<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- --------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
DIGITAL EQUIPMENT CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
[LOGO]
September 19, 1996
Dear Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders,
which will be held this year on Thursday, November 14, 1996, at 11:00 A.M., at
the World Trade Center, Commonwealth Pier, 164 Northern Avenue, Boston,
Massachusetts.
Robert Everett will be retiring from the Board of Directors on November 14,
1996. We are extremely grateful to him for his many contributions to Digital
during his ten years of service as a Director and we will miss his involvement
with the Board.
The notice of meeting and proxy statement that follow describe the business
to be conducted at the meeting. We also will give a presentation on the current
status of our business.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Annual Meeting and Proxy Statement, I urge you to complete, sign, date and
return your proxy ballot in the envelope provided. If the address on the
accompanying material is incorrect, please advise our Investor Services
Department in writing at 111 Powdermill Road, Maynard, Massachusetts 01754.
For the Board of Directors,
/s/ Robert B. Palmer
ROBERT B. PALMER
Chairman of the Board, President and
Chief Executive Officer
DIGITAL EQUIPMENT CORPORATION, 111 POWDERMILL ROAD, MAYNARD, MASSACHUSETTS 01754
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 3
DIGITAL EQUIPMENT CORPORATION
- --------------------------------------------------------------------------------
NOTICE OF 1996 ANNUAL MEETING
- --------------------------------------------------------------------------------
To the Stockholders of DIGITAL EQUIPMENT CORPORATION:
Notice is hereby given that the Annual Meeting of Stockholders of Digital
Equipment Corporation, a Massachusetts corporation, will be held on Thursday,
November 14, 1996, at 11:00 A.M., at the World Trade Center, Commonwealth Pier,
164 Northern Avenue, Boston, Massachusetts, for the following purposes:
1. To elect three members to the Board of Directors to serve for a
three-year term as Class I Directors.
2. To approve an amendment to the 1968 Employee Stock Purchase Plan to
increase the number of shares subject thereto by 5,000,000 shares.
3. To approve an amendment to the 1981 International Employee Stock
Purchase Plan to increase the number of shares subject thereto by
2,500,000 shares.
4. To ratify the selection of the firm of Coopers & Lybrand L.L.P. as
auditors for the fiscal year ending June 28, 1997.
5. To transact such other business as may properly come before the meeting.
Stockholders entitled to notice of and to vote at the meeting shall be
determined as of the close of business on September 16, 1996, the record date
fixed by the Board of Directors for such purpose.
By Order of the Board of Directors,
/s/ Gail S. Mann
GAIL S. MANN, Clerk
September 19, 1996
- --------------------------------------------------------------------------------
STOCKHOLDERS ARE REQUESTED TO SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE TO DIGITAL EQUIPMENT CORPORATION,
P.O. BOX 1006, NEW YORK, NEW YORK 10269.
<PAGE> 4
------------------------------
PROXY STATEMENT
------------------------------
INTRODUCTION
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of Digital Equipment Corporation (the "Corporation") for use
at the 1996 Annual Meeting of Stockholders (the "Meeting").
An Annual Report to Stockholders, containing financial statements for the
fiscal year ended June 29, 1996, has been sent to all stockholders entitled to
vote. This proxy statement and form of proxy were first sent to stockholders on
or about the date of the accompanying Notice of 1996 Annual Meeting.
Only common stockholders of record as of the close of business on September
16, 1996 will be entitled to vote at the Meeting and any adjournments thereof.
As of that date, 154,324,142 shares of Common Stock of the Corporation
(excluding treasury shares) were issued and outstanding. Each share outstanding
as of the record date will be entitled to one vote, and stockholders may vote in
person or by proxy. Execution of a proxy will not in any way affect a
stockholder's right to attend the meeting and vote in person. Any stockholder
giving a proxy has the right to revoke it at any time before it is exercised by
written notice to the Clerk of the Corporation. In addition, stockholders
attending the Meeting may revoke their proxies at that time.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the meeting is necessary
to constitute a quorum for the transaction of business. Votes withheld from any
nominee for election as director, abstentions and broker "non-votes" are counted
as present or represented for purposes of determining the presence or absence of
a quorum for the meeting. A "non-vote" occurs when a nominee holding shares for
a beneficial owner votes on one proposal, but does not vote on another proposal
because, in respect of such other proposal, the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner. An automated system administered by the Corporation's solicitation agent
tabulates the votes. The vote on each matter submitted to stockholders is
tabulated separately. Abstentions are included in the number of shares present
or represented and voting on each matter. Broker "non-votes" are not so
included.
<PAGE> 5
The persons named as attorneys in the proxies are directors and/or officers
of the Corporation. All properly executed proxies returned in time to be cast at
the Meeting, if no contrary instruction is indicated, will be voted as stated
below under "Election of Directors." In addition to the election of Class I
Directors, the stockholders will consider and vote upon proposals to (i) approve
an amendment to the 1968 Employee Stock Purchase Plan to increase the number of
shares available for issuance thereunder; (ii) approve an amendment to the 1981
International Employee Stock Purchase Plan to increase the number of shares
available for issuance thereunder; and (iii) ratify the selection of auditors.
Where a choice has been specified on the proxy with respect to these matters,
the shares represented by the proxy will be voted in accordance with the
specification and will be voted FOR if no specification is indicated. Directors
are elected by a plurality of votes cast and the affirmative vote of a majority
of the shares present or represented at the Meeting and voting on such other
matters is required for approval of those matters.
The Corporation knows of no other matter to be presented at the Meeting. If
any other matter should be presented at the Meeting upon which a vote properly
may be taken, shares represented by all proxies received by the Corporation will
be voted with respect thereto in accordance with the judgment of the persons
named as attorneys in the proxies.
ELECTION OF DIRECTORS
The Board of Directors of the Corporation is divided into three classes.
Each class serves three years, with the terms of office of the respective
classes expiring in successive years. The directors in Class II will be nominees
for election to three-year terms at the 1997 Annual Meeting of Stockholders and
the directors in Class III will be nominees for election to three-year terms at
the 1998 Annual Meeting of Stockholders.
The present term of office for the directors in Class I ("Class I
Directors") expires at the Meeting. Kathleen F. Feldstein and Robert B. Palmer
were each elected at the Annual Meeting of Stockholders held November 4, 1993,
and are nominees for re-election to a three-year term as Class I Directors.
Frank P. Doyle was elected to the Board on August 24, 1995 and is a nominee for
election for the first time to a three-year term as a Class I Director. If
re-elected or elected, as the case may be, the Class I Director nominees will
hold office until the Annual Meeting of Stockholders to be held in 1999 and
until their successors have been duly elected and have qualified. Shares
represented by all proxies received by the Board of Directors and not so marked
as to withhold authority to vote for any individual nominee will be voted
(unless one or more nominees is unable or unwilling to serve) for the election
of all nominees
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<PAGE> 6
for Class I Directors. The Board of Directors knows of no reason why any such
nominee should be unable or unwilling to serve, but if such should be the case,
proxies will be voted for the election of some other person or the Board of
Directors will fix the number of directors at a lesser number.
Set forth below is information with respect to each nominee for a Class I
Director to be elected at the Meeting and for each Class II Director and Class
III Director whose term of office continues after the Meeting. With the
exception of Frank P. Doyle, all of the directors were previously elected by the
stockholders.
NOMINEES TO SERVE AS DIRECTORS FOR A THREE-YEAR TERM EXPIRING AT THE 1999 ANNUAL
MEETING (CLASS I DIRECTORS)
FRANK P. DOYLE
Mr. Doyle, age 65, retired in December 1995 as an Executive Vice
President of General Electric Company ("GE"). Mr. Doyle had been an
Executive Vice President of GE and a member of its corporate executive
office since July 1992 and was a Senior Vice President from 1981 to July
1992. He is a director of the Paine Webber Group Inc., Roadway Express,
Inc., and Educational Testing Service. Mr. Doyle was elected a director
of the Corporation in August 1995 and is a member of the Audit Committee
and the Strategic Direction Committee.
