<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the quarterly period ended March 28, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-5296
DIGITAL EQUIPMENT CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2226590
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
111 Powdermill Road, Maynard, Massachusetts 01754
(Address of principal executive offices) (Zip Code)
(978) 493-5111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Number of shares of Common
Stock, par value $1, outstanding as of March 28, 1998: 147,429,061.
<PAGE> 2
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three-Month Period Ended
-----------------------------
March 28, March 29,
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Product sales .................................... $1,681,618 $1,836,516
Service revenues ................................. 1,509,392 1,477,794
---------- ----------
TOTAL OPERATING REVENUES ......................... 3,191,010 3,314,310
---------- ----------
COSTS AND EXPENSES
Cost of product sales ............................ 1,094,646 1,188,578
Service expense .................................. 1,022,201 1,019,290
Research and engineering expenses ................ 261,274 256,476
Selling, general and administrative expenses ..... 738,400 798,714
Costs attributable to the sale of assets ......... 33,000 --
---------- ----------
Operating income ................................. 41,489 51,252
Other (income)/expense, net ...................... (337,791) (10,848)
---------- ----------
INCOME BEFORE INCOME TAXES ....................... 379,280 62,100
Provision for income taxes ....................... 37,457 11,134
---------- ----------
NET INCOME ....................................... 341,823 50,966
Dividend on preferred stock ...................... 8,875 8,875
---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK ............ $ 332,948 $ 42,091
========== ==========
NET INCOME APPLICABLE PER COMMON SHARE (1):
BASIC EARNINGS PER SHARE ......................... $ 2.27 $ 0.27
========== ==========
DILUTED EARNINGS PER SHARE ....................... $ 2.23 $ 0.27
========== ==========
</TABLE>
(1) Refer to page 8 of this report and Note E.
Cash dividends on common stock have never been paid by the Corporation.
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Nine-Month Period Ended
--------------------------
March 28, March 29,
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Product sales .............................................. $5,080,232 $5,202,959
Service revenues ........................................... 4,395,566 4,380,739
---------- ----------
TOTAL OPERATING REVENUES ................................... 9,475,798 9,583,698
---------- ----------
COSTS AND EXPENSES
Cost of product sales ...................................... 3,247,158 3,445,203
Service expense ............................................ 3,002,895 3,016,261
Research and engineering expenses .......................... 798,760 763,961
Selling, general and administrative expenses ............... 2,262,562 2,348,297
Costs attributable to the sale of assets ................... 33,000 --
---------- ----------
Operating income ........................................... 131,423 9,976
Other (income)/expense, net ................................ (364,691) (27,465)
---------- ----------
INCOME BEFORE INCOME TAXES ................................. 496,114 37,441
Provision for income taxes ................................. 54,400 20,475
---------- ----------
NET INCOME ................................................. 441,714 16,966
Dividends on preferred stock ............................... 26,625 26,625
---------- ----------
NET INCOME/(LOSS) APPLICABLE TO COMMON STOCK ............... $ 415,089 $ (9,659)
========== ==========
NET INCOME/(LOSS) APPLICABLE PER COMMON SHARE (1):
BASIC EARNINGS/(LOSS) PER SHARE ............................ $ 2.81 $ (0.06)
========== ==========
DILUTED EARNINGS/(LOSS) PER SHARE .......................... $ 2.77 $ (0.06)
========== ==========
</TABLE>
(1) Refer to page 9 of this report and Note E.
Cash dividends on common stock have never been paid by the Corporation.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 28, June 28,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................. $1,498,035 $1,358,750
Short-term investments ................................ 918,855 1,160,265
Accounts receivable, net of allowances
of $213,281 and $263,763 .............................. 2,704,976 2,930,014
Inventories:
Raw materials ......................................... 297,976 421,984
Work-in-process ....................................... 245,074 350,421
Finished goods ........................................ 644,785 730,740
---------- ----------
Total inventories ..................................... 1,187,835 1,503,145
Prepaid expenses, deferred income taxes
and other current assets .............................. 653,417 324,122
---------- ----------
TOTAL CURRENT ASSETS .................................. 6,963,118 7,276,296
---------- ----------
Property, plant and equipment, at cost ................ 3,707,327 4,868,548
Less accumulated depreciation ......................... 2,235,425 2,764,901
---------- ----------
Net property, plant and equipment ..................... 1,471,902 2,103,647
Assets held for resale ................................ 640,000 --
Other assets .......................................... 282,236 312,951
---------- ----------
TOTAL ASSETS .......................................... $9,357,256 $9,692,894
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 28, June 28,
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans and current portion of long-term debt ............ $ 28,823 $ 262,835
Accounts payable ............................................ 786,005 871,760
Income taxes payable ........................................ 153,533 101,286
Salaries, wages and related items ........................... 696,391 637,587
Deferred revenues and customer advances ..................... 1,022,252 1,079,003
Accrued restructuring costs ................................. 217,491 382,559
Other current liabilities ................................... 821,492 905,900
---------- ----------
TOTAL CURRENT LIABILITIES ................................... 3,725,987 4,240,930
---------- ----------
Long-term debt .............................................. 741,150 743,440
Postretirement and other postemployment benefits ............ 1,137,368 1,163,568
---------- ----------
TOTAL LIABILITIES ........................................... 5,604,505 6,147,938
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value (liquidation preference
of $100.00 per share); authorized 25,000,000 shares;
4,000,000 shares of Series A 8-7/8% Cumulative
Preferred Stock issued and outstanding ...................... 4,000 4,000
Common stock, $1.00 par value; authorized
450,000,000 shares; 157,201,693 and
157,232,104 shares issued ................................... 157,202 157,232
Additional paid-in capital .................................. 3,842,957 3,835,697
Retained earnings/(deficit) ................................. 138,485 (234,841)
Treasury stock at cost; 9,772,632 shares
and 6,132,201 shares ........................................ (389,893) (217,132)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY .................................. 3,752,751 3,544,956
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $9,357,256 $9,692,894
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine-Month Period Ended
-----------------------------
March 28, March 29,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 441,714 $ 16,966
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation ................................................... 289,818 303,327
Amortization ................................................... 36,132 41,252
(Gain)/loss on disposition and write-downs of
other assets ................................................... (338,645) 34,248
Other adjustments to net income ................................ 554,069 53,051
Decrease in accounts receivable ................................ 231,438 337,129
Decrease in inventories ........................................ 263,175 347,421
(Increase)/decrease in prepaid expenses and other
current assets ................................................. (37,144) 7,672
Increase in assets held for resale (640,000) --
Decrease in accounts payable ................................... (85,755) (93,562)
Increase in taxes .............................................. 60,056 9,822
Increase/(decrease) in salaries, wages, benefits
and related items .............................................. 32,604 (9,205)
Decrease in deferred revenues and
customer advances .............................................. (56,751) (42,382)
Decrease in accrued restructuring costs ........................ (165,068) (176,186)
Decrease in other current liabilities .......................... (67,964) (25,283)
----------- -----------
Total adjustments .............................................. 75,965 787,304
----------- -----------
Net cash flows from operating activities ....................... 517,679 804,270
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property, plant and equipment .................... (340,733) (275,056)
Proceeds from the disposition of
property, plant and equipment .................................. 65,341 67,600
Purchases of short-term investments ............................ (1,646,963) (2,806,784)
Maturities of short-term investments ........................... 1,888,373 1,745,054
Investments in other assets .................................... (31,425) (4,518)
Proceeds from the disposition of other assets .................. 165,625 14,067
----------- -----------
Net cash flows from investing activities ....................... 100,218 (1,259,637)
----------- -----------
Net cash flows from operating and
investing activities ........................................... 617,897 (455,367)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine-Month Period Ended
----------------------------
March 28, March 29,
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt ................... 31,089 6,240
Payments to retire debt .............................. (268,018) (10,713)
Purchase of treasury shares .......................... (326,758) (214,546)
Issuance of common and treasury shares, including
tax effects .......................................... 111,700 81,831
Dividends on preferred stock ......................... (26,625) (26,625)
---------- ----------
Net cash flows from financing activities ............. (478,612) (163,813)
---------- ----------
Net increase/(decrease) in cash
and cash equivalents ................................. 139,285 (619,180)
Cash and cash equivalents at the
beginning of the year ................................ 1,358,750 1,791,754
---------- ----------
Cash and cash equivalents at end of period ........... $1,498,035 $1,172,574
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
DIGITAL EQUIPMENT CORPORATION
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three-Month Period Ended
------------------------------
March 28, March 29,
1998 1997
------------ ------------
<S> <C> <C>
Net income ....................................................... $ 341,823 $ 50,966
Less: Dividend on preferred stock ................................ 8,875 8,875
------------ ------------
Net income applicable to common stock ............................ $ 332,948 $ 42,091
============ ============
Weighted average number of common shares
outstanding during the period .................................... 146,928,739 154,282,203
Effect of common equivalent shares from application
of "treasury stock" method to unexercised
and outstanding stock options .................................... 2,469,137 1,017,100
------------ ------------
Total weighted average number of common
and common equivalent shares outstanding
during the period ................................................ 149,397,876 155,299,303
============ ============
Net income applicable per common share (1):
Basic earnings per share ......................................... $ 2.27 $ 0.27
============ ============
Diluted earnings per share ....................................... $ 2.23 $ 0.27
============ ============
</TABLE>
(1) Basic earnings per share is based on the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on the
weighted average number of common and common equivalent shares outstanding
during periods of net income.
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
DIGITAL EQUIPMENT CORPORATION
COMPUTATION OF NET INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Nine-Month Period Ended
-------------------------------
March 28, March 29,
1998 1997
------------ -------------
<S> <C> <C>
Net income ....................................................... $ 441,714 $ 16,966
Less: Dividends on preferred stock ............................... 26,625 26,625
============ =============
Net income /(loss) applicable to common stock .................... $ 415,089 $ (9,659)
------------ -------------
Weighted average number of common shares
outstanding during the period .................................... 147,574,003 154,598,774
Effect of common equivalent shares from application
of "treasury stock" method to unexercised
and outstanding stock options .................................... 2,043,116 --
------------ -------------
Total weighted average number of common
and common equivalent shares outstanding
during the period ................................................ 149,617,119 154,598,774
============ =============
Net income/(loss) applicable per common share (1):
Basic earnings/(loss) per share .................................. $ 2.81 $ (0.06)
============ =============
Diluted earnings/(loss) per share ................................ $ 2.77 $ (0.06)
============ =============
</TABLE>
(1) Basic earnings per share is based on the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on the
weighted average number of common and common equivalent shares outstanding
during periods of net income. Diluted loss per share is based only on the
weighted average number of common shares outstanding during the period.
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
DIGITAL EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Significant Accounting Policies
Principles of consolidation: The accompanying unaudited financial statements as
of and for the three-month and nine-month periods ended March 28, 1998 and March
29, 1997 have been prepared on substantially the same basis as the annual
consolidated financial statements, reflecting all adjustments of a normal
recurring nature. In the opinion of management, the financial statements reflect
all adjustments necessary for a fair presentation of the results for those
periods and the financial condition at those dates.
Certain prior year's amounts have been reclassified to conform with the current
year presentation.
<TABLE>
<CAPTION>
Other (income)/expense, net Nine-Month Period Ended Three-Month Period Ended
- ---------------------------------------------------------------------------------------------------
(in thousands) March 28, March 29, March 28, March 29,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ (84,689) $(82,706) $ (25,341) $(30,207)
Interest expense 58,643 64,311 17,387 21,542
Net (gain)/loss on divestments (338,645) (9,070) (329,837) (2,183)
- ---------------------------------------------------------------------------------------------------
Other (income)/expense, net $(364,691) $(27,465) $(337,791) $(10,848)
- ---------------------------------------------------------------------------------------------------
</TABLE>
Note B - Restructuring Actions
During the first nine months of fiscal 1998, the Corporation incurred costs of
$61 million for approximately 915 employee separations and for separation
actions taken at the end of fiscal 1997. In addition, the Corporation incurred
costs of $104 million for facilities closures and other related actions. Cash
expenditures for restructuring activities were $116 million for the first nine
months of fiscal 1998.
Note C - Litigation
Several purported class action lawsuits were filed against the Corporation
during the fourth quarter of fiscal 1994 alleging violations of the Federal
securities laws arising from alleged misrepresentations and omissions in
connection with the Corporation's issuance and sale of Series A 8-7/8%
Cumulative Preferred Stock and the Corporation's financial results for the
quarter ended April 2, 1994. During fiscal 1995, the lawsuits were consolidated
into three cases, which were pending before the United States District Court for
the District of Massachusetts. On August 8, 1995, the Massachusetts federal
court granted the defendants' motion to dismiss all three cases in their
entirety. On May 7, 1996, the United States Court of Appeals for the First
Circuit affirmed in part and reversed in part the dismissal of the two cases,
and remanded for further proceedings.
