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Unisys Corporation

Unisys Way

Blue Bell, PA 19424-0001

 

 

April 16, 2009

 

Dear Fellow Stockholder:

 

It is my pleasure to invite you to the Unisys 2009 Annual Meeting of Stockholders. This year’s meeting will be held on Thursday, May 28, 2009, at the Philadelphia Marriott West, which is located at 111 Crawford Avenue in West Conshohocken, Pennsylvania. The meeting will begin at 9:30 a.m.

 

These are unprecedented times in the global economy and financial markets. While the economic slowdown and other factors impacted the company’s results in 2008, we are taking aggressive actions to enhance our profitability, cash flow, and competitiveness. Our plan involves focusing our resources and investments, clearly differentiating Unisys in our chosen markets, enhancing our services labor delivery model, and reducing overhead expense by simplifying our business structure. We are moving quickly to implement this plan, and we are firmly committed to showing clear, demonstrable progress in our results in 2009.

 

You may have noticed changes in the way we are providing proxy materials to our stockholders for this year’s annual meeting. This is because we have elected to provide access to our proxy materials over the Internet under the “notice and access” rules of the Securities and Exchange Commission. We believe these rules allow us to provide our stockholders with the information they need, while reducing our printing and mailing costs and helping to conserve natural resources. The Notice of Internet Availability of Proxy Materials that you received in the mail contains instructions on how to access this proxy statement and the 2008 annual report and vote online. The Notice also includes instructions on how you can request a paper copy of the annual meeting materials.

 

Your vote is important. Whether or not you plan to attend the annual meeting, I urge you to take a moment to vote on the items in this year’s proxy statement. Voting takes only a few minutes, and it will ensure that your shares are represented at the meeting.

 

I look forward to seeing you at the annual meeting, where you will hear about our results for 2008 and our priorities for 2009.

 

Sincerely,

 

J. Edward Coleman

Chairman and Chief Executive Officer

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

May 28, 2009

 

Unisys Corporation will hold its 2009 Annual Meeting of Stockholders at the Philadelphia Marriott West, 111 Crawford Avenue, West Conshohocken, Pennsylvania, on Thursday, May 28, 2009, at 9:30 a.m. to:

 

1. elect two directors;

 

2. ratify the selection of the Company’s independent registered public accounting firm for 2009;

 

3. approve an amendment to the Company’s Restated Certificate of Incorporation to (a) effect a reverse stock split of the Company’s common stock at a reverse split ratio of between 1-for-5 and 1-for-20, which ratio will be selected by the Board of Directors, and (b) decrease the number of authorized shares of the Company’s common stock on a basis proportional to the reverse split ratio approved by the Board of Directors; and

 

4. transact any other business properly brought before the meeting.

 

Only record holders of Unisys common stock at the close of business on March 31, 2009 will be entitled to vote at the annual meeting.

 

By Order of the Board of Directors,

 

Nancy Straus Sundheim

Senior Vice President, General Counsel

and Secretary

 

Blue Bell, Pennsylvania

April 16, 2009

 

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder
Meeting to be Held on May 28, 2009:

 

The Company’s proxy statement and annual report are available on our
website at www.unisys.com/go/proxy and www.unisys.com/go/annual.

 

 

 

TABLE OF CONTENTS

 

 

The Board of Directors of Unisys Corporation solicits your proxy for use at the 2009 Annual Meeting of Stockholders to be held on May 28, 2009 and at any adjournments. At the annual meeting, stockholders will be asked to elect two directors, to ratify the selection of the Company’s independent registered public accounting firm, to approve an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock and to decrease the number of authorized shares of common stock, and to transact any other business properly brought before the meeting.

 

The record date for the annual meeting is March 31, 2009. Only holders of record of Unisys common stock as of the close of business on the record date are entitled to vote at the meeting. On the record date, 370,314,728 shares of common stock were outstanding. The presence, in person or by proxy, of a majority of those shares will constitute a quorum at the meeting.

 

This proxy statement, the proxy/voting instruction card and the annual report of Unisys, including the financial statements for 2008, are being sent or given to stockholders on or about April 16, 2009.

 

Each share of Unisys common stock outstanding on the record date is entitled to one vote on each matter to be voted upon. Directors will be elected by the vote of a majority of the votes cast at the meeting. This means that a nominee will be elected if the number of votes cast “For” his or her election exceeds 50% of the total number of votes cast with respect to that nominee’s election. Votes cast with respect to the election of directors include votes to “Withhold” authority but do not include abstentions and broker non-votes.

 

The proposal to ratify the selection of the Company’s independent registered public accounting firm will be approved if it receives the affirmative vote of a majority of shares present, in person or by proxy, and entitled to vote on the matter. Abstentions will be included in the vote total for this matter and therefore will have the same effect as a negative vote; broker non-votes will not be included in the vote total and therefore will have no effect on the vote.

 

The proposal to amend the Company’s Restated Certificate of Incorporation to effect the reverse stock split and decrease the number of authorized shares of common stock requires the affirmative vote of a majority of the outstanding shares of common stock entitled to vote. Any shares not voted (whether by abstention, broker non-vote or otherwise) will have the same effect as a vote “Against” the proposal.

 

Pursuant to the “notice and access” rules adopted by the Securities and Exchange Commission (the “SEC”), the Company has elected to provide stockholders access to its proxy materials over the Internet. Accordingly, the Company sent a Notice of Internet Availability of Proxy Materials (the “Notice”) to most stockholders (other than those who previously requested electronic or paper delivery of proxy materials). The Notice includes instructions on how to access the proxy materials over the Internet and how to request a printed copy of these materials. In addition, by

following the instructions in the Notice, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

 

Choosing to receive your future proxy materials by email will save the Company the cost of printing and mailing documents to you and will reduce the impact of the Company’s annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it.

 

Your vote is important. Shares may be voted at the annual meeting only if you are present in person or represented by proxy. You can vote by proxy over the Internet by following the instructions provided in the Notice, or, if you request printed copies of the proxy materials by mail, you can also vote by mail or by telephone by following the instructions provided on the proxy/voting instruction card. If you have previously elected to receive proxy materials over the Internet, you should have already received e-mail instructions on how to vote electronically.

 

You may revoke your proxy at any time before it is exercised by writing to the Corporate Secretary of Unisys, by timely delivery of a properly executed later-dated proxy (including an Internet or telephone vote) or by voting in person at the meeting.

 

The method by which you vote will in no way limit your right to vote at the meeting if you later decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the meeting.

 

If you properly complete and return your proxy, and do not revoke it, the proxy holders will vote your shares in accordance with your instructions. If your properly completed proxy gives no instructions, the proxy holders will vote your shares FOR the election of directors, FOR the selection of independent registered public accountants, FOR the proposal to amend the Company’s Restated Certificate of Incorporation to effect the reverse stock split and decrease the number of authorized shares of common stock and in their discretion on any other matters that properly come before the annual meeting.

 

If you are a participant in the Unisys Savings Plan, the proxy/voting instruction card will serve as voting instructions to the plan trustee for shares of Unisys common stock credited to your account as of March 31, 2009. The trustee will vote those shares in accordance with your instructions if it receives your completed proxy by May 26, 2009. If the proxy is not timely received, or if you give no instructions on a matter to be voted upon, the trustee will vote the shares credited to your account in the same proportion as it votes those shares for which it received timely instructions from other participants.

 

The Board of Directors currently consists of 13 members, divided into three classes. One class of directors is elected each year to hold office for a three-year term. Two of the four directors whose terms expire in 2009, J. Edward Coleman and Leslie F. Kenne, have been nominated for reelection. Craig A. Conway has decided not to stand for reelection, and Edwin A. Huston will retire from the Board of Directors at the annual meeting because he has attained the mandatory retirement age of 70. The remaining nine directors will continue to serve as set forth below, and the Board will then consist of 11 members. Each of the nominees has agreed to serve as a director if elected, and Unisys believes that each nominee will be available to serve. However, the proxy holders have discretionary authority to cast votes for the election of a substitute should any nominee not be available to serve as a director.

