vote or action by our
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of

11
<PAGE> 14

the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock may make it more difficult for a third party to
acquire a majority of our outstanding voting stock.

In addition, we have adopted a stockholders' rights plan. Under this plan,
after the occurrence of specified events that may result in a change of control,
our stockholders will be able to buy stock from us or our successor at half the
then current market price. These rights will not extend, however, to persons
participating in takeover attempts without the consent of our Board of Directors
or that our Board of Directors determines to be adverse to the interests of the
stockholders. Accordingly, this plan could deter takeover attempts. See
"Description of Capital Stock -- Provisions Relating to Change in
Control -- Stockholder Rights Plan."

Some provisions of our Certificate of Incorporation and Bylaws and of
Delaware General Corporation Law could also delay, prevent, or make more
difficult a merger, tender offer, or proxy contest involving our company. See
"Description of Capital Stock." Among other things, these provisions:

- require a 66 2/3% vote to amend our Certificate of Incorporation or
approve any merger or sale, lease, or exchange of all or substantially
all of our property and assets;

- require an 80% vote of the stockholders to amend our Bylaws;

- require advance notice for stockholder proposals and director nominations
to be considered at a vote of a meeting of stockholders;

- permit only our Chairman, President, or a majority of our Board of
Directors to call stockholder meetings, unless our Board of Directors
otherwise approves;

- prohibit actions by stockholders without a meeting, unless our Board of
Directors otherwise approves; and

- limit transactions between our company and persons that acquire
significant amounts of stock without approval of our Board of Directors.

NO DIVIDENDS

We have never declared or paid a cash dividend on our Common Stock. We do
not anticipate paying any cash dividends on our Common Stock in the foreseeable
future.

RISKS RELATED TO INTERNATIONAL OPERATIONS

We have operations in many countries around the world. Risks that affect
international operations include:

- fluctuations in currency exchange rates;

- complicated licensing and work permit requirements;

- variations in the protection of intellectual property rights;

- restrictions on the ability to convert currency; and

- additional expenses and risks inherent in conducting operations in
geographically distant locations, with customers speaking different
languages and having different cultural approaches to the conduct of
business.

To attempt to mitigate the effects of foreign currency fluctuations on the
results of our foreign operations, we sometimes use forward exchange contracts
and other hedging techniques to help protect us from large swings in currency
exchange rates.

ABSENCE OF PRIOR PUBLIC MARKET OF COMMON STOCK CREATES UNCERTAINTY IN MARKET
PRICE

Prior to this offering, you could not buy or sell our Common Stock
publicly. An active public market for the Class A Common Stock may not develop
or be sustained after the offering. We negotiated and determined
12
<PAGE> 15

the initial public offering price with the representatives of the Underwriters
based on several factors. This price may vary from the market price of the Class
A Common Stock after the offering. See "Underwriters." The market price of the
Class A Common Stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:

- quarterly variations in operating results;

- changes in financial estimates by securities analysts;

- changes in market valuations of information technology service and
solution companies;

- announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures, or capital commitments;

- loss of a major client;

- additions or departures of key personnel; and

- sales of Class A Common Stock.

In addition, the stock market experiences significant price and volume
fluctuations, which may materially and adversely affect the market price of the
Class A Common Stock.

AVAILABILITY OF SIGNIFICANT AMOUNTS OF CLASS A COMMON STOCK FOR SALE COULD
ADVERSELY AFFECT ITS MARKET PRICE

Approximately 83,634,590 shares of Class A Common Stock and 934,320 shares
of Class B Common Stock will be outstanding after consummation of this offering.
The 6,500,000 shares of Class A Common Stock being offered hereby will be
eligible for immediate resale in the public market without restriction, unless
we or one of our affiliates acquire any such shares. Following the offering,
there will be approximately 6,929,542 additional shares of Class A Common Stock
subject to currently exercisable options. We believe that substantially all of
the outstanding shares of Class A Common Stock, other than those sold in this
offering, and shares of Class A Common Stock issuable upon the exercise of such
options, will be freely tradable under Federal securities laws following this
offering, subject to some limitations. These limitations include vesting
provisions in option and restricted stock agreements, restrictions in lock-up
agreements, and volume and manner-of-sale restrictions under Rule 144. In
addition, UBS holds immediately exercisable options to purchase 6,400,000 shares
of our Class B Common Stock, all of which could be exercised and the resulting
shares sold subject to restriction under Rule 144 following the offering once
such options have vested. In addition, UBS holds 934,320 shares of Class B
Common Stock that upon vesting may be sold without restriction under Federal
Securities laws following the offering. The future sale of a substantial number
of shares of Common Stock in the public market following this offering, or the
perception that such sales could occur, could adversely affect the prevailing
market price.

We have issued a substantial number of options to purchase shares of Class
A Common Stock to our associates prior to this offering. Following this
offering, we expect to continue to issue options to our associates to reward
performance and encourage retention. The exercise of any additional options
issued by us could adversely affect the prevailing market price of the Class A
Common Stock. We have also established an employee stock purchase program for
our associates, under which we may sell up to 20,000,000 shares of Class A
Common Stock to associates at a 15% discount. Shares purchased under this
program have been registered for immediate resale under Federal securities laws
following a six month holding period required by the program.

Stockholders holding more than 90% of the outstanding Common Stock and
approximately 90% of the currently exercisable options to purchase Common Stock
have executed lock-up agreements that limit their ability to sell Common Stock.
These stockholders have agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of at least 180 days after the date of this Prospectus
without the prior written approval of Morgan Stanley & Co. Incorporated and us.
Morgan Stanley & Co. Incorporated and we may, in our sole discretion and at any
time without notice, release all of any portion of the securities subject to
lock-up agreements. See "Shares Eligible for Future Sale."

13
<PAGE> 16

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this Prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, those listed under "Risk Factors" and elsewhere
in this Prospectus.

In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements.

Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of such statements. We are under no duty to update any
of the forward-looking statements after the date of this Prospectus to conform
such statements to actual results.

USE OF PROCEEDS

The net proceeds to the Company from the sale of shares of Class A Common
Stock in this offering are estimated to be $94.6 million ($109.1 million if the
Underwriters exercise their over-allotment option in full), after deducting
estimated offering expenses of $2.2 million and underwriting discounts and
commissions payable by the Company. The principal purposes of this offering are
to create a public market for the Class A Common Stock, which will facilitate
future access by the Company to public equity markets and enhance the ability of
the Company to use its Class A Common Stock as a means for attracting and
retaining key employees, and to obtain additional capital. The Company expects
to use the net proceeds from the offering primarily for working capital,
business expansion, and other general corporate purposes. The Company will have
significant discretion in the use of the net proceeds of this offering.

DIVIDEND POLICY

The Company has never declared or paid a cash dividend on the Common Stock.
The Company currently does not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon then
existing conditions, including the Company's financial condition, results of
operations, contractual restrictions, capital requirements, business prospects,
and such other factors as the Company's Board of Directors deems relevant.

14
<PAGE> 17

CAPITALIZATION

The following table sets forth the cash and cash equivalents and
capitalization of the Company as of September 30, 1998 and on an as adjusted
basis to reflect the sale of the shares of Class A Common Stock offered hereby
and the application of the net proceeds received therefrom. This table should be
read in conjunction with the Company's consolidated financial statements (the
"Consolidated Financial Statements") and related Notes contained elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $102,153 $196,723
======== ========
Capital lease obligations and long-term debt, less current
maturities................................................ $ 1,093 $ 1,093
Other long-term liabilities................................. 1,917 1,917
-------- --------
Total long-term liabilities....................... 3,010 3,010
-------- --------
Stockholders' equity(1):
Class A Common Stock, par value $.01; 200,000,000 shares
authorized; 81,054,642 shares issued actual (87,554,642
shares as adjusted); 76,894,554 shares outstanding
actual (83,394,554 shares as adjusted)................. 811 876
Class B Common Stock, par value $.01; 24,000,000 shares
authorized; 934,320 shares outstanding actual and as
adjusted............................................... 9 9
Additional paid-in capital................................ 71,155 165,660
Retained earnings......................................... 67,242 67,242
Other stockholders' equity(2)............................. (10,037) (10,037)
-------- --------
Total stockholders' equity........................... 129,180 223,750
-------- --------
Total capitalization.............................. $132,190 $226,760
======== ========
</TABLE>

- ---------------

(1) As of December 31, 1998, 77,134,590 shares of Class A Common Stock and
934,320 shares of Class B Common Stock were outstanding. In addition, as of
December 31, 1998 a total of (i) 29,001,442 shares of Class A Common Stock
were subject to outstanding options at a weighted average exercise price of
$1.47 per share, (ii) 10,401,040 shares of Class A Common Stock were subject
to outstanding options at an exercise price of $11.00 per share, and (iii)
6,400,000 shares of Class B Common Stock were subject to unexercised options
that were granted to UBS AG at an exercise price of $3.65 per share.
Subsequent to December 31, 1998, the Company granted associates options to
purchase 1,825,250 shares of Class A Common Stock at an exercise price of
$11.00 per share.

(2) Consists of deferred compensation, treasury stock, accumulated other
comprehensive income, and notes receivable from stockholders. See the
Consolidated Statements of Changes in Stockholders' Equity included in the
Consolidated Financial Statements.

15
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of and for the years
ended December 31, 1997, 1996, 1995, 1994, and 1993 and the nine months ended
September 30, 1998 have been derived from the Company's Consolidated Financial
Statements, which have been audited by PricewaterhouseCoopers LLP, independent
auditors. The selected consolidated financial information as of and for the nine
months ended September 30, 1997 has been derived from unaudited consolidated
financial statements, which, in management's opinion, reflect all adjustments
(consisting of only normal and recurring accruals) necessary to present fairly
the Company's financial position and results of operations for that period.
Interim results are not necessarily indicative of the results that may be
expected for any other interim period or for the full year. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and related Notes contained elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Revenue(2)............................................. $724.2 $556.9 $781.6 $599.4 $342.3 $292.2 $291.7
Direct cost of services(3)............................. 575.1 437.7 636.3 461.2 268.6 239.4 270.4
------ ------ ------ ------ ------ ------ ------
Gross profit........................................... 149.1 119.2 145.3 138.2 73.7 52.8 21.3
Selling, general and administrative expenses(4)........ 103.1 95.9 125.7 92.9 52.8 41.9 41.0
Goodwill impairment(5)................................. 3.8 -- -- -- -- -- --
Purchased research and development..................... -- 2.0 2.0 4.0 -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income/(loss)................................ 42.2 21.3 17.6 41.3 20.9 10.9 (19.7)
Interest income, net................................... 2.8 0.4 0.6 0.8 1.3 -- (2.0)
Equity in earnings/(losses) of unconsolidated
affiliates........................................... 4.2 0.7 4.1 (0.3) -- -- --
Write-down of nonmarketable equity securities(6)....... -- -- (3.9) -- -- -- --
Other income/(expense)(7).............................. 2.7 1.3 1.1 (1.6) (2.0) (0.8) (0.7)
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes............................. 51.9 23.7 19.5 40.2 20.2 10.1 (22.4)
Provision (benefit) for income taxes................... 23.7 10.1 8.3 19.7 9.4 3.8 (7.9)
------ ------ ------ ------ ------ ------ ------
Net income (loss)...................................... $ 28.2 $ 13.6 $ 11.2 $ 20.5 $ 10.8 $ 6.3 $(14.5)
====== ====== ====== ====== ====== ====== ======
Basic earnings (loss) per common share(8)(9)........... $ 0.37 $ 0.17 $ 0.14 $ 0.27 $ 0.17 $ 0.10 $(0.26)
Weighted average common shares outstanding(9).......... 76.7 78.9 78.3 74.1 62.3 61.4 59.8
Diluted earnings (loss) per common share(8)(9)......... $ 0.29 $ 0.14 $ 0.12 $ 0.24 $ 0.16 $ 0.09 $(0.26)
Weighted average diluted common shares
outstanding(9)....................................... 96.9 96.6 95.2 84.3 66.7 64.6 59.8
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.............................. $102.2 $ 13.0 $ 35.3 $ 27.5 $ 17.4 $ 9.2 $ 26.9
Total assets........................................... 390.5 268.1 267.1 232.2 130.5 90.3 121.3
Long-term debt(10)..................................... 2.2 3.4 2.9 5.2 6.1 10.0 18.7
Stockholders' equity................................... 129.2 93.4 93.3 70.8 42.9 32.7 25.9
OTHER DATA:
Capital expenditures................................... $ 18.9 $ 33.9 $ 46.1 $ 27.5 $ 18.3 $ 10.3 $ 15.0
</TABLE>

- ---------------

(1) The Company's results of operations include the effects of business
acquisitions made in 1996 and 1997. See Note 4 of the Notes to the
Consolidated Financial Statements included elsewhere in this Prospectus.

(2) Includes recognition of $6.5 million in gains from termination of two
contracts in 1998.

(3) During the first nine months of 1998, direct cost of services included $2.0
million in leasehold abandonment losses. During the fourth quarter of 1997,
direct cost of services included a one-time loss accrual of $10.2 million,
representing management's estimate of known future losses associated with
the termination or completion of two long-term contracts and a $2.0 million
increase for other accrued contract liabilities. Also included in fourth
quarter 1997 direct cost of services was a $3.6 million write-off of
acquired intellectual property and $3.1 million in leasehold abandonment
losses. For 1996, direct cost of services included a $4.2 million write-off
of impaired software license transfer rights. During 1994, direct cost of
services included a one-time gain of $6.7 million on the termination of a
significant contract. During 1993, the Company recorded a $19.3 million
charge to earnings reversing amounts previously recognized as recoverable
costs under the percentage-of-completion method of accounting in
recognition of delays and cost overruns related to the development of a
software application for a client.

(4) During the first nine months of 1997, selling, general, and administrative
expenses included a $2.0 million charge for executive severance and related
expenses.

(5) During September 1998, the Company determined that certain amounts recorded
for goodwill were impaired and no longer recoverable.

(6) In the fourth quarter of 1997, the Company wrote-down its minority interest
in two nonmarketable equity securities to zero and recognized a $3.9
million non-operating loss.

(7) During the first nine months of 1998, the Company sold an interest in a
minority investment and recognized a one-time non-operating gain of $3.0
million.

(8) Years 1993 through 1996 and the nine month period ended September 30, 1997
are restated for the effect of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." See Note 17 of the Notes to the Consolidated
Financial Statements included elsewhere in this Prospectus.

(9) All common share numbers and per common share data reflect a two for one
stock split effected in January 1999.

(10) Amounts classified as long-term debt consist primarily of current and
long-term capital lease obligations.

16
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following commentary should be read in conjunction with the
Consolidated Financial Statements and the related Notes contained elsewhere in
this Prospectus.

OVERVIEW

The Company is a worldwide provider of information technology services and
business solutions to a broad range of clients. The Company integrates three
core disciplines in providing solutions and services to its clients: information
technology infrastructure services, systems integration and applications
development, and business integration. Information technology infrastructure
services combine information technology outsourcing, staffing, and
infrastructure management. Systems integration and applications development
include implementation of new and existing systems, including both
custom-developed and packaged software. Business integration services include
working with clients to develop and implement business strategy, information
technology strategy, process redesign, and change management.

From 1993 through the first nine months of 1998, the Company's business mix
shifted from being predominantly an information technology infrastructure
services provider, where revenue was obtained through long-term unit-price or
fixed-price facilities management contracts, to a more balanced mix with
increased emphasis on systems integration and applications development and
business integration. Information technology infrastructure services currently
make up less than 55.0% of the Company's revenue, and newer engagements are
primarily level-of-effort based contracts that combine several service
offerings. The Company's strategy is to continue this increased focus on systems
integration and applications development and business integration services,
supported by value-added information technology infrastructure services.

During 1996 and 1997, the Company made several acquisitions. The acquired
firms added strength in the areas of business integration and consulting,
business-to-business electronic commerce over the Internet, business
reengineering, object-oriented applications development, data mining, and
systems management. These acquisitions contributed revenue of $62.0 million for
the nine months ended September 30, 1998.

The Company's top ten clients accounted for approximately 65.4% of total
revenue for the nine months ended September 30, 1998, 64.1% for the year ended
December 31, 1997, and 68.3% for the year ended December 31, 1996. See "Risk
Factors -- Loss of Major Clients Could Adversely Affect Our Business."
Approximately 35.4% of the Company's total revenue was derived from
international operations for the nine months ended September 30, 1998, 33.6% for
the year ended December 31, 1997, and 33.2% for the year ended December 31,
1996.

The Company provides services under contracts containing pricing provisions
that relate to the level of services supplied by the Company
("level-of-effort"), provide for a set fee to be received by the Company
("fixed-price"), or link the revenue to the Company to a client-specific data
point, such as the number of transactions processed or computing minutes
consumed ("unit-price"). Many of the Company's contracts combine more than one
of these types of provisions. The majority of revenue for the nine months ended
September 30, 1998 and year ended December 31, 1997 was derived from
level-of-efforts pricing. Revenue from level-of-efforts pricing is based on time
and materials, direct costs plus an administrative fee (which may be either a
fixed amount or a percentage of direct costs incurred), or a combination of
these methods and may be based on a set fee for a specified level of resources
that is adjusted for incremental resource usage. Revenue from fixed-price
contracts is recognized on the percentage-of-completion method, and is earned
based on the percentage relationship of incurred contract costs to date to total
estimated contract costs, after giving effect to the most recent estimates of
total cost. Revenue from unit-price contracts is recognized based on technology
units utilized or by number of transactions processed during a given period. For
unit-price contracts, the Company establishes a per-unit fee based on the cost
structure associated with the delivery of that unit of service.

Year 2000 engagements do not comprise a substantial portion of the
Company's business. For two Year 2000 projects, the Company uses a zero estimate
of profit with equal amounts of revenue and cost

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<PAGE> 20

recognized until the final outcome of the engagement can be estimated more
precisely because of the inherent uncertainties regarding testability in the
existing system environment and client acceptance.

The Company continuously monitors its contract performance in light of
client expectations, the complexity of work, project plans, delivery schedules,
and other relevant factors. Provisions for estimated losses, if any, are made in
the period in which the loss first becomes probable and reasonably estimable.
Other contract-related accrued liabilities are also recorded to match
contract-related expenses in the period in which revenues from those contracts
are recognized.

The Company experienced substantial growth in 1996, 1997, and during the
first nine months of 1998. A significant portion of the growth in 1996 resulted
from the Company's entry into the UBS Agreements in January 1996. The Company's
operating UBS relationship comprises two main components, the IT Services
Agreement, which is a level-of-effort contract, and various project assignments.
See "Business -- UBS Agreements." During the years ended December 31, 1997 and
1996, approximately 21.7% and 22.9%, respectively, of the Company's revenues
were earned in connection with services performed under the IT Services
Agreement, and 5.5% and 5.3%, respectively, of the Company's revenues were
earned in connection with the various projects performed for UBS. For the nine
month period ended September 30, 1998, approximately 22.1% of the Company's
revenues were earned in connection with services performed under the IT Services
Agreement and approximately 3.3% of the Company's revenues were earned in
connection with other services performed for UBS.

The Company has increased its focus on expense reduction and cost control
over the last year in numerous ways. The most significant savings in
administrative expenses included reductions in executive compensation expense,
the cancellation of discretionary projects, and reductions in marketing and
promotional expenses, and non-essential travel. In addition, the Company
established more stringent expense policies and created a capital expenditures
review committee. These cost control measures contributed to a decrease in
selling, general, and administrative expenses as a percentage of revenue from
16.1% in 1997 to 14.2% for the nine months ended September 30, 1998. The Company
anticipates that expansion in the areas of recruiting, training, and business
development will increase during the remainder of 1998. As a result, the Company
expects selling, general, and administrative expenses as a percentage of revenue
will increase from their current level.

RESULTS OF OPERATIONS

Comparison of the nine months ended September 30, 1998 and 1997

Revenue increased in the nine months ended September 30, 1998 by 30.0% to
$724.2 million from $556.9 million in the nine months ended September 30, 1997,
due to the entry into two significant contracts in the third quarter of 1997
that generated a $63.8 million increase in revenue for the nine months ended
September 30, 1998 from the nine months ended September 30, 1997, $15.8 million
in additional revenue resulting from the inclusion of businesses acquired in the
first nine months of 1997 for the entire nine month period in 1998, a $87.7
million increase in revenue from other new and existing business, including
$31.2 million from East Midlands Electricity (IT) Limited (together with its
parent company, East Midlands Electricity plc, "EME") and $24.7 million from
UBS, and the recognition of $6.5 million in gains from termination of two
contracts in 1998.

Domestic revenue grew by 27.2% in the nine months ended September 30, 1998
to $468.0 million from $368.0 million in the nine months ended September 30,
1997, and decreased slightly as a percentage of total revenue to 64.6% from
66.1% over the same period.

Non-domestic revenue, comprising European and Asian operations, grew by
35.6% in the nine months ended September 30, 1998 to $256.2 million from $188.9
million in the nine months ended September 30, 1997, and increased as a
percentage of total revenue to 35.4% from 33.9%. Asian operations represented
$11.4 million, or 1.6%, and $7.0 million, or 1.3%, of total revenue for the nine
months ended September 30, 1998 and 1997, respectively.

Direct cost of services increased in the nine months ended September 30,
1998 by 31.4% to $575.1 million from $437.7 million in the nine months ended
September 30, 1997, due primarily to continued growth in

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<PAGE> 21

the Company's business. Gross margin decreased slightly to 20.6% from 21.4% for
the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997, due primarily to a $13.5 million charge to address Year 2000
exposures for certain client contracts.

Selling, general, and administrative expenses increased in the nine months
ended September 30, 1998 by 7.5% to $103.1 million from $95.9 million in the
nine months ended September 30, 1997, but decreased as a percentage of total
contract revenue to 14.2% from 17.2%, respectively. The most significant savings
in administrative expenses included reductions in executive compensation, the
cancellation of discretionary projects, and reductions in marketing and
promotional expenses and non-essential travel. Operating income increased in the
nine months ended September 30, 1998 to $42.2 million from $21.3 million in the
nine months ended September 30, 1997, and operating margin (operating income as
a percentage of contract revenue) increased to 5.8% from 3.8%.

Equity in earnings of unconsolidated affiliates increased in the nine
months ended September 30, 1998 to $4.2 million from $0.7 million during the
nine months ended September 30, 1997 due to improved results at Systor AG
("Systor"), a subsidiary of UBS, and at HCL Perot Systems NV ("HPS"), a software
joint venture based in India. The equity in earnings for Systor increased to
$2.2 million from $0.6 million and equity in earnings for HPS increased to $2.0
million from $0.1 million during the nine months ended September 30, 1998 and
1997, respectively. Other income/(expense) increased in the nine months ended
September 30, 1998 to $2.7 million from $1.3 million in the nine months ended
September 30, 1997 primarily due to a $3.0 million gain on the sale of the
Company's limited partnership interest in a venture capital fund in 1998, offset
in part by a $0.8 million decrease in foreign exchange gains from the nine
months ended September 30, 1997 to the nine months ended September 30, 1998.

The increase in the effective tax rate to 45.7% for the nine months ended
September 30, 1998 from 42.5% for the nine months ended September 30, 1997 was
due to a non-deductible goodwill write-down recorded in the third quarter of
1998. Excluding the write-down, the effective rate would have been 42.5%.

Net income increased 107.4% in the nine months ended September 30, 1998 to
$28.2 million from $13.6 million in the nine months ended September 30, 1997 and
net income margin increased to 3.9% from 2.4%.

Comparison of the year ended December 31, 1997 to the year ended December 31,
1996

Revenue increased in 1997 by 30.4% to $781.6 million from $599.4 million in
1996, due to $43.6 million in revenue growth from the UBS Agreements, $60.2
million in revenue representing the inclusion of a full year's results from
certain businesses acquired in the second half of 1996 and revenue received from
businesses acquired during the first half of 1997, and a $78.4 million increase
in revenue from other new and existing contracts.

Domestic revenue grew by 29.7% in 1997 to $519.1 million from $400.2
million in 1996, and decreased slightly as a percentage of total revenue to
66.4% from 66.8% over the same periods.

Non-domestic revenue, consisting of European and Asian operations, grew by
31.8% in 1997 to $262.5 million from $199.2 million in 1996, and increased
slightly as a percentage of total revenue to 33.6%, from 33.2% over the same
periods. Asian operations represented $9.7 million, or 1.2%, and $7.3 million,
or 1.2%, of total revenue in 1997 and 1996, respectively.

Direct cost of services increased in 1997 by 38.0% to $636.3 million from
$461.2 million in 1996. Gross margin decreased to 18.6% in 1997 as compared to
23.1% in 1996. The decrease in gross margin was due in part to a margin decline
from 1996 to 1997 related to the renegotiation of the UBS Agreements, which took
effect on January 1, 1997. The Company also incurred expenses of $4.3 million in
1997 resulting from an expansion of business integration activities. In
addition, the Company incurred several special charges in 1997, including
special contract loss provisions of $10.2 million related to known termination
and contract completion losses on two long-term contracts, a $3.6 million
write-off of intellectual property rights acquired, and a $3.1 million charge
related to the abandonment and sub-lease of unused office space, collectively
resulting in a 2.7% increase in direct cost of services.
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<PAGE> 22

Selling, general, and administrative expenses increased in 1997 to 16.1% of
total revenue from 15.5% of total revenue in 1996, due primarily to expansion of
the sales force, staff growth in management and administrative support areas,
severance for senior executives, and increased goodwill amortization associated
with businesses acquired. As a result of the factors noted above, operating
income decreased in 1997 to $17.6 million from $41.3 million in 1996, and
operating margin declined to 2.3% from 6.9%.

Equity in earnings of unconsolidated affiliates, net, increased in 1997 to
$4.1 million from a loss of $0.3 million in 1996 due to improved results at
Systor and HPS. The equity in earnings for Systor increased to $3.6 million from
$0.9 million and the equity in earnings of HPS increased to $0.5 million from a
loss of $1.2 million in 1997 and 1996, respectively. Other income, net,
increased in 1997 to $1.1 million from a net expense of $1.6 million in 1996.
The positive effect of the above items was substantially offset by a $3.9
million write down of non-marketable equity securities to net realizable value
during 1997.

The decrease in the effective tax rate to 42.5% in 1997 from 48.9% in 1996
was due to both a decrease in nondeductible amortization related to acquisitions
and increased earnings in foreign jurisdictions in which the Company intends to
permanently invest subsidiary profits.

Net income decreased 45.4% in 1997 to $11.2 million from $20.5 million in
1996 and net income margin decreased to 1.4% from 3.4%.

Comparison of the year ended December 31, 1996 to the year ended December 31,
1995

Revenue increased in 1996 by 75.1% to $599.4 million from $342.3 million in
1995, due to $161.5 million in revenue from the UBS Agreements, $10.7 million in
revenue from businesses acquired in the second half of 1996, and a $84.9 million
increase in revenue from other new and existing business.

Domestic revenue grew by 67.6% in 1996 to $400.2 million from $238.8
million in 1995, but declined as a percentage of total revenue to 66.8% from
69.8% over the same periods. UBS accounted for $88.9 million of the domestic
revenue in 1996 compared to $2.8 million in 1995.

Non-domestic revenue, consisting of European and Asian operations, grew by
92.5% in 1996 to $199.2 million from $103.5 million in 1995, and increased as a
percentage of total revenue to 33.2% from 30.2% over the same periods. The key
factor was the UBS revenue of which $72.7 million was earned in Europe and $7.3
million in Asia. Asian operations represented $7.3 million, or 1.2%, of total
revenue in 1996, the first year the Company had operations in Asia.

Direct cost of services increased by 71.7% in 1996 to $461.2 million from
$268.6 million in 1995 and gross margin increased to 23.1% in 1996 from 21.5% in
1995, due primarily to the UBS Agreements entered into in 1996.

Selling, general, and administrative expenses increased in 1996 to 15.5% of
total revenue from 15.4% of total revenue in 1995, due primarily to significant
increases in revenue, offset by the addition of senior executives, expansion of
the sales force, and staff growth in management and administrative support
areas. As a percentage of revenues, selling, general, and administrative
expenses remained essentially unchanged. Operating income increased in 1996 to
$41.3 million from $20.9 million in 1995, reflecting business growth and other
factors discussed above. Operating margin increased in 1996 to 6.9% from 6.1% in
1995, due to a decline in direct costs of services as a percentage of contract
revenue in 1996 to 76.9% from 78.5% in 1995.

The effective tax rate increased in 1996 to 48.9% from 46.6% in 1995, due
primarily to an increase in non-deductible expense items.

Net income increased to $20.5 million in 1996 from $10.8 million in 1995.
Net income margin increased in 1996 to 3.4% from 3.2% in 1995.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 1998, cash and cash equivalents
increased 189.5% to $102.2 million from $35.3 million at December 31, 1997
primarily due to increased cash flow from operating activities.

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<PAGE> 23

Cash flow provided by operating activities increased to $65.1 million from
$15.8 million for the periods ended September 30, 1998 and 1997, respectively.
The increase in cash flow from operating activities was due primarily to the
$96.6 million increase in current liabilities such as accrued liabilities and
accrued compensation, offset in part by a $49.9 million increase in current
assets consisting primarily of increased accounts receivable.

Net cash used in investing activities was $4.8 million for the nine months
ended September 30, 1998 compared to $56.6 million for the nine months ended
September 30, 1997. Cash expenditures for property, equipment, and software
during the nine months ended September 30, 1998 was $18.9 million and was
partially offset by $7.6 million in proceeds from the sale of property,
equipment, and software and the sale of the Company's limited partnership
interest in a venture capital fund for $5.2 million. For the nine months ended
September 30, 1997, there were $33.9 million in cash expenditures for property,
equipment, and software, $13.3 million in cash used for business acquisitions
and $6.3 million for the acquisition of intellectual property rights. The
year-on-year decline of 44% in property, equipment, and software purchases was
due in part to more rigorous capital expenditure review procedures, which were
implemented in the fourth quarter of 1997.

For the nine months ended September 30, 1998, net cash provided by
financing activities was approximately $4.5 million, compared to $29.6 million
for the nine months ended September 30, 1997. This decrease was due primarily to
the fourth quarter of 1997 repayment of a $25.0 million borrowing on the
Company's line of credit at September 30, 1997. There were no subsequent
borrowings on this line of credit in 1998. In addition, the Company received
proceeds of $8.1 million from the sale of Class B Common Stock options to UBS
during the nine months ended September 30, 1997 and $3.0 million in proceeds
from the exercise of 834,320 of such stock options during the nine months ended
September 30, 1998.

As of December 31, 1998, the Company had a $40.0 million undrawn line of
credit with a financial institution that expires on January 31, 1999. The
Company does not intend to renew this line of credit and anticipates that cash
flows from operating activities will provide sufficient funds to meet its needs
for the foreseeable future. From time to time, the Company may consider
repurchasing its Class A Common Stock depending on price and availability and
alternative uses for its financial resources.

NEW ACCOUNTING DEVELOPMENTS

In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131") effective for years beginning after December 15, 1997.
Statement 131 requires that a public company report financial and descriptive
information about its reportable operating segments pursuant to criteria that
differ from current accounting practice. Operating segments, as defined, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by management in deciding how to allocate
resources and in assessing performance. The financial information to be reported
includes segment profit or loss, certain revenue and expense items, and segment
assets and reconciliations to corresponding amounts in the financial statements.
Statement 131 also requires information about revenues from products or
services, countries where the company has operations or assets and major
customers. Management does not believe the implementation of Statement 131 will
have a material effect on the Company's consolidated financial statements.