10
<PAGE> 11
The Corporation and Intel Corporation ("Intel") have been involved in litigation
commenced in the fourth quarter of fiscal 1997 in the U.S. District Courts for
the Districts of Massachusetts and Northern California, and in September 1997 in
the U.S. District Court for the District of Oregon claiming, respectively,
willful infringement by Intel of certain of the Corporation's patents through
the manufacture, sale and use of Intel's families of Pentium microprocessors,
breach of contract and various other unfair or unlawful business practices by
the Corporation, and willful infringement by the Corporation of certain of
Intel's patents through the manufacture, sale and use of various computer
products. On October 27, 1997, the Corporation and Intel announced that they had
reached agreement to settle the pending litigation between the parties and to
request a stay of all pending litigation, subject to receipt of government
approval necessary to finalize the transactions contemplated by the parties'
agreement. At the request of the parties, all proceedings have been stayed. On
April 23, 1998, the Federal Trade Commission ("FTC") notified the Corporation
and Intel that it will not seek to enjoin the settlement of the legal dispute
between the companies. As part of the FTC review process, the Corporation agreed
to a consent order that provides for the licensing of the Corporation's Alpha
technology to other semiconductor manufacturers. Accordingly, the Corporation
and Intel expect to complete the transactions contemplated by the agreement
prior to May 31, 1998 (see Note F).
Note D - Treasury Stock
During the first nine months of fiscal 1998, the Corporation purchased in the
open market 7.5 million shares of its common stock for an aggregate purchase
price of $327 million, or an average of $43.60 per common share. Approximately
3.9 million shares were issued under employee stock plans and the remaining
shares are held in treasury.
Note E - Statement of Financial Accounting Standard No. 128 - Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128 - Earnings per Share. SFAS No. 128
establishes standards for computing and presenting earnings per share (EPS) and
requires a dual presentation of basic and dilutive EPS. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997 and earlier adoption is not permitted. The financial statements presented
have been prepared in accordance with SFAS 128 and prior periods amounts have
been restated to conform to current year presentation.
Note F - Agreement with Intel Corporation
On October 27, 1997, the Corporation and Intel announced that they had reached
an agreement to establish a broad-based business relationship, including the
sale of the Corporation's semiconductor manufacturing operations to Intel for a
purchase price equal to the net book value of the transferred assets (currently
estimated to be approximately $640 million), cross-licensing of patents, supply
of both Intel and Alpha microprocessors
11
<PAGE> 12
and development of future systems based on Intel's 64-bit microprocessors. The
agreement provides that Intel will make offers of employment to employees of the
Corporation's semiconductor manufacturing operations, except for those employees
associated with the Alpha and Alpha-related semiconductor design teams.
Approximately 1,800 employees are expected to transfer to Intel. The Corporation
and Intel expect to complete the transactions contemplated by the agreement
prior to May 31, 1998 (see Note C).
Note G - Agreement with Cabletron Systems, Inc.
The Corporation and Cabletron Systems, Inc. ("Cabletron Systems") entered into
an asset purchase agreement on November 24, 1997, and consummated the
transaction on February 7, 1998. The Corporation received net proceeds of
approximately $416 million and realized a gain of $316 million related to this
transaction. The proceeds reflect $133 million of cash and product credits of
$301 million before reduction for imputed interest and other adjustments
totaling $18 million. The Corporation is confident the credits are fully
realizable and any loss thereof is remote. Other costs associated with the sale
have been reflected in two lines in the Statement of Operations, as described
below.
Costs attributable to the sale of assets consist of (in millions):
Write-off of surplus raw material inventory $12
Severance and other employee expenses 8
Supplier/vendor cancellation costs 6
Employee retention and pension expense 5
Litigation expense 2
---
Total $33
Other (income)/expense, net includes costs directly related to this sale of $5
million for professional services and $3 million for facilities restoration
costs.
Note H - Debt
During the quarter, the Corporation terminated its agreement with a major
financial institution (i) providing for the transfer and sale by the Corporation
to a wholly-owned subsidiary of the Corporation of a designated pool of domestic
trade accounts receivable (the "Receivables"), and (ii) allowing the Corporation
to sell to a group of investors an undivided ownership interest in the
Receivables for proceeds of up to $500 million. During the term of the
agreement, no interests in the Receivables had been sold.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
REVENUES
Total operating revenues for the first nine months of fiscal 1998 were $9.5
billion, down 1% from the comparable period a year ago. Total operating revenues
include product sales of $5.1 billion and service revenues of $4.4 billion.
Total operating revenues for the third quarter of fiscal 1998 were $3.2 billion,
down 4% from the comparable quarter last year. Total operating revenues include
product sales of $1.7 billion and service revenues of $1.5 billion.
<TABLE>
<CAPTION>
Revenues (dollars in millions) Nine-Month Period Ended Three-Month Period Ended
- --------------------------------------------------------------------------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product sales $5,080 $5,203 $1,682 $1,836
% of total revenues 54% 54% 53% 55%
- --------------------------------------------------------------------------------------
Service revenues $4,396 $4,381 $1,509 $1,478
% of total revenues 46% 46% 47% 45%
- --------------------------------------------------------------------------------------
Total revenues $9,476 $9,584 $3,191 $3,314
- --------------------------------------------------------------------------------------
</TABLE>
Product sales for the first nine months and third quarter of fiscal 1998 were
down 2% and 8%, respectively, from the comparable periods last year. Product
sales for the first nine months and third quarter of fiscal 1998 reflect a
decrease in revenues from the sales of certain client and component products,
partially offset by increased revenues from the sale of server (Intel and
Alpha-based) and storage products.
Revenues from the sale of servers represented 37% and 39% of product sales for
the first nine months and third quarter of fiscal 1998, respectively, up from
34% and 33% for the comparable periods last year. Client sales represented 29%
and 31% of product sales for the first nine months and third quarter of fiscal
1998, respectively, compared to 30% and 29% for the same periods in fiscal 1997.
Revenues from the Corporation's components and other products represented 34%
and 30% of product sales for the first nine months and third quarter of fiscal
1998, respectively, compared to 36% and 38% of product sales for the same
periods last year.
Service revenues for the first nine months and third quarter of fiscal 1998 were
$4.4 billion and $1.5 billion, respectively, essentially unchanged from the
first nine months and up 2% from the third quarter of fiscal 1997. Service
revenues reflect growth in network and integration services, multivendor
services, and client/server outsourcing services, offset by an anticipated
decrease in revenues from Digital products maintenance services.
13
<PAGE> 14
Operating revenues from customers outside of the United States were $6.2 billion
and $2.1 billion for the first nine months and third quarter of fiscal 1998,
respectively, in each case representing 65% of total operating revenues,
compared to $6.5 billion and $2.3 billion for the first nine months and third
quarter of fiscal 1997, or 68% and 69% of total operating revenues,
respectively. The Corporation's operating results for the first nine months and
third quarter of fiscal 1998 were adversely impacted by the continued
strengthening of the U.S. dollar. Removing the effects of foreign currency
exchange rate movements, the increase in total operating revenues would have
been 5% and 3% for the first nine months and third quarter of fiscal 1998,
respectively, when compared to the same periods last year.
EXPENSES AND PROFIT MARGINS
<TABLE>
<CAPTION>
Gross margin (dollars in millions) Nine-Month Period Ended Three-Month Period Ended
- ------------------------------------------------------------------------------------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product sales gross margin $1,833 $1,758 $587 $648
% of related revenues 36% 34% 35% 35%
- ------------------------------------------------------------------------------------------------
Service revenues gross margin $1,393 $1,364 $487 $459
% of related revenues 32% 31% 32% 31%
- ------------------------------------------------------------------------------------------------
</TABLE>
Product gross margin was 36% and 35% of product sales for the first nine months
and third quarter of fiscal 1998, respectively, compared to 34% and 35% for the
same periods a year ago. The improvement in product gross margin for the first
nine months was due principally to manufacturing cost efficiencies and an
increased proportion of higher-margin server revenues, and in the third quarter,
offset by a $21 million increase in cost of product sales related to the
repurchase of inventory from Cabletron Systems, Inc. (see discussion below and
Note G).
Service gross margin was 32% of service revenues for the first nine months and
third quarter of fiscal 1998, compared to 31% for the first nine months and
third quarter of fiscal 1997. Service gross margin reflects the continued focus
on more profitable systems integration contracts, as well as the implementation
of gross margin improvement programs, offset by the continued shift in the mix
of service revenues toward lower-margin service offerings.
<TABLE>
<CAPTION>
Operating expenses (dollars in millions) Nine-Month Period Ended Three-Month Period Ended
- ------------------------------------------------------------------------------------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Research and engineering $ 799 $ 764 $261 $256
% of total revenues 8% 8% 8% 8%
- ------------------------------------------------------------------------------------------------
Selling, general and administrative $2,263 $2,348 $738 $799
% of total revenues 24% 25% 23% 24%
- ------------------------------------------------------------------------------------------------
Costs attributable to the sale of assets $ 33 -- $ 33 --
% of total revenues N/M -- 1% --
- ------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
Research and engineering (R&E) spending totaled $799 million and $261 million
for the first nine months and third quarter of fiscal 1998, respectively, up
from $764 million and $256 million for the same periods in fiscal 1997. The
Corporation believes that this level of R&E investment is appropriate for the
Corporation to continue to provide competitive products and services.
Selling, general and administrative (SG&A) expenses were $2.3 billion and $738
million for the first nine months and third quarter of fiscal 1998,
respectively, down 4% from the first nine months of fiscal 1997 and down 8%
compared to the third quarter of fiscal 1997. The decline in SG&A expenses
reflects the positive effects of currency rate movements and the Corporation's
continued focus on achieving a competitive cost structure through reductions in
population and facilities expenditures, partially offset by increases in
investment in demand generation activities and salaries and wages.
Costs attributable to the sale of assets are comprised of $33 million of costs
which are solely related to the sale of certain assets to Cabletron Systems,
Inc.(see Note G).
At the end of fiscal 1996, the Corporation approved a restructuring plan
intended to increase sales productivity, further consolidate manufacturing
plants and distribution sites, improve service delivery and further reduce
overhead in support areas. The number of involuntary separations is expected to
be lower than originally planned due principally to a higher than anticipated
level of voluntary separations. However, associated restructuring-related cost
savings are expected to be offset by an increase in estimated separation costs
for certain employees. The total estimated cost of restructuring actions is
unchanged (see Note B).
Total employee population decreased by 800 during the third quarter of fiscal
1998 to approximately 53,500, and by 1,600 from the end of the third quarter of
fiscal 1997.
Net other income was $365 million and $27 million for the first nine months of
fiscal 1998 and 1997, respectively. Net gains on divestments were $339 million
for the first nine months of fiscal 1998, compared to $9 million for the same
period a year ago. The increase in net other income is principally due to
increased gains on divestments, a reduction in interest expense and increased
interest income in the first nine months of fiscal 1998. Net other income was
$338 million and $11 million for the third quarter of fiscal 1998 and 1997,
respectively. The increase was principally due to net gains on divestments of
$330 million for the third quarter of fiscal 1998, compared to $2 million of net
gains on divestments for the same period a year ago. In the third quarter of
fiscal 1998 the Corporation recognized a $316 million gain related to the sale
of certain assets of its network products business to Cabletron Systems, Inc.
(see discussion below and Note G).
Income tax expense for the first nine months and third quarter of fiscal 1998
was $54 million and $37 million, respectively, compared to $20 million and $11
million for the same periods last year. Income tax expense reflects several
factors, including income taxes for profitable operations, benefits taken from
net operating loss carryforwards and an inability to recognize currently certain
tax benefits from operating losses.
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AVAILABILITY OF FUNDS TO SUPPORT CURRENT AND FUTURE OPERATIONS AND SPENDING FOR
OPERATIONS
Cash, cash equivalents and short-term investments totaled $2.4 billion at the
end of the third quarter of fiscal 1998, down from $2.5 billion at the end of
fiscal 1997.
Net cash generated from operating activities was $518 million for the first nine
months of fiscal 1998, reflecting a decrease in accounts receivable and
inventories from the end of fiscal 1997, offset by an increase in prepaid
expenses and a decrease in accounts payable and various other liabilities. Cash
expenditures for restructuring activities were $116 million for the first nine
months of fiscal 1998. Future cash expenditures for currently planned
restructuring activities are estimated to be $200 million for fiscal 1998 and
beyond.
Net cash from investing activities was $100 million in the first nine months of
fiscal 1998. The increase in cash from investing activities was due principally
to proceeds from the disposition of assets and maturities of short-term
investments. As investments mature, the proceeds are reinvested as cash, cash
equivalents or short-term investments, as conditions warrant.
Net cash used for financing activities was $479 million in the first nine months
of fiscal 1998. The principal financing activities were the Corporation's
purchase on the open market of 7.5 million shares of its common stock for $327
million and the retirement of $250 million of five-year notes.
During the quarter, the Corporation terminated its U.S. accounts receivable
securitization facility (see Note H).