 

The Board of Directors recommends a vote “FOR” all nominees.

 

The names and ages of the nominees and directors, their principal occupations and employment during the past five years, and other information regarding them are as follows.

 

Nominees for Election to the Board of Directors

 

 

Members of the Board Continuing in Office
Term Expiring in 2010

 

Members of the Board Continuing in Office
Term Expiring in 2011

 

 

The Board of Directors held 14 meetings in 2008. During 2008, all directors other than Mr. Espe attended at least 75% of the meetings of the Board of Directors and standing committees on which they served.

 

It is the Company’s policy that all directors should attend the annual meeting of stockholders. All of the Company’s directors at the time of the 2008 annual meeting attended that meeting except Mr. Espe.

 

All of the Company’s directors other than Mr. Coleman meet the independence requirements prescribed by the New York Stock Exchange (“NYSE”) and, in the case of members of the Audit Committee, also meet the audit committee independence requirements prescribed by the SEC. In assessing whether a director has a material relationship with Unisys (either directly or as a partner, stockholder or officer of an organization that has a relationship with Unisys), the Board uses the criteria outlined below in paragraph 2 of “Corporate Governance Guidelines”. All non-employee directors met these criteria in 2008. In particular, two of the Company’s non-employee directors, Mr. Espe and Mr. Jones, served as chief executive officer of a company that does business with Unisys in the ordinary course. In each instance, combined Unisys sales to and purchases from the director’s company in 2008 represented less than one percent of that company’s annual revenue. In addition, two of the Company’s non-employee directors, Mr. Bolduc and Mr. Espe, served as

directors of organizations to which the Company made charitable contributions in 2008. In each instance, the amounts contributed by Unisys to the charitable organization represented less than one percent of the organization’s annual charitable receipts.

 

The Board of Directors has a standing Audit Committee, Compensation Committee, Finance Committee and Nominating and Corporate Governance Committee. The specific functions and responsibilities of each committee are set forth in its charter, which is available on the Company’s Internet web site at www.unisys.com in the Investors section under Corporate Governance and Board of Directors and is also available in print to any stockholder who requests it.

 

Audit Committee

 

The Audit Committee assists the Board in its oversight of the integrity of the Company’s financial statements and its financial reporting and disclosure practices, the soundness of its systems of internal financial and accounting controls, the independence and qualifications of its independent registered public accounting firm, the performance of its internal auditors and independent registered public accounting firm, the Company’s compliance with legal and regulatory requirements and the soundness of its ethical and environmental compliance programs. The Audit Committee held 10 meetings in 2008. Its members are Mr. Espe, Ms. Fletcher, Mr. Huston (chair) and Ms. Kenne. For 2008, the Board determined that each of Mr. Espe, Ms. Fletcher and Mr. Huston was an audit committee financial expert as defined by the SEC. Mr. Huston will be retiring from the Board at the 2009 annual meeting, and the Board has determined that the audit committee financial experts will then be Mr. Espe and Ms. Fletcher.

 

Compensation Committee

 

The Compensation Committee oversees the compensation of the Company’s executives, the Company’s executive management structure, the compensation-related policies and programs involving the Company’s executive management and the level of benefits of officers and key employees. In this capacity, the committee regularly reviews and approves the Company’s executive compensation strategy and principles to ensure that they are aligned with the Company’s business strategy and objectives and with stockholder interests. Under its charter, the Compensation Committee annually reviews and approves goals and objectives relevant to the compensation of the chief executive officer, evaluates the performance of the chief executive officer in light of those goals and makes recommendations to the independent members of the Board concerning the compensation level of the chief executive officer. The committee also annually reviews and approves compensation levels of the other elected officers. In this regard, the committee solicits input from the Company’s chief executive officer regarding the compensation of those executives who report directly to him. The Compensation Committee also reviews and recommends to the Board the adoption of director compensation programs. The Company’s guidelines regarding the compensation of directors are described more fully in paragraph 11 of “Corporate Governance Guidelines” below. As is discussed more fully below in “Compensation Discussion and Analysis”, the Compensation Committee regularly receives reports and recommendations from management and from the committee’s outside compensation consultant to assist it in carrying out its responsibilities. Under its charter, the committee also may consult with legal, accounting or other advisors, as appropriate, and may form and delegate authority to subcommittees when appropriate. The Compensation Committee held seven meetings in 2008. Its members are Dr. Duderstadt, Mr. Jones, Mr. Martin (chair) and Mr. McQuade.

Finance Committee

 

The Finance Committee oversees the Company’s financial affairs, including its capital structure, financial arrangements, capital spending and acquisition and disposition plans. It also oversees the management and investment of funds in the pension, savings and welfare benefit plans sponsored by the Company. The Finance Committee held six meetings in 2008. Its members are Mr. Bolduc (chair), Mr. Espe, Mr. Lifflander, Mr. Jones and Mr. McQuade.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee identifies and reviews candidates and recommends to the Board of Directors nominees for membership on the Board of Directors. It also oversees the Company’s corporate governance. The Nominating and Corporate Governance Committee held five meetings in 2008. Its members are Mr. Conway, Dr. Duderstadt (chair), Ms. Fletcher and Mr. Lifflander.

 

As part of the nomination process, the Nominating and Corporate Governance Committee is responsible for determining the appropriate skills and characteristics required of new Board members in the context of the current make-up of the Board and for identifying qualified candidates for Board membership. In so doing, the Nominating and Corporate Governance Committee considers a number of factors including independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a present need on the Board.

 

The Nominating and Corporate Governance Committee also reviews recommendations for Board membership received from stockholders and other qualified sources. Recommendations on director candidates must be in writing and addressed to the Chairman of the Nominating and Corporate Governance Committee, c/o Corporate Secretary, Unisys Corporation, Unisys Way, Blue Bell, Pennsylvania 19424.

 

See “Related Party Transactions” below for a description of the agreement, dated May 20, 2008, between the Company, MMI Investments, L.P., MCM Capital Management, LLC, Clay B. Lifflander and Charles B. McQuade pursuant to which Mr. Lifflander and Mr. McQuade were appointed to the Board of Directors.

 

Stockholders and other interested parties may send communications to the Board of Directors or to the non-management directors as a group by writing to them c/o Corporate Secretary, Unisys Corporation, Unisys Way, Blue Bell, Pennsylvania 19424. All communications directed to Board members will be delivered to them.

 

Unisys has a code of ethics, the Unisys Code of Ethics and Business Conduct, that applies to all employees, officers (including the chief executive officer, chief financial officer and principal accounting officer or controller) and directors. The code is posted on the Company’s Internet web site at www.unisys.com in the Investors section under Corporate Governance and Board of Directors and is also available in print to any stockholder who requests it. The Company intends to post amendments to or waivers from the code (to the extent applicable to the

Company’s chief executive officer, chief financial officer or principal accounting officer or controller) at this location on its web site.

 

The Board of Directors has adopted Guidelines on Significant Corporate Governance Issues. The full text of these guidelines is available on the Company’s Internet web site at www.unisys.com in the Investors section under Corporate Governance and Board of Directors and is also available in print to any stockholder who requests it. Among other matters, the guidelines cover the following:

 

1. A majority of the Board of Directors shall qualify as independent under the listing standards of the New York Stock Exchange.

 

2. The Nominating and Corporate Governance Committee reviews annually with the Board the independence of outside directors. Following this review, only those directors who meet the independence qualifications prescribed by the New York Stock Exchange and who the Board affirmatively determines have no material relationship with the Company will be considered independent. The Board has determined that the following commercial or charitable relationships will not be considered to be material relationships that would impair independence: (a) if a director is an executive officer or partner of, or owns more than a ten percent equity interest in, a company that does business with Unisys, and sales to or purchases from Unisys are less than one percent of the annual revenues of that company and (b) if a director is an officer, director or trustee of a charitable organization, and Unisys contributions to that organization are less than one percent of its annual charitable receipts.

 

3. The Nominating and Corporate Governance Committee is responsible for determining the appropriate skills and characteristics required of Board members in the context of its current make-up, and will consider factors such as independence, experience, strength of character, mature judgment, technical skills, diversity and age in its assessment of the needs of the Board.