In June 1998, the FASB issued SFAS No. 133 ("Statement 133") which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Statement 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
If certain conditions are met, a derivative may be specifically designated as a
fair value hedge, a cash flow hedge, or a foreign currency hedge. A specific
accounting treatment applies to each type of hedge. Statement 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management does not believe the implementation of Statement 133 will have a
material effect on the Company's consolidated financial position or results of
operations.

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The American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," in March 1998. SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use and requires costs incurred in the application
development stage (whether internal or external) to be capitalized. This SOP is
applicable to all financial statements for fiscal years beginning after December
15, 1998, and should be applied to internal-use computer software costs incurred
in those fiscal years for all projects, including those projects in progress
upon initial application of this SOP. Costs incurred prior to initial
application of this SOP, whether or not capitalized, should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. Management does not believe the implementation of SOP
98-1 will have a material effect on the Company's consolidated financial
position or results of operations.

YEAR 2000 ISSUES

The following statements and all other statements made in this Prospectus
with respect to the Company's Year 2000 processing capabilities or readiness are
"Year 2000 Readiness Disclosures" in conformance with the Year 2000 Information
and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat. 2386).

Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "Year 2000 Problem."

Assessment. The Year 2000 Problem affects computers, software, and other
equipment used, operated, or maintained by the Company for itself and its
customers. Accordingly, the Company has organized a program team responsible for
monitoring the assessment and remediation status of the Company's Year 2000
projects and reporting such status to the Company's Board of Directors. This
project team is currently assessing the potential effect of, and costs of
remediating, the Year 2000 Problem for its internal systems and, where the
Company is contractually obligated to remediate the Year 2000 Problem, on
systems operated or maintained on behalf of its clients. In addition, the
Company is performing Year 2000 assessments for some other clients on a
project-by-project basis.

For reporting purposes, the Company is using a methodology involving the
following six phases: Discovery, Assessment, Planning, Remediation, Testing, and
Implementation. At December 31, 1998, the discovery and assessment phases were
substantially complete for all program areas. The target completion dates for
priority items by remaining steps are as follows: Planning -- March 1999;
Remediation -- September 1999; Testing -- September 1999; and
Implementation -- September 1999.

Because the Company's business involves the assessment, implementation, and
operation of computer systems, the Company has not generally obtained
verification or validation by independent third parties of its processes to
assess Year 2000 Problems, its corrections of Year 2000 Problems, or the costs
associated with these activities. However, the Company's Year 2000 program team
is reviewing the project plans prepared by each of the Company's business units
and monitoring their methods and progress against those plans.

Internal Infrastructure. The Company believes that it has identified most
of the major computers, software applications, and related equipment used in
connection with its internal operations that must be modified, upgraded, or
replaced to minimize the possibility of a material disruption to its business.
The Company has commenced the process of modifying, upgrading, and replacing
major systems that have been assessed as adversely affected, and expects to
complete this process before the occurrence of any material disruption of its
business.

Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other common devices may be affected by the Year 2000 Problem. The Company is

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<PAGE> 25

currently assessing the potential effect of, and costs of remediating, the Year
2000 Problem on its office and facilities equipment.

The Company estimates the total cost to the Company of completing any
required modifications, upgrades, or replacements of these internal systems to
be approximately $1.0 million, almost all of which the Company believes will be
incurred during 1999. This estimate is being monitored and will be revised as
additional information becomes available. In addition, the Company recorded a
$13.5 million charge in direct cost of services for the nine months ended
September 30, 1998 to address Year 2000 expenses for certain client contracts.

Based on the activities described above, the Company does not believe that
the Year 2000 Problem will have a material adverse effect on the Company's
business or results of operations. In addition, the Company has not deferred any
material information technology projects as a result of its Year 2000 Problem
activities.

Client Systems. During 1997, the Company initiated assessments of the
effect of the Year 2000 Problem on computers, software, and other equipment it
operates or maintains for its customers, and its obligations to modify, upgrade,
or replace these systems. As part of this process, the Company has been
estimating the costs and revenues to the Company for performing any necessary
services. The Company is monitoring and updating this assessment on an ongoing
basis. The estimated cost associated with making clients' systems Year 2000
compliant for contracts where the Company is obligated to perform these services
at its expense generally has been and will be treated as a contract cost and is
included in the estimate of total contract costs for the respective contract
under the Company's revenue recognition policy. The Company believes that its
clients have been deferring other projects pending resolution of their Year 2000
Problems.

Suppliers. The Company has initiated communications with third party
suppliers of the major computers, software, and other equipment used, operated,
or maintained by the Company for itself or its clients to identify and, to the
extent possible, to resolve issues involving the Year 2000 Problem. However, the
Company has limited or no control over the actions of these third party
suppliers. Thus, while the Company expects that it will be able to resolve any
significant Year 2000 Problems with these systems, there can be no assurance
that these suppliers will resolve any or all Year 2000 Problems with these
systems before the occurrence of a material disruption to the business of the
Company or any of its clients. Any failure of these third parties to timely
resolve Year 2000 Problems with their systems could have a material adverse
effect on the Company's business, financial condition, and results of operation.

Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business operations. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 Problems
affecting the Company or its clients have been identified or corrected. The
number of devices that could be affected and the interactions among these
devices are simply too numerous. In addition, no one can accurately predict how
many Year 2000 Problem-related failures will occur or the severity, duration, or
financial consequences of these perhaps inevitable failures. As a result,
management believes that the following consequences are possible:

- a significant number of operational inconveniences and inefficiencies for
the Company and its clients that will divert management's time and
attention and financial and human resources from ordinary business
activities;

- a lesser number of serious system failures that will require significant
efforts by the Company or its clients to prevent or alleviate material
business disruptions;

- several routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 Problems by clients, which will be resolved in
the ordinary course of business; and

- a few serious business disputes alleging that the Company failed to
comply with the terms of contracts or industry standards of performance,
some of which could result in litigation or contract termination.

Contingency Plans. The Company is currently developing contingency plans to
be implemented if its efforts to identify and correct Year 2000 Problems
affecting its internal systems are not effective. The Company expects to
complete its contingency plans by the end of March 1999. Depending on the
systems

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<PAGE> 26

affected, these plans could include accelerated replacement of affected
equipment or software; short- to medium-term use of backup sites, equipment, and
software, increased work hours for Company personnel; use of contract personnel
to correct on an accelerated schedule any Year 2000 Problems that arise or to
provide manual workarounds for information systems; and similar approaches. If
the Company is required to implement any of these contingency plans, it could
have a material adverse effect on the Company's financial condition and results
of operations.

The Company is also developing contingency plans for certain clients where
such plans are contractually required or are otherwise appropriate to be
developed. In most cases, these contingency plans are being developed jointly by
the Company and its clients. Depending on the systems affected, these plans
could include accelerated replacement of affected equipment or software; short-
to medium-term use of backup sites, equipment, and software; increased work
hours for Company personnel or use of contract personnel to correct on an
accelerated schedule any Year 2000 Problems that arise or to provide manual
workarounds for information systems; and similar approaches. If the Company is
required to implement any of these contingency plans, it could have a material
adverse effect on the Company's financial condition and results of operations.

Disclaimer. The discussion of the Company's efforts, and management's
expectations, relating to Year 2000 compliance are forward-looking statements.
The Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely affected by, among
other things, the availability and cost of programming and testing resources,
third party suppliers' ability to modify proprietary software, and unanticipated
problems identified in the ongoing compliance review.

EFFECT OF EUROPEAN MONETARY UNION

Effective January 1, 1999, the European Union adopted economic and monetary
union in Europe, resulting in the introduction of a single currency called the
EURO. The Company is currently assessing the potential effects of, and costs of
adopting, the EURO conversion for its internal systems and, where the Company is
contractually obligated to take these steps, on systems operated or maintained
on behalf of its clients. For each of these areas, the Company is using the six
phase methodology described above for the Year 2000 Problem. The Company expects
to complete the discovery phase by March 1999, but the EURO conversion is not
expected to have a material effect on the Company's operations or financial
condition or results of operation.

The discussion of the Company's efforts, and management's expectations,
relating to the EURO conversion are forward-looking statements. The Company's
ability to adapt for the EURO conversion and the level of incremental costs
associated therewith could be adversely affected by, among other things, the
availability and cost of programming and testing resources and unanticipated
problems identified in the ongoing conversion review.

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BUSINESS

OVERVIEW

The Company is a worldwide provider of information technology services and
business solutions to a broad range of clients. The Company serves its clients
by delivering services and solutions focused on each client's needs, with
particular emphasis on helping clients more effectively serve their customers.

The Company integrates three core disciplines in providing solutions and
services to its clients: (i) business integration; (ii) systems integration and
applications development; and (iii) information technology infrastructure
services. Business integration services include working with clients to develop
and implement business strategy, information technology strategy, process
redesign, and change management. Systems integration and applications
development include the design and implementation of information technology
systems for clients, including both custom-developed and packaged software.
Information technology infrastructure services combine information technology
outsourcing, staffing, and infrastructure management.

The Company's approach is to provide clients with an "integrated service
offering" -- a combination of multiple disciplines that assists its clients in
improving their business operations or in creating new business offerings. With
this approach, the Company is able to create long-term relationships with its
clients that begin with an analysis of its clients' business strategies and
continue through the implementation of information technology solutions and the
realization of the clients' goals.

In marketing its services, the Company is primarily focused on four
industries: Financial Services, Energy, Healthcare, and Travel and
Transportation. The Company targets these industries to capture the
opportunities arising from their rapid rates of change, growth, and the
increasing importance of information technology in driving and managing this
change and growth. The Company also has significant clients in the
Communications and Media and Manufacturing industries and continually evaluates
additional industries for future growth opportunities. As these opportunities
develop, the Company may allocate resources to target them as additional focal
industries. The Company's clients include: UBS, EME, National Car Rental System,
Inc., Tenet Healthcare Corporation, AT&T Corp., Volkswagen of America, Inc.,
Parsons Corporation, and Cedel Global Services, S.A.

Ross Perot and eight associates founded the Company in June 1988. Since
then, the Company has grown to over 6,000 associates with operations worldwide
as of September 30, 1998. The Company's revenues have grown from $291.7 million
in 1993 to $781.6 million in 1997 and $724.2 million for the nine months ended
September 30, 1998.

INDUSTRY BACKGROUND

Worldwide demand for information technology services and solutions is
growing at a rapid rate. According to industry sources, the aggregate worldwide
market for business integration, systems integration and applications
development, and information technology infrastructure services was an estimated
$177.7 billion in 1997 and is expected to increase to $306.6 billion in 2002,
representing a compound annual growth rate of 11.5%. These sources also indicate
that the estimated worldwide market size for 1997 and the projected market size
for 2002 for business integration is $46.3 billion and $88.4 billion,
respectively; for systems integration and applications development is $41.6
billion and $76.0 billion, respectively; and for information technology
infrastructure services is $89.8 billion and $142.2 billion, respectively. In
2002, the United States market is expected to account for 51.4% of the global
market with an estimated market size of $158.7 billion.

The broad presence of technology in global markets, both in the hands of
businesses and consumers, continually changes the way businesses operate and
compete. Businesses that operate in industries characterized by rapid
technological change and consolidation, such as Financial Services, Energy,
Healthcare, and Travel and Transportation, must increasingly rely on information
technology to remain competitive.

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Several factors contribute to growth in the information technology industry
as it transitions from a back office role in business to a key driver in
competitively positioning enterprises, including the rapid pace of technological
change, the globalization and consolidation of industries, and the shift towards
the deregulation of certain industries. Using information technology as a
strategic tool enables enterprises to reduce cycle times and production costs,
improve the rate of introduction of new products, services, and pricing, and
better serve the needs of their customers. According to industry experts, the
utilities, transportation, banking and financial services, and communications
sectors are among the industries experiencing the fastest growth in information
technology services expenditures.

Designing, developing, and implementing information technology solutions
for individual businesses has become increasingly complex. Many businesses do
not have the time, resources, or expertise to keep pace with industry and
technological change or to efficiently build information technology solutions.
Globally, businesses are increasingly focusing on their core business
competencies and are turning to outside sources to provide information
technology services and skills tailored to create timely solutions and change
business processes to meet specific business objectives.

To date, it has been difficult for businesses to find solutions tailored to
their complex information technology needs. Although there are many suppliers of
information technology solutions, few are able to combine large, integrated
service offerings, global presence, and capital strength with customer focus and
a strong, cohesive culture.

THE PEROT SYSTEMS APPROACH

The Company provides services on a worldwide basis that are uniquely
structured for each client by combining the appropriate industry expertise and
core disciplines to solve the client's business problems and implement new
strategies to generate future growth. The Company's approach includes:

- Providing Integrated Service Offerings. The Company combines its business
integration, systems integration and applications development, and
information technology infrastructure services to analyze and address its
clients' business and information technology challenges and
opportunities. Rather than narrowly focusing on isolated problems, the
Company's integrated service offerings are designed to allow a client to
achieve growth and efficiencies through the implementation of broader
business solutions.

- Structuring Creative Long-Term Relationships. The Company seeks to create
long-term relationships with clients that begin with the initial analysis
of a client's business and information technology problems and
opportunities and continue through implementation of solutions and the
realization of benefits. By creatively structuring contracts with
economic incentives that link the Company's compensation to the client's
business results or the level of the Company's performance, the Company
strives to maximize revenues and client satisfaction.

- Employing Multi-Disciplinary Teams. The Company employs
multi-disciplinary teams of associates with industry-specific expertise
and associates with superior technical skills to best formulate and
implement integrated information technology solutions for clients.

- Formulating Unbiased Client-Based Solutions. The Company analyzes its
clients' business problems and opportunities from the perspective of the
clients and their customers. The Company then impartially assembles the
best combination of Company services and third party products to meet the
clients' needs.

PEROT SYSTEMS GROWTH STRATEGY

The Company's strategic objective is to become the provider of choice for
information technology services and business solutions. Key elements of the
Company's growth strategy include:

- Expand Value-Added Service Offerings. The Company believes that services
aimed at growing a client's business and making a client more productive
and competitive will create more value for the Company's clients, and
accordingly generate more growth, than traditional technology functional
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services. The Company's strategy includes an increasing focus on systems
integration and applications development and business integration
services, supported by value-added information technology infrastructure
services.

- Target Rapidly Changing Industries. The Company targets rapidly changing
industries that are substantially affected by the increasing need for
information technology. The Company utilizes associates with operating
expertise in these specific industries as a competitive advantage in
providing superior services to its clients.

- Create and Leverage Growth Engines. In each industry, the Company has the
opportunity to create "growth engines" -- sets of skills, business
processes, and know-how that, when combined, create leverageable business
solutions for clients. The Company can use these growth engines to build
its presence in its targeted industries and adapt them to develop or
enter other industries.

- Develop Select Clients. The Company believes that client selection is key
to growth and profitability. The Company targets market leaders and
aspiring market leaders that are committed to using information
technology strategically and are willing to develop long-term
relationships.

- Attract, Train, and Retain Associates with Strong Character. The Company
believes that attracting, training, and retaining high quality associates
are essential to its growth. The Company hires motivated individuals with
strong character and leadership traits and provides them with ongoing
technological and leadership skills training. The Company emphasizes
retaining its associates through challenging work assignments and
incentive programs, including rewarding outstanding performance with
equity interests in the Company. More than 90% of the Company's
associates hold equity interests in the Company.

CORE DISCIPLINES

The Company's broad range of service offerings are classified within three
core disciplines: (i) business integration; (ii) systems integration and
applications development; and (iii) information technology infrastructure
services.

[Pyramid Graphic]
[The Prospectus contains a graphic representation of a triangle divided into
three horizontal segments labeled Business Integration, Systems
Integration/Applications Development, and Infrastructure Services.]

The Company combines these disciplines into an integrated service offering
to create a customized solution for its clients. The Company believes that, in
addition to providing clients with more comprehensive information technology and
business solutions, its integrated service offerings allow the Company to
attract strategically motivated clients, focus on its clients' business
objectives, and ultimately generate higher value for its clients.

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Business Integration

In providing business integration services, the Company works with clients
to, among other things, develop and implement business strategy, information
technology strategy, process redesign, and change management. These services
include:

- Business Strategy. To help clients develop and implement business
strategies, the Company offers strategic advice designed by business and
technical experts with industry-specific knowledge to align client
capabilities with the demands of the market in which they compete.

- Information Technology Strategy. The Company helps its clients create and
implement an information technology strategy that optimizes the use of
information technology to achieve the client's business objectives. The
Company employs its extensive knowledge of information technology
architectures, infrastructures, and technologies to continually refine
and update its clients' information technology strategies.

- Process Redesign. The Company works with clients to systematically
reengineer their business processes with innovative approaches
incorporating cross-industry best practices.

- Change Management. The Company advises clients with respect to major
business and cultural changes by assessing current skills and resource
requirements, implementing organizational changes and associated
measurement systems, and creating employee communication plans.

In order to expand and further develop its business integration
capabilities, the Company has acquired several specialized businesses, including
its February 1997 acquisition of Benton International, Inc. Benton International
is a financial services consulting organization, specializing in telephone and
Internet-based direct banking and electronic payments systems. The firm employs
associates with experience in the financial services industry, including senior
positions at major financial institutions and on governmental advisory boards.
The firm provides strategic business advice to its financial clients, including
advising major retail banks on their mergers and acquisitions strategy.

Systems Integration and Applications Development

As part of its systems integration and applications development discipline,
the Company designs and implements information technology systems, including
both custom-developed and packaged software, for clients by offering the
following portfolio of services:

- Systems Integration. The Company assists clients in designing,
evaluating, and implementing information technology systems comprising
software applications and hardware components. Services performed by the
Company range from migrating systems from an existing platform to a new
platform to installing, configuring, and testing a new system, and
providing associated training support.

- Applications Development. The Company develops custom software
applications ranging from modifications and enhancements of existing
packaged software to completely custom-developed applications. These
applications are designed for various environments including web-based
systems, distributed networks, and mainframes.

- Project Management. Company associates manage client staff to perform
systems integration and applications development projects, including
project scope and change control.

In order to expand and further develop its systems integration and
applications development capabilities, the Company has acquired or established
several specialized business units, including:

The Technical Resource Connection, Inc. Acquired in October 1996, The
Technical Resource Connection has expertise in enterprise computing
architectures, distributed-object computing technologies, Internet/intranet
applications, and software engineering processes. The Technical Resource
Connection employs experienced and innovative software technologists -- software
architects, designer/developers, modelers, and systems engineers -- who focus on
software development processes and technology skills to reduce the complexity
and risk associated with building powerful business computing systems.
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Time(O with slash through it)(TM). In May 1997, the Company formed its
Time(O with slash through it) electronic commerce business unit by hiring a core
team of technologists and business experts. Time(O with slash through it) builds
business-to-business digital marketplaces to enable groups of businesses to
engage in electronic commerce. Time(O with slash through it) brings together its
proprietary software platform, customization tools, and design processes that
enable businesses to operate more efficiently and effectively by using
Internet-based electronic commerce.

Syllogic, B.V. Acquired in June 1997, Syllogic has extensive expertise in
the creation of flexible, structured, and manageable data warehouses and data
mining tools. Syllogic has created the Syllogic Data Mining Tool, a system that
combines several different data mining technologies into a single graphical user
interface. Syllogic also assists clients in managing systems and networks
through Adaptive Systems Management, a suite of applications that learns from
past experience and uses that knowledge to prevent errors from recurring.

HCL Perot Systems N.V. HPS is a joint venture currently 50% owned by each
of the Company and the HCL corporate group. HPS provides systems integration,
onsite consulting, applications development, legacy applications maintenance,
process reengineering, Year 2000 remediation, and European Monetary Union
modifications. Due to its access to a large pool of software talent in India,
HPS is able to provide international services at competitive prices. HPS has
software development centers in Noida and Bangalore, India.

Information Technology Infrastructure Services

Information technology infrastructure services combine information
technology outsourcing, staffing, and infrastructure management. The Company's
information technology infrastructure services include:

- Operations and Maintenance. The Company manages, updates, and maintains
data processing systems, networks and technical infrastructures, operates
help desks, and manages, resolves, and documents problems in the client's
computing environment. These activities can be performed at client
facilities or delivered through data processing centers maintained by the
Company. The Company also coordinates all change activities through
standardized and automated change management processes, checks and
monitors systems and networks for unauthorized use, manages various types
of storage media, and provides data backup and recovery services.

- Monitoring and Planning. The Company offers comprehensive monitoring of
and planning for information technology systems, including monitoring
network status and availability through periodic polling of network
resources. The Company also collects and analyzes data and applies
corrective measures when information technology systems and networks do
not meet requirements and measures and monitors the availability of
sufficient capacity in order to ensure continuity and quality of service.

CHANNELS TO MARKET

The Company delivers its services primarily through industry groups
representing its four targeted industries and the other industries in which the
Company has significant customers. The Company also offers services through its
geographically-based project offices.

Targeted Industries

The Company's targeted industry groups are Financial Services, Energy,
Healthcare, and Travel and Transportation. The Company targets these industries
to capture the opportunities arising from their rapid rates of change, growth,
and the increasing importance of information technology in driving and managing
this change and growth. Group associates have broad technical and operational
experience and expertise in addressing the technical and business challenges
faced by clients in these industries. The following is a brief description of
the Company's main industry groups:

Financial Services Group. The Company provides a full range of business
integration and information technology service line offerings to wholesale,
commercial, and retail banks, investment banks, private banks, asset management
companies, brokerage firms, securities clearing banks, and other financial
institutions. The financial services team includes professionals with
backgrounds in investment banking and commercial
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banking, and former senior level consultants to the financial services industry.
The Company utilizes its industry-specific and technical expertise to help
clients capitalize on emerging market opportunities as financial services
markets converge and the Internet and other technologies create new markets.
Some of the sector specific offerings are:

- Capital Markets. The financial services group provides services that
include re-engineering and automation of front and back office functions,
project management and implementation of global trading floors, and
integration and operational management of secure information technology
infrastructures.

- Retail Banking. The financial services group offers retail banks
telephone and Internet-based direct banking design services and project
implementation, assistance with customer relationship management, and
expertise in electronic payment systems. The Company also provides
infrastructure operations services to retail banks.

- Mortgage Banking. Associates in the financial services group provide
process improvement consulting and implementation to mortgage lenders and
servicers to automate the processing of mortgage applications and to
increase productivity.

Energy Services Group. The Company serves municipal and private utilities,
related service providers, new entrants in deregulated markets, and other energy
companies. The energy services group comprises experts in such key areas as
energy power systems restructuring and automation, transmission congestion
management and modeling, market simulation design analysis, and power management
system economics. Offerings in this sector include:

- Regulated Utilities. Energy services group professionals design,
implement, and operate information technology systems to support core
business functions of major utilities, including billing and collections,
customer service, and supply chain management. These associates also
advise energy industry organizations with regulatory compliance and
prepare them to take advantage of deregulating markets.

- Unregulated Markets/New Market Entrants. The energy services group
assists unregulated entities in building and operating retail systems and
infrastructure, settlements and clearing systems, trading and risk
management systems, and provides product and service innovations to
exploit competitive markets.

Healthcare Services Group. Focusing on the requirements of integrated
healthcare networks, the Company serves managed care providers, hospital groups,
healthcare product distributors, and other healthcare companies. The healthcare
services team includes physicians, nurses, health policy experts, managed care
executives, and health insurance experts. The Company assists clients with
information access and connectivity and provides tools for transaction
management, care management, decision support, and Internet-based demand
management systems. Some of the sector specific offerings are:

- Multi-Hospital Systems and Regional Integrated Delivery
Networks. Professionals in the healthcare services group advise clients
on preparing for, and assist clients in managing the business
opportunities of, acquisitions and divestitures of discrete care units.

- Managed Care Organizations. The healthcare services group offers clients
expertise in managed care administrative systems, including claims
processing, and operates an industry service bureau priced on a per
member per month basis.

- Physician Practice Management Companies. The healthcare services group
offers clients specialized knowledge of physician practice management
systems and operates a business service bureau on a transaction services
basis.

Travel and Transportation Services Group. The Company serves rental car
companies, hotels, airlines, travel agencies, and companies in other sectors of
the travel and transportation industry. The travel and transportation services
group includes former business executives from the rental car, travel agency,
and airline industries. Certain sectors served by this group are:

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- Rental Cars. Travel and transportation services group professionals
provide industry-specific expertise, systems, and processes in business
planning, reservations systems, fleet management, counter operations,
billing, and yield management.

- Hospitality. The travel and transportation services group offers
assistance with integration of hotel chain property management and
central reservation systems, travel agent commission settlement systems,
and loyalty program offerings.

Existing Business and Opportunities in Other Industries

In addition to its targeted industries, the Company has significant clients
in the Communications and Media and the Manufacturing industries. The Company
believes that its business in these areas has the potential to mature into
fully-developed targeted industry groups. Services and types of clients include:

- Communications and Media. The Company assists with business strategy,
billing, online, and customer care programs, quality assurance and
testing, and customer revenue enhancement programs to providers of voice,
data, image, video, entertainment, media, and information services
through wireless and wireline networks.

- Manufacturing. Knowledgeable associates provide industry-specific
solutions, including supply chain management, planning and scheduling,
order management and assistance with warehousing, distribution,
production, and finance applications to a variety of manufacturing
clients, including companies in the automobile manufacturing, automobile
parts manufacturing, steel, and plastics industries.

Other Channels to Market: Project Offices

The Company also offers shorter term services on a project basis, which it
typically delivers through the Company's geographically-based project offices
and its business consulting units. Project offices sell short-term business
integration, systems integration and applications development, and information
technology infrastructure services within targeted and other industries, both on
an integrated and an individual service offering basis.

The Company has project offices in Reston, Virginia; Denver, Colorado;
Dallas, Texas; Amersfoort, The Netherlands; London, England; Detroit, Michigan;
Atlanta, Georgia; and Munich, Germany. These project offices, which employ
approximately 700 associates as of September 30, 1998, also serve as a location
to provide technology training and staffing pools for the Company's long-term
relationships.

ILLUSTRATIVE RELATIONSHIPS

Some recent examples of the Company's relationships with clients in each of
the Company's targeted industries follow.

Financial Services

In January 1996, the Company entered into a long-term strategic
relationship with Swiss Bank Corporation. In June 1998, Swiss Bank Corporation
merged with Union Bank of Switzerland to form UBS. As a result, UBS is among the
world's leading financial institutions with assets of approximately $600
billion.

As part of this relationship, the Company assumed responsibility for
management of the information technology infrastructure for Warburg Dillon Read,
the investment banking division of UBS. The Company's activities have included
project management, implementation of two new Warburg Dillon Read trading floors
(in London, England and Stamford, Connecticut), and centrally engineering and
integrating Warburg Dillon Read's workstations globally. The Company is also in
the forefront of integrating information technology infrastructures as UBS
expands, including the integration of such infrastructures with the bank's joint
venture operations. The Company also provides services to UBS's private banking,
commercial banking, and asset management divisions.

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As part of its strategic relationship with UBS, the Company received a 40%
equity interest in UBS's Switzerland-based information technology subsidiary,
Systor, and UBS holds shares and an option to purchase shares of the Company's
Class B Common Stock.

The Company's strategic relationship with UBS has enabled it to develop
leading edge expertise in the design, development, and operation of global
trading infrastructures. The Company has utilized, and intends to continue to
utilize, this expertise to attract other client relationships in the financial
services industry on a world-wide basis.

Energy

In 1992, the Company signed a comprehensive, long-term information
technology outsourcing agreement with EME, one of the leading regional electric
companies in the United Kingdom in terms of distribution volume. The Company
assisted EME's reorganization from a consolidated business into separate
operating entities for energy generation, distribution, and supply.

EME's operating environment includes over 75 applications operated across
seven major hardware platforms that utilize 34 programming languages and nine
different databases.

Through project management and the integration of several disparate
computer systems, the Company assisted EME's regulated and non-regulated
businesses in meeting the challenges of the United Kingdom's deregulating energy
sector.

Through its work with EME, the Company has developed an expertise in the
emerging deregulated utility markets. The Company has utilized and intends to
use this expertise and experience as a means to attract other client
relationships, particularly in the United States utility industries, as those
markets deregulate.

Healthcare

In 1991, the Company entered into a long-term, comprehensive information
technology agreement with American Medical Holdings, Inc. ("AMH"), a large
for-profit hospital company. In March 1995, AMH was acquired by Tenet Healthcare
Corporation ("Tenet"), which is the second largest investor-owned healthcare
services company in the United States. At the time of that acquisition, Tenet
invited the Company to propose information technology assistance for the
combined company. After evaluating various approaches, Tenet entered into a
comprehensive agreement with the Company for a full range of information
technology outsourcing and other services.

Part of Tenet's strategy is to form integrated healthcare delivery systems,
including through the acquisition of hospitals and related ancillary healthcare
businesses. Tenet also occasionally closes or sells certain of its hospitals and
related ancillary healthcare operations that do not fit Tenet's strategic model.
Tenet knew that implementing this strategy would prove challenging from an
information technology perspective and required the Company to develop an
integrated layer of systems that could support the acquisition or disposition of
hospitals and related ancillary healthcare operations.

In its fiscal year ended May 31, 1996, Tenet acquired five general
hospitals, converted one general hospital to a specialty hospital and closed one
hospital. In January 1997, Tenet acquired OrNda Healthcorp and increased the
number of hospitals it owned from 77 to 127. Since that time, Tenet has
continued to change its strategic mix of hospitals. At May 31, 1998, Tenet owned
or operated 122 general hospitals and related ancillary healthcare businesses in
18 states.

As Tenet has grown, the Company has helped Tenet merge disparate networks
into a multi-protocol wide area network and consolidate multiple computing
facilities. This resulted in increased flexibility and reduced costs for Tenet.
The Company developed and implemented a "best-of-breed" applications
architecture that provided access to data from multiple sources and systems to
create unified financial, clinical, materials management, and executive
information systems.

This relationship has resulted in Tenet having a fast and flexible
information technology capability and infrastructure that provides Tenet with a
strategic advantage as it executes its growth strategy.
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This relationship also has enabled the Company to develop the knowledge and
tools to leverage efficiencies, stabilize and enhance applications, assist
others in forming integrated healthcare networks, and serve other clients in the
rapidly evolving healthcare industry. The Company intends to capitalize on this
experience and expertise to continue to pursue additional opportunities in the
healthcare market.

Travel and Transportation

The car rental industry has recently undergone significant structural
change. Most major car rental companies were previously owned by major
automobile manufacturers, which used the car rental companies to a substantial
degree as a means of purchasing their excess production and as a distribution
channel. Recently, several of the major car rental companies have been acquired
by investors that do not have a business objective of distribution of their
manufactured cars. This development has led to the emergence of new business
strategies in the industry focused more on growth, profit, customer service, and
business change.

National Car Rental is one of the largest car rental firms in the world
with operations in the United States and Europe. National is implementing a
strategic plan for fleet management and customer reservations using technology
to transform the company, provide prompt information about its performance and
markets, and differentiate and improve customer service.

National Car Rental selected the Company over several of its competitors as
its technology partner to assist in the implementation of this plan. In
addressing National's information technology requirements, the Company
successfully replicated a previously devised travel industry "growth engine."
This growth engine enabled the Company to rapidly fashion an integrated business
solution tailored to National's specific needs. The Company and National are
implementing Odyssey, an integrated reservations system, rental operations
system, fleet inventory capability, sales and marketing system, and billing and
collections package. These capabilities will enable National to expand the scope
of its operations, achieve operating efficiencies, differentiate its service
offerings, and rapidly grow its business.

The Company believes that this engagement will augment its existing
expertise and infrastructure in the car rental industry and poise the Company to
exploit other opportunities in this rapidly evolving area.