KATHLEEN F. FELDSTEIN
Dr. Feldstein, age 55, has been President of Economics Studies, Inc., an
economics consulting firm, since 1987. Dr. Feldstein is presently a
director of Bank America Corporation, Conrail Corporation and The John
Hancock Mutual Life Insurance Company. Dr. Feldstein has been a director
of the Corporation since 1993 and is a member of the Audit Committee.
ROBERT B. PALMER
Mr. Palmer, age 56, has been President and Chief Executive Officer of
the Corporation since October 1992, and Chairman of the Board since May
1995. Mr. Palmer joined the Corporation in 1985 and served as Vice
President, Semiconductor and Interconnect Technology until 1990, and as
Vice President, Manufacturing, Logistics and Component Engineering from
1990 to 1992. From 1983 to 1985, he was Executive
3
<PAGE> 7
Vice President of Semiconductor Operations at Mostek Corporation
("Mostek"), a subsidiary of United Technologies Corporation. Mr. Palmer
was a co-founder of Mostek, where he held a series of senior management
positions prior to its acquisition in 1980 by United Technologies
Corporation. Mr. Palmer is a director of AlliedSignal Inc. Mr. Palmer
has been a director of the Corporation since 1992 and is Chairman of the
Strategic Direction Committee.
DIRECTORS SERVING A TERM EXPIRING AT THE 1997 ANNUAL MEETING (CLASS II
DIRECTORS)
VERNON R. ALDEN
Mr. Alden, age 73, was Chairman of the Board and Executive Committee of
The Boston Company, Inc., a financial services company, from 1969 to
1978. He was President of Ohio University from 1962 to 1969. Mr. Alden
is a director of Augat, Inc., Colgate-Palmolive Company, Intermet
Corporation and Sonesta International Hotels Corporation. He is also a
trustee of several cultural and educational organizations. He has been a
director of the Corporation since 1959 and is a member of the Audit
Committee and Nominating Committee.
THOMAS L. PHILLIPS
Mr. Phillips, age 72, retired as Chairman of the Board and Chief
Executive Officer of Raytheon Company ("Raytheon") in March 1991, having
served as Chief Executive Officer since 1968, and as Chairman of the
Board since 1975. He has been a director of Raytheon since 1962. Mr.
Phillips is also a director of SRA International, Inc., State Street
Research and Management Co. and Knight-Ridder, Inc. Mr. Phillips has
been a director of the Corporation since 1991. He is Chairman of the
Compensation and Management Development Committee and is a member of the
Nominating Committee.
DELBERT C. STALEY
Mr. Staley, age 72, was Chairman, Chief Executive Officer and a director
of NYNEX Corporation ("NYNEX") from 1983 until his retirement in
September 1989. He continued serving as a director of NYNEX and served
as Chairman of NYNEX International Management Committee until October
1991. Mr. Staley is a director of Polaroid Corporation and SRA
International, Inc., and is Chairman of Alcatel Network Systems Inc. Mr.
Staley has been a director of the Corporation since 1993 and is
4
<PAGE> 8
a member of the Compensation and Management Development Committee and
Strategic Direction Committee.
DIRECTORS FOR A THREE-YEAR TERM EXPIRING AT THE 1998 ANNUAL MEETING (CLASS III
DIRECTORS)
COLBY H. CHANDLER
Mr. Chandler, age 71, retired as Chairman of the Board and Chief
Executive Officer of Eastman Kodak Company ("Kodak") in May 1990. Prior
to that time he had been Chief Executive Officer, Chairman of the Board
and Chairman of the Executive Committee of Kodak since July 1983. He
assumed the presidency of Kodak in January 1977. Mr. Chandler was a
director of Kodak from 1974 to 1993. He is also a director of J. C.
Penney Company, Inc. Mr. Chandler has been a director of the Corporation
since 1989. He is Chairman of the Audit Committee and a member of the
Nominating Committee.
ARNAUD DE VITRY
Mr. de Vitry, age 70, is an engineering consultant. From 1980 to 1990,
Mr. de Vitry was Chairman of the Board and Chief Executive Officer of
Eureka SICAV, France, an investment company. He is a director of Ionics,
Incorporated. Mr. de Vitry has been a director of the Corporation since
1957 and is Chairman of the Nominating Committee.
THOMAS P. GERRITY
Dr. Gerrity, age 55, has served as Dean of the Wharton School of the
University of Pennsylvania since July 1990. From 1969 to 1989, Dr.
Gerrity was chief executive officer of Index Group, Inc. ("Index"), an
information technology consulting company he founded. In 1988, Index
became part of Computer Sciences Corporation ("CSC") and Dr. Gerrity was
subsequently appointed president of CSC's commercial professional
services group, CSC Consulting. Dr. Gerrity is presently a director of
the Federal National Mortgage Association, Melville Corporation,
Reliance Group Holdings, Inc. and Sun Company, Inc. He has been a
director of the Corporation since 1992, and is a member of the
Compensation and Management Development Committee and Strategic
Direction Committee.
5
<PAGE> 9
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
Shown below is certain information as of August 14, 1996, with respect to
beneficial ownership of shares of the Corporation's Common Stock and of
Depositary Shares, each representing one-fourth of a share of the Corporation's
Series A 8 7/8% Cumulative Preferred Stock (the "Depositary Shares"), by each
director (including the three nominees for Class I Directors), by each executive
officer named in the Summary Compensation Table set forth on page 12 and by all
directors and executive officers as a group. Unless otherwise indicated, the
named person or members of the group possess sole voting and investment power
with respect to the shares.
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED
---------------- -------------------------
<S> <C>
Vernon R. Alden......................................... 48,126(1)(2)
4,000(3)
Colby H. Chandler....................................... 10,000(1)
5,137(4)
Arnaud de Vitry......................................... 113,260(1)(5)
Frank P. Doyle.......................................... 1,000(6)
Robert R. Everett....................................... 6,300(1)
1,502(4)
Kathleen F. Feldstein................................... 4,000(7)
Thomas P. Gerrity....................................... 16,000(8)
Robert B. Palmer........................................ 577,719(9)
Thomas L. Phillips...................................... 10,000(1)
Delbert C. Staley....................................... 5,000(7)
Charles F. Christ....................................... 111,617(10)
Enrico Pesatori......................................... 102,429(11)
John J. Rando........................................... 89,472(12)
William D. Strecker..................................... 94,935(13)
All directors and executive officers as a group (18
persons).............................................. 1,495,793(14)
<FN>
- ---------------
(1) Includes 5,000 shares of Common Stock which the director has the right
to acquire by exercise of a stock option granted pursuant to the Corporation's
1990 Stock Option Plan for Nonemployee Directors ("1990 Nonemployee Directors
Plan").
(2) Includes 22,357 shares of Common Stock held by Mr. Alden's wife, as to
which shares Mr. Alden disclaims beneficial ownership.
</TABLE>
6
<PAGE> 10
(3) Represents 4,000 Depositary Shares. These Depositary Shares represent
less than 1% of the Corporation's issued and outstanding Depositary Shares and
Preferred Stock.
(4) Represents Common Stock units under the directors' deferred
compensation plan described on pages 10 and 11. Under the plan, nonemployee
directors may elect to defer receipt of all or a portion of their compensation
in the form of Common Stock units. Common Stock units carry no voting rights.
(5) Includes 104,660 shares of Common Stock held by Mr. de Vitry's wife,
as to which shares Mr. de Vitry disclaims beneficial ownership.