 

4. If the Chairman of the Board is not an employee of the Company, the Chairman should qualify as independent under the listing standards of the New York Stock Exchange. Members of the Audit, Compensation, and Nominating and Corporate Governance Committees must also so qualify.

 

5. It is the sense of the Board that the Company’s by-law provision that no person shall be elected a director after attaining age 70 is appropriate, and accordingly, no director should serve beyond the annual stockholders’ meeting following the attainment of age 70.

 

6. Directors should volunteer to resign from the Board upon a change in primary job responsibility. The Nominating and Corporate Governance Committee will review the appropriateness of continued Board membership under the circumstances and will recommend, and the Board will determine, whether or not to accept the director’s resignation. In addition, if the Company’s chief executive officer resigns from that position, he is expected to offer his resignation from the Board at the same time.

 

7. Non-management directors are encouraged to limit the number of public company boards on which they serve to no more than four in addition to the Company’s and should advise the Chairman of the Board and the general counsel of the Company before accepting an invitation to serve on another board.

 

8. The non-management directors will meet in executive session at all regularly scheduled Board meetings. They may also meet in executive session at any time upon

request. If the Chairman of the Board is an employee of the Company, the Board will elect from the independent directors a lead director who will preside at executive sessions. If the Chairman is not an employee, the Chairman will preside at executive sessions.

 

9. Board members have complete access to Unisys management. Members of senior management who are not Board members regularly attend Board meetings, and the Board encourages senior management, from time to time, to bring into Board meetings other managers who can provide additional insights into the matters under discussion.

 

10. The Board and its committees have the right at any time to retain independent outside financial, legal or other advisors.

 

11. It is appropriate for the Company’s staff to report once a year to the Compensation Committee on the status of Board compensation in relation to other large U.S. companies. Changes in Board compensation, if any, should come at the suggestion of the Compensation Committee, but with full discussion and concurrence by the Board. Particular attention will be paid to structuring Board compensation in a manner aligned with stockholder interests. In this regard, a meaningful portion of a director’s compensation should be provided and held in stock options and/or stock units. Directors should not, except in rare circumstances approved by the Board, draw any consulting, legal or other fees from the Company. In no event shall any member of the Audit Committee receive any compensation from the Company other than directors’ fees.

 

12. The Company will provide an orientation program for new directors. The Company will also provide directors with presentations from time to time on topics designed by the Company or third-party experts to assist directors in carrying out their responsibilities. Directors may also attend appropriate continuing education programs at the Company’s expense.

 

13. The Board will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively.

 

14. The non-management directors will evaluate the performance of the chief executive officer annually and will meet in executive session, led by the chairperson of the Compensation Committee, to review this performance. The evaluation is based on objective criteria, including performance of the business, accomplishment of long-term strategic objectives and development of management. Based on this evaluation, the Compensation Committee will recommend, and the members of the Board who meet the independence criteria of the New York Stock Exchange will determine and approve, the compensation of the chief executive officer.

 

15. To assist the Board in its planning for the succession to the position of chief executive officer, the chief executive officer is expected to provide an annual report on succession planning to the Compensation Committee.

 

16. The Company’s stockholder rights plan expired on March 17, 2006, and it has no present intention to adopt a new one. Subject to its continuing fiduciary duties, which may dictate otherwise depending on the circumstances, the Board shall submit the adoption of any future stockholder rights plan to a vote of the stockholders. Any stockholder rights plan adopted or extended without stockholder approval shall be approved by a majority of the independent members of the Board and shall be in response to specific, articulable circumstances that are deemed to warrant such action without the delay that might result from seeking prior stockholder approval. If the Board adopts or extends a rights plan without

prior stockholder approval, the Board shall, within one year, either submit the plan to a vote of the stockholders or redeem the plan or cause it to expire.

 

The Company is required to disclose any transactions since the beginning of 2008 (or any currently proposed transaction) in which the Company was a participant, the amount involved exceeds $120,000 and a director or executive officer, any immediate family member of a director or executive officer or any person or group beneficially owning more than 5% of the Company’s common stock had a direct or indirect material interest.

 

On May 20, 2008, the Company entered into an agreement with MMI Investments, L.P. (“MMI”), MCM Capital Management, LLC, Clay B. Lifflander and Charles B. McQuade (collectively, the “MMI Group”) pursuant to which Mr. Lifflander and Mr. McQuade were appointed to the Board of Directors, to serve in the respective class of directors set forth above. Pursuant to the agreement, Mr. McQuade was appointed to the Compensation Committee and the Finance Committee, and Mr. Lifflander was appointed to the Nominating and Corporate Governance Committee and the Finance Committee, in each case, immediately following the 2008 annual meeting of stockholders. Under the terms of the agreement, the Company agreed to reimburse the MMI Group’s reasonable, documented out-of-pocket fees and expenses incurred in connection with the negotiation and execution of the agreement and other matters related to the 2008 annual meeting in an amount up to $125,000. The Company was informed that this amount included a $50,000 payment made by MMI to Mr. McQuade for agreeing to serve on the Board as MMI’s nominee. See “Security Ownership by Certain Beneficial Owners and Management” below for the beneficial ownership of Unisys common stock reported by MMI Investments, L.P., MCM Capital Management, LLC and Mr. Lifflander.

 

During 2008, the law firm Pepper Hamilton LLP, which has represented Unisys on a variety of matters for more than 20 years, provided legal services to Unisys for fees of approximately $800,000. The husband of Nancy Straus Sundheim is a partner in that firm. Ms. Sundheim has been Senior Vice President, General Counsel and Secretary of Unisys since 2001. Since that date, at the request of Mr. Sundheim, Pepper Hamilton has excluded from Mr. Sundheim’s annual compensation any income attributable to Unisys matters. Also, since 2001, it has been the Company’s practice that any decision to retain Pepper Hamilton is made by the chief executive officer, in consultation with the Unisys attorney responsible for the matter. Ms. Sundheim has no input in the decision to retain the firm.

 

Currently the Company has not adopted a policy specifically directed at the review, approval or ratification of related party transactions required to be disclosed. However, under the Unisys Code of Ethics and Business Conduct, all employees, officers and directors are required to avoid conflicts of interest. Employees (including officers) must review with, and obtain the approval of, their immediate supervisor and the Company’s Corporate Ethics Office, any situation (without regard to dollar amount) that may involve a conflict of interest. Directors should raise possible conflicts of interest with the chief executive officer or the general counsel. The code of ethics defines a conflict of interest as any relationship, arrangement, investment or situation in which loyalties are divided between Unisys interests and personal interests and specifically notes involvement (either personally or through a family member) in a business that is a competitor, supplier or customer of the Company as a particularly sensitive area that requires careful review.

 

In performing its oversight responsibilities as defined in its charter, the Audit Committee has reviewed and discussed the audited financial statements and reporting process, including the system of internal controls, with management and with KPMG LLP, the Company’s independent registered public accounting firm for the year ended December 31, 2008. The committee has also discussed with KPMG LLP the matters required to be discussed by the statement on Auditing Standards No. 61, as amended, (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the committee has received from KPMG LLP the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLP’s communications with the committee concerning independence and has discussed with KPMG LLP their independence. The committee has also considered the compatibility of audit-related services, tax services and other non-audit services with the firm’s independence.

 

Based on these reviews and discussions, the committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2008 for filing with the SEC.

 

Audit Committee

 

Matthew J. Espe
Denise K. Fletcher
Edwin A. Huston
Leslie F. Kenne

 

KPMG LLP was the Company’s independent registered public accounting firm for the year ended December 31, 2008, and Ernst & Young LLP was the Company’s independent registered public accounting firm for the year ended December 31, 2007. Fees for KPMG LLP and Ernst & Young LLP for professional services rendered in respect of 2008 and 2007 (in millions of dollars), respectively, are as follows:

 

 

Audit fees consist of fees for the audit and review of the Company’s financial statements, statutory audits, comfort letters, consents, assistance with and review of documents filed with the SEC and Section 404 attestation procedures. Audit-related fees consist of fees for employee benefit plan audits, accounting advice regarding specific transactions and various attestation engagements. Tax fees principally represent fees for tax compliance services.