Other Industries

In February 1998, W.W. Grainger, Inc., a leading distributor of
maintenance, repair and operating supplies in North America, entered into an
agreement with the Company's Time# unit to develop a digital marketplace to
provide Grainger's small- to medium-sized business customers with one-stop
electronic purchasing of supplies, equipment, and services from multiple
vendors.

Grainger's digital marketplace will employ business processes and
technology designed to enable buyers, sellers, and others to conduct business
more efficiently and effectively. The marketplace is a collaborative engagement
that brings together extensive knowledge of customer requirements and integrated
capabilities in key technology disciplines and e-commerce expertise to create a
marketplace tailored to Grainger's specific needs.

The systems developed by Time# will facilitate and enhance customer
relationships and are intended to set a new standard for business-to-business
ordering and acquisition. Through its relationship with Grainger, other clients,
and technology partners, Time# has built a second generation of its proprietary
technology. The Company believes that this technology will provide Time# with an
engine for strong growth in Internet commerce.

PEROT SYSTEMS ASSOCIATES

The market for information technology personnel and business integration
professionals is intensely competitive. A key part of the Company's business
strategy is the hiring, training, and retention of highly motivated personnel
with strong character and leadership traits. The Company believes that employing
associates with such traits is and will continue to be an integral factor in
differentiating the Company from its

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competitors in the information technology industry. In seeking such associates,
the Company screens candidates for employment through a rigorous interview
process.

The Company devotes a significant amount of resources to training its
associates. Associates undergo continual training throughout their employment
with the Company. Entry level training programs develop the skill sets necessary
to serve the Company's clients. These entry level apprentice training programs
are augmented by engineering development programs and periodic continuing
education. In addition, the Company operates a leadership training course that
each manager and executive must complete. This program includes a workshop
stressing the fundamentals of team leadership. The Company augments its
extensive personnel and leadership training through its TRAIN (The Real-time
Associate Information Network) system, a company-wide intranet featuring
training courses that develop both technical and leadership skills.

The Company employs a performance-based incentive compensation program that
provides guidelines for career development, encourages the development of
skills, provides a tool to manage the associate development process, and
establishes compensation guidelines as part of its retention program. In
addition to competitive salaries, the Company distributes cash bonuses that are
paid promptly to reward excellent performance. The Company seeks to align the
interests of its associates with those of its stockholders by compensating
outstanding performance with equity interests in the Company, which the Company
believes fosters loyalty and commitment to Company goals. More than 90% of the
Company's associates hold equity interests in the Company.

As of September 30, 1998, the Company employed approximately 6,000
associates located in the United States and several other countries. None of the
Company's United States associates is currently employed under an agreement with
a collective bargaining unit. The Company's associates in France and Germany are
generally members of work councils and have worker representatives. The Company
believes that its relations with its associates are good.

UBS AGREEMENTS

In January 1996, the Company entered into a series of agreements to form a
strategic relationship with Swiss Bank Corporation, one of the predecessors to
UBS. This relationship involves a long-term contract (the "IT Services
Agreement"), and a separate agreement to provide services to other UBS operating
units and to permit the Company to use certain UBS assets. Other agreements with
UBS provide for the sale to UBS of stock and options in the Company, and the
transfer to the Company of a 40% stake in UBS's European information technology
subsidiary, Systor.

IT Services Agreement

Under the IT Services Agreement, the Company provides Warburg Dillon Read,
the investment banking division of UBS, with services meeting its requirements
for the operational management of its technology resources (including
mainframes, desktops, and voice and data networks), excluding hardware and
proprietary software applications development. The term of the IT Services
Agreement is 11 years beginning January 1, 1996. The Company's charges for
services provided under the IT Services Agreement are generally based on
reimbursement of all costs, other than Company corporate overhead, incurred by
the Company in the performance of services covered by the contract. In addition
to this cost reimbursement, the Company receives an agreed annual fee, subject
to bonuses and penalties of up to 15% of such fee based on the Company's
performance. UBS determines the bonus or penalty based on many subjective
factors, including service quality, client satisfaction, and the effectiveness
of the Company in assisting UBS in meeting its business goals.

Approximately 25.4% and 27.2% of the Company's revenues were earned in
connection with services performed on behalf of UBS and its affiliates for the
nine months ended September 30, 1998 and the year ended December 31, 1997,
respectively. If some competitors of UBS acquire more than 25% of the shares of
Class A Common Stock of the Company or another party (other than an affiliate of
Ross Perot) acquires more than 50% of the shares of Class A Common Stock and, if
in either case, that acquisition is reasonably likely to have a significant
adverse effect on the performance of or the charges for the services rendered by
the
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Company, UBS has the right to terminate its agreements with the Company. The
loss of UBS as a client would materially and adversely affect the Company's
business, financial condition, and results of operations.

Equity Interests

Under the Amended and Restated PSC Stock Option and Purchase Agreement (the
"Stock Agreement"), the Company sold UBS 100,000 shares of Class B Common Stock
for $3.65 a share and 7,234,320 options to purchase shares of Class B Common
Stock for $1.125 an option (the "UBS Options"). UBS can exercise the UBS Options
at any time for $3.65 a share, subject to United States bank regulatory limits
on UBS's shareholdings. UBS exercised options to purchase 834,320 shares of
Class B Common Stock in September 1998. In addition to other limits set forth in
the Stock Agreement, the number of shares of Class B Common Stock owned by UBS
and its employees may not exceed 10% of the number of shares of outstanding
Common Stock. Once the underlying shares of Class B Common Stock vest, the
corresponding UBS Options are void unless exercised by UBS within five years of
such vesting. This five-year period is tolled at any time when bank-regulatory
limits prohibit UBS from acquiring the shares.

Beginning on January 1, 1997, the shares of Class B Common Stock subject to
the UBS Options vest at a rate of 63,906 shares per month until January 1, 2002
and a rate of 58,334 shares per month thereafter until the IT Services Agreement
terminates. Upon termination of the IT Services Agreement, (i) UBS is required
to sell to the Company all unvested shares of Class B Common Stock and (ii) UBS
Options with respect to unvested shares of Class B Common Stock are void.

UBS cannot transfer the UBS Options and unvested shares of Class B Common
Stock. Subject to exceptions relating to certain transfers to UBS affiliates and
transfers in connection with widely dispersed offerings, before transferring any
shares of Class B Common Stock UBS must first offer such shares to the Company.
Because UBS has elected not to sell shares in connection with this offering, UBS
cannot sell Class B Common Stock, except for limited sales to UBS affiliates,
until the first anniversary of the closing date of this offering.

A portion of the Company's interest in Systor will be returned to UBS if
the IT Services Agreement is terminated. The portion that would be returned to
UBS upon such a termination declines ratably over a ten year period that began
on January 1, 1997.

AGREEMENT WITH EME

The Company provides systems services for EME, one of the largest regional
electricity companies in the United Kingdom in terms of distribution volume,
under an Information Technology Services Agreement initially entered into on
April 8, 1992 (as amended, the "EME Agreement"). The EME Agreement remains in
effect until either party gives eight months' prior notice to terminate on or
after March 31, 2004, unless earlier terminated in accordance with the terms of
the EME Agreement. The Company provides systems operation services on the basis
of cost reimbursement and a management fee and applications systems support,
development services, and consultancy services generally on the basis of time
and materials. The EME Agreement also provides for an incentive payment to the
Company if it is able to reduce costs from contract year to contract year.

In addition to termination rights for cause, non-payment, insolvency and an
EME change of control, the EME Agreement also provides for a good faith
termination right that gives either EME or the Company the right to terminate
the EME Agreement upon giving eight months' written notice if in the good faith
view of the terminating party certain objectives of the EME Agreement are not
being met and are unlikely to be achieved.

For the nine month period ended September 30, 1998 and the year ended
December 31, 1997, approximately 11.9% and 10.2%, respectively, of the Company's
revenues were earned in connection with services performed on behalf of EME.

In July 1998, PowerGen plc acquired EME from Dominion Resources, Inc. The
EME Agreement contains provisions allowing EME to terminate all or part of the
contract upon eight months' notice due to the
35
<PAGE> 38

sale of EME. EME is obligated to pay a termination fee upon exercise of this
termination right. The Company cannot assure that EME will not cancel or modify
the contract or that the Company will maintain its historic level of revenues or
profits from this relationship.

COMPETITION

The Company's markets are intensely competitive and are characterized by
continuous changes in customer requirements and the technology available to
satisfy those requirements.

The Company's principal competitors include Andersen Consulting LLP,
Cambridge Technology Partners, Inc., Cap Gemini Group, Computer Sciences
Corporation, debis Systemhaus GmbH (the information technology division of
DaimlerChrysler), Electronic Data Systems Corporation, Ernst & Young LLP, IBM
Global Services (a division of International Business Machines, Inc.), KPMG Peat
Marwick LLP, MCI Systemhouse, Oracle Corporation, PricewaterhouseCoopers LLP,
and The SABRE Group Holdings, Inc.

Many of these companies, as well as some other competitors, have greater
financial resources and larger customer bases than the Company and may have
larger technical, sales, and marketing resources than the Company. The Company
expects to encounter additional competition as it addresses new markets and as
the computing and communications markets converge. In addition, the Company must
frequently compete with a client's own internal information technology
capability, which may constitute a fixed cost for the client. This may increase
pricing pressure on the Company.

The Company competes on the basis of a number of factors, both within and
outside of its control, including the attractiveness of the business strategy
and services that the Company offers, breadth of service line offerings,
technological innovation, pricing, quality of service, and ability to invest in
or acquire assets of potential customers. The Company differentiates itself from
its competitors by providing clients with integrated service offerings,
emphasizing the creation of long-term relationships with its clients, and
working with the client to define the business problem to be solved and the
potential business opportunity from the point of view of the client and the
client's customers. There can be no assurance that the Company will be able to
compete successfully against its current or future competitors in the future or
that competition will not have a material adverse effect on the Company's
results of operations.

INTELLECTUAL PROPERTY

While the Company attempts to retain intellectual property rights arising
from client engagements, the Company's clients often have the contractual right
to retain such intellectual property. The Company relies on a combination of
nondisclosure and other contractual arrangements and trade secret, copyright,
and trademark laws to protect its proprietary rights and the proprietary rights
of third parties from whom the Company licenses intellectual property. The
Company enters into confidentiality agreements with its associates and limits
distribution of proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.

The Company licenses the right to use the names "Perot Systems" and "Perot"
(collectively, the "Perot Name") in its current and future businesses, products,
or services from the Perot Systems Family Corporation and Ross Perot. The
license is a non-exclusive, royalty-free, worldwide, non-transferable license.
The Company may also sublicense its rights to the Perot Name to its affiliates.
Under the license agreement, as amended, either party may, in their sole
discretion, terminate the license at any time, with or without cause and without
penalty, by giving the other party written notice of such termination. Upon
termination by either party, the Company must discontinue all use of the Perot
Name within one year following receipt of the notice of termination. The
termination of this license agreement may materially and adversely affect the
Company's business, financial condition, and results of operations. Except for
the license of the Company's name, the Company does not believe that any
particular copyright, trademark or group of copyrights and trademarks is of
material importance to the Company's business taken as a whole.

36
<PAGE> 39

PROPERTIES

As of December 31, 1998, the Company had approximately 40 locations in the
United States and five countries outside the United States, all of which were
leased. The Company's leases cover approximately 850,000 square feet of office
and other facilities and have expiration dates ranging from 1999 to 2016. Upon
expiration of its leases, the Company does not anticipate any significant
difficulty in obtaining renewals or alternative space. In addition to the leased
property referred to above, the Company occupies office space at client
locations throughout the world. Such space is generally occupied pursuant to the
terms of the agreement with the particular client. The Company currently
anticipates consolidating some or all of its operations located principally in
Dallas, Texas during the next two years. The Company's management believes that
its current facilities are suitable and adequate for its business.

OPERATING LEASES AND MAINTENANCE AGREEMENTS

The Company has commitments related to data processing facilities, office
space, and computer equipment under non-cancelable operating leases and fixed
maintenance agreements for periods ranging from one to ten years. Future minimum
commitments under these agreements as of September 30, 1998 are disclosed in
Note 13 to the Consolidated Financial Statements.

LEGAL PROCEEDINGS

The Company is, from time to time, involved in various litigation matters
arising in the ordinary course of its business. The Company believes that the
resolution of currently pending legal proceedings, either individually or taken
as a whole, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.

The Robert Plan Corporation ("Robert Plan") has filed a complaint in New
York state court against the Company and Ross Perot in connection with a
September 1, 1990 contract under which the Company provides data processing and
software development needs for some of Robert Plan's operations. The complaint
alleges breach of the 1990 contract, misappropriation of Robert Plan's
proprietary information and business methods in connection with an imaging
system, breach of warranty, and similar claims relating to the contract.
Although the complaint seeks substantial monetary awards and injunctive relief,
the 1990 contract substantially limits each party's liability except in limited
circumstances, including for "wanton or willful misconduct." Accordingly, Robert
Plan has alleged that the Company has acted in a "wanton" and "willful" fashion,
even though Robert Plan has used and continues to use the services of the
Company under the 1990 contract. The Company believes that it has meritorious
defenses to Robert Plan's claims and intends to vigorously defend the lawsuit.
The Company does not believe that the outcome of this litigation will have a
material adverse effect on the Company.

37
<PAGE> 40

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ross Perot(1)....................... 68 Chairman of the Board, President, and Chief Executive
Officer
James Champy........................ 56 Vice President and Director
Terry Ashwill....................... 54 Vice President and Chief Financial Officer
Peter Altabef....................... 39 Vice President, General Counsel, and Secretary
Joseph Boyd......................... 39 Vice President
Donald Drobny....................... 55 Vice President
John King........................... 52 Vice President
Ron Nash............................ 49 Vice President
Ken Scott........................... 56 Vice President
Steven Blasnik(1)................... 41 Director
William K. Gayden(2)................ 57 Director
Carl Hahn(2)........................ 72 Director
Ross Perot, Jr.(1).................. 40 Director
</TABLE>

- ---------------

(1) Executive committee member.

(2) Audit committee member.

Ross Perot, one of the Company's founders, has served as a director,
President and Chief Executive Officer of the Company since November 1997, and
Chairman of the Board since February 1998. In addition, from April 1988 to June
1992, Mr. Perot held the position of Chairman of the Company. Following his
resignation as Chairman, Mr. Perot remained a director until August 1994. Mr.
Perot was a private investor from June 1992 to the present.

James Champy joined the Company in August 1996 as a Vice President and a
director. From 1993 until 1996, Mr. Champy was Corporate Vice President and
Chairman -- Consulting Group of Computer Sciences Corporation. Mr. Champy was
one of the founders of, and from 1969 to 1996 served in a variety of capacities
for, Index (a management consulting firm) and CSC Index (the management
consulting arm of Computer Sciences Corporation formed upon the acquisition of
Index by Computer Sciences Corporation in 1988). Most recently, Mr. Champy was
Chairman and Chief Executive Officer of CSC Index.

Terry Ashwill joined the Company in January 1997 as a Vice President and
Chief Financial Officer. From August 1991 to January 1997, Mr. Ashwill served as
Executive Vice President and Chief Financial Officer of True North
Communications, Inc.

Peter Altabef joined the Company in June 1993 and was elected as a Vice
President in June 1995 and Secretary in March 1996. Mr. Altabef became General
Counsel in April 1994. From January 1991 until May 1993, Mr. Altabef was a
partner in the Dallas law firm of Hughes & Luce, L.L.P.

Joseph Boyd joined the Company in January 1990 and was elected as a Vice
President in March 1996. Mr. Boyd currently serves as the General Manager of
North American Operations for the Company. Mr. Boyd has served as the General
Manager of the Company's Healthcare Group and as an account manager.

Donald Drobny is one of the Company's founders. Mr. Drobny joined the
Company in June 1988 and was elected as a Vice President in April 1989. Mr.
Drobny currently has oversight responsibility for the Company's

38
<PAGE> 41

training and recruiting activities. Previously, Mr. Drobny had oversight
responsibility for the Company's project offices.

John King is one of the Company's founders. Mr. King joined the Company in
June 1988 and was elected as a Vice President in April 1989 and currently has
responsibility for the Company's Financial Services Group.

Ron Nash joined the Company in March 1993 and was elected as a Vice
President in May 1995. From November 1985 until March 1993, Mr. Nash held a
variety of positions with Advanced Telemarketing Corporation and, following its
acquisition by ATC Communications Group, Inc., with its parent corporation. From
September 1992 to March 1993, Mr. Nash served as Vice President, International
and a director of ATC Communications Group, Inc. Immediately prior to that time,
Mr. Nash served as President, Chief Operating Officer, and a director of
Advanced Telemarketing Corporation. Mr. Nash currently has responsibility for
European major account sales.

Ken Scott joined the Company in June 1997 and was elected Vice President in
November 1998. Mr. Scott currently serves as the General Manager of European
Operations for the Company. For the seven years prior to joining the Company,
Mr. Scott was the President of the Energy Division of Electronic Data Systems
Corporation ("EDS").

Steven Blasnik was elected a director of the Company in September 1994.
Since 1987, Mr. Blasnik has served as President of Perot Investments, Inc.
("PII"), a private investment firm and an affiliate of Ross Perot. Mr. Blasnik
also serves as a director of Zonagen, Inc.

William K. Gayden was elected a director of the Company in October 1998.
Mr. Gayden founded Merit Energy Company ("Merit") in 1989 and has been President
of Merit since its founding. Mr. Gayden spent twenty years with EDS during which
time he held many senior positions including President of EDS World Corporation,
Senior Vice President of EDS, and a member of the Board of Directors of EDS.

Carl Hahn was elected a director of the Company in April 1993. Since June
1996, Mr. Hahn has been a private investor. From June 1993 until June 1996, Mr.
Hahn served as Chairman of the Board of Directors of Saurer Ltd., a manufacturer
of textile machines. Prior to that time, Mr. Hahn served as Chairman of the
Board of Management of Volkswagen AG until December 1992. Mr. Hahn also serves
as a director of PACCAR, Inc., TRW Inc., Thyssen AG, Gerling AG, Hawesko, AG,
and Sachsenring, AG.

Ross Perot, Jr. was elected a director of the Company in 1988. Since March
1988, Ross Perot, Jr. has served as Chairman of Hillwood Development
Corporation, a real estate development company. Ross Perot, Jr. is the son of
Ross Perot.

Each executive officer of the Company serves at the discretion of the Board
of Directors, subject to the provisions of any applicable employment agreements.

INSIDER PARTICIPATION IN COMPENSATION DECISIONS AND BOARD INTERLOCKS

As members of the Board of Directors, Messrs. Perot and Champy will
participate in future compensation decisions.

BOARD COMMITTEES AND MEETINGS

The Board of Directors has established two committees to assist in the
discharge of its responsibilities: the Executive Committee and the Audit
Committee. The Executive Committee consists of Ross Perot, Ross Perot, Jr., and
Steven Blasnik. The Audit Committee consists of William Gayden and Carl Hahn.

Generally, the Executive Committee has the full power and authority of the
Board of Directors in the management of the business and affairs of the Company,
except with respect to matters that cannot be delegated under Delaware law.

The Audit Committee reviews the annual financial statements of the Company
and the professional services provided by the Company's independent public
accountants, including the scope of their audit coverage, the auditor's reports
to management and management's responses to such reports, and the
39
<PAGE> 42

independence of such accountants from the management of the Company. The Audit
Committee also reviews the scope of the Company's internal audits, the internal
auditors' reports to management and management's responses to such reports, the
effectiveness of the Company's internal audit staff, possible violations of the
Company's Standards and Ethical Principles, and such other matters with respect
to the accounting, auditing and financial reporting practices and procedures of
the Company as it may find appropriate or as have been brought to its attention.

The Board of Directors may, from time to time, establish other committees
to facilitate the management of the Company or for other purposes it may deem
appropriate.

DIRECTOR COMPENSATION

In October 1997, the Company began compensating its non-employee directors
(other than Ross Perot, Jr.) $2,000 for each meeting of the Board of Directors
attended in person. Employee directors receive no cash compensation for
attending committee meetings. Directors are also reimbursed for their reasonable
out-of-pocket expenses associated with attending Board of Directors and
committee meetings. Prior to October 1997, directors received no cash
compensation for their service on the Board of Directors or any committee of the
Board of Directors.

Except for Mr. Hahn, prior to December 1996, upon their election to the
Board of Directors, non-employee directors (other than affiliates of Ross Perot)
were offered either (i) the opportunity to purchase 120,000 restricted shares of
Class A Common Stock or (ii) the grant of an option to acquire 120,000 shares of
Class A Common Stock at a purchase or exercise price equal to the fair value of
such Class A Common Stock at the date of purchase or grant, with such restricted
shares of Class A Common Stock or options to acquire shares of Class A Common
Stock vesting ratably over a five-year period. In April 1993, Mr. Hahn received
400,000 restricted shares of Class A Common Stock at a price equal to the fair
value of such shares at the date of purchase, which vested ratably over a
five-year period.

In December 1996, the Company adopted the 1996 Non-Employee Director Stock
Option/Restricted Stock Plan (the "Non-Employee Director Plan"). The
Non-Employee Director Plan provides for the issuance of nonqualified stock
options or restricted stock to non-employee directors of the Company and any of
its majority-owned subsidiaries. The Non-Employee Director Plan is administered
by the Board of Directors, which has the authority to interpret the Non-Employee
Director Plan. Directors eligible to receive awards under the Non-Employee
Director Plan are those (other than Ross Perot, Jr.) who are not employees of
the Company. Each eligible existing director will receive comparable grants at
completion of the original vesting schedule for such director's current options
or restricted shares. Grants are made upon election to the Board of Directors
for new directors and, for existing directors, at completion of the original
vesting schedule for the director's existing options or restricted shares. The
Non-Employee Director Plan provides for a grant to each eligible director of (i)
an option to purchase 40,000 shares of Class A Common Stock or (ii) the right to
purchase 40,000 restricted shares of Class A Common Stock. (The number of shares
of Class A Common Stock or options issuable to each director were reduced from
60,000 to 40,000 on September 30, 1997.) The exercise price of options or the
purchase price of restricted shares of Class A Common Stock awarded under the
Non-Employee Director Plan must be at least equal to 100% of the fair value of a
share of Class A Common Stock on the date of the award.

Mr. Hahn purchased 40,000 shares of Restricted Stock under the Non-Employee
Director Plan in May 1998. In November 1998, the Company issued Mr. Gayden
options to purchase 40,000 shares of Class A Common Stock.

40
<PAGE> 43

EXECUTIVE COMPENSATION

The Summary Compensation Table below shows compensation for the 1996, 1997,
and 1998 fiscal years of the Chief Executive Officer during 1998 and the five
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at the end of the 1998 fiscal
year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
---------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDER- ALL OTHER
------------------------------------- STOCK LYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OTHER($)(2) AWARD(S)($)(3) OPTIONS SATION($)(4)
--------------------------- ---- --------- ----------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ross Perot...................... 1998 $ -- $ -- $ -- $ -- -- $ --
Chairman, President & Chief 1997 -- -- -- -- -- --
Executive Officer(5)
James Champy.................... 1998 $500,000 $ -- $ 13,162 $ -- -- $ 23,400
Vice President(6) 1997 500,000 -- 5,738 -- -- 23,337
1996 195,192 117,115 -- --(7) -- 17,000
Terry Ashwill................... 1998 $368,754 $ -- $ -- $ -- 100,000 $ 6,400
Vice President & Chief 324,876 -- 96,276 --(9) 700,000 --
Financial 1997
Officer(8)
Ken Scott....................... 1998 $324,240 $ -- $ -- $ -- -- $ --
Vice President(10) 1997 182,740 -- -- 315,000(11) 290,000 --
John King....................... 1998 $312,000 $ -- $ 6,970 $ -- -- $ 23,523
Vice President 1997 308,000 50,000 5,293 -- -- 17,407
1996 300,000 85,000 8,543 -- -- 17,087
Don Drobny(12).................. 1998 $312,000 $ -- $ 3,830 $ -- -- $ 19,990
Vice President 1997 308,000 -- 3,884 -- -- 14,927
1996 377,195 75,000 6,725 -- -- 14,590
</TABLE>

- ---------------

(1) Bonuses relating to 1998 performance have not yet been determined. Bonus
amounts shown for 1997 were earned and paid in 1997. Bonus amounts shown
for 1996 were earned in 1996 and paid in 1997.

(2) With respect to Mr. Ashwill, represents $92,668 paid in 1997 in connection
with his relocation and $3,608 for home office equipment. With respect to
all other named executive officers, represents the payment of taxes related
to the life insurance policies referenced in Note 4 to this table.

(3) The number of restricted shares of Class A Common Stock held by the named
executive officers and the value of such shares of Class A Common Stock
(less the amount paid therefor) at December 31, 1998 were as follows: Mr.
Champy -- 800,000 shares of Class A Common Stock, $11,800,000; and Mr.
Scott -- 180,600 shares of Class A Common Stock, $2,550,975. Prior to this
offering, there was no market for the Class A Common Stock. Therefore, the
values in the preceding sentence are based on an assumed offering price of
$16.00 per share.

(4) In 1998, represents (i) $17,000, $17,123, and $13,590 in life insurance
premiums paid for the benefit of Messrs. Champy, King, and Drobny,
respectively; and (ii) $6,400 in Company contributions to the Company's
401(k) plan for the benefit of each of Messrs. Champy, Ashwill, King, and
Drobny. In 1997, represents (i) $17,000, $11,070, and $8,590 in life
insurance premiums paid for the benefit of Messrs. Champy, King, and
Drobny, respectively; and (ii) $6,337 in Company contributions to the
Company's 401(k) plan for the benefit of each of Messrs. Champy, King, and
Drobny. In 1996, represents (i) $17,000, $11,087, and $8,590, in life
insurance premiums paid for the benefit of Messrs. Champy, King, and
Drobny; and (ii) $6,000 in Company contributions to the Company's 401(k)
plan for the benefit of each of Messrs. King and Drobny.

(5) Mr. Perot has served as President and Chief Executive Officer since
November 7, 1997 and Chairman since February 25, 1998. Mr. Perot serves the
Company without compensation.

(6) Mr. Champy joined the Company as an executive officer on July 8, 1996.

41
<PAGE> 44

(7) Mr. Champy purchased 1,000,000 restricted shares of Class A Common Stock
for $1.25 per share (the fair value of such shares on the date of
purchase). The shares vest ratably over a ten-year period. The first
vesting date was August 12, 1997.

(8) Mr. Ashwill joined the Company and was elected Vice President and Chief
Financial Officer as of January 28, 1997.

(9) Mr. Ashwill purchased 200,000 restricted shares of Class A Common Stock on
January 28, 1997, and an additional 40,000 restricted shares of Class A
Common Stock on February 14, 1997. In each case, the purchase price was
$1.875 per share (the fair value of such shares on the respective dates of
the purchase). The restricted shares of Class A Common Stock were scheduled
to vest ratably over a ten-year period. On December 23, 1997, Mr. Ashwill
sold all of such shares to the Company for an amount equal to the cost of
purchase plus 8% interest accrued from the respective purchase dates. The
sale was in connection with the issuance of options to purchase 240,000
shares of Class A Common Stock at an exercise price of $3.375 per share
with the same vesting schedule that had applied to the restricted stock.

(10) Mr. Scott has served as Vice President since November 1998. He joined the
Company in June 1997.

(11) Mr. Scott purchased 210,000 restricted shares of Class A Common Stock for
$1.875 per share. The fair value of such shares on the date of purchase was
$3.375 per share. The shares vest over a ten-year period. The first vesting
date was June 2, 1998.

(12) Mr. Drobny's 1996 salary included a cost-of-living adjustment paid in
connection with an overseas assignment.

STOCK OPTIONS

The following table provides information relating to option grants in 1998
to the named executive officers.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED VALUE
-------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ---------- ------------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ross Perot....................... -- --% $ -- -- $ -- $ --
James Champy..................... -- -- -- -- -- --
Terry Ashwill.................... 100,000 0.79% $ 11 11/04/09 $781,373 $2,038,428
Ken Scott........................ -- -- -- -- -- --
John King........................ -- -- -- -- -- --
Don Drobny....................... -- -- -- -- -- --
</TABLE>

- ---------------

(1) These amounts represent assumed rates of appreciation in value from the date
of grant until the end of the option term, at the rates set by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future appreciation, if any, in the shares of Class A
Common Stock.

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<PAGE> 45

OPTION EXERCISES AND HOLDINGS

The following table provides information regarding exercises of stock
options by named executive officers during 1998:

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE(1) OF UNEXERCISED
CLASS A UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)
ACQUIRED ON VALUE(1) --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ross Perot............. -- -- -- -- -- --
James Champy........... -- -- -- -- -- --
Terry Ashwill.......... -- -- 80,000 720,000 1,130,000 8,897,500
Ken Scott.............. -- -- 29,000 261,000 397,625 3,578,625
John King.............. -- -- -- -- -- --
Don Drobny............. -- -- -- -- -- --
</TABLE>

- ---------------

(1) Based on the offering price of $16.00 per share.

EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS

James Champy. Mr. Champy's associate agreement provides for a base salary
of $500,000 per year, which is to be reviewed at least annually. Mr. Champy's
associate agreement provides for additional benefits, including: (i) a bonus to
be determined in accordance with the then current bonus plan applicable to the
most senior officers of the Company, (ii) payment of life insurance premiums and
(iii) some travel benefits. Mr. Champy's associate agreement also provides that,
in the event that Mr. Champy is terminated by the Company other than for cause
or substantial misconduct (as defined in his associate agreement) or Mr. Champy
is deemed to have been constructively terminated (as defined in his associate
agreement), Mr. Champy will receive a severance payment equal to six months of
Mr. Champy's then current base salary. If Mr. Champy's employment is terminated
by either party (other than for cause by the Company) within one year of a
change in control of the Company (as defined in his associate agreement), Mr.
Champy would be entitled to receive a severance payment equal to six months of
Mr. Champy's then current base salary. Mr. Champy's employment agreement is
terminable by the Company upon 30 days' notice and payment of a severance
payment equal to six months' base pay plus benefits.

The 1,000,000 restricted shares of Class A Common Stock acquired by Mr.
Champy pursuant to his restricted stock agreement vest in equal installments
over ten years beginning on the first anniversary of the commencement of Mr.
Champy's employment by the Company. Vesting is contingent on continued
employment; provided, however, that Mr. Champy's restricted shares of Class A
Common Stock will continue to vest for limited periods following the termination
of his employment if his employment is terminated by the Company other than for
cause or substantial misconduct (as defined in his associate agreement) or Mr.
Champy is deemed to have been constructively terminated (as defined in his
associate agreement). If Mr. Champy's employment is terminated by the Company
other than for cause or substantial misconduct, Mr. Champy's restricted shares
of Class A Common Stock will continue to vest as scheduled for two years
following termination of employment. If there is a change in control of the
Company (as defined in his associate agreement) and Mr. Champy's employment is
terminated within one year of such change in control by either party (other than
for cause by the Company), all of Mr. Champy's shares of Class A Common Stock
scheduled to vest through the next two vesting dates will vest on schedule. In
the event that Mr. Champy is terminated for any reason by either party, Mr.
Champy has the right to require the Company to purchase his shares for their
original cost plus simple interest at the rate of 8% per annum.

43
<PAGE> 46

STOCK PLANS

The Company's currently active stock plans include: the 1991 Stock Option
Plan, Restricted Stock Plan, 1996 Non-Employee Directors Plan (the "Non-Employee
Directors Plan") and 1996 Advisors and Consultants Plan (collectively, the
"Plans"). In addition, the Company has options that remain outstanding under its
former Advisors and Consultants Plan, which was terminated in 1996.