(6) Represents 1,000 shares of Common Stock which Mr. Doyle has the right
to acquire by exercise of a stock option granted pursuant to the Corporation's
1990 Nonemployee Directors Plan.
(7) Includes 3,000 shares of Common Stock which the director has the right
to acquire by exercise of a stock option granted pursuant to the Corporation's
1990 Nonemployee Directors Plan.
(8) Includes 4,000 shares of Common Stock which Dr. Gerrity has the right
to acquire by exercise of a stock option granted pursuant to the Corporation's
1990 Nonemployee Directors Plan.
(9) Includes 554,700 shares of Common Stock which Mr. Palmer has the right
to acquire by exercise of stock options, 127,800 of which are subject to
restrictions on disposition which lapse over time. Also includes 8,687 shares
awarded as restricted stock under the Corporation's 1990 Equity Plan that remain
subject to restrictions on disposition which lapse over time. Does not include
8,000 shares awarded as restricted stock under the Corporation's 1995 Equity
Plan on August 21, 1996.
(10) Includes 107,350 shares of Common Stock which Mr. Christ has the right
to acquire by exercise of stock options, 13,000 of which are subject to
restrictions on disposition which lapse over time. Also includes 1,687 shares of
Common Stock awarded as restricted stock under the Corporation's 1990 Equity
Plan that remain subject to restrictions on disposition which lapse over time.
(11) Includes 99,000 shares of Common Stock which Mr. Pesatori has the
right to acquire by exercise of stock options. Mr. Pesatori resigned as an
officer and employee of the Corporation in July 1996. See "Employment
Arrangements."
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<PAGE> 11
(12) Includes 83,565 shares of Common Stock which Mr. Rando has the right
to acquire by exercise of stock options, 8,650 of which are subject to
restrictions on disposition which lapse over time. Also includes 1,687 shares
awarded as restricted stock under the Corporation's 1990 Equity Plan that remain
subject to restrictions on disposition which lapse over time.
(13) Includes 84,800 shares of Common Stock which Mr. Strecker has the
right to acquire by exercise of stock options, 13,200 of which are subject to
restrictions on disposition which lapse over time. Also includes 1,866 shares of
Common Stock held by Mr. Strecker's wife, 125 of which are subject to
restrictions on disposition which lapse over time, and 1,734 shares of Common
Stock which Mr. Strecker's wife has the right to acquire by exercise of stock
options, as to all of which shares Mr. Strecker disclaims beneficial ownership.
In addition, includes 5,125 shares awarded to Mr. Strecker as restricted stock
under the Corporation's 1990 Equity Plan that remain subject to restrictions on
disposition which lapse over time.
(14) The group is comprised of the executive officers named in the Summary
Compensation Table on page 12 and those persons who were directors and executive
officers of the Corporation on August 14, 1996. Includes 1,133,655 shares of
Common Stock which the directors and executive officers as a group have the
right to acquire by exercise of stock options granted under the Corporation's
stock plans, 186,290 of which are subject to restrictions on disposition which
lapse over time. In addition, includes 130,631 shares held by family members of
officers or directors, as to which shares the applicable officer or director
disclaims beneficial ownership. Also includes 22,083 shares awarded as
restricted stock under the Corporation's 1990 Equity Plan and 1995 Equity Plan
that remain subject to restrictions on disposition that lapse over time.
Excludes 4,000 Depositary Shares held by such directors and executive officers.
The 1,495,793 shares held by all directors and executive officers as a group
would represent less than 1% of the Corporation's issued and outstanding Common
Stock, assuming exercise of the stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of the forms and written representations received by the
Corporation pursuant to Section 16(a) of the Securities Exchange Act of 1934,
the Corporation believes that during the period July 2, 1995 through June 29,
1996, the directors and executive officers complied with all applicable Section
16 filing requirements except that a report for William D. Strecker, a Vice
President, was filed four months late with respect to an award of restricted
stock to his wife.
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<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
The following table sets forth information as of the recent most
practicable date as to the group, who to the knowledge of management,
beneficially owned more than 5% of the shares of Common Stock of the
Corporation.
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------ ---------- --------
<S> <C> <C>
FMR Corp............................................... 10,820,185(1)(2) 7.04%(2)
82 Devonshire Street
Boston, Massachusetts 02109
<FN>
- ---------------
(1) FMR Corp. disclaims beneficial ownership of 12,200 of such shares held
by Fidelity International Limited ("FIL"). Prior to June 30, 1980, FIL was a
majority-owned subsidiary of FMR Corp. On that date, the shares of FIL held by
Fidelity were distributed as a dividend to the shareholders of FMR Corp. FIL
currently operates as an entity independent of FMR Corp.
(2) Information obtained from Amendment No. 3 to Schedule 13G filed by FMR
Corp. with the Securities and Exchange Commission on or about July 10, 1996.
</TABLE>
COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee, a Compensation and
Management Development Committee (formerly, the Compensation and Stock Option
Committee), a Nominating Committee and a Strategic Direction Committee. The
Audit Committee selects the independent auditors to be employed by the
Corporation, subject to ratification by the Corporation's stockholders, reviews
generally the internal and external audit plans and the results thereof, and
reviews generally the Corporation's internal controls with the internal and
external auditors. The members of the Audit Committee are Mr. Chandler,
Chairman, and Messrs. Alden and Doyle and Dr. Feldstein.
The Compensation and Management Development Committee reviews and
recommends to the Board the compensation of directors, reviews the compensation
of senior management and reviews and recommends to the Board the adoption of any
compensation plans in which directors and officers are eligible to participate.
The Committee also administers and interprets the Corporation's stock plans and,
subject to the provisions of the plans, selects the employees who are to
participate in such plans and determines the terms of their participation. The
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<PAGE> 13
members of the Compensation and Management Development Committee are Mr.
Phillips, Chairman, and Mr. Everett, Dr. Gerrity and Mr. Staley.
The Nominating Committee is responsible for nominations to the Board of
Directors. The members of the Nominating Committee are Mr. de Vitry, Chairman,
and Messrs. Alden, Chandler, and Phillips. The Nominating Committee will
consider highly qualified candidates proposed in writing by stockholders.
Stockholders who wish to propose a nomination should submit the person's name
and background information to the Clerk of the Corporation.
The Strategic Direction Committee reviews and makes recommendations to the
Board on alternative strategic initiatives for the Corporation, taking into
account competitive and industry factors, technical developments, corporate
goals and the corporate resources necessary to implement alternative
initiatives. The members of the Strategic Direction Committee are Mr. Palmer,
Chairman, and Messrs. Doyle and Everett, Dr. Gerrity and Mr. Staley.
The Board of Directors held ten meetings during the fiscal year ended June
29, 1996, the Audit Committee met five times, the Compensation and Management
Development Committee met six times, the Nominating Committee met two times and
the Strategic Direction Committee met two times. All directors attended more
than 75% of the total number of meetings of the Board and the committees on
which they serve.
COMPENSATION OF DIRECTORS
Each director who is not also an employee of the Corporation received a
retainer of $25,000 for his or her services during the fiscal year ended June
29, 1996, plus $1,000 for each Board meeting and each committee meeting
attended. Directors are also reimbursed for out-of-pocket expenses incurred in
attending Board and committee meetings.
Directors may defer all or any part of their retainer or meeting fees
pursuant to a deferred compensation plan. Pursuant to the plan, nonemployee
directors of the Corporation may elect to defer receipt of all or a specified
portion of their compensation in the form of cash, with an interest rate related
to the ten-year U.S. Government Rate, or in the form of units, the value of each
unit initially being equal to the average fair market value of one share of the
Common Stock of the Corporation on the ten trading days preceding the date the
compensation being deferred would otherwise be payable. The plan provides that
compensation deferred under the plan, whether in the form of cash or units, will
be paid out in cash after a deferral period of at least three years. Directors
may elect that compensation so deferred be paid out in a lump
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<PAGE> 14
sum or in up to fifteen annual installments. Payment of compensation deferred
under the plan commences in January of the year following the last year of the
deferral period.