 

The Audit Committee annually reviews and pre-approves the services that may be provided by the independent registered public accounting firm. The committee has also adopted an Audit and Non-Audit Services Pre-Approval Policy that contains a list of pre-approved services, which the committee may revise from time to time. In addition, the Audit Committee has delegated pre-approval authority, up to a fee limitation of $150,000 per service, to the chairman of the committee.

The chairman of the committee reports any such pre-approval decision to the Audit Committee at its next scheduled meeting.

 

 

As stated above, Ernst & Young LLP was the Company’s independent registered public accounting firm for the year ended December 31, 2007. On March 14, 2008, the Audit Committee dismissed Ernst & Young LLP, and on March 19, 2008, the Audit Committee engaged KPMG LLP as the independent registered public accounting firm to audit the Company’s financial statements for the year ended December 31, 2008.

 

The audit report of Ernst & Young LLP on the consolidated financial statements of the Company for the year ended December 31, 2007 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the year ended December 31, 2007 and from January 1, 2008 through March 14, 2008, there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Ernst & Young LLP’s satisfaction, would have caused Ernst & Young LLP to make reference to the subject matter of such disagreements in connection with its report on the financial statements for such period.

 

During the year ended December 31, 2007 and from January 1, 2008 through March 14, 2008, there were no reportable events (as defined in Regulation S-K Item 304 (a)(1)(v)), except that as of December 31, 2007, the Company’s internal control over financial reporting was not effective due to the existence of a material weakness as more fully described in Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The Company concluded that a material weakness in internal control over financial reporting existed related to its control environment because the Company did not have a sufficient number of personnel with an appropriate level of U.S. GAAP knowledge and experience commensurate with its financial reporting requirements. The Company authorized Ernst & Young LLP to respond fully to inquiries of KPMG LLP concerning the material weakness. The Company remediated the material weakness during the fourth quarter of 2008.

 

During the year ended December 31, 2007 and in the subsequent interim period prior to the Company’s engagement of KPMG LLP, neither the Company nor anyone on its behalf consulted KPMG LLP regarding the application of accounting principles to a specified transaction (completed or proposed), the type of audit opinion that might be rendered on the Company’s financial statements, any matter being the subject of disagreement or “reportable event” or any other matter as defined in Regulation S-K, Item 304 (a)(1)(iv) or (a)(1)(v).

 

The Audit Committee has engaged the firm of KPMG LLP as the independent registered public accounting firm to audit the Company’s financial statements for the year ending December 31, 2009. As stated above, KPMG LLP was the Company’s independent registered public accounting firm for the year ended December 31, 2008. The Company expects that representatives of KPMG LLP will be present at the annual meeting and will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions asked by stockholders. The Board of

Directors considers KPMG LLP to be well qualified to serve as the independent registered public accounting firm for Unisys and recommends a vote for the proposal to ratify their selection.

 

The Board of Directors recommends a vote “FOR” the proposal to ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm for 2009.

 

The Company’s Board of Directors has unanimously adopted and is submitting for stockholder approval an amendment to the Company’s Restated Certificate of Incorporation to (1) effect a reverse stock split at a reverse split ratio of between 1-for-5 and 1-for-20, which ratio will be selected by the Board of Directors following stockholder approval and prior to the time of filing of a Certificate of Amendment with the Delaware Secretary of State, and (2) decrease the total number of authorized shares of the Company’s common stock on a basis proportional to the reverse split ratio approved by the Board of Directors. Pursuant to the law of Delaware, the Company’s state of incorporation, the Board of Directors must adopt any amendment to the Company’s Restated Certificate of Incorporation and submit the amendment to stockholders for their approval. The form of the proposed amendment to the Company’s Restated Certificate of Incorporation to effect the reverse stock split is attached to this Proxy Statement as Annex A.

 

The Board, in its discretion, may elect, at any time prior to next year’s annual meeting of stockholders, to effect any reverse split ratio within the range set forth above upon receipt of stockholder approval, or none of them if the Board determines in its discretion not to proceed with the reverse stock split. The Company believes that the availability of a range of reverse split ratios will provide it with the flexibility to implement the reverse stock split in a manner designed to maximize the anticipated benefits for the Company and its stockholders. In determining which reverse stock split ratio to implement, if any, following the receipt of stockholder approval, the Board of Directors may consider, among other things, factors such as:

 

 

The Board of Directors believes that stockholders should authorize the reverse split for the following reasons:

 

 

 

The Board of Directors believes that the potential advantages of a reverse stock split significantly outweigh any disadvantages that may result. The following are possible disadvantages of a reverse stock split:

 

The reverse stock split may not increase the price of the Company’s common stock.  Although the Board of Directors expects that a reverse stock split will result in an increase in the price of the Company’s common stock, the effect of a reverse stock split cannot be predicted with certainty. Other factors, such as the Company’s financial results, market conditions and the market perception of the Company’s business may adversely affect the stock price. As a result, there can be no assurance that the reverse stock split, if completed, will result in the intended benefits described above, that the stock price will increase following the reverse stock split or that the stock price will not decrease in the future.

 

The reverse stock split may decrease the trading market for the Company’s common stock.  Because the reverse stock split will reduce the number of shares of common stock available in the public market, the trading market for the Company’s common stock may be harmed, particularly if the stock price does not increase as a result of the reverse stock split.

 

The reverse stock split may leave certain stockholders with “odd lots”.  The reverse stock split may result in some stockholders owning “odd lots” of fewer than 100 shares of the common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.

 

If the reverse stock split is approved and implemented, the principal effects will be to decrease the number of outstanding shares of the Company’s common stock based on the reverse stock split ratio selected by the Board of Directors and to proportionately decrease the number of authorized shares of the common stock. As of December 31, 2008, approximately 370 million shares of common stock were issued and outstanding. Based on this number of shares issued and outstanding and, for illustrative purposes only, assuming a reverse split ratio of 1-for-10, the Company would have approximately 37 million shares outstanding immediately following the completion of the reverse stock split (without giving effect to the treatment of fractional shares discussed below).

 

The reverse stock split will not affect the registration of the common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or the listing of the common stock on the NYSE. Following the reverse stock split, the common stock will continue to be listed on the NYSE under the symbol “UIS”, although it will be considered a new listing with a new CUSIP number.

 

Proportionate voting rights and other rights of the holders of the common stock will not be affected by the reverse stock split, other than as a result of the treatment of fractional shares as described below. Except for stockholders who are cashed out as a result of holding fractional shares and the adjustments that may result from the treatment of fractional shares discussed below, the number of stockholders of record will not be affected by the reverse stock split and each stockholder will hold the same percentage of common stock immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split.

 

The reverse stock split, if approved by stockholders, would become effective upon the filing and effectiveness (the “Effective Time”) of a Certificate of Amendment to the Company’s Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. It is expected that this filing will take place promptly following the annual meeting, assuming the stockholders approve the amendment. However, the exact timing of the filing of the amendment will be determined by the Board of Directors based on its evaluation as to when such action will be the most advantageous to the Company and its stockholders. If the Board fails to implement the reverse stock split by next year’s annual meeting, stockholder approval would be required again prior to implementing any reverse stock split. In addition, the Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the reverse stock split if, at any time prior to filing the Certificate of Amendment, the Board, in its sole discretion, determines that it is no longer in the Company’s best interests and the best interests of its stockholders to proceed with the reverse stock split.

