<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
DELL COMPUTER CORPORATION
- --------------------------------------------------------------------------------
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<PAGE> 2
[DELL LOGO]
June 1, 1998
Dear Fellow Stockholder:
Our Annual Meeting will be held at the Austin Convention Center, Ballroom
A, 500 E. Cesar Chavez, Austin, Texas, on Friday, July 17, 1998 at 9:00 a.m. The
accompanying proxy materials (consisting of the Notice of Annual Meeting, the
Proxy Statement and the form of proxy) provide additional information about the
Annual Meeting, including details on the proposals to be voted on. A copy of the
Company's 1998 Annual Report also accompanies these materials.
We are pleased to be offering several new enhancements to our proxy
solicitation and Annual Meeting process this year.
- - First, we enabled holders to receive the proxy materials and the Annual Report
electronically via the Internet. This helps us hold down proxy solicitation
and printing costs, and we also hope that you find it convenient and useful.
Holders who elected to receive these materials via the Internet may do so by
accessing the ADP website at www.proxyvote.com.
- - Second, we are offering two new ways to vote your shares, in addition to the
traditional paper proxy card. You may vote via the Internet by accessing ADP's
website at www.proxyvote.com, or you may vote by telephone by calling
1-800-690-6903 (if you are a record holder) or 1-800-454-8683 (if you are a
beneficial owner holding in street name). In either case, you will need the
Control Number that is imprinted on your personalized proxy card or that you
have received from ADP electronically.
- - Finally, we have arranged to offer an audio broadcast of the Annual Meeting
through our Internet website. To tune into this broadcast, go to www.dell.com,
look for the Annual Meeting icon and follow the instructions.
We look forward to your participation in this year's Annual Meeting process
and, as always, appreciate your support.
Sincerely,
/s/ MICHAEL S. DELL
Michael S. Dell,
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
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1 9 9 8
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[DELL LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND
PROXY STATEMENT
DELL COMPUTER CORPORATION
ONE DELL WAY
ROUND ROCK, TEXAS 78682
WWW.DELL.COM
<PAGE> 4
DELL COMPUTER CORPORATION
ONE DELL WAY
ROUND ROCK, TEXAS 78682
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The Annual Meeting of Stockholders of Dell Computer Corporation (the
"Company") will be held at the Austin Convention Center, Ballroom A, 500 E.
Cesar Chavez, Austin, Texas, on Friday, July 17, 1998 at 9:00 a.m., local time.
At the meeting, stockholders will be asked to vote on the following proposals:
Proposal 1 -- Elect three directors, each with a term of three years, and
one director with a term of two years.
Proposal 2 -- Approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock from one billion to three billion.
Proposal 3 -- Approve the Company's Executive Incentive Bonus Plan.
Stockholders will also transact any other business that may properly come before
the meeting.
The Board of Directors has established May 29, 1998 as the record date for
the meeting, and only stockholders of record at the close of business on that
date are entitled to vote at the meeting.
YOUR VOTE IS IMPORTANT!
Please date, sign and return the accompanying proxy card promptly so that
we can be assured of having a quorum at the meeting and so that your shares may
be voted in accordance with your wishes. Doing so will assist the Company in
reducing the expenses of additional proxy solicitation.
As an alternative to using the paper proxy card to vote, stockholders
holding shares registered in their names, as well as beneficial owners of shares
held in "street name" by a broker, may vote electronically via the Internet or
by telephone. Please see "Additional Information -- Internet and Telephone
Voting" in the Proxy Statement for more details.
Signing and returning the proxy card or submitting your proxy via the
Internet or by telephone does not affect your right to vote in person if you
attend the meeting.
By Order of the Board of Directors
/s/ THOMAS B. GREEN
Thomas B. Green
Secretary
Round Rock, Texas
June 1, 1998
<PAGE> 5
[DELL LOGO]
DELL COMPUTER CORPORATION
ONE DELL WAY
ROUND ROCK, TEXAS 78682
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, JULY 17, 1998
9:00 A.M.
AUSTIN CONVENTION CENTER
BALLROOM A
500 E. CESAR CHAVEZ
AUSTIN, TEXAS
The accompanying proxy is being solicited on behalf of the Company's Board
of Directors for use at the Company's Annual Meeting of Stockholders, the time
and place of which are noted above. At the meeting, stockholders will be asked
to vote on three proposals, which are listed in the accompanying Notice of
Annual Meeting of Stockholders and described in more detail below. Stockholders
will also consider any other proposals or business that may properly come before
the meeting, although the Board of Directors knows of no other proposals or
business to be presented.
By executing and returning the proxy (either by returning the paper proxy
card or by submitting your proxy electronically via the Internet or by
telephone), you authorize Michael S. Dell and Thomas B. Green to represent you
and vote your shares at the meeting in accordance with your instructions. Those
persons may also vote your shares to adjourn the meeting from time to time and
will be authorized to vote your shares at any adjournments or postponements of
the meeting.
If you attend the meeting, you may vote in person, regardless of whether
you have executed and returned the proxy. In addition, you may revoke your proxy
at any time before its exercise at the meeting by delivering a written notice of
revocation to the Company's Secretary or by executing and delivering a
later-dated proxy.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO COMPLETE, SIGN AND
RETURN THE PROXY EITHER IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE,
ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE.
This Proxy Statement and the accompanying materials are being mailed to
stockholders and made available on the Internet
(www.dell.com/corporate/investor/index.htm) on or about June 4, 1998.
<PAGE> 6
QUORUM AND VOTING
RECORD DATE. The record date for the meeting is May 29, 1998. Only
stockholders of record at the close of business on that date are entitled to
notice of and to vote at the meeting.
VOTING STOCK. The only class of stock entitled to be voted at the meeting
is the Company's Common Stock, par value $.01 per share. At the close of
business on the record date, there were 637,493,317 shares of Common Stock
outstanding and entitled to be voted at the meeting, and the holders of those
shares will be entitled to one vote per share.
QUORUM. In order for any business to be conducted, holders of more than 50%
of the shares entitled to vote must be represented at the meeting, either in
person or by proxy.
ADJOURNED MEETING. If a quorum is not present at the scheduled time of the
meeting, the stockholders who are represented may adjourn the meeting until a
quorum is present. The time and place of the adjourned meeting will be announced
at the time the adjournment is taken, and no other notice will be given. An
adjournment will have no effect on the business that may be conducted at the
meeting.
TABULATION OF VOTES. The Company's transfer agent will be responsible for
tabulating and certifying the votes.
VOTING BY STREET NAME HOLDERS. If you are the beneficial owner of shares
held in "street name" by a broker, the broker, as the record holder of the
shares, is required to vote those shares in accordance with your instructions.
If you do not give instructions to the broker, the broker will nevertheless be
entitled to vote the shares with respect to "discretionary" items but will not
be permitted to vote the shares with respect to "non-discretionary" items (in
which case, the shares will be treated as "broker non-votes").
ABSTENTIONS AND BROKER NON-VOTES. If you ABSTAIN from voting on one or more
proposals, your shares will nevertheless be included in the number of shares
represented for purposes of determining whether a quorum is present. If you
ABSTAIN from voting on Proposal 2 (Amendment to Certificate of Incorporation) or
Proposal 3 (Executive Incentive Bonus Plan), your shares will also be included
in the number of shares voting on the proposal, and consequently, your
abstention will have the same practical effect as a vote AGAINST the proposal.
Because directors are elected by a plurality of the votes (see "Proposal
1 -- Election of Directors" below), an abstention would have no effect on the
outcome of the vote on Proposal 1 and, thus, is not offered as a voting option
for that proposal.
If your shares are treated as broker non-votes on one or more proposals,
they will nevertheless be included in the number of shares represented for
purposes of determining whether a quorum is present. Otherwise, however, those
shares will be treated as shares not entitled to be voted on the proposal.
Consequently, a broker non-vote with respect to Proposal 1 (Election of
Directors) or Proposal 3 (Executive Incentive Bonus Plan) will have no effect on
the outcome of the vote on that proposal. Because the approval of an amendment
to the Company's Certificate of Incorporation requires the affirmative vote of a
majority of the shares outstanding (see "Proposal 2 -- Amendment of Certificate
of Incorporation" below), a broker non-vote with respect to Proposal 2 will have
the same practical effect as a vote AGAINST that proposal.
DEFAULT VOTING. If you properly execute and return the accompanying proxy
(in paper form, electronically via the Internet or by telephone) but do not
indicate any voting instructions, your shares will be voted as follows:
- Proposal 1 (Election of Directors) -- FOR all nominees
- Proposal 2 (Amendment of Certificate of Incorporation) -- FOR
- Proposal 3 (Executive Incentive Bonus Plan) -- FOR
2
<PAGE> 7
If any other business properly comes before the stockholders for a vote at the
meeting, the shares will be voted in accordance with the discretion of the
holders of the proxy.
PROPOSAL 1 -- ELECTION OF DIRECTORS
CURRENT NOMINEES. The three-year terms of the Class I directors will expire
at the upcoming annual meeting. The Board of Directors has nominated Donald J.
Carty, Thomas W. Luce III and Paul O. Hirschbiel, Jr. for reelection as Class I
directors. Mr. Carty, Mr. Luce and Mr. Hirschbiel are currently serving as Class
I directors. If they are reelected, they will continue to serve as Class I
directors with terms to expire at the annual meeting of stockholders to be held
in 2001.
In addition, the Board of Directors has nominated Alex J. Mandl for
election to fill the remaining two years of a three-year Class III director
term. Mr. Mandl is currently serving as a Class III director, having been
elected by unanimous consent of the directors in November 1997 to serve until
the upcoming annual meeting. If elected, Mr. Mandl will continue to serve as a
Class III director with a term to expire at the annual meeting of stockholders
to be held in 2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THESE
FOUR NOMINEES.
The following is biographical information about each of the nominees.
Donald J. Carty............ Mr. Carty has been a director of the Company since
December 1992. Mr. Carty is Chairman of the Board,
President and Chief Executive Officer of AMR
Corporation and American Airlines, Inc., a
subsidiary of AMR Corporation, positions he has
held since May 1998. From March 1995 to May 1998,
Mr. Carty was President of American Airlines Inc.,
President of AMR Airline Group and Executive Vice
President of AMR Corporation. From October 1989 to
March 1995, Mr. Carty held the positions of Chief
Financial Officer of AMR Corporation and Executive
Vice President, Finance & Planning for AMR
Corporation and American Airlines, Inc. He has held
senior vice presidential positions with American
Airlines, Inc. since 1988. Mr. Carty serves on the
Board of Trustees of Queen's University in
Kingston, Ontario.
Thomas W. Luce III......... Mr. Luce has been a director of the Company since
November 1991. Mr. Luce is of counsel with the law
firm Hughes & Luce, L.L.P., Dallas, Texas, having
co-founded the firm in 1973. From October 1991
through April 1992, Mr. Luce was Chairman of the
Board and Chief Executive Officer of First
Southwest Company, a Dallas-based investment firm
that is a member of the National Association of
Securities Dealers, Inc.