The purpose of the Plans is to attract and retain outstanding associates,
directors, consultants, and advisors and provide them with a strong incentive to
contribute to the success of the Company by granting them options to acquire, or
allowing them to purchase, shares of Class A Common Stock. The Plans are not
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), nor do they meet the requirements of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").

As of December 31, 1998, an aggregate of 12,823,244 shares of Class A
Common Stock were available for issue under the Plans (other than the
Non-Employee Directors Plan under which 680,000 shares of Class A Common Stock
were available). Shares of Class A Common Stock available under the Plans or
subject to existing Stock Option Agreements are subject to adjustment in the
event of a stock dividend, stock split, or merger or consolidation to preserve
the respective rights of the participants in the respective Plans. Subsequent to
December 31, 1998, 1,825,250 shares of Class A Common Stock have become subject
to issuance on exercise of outstanding options at an exercise price equal to
$11.00 per share.

1999 EMPLOYEE STOCK PURCHASE PLAN

The Board of Directors adopted the 1999 Employee Stock Purchase Plan (the
"1999 Employee Stock Purchase Plan") to become effective immediately after this
offering. A summary of the material features of the 1999 Employee Stock Purchase
Plan follows. Capitalized terms not defined in this Prospectus have the meaning
given them in the 1999 Employee Stock Purchase Plan.

General. The purpose of the 1999 Employee Stock Purchase Plan is to provide
employees of the Company and of majority owned subsidiaries ("Participating
Affiliates") of the Company with the opportunity and a convenient means to
purchase Common Stock of the Company at a discount from the market price through
a program of voluntary, regular payroll deductions. The Company intends to have
the 1999 Employee Stock Purchase Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Code.

A total of 20,000,000 shares of Class A Common Stock are authorized and
reserved for issuance under the 1999 Employee Stock Purchase Plan. Appropriate
adjustments in the aggregate number of shares subject to the 1999 Employee Stock
Purchase Plan will be made in the event of any merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company.

The 1999 Employee Stock Purchase Plan permits "Eligible Associates" to
participate in the plan. An Eligible Associate is generally an employee of the
Company and Participating Affiliates who works more than 20 hours per week on a
regular basis and is not engaged under an independent contractor or similar
agreement, whether or not such person is determined to be an independent
contractor. Eligible Associates who own five percent or more of the Company's
outstanding Class A Common Stock may not purchase shares under the 1999 Employee
Stock Purchase Plan.

The 1999 Employee Stock Purchase Plan permits Eligible Associates to
purchase, through regular payroll deductions, shares of Common Stock at a price
equal to 85% of the fair market value of one share of the Class A Common Stock
on the Exercise Date for the Offering Period.

The Board of Directors may amend the 1999 Employee Stock Purchase Plan
without notice, at any time, subject to certain restrictions set forth in the
1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan will
automatically terminate after ten years, or on the date all shares authorized to
be sold under the 1999 Employee Stock Purchase Plan have been sold, subject to
the right of the Board of Directors to terminate the 1999 Employee Stock
Purchase Plan at an earlier time.

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<PAGE> 47

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company licenses the right to use the Perot Name in its current and
future businesses, products, or services from the Perot Systems Family
Corporation and Ross Perot. The license is a non-exclusive, royalty-free,
non-transferable license without geographic restriction. The Company may also
sublicense its rights to the Perot Name to its affiliates. Under the License
Agreement, as amended, either party may, in their sole discretion, terminate the
license at any time, with or without cause and without penalty, by giving the
other party written notice of such termination. Upon termination by either
party, the Company must discontinue all use of the Perot Name within one year
following receipt of the notice of termination.

The Company made loans to each of Ken Scott, Ron Nash, Joseph Boyd,
Guillermo Marmol (a former executive), and Susan Fairty (a former executive) in
connection with the purchase by such persons of shares of Class A Common Stock
from the Company. Each of such loans is secured by the purchased stock. In
addition, the Company loaned $250,000 to John King secured by shares of Class A
Common Stock. All such loans accrue interest at 8% per annum. As of November 30,
1998, the total amount outstanding for each such loan (including accrued
interest) was $276,242, $198,555, $260,685, $73,130, $0, and $0 for Messrs.
King, Scott, Nash, Boyd, Marmol, and Ms. Fairty, respectively. The highest
amounts outstanding under such loans since January 1, 1996 were as follows: Mr.
King, $276,242; Mr. Scott, $198,555; Mr. Nash, $267,315; Mr. Boyd, $75,922; Mr.
Marmol, $136,288; and Ms. Fairty, $582,839.

The Company made loans to Terry Ashwill in connection with his purchase of
shares of Class A Common Stock from the Company. Mr. Ashwill's loans accrued
interest at the rate of 8% per annum and were secured by the purchased stock. On
December 23, 1997, the aggregate amount outstanding for Mr. Ashwill's loans
(including accrued interest) was $474,489, the highest amount outstanding with
respect to such loans since their inception. On December 23, 1997, the Company
repurchased the 240,000 shares of Class A Common Stock held by Mr. Ashwill for
$1.875 per share plus 8% per annum for the time that he held the stock (an
aggregate of $481,364). The Company paid the purchase price of the stock by
offsetting the amounts due Mr. Ashwill against the principal and accrued
interest on his loans and paying the remaining $6,875 in cash (which is equal to
amounts previously paid by Mr. Ashwill for interest that had accrued on his
loans). In connection with the repurchase, the Company granted Mr. Ashwill
options to purchase 240,000 shares of Class A Common Stock with an exercise
price of $3.375 per share.

The Company has made loans to James Cannavino (a former executive) secured
by his shares of Class A Common Stock. As of November 30, 1998, Mr. Cannavino
had the outstanding principal amounts of $420,000 and $1,169,024 accruing
interest at the rates of 8% per annum and 7.25% per annum, respectively. As of
November 30, 1998, the aggregate amount outstanding (including accrued interest)
relating to these loans was $1,831,736. The highest amount outstanding with
respect to such loans (including accrued interest) since its inception was
$3,679,285. The Company also loaned Mr. Cannavino $1,000,000 in connection with
his purchase of a permanent residence in Dallas. This loan is secured by a
mortgage on such residence and bears interest at 7.25% per year. As of November
30, 1998, the total amount outstanding (including accrued interest) relating to
this loan was $1,066,342. Since its inception, the highest amount outstanding
for this loan was $1,066,342.

Messrs. Nash, Drobny, Altabef, and Scott have outstanding loans with
NationsBank of Texas, N.A. ("NationsBank") in the respective principal amounts
of $207,867, $0, $126,400, and $325,809. Interest accrues on all such loans at
the rate of 9.75% for Messrs. Nash and Altabef, 9.5% for Mr. Drobny and 8.75%
for Mr. Scott. The Company had agreed that it would, at the request of
NationsBank, purchase such loans from NationsBank for an amount equal to
principal plus accrued and unpaid interest if the Company has not had an initial
public offering that results in the shares of Class A Common Stock being
publicly traded before the maturity of the notes. The maturity dates are July 1,
2000, February 26, 2000, July 20, 2000 and June 15, 1999 for amounts borrowed by
Messrs. Nash, Drobny, Altabef, and Scott, respectively. Each loan is secured by
a pledge of shares of Class A Common Stock held by the borrower.

In January 1996, the Company entered into an agreement with PII pursuant to
which the Company licensed software from PII. PII is an affiliate of Ross Perot.
Mr. Blasnik is the President of PII. The Company sublicensed such software to
The Witan Company L.P. ("Witan"). In connection with this project, Witan
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<PAGE> 48

paid a license fee of $1,000,000 directly to PII in connection with the license.
The Company had a separate contract with Witan to perform development work on
the licensed software, which was terminated in May 1997.

For the years ended December 31, 1997 and 1998, the Company paid $91,425
and $244,164, respectively, to the law firm of Locke, Liddell & Sapp for
services rendered to the Company. The spouse of Mr. Altabef is a shareholder of
that firm.

For the years ended December 31, 1996, 1997, and 1998, the Company paid to
Hughes & Luce, L.L.P. $635,665, $650,779, and $485,513, respectively, for
services rendered to the Company. A partner in that firm is a son-in-law of Mr.
Perot.

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<PAGE> 49

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company
with respect to beneficial ownership of shares of Common Stock as of December
31, 1998 for (i) all persons who are beneficial owners of five percent or more
of the Company's Common Stock, (ii) each director, (iii) the Company's Chief
Executive Officer and the other executive officers named in the Summary
Compensation Table above, and (iv) all executive officers and directors as a
group:

<TABLE>
<CAPTION>
CLASS B
COMMON
CLASS A COMMON STOCK STOCK
---------------------------------- ------------
PERCENT OF
OWNERSHIP
SHARES ------------------- SHARES
BENEFICIALLY BEFORE AFTER BENEFICIALLY
OWNED(1) OFFERING OFFERING OWNED(2)
------------ -------- -------- ------------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Ross Perot(2)........................................ 31,705,000 41.1% 37.9% --
James Champy(3)...................................... 1,000,286 1.3% 1.2% --
Terry Ashwill(4)..................................... 160,222 * * --
Ken Scott(5)......................................... 239,184 * * --
John King(6)......................................... 1,602,990 2.1% 1.9% --
Don Drobny(7)........................................ 1,526,062 2.0% 1.8%
William K. Gayden.................................... 0 * * --
Steven Blasnik(8).................................... 18,000 * * --
Carl Hahn............................................ 440,000 * * --
Ross Perot, Jr.(2)................................... 31,705,000 41.1% 37.9% --
ADDITIONAL 5% BENEFICIAL OWNERS
Morton Meyerson(9)................................... 7,996,800 10.4% 9.6% --
UBS(10).............................................. -- * * 7,334,320
ALL EXECUTIVE OFFICERS AND DIRECTORS as a Group (13
persons)........................................... 37,898,948 48.9% 45.1% --
</TABLE>

- ---------------

* Less than 1%

(1) Percentages are based on the total number of shares of Common Stock
outstanding at December 31, 1998, plus the total number of outstanding
options and warrants held by each person that are exercisable within 60 days
of such date. Shares of Common Stock issuable upon exercise of outstanding
options and warrants, however, are not deemed outstanding for purposes of
computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table, other than shared property rights created
under joint tenancy or marital property laws as between the Company's
directors and executive officers and their respective spouses, each
stockholder named in the table has sole voting and investment power with
respect to the shares of Class A Common Stock set forth opposite such
stockholder's name. The shares of Class A Common Stock listed include shares
of Class A Common Stock held by the Company's Retirement Savings Plan and
Trust for the benefit of the named individuals. Voting and investment power
over such shares of Class A Common Stock is held by the trustee of such
trust subject to the direction of the Company's 401(k) Plan Committee.

(2) Shares are owned by HWGA, Ltd. ("HWGA"). Ross Perot, Chairman, President,
and Chief Executive Officer of the Company, is the managing general partner
of HWGA. Mr. Perot has voting and investment power over such shares. Ross
Perot, Jr. is a general partner of HWGA who has authority to manage HWGA if
Ross Perot ceases to be managing general partner of HWGA. Accordingly,
shares owned by HWGA are also shown in this table as being beneficially
owned by Ross Perot, Jr. Mr. Perot has agreed to acquire an additional
250,000 shares of Class A Common Stock from an existing stockholder at a
price per share equal to the initial public offering price less $.10 per
share. The address for Ross Perot, Ross Perot, Jr., and HWGA is 12377 Merit
Drive, Suite 1700, Dallas, Texas 75251.

(3) Includes 200,000 shares of Class A Common Stock held by the Champy Family
Irrevocable Trust (the "Champy Trust") of which Mr. Champy is a trustee. As
trustee, Mr. Champy shares voting and

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<PAGE> 50

investment power with respect to the shares of Class A Common Stock held by
the Champy Trust and, therefore, is deemed the beneficial owner of such
shares of Class A Common Stock.

(4) Includes 160,000 shares of Class A Common Stock that Mr. Ashwill has the
right to acquire upon the exercise of vested options.

(5) Includes 29,000 shares of Class A Common Stock that Mr. Scott has the right
to acquire upon the exercise of vested options.

(6) Includes 4,000 shares of Class A Common Stock held by Mr. King's spouse
with respect to which Mr. King shares voting and investment power.

(7) Includes 200,000 shares of Class A Common Stock held by the Drobny Family
Limited Partnership, 160,000 shares of Class A Common Stock held by Mr.
Drobny's son, 160,000 shares of Class A Common Stock held by Mr. Drobny's
daughter, and 4,000 shares of Class A Common Stock held by Mr. Drobny's
spouse. Mr. Drobny shares voting and investment power with the respective
holders of such shares.

(8) Includes 12,000 shares of Class A Common Stock that Mr. Blasnik has the
right to acquire upon the exercise of vested options. Includes 6,000 shares
of Class A Common Stock held by Mr. Blasnik's spouse. Mr. Blasnik disclaims
beneficial ownership of such shares.

(9) Includes 7,942,400 shares of Class A Common Stock held by the MFLP, and
54,400 shares of Class A Common Stock held by four trusts of which Mr.
Meyerson is the Trustee. The address for Mr. Meyerson is 4514 Cole Ave.,
Suite 400, Dallas, Texas 75205.

(10) Includes 6,400,000 shares of Class B Common Stock that UBS has the right to
acquire upon the exercise of options. The address for UBS AG is
Bahnhofstrasse, CH 8001, Zurich, Switzerland.

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<PAGE> 51

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company currently consists of
229,000,000 shares, of which 200,000,000 shares are designated as Class A Common
Stock, $.01 par value per share, 24,000,000 shares are designated as Class B
Common Stock, $.01 par value per share, and 5,000,000 shares are designated as
Preferred Stock, $.01 par value per share. As of December 31, 1998, there were
77,134,590 shares of Class A Common Stock issued and outstanding and held of
record by 1,474 stockholders, 934,320 shares of Class B Common Stock issued and
outstanding and held of record by one stockholder, and no shares of Preferred
Stock issued and outstanding. In addition, as of December 31, 1998 a total of
39,402,482 shares of Class A Common Stock and 6,400,000 shares of Class B Common
Stock are reserved for issuance upon exercise of outstanding options. Subsequent
to December 31, 1998, the Company granted associates options to purchase
1,825,250 shares of Class A Common Stock with an exercise price of $11.00 per
share.

CLASS A COMMON STOCK

Holders of shares of Class A Common Stock are entitled to one vote per
share for each share held of record on any matter submitted to the holders of
Common Stock for a vote. All shares of Class A Common Stock and Class B Common
Stock outstanding are fully paid and nonassessable, and all of the shares of
Class A Common Stock and Class B Common Stock to be outstanding upon completion
of this offering will be fully paid and nonassessable. Subject to the rights of
the holders of any outstanding shares of Preferred Stock and any restrictions
that may be imposed by any lender to the Company, holders of Class A Common
Stock are entitled to receive such dividends, if any, as may be declared by the
Board of Directors out of legally available funds. In the event of the
liquidation, dissolution or winding up of the Company, holders of Class A Common
Stock are entitled to share equally and ratably, based on the number of shares
held, in the assets, if any, remaining after payment of all of the Company's
debts and liabilities and the liquidation preference of any outstanding
Preferred Stock. The shares of Class A Common Stock are neither redeemable nor
convertible, and the holders of Class A Common Stock have no preemptive rights
to subscribe for or purchase any additional shares of capital stock issued by
the Company.

CLASS B COMMON STOCK

Holders of shares of Class B Common Stock have no voting rights, except to
the extent that the Delaware General Corporation Law requires a vote of the
Class B Common Stock with respect to an amendment to the Amended and Restated
Certificate of Incorporation that would increase or decrease the par value of
the Class B Common Stock or alter or change the powers, preferences, or special
rights of shares of Class B Common Stock so as to affect them materially and
adversely. The Amended and Restated Certificate of Incorporation provides that
the number of authorized shares of Class B Common Stock may be increased or
decreased (but not below the number of shares of Class B Common Stock then
outstanding or reserved for issuance pursuant to outstanding options, warrants
or similar rights) by the affirmative vote of the holders of a majority of the
voting stock of the Company, voting as a single class, without any vote by the
holders of the Class B Common Stock. Subject to the rights of the holders of any
outstanding shares of Preferred Stock and any restrictions that may be imposed
by any lender to the Company, holders of Class B Common Stock are entitled to
receive such dividends, if any, as may be declared by the Board of Directors out
of legally available funds. In the event of the liquidation, dissolution or
winding up of the Company, holders of Class B Common Stock are entitled to share
equally and ratably, based on the number of shares held, in the assets, if any,
remaining after payment of all of the Company's debts and liabilities and the
liquidation preference of any outstanding Preferred Stock. Each share of Class B
Common Stock is convertible, on a share for share basis, at the option of the
holder into a fully paid and nonassessable share of Class A Common Stock for the
purpose of the transfer, sale, or other disposition to a third party purchaser
that is not an affiliate of UBS if such sale is made (a) in a widely dispersed
public offering of the Class A Common Stock, (b) to a third party that, prior to
such sale, controls more than 50% of the then outstanding voting securities of
the Company, (c) to a third party that, after such sale, is the beneficial owner
of not more than 2% of the outstanding voting stock of the Company having power
to elect directors, (d) in a transaction that complies with Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"), or (e) by UBS or its
affiliates in a transaction approved in

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<PAGE> 52

advance by the Board of Governors of the Federal Reserve System. UBS is the only
holder of Class B Common Stock.

PREFERRED STOCK

The Company is authorized to issue shares of Preferred Stock in one or more
series, and to designate the rights, preferences, limitations, and restrictions
of and upon shares of each series, including voting, redemption, and conversion
rights. The Board of Directors also may designate dividend rights and
preferences in liquidation. It is not possible to state the actual effect of the
authorization and issuance of additional series of Preferred Stock upon the
rights of holders of Common Stock until the Board of Directors determines the
specific terms, rights and preferences of a series of Preferred Stock. Such
effects, however, might include, among other things, granting the holders of
Preferred Stock priority over the holders of Common Stock with respect to the
payment of dividends, diluting the voting power of the Common Stock, or granting
the holders of Preferred Stock preference with respect to liquidation rights. In
addition, under some circumstances, the issuance of Preferred Stock may render
more difficult or tend to discourage a merger, tender offer or proxy contest,
the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management.

In connection with the authorization of the Rights Plan (discussed below),
the Board of Directors has authorized the designation of 200,000 shares of
Preferred Stock as Series A Junior Participating Preferred Stock (the "Series A
Preferred"), and 10,000 shares of Preferred Stock as Series B Junior
Participating Preferred Stock (the "Series B Preferred"). The shares of Series A
Preferred and Series B Preferred have been reserved for issuance pursuant to the
Rights Plan. The following summarizes the terms of the Series A Preferred and
the Series B Preferred (together, the "Participating Preferred").

The holders of shares of Participating Preferred will generally be entitled
to receive quarterly dividends payable in cash commencing on the first quarterly
dividend payment date after the first issuance of Participating Preferred, in an
amount per share (rounded to the nearest cent) equal to the greater of (i) $0.01
and (ii) subject to adjustment, an amount equal to one thousand times the per
share amount of any distributions or dividends made with respect to the Common
Stock. Subject to adjustment, each share of Series A Preferred will entitle the
holder to a number of votes on all matters submitted to a vote of the
stockholders of the Company equal to one thousand times the number of votes per
share to which shares of Class A Common Stock are entitled. The Series B
Preferred is not entitled to vote on any matter unless required by law. Except
as otherwise provided by law, the holders of shares of Series A Preferred and
the holders of shares of Common Stock will generally vote together as one class
on all matters submitted to a vote of stockholders of the Company. If at any
time dividends on the Series A Preferred are in arrears in an amount equal to
six quarterly dividends, the occurrence of such contingency will mark the
beginning of a period (a "default period") that will extend until such time when
all accrued and unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Series A Preferred
then outstanding have been declared and paid or set apart for payment. During
each default period, all holders of Series A Preferred with dividends in arrears
in an amount equal to six quarterly dividends thereon, voting as a class,
irrespective of series, will have the right to elect, along with all other
classes of Preferred Stock as to which there exists a default period, two
directors. During the period of dividend arrearages the Company will be
prevented from declaring dividends on or making distributions to, or
repurchasing, redeeming, or otherwise acquiring, any stock ranking on parity
with or junior to the Participating Preferred.

Upon any liquidation, dissolution, or winding up of the Company, no
distribution will be made to the holders of shares of stock ranking junior to
the Participating Preferred unless, prior thereto, the holders of shares of
Participating Preferred have received an amount equal to $10.00, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (together for the Series A Preferred and
the Series B Preferred, the "Participating Preferred Liquidation Preference").
Following the payment of the full amount of the Participating Preferred
Liquidation Preference, no additional distributions will be made to the holders
of shares of Series A Preferred or Series B Preferred unless, prior thereto, the
holders of shares of Common Stock have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Participating
Preferred
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<PAGE> 53

Liquidation Preference by (ii) 1,000 (as appropriately adjusted). Following the
payment of the full amount of the Participating Preferred Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Participating
Preferred and Common Stock, respectively, holders of Participating Preferred and
holders of shares of Common Stock will receive their ratable and proportionate
share of the remaining assets to be distributed. As of the date of this
Prospectus, no shares of Preferred Stock are issued or outstanding.

REGISTRATION RIGHTS

Pursuant to a Stock Purchase Agreement dated August 20, 1992 between the
Company and MFLP (which Morton Meyerson, former Chairman of the Company,
controls), the Company sold to MFLP 8,000,000 shares of Class A Common Stock,
and in connection with such sale, granted MFLP "piggyback" registration rights
for such shares of Class A Common Stock. MFLP's "piggyback" registration rights
do not apply in this offering. These registration rights could arise in
connection with any other offering to the public under the Securities Act on
Form S-1, S-2, or S-3, or any successor registration form then in effect.

DELAWARE TAKEOVER STATUTE

The Company is subject to Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in a "business
combination" with certain persons ("Interested Stockholders") for three years
following the time any such person becomes an Interested Stockholder unless (i)
before a person becomes an Interested Stockholder, the Board of Directors of the
corporation approved the transaction in which the Interested Stockholder became
an Interested Stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (iii) at or subsequent to the
time the person became an Interested Stockholder, the business combination is
approved by the Board of Directors of the corporation and authorized at a
regular or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not owned
by the Interested Stockholder.

In general, an Interested Stockholder means any person that (i) is the
beneficial owner of 15% or more of the outstanding voting stock of the
corporation or (ii) is an affiliate or associate of the corporation and was the
beneficial owner of 15% or more of the corporation's outstanding voting stock at
any time within three years before the date on which such person's status as an
Interested Stockholder is determined.

Subject to some exceptions, a business combination includes, among other
things, (i) mergers or consolidations, (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets having an aggregate market value
equal to 10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation, (iii) transactions that result in
the issuance or transfer by the corporation or any majority-owned subsidiary of
any stock of the corporation to the Interested Stockholder, except pursuant to
certain corporate distributions and issuances that do not increase the
Interested Stockholder's proportionate shareholding, (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the Interested Stockholder, or (v) any receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

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<PAGE> 54

PROVISIONS RELATING TO CHANGE IN CONTROL

Stockholder Rights Plan

The Company's Board of Directors has authorized a Rights Agreement (the
"Rights Agreement") that provides one Class A right (a "Class A Right") will be
attached to each share of Class A Common Stock, and one Class B Right (a "Class
B Right" and, together with the Class A Rights, the "Rights") will be attached
to each share of Class B Common Stock as of January 7, 1999 (the "Record Date").
Each Right entitles the registered holder to purchase from the Company a unit (a
"Unit") consisting of one one-thousandth of a share of Participating Preferred
at a purchase price of $55.00 per Unit (the "Purchase Price"), subject to
adjustment. Each Class A Right entitles the registered holder to purchase Series
A Preferred and each Class B Right entitles the registered holder to purchase
Series B Preferred. The description and terms of the Rights are set forth in the
Rights Agreement between the Company and The Chase Manhattan Bank, as Rights
Agent (the "Rights Agent"). Initially, the Class A Rights will be attached to
all Class A Common Stock certificates representing shares outstanding as of the
Record Date and the Class B Rights will be attached to all Class B Common Stock
certificates representing shares outstanding as of the Record Date, and no
separate Rights Certificate will be distributed. The Rights will separate from
the Common Stock and a "Distribution Date" will occur upon the earlier of (i) 10
calendar days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common Stock or 20% or more of the outstanding shares of
Class A Common Stock (the date of announcement being the "Stock Acquisition
Date"), (ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 20% or
more of the outstanding shares of Common Stock or 20% or more of the outstanding
shares of Class A Common Stock, or (iii) the Board of Directors of the Company
determining that any person or persons have become the beneficial owner of an
amount of Common Stock that the Board of Directors determines to be substantial
(which amount will in no event be less than 11% of the shares of Common Stock or
Class A Common Stock outstanding) and that (a) such person or persons intend to
cause the Company to repurchase the Common Stock beneficially owned by such
person or persons or to exert pressure against the Company to take any action or
enter into any transaction or series of transactions with the intent or the
effect of providing such person or persons with short-term gains or profits
under circumstances in which the Board of Directors determines that the
long-term interests of the Company and its stockholders would not be served by
taking such action or entering into such transactions or series of transactions
or (b) beneficial ownership by such person or persons is reasonably likely to
have a material adverse effect on the business, competitive position, prospects,
business reputation, or financial condition of the Company and its subsidiaries
(an "Adverse Person").

Until the Distribution Date, (i) the Rights will be evidenced by the Common
Stock certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference; and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. The Rights Agreement provides that Ross Perot, and certain of his
successors and affiliates are excluded from the definition of Acquiring Person.
Mr. Perot and certain of his successors and affiliates are also excluded from
the definition of Adverse Person.

The Rights are not exercisable until the Distribution Date and will expire
at the close of business on January 7, 2009, unless earlier redeemed by the
Company as described below.

As soon as practicable after the Distribution Date, Rights certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock outstanding prior to the
Distribution Date will be issued with Rights.

In the event that (i) any person becomes an Acquiring Person or (ii) the
Board of Directors declares a person to be an Adverse Person, each holder of a
Class A Right will thereafter have the right to receive, upon exercise, Class A
Common Stock (or, in certain circumstances, cash, property, or other securities
of the Company) and each holder of a Class B Right will (subject to limitations
under United States banking laws)

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<PAGE> 55

thereafter have the right to receive, upon exercise, Class B Common Stock (or in
certain circumstances cash, property, or other securities of the Company),
having a value equal to two times the Exercise Price of the Right. The Exercise
Price is the Purchase Price times the number of shares of Common Stock
associated with each Right (initially, one). Notwithstanding any of the
foregoing, following the occurrence of either of the events set forth in this
paragraph (the "Flip-In Events"), all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person or any Adverse Person, or an Associate or Affiliate of any
Acquiring Person or Adverse Person, will be null and void.

For example, at an exercise price of $55.00 per Right, each Right not owned
by an Acquiring Person or an Adverse Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its holder
to purchase Common Stock with a value of $110.00 (or other consideration, as
noted above) for $55.00. Assuming that the Common Stock had a per share value of
$55.00 at such time, the holder of each valid Right would be entitled to
purchase two shares of Common Stock for $55.00.

In the event that following the Stock Acquisition Date or the date a person
becomes an Adverse Person, (i) the Company is acquired in a merger or
consolidation in which the Company is not the surviving corporation or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that have previously been voided as set forth
above) will thereafter have the right (a flip-over right) to receive, upon
exercise of the Right, Common Stock of the acquiring company having a value
equal to two times the Exercise Price of the Right.

The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above). With certain exceptions, no
adjustments in the Purchase Price will be required until cumulative adjustments
amount to at least 1% of the Purchase Price. No fractional units will be issued
and, in lieu thereof, an adjustment in cash will be made based on the market
price of the Preferred Stock on the last trading date prior to the date of
exercise.

The Board of Directors may redeem all of the Rights at a price of $0.001
per Right at any time prior to 10 days after the date that any person becomes an
Acquiring Person or an Adverse Person.

At any time after any person has become an Acquiring Person or an Adverse
Person (but before any person becomes the beneficial owner of 50% or more of the
Company's Common Stock), the Board of Directors may exchange all or part of the
Rights (other than the Rights beneficially owned by the Acquiring Person or
Adverse Person and certain affiliated persons) for shares of Common Stock at an
exchange ratio of one share of Common Stock per Right.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set
forth above.

For so long as the Rights are redeemable, the Rights Agreement may be
amended in any respect. At any time after the Rights are no longer redeemable,
the Rights Agreement may be amended by the Board of Directors and without the
approval of the holders of the Rights in any respect that does not (i) adversely
affect the Rights holders (other than any Acquiring Person or Adverse Person and
certain affiliated persons), (ii) cause the Rights Agreement again to become
amendable other than as described in this paragraph, or (iii) cause the Rights
again to become redeemable.

The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers.
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<PAGE> 56

Charter and Bylaw Provisions

The Company's Certificate of Incorporation and Bylaws contain provisions
that could have the effect of delaying, deterring, or preventing the acquisition
of control of the Company by means of tender offer, open market purchases, proxy
contest or otherwise. Set forth below is a description of those provisions.

Special Meetings of Stockholders. The Company's Bylaws provide that special
meetings of stockholders may be called only by the Chairman of the Board or the
President, or by the Chairman of the Board, President, or the Secretary at the
request in writing of a majority of the Board of Directors. Stockholders are not
permitted to call a special meeting or to require that the Board of Directors
call a special meeting unless authorized by the Board of Directors. The business
permitted to be conducted at such meetings is limited to that brought before the
meetings by or at the direction of the Board of Directors. This provision in the
Bylaws provides for the orderly conduct of all Company affairs at special
meetings of stockholders. Accordingly, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Board of Directors by
calling a special meeting of stockholders prior to the next annual meeting or
prior to such time that the Board of Directors believes such consideration to be
appropriate. This change limits a potential acquiror's ability to choose an
advantageous time to launch a takeover bid.

Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures for stockholder
proposals and the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election of directors. These
procedures provide that notice of stockholder proposals and stockholder
nominations for the election of directors at an annual meeting must be in
writing and received by the Secretary of the Company no less than 60 days nor
more than 90 days prior to the annual meeting; provided, however, that in the
event that less than 70 days' notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by a stockholder, to
be timely, must be received no later than the close of business on the tenth day
following the date on which such notice of the date of the annual meeting was
made or such public disclosure was made, whichever first occurs. The notice of
stockholder nominations must set forth certain information with respect to each
nominee who is not an incumbent director. Other stockholder proposals must also
set forth certain information about such proposal and about the stockholder who
proposes to bring the proposal before the meeting. These Bylaw provisions do not
give the Board of Directors any power to approve or disapprove stockholder
nominees for director or stockholder proposals. These provisions may have the
effect of (i) precluding or obstructing the inclusion of stockholder proposals
or stockholder nominees for director by requiring stockholders to act well in
advance of a particular meeting and to comply with specific procedures in order
to submit such proposals or nominees at that meeting and (ii) discouraging a
stockholder from soliciting proxies to elect its own slate of directors or
otherwise attempting to obtain control of the Company through shareholder
action, even if such proxy solicitation or attempt might be beneficial to the
Company and its stockholders.

No Action by Stockholder Consent. The Company's Certificate of
Incorporation and Bylaws provide that actions required or permitted to be taken
at any annual or special meeting of the stockholders may, unless authorized by
the Board of Directors, be taken only upon the vote of the stockholders at a
meeting duly called and may not be taken by written consent of the stockholders.
This provision increases the opportunity of all stockholders to participate in
voting on any proposed action and prevents the holders of the requisite voting
power of the Company from using the written consent procedure to take
stockholder action without a meeting. This provision eliminates the ability of
the Company's stockholders to act by written consent in lieu of a meeting
without the approval of the Board of Directors. This provision may effectively
deter or delay certain actions by a person or a group acquiring a substantial
percentage of the Company's stock, even though such actions might be desired by,
or be beneficial to, the holders of a majority of the Company's stock.