Pursuant to a retirement plan for nonemployee directors adopted in May
1987, each nonemployee director of the Corporation on the date of adoption of
the plan, and every other nonemployee director who is 70 years of age or older,
who has completed at least five years of service on the Board and who commenced
service as a director prior to January 1, 1995, is entitled upon termination of
service to an annualized benefit for life which is equal to the annual retainer
for nonemployee directors in effect on the date of termination of service. The
plan also provides for coordinated disability benefits for all participating
nonemployee directors equal to the annual retainer in effect on the date of
total disability.
Each nonemployee director of the Corporation also participates in the 1995
Stock Option Plan for Nonemployee Directors (the "1995 Nonemployee Directors
Plan"). The 1995 Nonemployee Directors Plan provides that annually, on the date
of the Annual Meeting of Stockholders, (i) each director who commenced service
as a director of the Corporation prior to January 1, 1995 and whose service as a
director will continue after such Annual Meeting, receives an option to purchase
1,000 shares of the Corporation's Common Stock at a price equal to 100% of the
fair market value of the Corporation's Common Stock on the date of grant and
(ii) any director who commenced service as a director of the Corporation after
January 1, 1995 and whose service as a director will continue after such Annual
Meeting receives an option to purchase 2,500 shares of the Corporation's Common
Stock at a price equal to 100% of the fair market value of the Corporation's
Common Stock on the date of grant. The options become exercisable at the rate of
33% on the first and second anniversaries of the date of grant and 34% on the
third anniversary of the date of grant. The options expire ten years from the
date of grant, unless terminated earlier in accordance with the terms of the
Plan.
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<PAGE> 15
EXECUTIVE COMPENSATION
<TABLE>
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows compensation for the Chief Executive
Officer and the four other most highly compensated executive officers for the
fiscal year ended June 29, 1996. Enrico Pesatori resigned as an executive
officer and employee of the Corporation in July 1996.
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- ----------------------
OTHER RESTRICTED ALL
ANNUAL STOCK STOCK OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($) (#) ($)(4)
- ------------------ ---- -------- -------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Palmer..... 1996 $900,016 $ 0 $ 0 $302,000(7) 185,000(6) $24,923
Chairman of the 1995 900,016 375,000 0 399,609(3) 300,000 0
Board, President, 1994 900,016 0 0 0 120,000 0
Chief Executive
Officer
Charles F. Christ.... 1996 425,006 0 0 0 65,000(6) 9,750
Vice President 1995 425,006 175,000 0 338,859(3) 135,000(5) 0
1994 315,016 0 0 0 60,000 0
Enrico Pesatori...... 1996 650,000 0 31,919 0 0 0
Vice President 1995 650,000 220,000 31,919 191,813(3) 150,000(5) 0
1994 569,242 0 116,899 195,620(8) 75,000 0
John J. Rando........ 1996 400,960 0 0 0 65,000(6) 10,907
Vice President 1995 348,089 175,000 0 143,859(3) 125,000(5) 0
1994 259,052 0 0 0 50,000 0
William D.
Strecker........... 1996 450,008 0 0 0 65,000(6) 10,617
Vice President 1995 450,008 110,000 0 95,906(3) 60,000(5) 0
1994 427,891 0 0 0 50,000 0
<FN>
- ---------------
(1) Represents a cash bonus earned by such individual in fiscal year 1995
and paid during the first quarter of fiscal year 1996.
(2) Represents customary one-time relocation and allowance payments to
executives joining the Corporation. Mr. Pesatori's compensation for each of the
fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994 includes 20% of
the original principal amount of a
</TABLE>
12
<PAGE> 16
$150,000 loan from the Corporation, and for each fiscal year, accrued interest,
which amounts were forgiven.
(3) Represents the dollar value on August 14, 1995, the award date, of an
award to such individual of restricted Common Stock. On such date, the fair
market value of the Common Stock was $42.625. Each of Messrs. Palmer, Christ,
Pesatori, Rando and Strecker were granted 9,375, 3,375, 4,500, 3,375 and 2,250
shares of restricted Common Stock, respectively. Restrictions with respect to
50% of these shares lapsed on February 14, 1996 and the remaining restrictions
will lapse on February 14, 1997 except with respect to 2,250 of the shares of
restricted stock awarded to Mr. Pesatori, all of which were canceled upon his
resignation as an officer and employee of the Corporation in July 1996. In the
case of Mr. Christ, also represents the dollar value on October 7, 1994, the
award date, of an award of 7,500 shares of restricted Common Stock. On such
date, the fair market value of the Common Stock was $26.00. Restrictions with
respect to 50% of these shares lapsed on April 7, 1995 and the remaining
restrictions lapsed on October 7, 1995. If the Corporation were to begin to pay
dividends on its Common Stock, holders of restricted Common Stock would receive
cash dividends on the shares of restricted Common Stock held by them. The amount
ultimately realized by any named executive officer in respect of restricted
Common Stock depends upon the value of the Corporation's Common Stock when the
executive officer sells the shares, which can only occur after the restrictions
lapse. At the end of fiscal year 1996, each of Messrs. Palmer, Christ, Pesatori,
Rando and Strecker held 8,687, 1,687, 6,250, 1,687 and 5,125 shares of
restricted stock, respectively. The value of the restricted shares held by each
of Messrs. Palmer, Christ, Pesatori, Rando and Strecker at June 28, 1996, the
last business day of the fiscal year, was, as of such date, $396,887, $77,075,
$285,547, $77,075 and $234,148, respectively.
(4) Represents matching contributions by the Corporation under its Savings
and Investment Plan ("SAVE Plan") for each executive officer as follows: Mr.
Palmer, $2,423, Mr. Christ, $2,247, Mr. Rando, $2,397, and Mr. Strecker, $2,417,
and under its SAVE Restoration Plan for each executive officer as follows: Mr.
Palmer, $22,500, Mr. Christ, $7,503, Mr. Rando, $8,510, and Mr. Strecker,
$8,200. Mr. Pesatori did not participate in the SAVE Plan.
(5) Includes a stock option to purchase shares of the Corporation's Common
Stock granted to the named executive officer in August 1995.
(6) Reflects a stock option to purchase shares of the Corporation's Common
Stock granted on August 21, 1996, shortly after the end of fiscal year 1996, to
each of Messrs. Palmer, Christ, Rando and Strecker.
13
<PAGE> 17
(7) Represents the dollar value on August 21, 1996, the award date, of an
award to Mr. Palmer of 8,000 shares of restricted Common Stock. On such date,
the fair market value of the Common Stock was $37.75. Restrictions with respect
to 50% of these shares will lapse on February 21, 1997 and the remaining
restrictions will lapse on February 21, 1998. If the Corporation were to begin
to pay dividends on its Common Stock, holders of restricted Common Stock would
receive cash dividends on the shares of restricted Common Stock held by them.
The amount ultimately realized by Mr. Palmer in respect of restricted Common
Stock depends upon the value of the Corporation's Common Stock when Mr. Palmer
sells the shares, which can only occur after the restrictions lapse.
(8) The amount shown for Mr. Pesatori for fiscal year 1994 represents the
dollar value on the date of grant of 10,000 shares of restricted Common Stock
awarded to Mr. Pesatori during fiscal year 1994. The restrictions with respect
to 50% of these shares lapsed on December 16, 1994 and the remaining
restrictions lapsed on December 16, 1995. Mr. Pesatori did not hold any of these
shares at the end of fiscal year 1996.