Paul O. Hirschbiel, Jr..... Mr. Hirschbiel has been a director of the Company
since October 1987. Mr. Hirschbiel is a consultant
with Cornerstone Equity Investors, L.L.C., where he
was Managing Director from December 1996 until
January 1998. Before then, Mr. Hirschbiel was a
Vice President of Prudential Equity Investors, Inc.
and had held the position of Vice President or
Director with that firm since September 1983. Mr.
Hirschbiel originally became a director of the
Company pursuant to the terms of a stock purchase
agreement entered into in connection with the
issuance by the Company of a series of convertible
preferred stock in October 1987. Mr. Hirschbiel
received a Bachelor of Arts degree and a Masters of
Business Administration degree from the University
of North Carolina at Chapel Hill.
3
<PAGE> 8
Alex J. Mandl.............. Mr. Mandl has been a director of the Company since
November 1997. Since August 1996, Mr. Mandl has
been Chairman and Chief Executive Officer of
Teligent Inc., a telecommunications company that
offers local, long distance, Internet and other
advanced communication services directly to
business customers. Before joining Teligent, Mr.
Mandl was President and Chief Operating Officer of
AT&T, where he directed the long distance, wireless
and local communications services. During his
tenure at AT&T, Mr. Mandl also held the positions
of Executive Vice President and Chief Executive
Officer of the Communication Services Group, Chief
Financial Officer and Group Executive. Prior to
joining AT&T in 1991, Mr. Mandl was Chairman and
Chief Executive Officer of Sea-Land Services, Inc.,
the world's largest ocean transportation company.
Mr. Mandl is also a member of the boards of
directors of Warner-Lambert Company, Forstmann
Little & Co. and General Instruments Corporation.
Should any nominee become unable or unwilling to accept nomination or
election, the Board of Directors will either select a substitute nominee or will
reduce the size of the Board. If you have properly executed and returned a proxy
and a substitute nominee is selected, the holders of the proxy will vote your
shares FOR the election of the substitute nominee. The Board of Directors has no
reason to believe that any nominee will be unable or unwilling to serve if
elected.
In accordance with the Company's Bylaws, directors are elected by a
plurality of the votes of shares represented and entitled to vote at the
meeting. That means the four nominees will be elected if they receive more
affirmative votes than any other nominees.
CONTINUING DIRECTORS. The Company's Board of Directors is separated into
three classes, and the directors in each class are elected to serve for
three-year terms. The terms of the Class I directors expire at the annual
meeting of stockholders to be held in 2001, the terms of the Class II directors
expire at the annual meeting of stockholders to be held in 1999 and the terms of
the Class III directors expire at the annual meeting of stockholders to be held
in 2000. The following is a list of the persons who will constitute the
Company's Board of Directors following the meeting, assuming election of the
nominees named above, and their ages, director class designation and current
committee assignments.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE CLASS COMMITTEES
---- --- -------- ----------
<S> <C> <C> <C>
Michael S. Dell........................ 33 II --
Donald J. Carty........................ 51 I Audit, Finance (Chairman), Nominating
Paul O. Hirschbiel, Jr................. 45 I Compensation, Finance
Michael H. Jordan...................... 61 II Compensation, Nominating (Chairman)
Thomas W. Luce III..................... 57 I Finance
Klaus S. Luft.......................... 56 II Audit, Finance
Claudine B. Malone..................... 62 III Audit (Chairman)
Alex J. Mandl.......................... 54 III Compensation
Michael A. Miles....................... 58 III Compensation (Chairman), Nominating
</TABLE>
4
<PAGE> 9
Set forth below is biographical information about each of the Company's
directors, except for Mr. Carty, Mr. Hirschbiel, Mr. Jordan and Mr. Mandl whose
biographical information is included under "Current Nominees" above.
Michael S. Dell............ Mr. Dell has been Chairman of the Board, Chief
Executive Officer and a director of the Company
since May 1984. Mr. Dell founded the Company in
1984 while attending the University of Texas at
Austin. He is a member of the Board of Directors of
the United States Chamber of Commerce and the
Computerworld/Smithsonian Awards. Mr. Dell serves
on the nominating committee for the National
Technology Medal of Honor and is an advisor to the
Innovative Technology Management Association at the
University of Texas at Austin.
Michael H. Jordan.......... Mr. Jordan has been a director of the Company since
December 1992. Mr. Jordan is Chairman and Chief
Executive Officer of CBS Corporation (formerly
Westinghouse Electric Corporation), positions he
has held since July 1993. Prior to joining
Westinghouse, he was a principal with the
investment firm of Clayton, Dubilier and Rice from
September 1992 through June 1993, Chairman of
PepsiCo International from December 1990 through
July 1992 and Chairman of PepsiCo World-Wide Foods
from December 1986 to December 1990. Mr. Jordan is
also a member of the boards of directors of CBS
Corporation and Aetna Inc.
Klaus S. Luft.............. Mr. Luft has been a director of the Company since
March 1995. Mr. Luft is the founder, owner and
President of MATCH -- Market Access for Technology
Services GmbH, a private company established in
1994 and headquartered in Munich, Germany. MATCH
provides sales and marketing services to high
technology companies. Since August 1990, Mr. Luft
has served and continues to serve as Vice Chairman
and International Advisor to Goldman Sachs Europe
Limited. From March 1986 to November 1989, Mr. Luft
was Chief Executive Officer of Nixdorf Computer AG,
a manufacturer of computer systems in Paderborn,
Germany, where he also held various other executive
positions for more than 17 years in marketing,
manufacturing and finance.
Claudine B. Malone......... Ms. Malone has been a director of the Company since
February 1993. Ms. Malone is President of Financial
& Management Consulting, Inc., a firm she founded
in 1982. She has taught at the business schools of
the University of Virginia, Harvard University and
Georgetown University. Ms. Malone is a trustee of
the Massachusetts Institute of Technology and the
Chairman of the Federal Reserve Bank of Richmond.
She is also a member of the boards of directors of
Hannaford Brothers Co., Hasbro, Inc., Houghton
Mifflin Corp., Lafarge Corp., The Limited, Inc.,
Lowe's Companies, Mallinckrodt Group Inc., SAIC and
Union Pacific Corporation.
Michael A. Miles........... Mr. Miles has been a director of the Company since
February 1995. He is the former Chairman of the
Board and Chief Executive Officer of Philip Morris
Companies Inc., having served in that position from
September 1991 to July 1994. Prior to assuming that
position, Mr. Miles was Vice Chairman and a member
of the Board of Directors of Philip Morris
Companies Inc.
5
<PAGE> 10
and Chairman and Chief Executive Officer of Kraft
General Foods, Inc., positions he held from
December 1989. Mr. Miles is also a Special Limited
Partner in the investment firm of Forstmann Little
& Co. and is the non-executive chairman of
Community Health Systems, a hospital management
company owned by Forstmann Little & Co. He is also
a member of the boards of directors of Dean Witter
Discover & Co., Sears, Roebuck and Co., Time Warner
Inc. and Allstate, Inc. and is a trustee of
Northwestern University.
COMMITTEES AND MEETINGS. The Board of Directors maintains the following
four standing committees. The members of the various committees are identified
in the preceding table of continuing directors.
- Audit Committee. The Audit Committee recommends the appointment of the
Company's independent accountants and determines the appropriateness of
their fees; reviews the scope and results of the audit plans of the
independent accountants and the Company's internal auditors; oversees the
scope and adequacy of the Company's internal accounting control and
record-keeping systems; reviews the objectivity, effectiveness and
resources of the internal audit function; confers independently with the
independent accountants; and determines the appropriateness of fees for
audit services performed by the independent accountants.
- Compensation Committee. The Compensation Committee is responsible for
determining the compensation for the Company's senior management and
establishing compensation policies for Company employees generally. The
Compensation Committee also administers the Company's stock-based
compensation plans and employee stock purchase plan.
- Finance Committee. The Finance Committee is responsible for considering
and recommending to the Board of Directors proposed strategies, policies
and actions related to finance and economics.
- Nominating Committee. The Nominating Committee is responsible for
recruiting and recommending candidates for membership to the Board of
Directors and for recommending to the Chairman of the Board the structure
and membership of the committees of the Board of Directors. For
information about suggesting candidates for consideration as nominees for
election to the Board of Directors, see "Additional
Information -- Stockholder Proposals" below.
During fiscal 1998, the Board of Directors and the various committees held
the following number of meetings: Board of Directors, five; Audit Committee,
four; Compensation Committee, five; Finance Committee, six; and Nominating
Committee, one. No director attended fewer than 75% of the aggregate of the
total number of meetings of the Board of Directors and the total number of
meetings held by all committees on which that director served.
6
<PAGE> 11
PROPOSAL 2 -- AMENDMENT TO CERTIFICATE OF INCORPORATION
GENERAL. The Company's Certificate of Incorporation currently authorizes
the issuance of up to one billion shares of Common Stock. As of May 3, 1998 (the
end of the first quarter of fiscal 1999), authorized shares were used or
reserved as follows:
<TABLE>
<S> <C>
Issued and outstanding...................................... 639,085,391
Reserved for issuance under stock-based compensation plans:
Covered by currently outstanding awards................... 110,802,248
Available for future awards............................... 39,971,052
Reserved for issuance under employee stock purchase plan.... 13,119,429
-----------
Total............................................. 802,978,120
===========
</TABLE>
This leaves approximately 200 million shares of Common Stock currently
available for other purposes.
The Board of Directors is proposing an amendment to the Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
one billion to three billion. If the stockholders approve this proposal, the
first paragraph of Article Fourth of the Company's Certificate of Incorporation
will be amended to read in its entirety as follows:
"FOURTH: The total number of shares of capital stock of the
Corporation shall be three billion and five million
(3,005,000,000), which shall consist of five million (5,000,000)
shares of Preferred Stock, of the par value of $0.01 per share,
and three billion (3,000,000,000) shares of Common Stock, of the
par value of $0.01 per share."
PURPOSE AND EFFECT OF THE PROPOSED AMENDMENT. All authorized but unissued
and unreserved shares of Common Stock will be available for issuance from time
to time for any proper purpose approved by the Board of Directors (including
issuances in connection with future stock splits or dividends and issuances to
raise capital or effect acquisitions). There are currently no arrangements,
agreements or understandings for the issuance or use of the additional shares of
authorized Common Stock (other than issuances permitted or required under the
Company's stock-based employee benefit plans or awards made pursuant to those
plans). The Board of Directors does not presently intend to seek further
stockholder approval of any particular issuance of shares unless such approval
is required by law or the rules of The Nasdaq Stock Market.
Stockholders do not have any preemptive or similar rights to subscribe for
or purchase any additional shares of Common Stock that may be issued in the
future, and therefore, future issuances of Common Stock may, depending on the
circumstances, have a dilutive effect on the earnings per share, voting power
and other interests of the existing stockholders.
The proposal could have an anti-takeover effect, although that is not its
intention. For example, if the Company were the subject of a hostile takeover
attempt, it could try to impede the takeover by issuing shares of Common Stock,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost of the takeover. The availability of this defensive strategy
to the Company could discourage unsolicited takeover attempts, thereby limiting
the opportunity for the Company's stockholders to realize a higher price for
their shares than is generally available in the public markets. The Board of
Directors is not aware of any attempt, or contemplated attempt, to acquire
control of the Company, and this proposal is not being presented with the intent
that it be utilized as a type of anti-takeover device.