Supermajority Vote Required for Certain Actions. Any amendment to the
Certificate of Incorporation, merger or consolidation, sale, lease or exchange
of all or substantially all of the Company's property and assets or voluntary
dissolution of the Company that requires approval by the Company's stockholders
under Delaware law must be approved by the affirmative vote of the holders of at
least 66 2/3% of the outstanding

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<PAGE> 57

stock of the Company entitled to vote thereon, and at least 66 2/3% of the
outstanding stock of each class entitled to vote thereon as a class.

Amendments to the Bylaws. The Bylaws require the affirmative vote of 80% of
the outstanding shares of Common Stock entitled to vote to adopt, amend, or
repeal the Bylaws. This super-majority vote requirement promotes stability for
the Company's internal operating procedures, thereby helping the Company to
attain its long term goals and manage its corporate affairs. This provision
makes it more difficult for stockholders to change the internal operating
procedures of the Company, which may further discourage potentially unfriendly
bids for shares of the Company.

TRANSFER AGENT AND REGISTRAR

ChaseMellon Shareholder Services has been appointed as the transfer agent
and registrar for the Common Stock.

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<PAGE> 58

SHARES ELIGIBLE FOR FUTURE SALE

There was no public market for the Common Stock before this offering.
Future sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock. After this offering is completed, the number
of shares available for future sale into the public markets will be restricted
by legal and contractual restrictions, certain of which are described below. The
lapsing of these restrictions will permit sales of substantial amounts of Common
Stock in the public market or could create the perception that such sales could
occur, which could adversely affect the prevailing market price for the Common
Stock.

As of December 31, 1998, (i) approximately 77,134,590 shares of Class A
Common Stock were issued and outstanding; (ii) 39,402,482 shares of Class A
Common Stock were subject to issuance on exercise of outstanding options; (iii)
934,320 shares of Class B Common Stock were issued and outstanding; and (iv)
6,400,000 shares of Class B Common Stock were subject to issuance on exercise of
outstanding options. Subsequent to December 31, 1998, the Company granted
associates options to purchase 1,825,250 shares of Class A Common Stock with an
exercise price of $11.00 per share. Each share of Class B Common Stock is
convertible into one share Class A Common Stock for purposes of sale of such
share of Class B Common Stock. See "Description of Capital Stock -- Class B
Common Stock." The ability of the holders of options to sell or otherwise
transfer shares of Common Stock is subject to restrictions under their option
agreements.

The 6,500,000 shares of Class A Common Stock being offered by this
Prospectus may be freely sold in the public market without restriction under the
Securities Act, except for shares purchased by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act. The remaining shares of
Common Stock may be resold after termination of certain contractual
restrictions, in transactions exempt from the registration requirements of the
Securities Act (pursuant to Rule 144 or Rule 701 under the Securities Act or
otherwise) or pursuant to a registration statement filed under the Securities
Act covering the sale of such securities. In connection with this offering, all
holders of registration rights have agreed not to exercise such rights until at
least 180 days after the date of this Prospectus.

Stockholders holding more than 90% of the outstanding Common Stock and
approximately 90% of the currently exercisable options to purchase Common Stock
have executed lock-up agreements (the "Lock-Up Agreements") that limit their
ability to sell Common Stock. The Lock-Up Agreements provide that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, and the Company, the persons executing the Lock-Up Agreements will
not, until at least 180 days after the date of this Prospectus, transfer or sell
any shares of Common Stock covered thereby, and, in a substantial majority of
cases, that they will not (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise for a
period ending 180 days after the date of this Prospectus without the prior
written consent of Morgan Stanley & Co. Incorporated and the Company. The
foregoing restrictions do not apply to (a) transfers of shares of Common Stock
or other securities acquired in open market transactions after the completion of
this offering or (b) the sale to the Company of a number of shares necessary to
satisfy any obligation to pay or to withhold taxes that arises as the result of
the exercise of any option to purchase shares granted pursuant to the Company's
1991 Stock Option Plan. In certain cases, the Lock-Up Agreements also restrict
the transfer of shares of Common Stock following such 180 day period without the
consent of the Company for certain periods of time.

Rule 144 under the Securities Act is a non-exclusive exemption from the
registration requirements of the Securities Act. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated), who has
beneficially owned "restricted securities" for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the number of shares of Common stock then
outstanding (which will equal approximately 836,345 shares immediately after

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<PAGE> 59

this offering) or (ii) the average weekly trading volume of the Common stock on
the New York Stock Exchange during the four calendar weeks preceding the filing
of a notice on form 144 with respect to such sale with the Commission. Sales
under Rule 144 are also subject to certain other requirements regarding the
manner of sale, notice, and availability of current public information about the
Company.

Under Rule 144(k), a person who is not deemed to have been an affiliate of
the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation, or notice provisions of Rule 144. The holding
periods referred to above do not commence to run until the full purchase price
for the Common Stock has been paid in full to the Company.

Subject to the Lock-Up Agreements and the contractual restrictions set
forth in the agreements granting stock options or restricted stock, the Company
believes that substantially all outstanding shares of Common Stock held by
persons other than HWGA may be freely sold without regard to the volume
limitations and other requirements regarding manner of sale, notice, and
availability of public information.

The Company has filed and the Commission has declared effective
registration statements on Form S-8 covering all shares of Common Stock issued
or issuable since June 30, 1997 under the terms of the Company's 1991 Stock
Option Plan, Restricted Stock Plan, 1996 Advisor and Consultant Stock
Option/Restricted Stock Incentive Plan, the Advisor Stock Option/Restricted
Stock Incentive Plan and the 1999 Employee Stock Purchase Plan and 800,000
shares of Common Stock that are issuable pursuant to the 1996 Non-Employee
Director Stock Option/Restricted Stock Incentive Plan. Subject to the terms of
the Lock-Up Agreements and the terms of the options granted under these plans,
the shares of Common Stock registered on this registration statement may,
subject to the Rule 144 volume limitations described above applicable to
affiliates of the Company, be resold in the public market without restriction.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS

The following is a general discussion of certain United States Federal
income and estate tax considerations with respect to the ownership and
disposition of Common Stock applicable to Non-U.S. Holders. In general, a
"Non-U.S. Holder" is any holder other than (i) a citizen or resident of the
United States; (ii) a corporation created or organized in the United States or
under the laws of the United States or of any state; (iii) an estate, the income
of which is includable in gross income for United States federal income tax
purposes regardless of its source; or (iv) a trust if (a) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (b) one or more United States persons have the authority to
control all substantial decisions of the trust. This discussion is based on
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations promulgated thereunder, judicial opinions,
published positions of the Internal Revenue Service (the "IRS"), and all other
applicable authorities, all of which are subject to change (possibly with
retroactive effect). This discussion does not address all aspects of income and
estate taxation or any aspects of state, local, or non-United States taxes, nor
does it consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder that may be subject to special treatment under the
United States federal income tax laws (such as insurance companies, tax-exempt
organizations, financial institutions, brokers, dealers in securities, and
certain U.S. expatriates). ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL,
AND NON-UNITED STATES INCOME AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING,
AND DISPOSING OF SHARES OF COMMON STOCK.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are
effectively connected with a trade or business carried on by the Non-U.S. Holder
within the United States.
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<PAGE> 60

Dividends effectively connected with such a United States trade or business
generally will not be subject to United States withholding tax if the Non-U.S.
Holder files certain forms, including IRS Form 4224 (or any successor form),
with the payor of the dividend, and generally will be subject to United States
federal income tax on a net income basis, in the same manner as if the Non-U.S.
Holder were a resident of the United States. A Non-U.S. Holder that is a
corporation may be subject to an additional branch profits tax at a rate of 30%
(or such lower rate as may be specified by an applicable income tax treaty) on
the repatriation from the United States of its "effectively connected earnings
and profits," subject to certain adjustments. To determine the applicability of
a tax treaty providing for a lower rate of withholding under the currently
effective Treasury Regulations (the "Current Regulations") and published IRS
positions, dividends paid to an address in a foreign country are presumed to be
paid to a resident of that country absent knowledge to the contrary. Under
Treasury Regulations issued on October 6, 1997 (the "Final Regulations"),
generally effective for payments made after December 31, 1999, a Non-U.S. Holder
(including, in certain cases of Non-U.S. Holders that are entities, the owner or
owners of such entities) will be required to satisfy certain certification
requirements in order to claim a reduced rate of withholding pursuant to an
applicable income tax treaty.

GAIN OR SALE OR OTHER DISPOSITION OF COMMON STOCK

In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless (i) the gain is effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States (in which case the branch profits tax discussed above may also apply if
the Non-U.S. Holder is a corporation); (ii) the Non-U.S. Holder is an individual
who holds shares of Common Stock as a capital asset and is present in the United
States for 183 days or more in the taxable year of disposition and certain other
tests are met; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the Code regarding the taxation of U.S. expatriates or (iv) the
Company is or has been a United States real property holding corporation (a
"USRPHC") for United States Federal income tax purposes (which the Company does
not believe that it has been, currently is, or will become) at any time within
the shorter of the five-year period preceding such disposition and such Non-U.S.
Holder's holding period. If the Company were or were to become a USRPHC at any
time during this period, gains realized upon a disposition of Common Stock by a
Non-U.S. Holder that did not directly or indirectly own more than 5% of the
Common Stock during this period generally would not be subject to United States
Federal income tax, provided that the Common Stock is "regularly traded on an
established securities market (within the meaning of Section 897(c)(3) of the
Code)."

ESTATE TAX

Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States Federal estate tax purposes)
of the United States at the time of death will be includable in the individual's
gross estate for United States Federal estate tax purposes unless an applicable
estate tax treaty provides otherwise, and therefore may be subject to United
States Federal estate tax.

BACKUP WITHHOLDING, INFORMATION REPORTING, AND OTHER REPORTING REQUIREMENTS

The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.

Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that fail
to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than those
discussed above under "Dividends") generally will not apply to dividends paid on
Common Stock to a Non-U.S. Holder at an address outside the United States.
Backup withholding and information reporting generally will apply, however, to
dividends paid on shares of Common Stock to a Non-U.S. Holder at an

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<PAGE> 61

address in the United States, if such holder fails to establish an exemption or
to provide certain other information to the payor.

Under the Current Regulations, the payment of proceeds from the disposition
of Common Stock to or through a United States office of a broker will be subject
to information reporting and backup withholding unless the beneficial owner,
under penalties of perjury, certifies, among other things, its status as a Non-
U.S. Holder or otherwise establishes an exemption. The payment of proceeds from
the disposition of Common Stock to or through a non-U.S. office of a broker
generally will not be subject to backup withholding and information reporting
except as noted below. In the case of proceeds from a disposition of Common
Stock paid to or through a non-U.S. office of a broker that is (i) a United
States person; (ii) a "controlled foreign corporation" for United States Federal
income tax purposes; or (iii) a foreign person 50% or more of whose gross income
from certain periods is effectively connected with a United States trade or
business, information reporting (but not backup withholding) will apply unless
the broker has documentary evidence in its files that the owner is a Non-U.S.
Holder and certain other conditions are satisfied, or the beneficial owner
otherwise establishes an exemption (and the broker has no actual knowledge to
the contrary).

Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Common Stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless such recipient
satisfies applicable certification requirements or otherwise establishes an
exemption.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded or
credited against the Non-U.S. Holder's United States Federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service in a timely manner.

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UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Warburg Dillon Read LLC, a
subsidiary of UBS AG, Bear, Stearns & Co. Inc., and Hambrecht & Quist LLC are
acting as U.S. Representatives, and the International Underwriters named below
for whom Warburg Dillon Read, a division of UBS AG, Morgan Stanley & Co.
International Limited, Merrill Lynch International, Bear, Stearns International
Limited, and Hambrecht & Quist LLC are acting as International Representatives,
have severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Class A Common Stock set forth
opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
Warburg Dillon Read LLC, a subsidiary of UBS AG...........
Bear, Stearns & Co. Inc...................................
Hambrecht & Quist LLC.....................................
---------
Subtotal............................................... 5,200,000
---------
International Underwriters:
Warburg Dillon Read, a division of UBS AG.................
Morgan Stanley & Co. International Limited................
Merrill Lynch International...............................
Bear, Stearns International Limited.......................
Hambrecht & Quist LLC.....................................
---------
Subtotal............................................... 1,300,000
---------
Total............................................. 6,500,000
=========
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Class A Common Stock offered
hereby are subject to the approval of certain legal matters by their counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all of the shares of Class A Common Stock offered hereby (other than those
covered by the U.S. Underwriters' over-allotment option described below) if any
such shares are taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any Prospectus relating to the Shares outside the United
States or Canada or to anyone other than United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States

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or Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and (ii)
made by it in its capacity as an International Underwriter apply only to it in
its capacity as an International Underwriter. The foregoing limitations do not
apply to stabilization transactions or to certain other transactions specified
in the Agreement between U.S. and International Underwriters. As used herein,
"United States or Canadian Person" means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Class A Common Stock to be purchased by
the Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."

Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a Prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a Prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that,
61
<PAGE> 64

by purchasing such Shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of such Shares, directly or
indirectly, in Japan or to or for the account of any resident thereof except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law, and that such dealer will send to any other dealer to whom it
sells any of such Shares a notice containing substantially the same statement as
is contained in this sentence.

The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain other dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives. The
Underwriters have agreed to pay up to $260,000 (up to $299,000 if the
Underwriters' over-allotment option is exercised in full) of the Company's
expenses in connection with the offering.

The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
975,000 additional shares of Class A Common Stock at the public offering price
set forth on the cover page hereof, less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of Class A Common Stock offered hereby. To the extent such option is
exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Class A Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Class A Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.

The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.

The Class A Common Stock has been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange under the symbol "PER."

At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, certain of the shares of the Class A Common
Stock, including 370,000 shares for directors, officers, employees, and business
associates of the Company. The number of shares of Class A Common Stock
available for sale to the general public will be reduced to the extent such
reserved shares are purchased. Any reserved shares that are not so purchased
will be offered by the Underwriters to the general public on the same basis as
the other shares offered hereby.

Each of the Company and the directors, executive officers and certain other
stockholders of the Company, representing in the aggregate approximately 90% of
the outstanding shares and options, has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, and
the Company, it will not, during the period ending 180 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Class A Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Class A Common Stock or such other securities, in cash
or otherwise. The restrictions described in this paragraph do not apply to (A)
the sale of the Shares to the Underwriters, (B) the issuance by the Company of
shares of Class A Common Stock upon the exercise of an option or a warrant or
the conversion of a security outstanding on the date of this Prospectus of which
the Underwriters have been advised in writing, (C) shares of Common Stock or
options to purchase Common Stock that may be issued or granted from time to time
by the Company pursuant to the Plans or the 1999 Employee Stock Purchase Plan,
(D) shares of Common Stock or options to purchase
62
<PAGE> 65

Common Stock that may be issued by the Company in connection with a merger or
the acquisition by the Company of the capital stock or assets of another entity,
provided that the recipient of such shares of Common Stock or options to
purchase Common Stock shall have agreed to restrictions on transfer
substantially similar to the foregoing, or (E) transactions by any person other
than the Company relating to shares of Class A Common Stock or other securities
acquired in open market transactions after the completion of the offering of the
Shares or the sale to the Company of a number of shares necessary to satisfy any
obligation to pay or to withhold taxes that arises as the result of the exercise
of any option to purchase shares granted pursuant to the Company's 1991 Stock
Option Plan. See "Shares Eligible for Future Sale."

In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters may
over-allot in connection with the offering, creating a short position in the
Class A Common Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an Underwriter or a dealer for distributing the Class A Common Stock
in the offering, if the syndicate repurchases previously distributed Class A
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Class A Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

Warburg Dillon Read LLC is a subsidiary of UBS AG, the Company's largest
customer. See "Business -- UBS Agreements."

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the U.S. Representatives. Among the factors
to be considered in determining the initial public offering price will be the
future prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.

LEGAL MATTERS

The validity of the Class A Common Stock will be passed upon for the
Company by Hughes & Luce, L.L.P., Dallas, Texas. A partner in Hughes & Luce,
L.L.P. is the beneficial owner of 407,552 shares of Class A Common Stock.
Certain legal matters relating to the offering of Class A Common Stock will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

The consolidated financial statements of Perot Systems Corporation and
Subsidiaries as of September 30, 1998, December 31, 1997 and 1996 and for the
nine months ended September 30, 1998 and each of the three years in the period
ended December 31, 1997 included in this Prospectus and the Registration
Statement, have been included herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

63
<PAGE> 66

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Class A Common Stock offered hereby. This Prospectus, which
constitutes part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement or the exhibits and
schedules thereto, certain portions having been omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus
concerning the contents of any contract, agreement, or other document referred
to herein are not necessarily complete. With respect to each such contract,
agreement, or other document filed with the Commission as an exhibit to the
Registration Statement, reference is hereby made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. The Registration Statement and such reports and
other information may be inspected without charge at the Public Reference Room
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549, at prescribed rates. Information on the operation of the Public Reference
Room is available by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains an Internet site where the Registration Statement and other
information filed with the Commission may be retrieved, and the address of such
site is http://www.sec.gov. Statements made in this Prospectus concerning the
contents of any document referred to herein are not necessarily complete.

64
<PAGE> 67

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index....................................................... F-1
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of September 30, 1998 and F-3
December 31, 1997 and 1996................................
Consolidated Statements of Operations for the nine months F-4
ended September 30, 1998 and 1997 (unaudited) and for the
years ended December 31, 1997, 1996 and 1995..............
Consolidated Statements of Changes in Stockholders' Equity F-5
for the nine months ended September 30, 1998 and for the
years ended December 31, 1997, 1996 and 1995..............
Consolidated Statements of Cash Flows for the nine months F-7
ended September 30, 1998 and 1997 (unaudited) and for the
years ended December 31, 1997, 1996 and 1995..............
Notes to Consolidated Financial Statements.................. F-8
</TABLE>

F-1
<PAGE> 68

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Perot Systems Corporation:

We have audited the accompanying consolidated balance sheets of Perot
Systems Corporation and Subsidiaries (the "Company") as of September 30, 1998
and December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the nine months
ended September 30, 1998 and each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Perot Systems
Corporation and Subsidiaries as of September 30, 1998 and December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the nine months ended September 30, 1998 and each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

/s/ PRICEWATERHOUSECOOPERS LLP

Dallas, Texas
December 18, 1998
(except for Note 18
as to which the date is January 7, 1999)

F-2
<PAGE> 69

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $102,153 $ 35,298 $ 27,516
Accounts receivable, net................................. 161,682 105,230 113,804
Prepaid expenses and other............................... 17,656 12,578 9,450
Deferred income taxes.................................... 35,663 24,962 25,935
-------- -------- --------
Total current assets............................. 317,154 178,068 176,705
Property, equipment and purchased software, net............ 39,974 50,703 35,748
Goodwill, net.............................................. 7,240 16,596 7,293
Deferred income taxes...................................... 12,221 10,269 4,531
Other assets............................................... 13,946 11,467 7,970
-------- -------- --------
Total assets..................................... $390,535 $267,103 $232,247
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities on capital lease obligations and
long-term debt........................................ $ 1,122 $ 1,367 $ 2,377
Accounts payable......................................... 55,620 35,760 43,711
Income taxes payable..................................... 26,541 10,287 13,039
Accrued liabilities...................................... 107,024 76,040 53,343
Deferred revenue......................................... 13,732 23,258 22,003
Accrued compensation..................................... 54,306 23,449 20,240
-------- -------- --------
Total current liabilities........................ 258,345 170,161 154,713
Capital lease obligations and long-term debt, less current
maturities............................................... 1,093 1,532 2,796
Other long-term liabilities................................ 1,917 2,094 3,976
-------- -------- --------
Total liabilities................................ 261,355 173,787 161,485
-------- -------- --------
Commitments and contingencies
Stockholders' equity:
Class A Common Stock; par value $.01; authorized
200,000,000 shares; outstanding 76,894,554, 76,455,414
and 79,247,696 shares, at September 30, 1998, December
31, 1997 and 1996, respectively....................... 811 811 792
Class B Convertible Common Stock; par value $.01;
authorized 24,000,000 shares; issued and outstanding
934,320 shares at September 30, 1998, 100,000 shares
at December 31, 1997, and 0 shares at December 31,
1996.................................................. 9 1 --
Additional paid-in capital............................... 71,155 61,140 51,065
Other stockholders' equity............................... 56,064 32,158 17,896
Accumulated other comprehensive income................... 1,141 (794) 1,009
-------- -------- --------
Total stockholders' equity....................... 129,180 93,316 70,762
-------- -------- --------
Total liabilities and stockholders' equity....... $390,535 $267,103 $232,247
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 70

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ------------------------------
1998 1997 1997 1996 1995
-------- ----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................................. $724,185 $556,867 $781,621 $599,438 $342,306
Costs and expenses:
Direct cost of services............... 575,083 437,688 636,296 461,192 268,553
Selling, general and administrative
expenses........................... 103,114 95,911 125,732 92,997 52,891
Goodwill impairment................... 3,845 -- -- -- --
Purchased research and development.... -- 2,000 2,000 3,948 --
-------- -------- -------- -------- --------
Operating income........................ 42,143 21,268 17,593 41,301 20,862
Interest income......................... 2,985 1,312 1,916 1,540 1,988
Interest expense........................ (184) (953) (1,282) (770) (650)
Equity in earnings/(losses) of
unconsolidated affiliates............. 4,199 716 4,136 (312) --
Write-down of nonmarketable equity
securities............................ -- -- (3,900) -- --
Other income/(expense).................. 2,742 1,324 1,045 (1,608) (1,950)
-------- -------- -------- -------- --------
Income before taxes..................... 51,885 23,667 19,508 40,151 20,250
Provision for income taxes.............. 23,690 10,058 8,291 19,652 9,437
-------- -------- -------- -------- --------
Net income.............................. $ 28,195 $ 13,609 $ 11,217 $ 20,499 $ 10,813
======== ======== ======== ======== ========
Basic and diluted earnings per common
share:
Basic earnings per common share....... $ 0.37 $ 0.17 $ 0.14 $ 0.27 $ 0.17
Weighted average common shares
outstanding........................ 76,674 78,920 78,336 74,110 62,302
Diluted earnings per common share..... $ 0.29 $ 0.14 $ 0.12 $ 0.24 $ 0.16
Weighted average diluted common shares
outstanding........................ 96,910 96,560 95,192 84,342 66,732
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 71

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
LIQUIDATION
PREFERENCE CLASS A AND B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- ----------- ------ ---------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................. 4,000,000 $9,888 32,000,000 $ 320 30,112,160 $301 $26,024
Issuance of Class A shares under incentive
plans.................................... -- -- -- -- 1,683,808 17 3,257
Exercise of stock options for Class A
shares................................... -- -- -- -- 4,017,960 40 (20)
Class A shares repurchased................ -- -- -- -- -- -- --
Deferred compensation, net of
amortization............................. -- -- -- -- -- -- 1,500
Dividends paid and accrued................ -- (942) -- -- -- -- --
Note repayments........................... -- -- -- -- -- -- --
Net income................................ -- -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- -- -- -- -- -- --
Comprehensive income......................
---------- ------- ----------- ----- ---------- ---- -------
Balance, December 31, 1995................ 4,000,000 $8,946 32,000,000 $ 320 35,813,928 $358 $30,761
Issuance of Class A shares for business
acquired................................. -- -- -- -- 2,920,744 29 6,516
Issuance of Class A shares under incentive
plans.................................... -- -- -- -- 5,285,248 53 6,494
Exercise of stock options for Class A
shares................................... -- -- -- -- 3,227,776 32 1,149
Class A shares repurchased................ (4,000,000) (8,500) -- -- -- -- --
Shares converted to Class A Common........ -- -- (32,000,000) (320) 32,000,000 320 --
Amortization of deferred compensation..... -- -- -- -- -- -- --
Options issued for contract
rights................................... -- -- -- -- -- -- 4,544
Amortization of contract rights........... -- -- -- -- -- -- --
Dividends paid and accrued................ -- (446) -- -- -- -- --
Note repayments........................... -- -- -- -- -- -- --
Equity investment......................... -- -- -- -- -- -- 706
Tax benefit of employee options
exercised................................ -- -- -- -- -- -- 895
Net income................................ -- -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- -- -- -- -- -- --
Comprehensive income......................
---------- ------- ----------- ----- ---------- ---- -------
Balance, December 31, 1996................ -- -- -- -- 79,247,696 $792 $51,065
Issuance of Class A shares for business
acquired................................. -- -- -- -- 740,000 8 2,693
Issuance of options for business
acquired................................. -- -- -- -- -- -- 1,500
Issuance of Class A shares under incentive
plans.................................... -- -- -- -- 1,026,942 11 1,930
Exercise of stock options for Class A
shares................................... -- -- -- -- 35,000 -- (350)

ACCUMULATED NOTES
OTHER TREASURY STOCK RECEIVABLE
RETAINED COMPREHENSIVE ------------------- FROM CONTRACT DEFERRED
EARNINGS INCOME SHARES AMOUNT STOCKHOLDERS RIGHTS COMPENSATION
-------- ------------- --------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................. $(2,440) $ (221) (914,928) $ (317) $ (887) -- --
Issuance of Class A shares under incentive
plans.................................... -- -- 1,201,808 397 (901) -- --
Exercise of stock options for Class A
shares................................... -- -- 19,120 14 (2,000) -- --
Class A shares repurchased................ -- -- (306,000) (94) -- -- --
Deferred compensation, net of
amortization............................. -- -- -- -- -- -- (1,456)
Dividends paid and accrued................ (595) -- -- -- -- -- --
Note repayments........................... -- -- -- -- 130 -- --
Net income................................ 10,813 -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- 49 -- -- -- -- --
Comprehensive income......................
------- ------- --------- ------- ------- ------- -------
Balance, December 31, 1995................ $ 7,778 $ (172) -- -- $(3,658) -- $(1,456)
Issuance of Class A shares for business
acquired................................. -- -- -- -- -- --
Issuance of Class A shares under incentive
plans.................................... -- -- -- (3,065) -- --
Exercise of stock options for Class A
shares................................... -- -- 408,660 313 -- -- --
Class A shares repurchased................ -- -- (408,660) (313) 225 -- --
Shares converted to Class A Common........ -- -- -- -- -- -- --
Amortization of deferred compensation..... -- -- -- -- -- -- 150
Options issued for contract
rights................................... -- -- -- -- -- (4,544) --
Amortization of contract rights........... -- -- -- -- -- 202 --
Dividends paid and accrued................ (447) -- -- -- -- -- --
Note repayments........................... -- -- -- -- 2,212 -- --
Equity investment......................... -- -- -- -- -- -- --
Tax benefit of employee options
exercised................................ -- -- -- -- -- -- --
Net income................................ 20,499 -- -- -- -- -- --
Other comprehensive income, net of tax
Translation adjustment................... -- 1,181 -- -- -- -- --
Comprehensive income......................
------- ------- --------- ------- ------- ------- -------
Balance, December 31, 1996................ $27,830 $ 1,009 -- -- $(4,286) $(4,342) $(1,306)
Issuance of Class A shares for business
acquired................................. -- -- -- -- -- -- --
Issuance of options for business
acquired................................. -- -- -- -- -- -- --
Issuance of Class A shares under incentive
plans.................................... -- -- 210,000 263 (1,427) -- --
Exercise of stock options for Class A
shares................................... -- -- 1,274,040 1,215 (39) -- --

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1995.................. $ 32,668
Issuance of Class A shares under incentive
plans.................................... 2,770
Exercise of stock options for Class A
shares................................... (1,966)
Class A shares repurchased................ (94)
Deferred compensation, net of
amortization............................. 44
Dividends paid and accrued................ (1,537)
Note repayments........................... 130
Net income................................ 10,813
Other comprehensive income, net of tax
Translation adjustment................... 49
--------
Comprehensive income...................... 10,862
--------
Balance, December 31, 1995................ $ 42,877
Issuance of Class A shares for business
acquired................................. 6,545
Issuance of Class A shares under incentive
plans.................................... 3,482
Exercise of stock options for Class A
shares................................... 1,494
Class A shares repurchased................ (8,588)
Shares converted to Class A Common........ --
Amortization of deferred compensation..... 150
Options issued for contract
rights................................... --
Amortization of contract rights........... 202
Dividends paid and accrued................ (893)
Note repayments........................... 2,212
Equity investment......................... 706
Tax benefit of employee options
exercised................................ 895
Net income................................ 20,499
Other comprehensive income, net of tax
Translation adjustment................... 1,181
--------
Comprehensive income...................... 21,680
--------
Balance, December 31, 1996................ $ 70,762
Issuance of Class A shares for business
acquired................................. 2,701
Issuance of options for business
acquired................................. 1,500
Issuance of Class A shares under incentive
plans.................................... 777
Exercise of stock options for Class A
shares................................... 826
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 72

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
LIQUIDATION PREFERENCE CLASS A AND B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ---------------------- ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------- ------- ------------ ------- ---------- ------ --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares
repurchased.............. -- -- -- -- -- -- -- --
Sale of Class B stock and
options to UBS AG........ -- -- -- -- 100,000 1 8,502 --
Amortization of deferred
compensation............. -- -- -- -- -- -- -- --
Reversal of deferred
compensation............. -- -- -- -- -- -- (1,050) --
Amortization of contract
rights................... -- -- -- -- -- -- -- --
Elimination of contract
rights................... -- -- -- -- -- -- (4,146) --
Note repayments and
other.................... -- -- -- -- -- -- (125) --
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,121 --
Net income................. -- -- -- -- -- -- -- 11,217
Other comprehensive income,
net of tax
Translation adjustment... -- -- -- -- -- -- -- --
Comprehensive income.......
---------- ------- ----------- ----- ---------- ---- ------- -------
Balance, December 31,
1997..................... -- -- -- -- 81,149,638 $812 $61,140 $39,047
Issuance of Class A shares
under incentive plans.... -- -- -- -- 5,004 -- 216 --
Exercise of stock options
for Class A shares....... -- -- -- -- -- -- 186 --
Exercise of stock options
for Class B shares....... -- -- -- -- 834,320 8 3,037 --
Class A shares
repurchased.............. -- -- -- -- -- -- -- --
Note repayments and
other.................... -- -- -- -- -- -- 573 --
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,976 --
Deferred compensation, net
of amortization.......... -- -- -- -- -- -- 4,027 --
Net income................. -- -- -- -- -- -- -- 28,195
Other comprehensive income,
net of tax
Translation adjustment... -- -- -- -- -- -- -- --
Comprehensive income.......
---------- ------- ----------- ----- ---------- ---- ------- -------
Balance, September 30,
1998..................... -- -- -- -- 81,988,962 $820 $71,155 $67,242
========== ======= =========== ===== ========== ==== ======= =======