On October 27, 1997, the Corporation and Intel Corporation ("Intel") announced
that they had reached an agreement to establish a broad-based business
relationship, including the sale of the Corporation's semiconductor
manufacturing operations to Intel for a purchase price equal to the net book
value of the transferred assets (currently estimated to be approximately $640
million), cross-licensing of patents, supply of both Intel and Alpha
microprocessors and development of future systems based on Intel's 64-bit
microprocessors. The agreement provides that Intel will make offers of
employment to employees of the Corporation's semiconductor manufacturing
operations, except for those employees associated with the Alpha and
Alpha-related semiconductor design teams. On April 23, 1998, the Federal Trade
Commission ("FTC") notified the Corporation and Intel that it will not seek to
enjoin the settlement of the legal dispute between the companies. Accordingly,
the parties expect to consummate the transactions contemplated by the settlement
agreement prior to May 31, 1998. Approximately 1,800 employees are expected to
transfer to Intel (see Notes C and F).
On November 24, 1997, the Corporation entered into an asset purchase agreement
with Cabletron Systems, Inc. ("Cabletron Systems") and Ctron Acquisition Co.,
Inc., a wholly-
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owned subsidiary of Cabletron Systems (collectively, "Cabletron"), pursuant to
which the Corporation agreed to sell certain assets of its network products
business to Cabletron. The agreement was first amended on December 8, 1997 and
again on February 7, 1998 to adjust the purchase price to approximately $133
million in cash and $301 million in product credits (to be applied to the
Corporation's future purchase of products from Cabletron Systems), before
reduction for imputed interest and other adjustments totaling $18 million. The
transaction was consummated as of February 7, 1998. The Corporation has
recognized a gain of $316 million related to this transaction in the third
quarter of fiscal 1998. Approximately 800 employees have been or will be
transferred to Cabletron Systems in connection with this transaction. The
Corporation and Cabletron Systems also entered into a Reseller and Services
Agreement ("Reseller Agreement") dated November 24, 1997, pursuant to which the
Corporation has agreed to resell certain Cabletron Systems' products (including
the products sold by the Corporation's network products business) and the
Corporation is designated a services provider for certain of Cabletron Systems'
products. Under the Reseller Agreement, the Corporation has committed to
purchase for resale and internal use network products from Cabletron Systems
during the term of the Reseller Agreement, which extends through June 30, 2001
(see Note G).
On January 26, 1998, the Corporation and Compaq Computer Corporation ("Compaq")
announced the completion of a definitive merger agreement. Upon consummation of
the merger, common stockholders of the Corporation will receive $30 in cash and
0.945 shares of Compaq common stock for each share of the Corporation's common
stock. Based on conditions at the time the merger agreement was signed,
approximately $4.4 billion of cash and 139 million shares of Compaq common stock
would be issued to the Corporation's common stockholders. Under the terms of the
agreement, the Corporation will become a wholly owned subsidiary of Compaq upon
completion of the merger. The Corporation has filed a Proxy Statement with
respect to the pending transaction, and a Special Meeting of Stockholders is
scheduled to be held on June 11, 1998 at which the holders of common stock of
the Corporation will vote upon the approval and adoption of the merger
agreement.
The Corporation's need for, cost of and access to funds are dependent on future
operating results, as well as conditions external to the Corporation. The
Corporation historically has maintained a conservative capital structure, and
believes that its cash position and its sources of and access to capital markets
are adequate to support current operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Corporation or statements made by
its employees may contain "forward-looking" information, as that term is defined
in the Private Securities Litigation Reform Act of 1995. The Corporation
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including but
not limited to the following:
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- -- The Corporation's future operating results are dependent on its ability to
develop, produce and market new and innovative products and services. There are
numerous risks inherent in this complex process, including rapid technological
change, the Corporation's ability to access components and related technical
information from other companies and the requirement that the Corporation bring
to market in a timely fashion new products and services which meet customers'
changing needs.
- -- Historically, the Corporation has generated a disproportionate amount of its
operating revenues toward the end of each quarter, making precise prediction of
revenues and earnings particularly difficult and resulting in risk of variance
of actual results from those forecast at any time. In addition, the
Corporation's operating results historically have varied from fiscal period to
fiscal period; accordingly, the Corporation's financial results in any
particular fiscal period are not necessarily indicative of results for future
periods.
- -- The Corporation offers a broad variety of products and services to customers
around the world. Changes in the mix of products and services comprising
revenues could cause actual operating results to vary from those expected.
- -- The Corporation's success is partly dependent on its ability to successfully
predict and adjust production capacity to meet demand, which is partly dependent
upon the ability of external suppliers to deliver components at reasonable
prices and in a timely manner; capacity or supply constraints, or unexpected
increases or decreases in the prices of components, could adversely affect
future operating results.
- --While the Corporation believes that the materials required for its
manufacturing operations are presently available in quantities sufficient to
meet demand, the failure of a significant supplier to deliver certain components
or technical information on a timely basis or in sufficient quantities could
adversely affect the Corporation's future results of operations.
- -- The Corporation operates in a highly competitive environment which includes
significant competitive pricing pressures and intense competition for skilled
employees. Particular business segments may from time to time experience
unanticipated intense competitive pressure, possibly causing operating results
to vary from those expected.
- --The Corporation offers its products and services directly and through indirect
distribution channels. Changes in the financial condition of, or the
Corporation's relationship with, distributors and other indirect channel
partners, as well as fluctuations in end-user sales by indirect sales channel
partners, could cause actual operating results to vary from those expected.
- -- The Corporation does business worldwide in over 100 countries. Global and/or
regional economic factors and potential changes in laws and regulations
affecting the Corporation's business, including without limitation, currency
fluctuations, changes in
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<PAGE> 19
monetary policy and tariffs, and federal, state and international laws
regulating the environment, could impact the Corporation's financial condition
or future results of operations.
- -- Certain of the Corporation's internal computer systems are not Year 2000
ready (i.e., such systems use only two digits to represent the year in date data
fields and, consequently, may not accurately distinguish between the 20th and
21st centuries or may not function properly at the turn of the century). The
Corporation has been taking actions intended to either correct such systems or
replace them with Year 2000 ready systems. The Corporation expects to implement
successfully the systems and programming changes necessary to address Year 2000
issues and does not believe that the cost of such actions will have a material
effect on the Corporation's results of operations or financial condition. There
can be no assurance, however, that there will not be a delay in, or increased
costs associated with, the implementation of such changes, and the Corporation's
inability to implement such changes could have an adverse effect on future
results of operations.
- -- As the Corporation continues to implement its strategic plan and respond to
external market conditions, there can be no assurance that additional
restructuring actions will not be required. With regard to completion of planned
restructuring actions, there can be no assurance that the estimated cost of such
actions will not change.
- -- The market price of the Corporation's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the information
technology industry, as well as general economic conditions and other factors
external to the Corporation.
- -- The Corporation and Compaq Computer Corporation have announced the completion
of a definitive merger agreement. This announcement could have an impact on the
Corporation's ability to market its products and services to its customers,
possibly causing operating results to vary from those expected.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
On February 12, 1998, the Corporation filed a Current Report on Form 8-K
reporting that effective February 3, 1998, it had amended the Rights
Agreement dated as of December 11, 1989 between the Corporation and First
Chicago Trust Company of New York to render the Rights (as defined in the
Rights Agreement) related to the Corporation's common stock inapplicable to
the Agreement and Plan of Merger dated as of January 25, 1998 between the
Corporation and Compaq Computer Corporation and the transactions
contemplated thereby. The Corporation's amendment to the Rights Agreement
is incorporated by reference in this Form 10-Q as Exhibit 4 below.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4. Amendment, dated as of February 3, 1998, to the Rights Agreement,
originally dated as of December 11, 1989, between Digital
Equipment Corporation and First Chicago Trust Company of New York
(filed as Exhibit 4 to the Corporation's Current Report on
Form 8-K filed on February 12, 1998 and incorporated herein by
reference).
10(a). Digital Equipment Corporation 1968 Employee Stock Purchase Plan,
as amended.
10(b). Digital Equipment Corporation 1981 International Employee Stock
Purchase Plan, as amended.
10(c). Retirement Arrangement for Non-Employee Directors, as amended.
10(d). Deferred Compensation Plan for Non-Employee Directors, as amended.
10(e). Deferred Compensation Plan for Executives, as amended.
10(f). Digital Equipment Corporation Key Employee Severance Plan,
effective as of March 19, 1998 (filed as Exhibit 10.1 to the
registrant's Current Report on Form 8-K filed on May 6, 1998 and
incorporated herein by reference).
10(g) Severance Agreement, dated as of March 19, 1998, by and between
Digital Equipment Corporation and Robert B. Palmer (filed as
Exhibit 10.2 to the
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Corporation's Current Report on Form 8-K filed on May 6, 1998 and
incorporated herein by reference).
10(h) Amended and Restated Agreement and Plan of Merger dated as of
January 25, 1998, among Compaq Computer Corporation, the
registrant and Compaq Merger, Inc. (filed as Exhibit 2 to the
Registration Statement on Form S-4/Proxy Statement of Compaq
Computer Corporation and the Corporation filed on May 6, 1998 and
incorporated herein by reference).
10(i) Asset Purchase Agreement dated as of March 6, 1998, by and between
Digital Equipment Corporation and Intel Corporation. Confidential
Treatment request as to certain portions of the Agreement (filed
as Exhibit 2 to the Corporation's Current Report on Form 8-K/A
filed on May 5, 1998 and incorporated herein by reference).
27. Financial Data Schedule
(b) Reports on Form 8-K.
- On January 29, 1998, the Corporation filed a Current Report on
Form 8-K reporting that on January 25, 1998 it and Compaq Computer
Corporation entered into an Agreement and Plan of Merger.
- On February 12, 1998, the Corporation filed a Current Report on
Form 8-K reporting that effective February 3, 1998, it had amended
the Rights Agreement dated as of December 11, 1989 between the
Corporation and First Chicago Trust Company of New York to render
the Rights (as defined in the Rights Agreement) inapplicable to
the Agreement and Plan of Merger dated as of January 25, 1998
between the Corporation and Compaq Computer Corporation and the
transactions contemplated thereby.
- On March 20, 1998, the Corporation filed a Current Report on
Form 8-K reporting that on March 6, 1998, the Corporation and
Intel Corporation ("Intel") entered into an Asset Purchase
Agreement relating to the sale by the Corporation of certain
assets used in its semiconductor manufacturing operations to
Intel.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL EQUIPMENT CORPORATION
(Registrant)
By: /s/ Vincent J. Mullarkey
----------------------------------------
Vincent J. Mullarkey
Senior Vice President, Finance and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
May 6, 1998
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<PAGE> 1
EXHIBIT 10(a)
DIGITAL EQUIPMENT CORPORATION
1968 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1-PURPOSE
This Employee Stock Purchase Plan (the "Plan") is intended as an incentive
and to encourage stock ownership by all eligible employees of Digital Equipment
Corporation (the "Company") and participating subsidiaries so that they may
share in the fortunes of the Company by acquiring or increasing their
proprietary interest in the Company. The Plan is designed to encourage eligible
employees to remain in the employ of the Company. It is intended that options
issued pursuant to this Plan shall constitute options issued pursuant to an
"employee stock purchase plan" within the meaning of Section 423 of the 1954
Internal Revenue Code.
ARTICLE 2-ELIGIBLE EMPLOYEES
All employees of the Company or any of its participating subsidiaries who
have completed six months employment with the Company or any of its subsidiaries
shall be eligible to receive options under this Plan to purchase the Company's
Common Stock (except employees in countries whose laws make participation
impractical). Persons who have been so employed for six months or more on the
first day of the Payment Period shall receive their options as of such day.
Persons who attain the status of employment for six months or more after the
date on which the initial options are granted under this Plan shall be granted
options on the next date on which options are granted to all eligible employees.
In no event may an employee be granted an option if such employee is a director
of the Company or if such employee, immediately after the option is granted,
owns stock possessing 5 percent or more of the total combined voting power or
value of all classes of stock of the Company or of its parent corporation or
subsidiary corporation, as the terms "parent corporation" and "subsidiary
corporation" are defined in Section 425(e) and (f) of the 1954 Internal Revenue
Code. For purposes of determining stock ownership under this paragraph, the
rules of Section 425(d) of the 1954 Internal Revenue Code shall apply and stock
which the employee may purchase under outstanding options shall be treated as
stock owned by the employee.
ARTICLE 3-STOCK SUBJECT TO THE PLAN
The stock subject to the options shall be shares of the Company's authorized
but unissued shares of Common Stock or shares of Common Stock reacquired by the
Company including shares purchased in the open market.
<PAGE> 2
The aggregate number of shares which may be issued pursuant to the Plan is
52,700,000, subject to increase or decrease by reason of stock split-ups,
reclassifications, stock dividends, changes in par value and the like.