VOTE NECESSARY TO APPROVE PROPOSAL. The affirmative vote of the holders of
a majority of the outstanding shares of Common Stock entitled to vote at the
meeting is necessary for approval of Proposal 2. Therefore, abstentions and
broker non-votes effectively count as votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENT
TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
7
<PAGE> 12
PROPOSAL 3 -- APPROVAL OF EXECUTIVE INCENTIVE BONUS PLAN
In May 1998, the Board of Directors, upon recommendation of the
Compensation Committee, unanimously approved and adopted a new Executive
Incentive Bonus Plan (the "Plan") to govern the award and payment of cash
bonuses to certain of the Company's executive officers and directed that the
Plan be submitted to the Company's stockholders for approval so that payments
thereunder will be deductible by the Company for federal income tax purposes.
SUMMARY OF TERMS. The following is a summary of the terms of the Plan and
is qualified in its entirety by reference to the complete text of the Plan,
which is set forth in Exhibit A. Terms used below with their initial letters
capitalized have the meanings ascribed to them in the Plan.
- Purpose. The purpose of the Plan is to enhance the Company's ability to
attract and retain highly qualified executives and to provide additional
financial incentives to those executives to promote the success of the
Company. The Plan is also intended to satisfy the requirements for
"performance-based compensation" within the meaning of Section 162(m) of
the Internal Revenue Code.
- Performance Goal. The Board has established the achievement of positive
"Consolidated Net Income" as the performance goal necessary for the
payment of bonuses under the Plan. For purposes of the Plan, Consolidated
Net Income consists of net income before extraordinary items, as reported
in the Company's applicable quarterly or annual published financial
statements.
- Administration. The Plan will be administered by the Compensation
Committee of the Board or another committee (consisting of at least two
directors, each of whom shall be an "outside director" within the meaning
of Section 162(m)) appointed by the Board. In administering the Plan, the
Committee will have full power and authority to interpret the terms and
provisions of the Plan and to establish, adjust, pay or decline to pay
bonuses under the Plan.
- Eligible Executives. Participation in the Plan will be limited to
"Eligible Executives," which is defined as the Company's Chief Executive
Officer and any other executive officer of the Company designated by the
Committee. Currently, there are 17 executive officers of the Company.
Participation in the Plan is limited to the Company's executive officers.
No non-employee director of the Company or non-executive officer employee
will be entitled to participate in, or otherwise receive benefits under,
the Plan.
- Establishment of Target Bonuses. Within 90 days after the end of each
fiscal year, the Committee will designate those Eligible Executives who
are to be participants in the Plan for that fiscal year and will specify
the terms and conditions for the determination and payment of an
"Incentive Bonus" to each of those participants. The maximum Incentive
Bonus that may be payable to any Eligible Executive for any fiscal year
will be 0.5% of the Consolidated Net Income for that fiscal year. The
Committee may condition the payment of an Incentive Bonus upon the
satisfaction of such objective or subjective standards that the Committee
determines to be appropriate. The Plan contains special provisions for
designating additional Eligible Executives for participation in the Plan
after such 90-day period and determining the amount of their maximum
Incentive Bonuses.
- Committee Certification and Determination of Incentive Bonuses. As soon
as practicable after the end of each fiscal year, the Committee will
certify in writing whether the stated performance goal has been met and
will determine the amount of the Incentive Bonus to be paid to each Plan
participant. In determining that amount, the Committee will consider the
target bonuses established at the beginning of the year, the degree to
which the established standards were satisfied and any other objective or
subjective factors it deems appropriate and may reduce the amount of, or
eliminate altogether, any Incentive Bonus that would otherwise be
payable.
8
<PAGE> 13
- Payment of Incentive Bonuses. Following the Committee's determination of
the Incentive Bonuses to be paid, those Incentive Bonuses will be paid in
cash (subject to any election made by an Eligible Executive with respect
to the deferral of all or a portion of his or her Incentive Bonus or the
payment of all or a portion of his or her Incentive Bonus in some form
other than cash).
- Duration and Amendment. If the Plan is approved by the Company's
stockholders, it will be effective for fiscal 1999 (the current fiscal
year of the Company, which commenced on February 2, 1998) and will
continue in effect until the fifth anniversary of the date of such
approval. The Board, however, may suspend or terminate the Plan at any
time. In addition, the Board may amend the Plan from time to time as it
deems advisable, except that, without the approval of the Company's
stockholders, the Board may not amend the Plan to (a) increase the
maximum amount of Incentive Bonus that may be paid or otherwise
materially increase the benefits accruing to any Eligible Executive under
the Plan, (b) materially modify the eligibility requirements for
participation in the Plan or (c) change the material terms of the stated
performance goal.
FEDERAL INCOME TAX CONSEQUENCES. Under present federal income tax law, a
Plan participant will be taxed at ordinary income rates on the cash portion of
the bonus in the year in which such cash was received. If a participant elects
to defer a portion of the bonus or to receive it in the form of options under
the Executive Stock Ownership Incentive Plan discussed below, the participant
will also be entitled to defer the recognition of income. Generally, and subject
to the provisions of Section 162(m), the Company will receive a federal income
tax deduction corresponding to the amount of income recognized by the Plan
participants.
PLAN BENEFITS. The Incentive Bonuses, if any, that will be paid to Plan
participants for any fiscal year are subject to the discretion of the Committee,
based on objective or subjective factors that the Committee considers
appropriate. Consequently, it is not possible to determine at this time the
amount of the Incentive Bonuses that will be paid for fiscal 1999 or to
determine or estimate the amount of any Incentive Bonus that would have been
paid in any prior fiscal year had the Plan then been in effect. As noted above,
the maximum Incentive Bonus that may be paid under the Plan to any participant
for any fiscal year is 0.5% of Consolidated Net Income for such fiscal year. Had
the Plan been in effect for fiscal 1998, this provision would have produced a
MAXIMUM Incentive Bonus per participant of approximately $4.7 million.
REASONS FOR PROPOSAL. Generally, Section 162(m) of the Internal Revenue
Code prevents a company from receiving a federal income tax deduction for
compensation paid to a "Named Executive Officer" (see below) in excess of $1
million for any year, unless that compensation is performance-based. One of the
requirements of "performance-based" compensation for purposes of Section 162(m)
is that the compensation be paid pursuant to a plan that has been approved by
the company's stockholders. The Board believes that it is desirable and in the
best interests of the Company and its stockholders that the cash bonuses to be
paid to the Company's executive officers be deductible for federal income tax
purposes and, accordingly, has structured the Plan to satisfy the requirements
of Section 162(m) for "performance-based" compensation. The Board also believes
that the Plan serves the Company's interests by focusing management's attention
on the achievement of those goals that the Board, through the Committee,
determines to be strategically and operationally important for the Company.
If the Plan is not approved by the Company's stockholders, it is currently
contemplated that any bonuses for fiscal 1999 and subsequent years for executive
officers would be discretionary and that such bonuses would not be deductible
under Section 162(m) to the extent that (when combined with other non-exempt
compensation) they exceed the limit set forth therein.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE EXECUTIVE INCENTIVE BONUS PLAN.
9
<PAGE> 14
EXECUTIVE COMPENSATION
All Common Stock information has been adjusted to take into account the
two-for-one split of the Common Stock paid in July 1997 and the two-for-one
split of the Common Stock paid in March 1998.
COMPENSATION OF DIRECTORS
The following is a description of the compensation arrangements for the
Company's non-employee directors. The compensation arrangements for the
non-employee directors are based on a "Service Year," which is the annual period
commencing at an annual meeting of the Company's stockholders and ending at the
next annual meeting of stockholders. Mr. Dell, who is the only director who is
also an employee of the Company, does not receive any additional compensation
for serving on the Board of Directors.
ANNUAL CASH PAYMENTS. Currently, each non-employee director (other than Mr.
Mandl) receives an annual retainer fee of $30,000 and an additional $1,000 for
each Board of Directors meeting attended in person. In November 1997, the Board
of Directors changed its non-employee director compensation arrangement,
increasing the annual retainer fee to $40,000 and eliminating the $1,000 meeting
fees. Any new non-employee director whose term begins during a Service Year will
be entitled to the full amount of the annual retainer fee if 50% or more of the
scheduled Board of Directors meetings for that Service Year are scheduled to
occur after the director's election; otherwise, the new non-employee director is
entitled to receive 50% of the annual retainer fee for that Service Year. The
annual retainer fee for a Service Year is payable at the first Board of
Directors meeting during the Service Year. For all non-employee directors other
than Mr. Mandl, this new arrangement will be effective for the Service Year that
begins in 1998 and for subsequent Service Years. Mr. Mandl, who was appointed to
the Board of Directors in November 1997, at the same time that the new
compensation arrangement was approved, is currently being compensated based on
the new arrangement.
The Company maintains a deferred compensation plan for the non-employee
directors, pursuant to which the directors may elect to defer all or a portion
of their annual retainer fees. A director's deferred amounts are allocated by
the director to various investment funds and, along with any earnings, are
payable to the director upon termination of service as a member of the Board of
Directors or to the director's named beneficiary in the event of death.
Distribution of the deferred amounts and any earnings may be made, at the
election of the participating director, in a lump sum or in annual, quarterly or
monthly installments over a period of up to ten years.
A non-employee director may elect to receive an option to purchase the
Company's Common Stock in lieu of all or a portion of the annual retainer fee.
The option is granted on the date the annual retainer fee would otherwise have
been paid. The number of shares subject to the option is determined by dividing
the amount of the annual retainer fee subject to the election by the value of an
option for one share of Common Stock (calculated pursuant to the Black-Scholes
model). The exercise price of the option is the average of the high and low
reported sales price of the Company's Common Stock on the date of grant. The
option vests and becomes exercisable with respect to 20% of the shares on each
of the first five anniversaries of the date of grant and terminates on the tenth
anniversary of the date of grant.
OPTION AWARDS. As noted above, the Board of Directors changed its
non-employee director compensation arrangements in November 1997. Prior to that
change, non-employee directors were entitled to receive an initial option award
covering a specified number of shares of the Company's Common Stock upon
election to the Board of Directors and an annual option award covering a
specified number of shares for each year of service. The Company's Incentive
Plan, which was approved by the stockholders in June 1994 and which specified
the compensation arrangements for non-employee directors, originally provided
that the non-employee directors' initial option award was to cover 15,000 shares
of Common Stock and that each annual award was to cover 6,000 shares. The
Incentive Plan also provided, however, that those numbers were to be adjusted to
take
10
<PAGE> 15
stock splits into account. As a result of adjustments for the two-for-one split
of the Common Stock paid in October 1995 and the two-for-one split of the Common
Stock paid in December 1996, the size of the initial and annual option awards
had grown to 60,000 shares and 24,000 shares, respectively. After the
announcement of an additional two-for-one split of the Common Stock in May 1997
(to be paid in July 1997), the Board of Directors decided to review the
Company's non-employee director compensation arrangement and, pending completion
of that review, unanimously elected to forego the adjustment in their annual
option awards for the July 1997 stock split. Consequently, each non-employee
director who was serving immediately after the stockholders' meeting in 1997
received an annual option award covering 24,000 shares (rather than 48,000,
which would have been the award had the split adjustment been made).