ACCUMULATED NOTES
OTHER TREASURY STOCK RECEIVABLE TOTAL
COMPREHENSIVE -------------------- FROM CONTRACT DEFERRED STOCKHOLDERS'
INCOME SHARES AMOUNT STOCKHOLDERS RIGHTS COMPENSATION EQUITY
------------- ---------- ------- ------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A shares
repurchased.............. -- (6,078,264) (5,344) 2,603 -- -- (2,741)
Sale of Class B stock and
options to UBS AG........ -- -- -- -- -- -- 8,503
Amortization of deferred
compensation............. -- -- -- -- -- 256 256
Reversal of deferred
compensation............. -- -- -- -- -- 1,050 --
Amortization of contract
rights................... -- -- -- -- 196 -- 196
Elimination of contract
rights................... -- -- -- -- 4,146 -- --
Note repayments and
other.................... -- -- (84) 210 -- -- 1
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,121
Net income................. -- -- -- -- -- -- 11,217
Other comprehensive income,
net of tax
Translation adjustment... (1,803) -- -- -- -- -- (1,803)
--------
Comprehensive income....... 9,414
------- ---------- ------- ------- ------- ------- --------
Balance, December 31,
1997..................... $ (794) (4,594,224) $(3,950) $(2,939) -- -- $ 93,316
Issuance of Class A shares
under incentive plans.... -- 80,000 54 -- -- -- 270
Exercise of stock options
for Class A shares....... -- 2,047,338 1,638 (57) -- -- 1,767
Exercise of stock options
for Class B shares....... -- -- -- -- -- -- 3,045
Class A shares
repurchased.............. -- (1,693,202) (3,399) 1,075 -- -- (2,324)
Note repayments and
other.................... -- -- 11 145 -- -- 729
Tax benefit of employee
options exercised........ -- -- -- -- -- -- 1,976
Deferred compensation, net
of amortization.......... -- -- -- -- -- (3,756) 271
Net income................. -- -- -- -- -- -- 28,195
Other comprehensive income,
net of tax
Translation adjustment... 1,935 -- -- -- -- -- 1,935
--------
Comprehensive income....... 30,130
------- ---------- ------- ------- ------- ------- --------
Balance, September 30,
1998..................... $ 1,141 (4,160,088) $(5,646) $(1,776) -- $(3,756) $129,180
======= ========== ======= ======= ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 73

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ------------------------------
1998 1997 1997 1996 1995
-------- ----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 28,195 $ 13,609 $ 11,217 $ 20,499 $ 10,813
-------- -------- -------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 29,440 24,779 35,363 18,715 14,083
Write-off of purchased research and development......... -- 2,000 2,000 3,948 --
Write-off or impairment of software..................... 425 -- -- 4,156 --
Write-off of intellectual property rights............... 853 -- 3,623 -- --
Loss/(gain) on nonmarketable equity securities.......... (2,986) -- 3,900 -- --
Loss on sale of business................................ 291 -- -- -- --
Equity in (earnings)/losses of unconsolidated
affiliates............................................ (4,199) (796) (4,136) 312 --
Change in deferred income taxes......................... (10,299) 4,045 (10,423) (16,044) (3,598)
Loss/(gain) on sale of property, equipment and
software.............................................. 802 (74) 455 860 (47)
Changes in assets and liabilities (net of effects from
acquisition of businesses):
Accounts receivable................................... (56,522) (6,657) 16,039 (43,184) (33,263)
Prepaid expenses...................................... (5,085) (5,093) (3,010) (4,037) 6,760
Other assets.......................................... (687) (1,928) 5,843 (837) (4,578)
Accounts payable and accrued liabilities.............. 48,676 12,764 13,244 39,401 17,790
Income taxes payable.................................. 15,467 (9,377) (3,550) 7,998 6,873
Deferred revenue...................................... (9,537) (6,999) 372 15,388 (4,685)
Accrued compensation.................................. 30,361 (8,058) 3,295 9,852 7,155
Other long-term liabilities........................... (104) (2,428) (3,260) (3,095) 6,746
-------- -------- -------- -------- --------
Total adjustments................................... 36,896 2,178 59,755 33,433 13,236
-------- -------- -------- -------- --------
Net cash provided by operating activities........... 65,091 15,787 70,972 53,932 24,049
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property, equipment and software.............. (18,884) (33,916) (46,054) (27,534) (18,342)
Proceeds from sale of property, equipment and software.... 7,567 538 2,366 713 5,975
Proceeds from sale of nonmarketable equity securities..... 5,162 -- -- -- --
Proceeds from sale of business............................ 893 -- -- -- --
Investments in and advances to minority interests......... 446 (3,592) (2,891) (5,536) --
Acquisition of intellectual property rights............... -- (6,322) (5,623) -- --
Acquisition of businesses, net of cash acquired of $650 at
September 30, 1997 and $665 and $149 at December 31,
1997 and 1996, respectively............................. -- (13,334) (13,721) (9,520) --
-------- -------- -------- -------- --------
Net cash used in investing activities............... (4,816) (56,626) (65,923) (41,877) (12,367)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Principal payments on debt and capital lease
obligations............................................. (701) (3,182) (3,725) (2,162) (2,896)
Proceeds from short-term borrowings....................... -- 25,000 -- -- --
Proceeds from issuance of common stock.................... 3,045 381 381 4,686 528
Proceeds from sale of stock options....................... -- 8,139 8,139 -- --
Repayment of stockholder notes receivable................. 184 248 266 2,212 130
Proceeds from issuance of treasury stock.................. 2,926 794 1,125 197 273
Purchase of treasury stock................................ (950) (1,825) (1,834) (88) (94)
Redemption of preferred stock............................. -- -- -- (8,500) --
Dividends paid on preferred stock......................... -- -- -- (893) (1,537)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities........................................ 4,504 29,555 4,352 (4,548) (3,596)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 2,076 (3,198) (1,619) 2,652 28
-------- -------- -------- -------- --------
Net increase/(decrease) in cash and cash equivalents........ 66,855 (14,482) 7,782 10,159 8,114
Cash and cash equivalents at beginning of period............ 35,298 27,516 27,516 17,357 9,243
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $102,153 $ 13,034 $ 35,298 $ 27,516 $ 17,357
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE> 74

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Perot Systems Corporation (the "Company") was originally incorporated in
the state of Texas in 1988 and on December 19, 1995, the Company reincorporated
in the state of Delaware. The Company provides industry-specific business
solutions and information technology services to clients on a worldwide basis.
The significant accounting policies of the Company are described below. Dollar
amounts presented are in thousands, except as otherwise noted.

Principles of consolidation

The consolidated financial statements include the accounts of the Company
and all domestic and foreign subsidiaries that are more than 50% owned and
controlled. All significant intercompany balances and transactions have been
eliminated.

The Company's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial policies
are accounted for by the equity method. Accordingly, the Company's share of the
earnings (losses) of these companies is included in consolidated net income.
Investments in unconsolidated companies and limited partnerships that are less
than 20% owned, where the Company has virtually no influence over operating and
financial policies, are carried at cost. The Company periodically evaluates
whether impairment losses must be recorded on each investment by comparing the
projection of the undiscounted future operating cash flows to the carrying
amount of the investment. If this evaluation indicates that future undiscounted
operating cash flows are less than the carrying amount of the investments, the
underlying assets are written down by charges to expense so the carrying amount
equals the future discounted cash flows.

Interim financial information

The consolidated financial statements and following notes, insofar as they
are applicable to the nine-months ended September 30, 1997, are not covered by
the Report of Independent Accountants. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the September 30, 1997 interim period presented have been made.
Operating results for the nine months ended September 30, 1998, are not
necessarily indicative of the results for the year ended December 31, 1998.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. These estimates involve judgments with respect to, among other things,
various future economic factors which are difficult to predict and are beyond
the control of the Company. Therefore, actual amounts could differ from these
estimates.

Cash equivalents

All highly liquid investments with original maturities of three months or
less are considered to be cash equivalents.

F-8
<PAGE> 75
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Revenue recognition

The Company provides services under level-of-effort, fixed-price, and
unit-price contracts, with the length of existing contracts ranging up to 12
years. Revenue from level-of-effort pricing is based on time and materials,
direct costs plus an administrative fee (which may be either a fixed amount or a
percentage of direct costs incurred), or a combination of these methods and may
be based on a set fee for a specified level of resources that is adjusted for
incremental resource usage. Revenue from fixed-price contracts is recognized on
the percentage-of-completion method, and is earned based on the percentage
relationship of incurred contract costs to date to total estimated contract
costs, after giving effect to the most recent estimates of total cost.
Provisions for estimated losses, if any, are made in the period in which the
loss first becomes probable and reasonably estimable. Revenue from unit-price
contracts is recognized based on technology units utilized or by number of
transactions processed during a given period. For unit-price contracts, the
Company establishes a per-unit fee based on the cost structure associated with
the delivery of that unit of service, after an appropriate risk factor is
applied.

Year 2000 engagements do not comprise a substantial portion of the
Company's business. For two Year 2000 projects, the Company uses a zero estimate
of profit with equal amounts of revenue and cost recognized until the final
outcome of the engagement can be estimated more precisely because of the
inherent uncertainties regarding testability in the existing system environment
and client acceptance.

Billings for products or services for which the Company acts as an agent on
behalf of the client and bears no risk of non-performance, are excluded from the
Company's revenue, except to the extent of any mark-up added.

Deferred revenue is comprised of payments from clients for which services
have not yet been performed, or prepayments against development work in process.
These unearned revenues are deferred and recognized as future contract costs are
incurred and contract services are rendered.

Research and development costs

Research and development costs are charged to expense as incurred and were
$653 and $2,993 for the nine months ended September 30, 1998 and 1997,
respectively, and $3,243 and $4,486 for the years ended December 31, 1997 and
1996, respectively. The write-off of purchased research and development costs
made up $2,000 and $3,948 of the total in 1997 and 1996, respectively.

Property and equipment

Property and equipment are stated at cost. Property and equipment under
capital leases are recorded at the lower of their fair market value or the
present value of future minimum lease payments determined at the inception of
the lease.

Depreciation and amortization are calculated on a straight-line basis,
using estimated useful lives of two to seven years. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of the
improvement. Property and equipment recorded under capital leases are amortized
on a straight-line basis over the lease term.

Upon sale or retirement of property and equipment, the costs and related
accumulated depreciation are eliminated from the accounts, and any gain or loss
on such disposition is reflected in the consolidated statement of operations.
Expenditures for repairs and maintenance are charged to operations as incurred.

F-9
<PAGE> 76
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Software, goodwill and other intangibles

Software purchased by the Company and utilized in providing contract
services is capitalized at cost and amortized on a straight-line basis over the
lesser of three to five years and the term of the related contract.

The cost of acquired entities is allocated first to identifiable assets
based on estimated fair values. The excess of the purchase price over the fair
value of identifiable assets acquired, net of liabilities assumed, is recorded
as goodwill and amortized on a straight-line basis over the estimated productive
life of the assets acquired. Due to the fact that acquired skills and
technological advantages are subject to rapid obsolescence, and thus continuous
reinvestment, the Company's general policy is to amortize goodwill over a three
to ten year period.

The Company periodically evaluates the carrying amount of software,
goodwill, other intangibles and other long-lived assets, as well as the related
amortization periods, to determine whether adjustments to these amounts or
useful lives are required based on current events and circumstances. The
evaluation is based on the Company's projection of the undiscounted future
operating cash flows of the acquired operation over the remaining useful lives
of the related intangible assets. To the extent such projections indicate that
future undiscounted cash flows are not sufficient to recover the carrying
amounts of related intangibles, the underlying assets are reduced by charges to
expense so that the carrying amount is equal to future discounted cash flows.

Income taxes

The Company uses the liability method to compute the income tax provision.
Under this method, deferred income taxes are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized. Income tax expense
consists of the Company's current provision for federal and state income taxes
and the change in the Company's deferred income tax assets and liabilities.

The Company does not provide for foreign withholding and income taxes on
the undistributed earnings amounting to $54,756 at September 30, 1998 and
$47,033 at December 31, 1997, cumulatively, for its foreign subsidiaries, as
such earnings are intended to be permanently invested in those operations. The
ultimate tax liability related to repatriation of such earnings is dependent
upon future tax planning opportunities and is not estimable at the present time.

Foreign operations

The consolidated balance sheets include foreign assets and liabilities of
$143,155 and $108,975 as of September 30, 1998, $95,600 and $73,490,
respectively, as of December 31, 1997, and $101,481 and $77,914, respectively,
as of December 31, 1996.

Assets and liabilities of subsidiaries located outside the United States
are translated into U.S. dollars at current exchange rates as of the balance
sheet date, and revenue and expenses are translated at average exchange rates
during each reporting period. Translation gains and losses are recorded as a
separate component of stockholders' equity.

The Company periodically enters into foreign exchange forward contracts to
hedge certain foreign currency transactions for periods consistent with the
terms of the underlying transactions. The forward exchange contracts generally
have maturities that do not exceed one year.

F-10
<PAGE> 77
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

The net foreign currency transaction gains/(losses) reflected in other
income/(expense) were $(70) and $715 for the nine months ended September 30,
1998 and 1997; $736, ($1,715) and ($892) for the years ended December 31, 1997,
1996 and 1995, respectively.

Concentrations of credit risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash equivalents and accounts
receivable. The Company's cash equivalents consist primarily of short-term money
market deposits. The Company has deposited its cash equivalents with reputable
financial institutions, from which the Company believes the risk of loss to be
remote. The Company has accounts receivable from its customers who are engaged
in the banking, insurance, healthcare, manufacturing, communications, travel and
energy industries, and are not concentrated in any specific geographic region.
These specific industries may be affected by economic factors, and, therefore,
accounts receivable may be impacted. Generally, the Company does not require
collateral from its customers, since the receivables are supported by long-term
contracts. Management does not believe that any single customer, industry or
geographic area represents significant credit risk.

Two customers accounted for 13% and 12% of the Company's accounts
receivables for the nine months ended September 30, 1998. One customer accounted
for 11% and 27% of the Company's accounts receivables at December 31, 1997 and
1996, respectively.

Financial instruments

The fair value of the Company's financial instruments is estimated using
bank or market quotes or discounted cash flows at year-end foreign exchange and
interest rates. The fair value of the financial instruments is disclosed in the
relevant notes to the financial statements. The carrying amount of short-term
financial instruments (cash and cash equivalents, accounts receivable, and
certain other liabilities) approximates fair value due to the short maturity of
those instruments.

The Company uses derivative financial instruments for the purpose of
hedging specific exposures as part of its risk management program and holds all
derivatives for purposes other than trading. Deferral (hedge) accounting is
applied only if the derivative reduces the risk of the underlying hedged item
and is designated at inception as a hedge with respect to the underlying hedged
item. Additionally, the derivative must result in cash flows that are expected
to be inversely correlated to those of the underlying hedged item. Such
instruments to date have been limited to interest rate swap and foreign currency
exchange forward contracts.

Treasury stock

Treasury stock transactions are accounted for under the cost method.

Reclassifications

Certain of the 1997, 1996 and 1995 amounts in the accompanying financial
statements have been reclassified to conform to the current presentation.
Certain stockholders' equity share numbers for 1995, 1996 and 1997 have been
adjusted. These adjustments had no material effect on the Company's consolidated
financial statements.

Stock based compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its employee stock options.

F-11
<PAGE> 78
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Under APB 25, compensation expense is recorded when the exercise price of
employee stock options is less than the fair value of the underlying stock on
the date of grant. The Company has implemented the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation."

Accounting standards issued

The Company implemented Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" during the first quarter of
1998. The Company's total comprehensive income for nine months ended September
30, 1997 (unaudited) was as follows:

<TABLE>
<S> <C>
Net income.................................................. $13,609
Foreign currency translation adjustment..................... (1,626)
-------
Total comprehensive income.................................. $11,983
=======
</TABLE>

In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131") effective for years beginning after December 15, 1997.
Statement 131 requires that a public company report financial and descriptive
information about its reportable operating segments pursuant to criteria that
differ from current accounting practice. Operating segments, as defined, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the management in deciding how to
allocate resources and in assessing performance. The financial information to be
reported includes segment profit or loss, certain revenue and expense items and
segment assets and reconciliations to corresponding amounts in the financial
statements. Statement 131 also requires information about revenues from products
or services, countries where the company has operations or assets and major
customers. Management does not believe the implementation of Statement 131 will
have a material effect on the Company's consolidated financial statements.

F-12
<PAGE> 79
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

2. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Amounts billed..................................... $ 90,369 $ 77,119 $ 88,577
Amounts to be invoiced............................. 40,557 22,409 13,548
Recoverable costs and profits...................... 20,255 2,798 7,744
Other.............................................. 13,315 4,089 10,722
Allowance for doubtful accounts.................... (2,814) (1,185) (6,787)
-------- -------- --------
$161,682 $105,230 $113,804
======== ======== ========
</TABLE>

With regard to amounts billed, allowances for doubtful accounts are
provided based on specific identification where less than full recovery of
accounts receivable is expected. Amounts to be invoiced represent revenue
contractually earned for services performed, which are invoiced to the customer
in the following month. Recoverable costs and profits represent amounts
previously recognized as revenue, that have not yet been billed, in accordance
with the contract terms. In certain cases, the period of recovery may extend
beyond one year. However, classification of these amounts within current assets
has been made in accordance with common industry practice. At December 31, 1997,
it is anticipated that $2,210 of the recoverable costs and profits will be
billed in 1998 and $588 will be billed in 1999. At September 30, 1998, it is
anticipated that $5,143 of the recoverable costs and profits will be billed in
1998, $14,875 will be billed in 1999, and $237 will be billed in 2000.

3. PROPERTY AND EQUIPMENT AND PURCHASED SOFTWARE

Property and equipment and purchased software consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Owned assets:
Computer equipment............................... $ 55,496 $ 68,188 $ 48,500
Furniture and equipment.......................... 23,897 24,193 15,760
Leasehold improvements........................... 14,870 11,070 5,897
Automobiles...................................... 648 669 --
-------- -------- --------
94,911 104,120 70,157
Less accumulated depreciation and
amortization................................ (63,920) (62,808) (41,276)
-------- -------- --------
30,991 41,312 28,881
-------- -------- --------
Assets under capital leases:
Computer equipment............................... 1,735 1,735 3,930
Furniture and equipment.......................... 1,582 1,582 1,581
-------- -------- --------
3,317 3,317 5,511
Less accumulated depreciation and
amortization................................ (3,020) (2,909) (5,057)
-------- -------- --------
297 408 454
-------- -------- --------
Property and equipment, net........................ $ 31,288 $ 41,720 $ 29,335
======== ======== ========
Purchased software................................. $ 31,890 $ 28,635 $ 21,322
Less accumulated amortization................. (23,204) (19,652) (14,909)
-------- -------- --------
Purchased software, net............................ $ 8,686 $ 8,983 $ 6,413
======== ======== ========
</TABLE>

F-13
<PAGE> 80
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

4. ACQUISITIONS

During 1997, the Company acquired 100% of the equity interests or assets in
four companies: Business Architects, LLP, ("BA"), based in Waltham,
Massachusetts, a business process reengineering consulting company; Benton
International, Inc. ("Benton"), a retail banking consulting firm located in New
York, California and Florida; Syllogic B.V. ("Syllogic"), a company based in The
Netherlands, specializing in the implementation, integration and control of
information systems with expertise in data warehousing and data mining; and
Stamos Associates, Inc. ("Stamos"), based in New York and California, a
strategic management consulting company in the healthcare industry. Also, the
Company acquired 70% of the equity interests in Icarus Consulting AG ("Icarus"),
a company specializing in airline and related industry consulting.

These five acquisitions were recorded under the purchase method of
accounting; and accordingly, the results of operations of these companies for
the periods from the date of the acquisition agreements to December 31, 1997 are
included in the accompanying 1997 consolidated statement of operations. The
dates of the 1997 acquisition agreements for BA, Benton, Icarus, Syllogic, and
Stamos were January 15, February 14, March 21, May 27 and June 17, respectively.
The purchase prices have been allocated to assets acquired and liabilities
assumed based on the estimated fair values at the dates of acquisition.

Under the terms and conditions of the various acquisition agreements
executed in 1997, the Company paid a total of $18,587 for the equity interests
acquired, $14,386 in cash, $2,701 in the form of 740,000 shares of the Company's
Class A Common Stock, and $1,500 in the form of 1,100,000 options to purchase
the Company's Class A Common Stock. The Company allocated $3,513 of the purchase
price to the tangible net assets acquired and $15,074 to goodwill.

During 1996, the Company acquired all of the equity interests in four
companies: Rothwell International, Inc. ("Rothwell"), based in Houston, Texas,
an object-oriented programming company; Doblin Group, Inc. ("Doblin"), a
Chicago-based consulting company, engaging in strategic design planning and
consulting for breakthrough products and services; CommSys Corporation
("CommSys"), located in Reston, Virginia, a developer of billing systems for
telecommunication companies; and The Technical Resource Connection, Inc.
("TRC"), based in Tampa, Florida, specializing in object-oriented programming
and software development.

These four acquisitions were recorded under the purchase method of
accounting; and accordingly, the results of operations of Rothwell, Doblin,
CommSys, and TRC for the periods from the date of the acquisition agreements to
December 31, 1997 are included in the accompanying 1996 and 1997 consolidated
statements of operations. The dates of the 1996 acquisition agreements for
Rothwell, Doblin, CommSys, and TRC were August 2, September 10, September 16 and
October 25, respectively. The purchase prices have been allocated to assets
acquired and liabilities assumed based on the estimated fair values at the dates
of acquisition. In addition, portions of the purchase price of CommSys and TRC
were allocated to in-process product development that had not reached
technological feasibility and had no probable alternative future uses, which the
Company recorded at the date of acquisition.

Under the terms and conditions of the various acquisition agreements
executed in 1996, the Company paid a total of $16,214 for the equity interests
acquired, $9,669 in cash, and $6,545 in the form of 2,920,744 shares of the
Company's Class A Common Stock. The Company allocated $4,286 of the purchase
price to the tangible net assets acquired, $3,948 to expensed in-process product
development and $7,980 of goodwill.

In July 1998, the Company sold its equity interest in Doblin Group, Inc.
Under the terms and conditions of the divestiture agreement, the Company
received $900 in cash, $1,182 in the form of 120,000 shares of the Company's
Class A Common Stock, and a $59 note receivable. The impact of the sale was
immaterial to the results of operations for the nine months ended September 30,
1998.

F-14
<PAGE> 81
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

The following table reflects unaudited pro forma combined results of
operations of the Company and the 1997 and 1996 acquisitions on the basis that
the acquisitions had taken place and the related product development expense was
recorded at the beginning of the calendar year for each of the periods
presented:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $790,174 $665,035
Net income.................................................. 11,065 16,548
Basic earnings per common share............................. 0.14 0.21
Diluted earnings per common share........................... 0.12 0.19
</TABLE>

In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisitions been consummated at the beginning of 1997 and 1996,
respectively, or of future operations of the combined companies under the
ownership and management of the Company.

During September 1998, the Company determined that certain amounts recorded
for goodwill primarily from the acquisition of Stamos Associates, Inc.
("Stamos") was impaired and no longer recoverable. The determination was made
based on management's best estimates of the undiscounted future operating cash
flows over the remaining useful life of the goodwill. From this analysis, an
impairment loss was calculated as the difference between the carrying amount of
the goodwill and the fair value of the asset, based on discounted estimated
future cash flows. Goodwill impairments included in the accompanying statement
of operations totaled $3,845 consisting of primarily a write-down of Stamos
goodwill of $3,680. The Stamos goodwill impairment was due primarily to an
expected decline in future cash flows resulting from the departure of certain
key employees during the second and third quarters of 1998. The Company believes
that the remaining Stamos goodwill balance of $338 is recoverable over the
amortization period.

At September 30, 1998 and December 31, 1997 and 1996, goodwill of $7,240,
$16,596 and $7,293, net of $15,876, $6,309 and $686 in accumulated amortization,
respectively, related solely to 1997 and 1996 business acquisitions.

5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND MINORITY INTERESTS

At December 31, 1997, investments in and advances to unconsolidated
affiliates include two equity investments made in 1996. On January 5, 1996, the
Company acquired 40% of the equity interest in Systor AG ("Systor"), a Swiss
information services company, from UBS AG as part of a larger services
agreement. The Company's investment in Systor at September 30, 1998 and at
December 31, 1997 and 1996 was $8,626, $7,188 and $3,538, respectively.
Summarized financial data for Systor is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Current assets..................................... $100,435 $ 99,976 $ 70,216
Noncurrent assets.................................. 10,030 11,134 17,134
Current liabilities................................ 89,078 95,149 79,797
Noncurrent liabilities............................. -- -- --
Revenue............................................ 111,975 142,307 126,260
Operating income................................... 9,775 8,116 3,901
Net income......................................... 6,256 9,118 1,942
</TABLE>

F-15
<PAGE> 82
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

On March 26, 1996, the Company entered into a joint venture with HCL
Corporation Limited and HCL Europe Limited whereby the Company owns 50% of HCL
Perot Systems NV ("HPS"), an information technology services company based in
India. The Company contributed capital of $500 and $1,760 to HPS during 1997 and
1996, respectively, and is required to contribute additional capital up to a
limit of $6,900, on a call basis. The Company's investment in HPS at September
30, 1998 and at December 31, 1997 and 1996 was $3,702, $1,742 and $524,
respectively.

In June 1998, Systor declared a cash dividend. The Company received the 40%
share, or $804, in August 1998. No dividends or distributions were received from
investments in unconsolidated affiliates in 1997 or 1996. The amount of
undistributed earnings from investments in unconsolidated affiliates recorded in
retained earnings at September 30, 1998 and at December 31, 1997 and 1996 was
$8,455, $5,060 and $924, respectively.

In April 1996, the Company entered into an agreement to join a limited
partnership venture capital fund, and committed to invest $10,000, representing
a 2.75% interest in the fund. In 1997 and 1996, the Company made net capital
contributions of $834, and $1,292, respectively. In January 1998, the Company
sold its entire investment for $5,162 and recognized a gain of $2,986, and has
no future commitments to the fund.

In May 1996, the Company purchased 1,471,000 shares of a class of preferred
stock in a software company for $2,500. The Company purchased an additional
400,000 shares of the preferred stock for $400 in June 1997. Due to certain
anti-dilution provisions, the Company received additional shares bringing the
total number of shares to 2,394,000, representing approximately an 8% equity
interest at September 30, 1998. As part of the purchase agreement, the Company
was subject to a call option, which, if exercised, would require the Company to
purchase additional shares for a commitment of up to $1,000. During the third
quarter of 1998, the Company's commitment terminated.

In January 1997, the Company purchased 4,000 shares of 5% cumulative
convertible preferred stock for $1,000, representing a 4.5% interest in a
privately held company specializing in the electronic transmission, storage and
retrieval of documents.

In December 1997, the Company wrote both of these investments down by the
entire book value of $3,900 due to a decline in value considered to be other
than temporary.

During the nine months ended September 30, 1998, the Company entered into a
joint venture with the Bank of Ireland whereby the Company owns 49% of Perot
Systems Information Resource (Ireland) Limited, a Dublin-based entity providing
data center and other related services. The Company made a capital contribution
of $344 to the joint venture in July 1998.

6. OTHER ASSETS

Intellectual property rights

In July 1997, the Company acquired certain assets of Nets, Inc., an
internet development company in bankruptcy, for $8,755 in cash. Included in the
asset purchase were $2,132 of property and equipment and $6,623 of intellectual
property rights ("IP rights"). The Company recorded a write-off of $2,000 of the
$6,623 in IP rights as purchased research and development costs. This amount
represented an estimate of the fair market value of development cost related to
software for which technological feasibility had not been established and for
which there was no alternative future use. The completed IP rights were
capitalized due to the expectation that the assets would be used in several
contracts under negotiation.

During the fourth quarter of 1997, the Company determined that it was not
probable that the Company would generate future undiscounted cash flows
sufficient to recover the recorded value of the IP rights. The

F-16
<PAGE> 83
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Company sold $1,000 of the intellectual property in October 1997, and charged
$3,623 to direct cost of services to reflect the impairment of the remaining IP
rights.

Software license transfer rights

In July 1996, the Company determined that certain software rights and
assets placed in service in 1993 were impaired due to the market shift from
mainframe systems to client/server and network based systems. In addition, the
Company's business mix had gradually shifted from outsourcing to application
development, systems integration, and consulting. As a result, the $7,552 of
transfer rights and assets in service and the $3,396 of related accumulated
amortization were written off resulting in a loss of $4,156 classified as direct
cost of services.

7. LINE OF CREDIT

Effective July 31, 1996, the Company established its bank line of credit,
which allows borrowings up to $40,000 at either the adjusted Eurodollar rate
plus 1%, or the bank's prime lending rate. There were no borrowings outstanding
under the line at September 30, 1998 and December 31, 1997. This facility
expired July 31, 1998 and was renewed pursuant to the same terms until January
31, 1999. The Company does not intend to renew the facility.

8. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1998 1997 1996
------------- ------- -------
<S> <C> <C> <C>
Operating expenses................................... $ 50,330 $33,160 $18,203
Taxes other than income, insurance, rents, licenses
and maintenance.................................... 6,465 3,433 3,519
Other contract-related............................... 50,229 39,447 31,621
-------- ------- -------
$107,024 $76,040 $53,343
======== ======= =======
</TABLE>

Other contract-related

Other contract-related accrued liabilities represent provisions to match
contract-related expenses in the period in which revenues from those contracts
are recognized. These include claims made by customers for services that require
additional effort and costs by the Company to satisfy contractual requirements.
The Company continually monitors contract performance in light of client
expectations, the complexity of work, project plans, delivery schedules, and
other relevant factors. Provisions for estimated losses, if any, are made in the
period in which the loss first becomes probable and reasonably estimable. An
expense of $10,200 was recorded in 1997 to recognize management's estimate of
known future losses associated with the termination or completion of two
long-term contracts. An expense of $13,485 was recorded during the nine months
ended September 30, 1998 to address Year 2000 exposure for certain customer
contracts.

F-17
<PAGE> 84
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

9. CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT

Capital lease obligations and long-term debt consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1998 1997 1996
------------- ------- -------
<S> <C> <C> <C>
Computer equipment and furniture capital leases
containing various payment terms through August
2001 with implicit interest rates ranging from 7.9%
to 17.40%.......................................... $ 1,404 $ 1,308 $ 1,777
Notes payable for software and software license
transfer rights, financed at various rates from
8.35% to 13.92%, payable in monthly installments
through July 2001.................................. 811 1,591 3,396
------- ------- -------
2,215 2,899 5,173
Less current maturities.............................. (1,122) (1,367) (2,377)
------- ------- -------
$ 1,093 $ 1,532 $ 2,796
======= ======= =======
</TABLE>

Capital lease payments and long-term debt maturities are as follows:

<TABLE>
<CAPTION>
CAPITAL LEASE LONG-TERM
OBLIGATIONS DEBT
------------- ---------
<S> <C> <C>
Three months ending December 31, 1998....................... $ 290 $ 68
Years ending December 31,1999............................... 832 265
2000.......................... 311 293
2001.......................... 87 185
------ ----
Total minimum lease payment and long-term debt maturities... $1,520 $811
====
Less amounts representing interest.......................... (116)
------
Present value of net minimum capital lease payments......... $1,404
======
</TABLE>

10. STOCKHOLDERS' EQUITY

Preferred stock

In July 1998, the Board of Directors of the Company approved an amendment
to the Company's Certificate of Incorporation which created 5,000,000 shares of
Preferred Stock, the rights, designations, and preferences of which may be
designated from time to time by the Board of Directors.

At December 31, 1995, the Company had 4,000,000 shares of $2.125 par value
Series A Preferred Stock outstanding. In 1996 the Company exercised its right to
redeem these shares for $8,500 cash, plus accrued dividends of $298. The
authorized preferred stock was subsequently removed from the Company's charter
in 1997.

Common stock and convertible liquidation preference common stock

In July 1998, the Board of Directors of the Company approved an amendment
to the Company's Certificate of Incorporation which included an increase in
authorized number of shares of Class A Common Stock to 200,000,000 from
100,000,000 shares. The amendment was approved by stockholders in August 1998.
At September 30, 1998 there were 81,054,642 shares issued and 76,894,554 shares
outstanding. At December 31, 1997 there were 81,049,638 shares issued and
76,455,414 shares outstanding and at December 31, 1996 there were 79,247,696
shares issued and outstanding. The Company is authorized to issue, under its
existing stock plans, up to 42,000,000 shares of Class A Common Stock. At
September 30, 1998 there were 36,043,154 shares outstanding. At December 31,
1997 there were 35,172,414 shares outstanding and at December 31, 1996 there
were 35,164,696 shares outstanding.