ARTICLE 4 -PAYMENT PERIODS AND STOCK OPTIONS
The six-month periods, June 1 to November 30 and December 1 to May 31, are
Payment Periods during which payroll deductions will be accumulated under the
Plan. Notwithstanding the foregoing, the Payment Period scheduled to end on May
31, 1998 shall end on the earlier of May 31, 1998 or the last business day prior
to the effective date ("the Effective Date") of the merger contemplated by, and
provided for in, the Amended and Restated Agreement and Plan of Merger dated as
of the 25th day of January, 1998 among the Company, Compaq Computer Corporation
and Compaq Merger, Inc. Each Payment Period includes only regular pay days
falling within it.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, such number of shares of the Common Stock of the
Company reserved for the purpose of the Plan as does not exceed the greater of
the number of shares equal in value to 10% of the employee's total compensation
divided by the price determined in accordance with (i) below, or 600 shares, on
condition that such employee remains eligible to participate in the Plan
throughout such Payment Period. The foregoing limitation on the number of shares
which may be granted in any Payment Period is subject to increase or decrease by
reason of stock split-ups, reclassifications, stock dividends, changes in par
value and the like. The participant shall be entitled to exercise such options
so granted only to the extent of his accumulated payroll deductions on the last
day of such Payment Period. The Option Price for each Payment Period shall be
the lesser of (i) 85% of the average market price of the Company's Common Stock
on the first business day of the Payment Period, rounded up to avoid fractions
other than 1/4, 1/2 and 3/4, or (ii) 85% of the average market price of the
Company's Common Stock on the last business day of the Payment Period, rounded
up to avoid fractions other than 1/4, 1/2 and 3/4. In the event of an increase
or decrease in the number of outstanding shares of Common Stock of the Company
through stock split-ups, reclassifications, stock dividends, changes in par
value and the like, an appropriate adjustment shall be made in the number of
shares and Option Price per share provided for under the Plan, either by a
proportionate increase in the number of shares and a proportionate decrease in
the Option Price per share, or by a proportionate decrease in the number of
shares and a proportionate increase in the Option Price per share, as may be
required to enable an eligible employee who is then a participant in the Plan as
to whom an option is exercised on the last day of any then current Payment
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<PAGE> 3
Period to acquire such number of full shares as his accumulated payroll
deductions on such date will pay for at the adjusted Option Price.
For purposes of this Plan the term "average market price" means the average
of the high and low prices of the Common Stock of the Company on the New York
Stock Exchange or such other national securities exchange as shall be designated
by the Board of Directors.
For purposes of this Plan the term "business day" as used herein means a day
on which there is trading on the New York Stock Exchange or such other national
securities exchange as shall be designated by the Board of Directors pursuant to
the preceding paragraph.
No employee shall be granted an option which permits his rights to purchase
Common Stock under the Plan and any similar plans of the Company or any parent
or subsidiary corporations to accrue at a rate which exceeds $25,000 of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8)
of the 1954 Internal Revenue Code.
ARTICLE 5-EXERCISE OF OPTION
Each eligible employee who continues to be a participant in the Plan on the
last business day of a Payment Period shall be deemed to have exercised his
option on such date and shall be deemed to have purchased from the Company such
number of full shares of Common Stock reserved for the purpose of the Plan as
his accumulated payroll deductions on such date will pay for at such Option
Price. If a participant is not an employee on the last business day of a Payment
Period, he shall not be entitled to exercise his option.
ARTICLE 6-SUPPLEMENTARY CONTRIBUTIONS AND UNUSED PAYROLL DEDUCTIONS
(a) Only full shares of Common Stock may be purchased under the Plan. Subject
to the limitations set forth below, unused payroll deductions remaining in an
employee's account at the end of a Payment Period will be carried forward to the
succeeding Payment Period. However, in no event will the amount of unused
payroll deductions carried forward from a Payment Period exceed the Option Price
per share for that Payment Period. If for any Payment Period the amount of
unused payroll deductions should exceed the Option Price per share of stock, the
amount of the excess for any participant shall be refunded to such participant.
(b) An employee who has completed a Payment Period shall have the right to
make a supplementary contribution in an amount equal to the Option Price for the
most recently completed Payment Period less the unused payroll
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<PAGE> 4
deductions being carried forward. Such supplementary contributions will be made
by additional payroll deductions. The election to make a supplementary
contribution shall be made by written notice received by the Investor Services
Department no later than 10 days after the beginning of the Payment Period in
which the supplementary contribution is to be made and shall remain in effect
through all succeeding Payment Periods until revoked by written notice received
by the Investor Services Department no later than 10 days after the beginning of
the Payment Period to which such notice applies.
(c) An employee initially entering the Plan will be permitted to make a
supplementary contribution in an amount equal to the Option Price for the most
recently completed Payment Period. An election to make such supplementary
contribution shall be made by written notice received by the Investor Services
Department no later than 10 days after the beginning of the Payment Period in
which the employee's supplementary contribution is to be made. An election under
this paragraph by an employee initially entering the Plan shall constitute an
election to make supplementary contributions for succeeding Payment Periods,
subject to the terms and conditions of paragraph (b) above.
ARTICLE 7-AUTHORIZATION FOR ENTERING PLAN
An employee may enter the Plan by filling out, signing and delivering to the
Investor Services Department an Authorization:
(a) stating the amount to be deducted regularly from his pay;
(b) authorizing the purchase of stock for him in each Payment Period
in accordance with the terms of the Plan; and
(c) specifying the exact name in which stock purchased for him is to be
issued as provided under Article 11 hereof.
Such Authorization must be received by the Investor Services Department at
least 10 days before the beginning date of such next succeeding Payment Period.
Unless an employee files a new Authorization or withdraws from the Plan, his
deductions and purchases under the Authorization he has on file under the Plan
will continue as long as the Plan remains in effect.
The Company will accumulate and hold for the employee's account the amounts
deducted from his pay. No interest will be paid on it.
ARTICLE 8-MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS
An employee may authorize payroll deductions in an amount not less than 2%
but not more than 10% of total compensation. In addition, an employee shall be
entitled to make supplementary contributions pursuant to Article 6 hereof.
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<PAGE> 5
ARTICLE 9-CHANGE IN PAYROLL DEDUCTIONS
Deductions may be increased or decreased only once in a Payment Period. A new
Authorization will be required and must be received by the Investor Services
Department.
ARTICLE 10-WITHDRAWAL FROM THE PLAN
An employee may withdraw from the Plan, in whole but not in part, at any time
prior to the last business day of each Payment Period by delivering a Withdrawal
Notice to the Investor Services Department, in which event the Company will
promptly refund the entire balance of his deductions not theretofore used to
purchase stock under the Plan.
An employee who withdraws from the Plan is like an employee who has never
entered the Plan. To re-enter, he must file a new Authorization at least 10 days
before the beginning date of the next Payment Period which cannot, however,
become effective before the beginning of the next Payment Period following his
withdrawal.
ARTICLE 11-ISSUANCE OF STOCK
A participant will receive Statements of Ownership for stock purchased under
the Plan, or may elect to receive stock certificates instead of Statements of
Ownership. Stock purchased under the Plan will be issued only in the name of the
employee, or if his Authorization so specifies, in the name of the employee and
another person of legal age as joint tenants with rights of survivorship.
ARTICLE 12-NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS
An employee's rights under the Plan are his alone and may not be transferred
or assigned to, or availed of by, any other person. Any option granted to an
employee may be exercised only by him.
ARTICLE 13-TERMINATION OF EMPLOYEE'S RIGHTS
An employee's rights under the Plan will terminate when he ceases to be an
employee because of retirement, resignation, lay-off, discharge, death, change
of status, or for any other reason. A Withdrawal Notice will be considered as
having been received from the employee on the day his employment ceases, and all
payroll deductions not used to purchase stock will be refunded.
If an employee's payroll deductions are interrupted by any legal process, a
Withdrawal Notice will be considered as having been received
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<PAGE> 6
from him on the day the interruption occurs.
ARTICLE 14-TERMINATION AND AMENDMENTS TO PLAN
The Plan may be terminated at any time by the Company's Board of Directors.
It will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Plan have been purchased. If at
any time shares of stock reserved for the purpose of the Plan remain available
for purchase but not in sufficient number to satisfy all then unfilled purchase
requirements, the available shares shall be apportioned among participants in
proportion to their options and the Plan shall terminate. Upon such termination
or any other termination of the Plan, all payroll deductions not used to
purchase stock will be refunded.
The Board of Directors also reserves the right to amend the Plan from time to
time in any respect provided, however, that no amendment shall be effective
without prior approval of the stockholders, which would (a) except as provided
in Articles 3 and 4, increase the number of shares of Common Stock to be offered
above or (b) change the class of employees eligible to receive options under the
Plan.
ARTICLE 15-LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide common stock for investment and not for
resale. The Company does not, however, intend to restrict or influence any
employee in the conduct of his own affairs. An employee may, therefore, sell
stock purchased under the Plan at any time he chooses, provided, however, that
because of certain Federal tax requirements, each employee will agree by
entering the Plan, promptly to give the Company notice of any such stock
disposed of within two years after the date of grant of the applicable option
showing the number of such shares disposed of. The employee assumes the risk of
any market fluctuations in the price of such stock.
ARTICLE 16-COMPANY'S PAYMENT OF EXPENSES RELATED TO PLAN
The Company will bear all costs of administering and carrying out the Plan.
ARTICLE 17-PARTICIPATING SUBSIDIARIES
The term "participating subsidiaries" shall mean any subsidiary of the
Company which is designated by the Board of Directors to participate in the
Plan. The Board of Directors shall have the power to make such designation
before or after the Plan is approved by the stockholders.
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ARTICLE 18-ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than three members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee shall select one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Committee of any provisions of the
Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any option
granted under it.
ARTICLE 19-OPTIONEES NOT STOCKHOLDERS
Neither the granting of an option to any employee nor the deductions from his
pay shall constitute such employee a stockholder of the shares covered by an
option until such shares have been purchased by and issued to him.
ARTICLE 20-APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock pursuant
to options granted under the Plan will be used for general corporate purposes.
ARTICLE 21-GOVERNMENTAL REGULATION
The Company's obligation to sell and deliver shares of the Company's Common
Stock under this Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such stock.
ARTICLE 22-WITHHOLDING OF ADDITIONAL FEDERAL INCOME TAX
The Company, in accordance with Section 3402(a) of the 1954 Internal Revenue
Code and the Regulations and Rulings promulgated thereunder, will withhold from
the wages of participating employees, in all payroll periods
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following and in the same calendar year as the date on which compensation is
deemed received by the employee, additional income taxes in respect of the
amount that is considered compensation includible in the employee's gross
income.
ARTICLE 23-APPROVAL OF STOCKHOLDERS
The Plan shall not take effect until approved by the holders of a majority of
the outstanding shares of Common Stock of the Company, which approval must occur
within the period beginning twelve months before and ending twelve months after
the date the Plan is adopted by the Board of Directors. The Plan was adopted by
the Board of Directors on May 13, 1968. The Plan was approved by the
stockholders on October 29, 1968.
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Exhibit 10(b)
Digital Equipment Corporation
1981 International Employee Stock Purchase Plan
ARTICLE 1-PURPOSE
This 1981 International Employee Stock Purchase Plan (the "Plan") is
intended as an incentive and to encourage stock ownership by all eligible
employees of the Participating Subsidiaries of Digital Equipment Corporation
(the "Company") so that they may share in the fortunes of the Company by
acquiring or increasing their proprietary interest in the Company. The Plan is
designed to encourage eligible employees to remain in the employ of the
Company or its subsidiaries.
ARTICLE 2-ELIGIBLE EMPLOYEES
In general, all employees of any of the Participating Subsidiaries of the
Company who have completed six months employment with the Company or any of
its subsidiaries shall be eligible to receive options under this Plan to
purchase the Company's Common Stock. In certain instances, a Participating
Subsidiary which has branches in more than one country may desire to implement
the Plan in fewer than all countries in which its branches are located. In
such an instance, upon approval by the Company's Board of Directors or the
Committee (as defined in Article 18), only participating eligible employees of
the branches located within the country or countries where implementation is
desired will be granted options under this Plan.
Participating eligible employees who have been so employed for six months
or more on the first day of the Payment Period shall receive their options as
of such day. Persons who attain the status of employment for six months or
more after the date on which the initial options are granted under this Plan
shall be granted options, if they elect to participate in the Plan, on the
next date on which options are granted to all participating eligible
employees. In no event may an employee be granted an option if such employee
is a director of the Company.
ARTICLE 3-STOCK SUBJECT TO THE PLAN
The stock subject to the options shall be shares of the Company's
authorized but unissued Common Stock or shares of Common Stock reacquired by
the Company including shares purchased in the open market. The aggregate
number of shares which may be issued pursuant to the Plan is 19,700,000.
subject to increase or decrease by reason of stock split-ups,
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reclassifications, stock dividends, changes in par value and the like.
ARTICLE 4-PAYMENT PERIODS AND STOCK OPTIONS
The six-month periods, June 1 to November 30 and December 1 to May 31, are
Payment Periods during which payroll deductions will be accumulated under the
Plan. Notwithstanding the foregoing, the Payment Period scheduled to end on
May 31, 1998 shall end on the earlier of May 31, 1998 or the last business day
prior to the effective date ("the Effective Date") of the merger contemplated
by, and provided for in, the Amended and Restated Agreement and Plan of Merger
dated as of the 25th day of January, 1998 among the Company, Compaq Computer
Corporation and Compaq Merger, Inc. Each Payment Period includes only regular
pay days falling within it.