In November 1997, after completing a thorough review and analysis of
non-employee director compensation plans at various companies deemed comparable
for this purpose, the Board of Directors unanimously determined that it was in
the best interests of the Company and its stockholders to modify the terms of
the compensation paid to non-employee directors, including the size of the
automatic option awards, and adopted new non-employee director compensation
arrangements. Under the new arrangements, the number of shares of Common Stock
subject to each annual option award for a Service Year will be equal to the
"Annual Award Base Number" for that Service Year divided by the fair market
value of the Common Stock on the date of grant. The number of shares subject to
an initial option award for a new non-employee director will be equal to the
"Initial Award Base Number" divided by the fair market value of the Common Stock
on the date of grant, and the first annual option award for a new non-employee
director will be prorated on the same basis as the director's annual retainer
fee, as described above. The Annual Award Base Number will be $650,000 (subject
to an annual escalation factor of 10%), and the Initial Award Base Number at any
given time will be 300% of the then-applicable Annual Award Base Number. The
annual option awards for each Service Year are to be granted as of the first day
of that Service Year, and an initial option award is to be granted to a new
non-employee director as of the date of the first Board of Directors meeting
attended. Under the new arrangements, the method of computing the number of
shares subject to the initial and annual option awards will not be adjusted to
take into account future stock splits (including the two-for-one split of the
Common Stock paid in March 1998); however, once an option has been issued, the
number of shares subject to the option and the exercise price of the option will
be adjusted to take into account any subsequent stock splits.
As a result of these new non-employee director compensation arrangements,
each of the Company's current non-employee directors will receive, effective as
of the date of the upcoming annual meeting of stockholders, an annual option
award covering a number of shares equal to $650,000 divided by the fair market
value of the Common Stock on the date of grant. It is not possible to compute
the size of the award at the present time; however, if the number were computed
on the basis of the fair market value of the Common Stock as of May 15, the size
of the award would be approximately 7,000 shares, which is substantially smaller
than it would have been (96,000 shares) had the non-employee director
compensation arrangements not been changed.
In the case of both initial awards and annual awards, the exercise price of
the option is equal to the "fair market value" of the Common Stock on the date
of grant, which is defined as the average of the high and low reported sales
price of the Common Stock on that date. The option vests and becomes exercisable
with respect to 20% of the shares on each of the first five anniversaries of the
date of grant, so long as the director remains a member of the Board of
Directors through those dates. The option terminates when the director ceases to
be a member of the Board of Directors (if the Board of Directors demands or
requests the director's resignation), 90 days after the director ceases to be a
member of the Board of Directors (if the director resigns for any other reason)
or one year after the director ceases to be a member of the Board of Directors
because of death or permanent disability. In any event, the option terminates on
the tenth anniversary of the date of grant.
11
<PAGE> 16
Because Mr. Mandl was appointed to the Board of Directors at the time that
the new compensation arrangement was approved, his compensation is based on the
new arrangement. Consequently, effective November 21, 1997, the date of the
first Board of Directors meeting that Mr. Mandl attended, Mr. Mandl received an
option covering 61,356 shares of Common Stock, 46,017 were attributable to his
initial award and 15,339 were attributable to the annual award for the Service
Year that commenced in 1997. Had the Board of Directors not changed the
non-employee director compensation arrangement, Mr. Mandl would have received an
option covering 240,000 shares.
OTHER BENEFITS. The Company reimburses non-employee directors for their
reasonable expenses associated with attending Board of Directors meetings and
provides the directors with liability insurance coverage with respect to their
activities as directors of the Company.
COMPENSATION DURING FISCAL 1998. The following table describes the fiscal
1998 fees and stock option grants for each of the Company's non-employee
directors.
<TABLE>
<CAPTION>
CASH
NAME PAYMENTS OPTIONS GRANTED(A)
---- -------- ------------------
<S> <C> <C>
Mr. Carty............................................ $35,000(b) 48,000 shares
Mr. Hirschbiel....................................... $34,000 48,000 shares
Mr. Jordan........................................... $34,000(b) 48,000 shares
Mr. Luce(c).......................................... $ 5,000 49,722 shares
Mr. Luft............................................. $35,000 48,000 shares
Ms. Malone........................................... $34,000 48,000 shares
Mr. Mandl(d)......................................... $40,000 61,356 shares
Mr. Miles(c)......................................... $ 5,000 49,722 shares
</TABLE>
- ---------------
(a) Effective July 18, 1997 (the date of the first Board of Directors meeting
following last year's annual meeting of stockholders), each non-employee
director received an option to purchase 24,000 shares with an exercise
price of $74.08 per share, which upon payment of the two-for-one split of
the Common Stock on March 6, 1998, is now the equivalent of an option to
purchase 48,000 shares at an exercise price of $37.04 per share.
(b) Elected to defer $30,000 of this amount pursuant to the deferred
compensation plan described above.
(c) Mr. Luce and Mr. Miles elected to receive options in lieu of the $30,000
annual retainer fee. Accordingly, in addition to the options referred to in
note (a) above, on July 18, 1997 (the date of the first Board of Directors
meeting following last year's annual meeting of stockholders), each of Mr.
Luce and Mr. Miles received an option to purchase 861 shares with an
exercise price of $74.08 per share, which as a result of the March 1998
stock split, is now the equivalent of an option to purchase 1,722 shares at
an exercise price of $37.04.
(d) Mr. Mandl's compensation reflects the new non-employee director
compensation arrangements approved by the Board of Directors in November
1997.
COMPENSATION OF EXECUTIVE OFFICERS
GENERAL. The compensation paid to the Company's executive officers is
administered by the Compensation Committee of the Board of Directors and
consists of base salaries, annual bonuses, awards made pursuant to the Incentive
Plan, contributions to the Company-sponsored 401(k) retirement plan and deferred
compensation plan and miscellaneous benefits. The following table summarizes the
total compensation for each of the last three fiscal years awarded to, earned by
or paid to the Company's Chief Executive Officer and the four most highly
compensated executive officers of the Company (other than the Chief Executive
Officer) who were serving as executive officers at the end of fiscal 1998 (the
"Named Executive Officers").
12
<PAGE> 17
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- -----------------------
OTHER SHARES ALL OTHER
ANNUAL RESTRICTED UNDER- OTHER
NAME AND FISCAL COMPEN- STOCK LYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION(A) AWARDS(B) OPTIONS(C) SATION(D)
------------------ ------ -------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
MICHAEL S. DELL................ 1998 $788,462 $2,000,000 $ 1,650 $ 0 3,200,000 $65,549
Chairman of the Board, 1997 688,461 1,304,910 17,448 0 3,200,000 34,379
Chief Executive Officer 1996 568,629 731,421 92,541 0 480,000 21,303
MORTON L. TOPFER............... 1998 616,346 2,000,000(e) 7,749 0 150,000 28,681
Vice Chairman 1997 544,276 1,031,622 17,567 0 360,000 35,576
1996 490,892 631,429 112,348 640,000 2,200,000 28,856
KEVIN B. ROLLINS............... 1998 450,381 1,125,953(e) 141,206 0 400,000 34,320
Vice Chairman 1997 342,310 486,610 125,099 0 2,680,000 3,530
1996 -- -- -- -- -- --
THOMAS J. MEREDITH............. 1998 408,288 1,020,719(e) 825 0 80,000 11,315
Senior Vice President, 1997 383,547 545,232 14,314 0 240,000 20,198
Chief Financial Officer 1996 327,635 316,075 41,534 320,000 224,000 19,746
PHILLIP E. KELLY............... 1998 308,892 579,173(e) 405,538 0 60,000 7,833
Vice President and 1997 266,923 379,444 422,616 0 200,000 12,287
President -- Asia Pacific 1996 223,397 166,243 288,275 731,200 400,000 9,709
</TABLE>
- ---------------
(a) The amounts shown in this column include amounts paid by the Company for
personal financial counseling and tax planning services and (prior to
fiscal 1997) reimbursement for the related tax liability (Mr. Dell, $1,650
in fiscal 1998, $17,448 in fiscal 1997 and $92,541 in fiscal 1996; Mr.
Topfer, $5,008 in fiscal 1998, $17,567 in fiscal 1997 and $34,031 in fiscal
1996; Mr. Rollins, $12,390 in fiscal 1998 and $643 in fiscal 1997; Mr.
Meredith, $825 in fiscal 1998, $14,314 in fiscal 1997 and $39,485 in fiscal
1996; and Mr. Kelly, $3,350 in fiscal 1998 and $5,693 in fiscal 1997) and
relocation expenses paid by the Company and reimbursement for the related
tax liability (Mr. Topfer, $2,741 in fiscal 1998 and $78,317 in fiscal
1996; and Mr. Rollins, $128,816 in fiscal 1998 and $34,456 in fiscal 1997).
For Mr. Rollins, the amount shown for fiscal 1997 also includes the amount
of bonus paid on commencement of employment ($90,000). For Mr. Meredith,
the amount shown for fiscal 1996 also includes imputed interest on
below-market loans that have since been repaid ($2,049). For Mr. Kelly, the
amounts shown also include expat allowances ($335,406 in fiscal 1998,
$365,709 in fiscal 1997 and $245,948 in fiscal 1996) and reimbursement for
miscellaneous goods and services ($66,782 in fiscal 1998, $51,214 in fiscal
1997 and $42,327 in fiscal 1996).
(b) For Mr. Topfer, the amount shown represents the value of 160,000 shares of
the Company's Common Stock awarded on July 24, 1995 (calculated using the
closing sales price of the Common Stock on the date of grant, which was
$4.00). The shares are subject to vesting and transfer restrictions that
will lapse with respect to all of the shares on the fourth anniversary of
the date of grant. In addition, the shares are subject to forfeiture (and
any gain realized on the sale of the shares is subject to repayment to the
Company) if Mr. Topfer competes with the Company within two years after his
employment with the Company is terminated.
For Mr. Meredith, the amount shown represents the value of 80,000 shares of
the Company's Common Stock awarded on July 24, 1995 (calculated using the
closing sales price of the Common Stock on the date of grant, which was
$4.00). The shares are subject to vesting and transfer restrictions that
will lapse with respect to one-seventh of the shares on each of the first
seven anniversaries of the date of grant. In addition, the shares are
subject to forfeiture (and any gain realized on the sale of the shares is
subject to repayment to the Company) if Mr. Meredith competes with the
Company within two years after his employment with the Company is
terminated.
For Mr. Kelly, the amount shown represents the value of 160,000 shares of
the Company's Common Stock awarded on February 7, 1995 (calculated using
the closing sales price of the Common Stock on the date of grant, which was
$2.57) and the value of 80,000 shares of the Company's common stock awarded
on July 24, 1995 (calculated using the closing sales price of the common
stock on the date of grant, which was $4.00). With respect to each award,
the shares are subject to vesting and transfer restrictions that will lapse
with respect to one-seventh of the shares on each of the first seven
anniversaries of the date of grant. In addition, the shares are subject to
forfeiture (and any gain realized on the sale of the shares is subject to
repayment to the Company) if Mr. Kelly competes with the Company within two
years after his employment with the Company is terminated.