 

As shown on the table on page 22, as of December 31, 2008, approximately 42 million shares were issuable upon the exercise of outstanding stock options and upon the vesting of outstanding restricted stock units, and approximately 24.5 million additional shares were reserved and available for issuance pursuant to future awards under the Company’s stock incentive plans. Under these plans, the number of shares reserved and available for issuance and the number, exercise price, grant price or purchase price of shares subject to outstanding awards will be proportionately adjusted based on the reverse split ratio selected by the Board of Directors if the reverse stock split

is effected. As a result, using the above data as of December 31, 2008 and assuming for illustrative purposes only that a 1-for-10 reverse stock split is effected, the number of shares issuable upon exercise or vesting of outstanding awards would be adjusted from 42 million to 4.2 million, and the 24.5 million shares that were available for future issuance under the stock plans would be adjusted to 2.45 million shares (subject to increase as and when awards made under the stock plans expire or are forfeited and are returned in accordance with the terms of the plans). For individual holders, the number of shares subject to outstanding awards would be reduced by a factor of 10 and, in the case of outstanding stock options, the exercise price per share would be increased by a multiple of 10, such that upon an exercise, the aggregate exercise price payable by the optionee to the Company would remain the same. For example, an outstanding stock option for 5,000 shares of common stock, exercisable at $1.00 per share, would be adjusted as a result of a 1-for-10 split ratio into an option exercisable for 500 shares of common stock at an exercise price of $10.00 per share.

 

Currently, the Company is authorized to issue up to a total of 760,000,000 shares, comprising 720,000,000 shares of common stock and 40,000,000 shares of preferred stock. Concurrently with the reverse stock split, the Company intends to decrease its authorized shares of common stock by the same ratio as the reverse stock split (rounded to the nearest whole number). For example, assuming for illustrative purposes only a 1-for-10 reverse stock split, the number of authorized shares of common stock would be decreased to 72 million. The number of authorized shares of preferred stock will not change.

 

The Company does not currently intend to issue fractional shares in connection with the reverse stock split. Stockholders who would otherwise hold fractional shares because the number of shares of common stock they hold before the reverse stock split is not evenly divisible by the split ratio ultimately selected by the Board of Directors will receive cash (without interest) in lieu of such fractional shares in an amount equal to the proceeds attributable to the sale of such fractional shares following the aggregation and sale by the Company’s transfer agent of all fractional shares otherwise issuable. Stockholders who own their shares in certificate form will receive such cash payment in lieu of fractional shares following the surrender of their pre-split certificates for post-split shares. The ownership of a fractional share interest will not give the holder any voting, dividend or other rights, except to receive the above-described cash payment. Unisys will be responsible for any brokerage fees or commissions related to the transfer agent’s selling in the open market shares that would otherwise be fractional shares.

 

Stockholders should be aware that, under the escheat laws of various jurisdictions, sums due for fractional interests that are not timely claimed after the Effective Time may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by the Company or the transfer agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, if applicable, stockholders otherwise entitled to receive such funds, but who do not receive them, will have to seek to obtain such funds directly from the state to which they were paid.

 

The proposed amendments to the Company’s Restated Certificate of Incorporation will not affect the par value of the common stock, which will remain at $.01 per share.

 

As a result of the reverse stock split, upon the Effective Time, the stated capital on the Company’s balance sheet attributable to the common stock, which consists of the par value per share of the common stock multiplied by the aggregate number of shares of the common stock issued and outstanding, will be reduced in proportion to the size of the reverse stock split. Correspondingly, the Company’s additional paid-in capital account, which consists of the difference between the Company’s stated capital and the aggregate amount paid to the Company upon issuance of all currently outstanding shares of the common stock, will be credited with the amount by which the stated capital is reduced. The Company’s stockholders’ equity, in the aggregate, will remain unchanged.

 

Notwithstanding the decrease in the number of outstanding shares following the proposed reverse stock split, the Board of Directors does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.

 

If the reverse stock split is effected, the Company intends to treat beneficial holders (i.e., stockholders who hold their shares in “street name” through a bank, broker or other nominee) in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the reverse stock split for their beneficial holders holding shares in “street name”. However, these banks, brokers or other nominees may have their own procedures for processing the reverse stock split. Stockholders who hold shares with a bank, broker or other nominee and have questions in this regard are encouraged to contact their bank, broker or other nominee.

 

The Company’s registered stockholders may hold some or all of their shares electronically in book-entry form under the direct registration system for securities. These stockholders will not have stock certificates evidencing their ownership of the Company’s common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.

 

 

Some registered stockholders hold their shares of Unisys common stock in certificate form or a combination of certificate and book-entry form. If any of your shares are held in certificate form, you will receive a transmittal letter from the Company’s transfer agent as soon as practicable after the effective date of the reverse stock split. The transmittal letter will contain instructions on how to

surrender your certificate(s) representing your pre-split shares to the transfer agent. Upon receipt of your properly completed and executed letter of transmittal and your stock certificate(s), you will be issued the appropriate number of shares electronically in book-entry form under the direct registration system. This means that, instead of receiving a new stock certificate, you will receive a direct registration statement that indicates the number of post-split shares you own in book-entry form. At any time after receipt of your direct registration statement, you may request a stock certificate representing your post-split ownership interest. If you are entitled to a payment in lieu of any fractional share interest, payment will be made as described above under “Fractional Shares”.

 

No new shares in book-entry form will be issued and no payment in lieu of any fractional share interest will be made to you until you surrender your outstanding certificate(s), together with the properly completed and executed letter of transmittal, to the transfer agent.

 

YOU SHOULD NOT SEND YOUR CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER YOU RECEIVE THE LETTER OF TRANSMITTAL FROM THE TRANSFER AGENT.

 

Under the Delaware General Corporation Law, the Company’s stockholders are not entitled to dissenter’s rights or appraisal rights with respect to the reverse stock split described in this proposal.

 

The following is a general summary of certain U.S. federal income tax consequences of the reverse stock split that may be relevant to stockholders. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), Treasury regulations promulgated thereunder, published administrative rulings and judicial decisions as of the date hereof, all of which may change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that may differ from those discussed below. This summary does not purport to be complete and does not address all aspects of federal income taxation that may be relevant to stockholders in light of their particular circumstances or to stockholders that may be subject to special tax rules, including, without limitation: (i) stockholders subject to the alternative minimum tax; (ii) banks, insurance companies, or other financial institutions; (iii) tax-exempt organizations; (iv) dealers in securities or commodities; (v) regulated investment companies or real estate investment trusts; (vi) partnerships (or other flow-through entities for U.S. federal income tax purposes and their partners or members); (vii) traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; (viii) foreign stockholders or U.S. stockholders whose “functional currency” is not the U.S. dollar; (ix) persons holding the common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction; (x) persons who acquire shares of the common stock in connection with employment or other performance of services; (xi) dealers and other stockholders that do not own their shares of common stock as capital assets; or (xii) U.S. expatriates. In addition, this summary does not address the tax consequences arising under the laws of any foreign, state or local jurisdiction and U.S. federal tax consequences other than federal income taxation. If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of the common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership.

 

The Company has not sought, and will not seek, an opinion of counsel or a ruling from the Internal Revenue Service (“IRS”) regarding the United States federal income tax consequences of

the reverse stock split and there can be no assurance the IRS will not challenge the statements and conclusions set forth below or that a court would not sustain any such challenge. EACH STOCKHOLDER SHOULD CONSULT SUCH HOLDER’S TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH STOCKHOLDER.

 

The reverse stock split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a stockholder generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of the common stock, as discussed below. A stockholder’s aggregate tax basis in the shares of the common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of the common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of the common stock), and such stockholder’s holding period (i.e., acquired date) in the shares of the common stock received should include the holding period in the shares of the common stock surrendered. Treasury regulations promulgated under the Internal Revenue Code provide detailed rules for allocating the tax basis and holding period of the shares of the common stock surrendered to the shares of the common stock received pursuant to the reverse stock split. Stockholders who acquired their shares of common stock on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

 

A stockholder who receives cash in lieu of a fractional share of the common stock pursuant to the reverse stock split generally should recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the holder’s tax basis in the shares of the common stock surrendered that is allocated to such fractional share of the common stock. Such capital gain or loss should be long term capital gain or loss if the holder’s holding period for the common stock surrendered exceeded one year at the Effective Time.