Twice each year, on the first business day of each Payment Period, each
Participating Subsidiary will grant to each eligible employee who is then a
participant in the Plan an option to purchase on the last day of such Payment
Period, at the Option Price hereinafter provided for, such number of shares of
the Common Stock of the Company reserved for the purpose of the Plan as does
not exceed the greater of the number of shares equal in value to 10% of the
employee's total earned cash compensation divided by the price determined in
accordance with (i) below, or 600 shares, on condition that such employee
remains eligible to participate in the Plan throughout such Payment Period.
The foregoing limitation on the number of shares which may be granted in any
Payment Period is subject to increase or decrease by reason of stock
split-ups, reclassifications, stock dividends, changes in par value and the
like. The participant shall be entitled to exercise such options so granted
only to the extent of his accumulated payroll deductions on the last day of
such Payment Period. The Option Price for each Payment Period shall be the
lesser of (i) 85% of the average market price of the Company's Common Stock on
the first business day of the Payment Period, rounded up to avoid fractions
other than 1/4, 1/2 and 3/4, or (ii) 85% of the average market price of the
Company's Common Stock on the last business day of the Payment Period, rounded
up to avoid fractions other than 1/4, 1/2 and 3/4. In the event of an increase
or decrease in the number of outstanding shares of Common Stock of the Company
through stock split-ups, reclassifications, stock dividends, changes in par
value and the like, an appropriate adjustment shall be made in the number of
shares and Option Price per share provided for under the Plan, either by a
proportionate increase in the number of shares and a proportionate decrease in
the Option Price per share, or by a proportionate decrease in the number of
shares and a proportionate increase in the Option Price per share, as may be
required to enable an eligible employee who is then a participant in the Plan
as to whom an option is exercised on the last day of any then current Payment
Period to acquire such number of full shares as his accumulated payroll
deductions on such date will pay for at the adjusted Option Price.
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For purposes of this Plan the term "average market price" means the average
of the high and low prices of the Common Stock of the Company on the New York
Stock Exchange or such other national securities exchange as shall be
designated by the Board of Directors.
For purposes of this Plan the term "business day" as used herein means a
day on which there is trading on the New York Stock Exchange or such other
national securities exchange as shall be designated by the Board of Directors
pursuant to the preceding paragraph.
No employee shall be granted an option which permits his rights to purchase
Common Stock under the Plan and any similar plans of the Company or any parent
or subsidiary corporations to accrue at a rate which exceeds $25,000 of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
ARTICLE 5-EXERCISE OF OPTION
Each eligible employee who continues to be a participant in the Plan on the
last business day of a Payment Period shall be deemed to have exercised his
option on such date and shall be deemed to have acquired the number of full
shares of Common Stock reserved for the purpose of the Plan as his accumulated
payroll deductions on such date will pay for at such Option Price. If a
participant is not an employee on the last business day of a Payment Period,
he shall not be entitled to exercise his option.
ARTICLE 6-SUPPLEMENTARY CONTRIBUTIONS AND UNUSED PAYROLL DEDUCTIONS
(a) Only full shares of Common Stock may be purchased under the Plan.
Subject to the limitations set forth below, unused payroll deductions
remaining in an employee's account at the end of a Payment Period will
be carried forward to the succeeding Payment Period. However, in no
event will the amount of unused payroll deductions carried forward from
a Payment Period exceed the Option Price per share for that Payment
Period. If for any Payment Period the amount of unused payroll
deductions should exceed the Option Price per share of stock, the
amount of the excess for any participant shall be refunded to such
participant.
(b) An employee who has completed a Payment Period shall have the right to
make a supplementary contribution in an amount equal to the Option
Price for the most recently completed Payment Period less the unused
payroll deductions being carried forward. The election to make a
supplementary contribution shall be made by written notice
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received by the Participating Subsidiary's personnel office (the
"Personnel Office") no later than 10 days after the beginning of the
Payment Period in which the supplementary contribution is to be made
and shall remain in effect through all succeeding Payment Periods until
revoked by written notice received by the Personnel Office no later
than 10 days after the beginning of the Payment Period to which such
notice applies.
(c) An employee initially entering the Plan will be permitted to make a
supplementary contribution in an amount equal to the Option Price for
the most recently completed Payment Period. An election to make such
supplementary contribution shall be made by written notice received by
the Personnel Office no later than 10 days after the beginning of the
Payment Period in which the employee's supplementary contribution is to
be made. An election under this paragraph by an employee initially
entering the Plan shall constitute an election to make supplementary
contributions for succeeding Payment Periods, subject to the terms and
conditions of paragraph (b) above.
ARTICLE 7-AUTHORIZATION FOR ENTERING PLAN
In addition to any procedures adopted by the Participating Subsidiary, each
eligible employee entering the Plan must fill out, sign and deliver to the
Personnel Office an Authorization:
(a) stating the percentage to be deducted regularly from his pay;
(b) authorizing the purchase of stock for him in each Payment
Period in accordance with the terms of the Plan; and
(c) specifying the exact name in which stock purchased for him is
to be issued as provided under Article 11 hereof.
Such Authorization must be received by the Personnel Office at least 10
days before the beginning date of such next succeeding Payment Period.
Unless an employee files a new Authorization or withdraws from the Plan,
his deductions and purchases under the Authorization he has on file under the
Plan will continue as long as the Plan remains in effect.
The Participating Subsidiary will accumulate and hold for the employee's
account the amounts deducted from his pay. No interest will be paid on it.
ARTICLE 8-MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS
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An employee may authorize payroll deductions in an amount not less than 2%
but not more than 10% of his total earned cash compensation. In addition, an
employee shall be entitled to make supplementary contributions pursuant to
Article 6 hereof.
ARTICLE 9-CHANGE IN PAYROLL DEDUCTIONS
Deductions may be increased or decreased only once in a Payment Period. A
new Authorization will be required and must be received by the Personnel
Office.
ARTICLE 10-WITHDRAWAL FROM THE PLAN
An employee may withdraw from the Plan, in whole but not in part, at any
time prior to the last business day of each Payment Period by delivering a
Withdrawal Notice to the Personnel Office, in which event the Participating
Subsidiary will promptly refund the entire balance of his deductions not
theretofore used to purchase stock under the Plan.
An employee who withdraws from the Plan is like an employee who has never
entered the Plan. To re-enter, he must file a new Authorization at least 10
days before the beginning date of the next Payment Period which cannot,
however, become effective before the beginning of the next Payment Period
following his withdrawal.
ARTICLE 11-ISSUANCE OF STOCK
A participant will receive Statements of Ownership for stock purchased
under the Plan, or may elect to receive stock certificates instead of
Statements of Ownership.
Stock purchased under the Plan will be issued only in the name of the
employee, or if his Authorization so specifies, in the name of the employee
and another person of legal age as joint tenants with rights of survivorship.
ARTICLE 12-NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS
An employee's rights under the Plan are his alone and may not be
transferred or assigned to, or availed of by, any other person. Any option
granted to an employee may be exercised only by him.
ARTICLE 13-TERMINATION OF EMPLOYEE'S RIGHTS
An employee's rights under the Plan will terminate when he ceases to be an
employee because of retirement, resignation, lay-off, discharge, death, change
of status, or for any other reason. A Withdrawal Notice will be considered as
having been received from the employee on the day his
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employment ceases, and all payroll deductions not used to purchase stock will
be refunded.
If an employee's payroll deductions are interrupted by any legal process, a
Withdrawal Notice will be considered as having been received from him on the
day the interruption occurs.
ARTICLE 14-TERMINATION AND AMENDMENTS TO PLAN
The Plan may be terminated at any time by the Company's Board of Directors.
It will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Plan have been purchased. If
at any time shares of stock reserved for the purpose of the Plan remain
available for purchase but not in sufficient number to satisfy all then
unfilled purchase requirements, the available shares shall be apportioned
among participants in proportion to their options and the Plan shall
terminate. Upon such termination or any other termination of the Plan, all
payroll deductions not used to purchase stock will be refunded.
The Board of Directors also reserves the right to amend the Plan from time
to time in any respect provided, however, that no amendment shall be effective
without prior approval of the stockholders, which would (a) except as provided
in Articles 3 and 4, increase the number of shares of Common Stock to be
offered above or (b) change the class of employees eligible to receive options
under the Plan.
ARTICLE 15-LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide common stock for investment and not for
resale. The Company does not, however, intend to restrict or influence any
employee in the conduct of his own affairs. An employee may, therefore, sell
stock purchased under the Plan at any time he chooses. The employee assumes
the risk of any market fluctuations in the price of such stock.
ARTICLE 16-PAYMENT OF EXPENSES RELATED TO PLAN
The Company and the Participating Subsidiaries will bear all costs of
administering and carrying out the Plan.
ARTICLE 17-PARTICIPATING SUBSIDIARIES
The term "Participating Subsidiaries" shall mean subsidiaries of the
Company which are designated by the Board of Directors to participate in the
Plan. The Board of Directors shall have the power to make such designation
before or after the Plan is approved by the stockholders.
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ARTICLE 18-ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than three members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by
the Board of Directors. The Committee shall select one of its members as
Chairman, and shall hold meetings at such times and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee, shall be the valid
acts of the Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may deem
best. No member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
option granted under it.
ARTICLE 19-OPTIONEES NOT STOCKHOLDERS
Neither the granting of an option to an employee nor the deductions from
his pay shall constitute such employee a stockholder of the shares covered by
an option until such shares have been purchased by and issued to him.
ARTICLE 20-APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock pursuant
to options granted under the Plan will be used for general corporate purposes.
ARTICLE 21-GOVERNMENTAL REGULATION
The Company's obligation to sell and deliver shares of the Company's Common
Stock under this Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such stock.
ARTICLE 22-APPROVAL OF STOCKHOLDERS
The Plan was adopted by the Company's Board of Directors on August 10,
1981, subject to approval by the stockholders of the Company. The Plan was
approved by the stockholders on November 5, 1981.
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Exhibit 10(c)
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Digital Equipment Corporation
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Retirement Arrangement for Non-Employee Directors
(as amended on June 12, 1997 and April 23, 1998)
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I. Name and Purpose
The name of this plan is the Digital Equipment Corporation
Retirement Arrangement for Non-Employee Directors (the
"Plan"). Its purpose is to recognize and reward the valuable
service provided to Digital Equipment Corporation by its
non-employee directors by supplementing their retirement
income.
II. Effective Date
The Plan shall become effective for any non-employee director
terminating service with the Digital Equipment Corporation
Board of Directors (the "Board") on or after 18 May 1987.
III. Eligibility for Participation
All non-employee directors of Digital Equipment Corporation on
18 May 1987 shall be eligible to participate and shall begin
participation in the Plan on 18 May 1987. All non-employee
directors of Digital Equipment Corporation who are appointed
to the Board on or after 19 May 1987 shall be eligible to
participate in the Plan and shall begin participation upon the
effective date of their appointment or election to the Board.
Any director who begins participation shall be a participant
(a "Participant") in the Plan for life. Notwithstanding the
foregoing paragraph, effective upon and subject to the
approval of the 1995 Stock Option Plan for Non-Employee
Directors by the stockholders of Digital Equipment
Corporation, eligibility to participate in the Plan shall be
limited only to those individuals who commenced service as a
director prior to January 1, 1995; AND FURTHER, effective as
of the date of the 1997 Annual Meeting of Stockholders of
Digital Equipment Corporation, eligibility to participate in
the Plan shall be limited only to those individuals who
commenced service as a director prior to January 1, 1995 AND
are 65 years of age or older as of such date.
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IV. Entitlement to Retirement Benefit
Any Participant in the Plan as of 18 May 1987, and any other
Participant in the Plan having reached age seventy (70) and
with at least five (5) years of service as a non-employee
director of Digital Equipment Corporation, who terminates
service with the Board on or after 18 May 1987 shall be
entitled to an annualized benefit for life which is equal in
amount to the annual retainer in effect for non-employee
directors as of the Participant's date of termination of
service on the Board. Notwithstanding the foregoing, upon
consummation of the Corporation's pending merger ("Merger")
with Compaq Computer Corporation ("Compaq") pursuant to the
Amended and Restated Agreement and Plan of Merger between the
Corporation, Compaq and Compaq Merger Inc. dated as of January
25, 1998, any Participant in the Plan whose service is
terminated in connection with the Merger shall be entitled to
an annualized benefit for life which is equal in amount to the
annual retainer in effect for non-employee directors as of the
date of the Participant's termination of service. For purposes
of determining years of service for purposes of this Section
IV., time for which a Participant receives a disability
benefit under Section VI. of this Plan shall be considered
time included in years of service. Furthermore, termination of
service for purposes of this Section IV. shall mean the later
of actual termination of service and cessation of disability
benefits under Section VI. hereof, if applicable.
V. Payment of Retirement Benefit
The benefit due to a Participant under this Plan shall be paid
as quarterly installments, each equal to one-fourth of the
annual benefit provided for in IV. above. Installments shall
become due and payable as of the first day of each calendar
quarter. The first such payment shall become due and payable
as of the first day of the calendar quarter next following the
date on which the Participant terminates service as a director
of Digital Equipment Corporation. The last such payment shall
become due and payable as of the first day of the calendar
quarter in which the Participant dies. Payment shall be mailed
to the last known address of the Participant. It shall be the
responsibility of the Participant to ensure that Digital
Equipment Corporation is provided his or her correct address.