14
<PAGE> 18
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows information regarding grants of stock options
during the fiscal year ended June 29, 1996 to the named executive officers. The
table also includes grants of stock options to the named executive officers on
August 21, 1996, and in May 1995 with respect to Mr. Palmer. Mr. Pesatori
resigned as an executive officer of the Corporation in July 1996, and therefore,
did not receive any stock options on August 21, 1996. The Corporation did not
grant any stock appreciation rights during fiscal year 1996 nor during the
period from the end of such fiscal year through August 21, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
- ----------------------------------------------------------------------------------------- ----------------
% OF TOTAL EXERCISE
OPTIONS/SARS OR BASE GRANT DATE
OPTIONS/SARS GRANTED TO PRICE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES(1) ($/SH) DATE VALUE($)(2)
---- ------------ ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Robert B. Palmer................ 185,000(3) 2.8% $37.75 8/21/06 $2,421,296
300,000(4) 4.6 48.187 8/20/05 5,032,882
Charles F. Christ............... 65,000(3) 1.0 37.75 8/21/06 850,726
125,000(5) 1.9 42.625 8/14/05 1,854,983
Enrico Pesatori(6).............. 0 -- 37.75 -- --
150,000(5) 2.3 42.625 8/14/05 2,225,980
John D. Rando................... 65,000(3) 1.0 37.75 8/21/06 850,726
125,000(5) 1.9 42.625 8/14/05 1,854,983
William D. Strecker............. 65,000(3) 1.0 37.75 8/21/06 850,726
60,000(5) 0.9 42.625 8/14/05 890,392
<FN>
- ---------------
(1) Reflects percentage of total options granted to all employees from May
20, 1995 through August 21, 1996.
(2) The Grant Date Present Values shown were determined using a
Black-Scholes pricing model with the following assumptions and adjustments:
stock price volatility of 35%, an interest rate of 6.3% representing the
interest rate on a U.S. Treasury security on the dates of grant with a maturity
date corresponding to that of the option term; and an assumed 3.6-year option
term. The Corporation's use of this model should not be construed as an
endorsement of its accuracy. Whether the model's assumptions will prove to be
accurate cannot be known at the date of grant. The ultimate value of the
options, if any, will depend on the future value of the Corporation's common
stock, which cannot be forecast with reasonable accuracy, and on the holder's
investment decisions.
</TABLE>
15
<PAGE> 19
(3) Includes incentive and non-qualified stock options granted to Mr.
Palmer and non-qualified stock options granted to each of Messrs. Christ, Rando
and Strecker on August 21, 1996, shortly after the end of fiscal year, under the
Corporation's 1995 Equity Plan, at exercise prices equal to the fair market
value of the Corporation's Common Stock on the date of grant. The options have a
term of ten years and become exercisable ratably over three years from the date
of grant.
(4) Represents a non-qualified stock option granted to Mr. Palmer in May
1995 under the Corporation's 1990 Equity Plan at an exercise price equal to the
fair market value of the Corporation's Common Stock on the date of grant. The
option has a term of ten years and 90 days and becomes exercisable ratably over
three years from the date of grant.
(5) Includes incentive and non-qualified stock options granted to each of
Messrs. Christ, Pesatori, Rando and Strecker on August 14, 1995 under the
Corporation's 1990 Equity Plan at exercise prices equal to the fair market value
of the Corporation's Common Stock on the date of grant. The options each have a
term of ten years and become exercisable ratably over three years from the date
of grant.
(6) Mr. Pesatori resigned as an officer and employee of the Corporation in
July 1996.
16
<PAGE> 20
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
The following table summarizes for each of the named executive officers the
number of stock options exercised during the fiscal year ended June 29, 1996,
the aggregate dollar value realized upon exercise, and the dollar value of
in-the-money, unexercised options held at June 29, 1996. None of the named
executive officers hold any SARs. Value realized upon exercise is the difference
between the fair market value of the underlying stock on the exercise date and
the exercise price of the option. The value of unexercised, in-the-money options
at fiscal year-end is the difference between the exercise price and the fair
market value of the underlying stock on June 28, 1996, the last business day of
the fiscal year. The closing price of the Corporation's Common Stock on the New
York Stock Exchange on such date was $45.6875.
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/
SHARES AT FY-END(#)(1) SARS AT FY-END($)
ACQUIRED VALUE ------------------------------ ---------------------------
ON EXERCISE(#) REALIZED RESTRICTED/ RESTRICTED/
NAME (2) ($) EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Palmer.... 1,800 $ 63,675 413,650 422,850 $2,460,851 $1,327,061
Charles F. Christ... 20,800 632,222 53,100 195,100 699,997 1,618,667
Enrico
Pesatori(3)....... 18,000 612,037 37,500 187,500 887,078 1,253,825
John J. Rando....... 17,060 881,428 33,285 151,030 480,586 859,956
William D.
Strecker.......... 20,820 686,233 50,150 121,850 506,378 678,089
<FN>
- ---------------
(1) A portion of these options represent immediately exercisable restricted
stock options, with restrictions on disposition of the underlying shares lapsing
ratably over periods of three to ten years from date of grant. The number of
underlying shares subject to such options on June 29, 1996 for the named
executive officers was as follows: Mr. Palmer, 127,800; Mr. Christ, 13,000; Mr.
Rando, 8,650 and Mr. Strecker, 13,200. 40,000, 30,000 and 30,000 of the
remaining options held by Messrs. Palmer, Christ and Strecker, respectively,
were granted during fiscal year 1992, expire in March 1997, and become
exercisable at the rate of 20% per year but may not be exercised unless and
until the Corporation's stock price averages at least $100 over 90 consecutive
trading days. The remaining options held by Messrs. Palmer, Christ, Pesatori,
Rando and Strecker were granted during fiscal years 1994, 1995 and 1996 and
become exercisable ratably over three years. Does not include options granted to
such executive officers on August 21, 1996. See "Summary Compensation Table" and
"Option/SAR Grants in Last Fiscal Year."
</TABLE>
17
<PAGE> 21
(2) In the case of Mr. Strecker, includes 1,320 shares acquired by Mr.
Strecker's wife on exercise of stock options held by her.
(3) Mr. Pesatori resigned as an officer and employee of the Corporation in
July 1996.
PENSION PLANS
The Corporation and its subsidiaries have pension plans covering
substantially all of their employees. Effective March 1, 1996, the Corporation's
defined benefit pension plan (the "Prior Pension Plan") for its U.S. employees
was amended and renamed the Cash Account Pension Plan (the "New Pension Plan").
Under the Prior Pension Plan, benefits were based upon the employee's
earnings during service with the Corporation and were payable after retirement
in the form of annuities or a lump sum benefit and the annual amount payable
upon retirement at age 65 was, in general, 1.5% of the aggregate amount of the
participant's eligible compensation earned on and after July 1, 1989. Those
persons who were active participants under the Prior Pension Plan on July 1,
1989, or who later become active participants and were credited with prior
service, were also eligible to receive 1.5% of the average of the participant's
annual compensation between July 1, 1984 and July 1, 1989, multiplied by the
number of years of accredited service prior to July 1, 1989.