13
<PAGE> 18
The total number and value of the shares of restricted stock held by the
Named Executive Officers as of the end of fiscal 1998 are as follows, with
the values based on the closing sales price of the Company's Common Stock on
the last trading day of fiscal 1998 ($49.72):
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ----------
<S> <C> <C>
Mr. Dell.................................................... 0 $ 0
Mr. Topfer.................................................. 160,000 7,955,040
Mr. Rollins................................................. 0 0
Mr. Meredith................................................ 57,120 2,839,949
Mr. Kelly................................................... 194,160 9,653,441
</TABLE>
When and if the Board of Directors declares and pays dividends on the
Company's Common Stock, such dividends will be paid on the outstanding
shares of restricted stock described in this note at the same rate as they
are paid to all stockholders.
(c) Does not include options granted under the Executive Stock Ownership
Incentive Program described below (the "ESOIP"), pursuant to which a Named
Executive Officer may elect to receive discounted stock options in lieu of
all or a portion of annual bonus. See note (e) below for information
regarding ESOIP elections made for fiscal 1998 annual bonuses. For
information regarding the stock option grants made during fiscal 1998
(including information with respect to options granted pursuant to ESOIP
elections made for fiscal 1997 annual bonuses), see the table titled "Option
Grants in Last Fiscal Year" under "Item 11 -- Executive
Compensation -- Compensation of Executive Officers -- Incentive Plan Awards"
below.
(d) Includes the value of the Company's contributions to the Company-sponsored
401(k) retirement savings plan that is available to all Company employees,
the amount of the Company's contributions to the deferred compensation plan
that is available to certain members of the Company's management and the
amount paid by the Company for term life insurance coverage under health and
welfare plans available to all Company employees.
(e) In accordance with the terms of the ESOIP, Mr. Topfer, Mr. Rollins and Mr.
Meredith each elected to receive discounted stock options in lieu of 100% of
his annual bonus, and Mr. Kelly elected to receive discounted stock options
in lieu of 30% of his annual bonus. The amount shown represents the amount
of the annual bonus awarded, whether paid or foregone in lieu of discounted
options. In lieu of the foregone amounts, those persons received options
covering the following number of shares: Mr. Topfer, 157,016; Mr. Rollins,
88,396; Mr. Meredith, 80,134; and Mr. Kelly, 13,640. The options were
granted on March 20, 1998 and have an exercise price of $50.95 (which was
80% of the market value of the Common Stock on that date). These options are
subject to a one-year vesting period and, accordingly, do not vest and are
not exercisable until the first anniversary of the date of grant.
INCENTIVE PLAN AWARDS. The Company's Incentive Plan provides for the
granting of incentive awards in the form of stock options, stock appreciation
rights, stock and cash to directors, executive officers and key employees of the
Company and its subsidiaries and certain other persons who provide consulting or
advisory services to the Company. Pursuant to an amendment to the Incentive Plan
that was approved by the stockholders at last year's annual meeting, the number
of shares of the Company's common stock that may be issued pursuant to awards
under the Incentive Plan is automatically increased at the beginning of each
fiscal year, beginning with fiscal 1999 and ending with fiscal 2003. The number
of additional shares that will be available for awards at the beginning of any
such fiscal year will be equal to 4% of the following amount: the total number
of issued and outstanding shares of Common Stock as of the end of the
immediately preceding fiscal year, plus the total number of shares of Common
Stock repurchased by the Company during the immediately preceding fiscal year
under the Company's stock repurchase program. That percentage will be increased
to 5% if the total shareholder return (consisting of increase in stock price
plus dividends paid) achieved by the Company during the immediately preceding
fiscal year exceeds the average total shareholder return achieved by the
companies included in the S&P Computer Systems Index during the immediately
preceding fiscal year. As of the beginning of fiscal 1999, an aggregate of
162,701,660 shares of Common Stock were authorized for issuance pursuant to
awards under the Incentive Plan (including 35,654,140 shares that were added at
the beginning of fiscal 1999 under the formula described above) and 45,728,576
shares remained available for issuance under Incentive Plan awards.
14
<PAGE> 19
No restricted stock was awarded to any of the Named Executive Officers
during fiscal 1998. The following table sets forth information about stock
option grants made to the Named Executive Officers during fiscal 1998. The
Company has not made any awards of stock appreciation rights to any of the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER PERCENTAGE OF
OF SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE GRANT EXPIRATION PRESENT
NAME GRANTED(A) FISCAL YEAR PER SHARE DATE DATE VALUE(B)
---- ---------- ------------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dell............. 2,000,000 9.16% $ 18.531 3-5-97 3-5-07 $15,622,350
1,200,000 5.49 37.040 7-18-97 7-18-07 17,892,405
Mr. Topfer........... 309,388(c) 1.42 13.338 3-21-97 3-21-07 3,147,373
150,000 0.69 37.040 7-18-97 7-18-07 2,236,551
Mr. Rollins.......... 100,000 0.46 37.040 7-18-97 7-18-07 1,491,034
300,000 1.37 40.625 12-22-97 12-22-07 5,010,008
Mr. Meredith......... 163,516(c) 0.75 13.338 3-21-97 3-21-07 1,663,432
80,000 0.37 37.040 7-18-97 7-18-07 1,192,827
Mr. Kelly............ 45,516(c) 0.21 13.338 3-21-97 3-21-07 463,030
60,000 0.27 37.040 7-18-97 7-18-07 894,620
</TABLE>
- ---------------
(a) Unless otherwise noted, these options will vest and become exercisable with
respect to one-fifth of the underlying shares on each of the first five
anniversaries of the date of grant.
(b) Calculated using the Black-Scholes model. The material assumptions and
adjustments incorporated into the Black-Scholes model in making such
calculations include the following: (1) an interest rate representing the
interest rate on U.S. Treasury securities with a maturity date
corresponding to the option term; (2) volatility determined using daily
prices for the Company's Common Stock during the five-year period
immediately preceding date of grant; (3) a dividend rate of $0; and (4) in
each case (other than the ESOIP options described in note (c) below), a
reduction of 25% to reflect the probability of forfeiture due to
termination of employment prior to vesting and the probability of a
shortened option term due to termination of employment prior to the option
expiration date. The ultimate values of the options will depend on the
future market prices of the Common Stock, which cannot be forecast with
reasonable accuracy. The actual value, if any, that an optionee will
recognize upon exercise of an option will depend on the difference between
the market value of the Common Stock on the date the option is exercised
and the applicable exercise price.
(c) These options were granted as a part of the ESOIP, which is described
below. These options were fully vested when granted but were not
exercisable until the first anniversary of the date of grant. These options
were received in lieu of fiscal 1997 annual bonuses in the following
amounts: Mr. Topfer, $1,031,622 (100%); Mr. Meredith, $545,232 (100%); and
Mr. Kelly, $151,682 (40%). Those amounts are shown in the Bonus column of
the "Summary Compensation Table" above.
15
<PAGE> 20
The following table sets forth, for each Named Executive Officer,
information concerning the exercise of stock options during fiscal 1998 and the
value of unexercised stock options at the end of fiscal 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(B)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dell............. 0 $ 0 832,000 6,048,000 $36,214,480 $200,467,820
Mr. Topfer........... 1,241,000 37,519,304 0 3,698,388 0 163,012,986
Mr. Rollins.......... 408,000 13,921,321 128,000 2,544,000 5,786,558 102,532,852
Mr. Meredith......... 620,000 19,910,401 472,670 1,134,990 22,126,660 49,392,046
Mr. Kelly............ 28,000 734,414 250,376 543,916 11,309,826 22,043,709
</TABLE>
- ---------------
(a) Calculated using the difference between (1) the actual sales price of the
underlying shares (if the underlying shares were sold immediately upon
exercise) or the closing sales price of the Common Stock on the date of
exercise (if the underlying shares were not sold immediately upon exercise)
and (2) the exercise price.
(b) Amounts were calculated by multiplying the number of unexercised options by
the closing sales price of the Common Stock on the last trading day of
fiscal 1998 ($49.72) and subtracting the exercise price.
Under the ESOIP, which is a program implemented under the Incentive Plan,
certain members of the Company's management (including the executive officers)
may elect, on an annual basis, to receive stock options in lieu of all or a
portion of the annual bonus that they would otherwise receive. The exercise
price of the options is 80% of the fair market value of the Company's Common
Stock on the date of issuance. The number of shares subject to the options is
dependent on the amount of bonus a participant designates for the program and is
calculated by dividing the designated bonus amount by 20% of the fair market
value of the Common Stock on the date of issuance. For the first two years of
the program (fiscal 1996 and fiscal 1997), the options were fully vested at the
time of issuance but were not exercisable for a period of one year. Effective
for fiscal 1998, the options are subject to a one-year vesting period and do not
vest and become exercisable until the first anniversary of the date of grant.
All decisions regarding participation in the program and the amount of bonus to
designate must be made several months in advance of the anticipated bonus
payment date. With respect to fiscal 1998, 240 persons (including four of the
Named Executive Officers) elected to participate in the program with respect to
their bonuses for such year.
401(K) RETIREMENT PLAN. The Company maintains a defined contribution
retirement plan that complies with the provisions of Section 401(k) of the
Internal Revenue Code. Substantially all U.S. employees are eligible to
participate in the plan, and eligibility for participation commences upon
hiring. Under the terms of the plan, the Company currently matches 100% of each
employee participant's voluntary contributions, subject to a maximum Company
contribution of 3% of the employee's compensation. The Company's matching
contributions are used to purchase the Company's Common Stock and vest at the
rate of 20% on each of the first five anniversaries of the date of hire. After
the completion of five years of service with the Company, a participant may
elect to transfer the portion of his or her funds held in the form of Common
Stock to another available investment fund. During fiscal 1998, the Company made
a discretionary contribution for every eligible employee, regardless of whether
the employee was a plan participant, equal to 2% of the employee's actual
earnings during calendar 1997.
DEFERRED COMPENSATION PLAN. The Company maintains a deferred compensation
plan, pursuant to which certain members of management (including the executive
officers) may elect to defer a portion of annual compensation. The Company
matches 100% of the employee's voluntary contributions not in excess of 3% of
annual compensation. The funds attributable to a participant (including
16
<PAGE> 21
voluntary contributions and matching contributions) are invested among various
funds designated by the plan administrator. Upon the death or retirement of a
participant, the funds attributable to the participant (including any earnings
on contributions) are distributed to the participant or the participant's
beneficiary in a lump sum or in annual, quarterly or monthly installments over a
period of up to ten years. A participant whose employment with the Company is
terminated prior to death or retirement is entitled to receive his or her
contributions to the plan (and any earnings thereon) but is entitled to receive
the Company's matching contributions only if he or she has completed four years
of service with the Company.
EMPLOYEE STOCK PURCHASE PLAN. The Company maintains an employee stock
purchase plan that qualifies under Section 423 of the Internal Revenue Code and
permits substantially all employees to purchase shares of the Company's Common
Stock. Participating employees may purchase Common Stock at the end of each
participation period at a purchase price equal to 85% of the lower of the fair
market value of the Common Stock at the beginning or the end of the
participation period. Participation periods are semi-annual and begin on January
1 and July 1 of each year. Employees may designate up to 15% of their base
compensation for the purchase of Common Stock under the plan.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS. Each of the Named
Executive Officers has entered into an employment agreement with the Company.
For the Named Executive Officers other than Mr. Dell, such employment agreements
do not contain any provisions regarding compensation or continued employment and
are identical in all material respects to those contained in the employment
agreement entered into by all the Company's employees upon the commencement of
their employment with the Company. Mr. Dell's employment agreement provides for
continued employment for successive one-year terms, subject to termination at
any time at the option of Mr. Dell upon 30 days' written notice.
Under the terms of the Incentive Plan and the Company's prior stock option
plans, the Compensation Committee, if it so chooses, may issue awards with
provisions that accelerate vesting and exercisability in the event of a
change-in-control of the Company and may amend existing awards to provide for
such acceleration. To date, the Compensation Committee has not elected to
include such acceleration provisions in any awards.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Miles, Mr. Hirschbiel and Mr. Jordan served as members of the
Compensation Committee of the Company's Board of Directors during all of fiscal
1998, and Mr. Mandl has been serving as a member of the Compensation Committee
since his election to the Board of Directors in November 1997. None of such
persons is an officer or employee, or former officer or employee, of the Company
or any of its subsidiaries. No interlocking relationship exists between the
members of the Company's Board of Directors or Compensation Committee and the
board of directors or compensation committee of any other company, nor has any
such interlocking relationship existed in the past.
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<PAGE> 22
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's mission is to become the leader in the personal computer
industry by providing products and services of the highest value to its
customers. To accomplish this objective, the Company has developed a
comprehensive business strategy that emphasizes maximizing long-term stockholder
value through return on invested capital, revenue and earnings growth, quality
and customer and employee satisfaction.
COMPENSATION PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee") is
committed to implementing a compensation program that furthers the Company's
mission. The Committee therefore adheres to the following compensation policies,
which are designed to support the achievement of the Company's business
strategies:
- Executives' total compensation programs should strengthen the
relationship between pay and performance by emphasizing variable, at-risk
compensation that is dependent upon the successful achievement of
specified corporate, business unit and individual performance goals.
- A significant amount of pay for senior executives should be comprised of
long-term, at-risk pay to focus management on the long-term interests of
stockholders.
- The at-risk components of pay offered should be comprised primarily of
equity-based pay opportunities. Encouraging a personal proprietary
interest provides executives with a close identification with the Company
and aligns executives' interests with those of the stockholders. This
promotes a continuing focus on building profitability and stockholder
value.
- Total compensation opportunities should enhance the Company's ability to
attract, retain and encourage the development of exceptionally
knowledgeable and experienced executives upon whom, in large part, the
successful operation and management of the Company depends.
- Base compensation should target compensation opportunities at the median
of compensation paid to executives of similar high-tech companies.
However, if the Company's performance exceeds that of its peers, total
compensation should be paid above this amount in proportion to the level
of success achieved.
The Committee compares total compensation levels for the Company's senior
executives to the compensation paid to executives of a peer group of similar
high-tech companies. Each year, management develops the peer group based on
similar sales volumes, market capitalization, employment levels and lines of
business. The Committee reviews and approves the selection of companies used in
the peer group for compensation comparison purposes. For fiscal 1998, the peer
group consisted of approximately 25 high-tech companies, and was changed from
the prior year to reflect the Company's growth and profitability. This group is
not necessarily the same group used for the industry comparison in the
performance graph found in "Company Performance" since this group includes
additional companies that the Company competes with for people talent, in
addition to industry-product competitors.
COMPONENTS OF COMPENSATION
The key elements of the Company's executive compensation program are base
salary, short-term (annual) incentive and long-term incentive compensation.
These elements are addressed separately below.
The Committee does not exclusively use quantitative methods or mathematical
formulas in setting any element of compensation. In determining each component
of compensation, the
18
<PAGE> 23
Committee considers all elements of an executive's total compensation package,
including insurance and other benefits.
BASE SALARIES. Base salaries are targeted at median levels for the peer
group of companies and are adjusted by the Committee to recognize varying levels
of responsibility, individual performance, business unit performance and
internal equity issues, as well as external pay practices. The Committee reviews
each senior executive's base salary annually.
Overall, senior executive salaries were increased in fiscal 1998 at rates
comparable to the increases provided in the peer group of high-tech companies.
SHORT-TERM INCENTIVES. The Incentive Bonus Plan promotes the Company's
pay-for-performance philosophy by providing senior executives with direct
financial incentives in the form of annual cash bonuses to achieve corporate,
business unit and individual performance goals.
Earlier in the fiscal year, the Committee established these corporate and
business unit specific goals relating to each senior executive's bonus
opportunity. For fiscal 1998, the Company's performance and business unit
performance were based on financial measures, including return on invested
capital ("ROIC") and revenue growth, and on non-financial measures, such as
quality, systems infrastructure and process enhancements. For fiscal 1998, a
subjective evaluation of individual performance could only result in a negative
adjustment of the payment for those corporate vice presidents who participated
in the old Executive Incentive Bonus Plan and who are executive officers. That
plan was approved by the stockholders at the 1995 annual meeting in order to
comply with the performance-based compensation exemption under Section 162(m) of
the Internal Revenue Code.
Fiscal 1998 target bonus opportunities for each of the senior executives
were set slightly above market levels, but required above-average performance
from each of the executives to be achievable. For the Company's senior executive
officers, the targets ranged from 75% to 150% of base salaries. The actual
percentage to be paid was subject to adjustment above or below the target based
on the Company's performance. The Company's performance in fiscal 1998
significantly exceeded the performance goals as specified in the plan, and
bonuses were paid to the Named Executive Officers as shown in the Summary
Compensation Table. The payouts ranged from 169% to 250% of the target bonus
opportunities for the Named Executive Officers.
For fiscal 1999, incentive bonuses will be governed by the new Executive
Incentive Bonus Plan (contingent upon stockholder approval), under "Proposal
3 -- Approval of Executive Incentive Bonus Plan" above.
LONG-TERM INCENTIVES. In keeping with the Company's philosophy of providing
a total compensation package that favors at-risk components of pay, long-term
incentives comprise a significant component of a senior executive's total
compensation package. These incentives are designed to motivate and reward
executives for maximizing stockholder value and encourage the long-term
employment of key employees.
When awarding long-term incentives, the Committee considers executives'
levels of responsibility, prior experience, individual performance criteria,
previous stock option grants and compensation practices at the peer group of
companies used to evaluate total compensation. The Committee's objective is to
provide executives with long-term incentive award opportunities that approximate
the market median but provide for above-market payout opportunities when the
Company's stockholder returns exceed industry norms.
The size of stock option grants is based primarily on the dollar value of
the award granted. As a result, the number of shares underlying stock option
awards varies and is dependent on the price of the Company's Common Stock on the
date of grant. The size of the award can also be adjusted based on individual
factors.
19
<PAGE> 24
In July 1997, stock options with an exercise price set at fair market value
were granted for fiscal 1998 as part of the Company's regular annual grant of
stock options. The size of each award was determined based on the criteria for
awarding long-term incentives stated in the preceding two paragraphs. These
nonqualified options vest ratably on the first five anniversaries of the grant
date (20% of the grant each year).
Because all of the above grants were made at option prices equal to the
fair market value of the Company's Common Stock on the dates of grant, the stock
options have value only if the stock price appreciates from the value on the
date the options were granted. This design is intended to focus executives on
the enhancement of stockholder value over the long-term and to encourage equity
ownership in the Company.
Also, on March 20, 1998, stock options with an exercise price set at 80% of
fair market value were granted to 193 of 349 potential participants in the
Company's "Executive Stock Ownership Incentive Program." Under this program,
executives could elect to forgo all or a portion of their pre-tax Incentive
Bonus Plan or EIBP payouts for fiscal 1998 and receive options granted at 80% of
fair market value as of the above date. Because of the inherent risk in
foregoing a cash payment to receive an option grant, the number of shares
granted is calculated by dividing the forgone bonus payment amount by 20% of the
fair market value of the Common Stock on the bonus payment date. Although the
foregone cash payments would have been unrestricted, these discounted options
are subject to a one-year vesting period requirement, in exchange for the
favorable share calculation formula.
The Committee also approved grants of restricted stock to key employees who
joined the Company during fiscal 1998. The restricted stock was required to
attract these individuals to the Company and was intended to replace the
long-term incentives they forfeited when they left their previous employers.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Committee recognizes that Michael S. Dell is the Company's founder and
its largest stockholder. In fiscal 1998, Mr. Dell's annualized base salary was
increased to $800,000 to reflect the Company's outstanding performance under his
continued leadership. The new salary remains below the median base salary
earnings for chief executive officers of the peer group of companies.
Mr. Dell also received an incentive bonus as a result of the Company's
performance in fiscal 1998 which exceeded the target performance levels
specified in the plan. This payment equaled 254% of Mr. Dell's base salary.
In fiscal 1998, Mr. Dell also received stock option grants of 3,200,000
shares, each with an exercise price set at the fair market value of the Common
Stock on the date of grant. The awards were based on comparative long-term
incentive awards made to other chief executive officers in the peer group of
high-tech companies.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the U.S.
corporate income tax deduction for compensation paid to executive officers named
in the summary compensation table in the proxy statement of a public company to
$1 million, unless the compensation is "performance based compensation" or
qualifies under certain other exceptions. When structuring awards to the
executive officers, the Committee considers the potential loss of deduction
under Section 162(m), as well as the financial statement effect of a particular
award. In some cases, an award that qualifies as "performance based
compensation" under Section 162(m) may give rise to an accounting treatment that
results in an adverse financial statement effect. Consequently, the Committee
attempts to strike a reasonable balance between the Section 162(m)
considerations and the financial accounting or other considerations. The
Committee may authorize an award that will give
20
<PAGE> 25
rise to a loss of deduction under Section 162(m), but only after determining
that the potential adverse financial statement effect of alternative award
structures, or other considerations, outweighs the monetary value of the lost
deduction. As a result of the Section 162(m) limitation, approximately $14.5
million of the compensation earned by Mr. Topfer and $8.6 million earned by Mr.
Rollins during fiscal 1998 will be nondeductible (resulting in a cash cost to
the Company of approximately $8 million).
CONCLUSION
The Committee believes these executive compensation policies and programs
serve the interests of stockholders and the Company effectively. The various pay
vehicles offered are appropriately balanced to provide increased motivation for
senior executives to contribute to the Company's overall future success, thereby
enhancing the value of the Company for the stockholders' benefit.
THE COMPENSATION COMMITTEE
MICHAEL A. MILES, CHAIRMAN
PAUL O. HIRSCHBIEL, JR.
MICHAEL H. JORDAN
ALEX J. MANDL
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<PAGE> 26
COMPANY PERFORMANCE
The following graph compares the cumulative total return on the Company's
Common Stock during the last five fiscal years with the S&P 500 Index and the
S&P Computer Systems Index during the same period. The graph shows the value, at
the end of each of the last five fiscal years, of $100 invested in the Company's
Common Stock or the indices on January 31, 1993 and assumes the reinvestment of
all dividends. The graph depicts the change in the value of the Company's Common
Stock relative to the noted indices as of the end of each fiscal year and not
for any interim period. Historical stock price performance is not necessarily
indicative of future stock price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
S&P COMPUTER
MEASUREMENT PERIOD DELL COMPUTER SYSTEMS
(FISCAL YEAR COVERED) CORPORATION S&P 500 INDEX(A)
<S> <C> <C> <C>
1993 100 100 100
1994 47 109 100
1995 91 107 121
1996 119 142 172
1997 572 179 240
1998 1720 223 324
</TABLE>
<TABLE>
<CAPTION>
END OF FISCAL YEAR
----------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Dell Computer Corporation................... 100 47 91 119 572 1,720
S&P 500..................................... 100 109 107 142 179 223
S&P Computer Systems Index(a)............... 100 100 121 172 240 324
</TABLE>
- ---------------
(a) The S&P Computer Systems Index currently consists of Apple Computer, Inc.,
Compaq Computer Corporation, Data General Corporation, Dell Computer
Corporation, Digital Equipment Corporation, EMC Corporation,
Hewlett-Packard Company, International Business Machines Corporation,
Seagate Technology, Inc., Silicon Graphics, Inc., Sun Microsystems, Inc.
and Unisys Corporation.
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<PAGE> 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information about the beneficial ownership of
Common Stock (the only class of voting securities of the Company outstanding) by
the persons known to the Company to be the beneficial owners of more than 5% of
the outstanding Common Stock, by each of the Company's directors, by each Named
Executive Officer and by all of the Company's directors and executive officers
as a group. To the best of the Company's knowledge, each such person holds sole
investment and voting power over the shares shown, except as otherwise
indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP(a) CLASS (b)
---------------- ----------------- ----------
<S> <C> <C>
Michael S. Dell............................................. 103,047,382(c)(d) 16.1%
One Dell Way
Round Rock, Texas 78682-2244
Alliance Capital Management L.P............................. 35,925,662(e) 5.5%
787 Seventh Avenue
New York, New York 10019
Donald J. Carty............................................. 235,200(c) *
Paul O. Hirschbiel, Jr...................................... 203,424(c)(f) *
Michael H. Jordan........................................... 435,200(c) *
Thomas W. Luce III.......................................... 1,120(c) *
Klaus S. Luft............................................... 201,600(c) *
Claudine B. Malone.......................................... 108,000(c) *
Alex J. Mandl............................................... 0 *
Michael A. Miles............................................ 399,958(c)(g) *
Morton L. Topfer............................................ 1,767,914(c)(h) *
Kevin B. Rollins............................................ 538,322(c) *
Thomas J. Meredith.......................................... 1,534,426(c)(i) *
Phillip E. Kelly............................................ 225,926(c) *
Directors and executive officers as a group (24 persons).... 110,123,270(c) 17.2%
</TABLE>
- ---------------
* Less than 1%.
(a) As of April 30, 1998, unless otherwise indicated.
(b) Based on the number of shares outstanding (639,003,101) at the close of
business on April 30, 1998, unless otherwise indicated.
(c) Includes the following number of shares subject to options that were
exercisable at or within 60 days after April 30, 1998: Mr. Dell, 1,232,000;
Mr. Carty, 235,200; Mr. Hirschbiel, 110,400; Mr. Jordan, 355,200; Mr. Luce,
1,120; Mr. Luft, 201,600; Ms. Malone, 48,000; Mr. Miles, 202,720; Mr.
Topfer, 1,112,388; Mr. Rollins, 536,000; Mr. Meredith, 687,630; Mr. Kelly,
0; and all directors and executive officers as a group, 5,540,934. Also
includes the following number of shares held for the person's account in the
Company-sponsored 401(k) retirement savings plan: Mr. Dell, 24,830; Mr.
Topfer, 4,190; Mr. Rollins, 458; Mr. Meredith, 9,456; Mr. Kelly, 2,958; and
all directors and executive officers as a group, 66,454.
(d) Does not include 1,620,000 shares held in a trust of which Mr. Dell is the
grantor, 1,520,000 shares held in a trust of which Mr. Dell's spouse is the
grantor or 10,112,128 shares held by Mr. Dell's spouse.
(e) Based on a Schedule 13G filed with the Securities and Exchange Commission on
February 13, 1998 and reflecting ownership of Common Stock, and the
percentage of shares outstanding, as of December 31, 1997. The following
information is taken from that filing. The Schedule 13G was filed by The
Equitable Companies Incorporated ("Equitable"); AXA-UAP, which beneficially
owns a majority interest in Equitable; and Alpha Assurances Vie Mutuelle,
AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA
Courtage Assurance Mutuelle, as a group (collectively, the "Mutuelles AXA"),
which beneficially own a majority interest in AXA-UAP. The reporting persons
reported (1) deemed sole voting power over 18,866,442 shares, (2) deemed
shared voting power over 5,684,760 shares, (3) deemed sole investment power
over 35,908,752 shares and (4) deemed shared investment power over 16,910
shares. Alliance Capital Management L.P., a subsidiary of Equitable was
reported as the deemed holder of sole voting power over 18,712,642 of such
shares, shared voting power over 5,684,760 of such shares, sole investment
power over 35,908,752 of such shares and shared investment power over 7,260
of such shares.
(f) Includes 5,760 shares held in family trusts of which Mr. Hirschbiel is the
trustee.
23
<PAGE> 28
(g) Includes 40,000 shares held by Mr. Miles' spouse and 1,238 shares held
through the Company's deferred compensation plan for non-employee directors.
(h) Includes 32,368 shares held by a family limited partnership of which Mr.
Topfer is the general partner.
(i)Includes 636,220 shares held by a grantor trust of which Mr. Meredith is the
trustee and Mr. Meredith and members of his family are the beneficiaries.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thomas W. Luce III, a director of the Company, is affiliated with the law
firm of Hughes & Luce, L.L.P., Dallas, Texas, which provided certain legal
services to the Company during fiscal 1998. The dollar amount of fees that the
Company paid to that firm during fiscal 1998 did not exceed 5% of that firm's
gross revenues for its last full fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Claudine B. Malone, a non-employee director of the Company, failed to
report on her Form 4 for the month of September 1997 a sale of 28,800 (prior to
the March 1998 split) shares of the Company's Common Stock that occurred on
September 5, 1997. This failure was inadvertent, and the transaction has now
been reported on Ms. Malone's Form 5 filed with respect to fiscal 1998. This was
the only transaction that was not timely reported.
ADDITIONAL INFORMATION
INDEPENDENT ACCOUNTANTS. The Board of Directors has selected Price
Waterhouse LLP as the Company's independent accountants for fiscal 1999. Price
Waterhouse LLP has been the Company's independent accountants for each of the
past twelve fiscal years. The Company expects that representatives of Price
Waterhouse LLP will be present at the meeting to respond to appropriate
questions and will have an opportunity to make a statement if they desire to do
so.
PROXY SOLICITATION. The Company will bear all costs of this proxy
solicitation. Proxies may be solicited by mail, in person or by telephone or
facsimile transmission by officers, directors and regular employees of the
Company. The Company may also reimburse brokerage firms, custodians, nominees
and fiduciaries for their expenses to forward proxy materials to beneficial
owners.
STOCKHOLDER PROPOSALS. Any stockholder of the Company who desires to
present a proposal for consideration at next year's annual meeting of
stockholders must deliver the proposal to the Company's principal executive
offices no later than February 4, 1999, unless the Company notifies the
stockholders otherwise. Only those proposals that are proper for stockholder
action may be included in the Company's proxy statement. Written requests for
inclusion should be addressed to Corporate Secretary, Dell Computer Corporation,
One Dell Way, Round Rock, Texas 78682-2244.
In recommending candidates to the Board of Directors, the Nominating
Committee seeks persons of proven judgment and experience. Stockholders who wish
to suggest qualified candidates may write to the Corporate Secretary, Dell
Computer Corporation, One Dell Way, Round Rock, Texas 78682-2244, stating in
detail the qualifications of the persons they recommend.
STOCKHOLDER LIST. The Company will maintain at its corporate offices at One
Dell Way, Round Rock, Texas, a list of the stockholders entitled to vote at the
annual meeting, and the list will be open for examination by any stockholder,
for purposes germane to the meeting, during ordinary business hours for a period
of 10 days prior the meeting. The list will also be available for examination at
the meeting itself.
ANNUAL REPORT. The Company's Annual Report to Stockholders for the fiscal
year ended February 1, 1998 is being mailed to stockholders or made available
via the Internet concurrently with this Proxy Statement and does not form any
part of the proxy solicitation material. A COPY OF THE
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<PAGE> 29
COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) FOR THE FISCAL YEAR
ENDED FEBRUARY 1, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WILL BE SENT TO ANY STOCKHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST ADDRESSED TO
DONALD D. COLLIS, INVESTOR RELATIONS, DELL COMPUTER CORPORATION, ONE DELL WAY,
ROUND ROCK, TEXAS 78682. In addition, the Company's Annual Report on Form 10-K
(without exhibits) is available via the Internet at the Company's World Wide Web
site (www.dell.com), and the EDGAR version of such report (with exhibits) is
available at the World Wide Web site of the Securities and Exchange Commission
(www.sec.gov).
INTERNET AND TELEPHONE VOTING. For shares of Common Stock that are
registered in your name, as well as for shares that you beneficially own and
hold in "street name" through a broker, you have the opportunity to vote via the
Internet or by telephone by utilizing a program provided through ADP Investor
Communication Services ("ADP"). Votes submitted electronically via the Internet
or by telephone through this program must be received by 4:00 p.m., New York
time, on July 16, 1998. The giving of such a proxy will not affect your right to
vote in person should you decide to attend the Annual Meeting. The Company has
been advised by counsel that the Internet and telephone voting procedures that
have been made available through ADP are consistent with the requirements of
applicable law.
To vote via the Internet, please access ADP on the World Wide Web at
www.proxyvote.com. To vote by telephone, please call ADP Investor Communication
Services toll-free at 1-800-690-6903 (for record holders) or 1-800-454-8683 (for
beneficial owners holding in street name).
The Internet voting procedures are designed to authenticate stockholder
identities, to allow stockholders to give their voting instructions and to
confirm that stockholders' instructions have been recorded properly.
Stockholders voting via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by the stockholder.
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<PAGE> 30
APPENDIX A
DELL COMPUTER CORPORATION
EXECUTIVE INCENTIVE BONUS PLAN
Dell Computer Corporation, a Delaware corporation (the "Company") adopts
this Executive Incentive Bonus Plan (the "Plan") for the purpose enhancing the
Company's ability to attract and retain highly qualified executives and to
provide additional financial incentives to such executives to promote the
success of the Company and its subsidiaries.
Remuneration payable under the Plan is intended to constitute "qualified
performance-based compensation" for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and Section 1.162-27 of the Treasury
Regulations promulgated thereunder, and the Plan shall be construed consistently
with such intention. The "performance goal" necessary for the payment of
remuneration under the Plan will be the achievement of positive Consolidated Net
Income (as defined below).
1. DEFINITIONS. As used herein, the following terms shall have the
respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended,
or the corresponding provisions of any subsequent federal internal revenue
law.
(c) "Committee" shall mean the Compensation Committee of the Board or
such other committee appointed by the Board to administer the Plan;
provided, however, that in any event the Committee shall be comprised of
not less than two directors of the Company, each of whom shall qualify in
all respects as an "outside director" for purposes of Section 162(m) of the
Code and Section 1.162-27(e)(3) of the Regulations.
(d) "Company" shall mean Dell Computer Corporation, a Delaware
corporation.
(e) "Consolidated Net Income" shall mean, for any Fiscal Quarter or
Fiscal Year, the net income before extraordinary items reported in the
Company's quarterly or annual consolidated statement of income included in
the applicable Quarterly Report on Form 10-Q (in the case of a Fiscal
Quarter) or Annual Report on Form 10-K (in the case of a Fiscal Year), as
filed with the Securities Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
(f) "Eligible Executive" shall mean the Company's Chief Executive
Officer and each other executive officer of the Company that the Committee
determines, in its discretion, is or may be a "covered employee" of the
Company within the meaning Section 162(m) of the Code and Section
1.162-27(c)(2) of the Regulations.
(g) "Incentive Bonus" shall mean, for each Eligible Executive, an
annual bonus opportunity amount determined by the Committee pursuant to
Section 3 below.
(h) "Regulations" shall mean the Treasury Regulations promulgated
under the Code, as amended from time to time.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee, which shall have full power and authority to construe, interpret and
administer the Plan and shall have the exclusive right to establish, adjust, pay
or decline to pay the Incentive Bonus for each Eligible Executive. Such power
and authority shall include the right to exercise discretion to reduce by any
amount the Incentive Bonus payable to any Eligible Executive; provided, however,
that the exercise of such discretion with respect to any Eligible Executive
shall not have the effect of increasing the
<PAGE> 31
Incentive Bonus that is payable to any other Eligible Executive. All Committee
actions under the Plan shall be taken in accordance with the applicable
provisions of the Company's By-laws and the Committee's Charter.
3. ELIGIBILITY. Eligibility under this Plan is limited to Eligible
Executives designated by the Committee in its sole and absolute discretion.
4. AWARDS.
(a) Not later than the 90th day of each fiscal year of the Company, the
Committee, in its sole and absolute discretion, shall designate one or more
Eligible Executives as participants in the Plan for such fiscal year and shall
specify the terms and conditions for the determination and payment of an
Incentive Bonus to each such Eligible Executive for such fiscal year. After the
end of such 90-day period, the Committee may designate additional Eligible
Executives so long as, within 30 days following each such additional
designation, the Committee specifies the terms and conditions for the
determination and payment of an Incentive Bonus to such additional Eligible
Executive.
(b) The Committee may condition the payment of an Incentive Bonus upon the
satisfaction of such objective or subjective standards as the Committee shall
determine to be appropriate, in its sole and absolute discretion, and shall
retain the discretion to reduce the amount of any Incentive Bonus that would
otherwise be payable to an Eligible Executive (including a reduction in such
amount to zero).
(c) The Incentive Bonus payable to an Eligible Executive with respect to
any fiscal year shall not exceed 0.5% of the Consolidated Net Income for such
fiscal year; provided, however, that the maximum Incentive Bonus payable to any
individual who becomes an Eligible Executive after the end of the 90-day period
referred to in subsection (a) of this Section shall be 0.5% of the Consolidated
Net Income for the fiscal quarters after the fiscal quarter in which such
individual became an Eligible Executive.
5. COMMITTEE CERTIFICATION. As soon as reasonably practicable after the end
of each fiscal year of the Company, the Committee shall determine whether the
stated performance goal has been achieved and the amount of the Incentive Bonus
to be paid to each Eligible Executive for such fiscal year and shall certify
such determinations in writing.
6. PAYMENT OF INCENTIVE BONUSES. Subject to any election duly and validly
made by an Eligible Executive with respect to the deferral of all or a portion
of his or her Incentive Bonus or the payment of all or a portion of his or her
Incentive Bonus in some form other than cash, Incentive Bonuses shall be paid in
cash at such times and on such terms as are determined by the Committee in its
sole and absolute discretion.
7. NO RIGHT TO BONUS OR CONTINUED EMPLOYMENT. Neither the establishment of
the Plan, the provision for or payment of any amounts hereunder nor any action
of the Company, the Board or the Committee with respect to the Plan shall be
held or construed to confer upon any person (a) any legal right to receive, or
any interest in, an Incentive Bonus or any other benefit under the Plan or (b)
any legal right to continue to serve as an officer or employee of the Company or
any subsidiary or affiliate of the Company. The Company expressly reserves any
and all rights to discharge any Eligible Executive without incurring liability
to any person under the Plan or otherwise. Notwithstanding any other provision
hereof and notwithstanding the fact that the stated performance goal has been
achieved or the individual Incentive Bonus amounts have been determined, the
Company shall have no obligation to pay any Incentive Bonus hereunder unless the
Committee otherwise expressly provides by written contract or other written
commitment.
8. WITHHOLDING. The Company shall have the right to withhold, or require an
Eligible Executive to remit to the Company, an amount sufficient to satisfy any
applicable federal, state, local or foreign withholding tax requirements imposed
with respect to the payment of any Incentive Bonus.
A-2
<PAGE> 32
9. NONTRANSFERABILITY. Except as expressly provided by the Committee, the
rights and benefits under the Plan are personal to an Eligible Executive and
shall not be subject to any voluntary or involuntary alienation, assignment,
pledge, transfer or other disposition.
10. UNFUNDED PLAN. The Company shall have no obligation to reserve or
otherwise fund in advance any amounts that are or may in the future become
payable under the Plan. Any funds that the Company, acting in its sole and
absolute discretion, determines to reserve for future payments under the Plan
may be commingled with other funds of the Company and need not in any way be
segregated from other assets or funds held by the Company. An Eligible
Executive's rights to payment under the Plan shall be limited to those of a
general creditor of the Company.
11. ADOPTION, AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN.
(a) Subject to the approval of the Plan by the holders of a majority of the
Company common stock represented and voting on the proposal at the annual
meeting of Company stockholders to be held on July 17, 1998 (or any adjournment
thereof), the Plan shall be effective for the fiscal year of the Company
commencing February 2, 1998 and shall continue in effect until the fifth
anniversary of the date of such stockholder approval, unless earlier terminated
as provided below. Upon such approval of the Plan by the Company's stockholders,
all Incentive Bonuses awarded under the Plan on or after February 2, 1998 shall
be fully effective as if the stockholders had approved the Plan on or before
February 2, 1998.
(b) Subject to the limitations set forth in this subsection, the Board may
at any time suspend or terminate the Plan and may amend it from time to time in
such respects as the Board may deem advisable; provided, however, that the Board
shall not amend the Plan in any of the following respects without the approval
of stockholders then sufficient to approve the Plan in the first instance:
(1) To increase the maximum amount of Incentive Bonus that may be paid
under the Plan or otherwise materially increase the benefits accruing to
any Eligible Executive under the Plan;
(2) To materially modify the requirements as to eligibility for
participation in the Plan;
(3) To change the material terms of the stated performance goal.
(c) No Incentive Bonus may be awarded during any suspension or after
termination of the Plan, and no amendment, suspension or termination of the Plan
shall, without the consent of the person affected thereby, alter or impair any
rights or obligations under any Incentive Bonus previously awarded under the
Plan.
12. GOVERNING LAW. The validity, interpretation and effect of the Plan, and
the rights of all persons hereunder, shall be governed by and determined in
accordance with the laws of the State of Delaware, other than the choice of law
rules thereof.
*****
The foregoing Executive Incentive Bonus Plan was duly approved and adopted
by the Board of Directors of Dell Computer Corporation, a Delaware corporation
(the "Company"), by Unanimous Written Consent dated May 28, 1998, and was duly
approved by the Company's stockholders at the annual meeting of stockholders
held on July 17, 1998.
------------------------------------
Thomas B. Green
Secretary
A-3
<PAGE> 33
PROXY FORM [DELL LOGO] PROXY FORM
DELL COMPUTER CORPORATION
PROXY
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 17, 1998
AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF DELL COMPUTER CORPORATION
By casting your voting instructions on the reverse side, you hereby (a)
acknowledge receipt of the proxy statement related to the above-referenced
meeting, (b) appoint the individuals named in such proxy statement, and each of
them, as proxies, with full power of substitution, to vote all shares of stock
of the Company that you would be entitled to cast if personally present at such
meeting and at any postponement or adjournment thereof and (c) revoke any
proxies previously given.
This proxy will be voted as specified by you. IF NO CHOICE IS SPECIFIED, THE
PROXY WILL BE VOTED ACCORDING TO THE BOARD OF DIRECTOR RECOMMENDATIONS INDICATED
ON THE REVERSE SIDE, AND ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS FOR
ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT
OR ADJOURNMENT THEREOF.
<PAGE> 34
[DELL LOGO]
www.dell.com
OPTIONS FOR SUBMITTING PROXY
1. RETURN THE ATTACHED PROXY CARD USING THE ENCLOSED ENVELOPE.
2. VOTE VIA THE INTERNET AT www.proxyvote.com
3. VOTE VIA THE TELEPHONE AT 1-800-690-6903
- -------------------------------------------------------------------------------
PROXY MUST BE SUBMITTED BY 4:00 P.M. (EASTERN DAYLIGHT SAVINGS TIME) ON JULY 16,
1998 UNLESS YOU ARE ATTENDING THE MEETING
TO VOTE VIA THE INTERNET OR TELEPHONE, YOU MUST HAVE THE CONTROL NUMBER LISTED
BELOW.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DIRECTOR NOMINEES: (01) DONALD J. CARTY, (02) THOMAS W. LUCE III (03) PAUL O.
HIRSCHBIEL, JR. (04) ALEX J. MANDL
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROXY FORM [DELL LOGO] PROXY FORM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED PROPOSALS
(1) ELECTION OF DIRECTORS: - Nominees:
Donald J. Carty
Thomas W. Luce III
Paul O. Hirschbiel, Jr.
Alex J. Mandl
[ ] FOR ALL nominees
[ ] WITHHOLD ALL nominees
[ ] FOR ALL EXCEPT:
- ----------------------------------
(TO WITHHOLD AUTHORITY TO VOTE FOR
ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME IN THE SPACE
PROVIDED ABOVE.)
(2) Approval of an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from one billion
to three billion.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Approval of the Company's Executive Incentive Bonus Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Note: In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting or any adjournment(s) thereof.
- -------------------------------------------------------------------------------
PLEASE MARK ALL
CHOICES LIKE THIS [X]
- -------------- --------------
ACCOUNT NUMBER SHARES
SIGNATURE OF STOCKHOLDER DATE
------------------------- -----------------
DATE
------------------------- -----------------
EACH JOINT OWNER SHOULD SIGN. SIGNATURES SHOULD CORRESPOND WITH THE NAMES
PRINTED ON THIS PROXY. ATTORNEYS, EXECUTORS, ADMINISTRATORS, GUARDIANS,
TRUSTEES, CORPORATE OFFICERS OR OTHER SIGNING IN A REPRESENTATIVE CAPACITY
MUST GIVE FULL TITLE.