There shall be no death benefit hereunder.
VI. Entitlement to Disability Benefit
Any Participant in the Plan who terminates service on the
Board as a result of a total disability on or after 18 May
1987 at a time when he or she does not qualify for a
retirement benefit under Section IV. above shall be entitled
to an annual benefit for the period of time during which he or
she is disabled or until he or she
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attains the age and service requirements for a retirement
benefit under IV. above, whichever is shorter, which is equal
in amount to the annual retainer in effect for non-employee
directors as of his or her date of termination of service on
the Board. Total disability shall mean a physical or mental
condition which, in the sole and unfettered discretion of the
Board, makes continued service on the Board impossible or
undesirable.
VII. Payment of Disability Benefit
Any payments under Section VI. hereof shall be paid according
to the provisions of Section V. hereof as if such disability
benefit were a retirement benefit and as if the termination of
the Participant's service on the Board as a result of total
disability were termination of service after age seventy (70)
with five (5) full years of service on the Board. The
disability benefit hereunder shall cease on ending of the
disability or on the attainment of the age and service
requirements for a retirement benefit and no disability
payment shall be made after the date on which the disability
ends or the said requirements have been met. No duplication of
benefits between disability benefits and retirement benefits
shall be permitted.
VIII. Participant's Rights in Benefit
A Participant shall not have any interest in the benefits
under this Plan until they are distributed in accordance with
the Plan. Until paid, all amounts payable under the Plan shall
remain the sole property of the Corporation, subject to the
claims of its general creditors and available for its use for
whatever purposes are desired. With respect to unpaid
benefits, a Participant is merely a general creditor of the
Corporation, and the obligation of the Corporation hereunder
is purely contractual and shall not be funded or secured in
any way. This Plan is not, and is not intended to be, for
employees of Digital Equipment Corporation and is not a plan
subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
IX. Non-Assignability
The right of a Participant to the payment of benefits as
provided in the Plan shall not be assigned, transferred,
pledged or encumbered or be subject in any manner to
alienation or anticipation.
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X. Administration
The Administrator of this Plan shall be the Office of the
President of the Corporation. The Administrator shall have
authority to adopt rules and regulations for carrying out the
Plan and to interpret, construe and implement the provisions
hereof, and may delegate the authority to administer the Plan
to such delegee as the Administrator of its sole and
unfettered discretion believes appropriate.
XI. Amendment and Termination
The Plan may at any time be amended, modified, or terminated
by the Board of Directors of the Corporation. No amendment,
modification or termination shall, without the consent of a
Participant, adversely affect such Participant's right with
respect to benefits accrued as of the date of amendment,
modification, or termination. An accrued benefit as of a
particular date shall mean that benefit to which a Participant
would be entitled under the Plan if it had remained in
existence after the date of termination of the Plan, but with
no additional service performed by the Participant and with no
change of disability status by the Participant after the
termination date.
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<PAGE> 1
Exhibit 10(d)
DIGITAL EQUIPMENT CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
AS AMENDED AND RESTATED EFFECTIVE 18 MAY 1987
AND AS FURTHER AMENDED APRIL 22, 1991, JUNE 20, 1996 AND APRIL 23, 1998
I. NAME AND PURPOSE
The name of this plan is the Digital Equipment Corporation Deferred
Compensation Plan for Non-Employee Directors (the "Plan"). Its purpose is
to provide non-employee directors of Digital Equipment Corporation (the
"Corporation") with an opportunity to defer cash compensation earned as a
director.
II. EFFECTIVE DATE
The Plan became effective on June 1, 1983.
III. ELIGIBILITY FOR PARTICIPATION
Any director of the Corporation who is not an employee of the Corporation
or of a subsidiary of the Corporation shall be eligible to participate in
the Plan. Any such person who submits an election to defer compensation
under the Plan as provided for in V. below is hereinafter called a
"Participant." The Plan shall establish for each Participant an unfunded
deferred compensation account or accounts as appropriate.
IV. PARTICIPANTS' DEFERRED COMPENSATION ACCOUNTS
There shall be four types of deferred compensation accounts under this Plan
as follows:
A. Cash Deferred Compensation Account with Lump Sum Payment ("Cash Lump
Sum Account"),
B. Cash Deferred Compensation Account with Installment Payment ("Cash
Installment Account"),
C. Unit Deferred Compensation Account with Lump Sum Payment ("Unit Lump
Sum Account"), and
D. Unit Deferred Compensation Account with Installment Payment ("Unit
Installment Account").
Each Participant may have Cash Lump Sum Accounts or Cash Installment
Accounts or both ("Cash Accounts"). A Participant may also have Unit Lump
Sum Accounts or Unit Installment Accounts or both ("Unit Accounts"). Cash
Accounts shall have all allocations credited in dollar amounts and shall be
credited with interest as provided below. Unit Accounts shall have all
allocations credited in units as provided below. Cash Lump Sum Accounts and
Unit Lump Sum Accounts (collectively "Lump Sum Accounts") shall be
distributed in a lump sum payment. Cash Installment Accounts and Unit
Installment Accounts (collectively "Installment Accounts") shall be
distributed in a series of installment payments as elected by the
Participant.
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V. ELECTIONS OF DEFERRAL, ALLOCATION AND DISTRIBUTION
Eligible directors or nominees to be eligible directors of the Corporation
may make the following elections:
A. On or before December 31 of any year, an initial election (i) to defer
receipt of all or a specified portion of the compensation (exclusive of
expense reimbursement) otherwise payable during the following calendar
year for service on the Board of Directors of the Corporation and its
Committees and for attending meetings of said Board, which election
shall be irrevocable, (ii) to allocate the deferred compensation among
types of accounts, which election shall be irrevocable and (iii) to
elect the number of installment payments desired, if applicable, which
election may be changed as provided in Section V.D below.
B. Before July 1, 1987, an irrevocable election (i) to defer receipt of
all or a portion of his or her compensation otherwise payable during
the six-month period commencing July 1, 1987 and ending December 31,
1987, (ii) to allocate the deferred compensation among types of
accounts, and (iii) to elect the number of installment payments
desired, if applicable.
C. If such director or nominee is a newly-elected director, an election
(i) to defer receipt of all or a portion of his or her compensation
otherwise payable during the remainder of the calendar year in which
such director joins the Board, which election shall be irrevocable,
(ii) to allocate the deferred compensation among types of accounts,
which election shall be irrevocable and (iii) to elect the number of
installment payments desired, if applicable, which election may be
changed as provided in Section V.D below. Any such elections must be
made within one month following the date on which such director is
elected to the Board and shall be effective with respect to
compensation allocable to the period commencing on the first day of the
month next following the date on which such election is made.
D. At any time after the initial elections referred to in Sections V.A.
and V.C. above, a Participant may change his or her election with
respect to number of installment payments desired, if applicable;
provided, however, no such election shall be effective unless it is
made more than six months prior to the Participant's resignation or
reasonably anticipated retirement from the Board of Directors.
VI. MANNER OF ELECTING DEFERRALS, ALLOCATIONS AND DISTRIBUTIONS
The elections provided for in V. above must be made on a form provided by
the Plan Administrator, which specifies:
A. The amount of each component of the Participant's compensation for such
year (annual retainer, committee fees and attendance fees) to be
deferred (designated either as a percentage, a dollar amount or a
combination thereof); and
B. The percentage of the deferred compensation to be allocated to each of
the Participant's deferred compensation accounts; and
C. The number of annual installments (not to exceed 15) to be used in
distributions from the Participant's Installment Accounts, if any; and
D. The period of deferral (a minimum of three years or until retirement or
resignation from the Board of Directors, whichever is less) (the
"Deferral Period").
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Such form shall be delivered to the Corporation on or before December 31 of
the year preceding the first year to which such election relates, except
that the form from newly elected directors with respect to their initial
election for a partial year may be delivered at any time within one month
following the date of their election to the Board. Any form received prior
to May 18, 1987 shall continue in effect until a new form is delivered in
accordance with this Section VI. The elections set forth in the latest form
filed as to the percentage of each component of the Participant's
compensation for the year (or other period) to be deferred, as to the
amounts to be allocated to the deferred compensation accounts and as to the
number of installments, if applicable, shall be given continuing effect for
subsequent years until a new notice specifying a different election shall
be delivered to the Corporation. Any election for deferral received prior
to May 18, 1987 shall be deemed to be an election to allocate all of such
deferred compensation to the Participant's Cash Accounts until a new notice
specifying a different election shall be delivered to the Corporation. Any
new form shall apply only to compensation for periods subsequent to the
period in which such new form is delivered; however, the number of
installment payments desired, if applicable, may be changed at any time,
subject to the limitations in Section V.D.
VII. CREDITING PARTICIPANTS' ACCOUNTS
The following method shall be used to credit a Participant's accounts:
A. All Participants' deferred compensation accounts under the Plan prior
to amendment were and will remain Cash Accounts and were or will be
credited with deferred compensation which otherwise would have been
payable before July 1, 1987 and with interest equivalents as of each
June 30 and December 31 on the average daily balance credited to any
such account during the period of six months ended on such date, at an
annualized rate equal to the rate, on a bond-yield equivalency basis,
on six-month (26-week) Treasury Bills maturing during the week in which
such date falls.
B. Effective with respect to the six-month period ending December 31,
1987, and for subsequent calendar years through December 31, 1996, a
Participant's Cash Accounts shall be credited with the cash value of
any amounts deferred by him or her subject to an election to have such
amounts allocated to Cash Accounts. Any such Cash Account shall also be
credited with interest equivalents as of each June 30 and December 31
on the average daily balance credited to such account during the period
of six months ended on such date, at an annualized rate equal to the
rate, on a bond yield equivalency basis, on six-month (26-week)
Treasury Bills maturing during the week in which such date falls.
Interest equivalents shall continue to be so credited until such time
as the entire balance of any such account shall have been distributed.
C. Effective January 1, 1997, and for subsequent calendar years, a
Participant's Cash Accounts shall be credited with the cash value of
any amounts deferred by him or her subject to an election to have such
amounts allocated to Cash Accounts. Any such Cash Account shall also be
credited with interest equivalents on a quarterly basis on the average
daily balance credited to such account during such period ended on such
date, at an interest rate equal to the ten-year U.S. Government Rate as
reported in the Wall Street Journal, reported as an average for the
one-year period prior to December 1 of the year prior to the first year
of the Deferral Period, which rate shall be reset in the same manner on
January 1 of each subsequent year during the Deferral Period. Interest
equivalents shall continue to be so credited until such time as the
entire balance of any such account shall have been distributed.
D. Effective with respect to the six-month period ending December 31,
1987, and for subsequent calendar years through December 31, 1996, a
Participant's Unit Accounts shall be credited with a number of units
("Units"), to be determined and valued in accordance with the fair
market value of shares of the Corporation's Common Stock, $1.00 par
value ("Common Stock"). The number of Units shall be adjusted as
provided in 2. and 3. below until the entire balances in Unit
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Accounts shall have been distributed. The method of such determination
and valuation is as follows:
1. The number of Units credited to any Unit Account (including
fractional Units) shall be the quotient of (i) the cash amount of
deferred compensation to be credited to such account over (ii) the
mean between the highest and lowest selling prices of the Common
Stock on the date on which the deferred compensation would have
otherwise been payable, as reported on the New York Stock Exchange
Composite Tape. If there are no sales on such date, the fair market
value of the Common Stock shall be an average of the mean between
the highest and lowest selling prices of the Common Stock on the
nearest day before and the nearest day after such date, as reported
on the New York Stock Exchange Composite Tape.
2. Additional Units shall be credited to a Participant's Unit Accounts
as of each payment date for cash dividends, if any, on the Common
Stock, on the basis of the number of Units credited to each account
on the record date for such dividends. The number of Units
(including fractional Units) to be credited to each such account as
of any cash dividend payment date shall be the quotient of (i) the
product of the number of Units credited to such account on the
dividend record date for such dividend and the dividend per share
on the Common Stock over (ii) the fair market value of the Common
Stock on the dividend payment date. The fair market value of the
Common Stock on the dividend payment date shall be the mean between
the highest and lowest selling prices of the Common Stock on the
dividend payment date, as reported on the New York Stock Exchange
Composite Tape. If there are no sales on the dividend payment date,
the fair market value of the Common Stock shall be an average of
the mean between the highest and lowest selling prices of the
Common Stock on the nearest day before and the nearest day after
the dividend payment date, as reported on the New York Stock
Exchange Composite Tape.
3. If at any time the number of outstanding shares of Common Stock
shall be increased or decreased as the result of any stock
dividend, subdivision, stock split, combination or reclassification
of shares, the number of Units in a Participant's Unit Accounts
shall be increased or decreased, as the case may be, in the same
proportion as the outstanding number of shares of Common Stock is
increased or decreased.