Under the New Pension Plan, benefits for U.S. employees are based upon the
employee's eligible earnings during service with the Corporation, and are
credited quarterly by the Corporation at the rate of 4% of the employee's total
eligible pay for that quarter, plus interest. The accumulated, vested account
balance is payable in one lump sum or in monthly payments, as elected by the
participant, upon the employee's retirement or termination of employment with
the Corporation. The opening account balance under the New Pension Plan for
employees who were participants under the Prior Pension Plan on February 29,
1996 was determined by calculating the highest of (a) the lump sum value of the
benefit that would have been payable under the Prior Pension Plan as of February
29, 1996, (b) the lump sum value of the benefit that would have been payable
under the Prior Pension Plan but using average pay for the five-year period
ending June 30, 1995, in place of average pay during all years of employment
with the Corporation, or (c) a percentage factor (between 4.5% and 7.0%) times
years of service times base pay as of December 18, 1995. The New Pension Plan
continues the Prior Pension Plan formula for five years for all employees who on
February 29, 1996 had reached age 50 and had completed at least five years of
vesting service, or who were age 60 or older. At the earlier of March 31, 2001
or the employee's date of termination, his or
18
<PAGE> 22
her benefit will be the greater of the value of the benefit accrued under the
Prior Pension Plan's formula or the employee's then current account balance
under the New Pension Plan. A participant is 100% vested in his or her benefit
after completing five years of vesting service with the Corporation. For
purposes of calculating a participant's pension benefit under either the Prior
Pension Plan or the New Pension Plan, annual compensation is currently limited
to $150,000, subject to adjustment to reflect cost of living increases, pursuant
to the Internal Revenue Code of 1986, as amended (the "Code").
The Digital Equipment Corporation Restoration Pension Plan (the
"Restoration Plan"), adopted effective as of May 1, 1992 (amended and renamed
the Digital Equipment Corporation Cash Account Pension Plan effective as of
March 1, 1996), compensates the Corporation's employees for reductions in the
benefits calculated under either the Prior or the New Pension Plan, as the case
may be, due to legislative and regulatory limitations. The Restoration Plan,
which is a non-qualified plan under the Code, and which is unfunded, provides
additional retirement compensation equal to the difference between the benefit a
participant would receive under either Pension Plan without the legislative and
regulatory limitations and the benefit actually payable to the participant under
either Pension Plan.
Estimated annual retirement benefits payable as a straight life annuity
under the New Pension Plan and Restoration Plan at age 65 based on projected
compensation and continued employment for the following individuals would be:
Mr. Palmer, $185,496; Mr. Christ, $63,996; Mr. Rando, $239,568; and Mr.
Strecker, $191,052. Mr. Pesatori resigned as an officer and employee of the
Corporation in July 1996 prior to the time any of his retirement benefits under
the Prior or New Pension Plan (and respective Restoration Plans) vested.
In addition, the Corporation has a Savings and Investment Plan ("SAVE
Plan") which allows eligible U.S. employees to defer up to 12% (14% as of June
30, 1996) of their eligible compensation on a tax-deferred basis into a tax
exempt trust pursuant to rules set forth in the Code. Beginning in fiscal year
1996, the Corporation makes a matching contribution to the trust for the benefit
of each participant in the SAVE Plan at the rate equal to the lesser of (a)
33-1/3% of such employee's contributions or (b) 2% of such employee's annual
eligible compensation (subject to Code limitations). The employee accounts are
invested by the plan trustee in up to nine investment alternatives, as directed
by the employee. Annual employee pre-tax deferrals are currently limited to
$9,500 for the 1996 calendar year.
The Digital Equipment Corporation SAVE Restoration Plan was adopted
effective on July 1, 1995. The SAVE Restoration Plan, which is a non-qualified
plan under the Code and is unfunded, allows any SAVE Plan participant whose
annual eligible compensation is at least $150,000 (subject to adjustment to
reflect cost of living increases) and who defers the
19
<PAGE> 23
maximum amount of his or her eligible compensation under the SAVE Plan for the
year to receive a credit equal to 2% of the amount by which such employee's
eligible compensation for that year exceeds $150,000 (as adjusted), resulting in
a total matching contribution equal to what would have otherwise been provided
under the SAVE Plan but for legislative and regulatory limitations. See "Summary
Compensation Table."
EMPLOYMENT ARRANGEMENTS
Mr. Pesatori resigned as an employee and Vice President of the Corporation
in July 1996. Pursuant to his offer of employment in 1993, Mr. Pesatori is
entitled to receive his base salary on the date of termination for twenty-four
months, unless he accepts employment with a competitor of the Corporation.
Accordingly, the Corporation has entered into a severance agreement with Mr.
Pesatori which provides for payment to him, in monthly installments, of up to a
total of $1,300,000 plus continued benefits for Mr. Pesatori and his dependents
for so long as such severance payments continue.
20
<PAGE> 24
STOCK PRICE PERFORMANCE GRAPH
<TABLE>
The following graph compares the five-year return for the Corporation's
Common Stock against the Standard & Poor's ("S&P") 500 Stock Index and the S&P
Computer Systems Index. The graph assumes $100 was invested on June 28, 1991 in
the Corporation's Common Stock and $100 was invested at that time in each of the
S&P indexes. The comparative data assumes that all dividends, if any, were
reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
DIGITAL EQUIPMENT CORPORATION, S&P 500, AND S&P COMPUTER SYSTEMS
<CAPTION>
DIGITAL S&P 500
MEASUREMENT PERIOD EQUIPMENT COMPUTER
(FISCAL YEAR COVERED) CORPORATION S&P 500 SYSTEMS
<S> <C> <C> <C>
1991 100.0 100.0 100.0
1992 58.0 113.4 100.2
1993 68.7 128.7 67.9
1994 31.9 130.6 72.8
1995 68.5 164.5 120.9
1996 75.8 207.2 135.8
</TABLE>
21
<PAGE> 25
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee (the "Committee") of
the Board of Directors is composed of four independent non-employee directors.
The Committee is responsible for approving executive officer compensation and
for administering the cash incentive and equity participation plans that govern
the variable compensation paid to senior management of the Corporation. The
following report describes the Corporation's executive compensation practices
and the actions of the Committee regarding compensation paid to executive
officers for fiscal year 1996.
The Corporation's executive compensation programs are designed to link the
level of executive compensation to corporate, organizational and individual
performance, and to variations in shareholder value. In addition, these programs
are intended to motivate executives to improve the Corporation's financial
performance and to make executives accountable for the performance of the
business units or functions for which they are responsible. It is also a goal of
these programs to attract and retain talented executives, which the Committee
believes can be particularly challenging during periods of transition in the
Corporation and volatility in the information technology industry. The
Corporation's compensation philosophy provides that variable short and long-term
incentive compensation, particularly stock options, will constitute a
significant portion of executive compensation.
The Committee's compensation decisions and awards for fiscal year 1996
generally were weighted toward vehicles which would provide incentives for
executives to improve the Corporation's financial performance and link the level
of executive compensation to variations in shareholder value. As in past years,
the Committee reviewed the total compensation of the named executive officers
and those other executive officers who report directly to Mr. Palmer relative to
the compensation of executives of other large and competitor companies,
including companies in the Standard & Poor's Computer Systems Index, others in
the Corporation's industry and select cross-industry "Fortune 100" companies,
all of which shall be referred to as the "Comparison Group." The Committee also
reviewed each executive officer's performance and the performance of the
business unit or function for which such officer was responsible.
22
<PAGE> 26
The Corporation's standard executive compensation program consists of three
major elements: base salary, short-term cash and long-term incentives
principally in the form of fair market value stock options. The Committee
combines these elements to address the following objectives:
- attract and retain talented executives by paying them a competitive
base salary;
- reward targeted and superior corporate, organizational and individual
performance through cash incentives;
- motivate and encourage performance that increases shareholder value
and contributes to the future success of the Corporation through
grants of stock options and, when appropriate, awards of restricted
stock.
Base Salaries. Base salary levels are determined relative to external
market and Comparison Group practices, the internal scope and impact of the job
and the overall performance of the Corporation. Whereas the Corporation strives
to set base salary levels at the competitive median to attract and retain key
talent and from time to time adjusts the salaries of executive officers to
achieve these objectives, the Corporation's compensation philosophy is to reward
individual performance principally through short and long-term incentives rather
than permanent increases to base salary.