 

Information Reporting and Backup Withholding.  Information returns generally will be required to be filed with the IRS with respect to the receipt of cash in lieu of a fractional share of the common stock pursuant to the reverse stock split. In addition, stockholders may be subject to a backup withholding tax (at the current applicable rate of 28%) on the payment of such cash if they do not provide their taxpayer identification numbers in the manner required or otherwise fail to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the stockholder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL TO AMEND THE COMPANY’S RESTATED CERTIFICATE OF INCORPORATION TO (1) EFFECT A REVERSE STOCK SPLIT AT A REVERSE SPLIT RATIO OF BETWEEN 1-FOR-5 AND 1-FOR-20, WHICH RATIO WILL BE SELECTED BY THE BOARD OF DIRECTORS PRIOR TO THE TIME OF FILING OF A CERTIFICATE OF AMENDMENT WITH THE DELAWARE SECRETARY OF STATE, AND (2) DECREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.

 

The following table sets forth information as of December 31, 2008 with respect to compensation plans under which Unisys common stock is authorized for issuance.

 

 

 

Shown below is information with respect to persons or groups that beneficially own more than 5% of Unisys common stock. This information is derived from Schedules 13D and 13G filed by such persons or groups.

 

 

Shown below are the number of shares of Unisys common stock (or stock units) beneficially owned as of February 28, 2009 by all directors and nominees, each of the executive officers named on page 33, and all directors and current officers of Unisys as a group.

 

 

 

 

 

Compensation Philosophy

 

The Company’s executive compensation program is based upon the following objectives:

 

 

Given these objectives, the Company’s executive compensation program is designed to provide a mix of fixed compensation and at-risk compensation that is heavily weighted towards variable compensation tied to the achievement of specific business objectives and corporate financial goals (both short-term and long-term), as well as to the attainment of the executive’s individual performance objectives. To that end, the principal components of executive officer compensation are:

 

 

In addition, executive officers receive other benefits that the Company believes are reasonable and consistent with its overall compensation program. These include supplemental retirement programs and executive perquisites.

 

Each of the three principal elements of the Company’s executive compensation program is essential to meeting the program’s overall objectives, and most of the compensation components simultaneously fulfill one or more of these objectives. Base salaries, which are the only fixed component of compensation, are used primarily to attract and retain executives responsible for the Company’s long-term success. Annual cash incentive compensation is “at-risk” compensation designed both to reward executives for the achievement of short-term corporate and individual goals and to attract and retain executives. Long-term incentive compensation is intended to align executive and stockholder interests, to motivate and reward executives for long-term business success and to attract and retain executives responsible for this long-term success.

 

The Company has not adopted a formula to allocate total compensation among its various components. As a general matter, total target compensation, as well as each element of total target compensation, is intended to be consistent with the median for the companies against which Unisys benchmarks the compensation it pays to its executive officers. However, the Company incorporates flexibility into its compensation programs and into the assessment process to respond to and adjust for the changing business environment and to emphasize, as needed, one or more of its compensation objectives.

Benchmarking

 

The Company’s executive compensation program takes into account the compensation practices of companies with which Unisys competes or could compete for executive talent. In its general review of the Company’s executive compensation program in 2008, the Compensation Committee compared the Company’s overall compensation practices (types of compensation paid, mix of variable and fixed compensation, mix of cash and equity-based compensation and the like) with the compensation practices of the 36 High Technology companies in the Towers Perrin TriComp survey that are principally in the businesses of systems integration and consulting, information technology outsourcing, infrastructure services and hardware technology.

 

The committee then, in setting compensation levels for the Company’s executive officers, reviewed the officers’ total annual compensation, as well as each component of their total compensation, against the median compensation levels for persons holding comparable positions at a subset of the High Technology companies in the Towers Perrin TriComp survey. The companies included in this subset, which have revenue levels more similar to the Company’s, were:

 

 

As a general proposition, total target compensation, as well as each element of total target compensation, for the Company’s executive officers is intended to be consistent with the median for this smaller group of benchmark companies. However, because the Compensation Committee also takes into consideration both individual and corporate performance, as well as a subjective assessment of the relative complexity and strategic importance of any particular position held, any given executive can be compensated at, above or below the median benchmark levels. For 2008, base salaries and annual incentive targets were generally in line with the benchmark companies. For the reasons set forth below, long-term incentive targets were below the benchmark levels, and, as a result, total target compensation was below competitive levels.

 

Role of Compensation Consultants and Management

 

To assist in carrying out its responsibilities, the Compensation Committee regularly consults with the committee’s outside compensation consultant. Under its charter, the Compensation Committee has sole authority to retain and terminate outside compensation consultants, including sole authority to approve the consultant’s fees and other retention terms. In December 2007, the Compensation Committee engaged Watson Wyatt to act as its outside compensation consultant. As the committee’s outside compensation consultant, Watson Wyatt performed such duties as were requested by the committee. Those duties consisted primarily of providing market data and advice to the committee that were used to determine executive and director compensation, particularly analyses of the Company’s executive and director compensation in comparison to the benchmark companies. Watson Wyatt spoke with the chairman of the Compensation Committee, as well as with management, in preparing for committee meetings, regularly attended committee meetings and frequently met in executive session with the Compensation Committee without the presence of management.

The Compensation Committee also receives reports and recommendations from management. In particular, the committee solicits input from the chief executive officer regarding the compensation of those executives reporting directly to him. In connection with these recommendations, the chief executive officer consults with the Company’s head of human resources and senior executive compensation staff and meets periodically with the Compensation Committee’s outside compensation consultant to review the benchmark data. In addition, the chief executive officer provides recommendations, based on the Company’s operating and strategic plans, to the Compensation Committee related to the corporate performance measures used in the Company’s annual and long-term incentive plans, as well as the recommended threshold, target and maximum performance levels. In connection with these recommendations, the chief executive officer consults with the Company’s chief financial officer. Although the chief executive officer regularly attends Compensation Committee meetings, his compensation package is considered by the committee in an executive session without him present, using data, analysis and advice provided by the outside compensation consultant. The Compensation Committee also meets from time to time in executive session with the outside compensation consultant, but without the presence of the chief executive officer or any other members of management, to consider, among other things, the compensation recommendations proposed by the chief executive officer.

 

Chairman and Chief Executive Officer

 

Effective October 7, 2008, the Board of Directors elected J. Edward Coleman as the Company’s Chairman of the Board and Chief Executive Officer. In connection with his election, the Company and Mr. Coleman entered into an employment agreement dated October 6, 2008 (and amended on December 22, 2008 to comply with Section 409A of the Internal Revenue Code) covering the terms and conditions of Mr. Coleman’s employment. The agreement provides for a minimum base salary of $972,000 per year, subject to periodic review by the Board of Directors after receiving a recommendation from the Compensation Committee. He is eligible to receive an annual bonus award at a target bonus level of not less than 125% of base salary. Except with respect to the first six months of his employment, the actual bonus payable, if any, will be determined by the Board in its sole discretion after receiving a recommendation from the Compensation Committee and will be based on Mr. Coleman’s attainment of performance criteria to be determined annually by the Board and the Compensation Committee. For the first six months of his employment, Mr. Coleman is guaranteed a bonus of $607,500 if he remains employed by the Company on the applicable bonus payment date. Pursuant to the agreement, on October 8, 2008 Mr. Coleman received a stock option grant for 1,200,000 shares of Unisys common stock and a grant of 300,000 time-based restricted stock units. The stock options are scheduled to vest one-third per year beginning on the first anniversary of the date of grant and expire five years from the date of grant. The restricted stock units are scheduled to vest one-third per year beginning on the first anniversary of the date of grant. Pursuant to the agreement, Mr. Coleman also received, on February 12, 2009, a grant of 900,000 performance-based restricted stock units. These restricted stock units will vest one-third per year beginning on the first anniversary of the date of grant if and to the extent that the performance criteria that are established for making funding available for the Company’s Executive Variable Compensation Plan (the “EVC Plan”) for each of 2009, 2010 and 2011, respectively, are met. For 2009, the EVC Plan performance criteria are based 50% on pre-tax profit and 50% on cash flow. The EVC Plan is discussed below under “Variable Annual Incentive Compensation”. Mr. Coleman is eligible to participate in the benefit programs generally made available to executive officers and is eligible to receive stock option and other long-term incentive awards under the company’s long-term incentive plans. For so long as Mr. Coleman’s primary residence is not in the Philadelphia

metropolitan area, he will be provided with the use of a company-paid apartment in the Philadelphia metropolitan area for business purposes, the annual expense of which will be approved annually by the Compensation Committee.