E. Effective January 1, 1997, and for subsequent calendar years, a
Participant's Unit Accounts shall be credited with a number of units
("Units"), to be determined and valued in accordance with the fair
market value of shares of the Corporation's Common Stock, $1.00 par
value ("Common Stock"). The number of Units shall be adjusted as
provided in 2. and 3. below until the entire balances in Unit Accounts
shall have been distributed. The method of such determination and
valuation is as follows:
1. The number of Units credited to any Unit Account (including
fractional Units) shall be the quotient of (i) the cash amount of
deferred compensation to be credited to such account over (ii) the
mean between the highest and lowest selling prices of the Common
Stock on the ten trading days prior to the date on which the
deferred compensation would have otherwise been payable, as
reported on the New York Stock Exchange Composite Tape.
2. Additional Units shall be credited to a Participant's Unit Accounts
as of each payment date for cash dividends, if any, on the Common
Stock, on the basis of the number of Units credited to each Unit
Account on the record date for any such dividend. The number of
Units (including fractional Units) to be credited to each such
account as of any cash dividend payment date shall be the quotient
of (i) the product of the number of Units credited to such account
on the dividend record date for such dividend and the dividend per
share on the Common Stock over (ii) the fair market value of the
Common Stock on the dividend payment date. The fair market value of
the Common Stock on the dividend payment date shall be the
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mean between the highest and lowest selling prices of the Common
Stock on the dividend payment date, as reported on the New York
Stock Exchange Composite Tape. If there are no sales on the
dividend payment date, the fair market value of the Common Stock
shall be an average of the mean between the highest and lowest
selling prices of the Common Stock on the nearest day before and
the nearest day after the dividend payment date, as reported on the
New York Stock Exchange Composite Tape.
3. If at any time the number of outstanding shares of Common Stock
shall be increased or decreased as the result of any stock
dividend, subdivision, stock split, combination or reclassification
of shares, the number of Units in a Participant's Unit Accounts
shall be increased or decreased, as the case may be, in the same
proportion as the outstanding number of shares of Common Stock is
increased or decreased.
VIII. METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION
Distributions of the amounts in a Participant's deferred compensation
accounts shall be made as follows:
A. No distribution of deferred compensation may be made except as provided
in this Section VIII.
B. The amounts credited to a Participant's Lump Sum Accounts shall be
payable in cash in a lump sum in January of the year following the last
year of the Deferral Period. The amounts credited to a Participant's
Installment Accounts shall be paid in up to fifteen annual installments
according to the Participant's election or elections commencing in
January of the year following the last year of the Deferral Period. The
amount of the first payment shall be a fraction of the amount of the
Participant's deferred compensation accounts as of December 31 of the
year preceding payment, the numerator of which is one and the
denominator of which is the total number of installments elected. The
amount of each subsequent payment shall be a fraction of the amount as
of December 31 of the year preceding such subsequent payment, the
numerator of which is one and the denominator of which is the total
number of installments elected minus the number of installments
previously paid.
C. Each amount shall be debited for the amount of any distribution made
from it, either in a lump sum or in annual installments.
D. Distribution of a Participant's Cash and Unit Accounts shall be made in
cash. With respect to any Unit Account, the cash amount for any payment
from such account shall be determined by multiplying the number of
Units in the Account on December 31 of the year immediately preceding
the payment date by the average of the mean between the highest and
lowest selling prices of the Common Stock, as reported on the New York
Stock Exchange Composite Tape, for each of the ten (10) trading days
immediately prior to said December 31. The amount to be distributed in
January of any year shall be determined as of December 31 of the
immediately preceding year.
IX. DISTRIBUTION UPON DEATH
If any Participant dies while a director, or thereafter, before receiving
all funds deferred for his or her accounts, the unpaid amount in the
Participant's deferred compensation accounts shall be paid in one lump sum
in January of the year following the year of death to any beneficiary or
beneficiaries designated by the Participant by written notice to the
Corporation or, in the absence of such designation, to such Participant's
estate.
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X. PARTICIPANT'S RIGHTS IN ACCOUNTS
A Participant shall have only the interest of an unsecured general
creditor in the deferred compensation, interest equivalents or Units
credited to his or her accounts. All amounts deferred under the Plan shall
remain the sole property of the Corporation, subject to the claims of its
general creditors and available for its use for whatever purposes are
desired until actually paid. With respect to amounts deferred, the
obligation of the Corporation hereunder is purely contractual and shall
not be funded or secured in any way.
XI. NON-ASSIGNABILITY
The right of a Participant to the payment of deferred compensation as
provided in the Plan shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or anticipation.
XII. STATEMENT OF ACCOUNT
Statements will be sent to Participants during February of each year as to
the balance of their deferred compensation accounts as of the end of the
previous calendar year.
XIII. ADMINISTRATION
The Administrator of this Plan shall be the Office of the President of the
Corporation. The Administrator shall have authority to adopt rules and
regulations for carrying out the Plan and to interpret, construe and
implement the provisions hereof.
XIV. AMENDMENT AND TERMINATION
The Plan may at any time be amended, modified or terminated by the Board
of Directors of the Corporation. No amendment, modification or termination
shall, without the consent of a Participant, adversely affect such
Participant's right with respect to amounts accrued in his or her deferred
compensation accounts.
XV. NOTICES
All notices and elections to be delivered to the Corporation hereunder
shall be delivered to the attention of the Secretary of the Corporation.
XVI. EARLY WITHDRAWAL PENALTY; HARDSHIP
A. EARLY WITHDRAWAL. A Participant may, upon prior written notice to the
Corporation, accelerate the distribution of all or any part of the
amounts deferred, including any accrued interest, subject to an early
withdrawal penalty equal to 10% of the amount withdrawn and provided
such amounts have been deferred for at least three years. This penalty
shall be withheld by the Corporation upon the distribution of any
amounts pursuant to this Section XVI.A.
B. HARDSHIP. Upon receipt of a request from a Participant or a
Participant's designated beneficiary, delivered in writing to the
Corporation, the Compensation and Management Development Committee (the
"CMDC") of the Board of Directors may cause the Corporation to
accelerate payment of all or any part of the Participant's deferred
compensation including any accrued interest, if it finds in its sole
discretion that payment of such amounts in accordance with
Participant's prior election under Section V would result in hardship
to the Participant or
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beneficiary and such hardship is the result of an unforeseeable
emergency caused by circumstances beyond the control of the Participant
or beneficiary. Acceleration of payment may not be made under this
Section XVI to the extent that such hardship is or may be relieved (i)
through reimbursement or compensation by insurance or otherwise or (ii)
by liquidation of the Participant's assets, to the extent the
liquidation of assets would not itself cause severe financial hardship.
XVII. CHANGE IN CONTROL
A. INITIAL LUMP SUM ELECTION. Notwithstanding any election made pursuant
to Section V, a Participant may file a written election with the
Corporation to have the deferred amounts, including accrued interest,
paid in one lump-sum payment as soon as practicable following a Change
in Control, but in no event later than 60 days after such Change in
Control.
B. REVOCATION OF LUMP-SUM ELECTION. A Participant may revoke an election
made pursuant to Section XVII (a) by filing an appropriate written
notice with the Corporation. A revocation notice filed pursuant to this
Section XVII (b) shall be effective with respect to deferred amounts,
including accrued interest, which are credited thereafter to the
Participant's Account.
C. LIMITATION ON ELECTIONS. Any election made pursuant to Section XVII (A)
or (B) shall not be effective unless filed with the Corporation at
least 90 days prior to a Change in Control.
D. DEFINITION OF CHANGE IN CONTROL. A "Change in Control" is defined to
mean any of the following events:
1. The acquisition by any person (including a group, within the
meaning of Sections 13(d)(3) or 14(d)(2) of the 1934 Act), other
than the Corporation or any subsidiary of the Corporation, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of 20% or more of the combined voting power of
the Corporation's outstanding voting securities.
2. The first purchase under a tender offer or exchange offer, other
than an offer by the Corporation or any subsidiary of the
Corporation, pursuant to which shares of the Corporation's Common
Stock have been purchased.
3. During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Corporation cease for any reason (other than death or disability)
to constitute at least a majority thereof, unless the election or
the nomination for election by stockholders of the Corporation of
each new Director was approved by a vote of at least two-thirds of
the Directors then still in office who were Directors at the
beginning of the period.
4. Approval by stockholders of the Corporation of a merger,
consolidation, liquidation or dissolution of the Corporation, or
the sale of all or substantially all of the assets of the
Corporation.
7
<PAGE> 1
Exhibit 10(e)
DIGITAL EQUIPMENT CORPORATION
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
I. NAME AND PURPOSE
The name of this plan is the Digital Equipment Corporation Deferred
Compensation Plan for Executives (the "Plan"). Its purpose is to provide a
select group of management or highly compensated employees ("Executives")
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the
Employee Retirement Income Security Act of 1974, as amended, of Digital
Equipment Corporation or its subsidiaries (the "Corporation") with an
opportunity to defer cash compensation earned through the Corporation's
Executive Incentive Plan and its successors ("Eligible Compensation").
II. EFFECTIVE DATE
The Plan was approved by the Board of Directors on June 20, 1996 and first
became effective with respect to Eligible Compensation paid for services
rendered in fiscal year 1997.
III. ELIGIBILITY FOR PARTICIPATION
Any Executive of the Corporation designated by the Compensation and
Management Development Committee or its successor (the "CMDC") of the
Board of Directors shall be eligible to participate in the Plan. The CMDC
may delegate its authority to designate Participants under this Plan to
any officer or officer(s) of the Corporation and subject to whatever
limitations the CMDC may define in its sole discretion. Any such person
who submits an election to defer Eligible Compensation under the Plan as
provided for in Section V below is hereinafter called a "Participant." The
Plan shall establish for each Participant an unfunded deferred
compensation account or accounts as appropriate. Any authority or power
granted in the Plan to the CMDC shall also be deemed to be granted to the
Board of Directors, and any action permitted to be taken or determination
permitted to be made by the CMDC may also be taken or made by the Board of
Directors.
IV. PARTICIPANTS' DEFERRED COMPENSATION ACCOUNTS
There shall be four types of deferred compensation accounts under this
Plan as follows:
A. Cash Deferred Compensation Account with Lump Sum Payment ("Cash Lump
Sum Account"),
B. Cash Deferred Compensation Account with Installment Payment ("Cash
Installment Account"),
C. Unit Deferred Compensation Account with Lump Sum Payment ("Unit Lump
Sum Account"), and
D. Unit Deferred Compensation Account with Installment Payment ("Unit
Installment Account").
Each Participant may have Cash Lump Sum Accounts or Cash Installment
Accounts or both ("Cash Accounts"). A Participant may also have Unit Lump
Sum Accounts or Unit Installment Accounts or both ("Unit Accounts"). Cash
Accounts shall have all allocations credited in dollar amounts and shall
be credited with interest as provided below. Unit Accounts shall have all
allocations credited in units as provided below. Cash Lump Sum Accounts
and Unit Lump Sum Accounts (collectively "Lump Sum Accounts") shall be
distributed in a lump sum payment. Cash Installment Accounts and
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Unit Installment Accounts (collectively "Installment Accounts") shall be
distributed in a series of installment payments as elected by the
Participant.
V. ELECTIONS OF DEFERRAL, ALLOCATION AND DISTRIBUTION
Executives may make the following elections:
A. On or before December 31 of any year, an initial election (i) to defer
receipt of all or a specified portion of the Eligible Compensation
otherwise payable during the following calendar year, which election
shall be irrevocable, (ii) to allocate the deferred compensation among
types of accounts, which election shall be irrevocable, and (iii) to
elect the number of installment payments desired, if applicable, which
election may be changed as provided in Section V.C. below.
B. If such individual has become employed by the Corporation after
December 31 of any year, an initial election (i) to defer receipt of
all or a portion of his or her Eligible Compensation, which election
shall be irrevocable, (ii) to allocate the deferred compensation among
types of accounts, which election shall be irrevocable, and (iii) to
elect the number of installment payments desired, if applicable, which
election may be changed as provided in Section V.C below. Any such
elections must be made within one month following the date on which
such Executive becomes employed by the Corporation and shall be
effective with respect to compensation allocable to the period
commencing on the first day of the month next following the date on
which such election is made.
C. At any time after the initial election referred to in Sections V.A and
V.B above, a Participant may change his or her election with respect to
the number of installment payments desired by delivering to the
Corporation written notice of such change; provided, however, no such
subsequent election shall be effective unless such notice is delivered
to the Corporation more than six months prior to a Participant's (i)
reasonably anticipated retirement from the Corporation or (ii)
termination of employment.
VI. MANNER OF ELECTING DEFERRALS, ALLOCATIONS AND DISTRIBUTIONS
The elections provided for in Section V above must be made on a form
provided by the Plan Administrator, which specifies:
A. The amount of the Participant's Eligible Compensation for such year to
be deferred (designated either as a percentage, a dollar amount or a
combination thereof);
B. The percentage of the deferred compensation to be allocated to each of
the Participant's deferred compensation accounts;
C. The number of annual installments (not to exceed 15) to be used in
distributions from the Participant's Installment Accounts, if any; and
D. The period of deferral (a minimum of three years from the year in which
the Eligible Compensation is credited to a Participant's account(s),
subject to Section IX below) (the "Deferral Period").