F-18
<PAGE> 85
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Class B shares consist of 24,000,000 authorized shares of $0.01 par value
common stock, of which there are 934,320 shares issued and outstanding as of
September 30, 1998. At December 31, 1997 there were 100,000 shares issued and
outstanding and at December 31, 1996 there were no shares issued and
outstanding. The Class B shares were authorized in conjunction with the
provisions of the original UBS AG service agreements, which were signed in
January 1996. Class B shares are non-voting and convertible, but otherwise are
equivalent to the Class A shares.

Under the terms and conditions of the UBS AG agreements, each Class B share
shall be converted, at the option of the holder, on a share-for-share basis,
into a fully paid and non-assessable Class A share, upon sale of the share to a
third-party purchaser under one of the following circumstances: 1) in a widely
dispersed offering of the Class A shares; 2) to a purchaser of Class A shares
who prior to the sale holds a majority of the Company's stock; 3) to a purchaser
that after the sale holds less than 2% of the Company's stock; 4) in a
transaction that complies with Rule 144 under the Securities Act of 1933, as
amended; or 5) any sale approved by the Federal Reserve Board of the United
States.

At December 31, 1995, the Company had 32,000,000 shares of $0.01 par value
Convertible Liquidation Preference Common Stock. In 1996, at the initiation of
the holder, and under the terms of the Company's Certificate of Incorporation,
the 32,000,000 outstanding shares of Convertible Liquidation Preference Common
Stock were converted on a one-for-one basis into fully paid and non-assessable
Class A shares. The Convertible Liquidation Preference Common Stock was removed
from the Company's charter in 1997.

Restricted Stock Plan

In 1988, the Company adopted a Restricted Stock Plan, which was amended in
1993, to attract and retain key employees, and to reward outstanding
performance. Employees selected by management may elect to become participants
in the plan by entering into an agreement that provides for vesting of the Class
A shares over a five-to-ten year period and establishes a two-year holding
period on one-half of the shares prior to the sale of vested common stock. Each
participant has voting, dividend and distribution rights with respect to all
shares of both vested and unvested common stock. Prior to the Class A shares
becoming publicly traded, the Company retains the right of first refusal to buy
the employees' vested shares at a formula price set forth in each agreement,
based on fair value or book value. After the Class A shares become publicly
traded, the right of first refusal no longer exists. The Company may repurchase
unvested shares, and under certain circumstances, vested shares of participants
whose employment with the Company terminates. The repurchase price under these
provisions is determined by the underlying agreement, generally the employees'
cost plus interest at 8%. Common stock issued under the Restricted Stock Plan
has been purchased by the employees at varying prices, determined by the Board
of Directors and estimated to be the fair value of the shares based upon an
independent third-party appraisal. The Company has from time to time financed
the issuance of shares under the Restricted Stock Plan by executing promissory
notes with the employees, with repayment terms ranging from one to fifteen
years. These notes bear interest at 8%, payable at least annually, and are with
recourse. Principal and interest payments vary from monthly to 5 years, and the
loans are collateralized by the shares financed by the notes. The balance of the
outstanding notes is included as a reduction to stockholders' equity.

1991 Stock Option Plan

In 1991, the Company adopted the 1991 Stock Option Plan (the "1991 Plan"),
which was amended in 1993 and 1998. Pursuant to the 1991 Plan, options to
purchase the Company's Class A shares can be granted to eligible employees. The
stock options are granted at a price not less than 100% of the fair value of the
Company's Class A shares, as determined by the Board of Directors, based upon an
independent third-party valuation. The stock options vest over a three to ten
year period based on the provisions of each grant, and in some cases can be
accelerated through attainment of financial performance criteria. For options
issued before
F-19
<PAGE> 86
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

July 1998, stock options require a two-year holding period for one half of the
shares purchased once the options are exercised, and are usually exercisable
from the vesting date until the eleventh anniversary from the date of grant, and
unvested options are cancelled following the expiration of a certain period
after the employee leaves the employment of the Company. Prior to the common
stock becoming publicly traded, the Company has certain rights of first refusal
to repurchase employees' shares obtained through exercise of the stock options
at the employees' cost plus 8%. For options issued after April 1, 1997, the
agreements provide that shares issued upon the exercise of the options may not
be sold until six months following an initial public offering.

Advisor Stock Option/Restricted Stock Incentive Plan

In 1992, the Company adopted the Advisor Stock Option/Restricted Stock
Incentive Plan (the "Advisor Plan"), which was modified in 1993, to enable
non-employee directors and advisors to the Company and consultants under
contract with the Company to acquire shares of the Company's Class A stock, at a
price not less than 100% of the fair value of the Company's common stock, as
determined by the Board of Directors, based upon an independent third-party
valuation. The options and shares are subject to a vesting schedule and
restrictions associated with their transfer. Under certain circumstances, the
shares can be repurchased by the Company at cost plus 8% from the date of
issuance.

In 1996, the Board approved the 1996 Non-Employee Director Stock
Option/Stock Incentive Plan and the 1996 Advisor and Consultant Stock
Option/Stock Incentive Plan, which together replaced the Advisor Plan for
subsequent grants of options. Provisions of the Advisor Plan will remain in
effect for outstanding stock and options but no new issuances will be made
pursuant to the plan.

1996 Non-Employee Director Stock Option/Stock Incentive Plan

In 1996, the Company adopted the 1996 Non-Employee Director Stock
Option/Stock Incentive Plan (the "Director Plan"). The Director Plan provides
for the issuance of up to 800,000 Class A shares or options to Board members who
are not employees of the Company. Shares or options issued under the plan would
be subject to five year vesting, with options expiring after an eleven year
term. The purchase price for shares issued and exercise price for options issued
is the fair value of the shares at the date of issuance. Other restrictions are
established upon issuance. In 1997, 120,000 options were granted under the plan.

1996 Advisor and Consultant Stock Option/Stock Incentive Plan

In 1996, the Company adopted the 1996 Advisor and Consultant Stock
Option/Stock Incentive Plan (the "Consultant Plan"). The Consultant Plan
provides for the issuance of Class A shares or options to advisors or
consultants who are not employees of the Company, subject to restrictions
established at time of issuance. The option exercise price is the fair value of
the shares on the date of grant. The purchase price for share issuances is
determined by a committee appointed by the Board of Directors. The fair value of
issuances under the plan is estimated at the time of issuance and amortized
ratably over the vesting period as compensation expense. In 1997, 48,000 options
were granted under the plan.

Other stock and option activity

During 1995, options for the purchase of 4,000,000 Class A shares, with an
exercise price of $0.50 per share, were granted to an executive officer of the
Company when the fair value of the stock was estimated to be $0.875 per share.
This resulted in deferred compensation of $1,500, which was recorded as a
reduction to stockholders' equity. These options were exercised in 1995, whereby
the Company received cash of $600, and a promissory note for $1,400 in
consideration for the shares, under the terms of the original grant.

F-20
<PAGE> 87
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Prior to an underwritten public offering of its common stock, the Company
retains the right of first refusal to buy back the vested shares for cash at a
purchase price equal to fair value, and the unvested shares at the cost paid by
the shareholder. After such an offering, the right of first refusal no longer
exists. The Company had the right, under certain circumstances, to repurchase
certain shares at cost if employment with the Company terminates.

During the third quarter of 1997, the executive terminated his employment
and the Company made a non-cash repurchase of 2,800,000 shares of common stock
through a reduction of $1,830 in outstanding notes receivable. The unamortized
balance of deferred compensation was reclassified to additional paid-in capital.

UBS AG Agreement

On April 24, 1997, the Company concluded the renegotiation of the terms of
its strategic alliance with UBS AG, initially entered into in January 1996. The
new terms were effective from January 1, 1997 and involve (i) a 10-year contract
for the Company to provide information technology ("IT") services to UBS Warburg
("UBS Warburg EPI Agreement"), (ii) separate agreements to provide IT services
to other UBS AG operating units and to permit the Company to use certain UBS AG
assets, (iii) the sale to UBS AG of options to acquire shares of the Company's
Class B stock, (iv) the sale to UBS AG of shares of the Company's Class B stock,
and (v) the termination of all options to acquire shares of the Company's Class
B stock granted under the terms and conditions of prior UBS AG agreements. The
Company continues to hold a 40% stake in Systor. In the event of termination of
the UBS Warburg EPI Agreement, a portion of the Company's interest in Systor
would be returned to UBS AG, declining ratably over the 10-year period which
began on January 1, 1997.

The new terms of the UBS Warburg EPI Agreement require the Company to
provide operational management for UBS investment banking division, Warburg
Dillon Read, technology resources (including mainframes, desktops, and voice and
data networks), excluding hardware and proprietary software applications
development. The Company is to be reimbursed for all costs, excluding corporate
overhead, related to services provided under the UBS Warburg EPI Agreement. In
addition, the Company will receive a management fee, subject to bonuses and
penalties, depending upon the achievement of certain defined performance
criteria.

Under the terms and conditions of the new agreement, the Company sold to
UBS AG options to purchase 7,234,320 shares of the Company's Class B stock at a
non-refundable cash purchase price of $1.125 per option. These Class B shares
are subject to certain transferability and holding-period restrictions, which
lapse over a defined vesting period. These options are exercisable immediately
and for a period of 5 years after the date that such shares become vested, at an
exercise price of $3.65 per share. In addition, the Company sold to UBS AG
100,000 shares of the Company's Class B stock, subject to the same
transferability and holding-period restrictions, at a purchase price of $3.65
per share. These options and shares were sold in connection with the execution
and delivery of the 10-year UBS Warburg EPI Agreement. Both the 100,000 shares
of Class B stock and the 7,234,320 shares of Class B stock subject to options
vest at a rate, in the aggregate, of 63,906 shares per month for the first five
years of the agreement, and at a rate of 58,334 shares per month thereafter. In
the event of termination of the UBS Warburg EPI Agreement, options to acquire
unvested shares would be forfeited, and the Company would have the right to buy
back any previously acquired unvested shares for the original purchase price of
$3.65 per share. UBS AG exercised 834,320 options in the third quarter of 1998.

The Company also agreed to issue and sell to UBS AG additional shares
and/or options to purchase Class B shares, subject to the same transferability
and holding-period restrictions, up to a maximum of 7,000,000 shares, in such
combination of options and shares that UBS AG deems appropriate, provided the
Company and UBS AG, on or prior to December 31, 1998, enter into a second IT
services agreement, having
F-21
<PAGE> 88
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

a term of 10 years, and being of a size and scope similar to that of the UBS
Warburg EPI Agreement. The purchase price and exercise price for these options,
as well as the purchase price for these shares will be the defined fair value as
of the date of grant. These shares will vest ratably over 10 years commencing on
the date of execution of the new agreement. In the event of termination, options
to acquire unvested shares would be forfeited, and the Company would be required
to buy back any previously acquired unvested shares for the original purchase
price.

Pursuant to the Bank Holding Company Act of 1956 and subsequent regulations
and interpretations by the Federal Reserve Board (the "regulations"), UBS AG's
holdings in terms of shares of the Company's Class B common stock may not exceed
10% of the total of all classes of the Company's common stock. Similarly, the
total consideration paid by UBS AG for the purchase of shares plus the purchase
and exercise of options may not exceed 10% of the Company's consolidated
stockholders' equity as determined in accordance with generally accepted
accounting principles. If, however, on certain specified anniversaries of the
execution date of the new agreement, beginning in 2004, the number of Class B
shares, for which UBS AG's options are exercisable, is limited due to an
insufficient number of shares outstanding, UBS AG has the right to initiate
procedures to eliminate such deficiency. These procedures may involve (i)
issuance of additional Class A shares by the Company, (ii) a formal request to
the Federal Reserve Board from UBS AG for authorization to exceed the 10% limit
on ownership, or (iii) the purchase of Class B shares by the Company from UBS AG
at a defined fair value. In addition, the exercise period for options to
purchase vested shares would be increased beyond the normal 5 years to account
for any time during such exercise period in which UBS AG is unable to exercise
its options as a result of the regulations.

Deferred Compensation

The Company recorded $4,027 of deferred compensation expense for options
granted during the nine months ended September 30, 1998 representing the
difference between the option exercise price and the fair value of the
underlying common stock. The Company recognized $271 of compensation expense
during the nine months ended September 30, 1998 and will amortize the remaining
deferred compensation ratably over the respective vesting periods of the option
grants. Prior to any option forfeitures resulting from employee attrition, the
estimated amount of deferred compensation to be recognized during 1998 is $372
and approximately $407 for each year through 2008.

F-22
<PAGE> 89
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Activity in Liquidation Preference Common and Class A Common Stock:

<TABLE>
<CAPTION>
Weighted
Liquidation Average
Restricted Plan Advisor Plan Option Plan Other Preference Share Total Price
--------------- ------------ ----------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning shares..... 17,703,840 808,000 123,840 10,561,552 32,000,000 61,197,232 0.35
Issuance............. 2,475,322 120,000 -- 290,294 -- 2,885,616 0.61
Options exercised.... -- -- 37,080 4,000,000 -- 4,037,080 0.50
Repurchased.......... (306,000) -- -- -- -- (306,000) 0.35
---------- --------- --------- ---------- ----------- ----------
December 31, 1995.... 19,873,162 928,000 160,920 14,851,846 32,000,000 67,813,928 0.37
Issuance............. 7,798,688 30,734 412 376,158 -- 8,205,992 1.46
Options exercised.... -- -- 3,636,436 -- -- 3,636,436 0.42
Conversion........... -- -- -- 32,000,000 (32,000,000) -- 0.01
Repurchased.......... (408,660) -- -- -- -- (408,660) 0.77
---------- --------- --------- ---------- ----------- ----------
December 31, 1996.... 27,263,190 958,734 3,797,768 47,228,004 -- 79,247,696 0.51
Issuance............. 1,662,204 200 -- 314,538 -- 1,976,942 2.71
Options exercised.... -- 240,000 1,069,040 -- -- 1,309,040 0.51
Repurchased.......... (3,277,976) -- -- (2,800,288) -- (6,078,264) 0.79
---------- --------- --------- ---------- ----------- ----------
December 31, 1997.... 25,647,418 1,198,934 4,866,808 44,742,254 -- 76,455,414 0.65
Issuance............. 40,652 -- 40,000 4,352 -- 85,004 3.52
Options exercised.... -- 87,000 1,960,338 -- -- 2,047,338 0.90
Repurchased.......... (1,607,906) -- (5,036) (80,260) -- (1,693,202) 1.13
---------- --------- --------- ---------- ----------- ----------
September 30, 1998... 24,080,164 1,285,934 6,862,110 44,666,346 -- 76,894,554 0.88
========== ========= ========= ========== =========== ==========
</TABLE>

Activity in Options for Class A Common Stock:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ADVISOR OTHER EXERCISE
1991 PLAN PLAN OPTIONS TOTAL PRICE
---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
1995 Outstanding at beginning of
year............................... 13,351,984 320,000 622,576 14,294,560 0.43
Granted.............................. 4,510,000 -- 4,000,000 8,510,000 0.57
Exercised............................ (34,360) -- (4,002,720) (4,037,080) 0.50
Forfeited............................ -- -- -- -- --
---------- -------- ---------- ----------
Outstanding at December 31, 1995..... 17,827,624 320,000 619,856 18,767,480 0.48
========== ======== ========== ==========
Exercisable at December 31, 1995..... 3,716,332 410,428 192,000 4,318,760 0.39

1996 Outstanding at beginning of
year............................... 17,827,624 320,000 619,856 18,767,480 0.48
Granted.............................. 13,696,480 130,000 -- 13,826,480 1.37
Exercised............................ (3,553,252) -- (83,184) (3,636,436) 0.42
Forfeited............................ (82,784) -- (1,024) (83,808) 1.15
---------- -------- ---------- ----------
Outstanding at December 31, 1996..... 27,888,068 450,000 535,648 28,873,716 0.91
========== ======== ========== ==========
Exercisable at December 31, 1996..... 2,779,092 304,000 378,968 3,462,060 0.42
</TABLE>

F-23
<PAGE> 90
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ADVISOR OTHER EXERCISE
1991 PLAN PLAN OPTIONS TOTAL PRICE
---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
1997 Outstanding at beginning of
year............................... 27,888,068 450,000 535,648 28,873,716 0.91
Granted.............................. 13,782,704 168,000 -- 13,950,704 2.70
Exercised............................ (971,360) (240,000) (97,680) (1,309,040) 0.51
Forfeited............................ (5,716,578) -- (14,368) (5,730,946) 1.55
---------- -------- ---------- ----------
Outstanding at December 31, 1997..... 34,982,834 378,000 423,600 35,784,434 1.52
========== ======== ========== ==========
Exercisable at December 31, 1997..... 4,621,650 89,000 280,384 4,991,034 0.66
1998 Outstanding at beginning of
year............................... 34,982,834 378,000 423,600 35,784,434 1.52
Granted.............................. 1,954,820 30,000 -- 1,984,820 3.32
Exercised............................ (1,904,578) (87,000) (55,760) (2,047,338) 0.90
Forfeited............................ (5,475,082) (62,400) (18,080) (5,555,562) 1.79
---------- -------- ---------- ----------
Outstanding at September 30, 1998.... 29,557,994 258,600 349,760 30,166,354 1.62
========== ======== ========== ==========
Exercisable at September 30, 1998.... 5,912,338 44,200 219,024 6,175,562 1.08
</TABLE>

The following table summarizes information about options for Class A common
shares outstanding at September 30, 1998:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- -------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.250 600,060 3.48 385,640
$0.375 2,021,030 5.01 1,277,190
$0.500 6,806,560 6.37 1,718,640
$0.875 983,184 5.21 127,816
$1.250 6,179,772 8.74 1,126,444
$1.875 6,443,566 8.31 1,007,840
$2.000 130,000 9.29 --
$3.375 7,002,182 8.43 531,992
---------- ---------
30,166,354 7.58 6,175,562
========== =========
Weighted average exercise price of
exercisable options..................... $ 1.08
</TABLE>

F-24
<PAGE> 91
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

As previously noted, the Company has continued to account for its stock
option activity under APB 25. Had the Company elected to adopt SFAS 123, the pro
forma impact on net income and earnings per share would have been as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------------
1998 1997 1996 1995
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income
As reported.............................. $28,195 $11,217 $20,499 $10,813
Pro forma................................ $27,648 $10,655 $20,276 $10,771
Basic earnings per common share
As reported.............................. $ 0.37 $ 0.14 $ 0.27 $ 0.17
Pro forma................................ $ 0.36 $ 0.14 $ 0.27 $ 0.17
Diluted earnings per common share
As reported.............................. $ 0.29 $ 0.12 $ 0.24 $ 0.16
Pro forma................................ $ 0.29 $ 0.11 $ 0.24 $ 0.16
</TABLE>

All options granted by the Company in 1997, 1996 and 1995 were granted at
the estimated per share fair market value in effect on the grant date. For the
nine months ended, September 30, 1998, certain options were granted at less than
fair market value. For all years, the options vest ratably over the vesting
period, and expire one year after the final vesting date. The fair value of each
option grant was estimated on the grant date using the Minimum Value Stock
option-pricing model. The weighted-average risk free interest rates were 5.52%
for the nine months ended September 30, 1998 and 6.28% and 6.8% for the years
ended December 31, 1997 and 1996, respectively. Volatility was zero and the
expected life of each grant was equal to the midpoint of the vesting period,
plus one-year, for all periods presented. For example, an option vesting ratably
over ten years has an expected life of 6 years. The weighted-average grant-date
fair value of options granted in 1997, 1996, and 1995 was $245, $1,014, and $96,
respectively. For options granted in 1998, the weighted-average grant-date fair
value of options that were granted at fair market value and less than fair
market value was $129 and $310, respectively. The total compensation cost
recognized in income at September 30, 1998 was $270 and zero for years 1997
through 1995. The Company expects that the impact of future option grants will
increase overall pro forma compensation expense, thereby reducing pro forma net
income reported in future periods.

On August 5, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of the
Company's Class A Common Stock.

In July 1998, the Board of Directors adopted an employee stock purchase
plan (the "ESPP"), which provides for the issuance of a maximum of 20,000,000
shares of Class A Common Stock. The ESPP will become effective immediately
following the proposed initial public offering of the Company's Class A Common
Stock. Eligible employees may have up to 10% of their earnings withheld, to be
used to purchase shares of the Company's Common Stock on specified dates
determined by the Board of Directors. The price of the Common Stock purchased
under the ESPP will be equal to 85% of the fair value of the stock on the
exercise date for the offering period.

F-25
<PAGE> 92
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

11. INCOME TAXES

Income before taxes was as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Domestic............................. $29,573 $ 8,956 $(4,054) $10,151 $12,518
Foreign.............................. 22,312 14,711 23,562 30,000 7,732
------- ------- ------- ------- -------
$51,885 $23,667 $19,508 $40,151 $20,250
======= ======= ======= ======= =======
</TABLE>

The provision for income taxes charged to operations was as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
-------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Current:
U.S. Federal.................... $ 19,246 $ 3,025 $ 9,159 $ 21,794 $ 4,444
State and local................. 3,299 392 1,383 3,583 766
Foreign......................... 11,444 2,365 8,172 10,319 7,825
-------- ------- -------- -------- -------
Total current........... 33,989 5,782 18,714 35,696 13,035
-------- ------- -------- -------- -------
Deferred:
U.S. Federal.................... (5,689) 3,550 (8,902) (14,400) (4)
State and local................. (975) 726 (1,392) (2,242) 32
Foreign......................... (3,635) -- (129) 598 (3,626)
-------- ------- -------- -------- -------
Total deferred.......... (10,299) 4,276 (10,423) (16,044) (3,598)
-------- ------- -------- -------- -------
Total provision for
income taxes.......... $ 23,690 $10,058 $ 8,291 $ 19,652 $ 9,437
======== ======= ======== ======== =======
</TABLE>

Deferred tax liabilities (assets) are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Deferred compensation.............................. $ 431 $ 431 $ 536
Conversion of acquired entity from cash basis to
accrual basis of accounting...................... 748 1,171 989
Other.............................................. 1,945 664 493
-------- -------- --------
Gross deferred tax liabilities..................... 3,124 2,266 2,018
-------- -------- --------
Property, plant and equipment...................... (13,884) (11,050) (5,557)
Accrued liabilities................................ (35,042) (22,958) (21,233)
Equity investments................................. (57) (817) (517)
Intangibles........................................ (1,415) (1,134) (171)
Deferred revenue................................... (610) (1,538) (4,877)
Other.............................................. -- -- (129)
-------- -------- --------
Gross deferred tax assets.......................... (51,008) (37,497) (32,484)
-------- -------- --------
Net deferred tax asset................... $(47,884) $(35,231) $(30,466)
======== ======== ========
</TABLE>

F-26
<PAGE> 93
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

A valuation allowance has not been established for the net deferred tax
asset as of September 30, 1998, December 31, 1997 or 1996, due to a significant
contract backlog and the availability of loss carrybacks.

The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
income before taxes, as a result of the following differences in dollars and
percentages as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
----------------- -------------------------
1998 1997 1997 1996 1995
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Statutory U.S. tax rates....................... $18,160 $ 8,285 $6,828 $14,053 $7,087
Non-deductible items........................... 382 536 528 3,017 1,829
State and local taxes.......................... 1,774 537 (215) 609 751
Nondeductible amortization and write-off of
intangible assets............................ 3,554 1,052 1,765 1,900 --
U.S. rates in excess of foreign rates and
other........................................ (180) (352) (615) 73 (230)
------- ------- ------ ------- ------
Total provision for income taxes............... $23,690 $10,058 $8,291 $19,652 $9,437
======= ======= ====== ======= ======
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
--------------- -------------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Statutory U.S. tax rates......................... 35.0% 35.0% 35.0% 35.0% 35.0%
Non-deductible items............................. .7 2.3 2.7 7.5 9.0
State and local taxes............................ 3.4 2.3 (1.1) 1.5 3.7
Nondeductible amortization and write-off of
intangible assets.............................. 6.9 4.4 9.0 4.7 --
U.S. rates in excess of foreign rates and
other.......................................... (0.3) (1.5) (3.1) .2 (1.1)
----- ----- ----- ----- -----
Total provision for income taxes................. 45.7% 42.5% 42.5% 48.9% 46.6%
===== ===== ===== ===== =====
</TABLE>

12. CERTAIN GEOGRAPHIC DATA AND SEGMENT INFORMATION

Services are provided through the parent company in the United States, and
through a worldwide network of subsidiaries located in the United Kingdom,
Germany, France, Switzerland, the Netherlands, Singapore, Hong Kong and Japan.
Financial information by geographic region is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------
1998 1997 1996 1995
------------- -------- ------------ --------
<S> <C> <C> <C> <C>
United States:
Total revenue........................ $468,030 $519,122 $400,211 $238,783
Operating income..................... 20,999 (5,507) 10,780 12,802
Identifiable assets.................. 247,380 171,503 130,766 90,632
Europe and Asia:
Total revenue........................ 256,155 262,499 199,227 103,523
Operating income..................... 21,144 23,100 30,521 8,060
Identifiable assets.................. 143,155 95,600 101,481 39,841
Consolidated:
Total revenue........................ 724,185 781,621 599,438 342,306
Operating income..................... 42,143 17,593 41,301 20,862
Identifiable assets.................. 390,535 267,103 232,247 130,473
</TABLE>

F-27
<PAGE> 94
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

Greater than 10% of the Company's revenue was earned from two clients for
the nine months ended September 30, 1998, two clients for the year ended
December 31, 1997, one client for the year ended December 31, 1996, and two
clients for the year ended December 31, 1995. Revenue from these clients
comprised 25% and 12% of total revenue for the nine months ended September 30,
1998, 27% and 10% of total revenue in 1997, 28% of total revenue in 1996, and
12% and 10% of total revenue in 1995.

13. COMMITMENTS AND CONTINGENCIES

Operating leases and maintenance agreements

The Company has commitments related to data processing facilities, office
space and computer equipment under non-cancelable operating leases and fixed
maintenance agreements for periods ranging from one to ten years. Future minimum
commitments under these agreements as of September 30, 1998 are as follows:

<TABLE>
<CAPTION>
LEASE AND MAINTENANCE
COMMITMENTS
---------------------
<S> <C>
Three months ending December 31, 1998....................... $ 6,861
Years ending December 31, 1999.............................. 26,438
2000.......................... 22,266
2001.......................... 16,542
2002 and thereafter........... 15,575
-------
Total............................................. $87,682
=======
</TABLE>

The Company is obligated under certain operating leases for its pro rata
share of the lessors' operating expenses. Rent expense was $18,897 and $12,604
for the nine months ended September 30, 1998 and 1997, and $17,958, $18,212, and
$23,731 for the years ended December 31, 1997, 1996 and 1995, respectively.
Additionally, in 1997, the Company established a loss accrual of $3,125 in
connection with the planned abandonment of certain leased properties. During the
nine months ended September 30, 1998, the Company revised its estimate of that
loss accrual to $5,120.

Letter of credit

The Company had a $1,000 irrevocable letter of credit as of September 30,
1998. The letter of credit was issued in conjunction with the provisions of a
certain contract. The fair value of the letter of credit was estimated to be
equal to the face value based on the nature of the fee arrangements with the
issuing bank. This letter of credit expires in December 1998 and will not be
renewed.

Financial instruments with off-balance sheet risk

Interest rate swap

In December 1993, the Company entered into an agreement with a client to
reduce future monthly billings in exchange for a non-refundable payment for work
performed involving the development and installation of a major new system.
Under the terms of this agreement, the Company was required to make an
interest-sensitive payment to the client if a defined variable interest rate
("Rate") exceeded 8.5% based upon a declining notional amount ($48,756 and
$67,716 as of December 31, 1997 and 1996, respectively) over the term of the
contract. If the Rate was less than 8.5%, the client was required to pay the
Company for the difference in the interest rates based upon the same declining
notional amount.

F-28
<PAGE> 95
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

In January 1994, the Company entered into an interest rate swap agreement
with a bank to eliminate its exposure to the interest sensitive payment. Under
the terms of the swap agreement, the Company was required to pay a fixed
interest rate of 7.32% to a bank in exchange for being paid the Rate.

The differences to be paid or received on the interest sensitive payment
and swap were included as an adjustment to direct cost of services. The Company
recorded a reduction to direct cost of services of $643 and $852 for the years
ended December 31, 1997 and 1996, respectively. Based on anticipated cash flows,
discounted at the U.S. prime lending rate of 8.5%, the fair value of these
instruments was estimated to be a $1,102 benefit as of December 31, 1997. The
Company's remaining risk associated with these transactions was risk of default
by the client or the bank, which the Company believed to be remote.

In April 1998, the Company paid a fee of $536 to terminate the above
interest rate swap agreement.

Foreign currency exchange forward contracts

At September 30, 1998, the Company had one British pound to U.S. dollar
forward contract in the amount of $10,033. This contract will expire on October
30, 1998. As of December 31, 1997, the Company had two British pound to U.S.
dollar forward contracts totaling $10,177 and $6,684 which matured in February
1998 and January 1998, respectively. A third forward contract of Swiss franc to
U.S. dollar totaling $8,108 matured in January 1998.

The estimated fair value of the Company's forward exchange contracts using
bank or market quotes and the month end foreign exchange rates was a net
liability of $7 as of September 30, 1998, and a net liability of $18 as of
December 31, 1997. The Company's remaining risk associated with this transaction
is the risk of default by the bank, which the Company believes to be remote.

Contracts

In the normal course of business, the Company provides services to its
clients which may require the Company to comply with certain performance
criteria. The Company believes that the ultimate liability, if any, incurred
under these contracts will not have a material adverse effect on the Company's
consolidated results of operations or financial position.

Contingent put rights

Under the terms of various stock agreements, a total of 2,846,752 and
2,926,752 shares of Class A Common Stock are subject to contingent put rights at
September 30, 1998 and December 31, 1997, respectively. For 1,200,000 and
646,752 of these shares, the holders may require the Company to repurchase the
shares at fair value in the event the Company's Class A Common Stock is not
publicly traded by the years 2010 and 2000, respectively. For 1,000,000 of these
shares at September 30, 1998 and 1,080,000 at December 31, 1997, the holders may
require the Company to repurchase the shares at the original cost plus 8%
interest, accrued from the date of purchase, in the event the holders'
employment or directorship terminates.

Litigation

There are various claims and pending actions against the Company arising in
the ordinary course of the conduct of its business. The Company believes that
these claims and actions will have no material adverse effect on the Company's
financial condition, results of operations or cash flow.

F-29
<PAGE> 96
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

License Agreement

In 1988, the Company entered into a license agreement with the Perot
Systems Family Corporation and Ross Perot that allowed the Company to use the
name "Perot" and "Perot Systems" in its business on a royalty-free basis. Mr.
Perot and the Perot Systems Family Corporation may terminate this agreement at
any time and for any reason. Beginning one year following such a termination,
the Company would not be allowed to use the "Perot" name in its business. Mr.
Perot's or the Perot Systems Family Corporation's termination of the Company's
license agreement could materially and adversely affect the Company's business,
financial condition and results of operations.