Mr. Rando, Vice President and General Manager, Digital Services Division,
received a salary increase during fiscal year 1996 in order to bring his salary
in line with the competitive salary range for his position. No other named
executive officer received a salary increase in fiscal year 1996.
Cash Incentives. The purpose of the Corporation's Executive Incentive Plan
is to motivate and reward key employees, including executive officers, for
corporate, organizational and individual performance for any given year. Through
the establishment each year of corporate, organizational and personal objectives
which take into account the state of the Corporation's business and the
environment in which the Corporation competes, the Plan seeks to reinforce and
encourage the management behaviors necessary for success, including teamwork,
intelligent risk-taking and leadership. The program for fiscal year 1996
provided each participant, including all executive officers, with an opportunity
for a cash incentive based on the Corporation's achievement of certain financial
objectives related to net income, on individual contribution to the
Corporation's strategic objectives, and for participants affiliated with the
Corporation's business units, on achievement of performance targets established
at the beginning of the year (including revenue, cash flow and net income) for
the applicable business.
23
<PAGE> 27
Although certain business units achieved their performance targets for the
year, the Committee and the Chairman of the Board determined that it would not
be appropriate to pay cash bonuses for fiscal 1996 under the Executive Incentive
Plan, given the Corporation's consolidated net loss for the year. Accordingly,
the executive officers did not receive any cash incentive payments for fiscal
year 1996.
Equity Participation Plans. Stock options continue to be a major component
of the Corporation's compensation strategy because this compensation vehicle
closely aligns the interests of management with those of stockholders. Stock
options are periodically granted to executive officers based on an assessment of
each officer's potential to contribute to the future success of the Corporation
and relative to practices of companies in the Comparison Group. In determining
the size and vesting schedules of these grants, the Committee considered the
continuing challenges facing the Corporation and its senior management team as
the Corporation implements the additional restructuring actions planned at the
end of the fiscal year and seeks to improve further its financial performance,
as well as the practices of companies in the Comparison Group. Consistent with
its articulated compensation philosophy, shortly after the end of the fiscal
year, the Corporation granted to all executive officers, including each of the
named executive officers with the exception of Mr. Pesatori, incentive and
non-qualified stock options at an exercise price equal to the fair market value
of the Common Stock on the date of grant. The options carry a ten-year term, and
become exercisable ratably over three years and are reflected in the Summary
Compensation Table.
Chief Executive Compensation. Mr. Palmer's annual base salary for fiscal
year 1996 remained at the prior year's level of $900,000. Consistent with the
Corporation's compensation philosophy to reward individual performance
principally through short and long-term incentives rather than permanent
increases to salary, Mr. Palmer's base salary was not adjusted during the year.
Mr. Palmer also participated in the Corporation's Executive Incentive Plan. Mr.
Palmer's cash incentive opportunity under the Plan was based on the achievement
of a corporate-wide net profit target established at the beginning of fiscal
year 1996.
As noted above, the Corporation did not achieve its corporate-wide
profitability target for fiscal year 1996. Accordingly, Mr. Palmer did not
receive an award under the Executive Incentive Plan for fiscal year 1996. The
Committee acknowledged, however, Mr. Palmer's considerable achievements for the
Corporation in fiscal year 1996, including his leadership in furthering the
Corporation's strategic alliances with several major software companies and in
increasing market recognition of the Corporation's Alpha architecture and market
acceptance of the Corporation's Alpha-based systems and servers. In recognition
of his achievements, Mr.
24
<PAGE> 28
Palmer received an award of restricted stock, as reflected in the Summary
Compensation table above, shortly after the close of the fiscal year.
In August 1996, the Committee granted to Mr. Palmer incentive and
non-qualified stock options to purchase a total of 185,000 shares of the
Corporation's Common Stock, at an exercise price equal to the fair market value
of the Common Stock on the date of grant. The options carry a term of ten years
and are exercisable ratably over three years. In determining the size and
vesting schedule of Mr. Palmer's stock option grant, the Committee considered
Mr. Palmer's noted achievements, the challenges facing the Chief Executive
Officer as he leads the Corporation through the next phase of its transformation
and the practices of companies in the Comparison Group.
The Committee periodically reviews Mr. Palmer's total compensation, as well
as the components thereof, with an outside compensation consultant. The
Committee believes that Mr. Palmer's total compensation is appropriate, taking
into account the significance of his responsibilities, the performance of the
Corporation and the compensation of chief executive officers of companies within
the Comparison Group.
Compensation Deductibility. The Committee has reviewed the potential
consequences for the Corporation of Internal Revenue Code section 162(m), which
imposes a limit on tax deductions for annual compensation in excess of one
million dollars paid to any of the five most highly compensated executive
officers of a corporation. This provision excludes certain forms of
"performance-based compensation" from the compensation taken into account for
purposes of that limit, such as the value of stock options granted under the
Corporation's 1990 Equity Plan or the 1995 Equity Plan. Payments under the
Corporation's Executive Incentive Plan are not so excluded; however, no cash
compensation was paid thereunder to any executive officer for fiscal year 1996.
Accordingly, Section 162(m) essentially had no impact on the Corporation's
consolidated results of operations for fiscal year 1996. The Committee will
continue to monitor the impact of this provision on the Corporation.
Compensation and Management Development Committee:
Thomas L. Phillips, Chairman
Robert R. Everett
Thomas P. Gerrity
Delbert C. Staley
25
<PAGE> 29
PROPOSAL TO AMEND THE 1968 EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
On June 20, 1996, the Board of Directors amended the 1968 Employee Stock
Purchase Plan (the "Employee Plan") to increase the number of shares subject
thereto by 5,000,000 shares. The amendment will become effective only upon
approval by the stockholders. This increase in shares is needed to enable the
Corporation to continue operating the Employee Plan for the benefit of eligible
employees.
The Board of Directors recommends a vote FOR approving the amendment to the
Employee Plan.
DESCRIPTION OF THE 1968 EMPLOYEE STOCK PURCHASE PLAN
In 1968 the Board of Directors and the stockholders adopted the Employee
Plan for substantially all employees of the Corporation and its participating
subsidiaries, other than directors of the Corporation. Since adoption of the
Employee Plan, a total of 43,800,000 shares have been authorized for issuance
thereunder. At August 1, 1996, approximately 26,800 employees were eligible to
participate in the Employee Plan, and approximately 15,450 employees were
participating.
The Employee Plan permits employees to purchase shares of the Corporation's
Common Stock twice yearly through accumulated payroll deductions, up to a
maximum of 10% of total compensation. The six-month periods June 1 to November
30 and December 1 to May 31 are the payment periods ("Payment Period") during
which payroll deductions are accumulated under the Employee Plan. The price at
which shares are purchased is an amount equal to 85% of the fair market value of
the stock on the first or last business day of the applicable six-month Payment
Period, whichever is lower.
The Board of Directors may terminate or amend the Employee Plan, provided
that no amendment shall, without stockholder approval, increase the number of
shares of Common Stock to be offered under the Plan or change the class of
employees eligible to participate in the Plan.
During the period July 2, 1995 through June 29, 1996, executive officers of
the Corporation purchased shares under the Employee Plan as follows: Mr.
Pesatori, 429 shares; Mr. Rando, 429 shares; all current executive officers as a
group, 1,620 shares; and all employees as a group (excluding current and named
executive officers but including current officers who are not executive
officers), 2,061,374 shares.
26
<PAGE> 30
At August 1, 1996, 41,797,758 shares had been purchased by employees under
the Employee Plan and 2,002,242 shares remained available.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
Generally, the following tax consequences under the United States Internal
Revenue Code of 1986, as amended (the "Code"), are applicable to shares
purchased under the Employee Plan:
1. No taxable income will be realized by the employee at the time of the
purchase of the shares.