Such form shall be delivered to the Corporation on or before December 31
of the year preceding the first year to which such election relates, and
the form from newly hired Eligible Employees with respect to their initial
election for a partial year may be delivered at any time within one month
following the date of the commencement of their employment. The elections
set forth in the latest form filed as to the amount of the Participant's
Eligible Compensation for the year (or other period)
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<PAGE> 3
to be deferred, as to the allocations among deferred compensation accounts
and as to the number of installments, if applicable, shall be given
continuing effect for subsequent years until a new notice specifying a
different election shall be delivered to the Corporation. Any new form
shall apply only to the decision to defer compensation for periods
subsequent to the period in which such new form is delivered; however, the
number of installment payments desired, if applicable, may be changed at
any time, subject to the limitation in Section V.C.
VII. CREDITING PARTICIPANTS' ACCOUNTS
The following method shall be used to credit a Participant's accounts:
A. A Participant's Cash Accounts shall be credited with the cash value of
any amounts deferred by him or her subject to an election to have such
amounts allocated to Cash Accounts. Any such Cash Account shall also be
credited with interest equivalents on a quarterly basis on the average
daily balance credited to such account during such period ended on such
date, at an interest rate equal to the ten-year U.S. Government Rate as
reported in the Wall Street Journal, reported as an average for the
one-year period prior to December 1 of the year prior to the first year
of the Deferral Period, which rate shall be reset in the same manner on
January 1 of each subsequent year during the Deferral Period. Interest
equivalents shall continue to be so credited until such time as the
entire balance of any such account shall have been distributed.
B. A Participant's Unit Accounts shall be credited with a number of units
("Units"), to be determined and valued in accordance with the fair
market value of shares of the Corporation's Common Stock, $1.00 par
value ("Common Stock"). The number of Units shall be adjusted as
provided in 2. and 3. below until the entire balances in Unit Accounts
shall have been distributed. The method of such determination and
valuation is as follows:
1. The number of Units credited to any Unit Account (including
fractional Units) shall be the quotient of (i) the cash amount of
deferred compensation to be credited to such account over (ii) the
mean between the highest and lowest selling prices of the Common
Stock on the ten trading days prior to the date on which the
deferred compensation would have otherwise been payable, as
reported on the New York Stock Exchange Composite Tape.
2. Additional Units shall be credited to a Participant's Unit Accounts
as of each payment date for cash dividends, if any, on the Common
Stock, on the basis of the number of Units credited to each Unit
Account on the record date for any such dividend. The number of
Units (including fractional Units) to be credited to each such
account as of any cash dividend payment date shall be the quotient
of (i) the product of the number of Units credited to such account
on the dividend record date for such dividend and the dividend per
share on the Common Stock over (ii) the fair market value of the
Common Stock on the dividend payment date. The fair market value of
the Common Stock on the dividend payment date shall be the mean
between the highest and lowest selling prices of the Common Stock
on the dividend payment date, as reported on the New York Stock
Exchange Composite Tape. If there are no sales on the dividend
payment date, the fair market value of the Common Stock shall be an
average of the mean between the highest and lowest selling prices
of the Common Stock on the nearest day before and the nearest day
after the dividend payment date, as reported on the New York Stock
Exchange Composite Tape.
3. If at any time the number of outstanding shares of Common Stock
shall be increased or decreased as the result of any stock
dividend, subdivision, stock split, combination or reclassification
of shares, the number of Units in a Participant's Unit Accounts
shall be increased or decreased, as the case may be, in the same
proportion as the outstanding number of shares of Common Stock is
increased or decreased.
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<PAGE> 4
4. When Eligible Compensation is paid in currency other than U.S.
dollars, the number of Units to be deferred shall be determined by
converting the Eligible Compensation into U.S. dollars at the same
exchange rate at which such Compensation was converted into the
applicable foreign currency at the time the Compensation was paid
and then calculating the number of Units in accordance with Section
VII B.
VIII. METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION
Subject to Section IX hereof, distributions of the amounts in a
Participant's deferred compensation accounts shall be made as follows:
A. No distribution of deferred compensation may be made except as provided
in this Section VIII.
B. The amounts credited to a Participant's Lump Sum Accounts shall be
payable in cash in a lump sum in January of the year following the last
year of the Deferral Period. The amounts credited to a Participant's
Installment Accounts shall be paid in up to fifteen annual installments
according to the Participant's election or elections commencing in
January of the year following the last year of the Deferral Period. The
amount of the first payment shall be a fraction of the amount of the
Participant's deferred compensation accounts as of December 31 of the
year preceding payment, the numerator of which is one and the
denominator of which is the total number of installments elected. The
amount of each subsequent payment shall be a fraction of the amount as
of December 31 of the year preceding such subsequent payment, the
numerator of which is one and the denominator of which is the total
number of installments elected minus the number of installments
previously paid.
C. Each account shall be debited for the amount of any distribution made
from it, either in a lump sum or in annual installments.
D. Distribution of a Participant's Cash and Unit Accounts shall be made in
cash. With respect to any Unit Account, the cash amount for any payment
from such account shall be determined by multiplying the number of
Units in the Account on December 31 of the year immediately preceding
the payment date by the average of the mean between the highest and
lowest selling prices of the Common Stock, as reported on the New York
Stock Exchange Composite Tape, for each of the ten (10) trading days
immediately prior to said December 31. The amount to be distributed in
January of any year shall be determined as of December 31 of the
immediately preceding year.
E. At the time of distribution, the amount of cash payable from a Unit
Account will be determined in U.S. dollars in accordance with Section
VIII.D, and then converted into the applicable foreign currency at the
average exchange rate for the ten business days prior to December 31 of
the year prior to the year of any distribution.
IX. DISTRIBUTION UPON DEATH, RETIREMENT OR TERMINATION OF EMPLOYMENT
A. DEATH.
If any Participant dies while an employee and, before distribution of
all amounts remaining in his or her deferred compensation accounts, the
undistributed balance remaining in the Participant's deferred
compensation accounts shall be calculated and paid in one lump sum in
January of the year following the year of death to the beneficiary or
beneficiaries designated by the Participant by written notice to the
Corporation or, in the absence of such designation, to such
Participant's estate.
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<PAGE> 5
B. RETIREMENT.
If a Participant ceases to be employed by the Corporation or any
subsidiary of the Corporation by reason of his or her retirement at or
after age 55 before distribution of all amounts remaining in his or her
deferred compensation accounts, the unpaid amount in the Participant's
deferred compensation accounts shall either continue to be paid as
designated by the Participant in accordance with Sections V and VI, or,
if no payments have been made as of the retirement date, shall commence
in January of the year following the year of retirement, in the manner
designated by the Participant.
C. TERMINATION OF EMPLOYMENT.
If a Participant ceases to be employed by the Corporation or any
subsidiary of the Corporation for any other reason than death or
retirement and before distribution of all amounts remaining in his or
her deferred compensation accounts, the unpaid amount in the
Participant's deferred compensation accounts shall be calculated and
paid in one lump sum in January of the year following the year in which
employment was terminated.
X. PARTICIPANT'S RIGHTS IN ACCOUNTS
A Participant shall have only the interest of an unsecured general
creditor in the deferred compensation, interest equivalents or Units
credited to his or her accounts. All amounts deferred under the Plan shall
remain the sole property of the Corporation, subject to the claims of its
general creditors and available for its use for whatever purposes are
desired until actually paid. With respect to amounts deferred, the
obligation of the Corporation hereunder is purely contractual and shall
not be funded or secured in any way.
XI. NON-ASSIGNABILITY
The right of a Participant to the payment of deferred compensation as
provided in the Plan shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or anticipation.
XII. STATEMENT OF ACCOUNT
Statements will be sent to Participants during February of each year as to
the balance of their deferred compensation accounts as of the end of the
previous calendar year.
XIII. ADMINISTRATION
The Administrator of the Plan shall be the CMDC or its designee. The CMDC
shall have the authority to adopt rules and regulations for carrying out
the Plan and to interpret, construe and implement the provisions thereof.
Appropriate income tax withholding will be applied by the Corporation.
XIV. AMENDMENT AND TERMINATION
The Plan may at any time be amended, modified or terminated by the Board
of Directors of the Corporation or the CMDC thereof. No amendment,
modification or termination shall, without the consent of a Participant,
will reduce any Participant's deferred compensation account balances as of
the effective date of such amendment or termination.
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XV. NOTICES
All notices and elections to be delivered to the Corporation hereunder
shall be delivered to the attention of the Corporate Executive
Compensation Manager.
XVI. EARLY WITHDRAWAL PENALTY AND HARDSHIP
A. EARLY WITHDRAWAL. A Participant may, upon prior written notice to the
Corporation, accelerate payment of all or any part of the amounts
deferred, including any accrued interest, subject to an early
withdrawal penalty equal to 10% of the amount withdrawn, provided such
compensation has been deferred for at least three years. This penalty
shall be withheld by the Corporation upon distribution of any amounts
pursuant to this Section XVI.A. A Participant who elects to withdraw
deferred amounts in advance of the scheduled distribution thereof will
not be able to elect further deferrals of compensation for a period of
12 months from the date of early withdrawal.
B. HARDSHIP. Upon receipt of a request from a Participant or a
Participant's designated beneficiary, delivered in writing to the
Corporation, the CMDC or its designee may cause the Corporation to
accelerate payment of all or any part of the Participant's deferred
compensation including any accrued interest, if it finds in its sole
discretion that payment of such amounts in accordance with
Participant's prior election under Section V would result in hardship
to the Participant or beneficiary and such hardship is the result of an
unforeseeable emergency caused by circumstances beyond the control of
the Participant or beneficiary. Acceleration of payment may not be made
under this Section XVI to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance or
otherwise, (ii) by liquidation of the Participant's assets, to the
extent the liquidation of assets would not itself cause severe
financial hardship or (iii) by cessation of deferrals under this Plan
of any tax-qualified savings plan of the Corporation.
XVII. CHANGE IN CONTROL
A. INITIAL LUMP SUM ELECTION. Notwithstanding any election made pursuant
to Section V, a Participant may file a written election with the
Corporation to have the deferred amounts, including accrued interest,
paid in one lump-sum payment as soon as practicable following a Change
in Control, but in no event later than 60 days after such Change in
Control.
B. REVOCATION OF LUMP-SUM ELECTION. A Participant may revoke an election
made pursuant to Section XVII (a) by filing an appropriate written
notice with the Corporation. A revocation notice filed pursuant to this
Section XVII (b) shall be effective with respect to deferred amounts,
including accrued interest, which are credited thereafter to the
Participant's Account.
C. LIMITATION ON ELECTIONS. Any election made pursuant to Section XVII (A)
or (B) shall not be effective unless filed with the Corporation at
least 90 days prior to a Change in Control.
D. DEFINITION OF CHANGE IN CONTROL. A "Change in Control" is defined to
mean any of the following events:
1. The acquisition by any person (including a group, within the
meaning of Sections 13(d)(3) or 14(d)(2) of the 1934 Act), other
than the Corporation or any subsidiary of the Corporation, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of 20% or more of the combined voting power of
the Corporation's outstanding voting securities.
6
<PAGE> 7
2. The first purchase under a tender offer or exchange offer, other
than an offer by the Corporation or any subsidiary of the
Corporation, pursuant to which shares of the Corporation's Common
Stock have been purchased.
3. During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Corporation cease for any reason (other than death or disability)
to constitute at least a majority thereof, unless the election or
the nomination for election by stockholders of the Corporation of
each new Director was approved by a vote of at least two-thirds of
the Directors then still in office who were Directors at the
beginning of the period.
4. Approval by stockholders of the Corporation of a merger,
consolidation, liquidation or dissolution of the Corporation, or
the sale of all or substantially all of the assets of the
Corporation.
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DIGITAL EQUIPMENT CORPORATION FOR THE NINE
MONTHS ENDED MARCH 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 28, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> MAR-28-1998
<CASH> 1,498,035
<SECURITIES> 918,855
<RECEIVABLES> 2,918,257
<ALLOWANCES> 213,281
<INVENTORY> 1,187,835
<CURRENT-ASSETS> 6,963,118
<PP&E> 3,707,327
<DEPRECIATION> 2,235,425
<TOTAL-ASSETS> 9,357,256
<CURRENT-LIABILITIES> 3,725,987
<BONDS> 741,150
0
4,000
<COMMON> 157,202
<OTHER-SE> 3,591,549
<TOTAL-LIABILITY-AND-EQUITY> 9,357,256
<SALES> 5,080,232
<TOTAL-REVENUES> 9,475,798
<CGS> 3,247,158
<TOTAL-COSTS> 6,250,053
<OTHER-EXPENSES> 3,094,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,689
<INCOME-PRETAX> 496,114
<INCOME-TAX> 54,400
<INCOME-CONTINUING> 441,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 441,714
<EPS-PRIMARY> 2.81
<EPS-DILUTED> 2.77
</TABLE>