 

In setting the compensation provided for in Mr. Coleman’s agreement, the Board, in consultation with Watson Wyatt, considered both competitive market practices and the challenges facing the Company. Accordingly, salary and target bonus were set near the median for the benchmark companies. The stock options, time-based restricted stock units and performance-based restricted stock units were intended to align Mr. Coleman’s interests with those of stockholders and to provide incentives for him to lead the Company to achieve its performance objectives.

 

Principal Components of Executive Officer Compensation

 

As set forth above, the principal elements of the Company’s executive compensation program consist of base salary, annual variable cash incentives and long-term incentive compensation.

 

Base Salary

 

Base salaries for elected officers are initially determined by evaluating the responsibilities of the position held and the experience of the individual and comparing such salaries to the benchmark compensation data. Thereafter, increases in salary can be based on the Compensation Committee’s evaluation of any number of factors, including the individual’s level of responsibility, individual performance, pay levels of both the executive in question and other similarly situated executives and the benchmark compensation data. In February 2008, when it conducted its review of executive compensation, the Compensation Committee considered primarily the relationship of executive compensation at the Company to the benchmark compensation data. The committee noted that there had been no salary increases for the Company’s elected officers for two years (except for increases related to the discontinuation of certain executive perquisites) and that inflation had increased by more than 6% during that period. The committee approved a 3.8% salary increase for elected officers, other than Mr. McGrath. The amount of the increase and the resultant new base salaries for Named Officers listed in the Summary Compensation Table on page 33 were as follows:

 

 

Following these increases, base salaries for the elected officers remain in line with the median for the benchmark companies.

 

Variable Annual Incentive Compensation

 

During 2008, all of the Company’s elected officers were eligible to receive annual cash incentive compensation through the EVC Plan. Compensation under the EVC Plan is “at-risk” compensation intended to motivate and reward executives for the attainment of corporate and/or individual performance goals for the year. Under the plan, the Compensation Committee has the discretion to determine the conditions (including performance objectives) applicable to annual award payments and the amounts of such awards. The amount of incentive compensation awards payable under the plan depends upon (1) a participant’s target annual incentive, (2) the amount of

funding the Company makes available for the plan and (3) individual performance. Individual targets for elected officers are approved by the committee and are intended to be competitive in the market for which the Company competes for talent. They are therefore set at or around the median for comparable positions at the benchmark companies. For 2008, target award amounts, which are typically stated as a percentage of base salary, were as follows for the following Named Officers: Joseph W. McGrath — 125%; Janet B. Haugen — 90%; Anthony P. Doye — 95%; Richard C. Marcello — 95%; Nancy S. Sundheim — 75%.

 

The extent to which the Company makes funding available for the EVC Plan depends upon the degree to which the Company achieves performance targets approved by the Compensation Committee at the beginning of each year. For 2008, the committee determined that awards under the plan would be funded if the Company met certain revenue growth and pre-tax profit (exclusive of gain or loss from divestitures, restructuring charges and retirement-related expense) performance targets. Each target was weighted 50%. Both the revenue growth and the pre-tax profit targets were based on the Company’s Board-approved operating plan, which outlooks the Company’s anticipated results for the year. Target levels (those that would result in funding at 100% if achieved) were the same as the forecasted amounts in the operating plan. The committee also set threshold and maximum performance levels for each criterion, which would result in funding at 50% and 150% of target, respectively, if achieved. No funding would be provided by the Company in respect of a criterion if performance was below the threshold level. In addition, the committee determined that if pre-tax profit at the target level was not achieved, all funding for the year would be reduced by 50%. Both the pre-tax profit and the revenue growth goals were subject to adjustment by the chief executive officer and the Compensation Committee for one-time and extraordinary items. Assuming available funding, the amount of awards granted to individual executives would then depend upon individual performance and could range from 0% to 150% of the individual’s proportionate share of the amount funded.

 

For 2008, both revenue growth and pre-tax profit were below threshold levels. Therefore, no funds were made available in respect of corporate performance. As a result, only those Named Officers who had received a bonus guarantee as part of their new hire compensation package received a payout under the EVC Plan for 2008.

 

As set forth above, pursuant to his employment agreement, Mr. Coleman was guaranteed a bonus of $607,500 for the first six months of his employment. Accordingly, he was paid a bonus of $303,750 in respect of the period from October 7 through December 31, 2008. In connection with their employment by the Company in 2007, Mr. Doye and Mr. Marcello were each guaranteed a bonus for 2008 in the amount of $425,000 and $163,832, respectively.

 

Long-Term Incentive Awards

 

Long-term incentives in the form of equity-based compensation are intended to ensure that the Company’s executives have a continuing stake in the long-term success of the Company and to align their interests with those of stockholders. They are also used as a vehicle to attract, retain and motivate executives responsible for the Company’s long-term success. The Company makes an annual long-term incentive grant to its executives during the first quarter of the year and also may make grants to newly hired employees in connection with their employment. In 2008, long-term incentives generally took the form of restricted stock unit (“RSU”) awards that vest into shares of Unisys stock after certain restrictions lapse or performance goals are met. In 2008, the Company granted stock options only to certain newly hired employees as part of their new hire compensation package. RSUs and stock options granted to Mr. Coleman in 2008 were granted in connection with his entering into the employment agreement discussed above. The other Named Officers received

RSUs as part of the 2008 annual grant. The total number of RSUs granted to each Named Officer in 2008 is set forth in the Grants of Plan-Based Awards Table, under the heading “Estimated Future Payouts Under Equity-Incentive Plan Awards”.

 

In 2008, the annual RSU grant to executives was below the median at the benchmark companies. Even though the Company intends for each element of executive compensation to be generally consistent with the median, in 2008, the Company did not want to incur the additional compensation expense that would have been required to be recorded if RSU grants had been made at that level. As a result, the value of the 2008 annual equity-based grant for elected officers was at approximately 73% of the market median for the benchmark companies.

 

For the 2008 annual grant, in keeping with the Company’s emphasis on tying compensation to the achievement of corporate financial goals, 87.5% of the RSUs awarded were performance-based (50% based on 2008 performance and 37.5% based on a 2008-2010 performance period) and 12.5% were time-based.

 

The time-based RSUs vest into shares of Unisys common stock in three equal annual installments beginning with the first anniversary of the date of the grant and require that the executive remain with the Company over this time period to receive the shares unless the executive has met certain age and service requirements. The performance-based RSUs granted in 2008 will be earned and vest into shares of Unisys common stock based on the achievement of performance targets approved by the Compensation Committee for the 2008 and 2008-2010 performance periods. The performance-based RSUs also require that the executive be employed by the Company on the date of vesting to receive the shares. The performance targets consist of revenue growth rate and pre-tax profit (exclusive of retirement expense, gain or loss from divestitures and restructuring charges) goals for the relevant performance period, and each is weighted 50%. The targets for the 2008 performance period were based on the Company’s operating plan, which outlooked the Company’s anticipated results for 2008, and the targets for the 2008-2010 performance period were based on the operating plan as well as the Company’s strategic plan, which outlooked anticipated results for periods subsequent to 2008. The committee established threshold, target and maximum performance levels for each of these two performance measures. The RSUs will be converted into shares at rates ranging from 0.5 shares per unit if the threshold level is met to 1.0 share per unit if the target level is met, to 1.5 shares per unit if the maximum level is met. No shares will be issued in respect of a performance measure if the threshold level for that measure is not achieved. Target revenue growth and pre-tax profit levels are the same as those that were forecasted in the operating and strategic plans. For the 2008 performance period, threshold and maximum revenue growth were approximately 98% and 102% of target revenue growth, respectively; threshold and maximum profitability amounts were approximately 66% and 120% of target profitability, respectively. For the 2008-2010 three-year performance period, threshold and maximum revenue growth are approximately 98% and 102% of target revenue growth, respectively; threshold and maximum profitability amounts are approximately 73% and 120% of target profitability, respectively. To the extent the targets for the 2008 performance period were met, RSUs for the 2008 performance period were scheduled to vest one-third per year beginning on February 7, 2009. To the extent targets for the 2008-2010 performance period are met, RSUs for that performance period are scheduled to vest on February 7, 2011.

 

For 2008, both the Company’s pre-tax profit and its revenue growth performance were below forecasted levels for the year. As a result, with respect to performance-based RSUs granted in 2008 for the 2008 performance period, the Company did not meet the threshold levels for either criterion. Therefore, none of the performance-based RSUs granted in respect of the 2008 performance period will vest into shares of Unisys common stock. Given its performance for 2008, the Company

will need to over perform against the strategic plan in the remaining two years of the 2008-2010 performance period in order to achieve the cumulative revenue growth and/or profit targets set for the RSU grants made in respect of that performance period.

 

Stock Ownership Guidelines

 

Since 1998, the Company has had stock ownership guidelines in place for elected officers in order to more closely link their interests with those of stockholders. Under the guidelines, as revised in 2005, elected officers are expected to own a specified number of shares of Unisys common stock as follows: chief executive officer — 200,000 shares; executive vice presidents — 75,000 shares; senior vice presidents — 45,000 shares; vice presidents — 25,000 shares. Stock options, including vested stock options, and restricted stock units do not count toward fulfillment of the ownership guidelines. Officers are expected to meet the ownership guidelines by 2010, or within five years of election for officers elected after 2005. The Compensation Committee reviews compliance with the guidelines on an annual basis. The number of shares owned by each of the Named Officers is set forth in the stock ownership table on page 24.

 

Stock Option/RSU Granting Practices

 

As set forth above, in 2008 long-term incentives generally took the form of RSUs, rather than stock options, and stock options were granted only to certain newly hired employees as part of their compensation package. Prior to 2006, the Company had primarily granted long-term incentives in the form of stock options. The most prevalent form of stock option grant was the annual grant made to executives. The annual grants were approved at a specified, regularly scheduled meeting of the Compensation Committee early each year. Since 2000, annual stock option grants had been approved at the February meeting; prior to 2000, annual grants were approved at the April meeting. For grants in the United States, the grant date was always the date of the meeting, and the exercise price was at least 100% of the fair market value of Unisys common stock on the date of grant. The dates of regularly scheduled board and committee meetings are generally determined many months in advance as part of the normal board calendaring process.

 

Stock options granted as part of the hiring process have a grant date no earlier than the date of approval, have an exercise price at least equal to fair market value on the date of grant and, except as noted below, are approved by the Compensation Committee or the Board of Directors. New hire stock option grants are typically reviewed and approved by the Compensation Committee at its regularly scheduled meetings. For these grants, the date of grant is the date of the meeting, if the individual receiving the grant has already commenced employment at Unisys. If the individual has not yet commenced employment, the date of grant is the business day following the individual’s first day of employment. The Compensation Committee has also delegated to the Company’s chief executive officer the authority to grant a limited number of stock options during the year to eligible individuals (other than the chief executive officer, his direct reports and their direct reports). The committee’s delegation of authority specifies that for these stock options the grant date will be either (1) the first business day of the month following the date of the chief executive officer’s approval, if the individual has commenced employment at Unisys, or (2) if the individual has not yet commenced employment, the first business day of the month following the individual’s date of hire. The chief executive officer has no discretion with respect to choosing the grant date, and in all cases, the date of grant occurs after the date the grantee commences employment with Unisys.

 

From 2006 through 2008, long-term incentive awards primarily took the form of RSUs. As with stock options, the principal award was the annual grant to executives. This grant was made during the first quarter of the year, at the time the Compensation Committee determined the number of

units to be granted and finalized the performance criteria for performance-based awards. As with stock options, RSUs may also be granted as part of the hiring process. The same procedures regarding the chief executive officer’s authority with respect to, and the timing of, stock option grants to new employees also apply to RSUs granted to new hires.

 

Other Benefits

 

Elected officers participate in the retirement programs discussed below under “Pension Benefits” and “Non-Qualified Deferred Compensation”. In addition, the Company provides death benefits to the beneficiaries of executive officers. Perquisites provided to executive officers include financial counseling/tax preparation services and an annual physical.

 

Deductibility of Executive Compensation

 

Section 162(m) of the Internal Revenue Code imposes a $1 million annual limit on the amount of compensation that may be deducted by the Company with respect to each Named Officer employed as of the last day of the applicable year. The limitation does not apply to compensation based on the attainment of objective performance goals.

 

Both the Company’s 2003 Long-Term Incentive and Equity Compensation Plan and its 2007 Long-Term Incentive and Equity Compensation Plan permit the Compensation Committee to design compensation awards to Named Officers that will meet the requirements of Section 162(m) of the Internal Revenue Code. The committee may grant awards under the plans that meet the requirements of Section 162(m) of the Internal Revenue Code at such times as the committee believes that such awards are in the best interests of the Company. The committee has considered the impact of the deduction limitation and has determined that it is not in the best interests of the Company or its stockholders to base compensation solely on objective performance criteria. Rather, the committee believes that it should retain the flexibility to base compensation on its subjective evaluation of performance as well as on the attainment of objective goals.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with management. Based on such review and discussion, the committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Compensation Committee

 

James J. Duderstadt

Clayton M. Jones

Theodore E. Martin

Charles B. McQuade

 

The following table sets forth information concerning the total compensation paid to or earned by each individual who served as chief executive officer during 2008, the chief financial officer and the other three most highly compensated executive officers who were serving as such as of December 31, 2008 (the “Named Officers”) for services rendered in all capacities to Unisys.

 

 

The following table sets forth information on grants of plan-based awards during 2008 to the Named Officers.

 

 

All awards shown above for Mr. Coleman were granted in accordance with his employment agreement described above in “Compensation Discussion and Analysis”. All such awards were approved by the Board on October 6, 2008. Awards shown for Mr. Coleman under “All Other Stock Awards” are time-based restricted stock units granted under the Unisys Corporation 2003 Long-Term Incentive and Equity Compensation Plan. These awards will vest at a rate of one-third each year beginning on the first anniversary of the date of grant if Mr. Coleman is then employed by the Company. Awards shown for Mr. Coleman under “All Other Option Awards” are non-qualified stock options granted under the Unisys Corporation 2007 Long-Term Incentive and Equity Compensation Plan (the “2007 Plan”). These options will vest one-third each year beginning on the first anniversary of the date of grant if Mr. Coleman is then employed by the Company.

 

All awards shown above for the other Named Officers were granted under the 2007 Plan. Awards shown under “Estimated Future Payouts Under Equity Incentive Plan Awards” are performance-based restricted stock units that will vest into shares of Unisys common stock if pre-tax profit and/or revenue growth goals are achieved in the 2008 performance period (in the case of the first set of numbers in each row) or in the 2008-2010 performance period (in the case of the second set of numbers in each row). Performance-based units will be converted into shares at a rate of 0 to 1.5 shares per unit depending on the degree to which the performance goals are met. If performance goals had been met, performance-based units granted in respect of the 2008 performance period were scheduled to vest one-third each year beginning on the first anniversary of the date of grant. Because the performance goals for 2008 were not met, none of these units will vest. If performance goals are met and if the individual is then employed by the Company, performance-based units granted in respect of the 2008-2010 performance period will vest on the third anniversary of the date of grant. Awards shown under “All Other Stock Awards” are time-based restricted stock units that will vest at a rate of one-third each year beginning on the first anniversary of the date of grant if the individual is then employed by the Company or has met certain age and service criteria. See “Compensation Discussion and Analysis” above.

 

The following table shows equity awards to the Named Officers that were outstanding as of December 31, 2008.

 

 

 

 

 

No performance-based restricted stock units scheduled to vest on February 7, 2009 or on March 8, 2009 vested into any shares of Unisys common stock.

 

The following table gives information on stock option exercises and the vesting of stock awards during 2008 for each of the Named Officers.