14. RETIREMENT PLAN AND OTHER EMPLOYEE TRUSTS

During 1989, the Company established the Perot Systems 401(k) Retirement
Plan, a qualified defined contribution retirement plan. The plan year is January
1 to December 31 and allows eligible employees to contribute between 1% and 15%
of their annual compensation, including overtime pay, bonuses and commissions.
The plan was amended effective January 1, 1996 to change the Company's
contribution from 2% of the participants' defined annual compensation, to a
formula matching employees' contributions at a two-thirds rate, up to a maximum
Company contribution of 4%. The Company's cash contribution for the nine months
ended September 30, 1998 and 1997 and the years ended December 31, 1997, 1996
and 1995 amounted to $5,967; $6,162; $7,388; $4,785 and $1,919, respectively.
The Company's contribution of common stock for the nine months ended September
30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995 totaled
0; 247,590; 257,590; 12,650 and 198,972 shares, respectively, which were
allocated to participants' plan accounts using a formula based on compensation.
Compensation expense of $0, $607, $631, $14, and $224, respectively, was
recorded as a result of these share contributions.

In 1992 the Company established a European trust, for the benefit of
non-U.S. based employees, to which 23,852 shares were contributed in 1995.
Compensation expense of $26 was recorded in 1995 as a result of this grant.

In 1996, the Company contributed 324,286 shares to certain trusts
established for the benefit of employees transitioning to the Company pursuant
to certain contracts. Compensation expense of $405 was recorded in 1996 related
to these grants.

F-30
<PAGE> 97
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

15. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1998 1997 1996 1995
------------- ------- ------- ------
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest.......................................... $ 184 $ 1,283 $ 1,877 $ 671
======= ======= ======= ======
Income taxes...................................... $18,700 $23,325 $28,032 $7,031
======= ======= ======= ======
Non-cash investing and financing activities:
Issuance of common stock for acquisition of
businesses........................................ $ -- $ 2,701 $ 6,545 $ --
======= ======= ======= ======
Issuance of stock options for acquisition of
business.......................................... $ -- $ 1,500 $ -- $ --
======= ======= ======= ======
Liabilities assumed in acquisition of businesses.... $ -- $ 7,693 $ 4,150 $ --
======= ======= ======= ======
Repurchase of shares issued under Restricted Stock
Plan in exchange for reductions in notes
receivable from stockholders...................... $ 1,076 $ 2,603 $ 225 $ --
======= ======= ======= ======
Purchase of shares financed by notes receivable from
stockholders...................................... $ -- $ 1,427 $ 3,065 $ 901
======= ======= ======= ======
Deferred compensation, net of amortization.......... $ 3,756 $ -- $ -- $1,456
======= ======= ======= ======
Reclassification of deferred compensation to
paid-in-capital................................... $ -- $ 1,050 $ -- $ --
======= ======= ======= ======
Contract rights issued (cancelled) at inception and
renegotiation of UBS AG Agreement................. $ -- $(4,146) $ 4,544 $ --
======= ======= ======= ======
Stock options issued for investments in and advances
to unconsolidated affiliates...................... $ -- $ -- $ 706 $ --
======= ======= ======= ======
Transfer of assets upon assignment of lease
obligation........................................ $ -- $ -- $ -- $1,008
======= ======= ======= ======
</TABLE>

16. RELATED PARTY TRANSACTIONS

During 1996, 1997 and 1998 certain officers financed the purchase of Class
A Common Stock with a bank. All of these loans bear interest at rates between
8.75% and 9.75% and are due at various dates through September 15, 2000. The
Company had agreed that it would, at the request of NationsBank, purchase such
loans from NationsBank for an amount equal to principal plus accrued and unpaid
interest if the Company has not had an initial public offering that results in
the shares of Class A Common Stock being publicly traded before the maturity of
the notes. As of September 30, 1998 and December 31, 1997, approximately $1,768
and $1,546, respectively, of principal remain outstanding under these loans.

In March 1996, the Company loaned $615 to an executive. The note bears
interest at a rate of 5.98% per annum and is payable at the fifteenth
anniversary of the date of the note or at an earlier date if the Company's
common stock is publicly traded. In April 1997, the Company loaned an additional
$2,397 to this executive. For these additional loans, up to $1,169 is
collateralized by the Company's Class A shares held by this executive and $1,000
is collateralized by a mortgage on the executive's residence. These additional
loans will bear interest at the greater of 7.25% or the applicable federal rate.
As of September 30, 1998 and December 31, 1997, the principal balance remaining
on these notes was $2,169. In July 1997, the Company repurchased 2,800,000
shares of common stock from this executive, following his resignation, through a
reduction of $1,830 in outstanding notes receivable.

F-31
<PAGE> 98
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

In August 1996, an officer of the Company obtained funding in the amount of
$350 from a bank. The Company entered into a third party agreement with this
bank under which, if the Company's Class A shares are not publicly traded prior
to the maturity date of the loan, the Company will purchase the loan at the
bank's option. The maturity date of this loan is February 26, 2000.

In 1996, the Company entered into an agreement with Perot Investments, Inc.
("PII") pursuant to which the Company licensed certain software from PII. The
Company sublicensed such software to The Witan Company, L.P. ("Witan"). Witan
paid a license fee of $1,000 directly to PII in connection with the license. The
Company had a separate contract with Witan to perform development work on the
licensed software. The contract was terminated in 1997. PII is an affiliate of a
stockholder of the Company.

In January and February 1997, the Company loaned $450 to an executive at
the rate of 8%. The notes were collateralized by the executive's Class A common
shares. Prior to year end, the notes and the related shares were canceled.

In August 1997, the Company loaned $250 to an executive at the rate of 8%.
This note is collateralized by the executive's Class A shares and is payable in
August 2000.

In September 1997, the Company loaned $197 to an executive at the rate of
8%. This note is collateralized by the executive's Class A shares and is payable
in September 2000.

A former officer of the Company has three outstanding loans totaling $349
with the Company. These loans are secured by the Company's Class A shares held
by the executive and are due by December 31, 1999.

In November 1997, Ross Perot became chief executive officer of the Company
and has been serving the Company without cash or non-cash compensation. For the
nine months ended September 30, 1998, the Company has recorded a compensation
expense of $585 with an offset to additional paid-in capital.

17. EARNINGS PER SHARE

In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 (SFAS 128), "Earnings Per Share," effective for fiscal years ending
after December 15, 1997. SFAS 128 replaces the presentation of primary earnings
per common share with basic earnings per common share, with the principal
difference being that common stock equivalents are not considered in computing
basic earnings per share. The following chart is a reconciliation of the
numerators and the denominators of the basic and diluted per-share computations.

<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
------- ------ ---------
<S> <C> <C> <C>
FOR THE YEAR ENDED 1995
Net income.................................................. $10,813
Less preferred stock dividend............................... (595)
-------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders................ 10,218 62,302 $0.17
=====
Dilutive options............................................ 4,430
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $10,218 66,732 $0.16
======= ====== =====
</TABLE>

F-32
<PAGE> 99
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
------- ------ ---------
<S> <C> <C> <C>
FOR THE YEAR ENDED 1996
Net income.................................................. $20,499
Less preferred stock dividend............................... (447)
-------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders................ 20,052 74,110 $0.27
=====
Dilutive options............................................ 10,232
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $20,052 84,342 $0.24
======= ====== =====
FOR THE YEAR ENDED 1997
Net income.................................................. $11,217
Less preferred stock dividend............................... --
-------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders................ 11,217 78,336 $0.14
=====
Dilutive options............................................ 16,856
------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $11,217 95,192 $0.12
======= ====== =====
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
Net income.................................................. $13,609
Less preferred stock dividend............................... --
-------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders................ $13,609 78,920 $0.17
=====
Dilutive options............................................ 17,640
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders Plus assumed
conversions............................................... $13,609 96,560 $0.14
======= ====== =====
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
Net income.................................................. $28,195
Less preferred stock dividend............................... --
-------
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders................ $28,195 76,674 $0.37
=====
Dilutive options............................................ 20,236
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions.................................. $28,195 96,910 $0.29
======= ====== =====
</TABLE>

F-33
<PAGE> 100
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

The effect of this accounting change on previously reported earnings per
share data was as follows:

<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
------------- ----- -----
<S> <C> <C> <C>
PER SHARE AMOUNTS
Primary EPS as reported................................ $0.13 $0.20 $0.15
Effect of SFAS No. 128................................. 0.04 0.07 0.02
----- ----- -----
Basic EPS as restated.................................. $0.17 $0.27 $0.17
===== ===== =====
Fully diluted EPS as reported.......................... $0.13 $0.20 $0.15
Effect of SFAS No. 128................................. 0.01 0.04 0.01
----- ----- -----
Diluted EPS as restated................................ $0.14 $0.24 $0.16
===== ===== =====
</TABLE>

18. SUBSEQUENT EVENTS

On January 5, 1999, the Company's Board of Directors declared a two-for-one
stock split of the Class A and Class B Common Stock to be effected in the form
of a stock dividend. The record date for the stock dividend was January 6, 1999
and the distribution date will be January 19, 1999. All share and per share
amounts included in these consolidated financial statements have been
retroactively adjusted to reflect this stock split.

On January 5, 1999, the Company's Board of Directors authorized two series
of Preferred Stock in connection with the adoption of a Shareholder Rights Plan:
200,000 shares of Series A Junior Participating Preferred Stock, par value $.01
per share (the "Series A Preferred Stock"), and 10,000 shares of Series B Junior
Participating Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock" and, together with the Series A Preferred Stock").

The Board of Directors of Perot Systems has authorized the Company to enter
into a Stockholder Rights Plan (the "Rights Plan"), providing that one Class A
right (a "Class A Right") will be attached to each share of Class A Common Stock
and one Class B right (a "Class B Right", and together with the Class A Rights,
the "Rights") will be attached to each share of Class B Common Stock as of
January 7, 1999. Each Class A Right will entitle the registered holder to
purchase from the Company a unit consisting of one one-thousandth of a share of
Series A Preferred Stock, at a purchase price of $55.00 per share subject to
adjustment. Each Class B Right entitles the registered holder to purchase from
the Company a unit consisting of one one-thousandth of a share of Series B
Preferred Stock, at a purchase price of $55.00 per share, which price will be
subject to adjustment. The Rights will not be exercisable until the Distribution
Date and will expire on January 7, 2009, unless earlier redeemed by the Company
as described below. At any time until ten days following (i) the Stock
Acquisition Date or (ii) the date that the Board of Directors of the Company
determines a person to be an "Adverse Person," the Company may redeem the Rights
in whole, but not in part, at a price of $.001 per Right. The ten day redemption
period may be extended by the Board of Directors so long as the Rights are still
redeemable. Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.001 redemption price.

F-34
<PAGE> 101
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997)
(DOLLARS IN THOUSANDS)

During the period July 1, 1998 to December 31, 1998, the Company issued
options to associates to acquire Class A shares. There were 9,511,160,
10,401,040 and 12,226,290 of these options outstanding at September 30, 1998,
December 31, 1998 and January 6, 1999, respectively. The exercise price was set
on January 6, 1999.

F-35
<PAGE> 102

LOGO
<PAGE> 103

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

PROSPECTUS (Subject to Completion)

Issued February 1, 1999

6,500,000 Shares

[PEROT SYSTEMS LOGO]

CLASS A COMMON STOCK
------------------------

PEROT SYSTEMS CORPORATION IS OFFERING 6,500,000 SHARES OF ITS CLASS A COMMON
STOCK. INITIALLY, THE INTERNATIONAL UNDERWRITERS ARE OFFERING 1,300,000 SHARES
OF OUR CLASS A COMMON STOCK OUTSIDE THE UNITED STATES AND CANADA, AND THE U.S.
UNDERWRITERS ARE OFFERING 5,200,000 SHARES OF OUR CLASS A COMMON STOCK IN THE
UNITED STATES AND CANADA.

THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR STOCK. THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $15.00 AND $16.00
PER SHARE.

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
-------- ------------- -----------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total................................ $ $ $
</TABLE>

------------------------
WARBURG DILLON READ
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LTD
HAMBRECHT & QUIST
, 1999
<PAGE> 104

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will be
paid by the Company. All amounts are estimates, other than the registration fee,
the NASD fee, and the New York Stock Exchange listing fee.

<TABLE>
<S> <C>
Registration fee............................................ $ 33,925
NASD fee.................................................... 12,000
New York Stock Exchange listing fee......................... 504,600
Accounting fees and expenses................................ 550,000
Legal fees and expenses..................................... 550,000
Printing and engraving...................................... 250,000
Transfer Agent fees and expenses............................ 170,000
Blue sky fees and expenses.................................. 5,000
Miscellaneous expenses...................................... 74,475
----------
Total............................................. $2,150,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws provide that each person who is made a party to or is
threatened to be made a party to or is otherwise involved in any action, suit,
or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was an officer or a
director of the Company or is or was serving at the request of the Company as a
director or an officer of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to an
employee benefit plan (an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer, shall be indemnified and held
harmless by the Company to the fullest extent authorized by the Delaware General
Corporation Law ("DGCL"), as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than permitted
prior thereto), against all expense, liability, and loss (including, without
limitation, attorneys' fees, judgments, fines, excise taxes or penalties, and
amounts paid or to be paid in settlement) incurred or suffered by such
indemnitee in connection therewith and such indemnification shall continue with
respect to an indemnitee who has ceased to be a director or officer and shall
inure to the benefit of the indemnitee's heirs, executors, and administrators;
provided, however, that the Company shall indemnify any such indemnitee in
connection with a proceeding initiated by such indemnitee only if such
proceeding was authorized by the Board of Directors. The right to
indemnification includes the right to be paid by the Company for expenses
incurred in defending any such proceeding in advance of its final disposition.
Officers and directors are not entitled to indemnification if such persons did
not meet the applicable standard of conduct set forth in the DGCL for officers
and directors.

DGCL Section 145 provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding (other than
an action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, agent, or employee of the Company or is or
was serving at the Company's request as a director, officer, agent, or employee
of another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit, or proceeding. The power to indemnify applies only if such
person acted in good faith and in a manner he reasonably believed to be in the
best interest, or not opposed to the best interest, of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.

The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense expenses (including
attorneys' fees but excluding amounts paid in settlement) actually

II-1
<PAGE> 105

and reasonably incurred and not to any satisfaction of a judgment or settlement
of the claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of liability to
the Company, unless the court believes that in light of all the circumstances
indemnification should apply.

To the extent a present or former director or officer of the Company is
successful on the merits or otherwise in defense of any action, suit, or
proceeding described in the preceding two paragraphs, such person is entitled,
pursuant to DGCL Section 145, to indemnification against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.

Article VIII of the Certificate of Incorporation of the Company provides
for the elimination of personal liability of its directors for monetary damages
for breach of fiduciary duty as a director, except as otherwise provided by the
DGCL.

A director of the Company may not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which
the director derived any improper personal benefit. The provisions of the
Certificate of Incorporation eliminating the liability of directors for monetary
damages do not affect the standard of conduct to which directors must adhere,
nor do such provisions affect the availability of equitable relief. In addition,
such limitations on personal liability do not affect the availability of
monetary damages under causes of action based on federal law.

In addition to provisions made by the Company, Mr. Steve Blasnik is
indemnified for actions taken in his capacity as a director of the Company as
part of his employment arrangement with Perot Investments, Inc., a private
investment firm.

Section 102(b)(7) of the DGCL provides that a Delaware corporation may
eliminate or limit the personal liability of a director to a Delaware
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the DGCL relating to the unlawful payment of a
dividend or an unlawful stock purchase or redemption; or (iv) for any
transaction from which the director derived an improper personal benefit.

The indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws are not
exclusive of any other rights to which a person may be entitled by law,
agreement, vote of stockholders or disinterested directors or otherwise. In
addition, the Company maintains insurance on behalf of its directors and
executive officers insuring them against any liability asserted against them in
their capacities as directors or officers or arising out of such status.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In reliance on Rule 701 under the Securities Act, the Company issued
options to purchase the number of shares of Class A Common Stock to its
employees, consultants, and directors during the periods or on the dates and
with the exercise prices reflected in the table below:

<TABLE>
<CAPTION>
SHARES SUBJECT EXERCISE
DATES TO OPTION PRICE
- ----- -------------- --------
<S> <C> <C>
March 10, 1997 -- June 30, 1997............................. 5,378,000 $3.375
January 15, 1997............................................ 130,000 $ 2.00
January 13, 1997............................................ 52,800 $ 1.25
September 26, 1996 -- January 31, 1997...................... 7,638,884 $1.875
September 10, 1996.......................................... 160,000 $ 1.50
January 19, 1996 -- September 15, 1996...................... 9,632,592 $ 1.25
August 4, 1995 -- January 26, 1996.......................... 2,010,408 $0.875
</TABLE>

II-2
<PAGE> 106

In reliance on Section 4(2) of the Securities Act, during the periods set
forth below the Company issued to certain employees options to purchase the
number of shares of Class A Common Stock and at the exercise prices reflected in
the table below:

<TABLE>
<CAPTION>
SHARES SUBJECT EXERCISE
DATES TO OPTION PRICE
- ----- -------------- --------
<S> <C> <C>
September 26, 1996 -- January 31, 1997...................... 610,000 $1.875
January 19, 1996 -- September 15, 1996...................... 400,000 $ 1.25
January 1, 1996 -- January 26, 1996......................... 400,000 $0.875
</TABLE>

In reliance on Rule 701 under the Securities Act, the Company sold the
number of shares of Class A Common Stock to its employees, consultants, and
directors during the periods and at the prices reflected in the table below:

<TABLE>
<CAPTION>
DATES SHARES PRICE
- ----- --------- ------
<S> <C> <C>
September 26, 1996 -- January 31, 1997...................... 576,000 $1.875
January 19, 1996 -- September 15, 1996...................... 1,963,900 $ 1.25
August 23, 1995 -- January 26, 1996......................... 350,000 $0.875
August 4, 1995 -- September 22, 1995........................ 20,000 $ 0.50
</TABLE>

In reliance on Section 4(2) of the Securities Act, the Company sold to its
employees (i) 1,500,000 shares of Class A Common Stock for $1.25 per share
between February 2, 1996 and September 15, 1996 and (ii) 240,000 shares of Class
A Common Stock for $1.875 per share between January 28, 1997 and February 14,
1997.

In reliance on Section 4(2) of the Securities Act, on January 1, 1996, the
Company issued options to purchase 21,000,000 shares of Class B Common Stock at
an exercise price of $1.25 per share to UBS AG. In connection with the
renegotiation of the agreements with UBS AG effective January 1, 1997, such
options were cancelled and, in reliance on Section 4(2) of the Securities Act,
the Company sold UBS (i) 100,000 shares of Class B Common Stock at $3.65 per
share and (ii) options, at a price of $1.125 per option, to purchase 7,234,320
shares of Class B Common Stock at an exercise price of $3.65 per share.

The Company used the proceeds of stock sales and from option exercises for
working capital and other general corporate purposes.

In reliance on Section 4(2) of the Securities Act, the Registrant issued
the following numbers of shares of its Class A Common Stock in connection with
the acquisition of the indicated businesses.

<TABLE>
<CAPTION>
COMPANY ACQUIRED DATE SHARES ISSUED
- ---------------- ---- -------------
<S> <C> <C>
Business Architects L.L.P........................... January 15, 1997 240,000
CommSys Corporation................................. September 16, 1996 449,994
Doblin Group, Inc................................... September 10, 1996 120,000
Icarus AG........................................... March 21, 1997 63,000
Icarus GmbH......................................... March 21, 1997 77,000
Rothwell Group, Inc................................. August 2, 1996 170,750
Syllogic, B.V....................................... May 23, 1997 360,000
The Technical Resource Connection, Inc.............. October 22, 1996 2,180,000
</TABLE>

In addition, the Company issued options to purchase 1,100,000 shares to the
owners of Benton International, Inc. in reliance on Section 4(2) of the
Securities Act.

II-3
<PAGE> 107

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

a. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation
3.2* -- Amended and Restated Bylaws
4.1* -- Specimen of Class A Common Stock Certificate
4.2* -- Form of Rights Agreement
4.3* -- Form of Certificate of Designation, Preferences, and
Rights of Series A Junior Participating Preferred Stock
(included as Exhibit A-1 to the Rights Agreement)
4.4* -- Form of Certificate of Designation, Preferences, and
Rights of Series B Junior Participating Preferred Stock
(included as Exhibit A-2 to the Rights Agreement)
5.1* -- Opinion of Hughes & Luce, L.L.P. regarding legality of
securities being registered
10.1+ -- 1991 Stock Option Plan
10.2+ -- Form of Option Agreement (1991 Option Plan)
10.3+ -- Restricted Stock Plan
10.4+ -- Form of Restricted Stock Agreement (Restricted Stock
Plan)
10.5+ -- 1996 Non-employee Director Stock Option/Restricted Stock
Plan
10.6+ -- Form of Restricted Stock Agreement (Non-employee Stock
Option/Restricted Stock Plan)
10.7+ -- Form of Option Agreement (Non-employee Stock
Option/Restricted Stock Plan)
10.8+ -- Advisor Stock Option/Restricted Stock Incentive Plan
10.9+ -- Form of Restricted Stock Option Agreement (Advisor Stock
Option/Restricted Stock Incentive Plan)
10.10+ -- Form of Option Agreement (Advisor Stock Option/Restricted
Stock Incentive Plan)
10.11+ -- Stock Purchase Agreement dated as of August 20, 1992
between the Company and Meyerson Family Limited
Partnership
10.12+ -- Stock Option Grant dated as of June 27, 1995 by the
Company in favor James A. Cannavino
10.13+ -- Employment Agreement dated as of September 16, 1995 by
and between the Company and James A. Cannavino
10.14+ -- Promissory Note dated December 18, 1995 made by James A.
Cannavino in favor of the Company in the principal amount
of $1,400,000
10.15+ -- Promissory Note dated January 1, 1996 made by James A.
Cannavino in favor of the Company in the principal amount
of $1,500,000
10.16+ -- Pledge Agreement made as of December 18, 1995 by James A.
Cannavino in favor of the Company
10.17+ -- Modification Agreement dated as of March 7, 1997 between
the Company and James A. Cannavino
10.18+ -- Deed of Trust dated April 15, 1997 made by James A.
Cannavino in favor of the Company
10.19+ -- Promissory Note dated April 14, 1997 made by James A.
Cannavino in favor of the Company
10.20+ -- Associate Agreement dated July 8, 1996 between the
Company and James Champy
</TABLE>

II-4
<PAGE> 108

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.21+ -- Restricted Stock Agreement dated July 8, 1996 between the
Company and James Champy
10.22+ -- Letter Agreement dated July 8, 1996 between James Champy
and the Company
10.23+ -- Promissory Note dated June 17, 1996 made by Guillermo G.
Marmol in favor of the Company
10.24+ -- Pledge Agreement dated June 17, 1996 made by Guillermo G.
Marmol in favor of the Company
10.25+ -- Agreement dated June 17, 1996 among the Company,
Guillermo G. Marmol, and NationsBank of Texas, N.A.
10.26+ -- Promissory Note dated June 17, 1996 made by Guillermo G.
Marmol in favor of NationsBank of Texas, N.A.
10.27+ -- Amended and Restated PSC Stock Option and Purchase
Agreement dated April 24, 1997 between Swiss Bank
Corporation and the Company (incorporated by reference to
Exhibit 10.30 to the Company's Form 10 dated April 30,
1997)
10.28+ -- Amended and Restated Master Operating Agreement dated
January 1, 1997 between Swiss Bank Corporation and the
Company (incorporated by reference to Exhibit 10.31 to
the Company's Form 10 dated April 30, 1997)
10.29+ -- Amended and Restated Agreement for EPI Operational
Management Services dated January 1, 1997 (incorporated
by reference to Exhibit 10.32 to the Company's Form 10
dated April 30, 1997)
10.30* -- Amendment to Amended and Restated Master Operating
Agreement dated June 28, 1998 between UBS AG and the
Company
10.31* -- Amendment to Amended and Restated Agreement for EPI
Operational Management Services dated June 28, 1998
between Swiss Bank Corporation and the Company
10.32* -- 1999 Employee Stock Purchase Plan
10.33* -- Form of Amended and Restated 1991 Stock Option Plan
10.34* -- Form of Amended Stock Option Agreement
10.35* -- Promissory Note dated July 31, 1998 made by the Company
in favor of NationsBank of Texas, N.A.
10.36* -- Promissory Note dated August 27, 1997 made by John E.
King in favor of the Company in the principal amount of
$250,000
10.37* -- Pledge Agreement dated August 27, 1997 made by John E.
King in favor of the Company
10.38+ -- Agreement dated August 26, 1996 among the Company, Donald
D. Drobny and NationsBank of Texas, N.A. (incorporated by
reference to exhibit 10.27 to the Company's Form 10 dated
April 30, 1997)
10.39+ -- Promissory Note dated August 26, 1996 made by Donald D.
Drobny in favor of NationsBank of Texas, N.A.
(incorporated by reference to exhibit 10.28 to the
Company's Form 10 dated April 30, 1997)
10.40* -- Agreement dated September 26, 1997 among the Company, Ken
Scott and NationsBank of Texas, N.A.
10.41* -- Promissory Note dated September 26, 1997 made by Ken
Scott in favor of NationsBank of Texas, N.A.
10.42* -- Promissory Note dated September 26, 1997 made by Ken
Scott in favor of the Company
</TABLE>

II-5
<PAGE> 109

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.1* -- Subsidiaries of the Company
23.1* -- Consent of Hughes & Luce, L.L.P. (included in Exhibit
5.1)
23.2** -- Consent of PricewaterhouseCoopers LLP
24.1* -- Power of Attorney (included in Part II to this
Registration Statement)
27.1* -- Financial Data Schedule for the Nine Month Period Ended
September 30, 1998
27.2* -- Financial Data Schedule for the Year Ended December 31,
1997
</TABLE>

- ---------------

* Previously filed.

** Filed herewith.

+ Incorporated by reference to the Company's Form 10 dated April 30, 1997 to
the exhibit of the same number except as otherwise indicated.

b. Financial Statement Schedules

Schedule II -- Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing certificates in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification by the registrant against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-6
<PAGE> 110

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on February 1, 1999.

PEROT SYSTEMS CORPORATION,
a Delaware corporation

By: /s/ TERRY ASHWILL
----------------------------------
Name: Terry Ashwill
Title: Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman, President, and Chief February 1, 1999
- ----------------------------------------------------- Executive Officer
Ross Perot

/s/ TERRY ASHWILL Vice President, Chief Financial February 1, 1999
- ----------------------------------------------------- Officer, and Principal
Terry Ashwill Accounting Officer

* Vice President and Director February 1, 1999
- -----------------------------------------------------
James Champy

* Director February 1, 1999
- -----------------------------------------------------
Steven Blasnik

* Director February 1, 1999
- -----------------------------------------------------
William K. Gayden

* Director February 1, 1999
- -----------------------------------------------------
Carl Hahn

* Director February 1, 1999
- -----------------------------------------------------
Ross Perot, Jr.

*By: /s/ TERRY ASHWILL February 1, 1999
------------------------------------------------
Terry Ashwill
Attorney-in-fact
</TABLE>

II-7
<PAGE> 111

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Perot Systems Corporation:

Our report on the consolidated financial statements of Perot Systems
Corporation and Subsidiaries is included herein. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedule of Perot Systems Corporation and Subsidiaries.

In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.

/s/ PRICEWATERHOUSECOOPERS LLP

Dallas, Texas
March 25, 1998

S-1
<PAGE> 112

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF DEDUCTIONS BALANCE AT END
PERIOD ADDITIONS (WRITE-OFFS) OF PERIOD
------------ --------- ------------ --------------
<S> <C> <C> <C> <C>

December 31, 1997.............................. $6,787 $1,167 $6,769 $1,185
December 31, 1996.............................. $1,352 $5,625 $ 190 $6,787
December 31, 1995.............................. $ 382 $1,068 $ 98 $1,352
</TABLE>

S-2
<PAGE> 113

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.22+ -- Letter Agreement dated July 8, 1996 between James Champy
and the Company
10.23+ -- Promissory Note dated June 17, 1996 made by Guillermo G.
Marmol in favor of the Company
10.24+ -- Pledge Agreement dated June 17, 1996 made by Guillermo G.
Marmol in favor of the Company
10.25+ -- Agreement dated June 17, 1996 among the Company,
Guillermo G. Marmol, and NationsBank of Texas, N.A.
10.26+ -- Promissory Note dated June 17, 1996 made by Guillermo G.
Marmol in favor of NationsBank of Texas, N.A.
10.27+ -- Amended and Restated PSC Stock Option and Purchase
Agreement dated April 24, 1997 between Swiss Bank
Corporation and the Company (incorporated by reference to
Exhibit 10.30 to the Company's Form 10 dated April 30,
1997)
10.28+ -- Amended and Restated Master Operating Agreement dated
January 1, 1997 between Swiss Bank Corporation and the
Company (incorporated by reference to Exhibit 10.31 to
the Company's Form 10 dated April 30, 1997)
10.29+ -- Amended and Restated Agreement for EPI Operational
Management Services dated January 1, 1997 (incorporated
by reference to Exhibit 10.32 to the Company's Form 10
dated April 30, 1997)
10.30* -- Amendment to Amended and Restated Master Operating
Agreement dated June 28, 1998 between UBS AG and the
Company
10.31* -- Amendment to Amended and Restated Agreement for EPI
Operational Management Services dated June 28, 1998
between Swiss Bank Corporation and the Company
10.32* -- 1999 Employee Stock Purchase Plan
10.33* -- Form of Amended and Restated 1991 Stock Option Plan
10.34* -- Form of Amended Stock Option Agreement
10.35* -- Promissory Note dated July 31, 1998 made by the Company
in favor of NationsBank of Texas, N.A.
10.36* -- Promissory Note dated August 27, 1997 made by John E.
King in favor of the Company in the principal amount of
$250,000
10.37* -- Pledge Agreement dated August 27, 1997 made by John E.
King in favor of the Company
10.38+ -- Agreement dated August 26, 1996 among the Company, Donald
D. Drobny and NationsBank of Texas, N.A. (incorporated by
reference to Exhibit 10.27 to the Company's Form 10 dated
April 30, 1997)
10.39+ -- Promissory Note dated August 26, 1996 made by Donald D.
Drobny in favor of NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.28 to the
Company's Form 10 dated April 30, 1997)
10.40* -- Agreement dated September 26, 1997 among the Company, Ken
Scott, and NationsBank of Texas, N.A.
10.41* -- Promissory Note dated September 26, 1997 made by Ken
Scott in favor of NationsBank of Texas, N.A.
10.42* -- Promissory Note dated September 26, 1997 made by Ken
Scott in favor of the Company
21.1* -- Subsidiaries of the Company
</TABLE>
<PAGE> 115

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.1* -- Consent of Hughes & Luce, L.L.P. (included in Exhibit
5.1)
23.2** -- Consent of PricewaterhouseCoopers LLP
24.1* -- Power of Attorney (included in Part II to this
Registration Statement)
27.1* -- Financial Data Schedule for the Nine Month Period Ended
September 30, 1998
27.2* -- Financial Data Schedule for the Year Ended December 31,
1997
</TABLE>

- ---------------

* Previously filed.

** Filed herewith.

+ Incorporated by reference to the Company's Form 10 dated April 30, 1997 to
the exhibit of the same number except as otherwise indicated.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Registration Statement on Form S-1 of
our reports dated December 18, 1998 (except for Note 18 as to which the date is
January 7, 1999), and March 25, 1998, on our audits of the consolidated
financial statements and financial statement schedule, respectively, of Perot
Systems Corporation and Subsidiaries. We also consent to the references to our
firm under the captions "Experts", "Summary Consolidated Financial Data" and
"Selected Consolidated Financial Data."

/s/ PRICEWATERHOUSECOOPERS LLP

Dallas, Texas

February 1, 1999