2. If the employee disposes of the shares two years or more after the date
of the beginning of the Payment Period when the employee acquired the shares,
then the employee at that time will recognize as taxable compensation income an
amount equal to the lesser of:
(a) the excess of the fair market value of the shares on the date of
such disposition over the price at which the shares were purchased, or
(b) 15% of the fair market value of the shares at the beginning of the
Payment Period.
In addition, the employee may recognize a long-term capital gain or loss in
an amount equal to the difference between the amount realized upon the sale of
the shares and the basis of the shares (i.e., the purchase price plus the
amount, if any, taxed as compensation income).
3. If the employee disposes of the shares within two years after the date
of the beginning of the Payment Period when the employee acquired the shares,
the employee at that time will recognize taxable compensation income equal to
the fair market value of the shares on the date of purchase (the last business
day of the applicable Payment Period) less the amount paid for the shares. In
addition, the employee will recognize a capital gain or loss in an amount equal
to the difference between the amount realized upon the sale of the shares and
the basis of the shares (i.e., in this case, the purchase price plus the amount
taxed as compensation income.) If the employee holds the shares for more than
one year, this gain or loss will be a long-term capital gain or loss.
4. The Corporation will be entitled to a deduction for federal income tax
purposes in an amount equal to the amount which is considered ordinary
compensation income if the employee disposes of the shares within two years of
the beginning of the Payment Period when the employee acquired the shares.
27
<PAGE> 31
PROPOSAL TO AMEND THE 1981 INTERNATIONAL EMPLOYEE STOCK PURCHASE
PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
On June 20, 1996, the Board of Directors amended the 1981 International
Employee Stock Purchase Plan (the "International Plan") to increase the number
of shares subject thereto by 2,500,000 shares. The amendment will become
effective only upon approval by the stockholders. This increase in shares is
needed to enable the Corporation to continue operating the International Plan
for the benefit of eligible employees.
The Board of Directors recommends a vote FOR approving the amendment to the
International Plan.
DESCRIPTION OF THE 1981 INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
In 1981, the Board of Directors and the stockholders adopted the
International Plan. Since adoption of the International Plan, a total of
13,600,000 shares have been authorized for issuance thereunder. At August 1,
1996 approximately 24,950 employees were eligible to participate in the
International Plan, and approximately 11,780 employees were participating.
The provisions of the International Plan are substantially the same as the
Employee Plan described above. The International Plan was adopted in order to
extend the benefits of the Employee Plan to employees of selected non-U.S.
subsidiaries of the Corporation or branches thereof. The International Plan is
not intended to be a tax-qualified plan under the Code.
The Board of Directors may terminate or amend the International Plan,
provided that no amendment shall, without stockholder approval, increase the
number of shares of Common Stock to be offered under the Plan or change the
class of employees eligible to participate in the Plan.
During the period July 2, 1995 through June 29, 1996, no executive officers
purchased shares under the International Plan and all employees as a group
(excluding current and named executive officers but including current officers
who are not executive officers) purchased a total of 1,278,322 shares under the
International Plan.
At August 1, 1996, 11,395,698 shares had been purchased under the
International Plan and 2,204,302 shares remained available.
Employees participating in the International Plan will be subject to
taxation in accordance with the laws of the countries where they are resident or
employed. Accordingly, the tax consequences applicable to employees will vary
depending on the country. Because the
28
<PAGE> 32
International Plan is not a U.S. tax-qualified plan, employees of participating
foreign subsidiaries who are U.S. citizens or resident aliens also recognize
taxable compensation income under the Code, but may be entitled, with certain
limitations, to a U.S. foreign tax credit equal to the taxes paid to foreign
countries in respect of the shares.
RATIFICATION OF SELECTION OF AUDITORS
The Audit Committee of the Board of Directors has selected the firm of
Coopers & Lybrand L.L.P., independent accountants, to serve as auditors for the
fiscal year ending June 28, 1997, subject to ratification by the stockholders.
Coopers & Lybrand L.L.P. has served as the Corporation's auditors since the
organization of the Corporation. The Board of Directors recommends a vote FOR
ratification of this selection. It is expected that a member of the firm of
Coopers & Lybrand L.L.P. will be present at the Meeting, will have an
opportunity to make a statement if so desired and will be available to respond
to appropriate questions.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation. In
addition to soliciting stockholders through its regular employees, the
Corporation will request banks and brokers to solicit customers of theirs who
have shares of Common Stock of the Corporation registered in the name of a
nominee. The Corporation will reimburse such banks and brokers for their
reasonable out-of-pocket costs, at the rates suggested by the New York Stock
Exchange. Solicitation by officers and employees of the Corporation may also be
made of some stockholders in person, or by mail, telephone or telegraph,
following the original solicitation. Georgeson & Company Inc. has been retained
by the Corporation to assist with the solicitation of proxies at a cost to the
Corporation estimated not to exceed $15,000.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Proposals of stockholders intended for inclusion in the proxy statement to
be mailed to all stockholders entitled to vote at the 1997 Annual Meeting of
Stockholders of the Corporation must be received at the Corporation's principal
executive offices not later than May 22, 1997. In order to curtail controversy
as to the date on which a proposal was received by the Corporation, proponents
should submit their proposals by Certified Mail -- Return Receipt Requested.
September 19, 1996
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<PAGE> 33
SOLICITED BY BOARD OF DIRECTORS
DIGITAL EQUIPMENT CORPORATION
PROXY FOR 1996 ANNUAL MEETING
The undersigned hereby appoints Robert B. Palmer and Thomas C. Siekman, and
each of them, as attorneys of the undersigned, with full power of substitution,
to vote all shares of stock which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Digital Equipment Corporation to be held on
November 14, 1996, at 11:00 A.M. at the World Trade Center, Commonwealth Pier,
164 Northern Avenue, Boston, Massachusetts, and at any adjournment thereof, upon
the matters set forth in the proxy statement for such Annual Meeting. The
foregoing attorneys are authorized to vote, in their discretion, upon such other
business as may properly come before the meeting or any adjournment thereof.
ELECTION OF CLASS I DIRECTORS: THE NOMINEES FOR THE BOARD OF DIRECTORS TO
SERVE FOR A THREE-YEAR TERM AS CLASS I
DIRECTORS ARE:
Frank P. Doyle, Kathleen F. Feldstein and Robert B. Palmer
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below. (To vote or
withhold authority for all nominees, see below.)
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS SPECIFIED, OR WHERE NO DIRECTION IS GIVEN, WILL BE
VOTED FOR THE ELECTION OF CLASS I DIRECTORS, AND FOR THE PROPOSALS IN ITEMS 2, 3
AND 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND THE
PROPOSALS IN ITEMS 2, 3 AND 4.
<TABLE>
<S> <C> <C> <C>
1. To elect three members of the Board of Directors for a three-year term as
Class I Directors consisting of the foregoing nominees. / / FOR / / WITHHOLD AUTHORITY
(continued and to be signed and dated on other side)
2. To approve the amendment to the 1968 Employee Stock Purchase Plan to
increase the number of shares subject thereto by 5,000,000 shares. / / FOR / / AGAINST / / ABSTAIN
3. To approve the amendment to the 1981 International Employee Stock
Purchase Plan to increase the number of shares subject thereto by
2,500,000 shares. / / FOR / / AGAINST / / ABSTAIN
4. To ratify the selection of Coopers & Lybrand L.L.P. as auditors for the
fiscal year ending June 28, 1997. / / FOR / / AGAINST / / ABSTAIN
The undersigned plans to attend the Annual Meeting / /
</TABLE>
Signature(s)
.................................
.................................
Date......................., 1996
NOTE: SIGNATURE(S) SHOULD AGREE
WITH NAME(S) AS PRINTED ON THIS
PROXY. IF SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE YOUR
FULL TITLE AS SUCH.
PLEASE SIGN AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE
