-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W1KHALcQUATFQm43F/i180mHhyXy+8Cg/X9sb8pQD2qP6gQZ7aYdMx7QACJPfjgA UNYew29kIXP8pePbqWfYCA== 0000950134-94-000615.txt : 20040504 0000950134-94-000615.hdr.sgml : 20040504 19940524170800 ACCESSION NUMBER: 0000950134-94-000615 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940622 FILED AS OF DATE: 19940524 DATE AS OF CHANGE: 19990831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELL COMPUTER CORP CENTRAL INDEX KEY: 0000826083 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 742487834 STATE OF INCORPORATION: DE FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-17017 FILM NUMBER: 94530145 BUSINESS ADDRESS: STREET 1: ONE DELL WAY STREET 2: STED CITY: ROUND ROCK STATE: TX ZIP: 78682-2244 BUSINESS PHONE: 5127284737 MAIL ADDRESS: STREET 1: ONE DELL WAY CITY: ROUND ROCK STATE: TX ZIP: 78682 FORMER COMPANY: FORMER CONFORMED NAME: DELL COMPUTER CORP DATE OF NAME CHANGE: 19920703 DEF 14A 1 DEFINITIVE PROXY STATEMENT 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant (x) Filed by a Party other than the Registrant ( ) Check the appropriate box: ( ) Preliminary Proxy Statement (x) Definitive Proxy Statement ( ) Definitive Additional Materials ( ) Soliciting Material Pursuant to Sections 240.14a-11(c) or Sections 240.14a-12 Dell Computer Corporation (Name of Registrant as Specified In Its Charter) Dell Computer Corporation (Name of Persons(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): (x) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2). ( ) $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). ( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: _______________________________________________________________________ 2) Aggregate number of securities to which transaction applies: _______________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:(1) 4) Proposed maximum aggregate value of transaction: _______________________________________________________________________ (1) Set forth the amount on which the filing fee is calculated and state how it was determined. ( ) Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ___________________________________________________________ 2) Form, Schedule or Registration Statement No.: ___________________________________________________________ 3) Filing Party: ___________________________________________________________ 4) Date Filed: ___________________________________________________________ 2 ________________________________________________________________________________ 1 9 9 4 ________________________________________________________________________________ Notice of Annual Meeting and Proxy Statement ________________________________ (DELL LOGO) Dell Computer Corporation 9505 Arboretum Blvd. Austin, Texas 78759-7299 3 (DELL LOGO) DELL COMPUTER CORPORATION 9505 ARBORETUM BOULEVARD AUSTIN, TEXAS 78759-7299 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To the Stockholders: You are cordially invited to attend Dell Computer Corporation's 1994 Annual Meeting of Stockholders, to be held on WEDNESDAY, JUNE 22, 1994, at 10:00 A.M. at the STOUFFER AUSTIN HOTEL, 9721 ARBORETUM BOULEVARD, AUSTIN, TEXAS. The meeting will be held for these purposes: 1. To elect two Class III directors, each for a term of three years. 2. To ratify the selection of Price Waterhouse as Dell Computer Corporation's independent accountants for fiscal 1995. 3. To approve the Dell Computer Corporation Incentive Plan, to reserve 4,490,207 shares of Common Stock for issuance under that plan, and to cancel the reservation of the same number of shares under Dell Computer Corporation's 1989 and 1993 stock option plans. 4. To transact any other business that may properly come before the meeting. Stockholders of record at the close of business on May 13, 1994, are entitled to notice of and to vote at the Annual Meeting of Stockholders and any adjournment thereof. A complete list of these stockholders will be available for examination at the offices of Dell Computer Corporation in Austin, Texas, during normal business hours for ten days before the meeting. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE THE SHARES TO WHICH IT RELATES ARE VOTED AT THE MEETING. By Order of the Board of Directors Richard E. Salwen Secretary Austin, Texas May 24, 1994 4 (DELL LOGO) DELL COMPUTER CORPORATION 9505 ARBORETUM BOULEVARD AUSTIN, TEXAS 78759-7299 PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS The Board of Directors of Dell Computer Corporation requests your Proxy for the Annual Meeting of Stockholders to be held on June 22, 1994, at 10:00 a.m. at the Stouffer Austin Hotel, 9721 Arboretum Boulevard, Austin, Texas. By executing and returning the enclosed Proxy, you authorize the persons named on the Proxy to represent you and vote your shares at the Annual Meeting. The approximate date of mailing of this Proxy Statement and associated Proxy is May 24, 1994. If you attend the meeting, you may vote in person. If you are not present, your shares can be voted only if you have returned a properly executed Proxy or are represented by another proxy. You may revoke the Proxy in writing at any time before it is exercised at the Annual Meeting by giving Dell written notice of the revocation or by executing and delivering to Dell a later-dated Proxy. Attendance at the Annual Meeting will not be effective to revoke the Proxy unless written notice of revocation also has been given to the Secretary of the Annual Meeting before the Proxy is exercised. VOTING AND QUORUM The only outstanding voting security of Dell is its Common Stock, par value $.01 per share. On May 13, 1994, the record date for the Annual Meeting, there were 38,288,947 shares of Common Stock outstanding and entitled to be voted at the Annual Meeting. Each outstanding share of Common Stock is entitled to one vote. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum for the Annual Meeting. If a quorum is not present, the stockholders entitled to vote who are present in person or represented by proxy at the Annual Meeting have the power to adjourn the Annual Meeting from time to time, without notice other than an announcement at the Annual Meeting, until a quorum is present or represented. At any adjourned Annual Meeting at which a quorum is present, any business may be transacted that might have been transacted at the Annual Meeting as originally notified. The directors will be elected by a plurality of the shares of Common Stock represented and entitled to vote at the Annual Meeting. The ratification of the selection of Dell's independent accountants and the approval of the Dell Computer Corporation Incentive Plan require the affirmative vote of the majority of the shares of Common Stock represented and entitled to vote at the Annual Meeting. An automated system administered by Dell's transfer agent tabulates the votes. Abstentions and broker non-votes are each counted to determine the number of shares present and voting on the election of directors and the ratification of the selection of accountants. Each is tabulated separately, with abstentions being counted in tabulations of the votes cast on those proposals and broker non-votes not being counted as a vote cast. Thus, abstentions and broker non-votes are counted in establishing a quorum on the two proposals, have a neutral effect on the election of directors, and have the effect of votes against the proposal to ratify the 1 5 selection of independent accountants. With respect to the proposal to approve the Dell Computer Corporation Incentive Plan, abstentions are counted in determining the number of shares voted and have the effect of a vote against the proposal, while broker non-votes are not counted for any purpose. Proxies in the accompanying form that are properly executed and returned will be voted at the Annual Meeting in accordance with the instructions on the Proxy. Any properly executed Proxy on which no different instructions are indicated about a specified proposal will be voted as follows for the specified proposal: FOR the election of the two persons named in this Proxy Statement as the Board of Directors' nominees for election to the Board of Directors; FOR the ratification of the selection of Price Waterhouse as Dell's independent accountants; FOR the approval of the Dell Computer Corporation Incentive Plan; and in accordance with the discretion of the holders of the Proxy on any other business that properly comes before the stockholders at the Annual Meeting. The Board of Directors knows of no matters, other than those previously mentioned, to be presented for consideration at the Annual Meeting. The persons named in the Proxy may also, at their discretion, vote the Proxy to adjourn the Annual Meeting from time to time. ELECTION OF DIRECTORS The Board of Directors has designated the following nominees for election as Class III directors of Dell with their terms to expire at the annual meeting in 1997 when their successors are elected and qualified: George Kozmetsky Claudine B. Malone Each nominee is currently a director of Dell. For information about each nominee, see "Directors and Executive Officers." If a nominee becomes unable or unwilling to accept nomination or election, your Proxy will be voted for the election of a substitute nominee recommended by the current Board of Directors, or the number of Dell's directors will be reduced. The Board of Directors has no reason to believe that any of its nominees will be unable or unwilling to serve if elected. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE NOMINEES. SELECTION OF INDEPENDENT ACCOUNTANTS The Board of Directors has selected Price Waterhouse as Dell's independent accountants for fiscal 1995. Price Waterhouse has been Dell's independent accountants for each fiscal year beginning with fiscal 1987. Dell expects that representatives of Price Waterhouse will be present at the Annual Meeting to respond to appropriate questions and will have an opportunity to make a statement if they desire to do so. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE. 2 6 APPROVAL OF INCENTIVE PLAN The Board of Directors proposes that the stockholders approve the Dell Computer Corporation Incentive Plan (the "Incentive Plan") and reserve 4,490,207 shares of Common Stock for issuance pursuant to stock options, stock appreciation rights, and other stock awards to be granted under the Incentive Plan to directors, executive officers, and employees of Dell and certain other persons who provide substantial advice or other assistance or services to Dell. If the Incentive Plan is approved, no new stock options will be awarded under Dell's 1993 Stock Option Plan or Dell's 1989 Stock Option Plan. The number of shares of Common Stock to be reserved for the Incentive Plan equals the remaining number of shares of Common Stock authorized for issuance under the 1993 and 1989 Stock Option Plans. Consequently, approval of the Incentive Plan will not increase the total number of shares that Dell may issue under Dell's stockholder-approved stock plans. The Incentive Plan, the persons eligible for participation in the Incentive Plan, and the tax effects of the Incentive Plan are summarized in "Incentive Plan." As discussed in "Compensation Committee Report on Executive Compensation," stock-based incentives are a major component of Dell's incentive compensation program. The Board of Directors believes that stock-based compensation, when properly structured, provides incentives for management and key employees to maximize stockholder value over time. The Incentive Plan is intended to consolidate Dell's stock option plans while giving greater flexibility for the attraction and retention of the talent necessary for Dell's success. The Board of Directors' intention is for the Incentive Plan to be Dell's primary stock-based incentive compensation plan to be used to grant awards for key employees, including officers, both at initial hire and from time to time thereafter. The Incentive Plan also provides for the automatic grant of options to non-employee directors. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE INCENTIVE PLAN AND THE RESERVATION OF SHARES FOR ISSUANCE PURSUANT TO AWARDS UNDER THE INCENTIVE PLAN. 3 7 DIRECTORS AND EXECUTIVE OFFICERS The Board of Directors of Dell consists of one person who is an employee of Dell and six persons who are outside directors. The executive officers and directors of Dell, and their ages as of March 31, 1994, are:
NAME AGE POSITION - - - - ------------------------- --- ------------------------------------------------- Michael S. Dell 29 Chairman of the Board, Chief Executive Officer, and Director L. Scott Flaig 49 Senior Vice President, Worldwide Operations Eric Harslem 48 Senior Vice President, Product Group Joel J. Kocher 37 Senior Vice President Thomas J. Meredith 43 Chief Financial Officer Thomas L. Thomas 44 Chief Information Officer Savino R. Ferrales 43 Vice President of Human Resources Richard E. Salwen 51 Vice President, General Counsel and Secretary Donald J. Carty 47 Director Paul O. Hirschbiel, Jr 41 Director Michael H. Jordan 57 Director George Kozmetsky 76 Director Thomas W. Luce III 53 Director Claudine B. Malone 58 Director
Dell has classified its board of directors into three classes. Directors in each class are elected to serve for three-year terms and until their successors are elected and qualified. Each year, the directors of one class stand for election as their terms of office expire. Messrs. Carty, Hirschbiel, and Luce are designated as Class I directors, and their terms of office expire at the annual meeting of stockholders in 1995. Messrs. Dell and Jordan are designated as Class II directors, and their terms of office expire at the annual meeting of stockholders in 1996. Mr. Kozmetsky and Ms. Malone are designated as Class III directors, and their terms of office expire at the annual meeting in 1994. Executive officers serve at the discretion of the Board of Directors. Set forth below are descriptions of the principal occupations of Dell's executive officers and directors. Michael S. Dell is Dell's founder and has been Chairman of the Board, Chief Executive Officer and a director of Dell since May 1984. L. Scott Flaig joined Dell in December 1992 as Senior Vice President, Worldwide Operations. From April 1989 through November 1992, Mr. Flaig was a partner with the accounting firm Ernst & Young, serving as National Director for manufacturing services starting in June 1990. Before joining Ernst & Young, Mr. Flaig was a member of Digital Equipment Corporation's manufacturing management. Eric Harslem joined Dell in June 1993 as Senior Vice President, Product Group. Before joining Dell, he was Vice President of the Macintosh Desktop Division of Apple Computer Corporation. Joel J. Kocher joined Dell in December 1987 as Vice President and General Manager of Dell Field Sales Corporation, a subsidiary of Dell. In November 1988 he was given management responsibility for all of Dell's sales operations in the United States. In March 1990 he was elected Senior Vice President. Mr. Kocher serves as President, Worldwide Sales, Marketing and Services for Dell USA, L.P., a subsidiary of 4 8 Dell, a position he has held since May 1993. Mr. Kocher served as President, USA Sales, Marketing and Services for Dell USA , L.P. from November 1992 to May 1993. Thomas J. Meredith joined Dell in November 1992 as Chief Financial Officer. He also served as Treasurer of Dell from November 1992 until March 1994. From April 1990 to November 1992, he was Vice President and Treasurer of Sun Microsystems, Inc. Before joining Sun, Mr. Meredith held financial positions with Amdahl Corporation, most recently as President of Amdahl Capital Corporation. Thomas L. Thomas joined Dell in March 1993 as Chief Information Officer. From March 1987 through February 1993, Mr. Thomas was Vice President and Chief Information Officer of Kraft Commercial Products, a division of Philip Morris Companies, Inc. Savino R. Ferrales joined Dell in January 1989 as Vice President of Human Resources. From July 1978 to December 1988, Mr. Ferrales held various personnel management positions with Motorola, Inc., including Director of Personnel, Corporate Offices - Schaumburg, Illinois, from May 1988 to December 1988, and Director of Personnel, Communications Sector - Florida from September 1983 through April 1988. Richard E. Salwen joined Dell in June 1989 as Vice President, General Counsel and Secretary. Before joining Dell, Mr. Salwen served as Associate General Counsel of Electronic Data Systems Corporation from July 1988 to June 1989. From January 1987 through June 1988, Mr. Salwen was a partner of and General Counsel to The Perot Group. Donald J. Carty was elected to the Board of Directors of Dell by the other directors in December 1992. Mr. Carty is Executive Vice President and Chief Financial Officer of AMR Corporation and is Executive Vice President, Finance & Planning for American Airlines, Inc., a subsidiary of AMR Corporation. He has held senior vice presidential positions with American Airlines, Inc. since 1988. Paul O. Hirschbiel, Jr. has been a director of Dell since October 1987. Mr. Hirschbiel became a director of Dell pursuant to the terms of the Stock Purchase Agreement dated October 26, 1987, that was entered into between Dell and the purchasers of Dell preferred stock. Mr. Hirschbiel has been a vice president or director of Prudential Equity Investors, Inc. (formerly Prudential Venture Capital Management, Inc.) since September 1983. Michael H. Jordan was elected to the Board of Directors of Dell by the other directors in December 1992. Since July 1993 he has been Chairman and Chief Executive Officer of Westinghouse Electric Corporation. From September 1992 through June 1993, he was a principal with the investment firm of Clayton, Dubilier and Rice. From December 1990 through July 1992, he was Chairman of Pepsico International. From December 1986 to December 1990, he was Chairman of Pepsico World-Wide Foods. He is a member of the boards of directors of Aetna Life & Casualty Co., Melville Corp. and Rhone-Poulenc Rorer Inc. George Kozmetsky has been a director of Dell since March 1987. Since 1982, Mr. Kozmetsky has been Executive Associate for Economic Affairs of the University of Texas System and Director of the IC(2) Institute of The University of Texas at Austin. Mr. Kozmetsky is a member of the boards of directors of La Quinta Motor Inns, Inc. and Teledyne, Inc. Thomas W. Luce III was elected to the Board of Directors of Dell by the other directors in November 1991. Mr. Luce is a partner of the law firm Hughes & Luce, L.L.P., in Dallas, Texas, and has been affiliated with the firm since 1973. From October 1991 through April 1992, Mr. Luce was Chairman 5 9 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. Claudine B. Malone was elected to the Board of Directors of Dell by the other directors in February 1993. Ms. Malone is president of Financial & Management Consulting, Inc., a firm she founded in 1982. She also teaches at the business schools of the University of Virginia and Georgetown University. Ms. Malone is a member of the boards of directors of Dart Group Corp., Hannaford Brothers Co., Hasbro, Inc., Houghton Mifflin Corp., The Limited, Inc., Scott Paper Company and Union Pacific Corporation. MEETINGS AND COMMITTEES OF DIRECTORS The Board of Directors of Dell held seven meetings during fiscal 1994. 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 of the Board of Directors on which that director served. Dell's Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Finance Committee, and the Nominating Committee. The Audit Committee is responsible for approving the scope of the annual audit and for making recommendations to the Board of Directors concerning the selection of Dell's independent accountants. The Audit Committee also reports to the Board of Directors concerning Dell's internal accounting controls, factors that may affect the integrity of Dell's financial reports, compliance by Dell management and employees with Dell policies, and other matters. During fiscal 1994, the members of the Audit Committee were Bobby R. Inman, Chairman, Mr. Carty and Mr. Luce. Since Mr. Inman's resignation as a director on December 16, 1993, Mr. Carty, Chairman, and Mr. Luce have constituted the Audit Committee. This committee met four times during fiscal 1994. The Compensation Committee is responsible for determining the compensation for Dell's senior management and establishing compensation policies for Dell employees generally. The Compensation Committee also administers Dell's option plans and employee stock purchase plan and will administer the Incentive Plan. The members of this committee are Mr. Kozmetsky, Chairman, Mr. Hirschbiel and Mr. Jordan. The Compensation Committee held six meetings during fiscal 1994. The Finance Committee is responsible for considering and recommending to the full Board of Directors proposed strategies, policies and actions related to finance and economics. The members of the Finance Committee are Mr. Hirschbiel, Chairman, Mr. Carty and Ms. Malone. This committee met four times during fiscal 1994. The Nominating Committee is responsible for recruiting and recommending for membership on the Board of Directors candidates to fill vacancies that may occur. Beginning in fiscal 1995, the Nominating Committee will also be responsible for recommending to the Chairman of the Board the structure and membership of the committees of the Board of Directors. The members of the Nominating Committee are Mr. Kozmetsky, Chairman, and Mr. Dell. From time to time, the full Board of Directors fulfills the functions of the Nominating Committee, as it did in fiscal 1994. Accordingly, the Nominating Committee did not hold any meeting separate from meetings of the full Board of Directors in fiscal 1994. 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 General Counsel and Secretary, Dell Computer Corporation, 9505 Arboretum Boulevard, Austin, Texas 78759-7299, stating in detail the qualifications of the persons they recommend. 6 10 MANAGEMENT COMPENSATION COMPENSATION OF DIRECTORS Directors of Dell who are not employees of Dell are compensated for their services. In fiscal 1994, each outside director received an annual retainer of $11,000 plus $750 for each meeting of the Board of Directors attended in person. The outside directors are also entitled to initial and annual grants of options to buy 15,000 and 4,500 shares of Common Stock, respectively. In fiscal 1995, each outside director will receive an annual retainer of $25,000 plus $1,000 for each meeting of the Board of Directors attended in person. Dell will also provide its outside directors with the ability to defer receipt of all or a portion of the annual cash retainer. If the Incentive Plan is approved, outside directors will be able to elect to receive annual grants of stock options in lieu of all or a portion of the annual cash retainer and will be entitled to initial and annual grants of options to buy 15,000 and 6,000 shares of Common Stock, respectively. See "Incentive Plan." Dell also reimburses directors for their reasonable expenses associated with attending Board of Directors meetings and provides its directors with liability insurance. The following table sets forth the cash payments and option grants that were made to Dell's outside directors during fiscal 1994.
CASH OPTIONS NAME PAYMENTS GRANTED - - - - ------------------------------------------------------------ -------------------- ------------------- Mr. Carty ................................................. $14,000 4,500 Shares(1) Mr. Hirschbiel ............................................ $14,000 4,500 Shares(1) Mr. Inman(2) .............................................. $14,000 4,500 Shares(1) Mr. Jordan ................................................ $14,000 19,500 Shares(3) Mr. Kozmetsky ............................................. $14,000 4,500 Shares(1) Mr. Luce .................................................. $14,000 4,500 Shares(1) Ms. Malone ................................................ $13,250 19,500 Shares(4) - - - - ---------------------
(1) These options were granted on August 24, 1993, with an exercise price of $18.69 per share. The options become exercisable on the fifth anniversary of the date of grant if the person has been a director of Dell continuously through that date. The options expire on the tenth anniversary of the date of grant. (2) Mr. Inman resigned as a director on December 16, 1993. (3) Options for 4,500 shares were granted on August 24, 1993, with an exercise price of $18.69 per share. Those options become exercisable on the fifth anniversary of the date of grant if the person has been a director of Dell continuously through that date. The options expire on the tenth anniversary of the date of grant. Options for 15,000 shares were granted on February 24, 1993, with an exercise price of $30.69 per share. Twenty percent of these options become exercisable on the anniversary of the date of grant in each of the first five years if the person has been a director of Dell continuously through that anniversary date, and all options expire on the tenth anniversary of the date of grant. (4) Options for 4,500 shares were granted on August 24, 1993, with an exercise price of $18.69 per share. Those options become exercisable on the fifth anniversary of the date of grant if the person has been a director of Dell continuously through that date. The options expire on the tenth anniversary of the date of grant. Options for 15,000 shares were granted on May 25, 1993, with an exercise price of $23.69 per share. Twenty percent of these options become exercisable on the anniversary of the date of grant in each of the first five years if the person has been a director of Dell continuously through that anniversary date, and all options expire on the tenth anniversary of the date of grant. 7 11 COMPENSATION OF EXECUTIVE OFFICERS Summary Compensation Table. The following table summarizes the compensation paid during the last three fiscal years to Dell's Chief Executive Officer, Dell's four most highly compensated executive officers other than the Chief Executive Officer, and two other individuals who left their positions as executive officers of Dell during fiscal 1994 but who otherwise would have been among the four most highly compensated executive officers in addition to the Chief Executive Officer.
LONG-TERM COMPENSATION -------------- SECURITIES ANNUAL COMPENSATION($)(1) SUBJECT TO ------------------------------------- STOCK NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS (#)(2) COMPENSATION(3)(4) - - - - -------------------------------- -------- ---------- --------- -------------- --------------- ------------------ Michael S. Dell 1994 $358,994 $ $ 33,844 0 $ 13,614 Chairman of the Board, 1993 337,019 198,668 3,696 0 11,600 Chief Executive Officer 1992 327,250 178,200 0 0 -- Joel J. Kocher 1994 316,979 0 6,171 34,000 14,851 Senior Vice President 1993 260,469 183,266 5,284 172,500 9,150 1992 249,450 182,250 0 166,500 -- L. Scott Flaig 1994 300,000 0 224,522 32,000 1,873 Senior Vice President, 1993 51,359 29,325 148,000 100,000 0 Worldwide Operations 1992 -- -- -- -- -- Thomas J. Meredith 1994 265,000 0 178,457 31,433 9,744 Chief Financial Officer 1993 55,208 139,284 10,000 125,000 0 1992 -- -- -- -- -- Thomas L. Thomas 1994 215,278 0 299,995 51,667(5) 4,497 Chief Information Officer 1993 -- -- -- -- -- 1992 -- -- -- -- -- G. Glenn Henry 1994 288,059 0 8,173 11,702 9,163 Former Senior Vice 1993 294,350 89,915 1,751 47,500 9,910 President, Product Group 1992 311,333 140,940 0 132,000 -- Andrew R. Harris 1994 222,679(6) 0 14,409 12,000 22,522(7) Former Senior Vice 1993 278,888 164,565 11,293 172,500 9,170 President 1992 288,630 164,025 0 166,500 -- - - - - --------------------------------
(1) Includes deferred compensation. Amounts in Other Annual Compensation include reimbursement for personal financial counselling services paid for each executive as well as relocation expenses for Messrs. Flaig, Meredith and Thomas in connection with their hiring. (2) Dell did not grant any SARs in fiscal 1992-1994. (3) Information with respect to years before fiscal 1993 has been omitted pursuant to transition phase-in rules of the SEC. 8 12 (4) These amounts represent Dell's matching contributions under Dell's 401(k) plan and deferred compensation plan. (5) Options for 25,000 shares are structured to be the equivalent of restricted stock: the exercise price is nominal ($.01 per share), a portion of the options must be exercised each year, 60% of the underlying stock will be held by Dell for two years, and gains on the options and the stock received on exercise may be forfeited if Mr. Thomas leaves Dell and competes against Dell within two years thereafter. (6) Includes $150,912 of salary continuation during a leave of absence in anticipation of termination of employment. See "Management Compensation - Employment, Other Compensation, and Change in Control Arrangements." (7) Includes $15,885 of salary continuation payments related to the fiscal 1995 portion of a leave of absense in anticipation of termination of employment. See "Management Compensation - Employment, Other Compensation, and Change in Control Arrangements." Option/SAR Grants in Last Fiscal Year. Dell has two stock option plans: the 1989 Stock Option Plan, under which up to 7,250,000 shares may be issued; and the 1993 Stock Option Plan, under which up to 4,000,000 shares of Common Stock may be issued. The plans authorize the grant of incentive stock options with exercise prices no lower than the fair market value of the underlying stock on the date of grant, and also nonqualified stock options at exercise prices no lower than par value for the 1989 plan or 50% of fair market value for the 1993 plan. At January 30, 1994, 4,279,450 shares of Common Stock remained available for issuance pursuant to awards to be granted under the option plans. The following table sets forth information regarding the stock option grants Dell made to the named executive officers during fiscal 1994.
NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO OPTIONS/ EMPLOYEES EXERCISE MARKET GRANT DATE GRANT SARS IN FISCAL PRICE PRICE ON EXPIRATION PRESENT NAME DATE GRANTED (1) YEAR ($/SH) GRANT DATE DATE VALUE(2) - - - - ------------------ --------- ----------- ----------- ---------- ---------- --------- ----------- Michael S. Dell 0 n/a n/a n/a n/a n/a Joel J. Kocher 2/24/93 12,000(3) 0.57% $30.69 $30.69 2/24/03 $213,240 11/22/93 22,000(4) 1.04% 22.50 22.50 11/22/03 284,460 L. Scott Flaig 2/24/93 12,000(3) 0.57% 30.69 30.69 2/24/03 213,240 11/22/93 20,000(4) 0.95% 22.50 22.50 11/22/03 258,600 Thomas J. Meredith 2/24/93 12,000(3) 0.57% 30.69 30.69 2/24/03 213,240 11/22/93 19,433(4) 0.92% 22.50 22.50 11/22/03 251,269 Thomas L. Thomas 3/10/93 25,000(5) 1.18% 0.01 36.31 3/10/03 907,500 3/10/93 10,000(4) 0.47% 36.31 36.31 3/10/03 211,600 11/22/93 16,667(4) 0.79% 22.50 22.50 11/22/03 215,504 G. Glenn Henry 2/24/93 5,000(3) 0.24% 30.69 30.69 2/24/03 88,850 11/22/93 6,702(4) 0.32% 22.50 22.50 11/22/03 86,657 Andrew R. Harris 2/24/93 12,000(4) 0.57% 30.69 30.69 2/24/03 213,240 - - - - --------------------------------
(1) Dell did not grant any SARs in fiscal 1994. 9 13 (2) The estimated grant date present value is determined using the Black-Scholes Model. The material assumptions and adjustments incorporated in the Black-Scholes Model in estimating the values of the options reflected in the table include the following: (a) an interest rate that represents the interest rate as of January 30, 1994, on a U.S. Treasury security with a maturity date corresponding to that of the option term as of the date of grant; (b) volatility calculated using daily stock prices for the one-year period prior to the grant date; (c) dividends at the rate of $0 per share (any dividends paid would reduce the value of the options); (d) an option term of 10 years; and (e) a 25% reduction to reflect the probability of a shortened option term for the stock options with exercise prices equal to fair market value at the date of grant because of termination of employment before the option expiration date. The ultimate values of the options will depend on the future market prices of Common Stock, which cannot be forecast with reasonable accuracy. The actual value, if any, an optionee will recognize upon exercise of an option will depend on the excess of the market value of the Common Stock over the exercise price on the date the option is exercised. (3) These options vest 20% each year for five years on the anniversary of the date of grant or, if earlier, 100% on the date when the price of Common Stock exceeds $32.69 for 30 consecutive trading days. (4) These options vest 20% each year for five years on the anniversary of the date of grant. (5) These options are structured to be the equivalent of restricted stock: the exercise price is nominal ($.01 per share), a portion of the options must be exercised each year, 60% of the underlying stock will be held by Dell for two years, and gains on the options and the stock received on exercise may be forfeited if Mr. Thomas leaves Dell and competes against Dell within two years thereafter. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values. The following table provides information about the options exercised by the named executive officers during fiscal 1994 and about unexercised stock options held by the named executive officers on January 30, 1994.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT SHARES FY-END (#) FY-END ($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(1) - - - - ----------------------------- ------------- ------------ ---------------- ------------------- Michael S. Dell 0 $ 0 0 / $ 0 / 0 0 Joel J. Kocher 15,000 283,950 90,870 / 1,068,050 / 303,130 4,305,138 L. Scott Flaig 25,000 624,750 0 / 0 / 107,000 1,639,875 Thomas J. Meredith 30,000 749,700 5,000 / 0 / 121,433 1,530,550 Thomas L. Thomas 0 0 0 / 0 / 51,667 546,625 G. Glenn Henry 49,825 675,516 0 / 0 / 0 0 Andrew R. Harris 0 0 138,907 / 1,409,107 / 0 0
10 14 - - - - --------------------------------- (1) Dell did not have any outstanding SARs during fiscal 1994. The value of the options is calculated based on $21-7/8, which was the average sales price per share for Common Stock on January 28, 1994. EMPLOYMENT, OTHER COMPENSATION, AND CHANGE-IN-CONTROL ARRANGEMENTS Each of the named executive officers has signed an employment agreement with Dell. The employment agreement requires Dell to give the executive officer either two weeks notice of termination or severance pay equal to two weeks' compensation, unless the termination is for cause. Dell's stock option plans provide that outstanding options may become vested and exercisable immediately before any person acquires 50% or more of the Common Stock. Awards under the Incentive Plan may also provide for acceleration of vesting and exercisability immediately before certain events that constitute a change of control. See "Incentive Plan." On May 3, 1993, Dell entered into an agreement with Andrew R. Harris regarding the termination of Mr. Harris's employment and providing for severance arrangements. Under the agreement, Mr. Harris began a leave of absence effective April 15, 1993, through October 31, 1993, at which time his employment was to terminate. During that period, Mr. Harris received full salary and benefits other than disability insurance. In addition, Dell accelerated the vesting and exercisability of options for 18,000 shares having an exercise price of $23.66 per share and options for 116,407 shares having an exercise price of $9.77 per share. Mr. Harris was given until November 30, 1993, to exercise these options. Mr. Harris and Dell also agreed that Mr. Harris could retain up to 83,507 of the shares (or proceeds of sale) related to such options, but that the remaining 51,000 shares (or proceeds) would be placed in an escrow subject to release in three annual installments of 17,000 shares subject to Mr. Harris's compliance with certain noncompetition covenants (or earlier release to the extent shares were needed to pay federal income tax obligations related to the exercise of the options). Dell and Mr. Harris also agreed a vested option for 4,500 shares with an exercise price of $23.66 per share would expire if not exercised by November 30, 1993. On September 27, 1993, Dell and Mr. Harris amended the May 3 agreement to extend the employment termination date to March 31, 1994. Dell agreed to pay Mr. Harris a monthly salary of $9,531.25 from August 1993 through the termination date, but not to provide any benefits after October 31, 1993. The amendment also extended the period in which Mr. Harris's options could be exercised to April 30, 1994. Dell has an Employee Stock Purchase Plan that permits substantially all employees to acquire Common Stock at a purchase price of 85% of the lower of the fair market value at the beginning or end of the participation period. Participation periods are for one-half year each, beginning on January 1 and July 1 of each year. Employees may designate up to 10% of their base compensation for the purchase of Common Stock. The Compensation Committee administers the Employee Stock Purchase Plan. Dell has a defined contribution retirement plan intended to comply with Section 401(k) of the Internal Revenue Code. Employees may contribute up to 6% of compensation, and the 401(k) plan provides for Dell to make matching contributions of 50% of an employee's voluntary contributions. Dell makes its contributions using Common Stock valued at fair market value on the date of contribution. Employees may also contribute amounts in excess of the 6% up to 15% of compensation, but no matching contributions are made for the excess contributions. Dell has a deferred compensation plan for executive officers and highly compensated employees that allows the participants to defer a portion of their compensation. Employees may contribute up to 6% of compensation and receive matching contributions in cash of 50% of the voluntary contributions. 11 15 Employees may contribute amounts in excess of the 6%, but no matching contributions are made for the excess contributions. Both deferred compensation and matching contributions are not segregated from Dell's assets and are therefore subject to Dell's being able to pay the amounts when due. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Dell'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, Dell has developed a comprehensive business strategy that emphasizes maximizing long-term stockholder value, corporate cash flow, earnings, and customer and employee satisfaction. COMPENSATION PHILOSOPHY The Compensation Committee is committed to implementing a compensation program that furthers Dell's mission. We therefore adhere to the following compensation policies, which are intended to facilitate the achievement of Dell'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 level of success in meeting 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 Dell and aligns executives' interests with those of the stockholders. This promotes a continuing focus on building profitability and stockholder value. . Compensation opportunities should enhance Dell'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 Dell depends. . Each program element should target compensation opportunities at the median of compensation paid to executives of similar high-tech companies. However, if Dell's performance exceeds that of its peers, compensation should be above the median. Likewise, if Dell's performance falls below the performance of its peers, the compensation paid to the senior executives should be below the median compensation paid by the peer group. The Compensation Committee compares total compensation levels for Dell's senior executives to the compensation paid to executives of a peer group of similar high-tech companies. Each year, management selects the peer group based on similar sales volumes, market capitalization, employment levels, and lines of business. The Compensation Committee reviews and approves the selection of companies used in the peer group for compensation comparison purposes. For fiscal 1994, the peer group consisted of approximately 20 high-tech companies with similar sales volumes, market capitalization, employment levels, and lines of business. This group is not the same group used for the industry comparison in the performance graph found in "Performance Graph." 12 16 COMPONENTS OF COMPENSATION The key elements of Dell's executive compensation program are base salary, short-term (annual) incentive, and long-term incentive compensation. These elements are addressed separately. The Compensation Committee does not exclusively use quantitative methods or mathematical formulas in setting any element of compensation. In determining each component of compensation, the Compensation 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 Compensation Committee to recognize varying levels of responsibility, individual performance, business unit performance, internal equity issues, as well as external pay practices. The Compensation Committee reviews each executive's base salary annually. Overall, executive salaries were increased in fiscal 1994 at rates comparable to the increases provided in the peer group of high-tech companies, and the salaries are near median levels for that peer group. SHORT-TERM INCENTIVES The Incentive Bonus Plan promotes Dell's pay-for-performance philosophy by providing executives with direct financial incentives in the form of annual cash bonuses to achieve corporate, business unit, and individual performance goals. Each year, the Compensation Committee establishes these corporate and business unit specific goals relating to each executive's bonus opportunity. For fiscal 1994, Dell's performance and business unit performance were based on financial measures such as revenue and return on sales, and on non-financial measures such as quality, systems infrastructure, and process enhancements. A subjective evaluation of individual performance can also result in an upward or downward adjustment of the award. Fiscal 1994 target bonus awards for each of the executives were set slightly above market levels, but required above-average performance from each of the executives to be achievable. For Dell's executive officers, the targets ranged from 40% to 60% of base salaries. The actual percentage to be paid was subject to adjustment above or below the target based on Dell's performance. Because Dell's performance in fiscal 1994 did not meet minimum performance levels as specified in the plan, no bonuses were paid to any of its executive officers. LONG-TERM INCENTIVES In keeping with Dell's philosophy to provide a total compensation package that favors at-risk components of pay, long-term incentives comprise an important component of an 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. Long-term incentives are provided pursuant to Dell's 1989 and 1993 Stock Option Plans and will be provided pursuant to the Incentive Plan, if approved. See "Incentive Plan." When awarding long-term incentives, the Compensation Committee considers executives' levels of responsibility, prior experience, individual performance criteria, previous stock option grants, and 13 17 compensation practices at the peer group of companies used to evaluate total compensation. The Compensation Committee's objective is to provide executives with long-term incentive award opportunities that approximate the market median. 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 stock price on the date of grant. The size of the award can also be adjusted based on individual factors. Two primary sets of option grants were made to the named executives in fiscal 1994: one in February 1993 and one in November 1993. First, in February 1993 performance options with exercise prices set at fair market value were granted primarily as a reward for fiscal 1993 performance and also as an incentive for improvements in future stock price. In reviewing fiscal 1993 performance, the Compensation Committee considered and gave equal weight to the significant increases in Dell's consolidated net sales and the increases in Dell's profitability during fiscal 1993. These performance options vest on anniversaries of the grant date over a five-year period (at 20% of the grant each year), or all options vest immediately when the price of Dell's common stock exceeds $32.69 for 30 consecutive trading days, whichever occurs first. Second, in November 1993 stock options with an exercise price set at fair market value were granted for fiscal 1994 as part of Dell'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 on the anniversaries of the grant date over a five-year period (at 20% of the grant each year). Because both sets of grants were made at option prices equal to the fair market value of Dell'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 Dell. The Compensation Committee also approved a grant of discounted stock options to Thomas L. Thomas, Dell's Chief Information Officer, who joined Dell during fiscal 1994. The discounted options were required to attract Mr. Thomas to Dell and were intended to replace the long-term incentives Mr. Thomas forfeited when he left his previous employer. These discounted stock options are structured to be the equivalent of restricted stock: the exercise price is nominal (one cent per share), a portion of the options must be exercised each year, and 60% of the underlying stock is held by Dell for two years. There are also provisions requiring forfeiture of gains on these options and the stock received on exercise if Mr. Thomas leaves Dell and competes against Dell within two years thereafter. During the second quarter of fiscal 1994, the Compensation Committee afforded Joel Kocher the opportunity to accelerate vesting of previously granted options for up to 30,000 shares based on improvements in Dell's operations under his supervision. This incentive arrangement was offered to Mr. Kocher primarily because he bore the direct responsibility to implement Dell's sales, marketing and service restructuring during the last half of fiscal 1994. In March 1994, the Compensation Committee accelerated the vesting of options for 20,000 of the 30,000 shares in recognition primarily of Kocher's management of Dell's increase in consolidated net sales and the implementation of cost reduction measures during the last half of fiscal 1994. The accelerated options otherwise would have vested in 2001 and 2002. The Compensation Committee does not anticipate that adoption of the Dell Computer Corporation Incentive Plan will change Dell's policies with respect to grants of long-term incentives. Rather, the Incentive Plan is intended to provide Dell with more flexibility to adapt its long-term incentives to changes in tax laws, accounting treatment, and competitive compensation arrangements in other high-tech companies. 14 18 SEVERANCE ARRANGEMENTS In fiscal 1994, Dell provided salary continuation, vesting of options, and other benefits to Andrew R. Harris, formerly a Senior Vice President of Dell, in connection with the termination of his employment. See "Management Compensation Employment, Other Compensation, and Change-in- Control Arrangements." The terms of the severance arrangements were the result of negotiation with Mr. Harris in order to secure his availability to provide a smooth transition of his responsibilities to other Dell employees, facilitate the completion of certain projects, and secure a covenant not to compete against Dell for three years. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER The Compensation Committee recognizes that Michael S. Dell is Dell's founder and its largest stockholder. In fiscal 1994, Mr. Dell's base salary earnings were $358,994, which is substantially below base salary earnings for Chief Executive Officers of the peer group of corporations. Mr. Dell received no payment under the Incentive Bonus Plan because Dell's performance in fiscal 1994 did not meet minimum performance levels as specified in the plan. Mr. Dell does not participate in Dell's long-term incentive program because of his significant stock ownership. POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT Recently enacted Section 162(m) of the Internal Revenue Code (the "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 certain requirements are met. The Compensation Committee has carefully considered the effect of this new tax code provision. For fiscal 1994, the limitation imposed by Section 162(m) did not apply to the compensation paid any executive officers. Dell's fiscal 1995 incentive plans were finalized before the enactment of Section 162(m), but the Compensation Committee will consider modifying new compensation programs for the executive officers subject to the deduction limit so the corporate tax deduction is preserved on compensation paid to executives. The Compensation Committee believes it can modify new programs in fiscal 1996 without undermining Dell's compensation philosophy and current compensation plans. CONCLUSION The Compensation Committee believes these executive compensation policies and programs serve the interests of stockholders and Dell effectively. The various pay vehicles offered are appropriately balanced to provide increased motivation for executives to contribute to Dell's overall future success, thereby enhancing the value of Dell for the stockholders' benefit. THE COMPENSATION COMMITTEE GEORGE KOZMETSKY, CHAIRMAN PAUL O. HIRSCHBIEL, JR. MICHAEL H. JORDAN 15 19 PERFORMANCE GRAPH The following graph compares the cumulative total return of Dell Computer Corporation, the S&P 500 Index and the S&P Computer Systems Index. The graph assumes $100 was invested in the stock or the index on January 27, 1989, and also assumes reinvestment of dividends. ________________________________________________________________________________ |------------------------------------------------------------------------------| | | | COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN | | | | (GRAPH) | | | | | | | |------------------------------------------------------------------------------| Date ------------------------------------------------- 1/27/89 2/2/90 2/3/91 2/2/92 1/31/93 1/30/94 ------- ------ ------ ------ ------- ------- S&P 500 $100 $113 $117 $139 $149 $163 S&P Computer Systems Index(1) 100 80 97 75 54 54 DELL COMPUTER CORPORATION 100 57 305 580 1,261 590 ________________________________________________________________________________ (1) The S&P Computer Systems Index currently consists of Amdahl Corporation, Apple Computer, Inc., Compaq Computer Corporation, Cray Research, Inc., Data General Corporation, Digital Equipment Corporation, Intergraph Corporation, International Business Machines Corporation, Sun Microsystems, Inc., Tandem Computers Inc. and Unysis Corporation. 16 20 INCENTIVE PLAN The Board of Directors proposes that stockholders approve the Dell Computer Corporation Incentive Plan (the "Incentive Plan") and reserve 4,490,207 shares of Common Stock for issuance thereunder. If the Incentive Plan is approved, the reservation of 1,800,463 shares of Common Stock remaining for issuance under the Dell Computer Corporation 1993 Stock Option Plan and the reservation of 2,689,744 shares of Common Stock remaining for issuance under the Dell Computer Corporation 1989 Stock Option Plan (the "Current Plans") will be cancelled. If any additional awards are granted under the Current Plans before the Annual Meeting or if existing awards expire without exercise, the number of shares reserved for the Incentive Plan will be correspondingly adjusted. The Incentive Plan is intended to consolidate Dell's two existing discretionary option plans while giving greater flexibility for the attraction and retention of the talent necessary for Dell's success. The proposal does not provide for additional shares of the Common Stock to be reserved for issuance under the Incentive Plan, but rather the same number of shares available for grant under the Current Plans will be available under the Incentive Plan. Upon approval of this proposal, no new grants will be made under the Current Plans. The Incentive Plan will become effective upon stockholder approval. GENERAL The Incentive Plan provides for the granting of incentive awards in the form of stock options, stock appreciation rights ("SARs"), stock and cash to executive officers and employees of Dell and its subsidiaries and certain other persons who are not employees but who from time to time provide substantial advice or other assistance or services to Dell. The Incentive Plan also provides for the automatic grant of options to non-employee directors. As of May 1, 1994, Dell and its subsidiaries had approximately 5,900 full-time employees and six non-employee directors. Except when a participant's employment terminates as a result of death, disability or retirement under an approved retirement plan or following a change in control in certain circumstances, an award generally may be exercised (or the restrictions thereon may lapse) only if the participant is an officer, employee or director of Dell or a subsidiary at the time of exercise or lapse. However, the Compensation Committee has discretion to permit awards that may be exercised within a period after the participant ceases to be an officer or employee of Dell or a subsidiary. The Incentive Plan permits nonqualified stock options to be transferred to a trust established for the benefit of one or more of the children, grandchildren or spouse of the participant. Shares Subject to Awards The maximum number of shares of Common Stock that may be issued pursuant to awards granted under the Incentive Plan is 4,490,207 (subject to adjustment), and the shares may be newly issued or from treasury. The number of shares reserved for issuance under the Incentive Plan and the number of shares subject to outstanding awards are subject to adjustment in the event of stock splits, stock dividends, recapitalizations and other changes in Dell's capitalization or in the event of mergers or other similar transactions involving Dell. The Incentive Plan includes provisions governing the effects on awards of a dissolution, liquidation, merger, consolidation or other reorganization of Dell, including a provision that permits Dell to allow for the preservation of the rights of the holders of awards in the event of such reorganization or providing for the acceleration of vesting and exercisability of awards. No awards for more than 200,000 shares may be granted to any one employee in a calendar year. In addition, the aggregate fair market value (determined at the date of grant) of Common Stock that a participant becomes eligible to purchase by exercising incentive stock options may not exceed $100,000 in any calendar year. 17 21 Administration The Incentive Plan will be administered by the Compensation Committee, which will be composed entirely of directors who are both disinterested directors as defined in applicable SEC regulations and outside directors as defined in the laws and regulations under Section 162(m) of the Code unless the Board of Directors determines that the Incentive Plan should not comply with those provisions. Except for certain automatic awards to non-employee directors, the Compensation Committee has discretion to select the employees to be granted awards, to determine the type and size of awards, to determine when awards will be granted, to grant any kind of award in combination with other kinds of awards, and to prescribe and amend the terms of the agreements governing the awards. Stock Options Options that may be awarded under the Incentive Plan are incentive stock options ("ISOs") meeting the requirements of Section 422 of the Code and nonqualified stock options ("NQSOs") that do not meet those requirements. Options are rights to purchase a specified number of shares of Common Stock at a price fixed when the option is granted. ISOs must have an exercise price of at least the fair market value of the shares on the date of grant, while NQSOs may have any exercise price that is equal to or greater than 50% of fair market value of the applicable shares on the date of grant. Options are exercisable when and on the terms set by the Compensation Committee, but may not be exercised more than ten years after the date of grant. Payment of the exercise price may be made in cash, with other shares of Common Stock, or a combination of both. Pyramiding of stock option exercises may be permitted, which could allow a participant to exercise the options without paying any significant amount of cash. Stock Appreciation Rights SARs are rights to receive a payment, in cash or shares of Common Stock or both, based on the value of Common Stock. SARs not granted in connection with another award under the Incentive Plan must have an exercise price based on the fair market value of a share of Common Stock on the date of grant. SARs granted in connection with another award generally will have the same exercise price and other terms as the related award. However, exercise of the tandem SAR will terminate the related award, and exercise of the related award will similarly terminate the tandem SAR. Other Awards The Incentive Plan also permits stock awards and cash awards. A stock award is an award of shares of Common Stock or that is denominated in shares of Common Stock. The award may be subject to restrictions against transfer, satisfaction of specified conditions, repurchase options exercisable by Dell, or other limitations or may be made without any limitations. The participant may be given the right to vote the shares and receive dividends on the shares subject to the award, whether before or after such shares have been earned. No more than 25% of the total shares reserved for issuance under the Incentive Plan may be issued pursuant to restricted stock, stock bonus, or similar stock awards (this limitation does not apply to restricted stock or other stock issued upon exercise of an option or SAR or in payment of performance-based compensation awards). Cash awards are generally based on the extent to which pre-established performance goals are achieved over a pre- established period, but may also include individual bonuses paid for previous performance. The Compensation Committee may select any performance measure or combination of measures as conditions for cash or stock payments under the Incentive Plan, except that the performance measure(s) for executive officers must be chosen from among the following choices: (a) total stockholder return (stock 18 22 price appreciation plus dividends); (b) net income; (c) earnings per share; (d) return on sales; (e) return on equity; (f) return on assets; (g) increase in the market price of Common Stock or other securities; (h) the performance of Dell in any of the items mentioned in clause (a) through (g) in comparison to the average performance of the companies included in the S&P Computer Systems Index; and (i) the performance of Dell in any of the items mentioned in clause (a) through (g) in comparison to the average performance of the companies used in a peer group established by the Compensation Committee before the beginning of the performance period. Nevertheless, the Compensation Committee may choose different performance measures for executive officers if the stockholders approve otherwise, if tax laws or regulations change so as not to require stockholder approval of different measures in order to deduct the related cash or stock payment for federal income tax purposes, or if the Compensation Committee determines that it is in Dell's best interest to grant awards not satisfying the requirements of Section 162(m) or any successor law. Automatic Grants of Options to Non-employee Directors The Incentive Plan provides that each non-employee director of Dell will be automatically granted nonqualified stock options for 15,000 shares on the day after the first meeting of the Board of Directors that the non-employee director attends following the director's initial election or appointment to the Board of Directors. Accordingly, none of Dell's current directors will be eligible for this automatic award. The exercise price of the options will be the fair market value of the Common Stock on the date of grant, and the options will vest in annual amounts of 3,000 shares on each of the first five anniversaries of the date of grant so long as the non-employee director is a director of Dell at all times after the date of grant and including the vesting date. In addition, each non-employee director who is a member of the Board of Directors both before and after the annual meeting of stockholders of Dell each year beginning with 1994 will automatically be granted nonqualified stock options to acquire 6,000 shares of Common Stock on the date of the first meeting of the Board of Directors following that annual meeting of stockholders. The exercise price of the options will be the fair market value of the Common Stock on the date of grant, and the options will vest in annual amounts of 1,200 shares on each of the first five anniversaries of the date of grant so long as the non- employee director is a director of Dell at all times after the date of grant and including the vesting date. Both the initial options and the annual options terminate on the earlier of (a) ten years from the date of grant, (b) immediately when the holder ceases to be a director if the Board of Directors demanded the holder's resignation, (c) 90 days after the holder ceases to be a director because of other resignation or failure to stand for re-election, and (d) one year after death or permanent disability. Deferral and Substitution of Awards The Compensation Committee may permit a participant to defer receipt of the payment of cash or the delivery of shares that the participant would otherwise be due under any award pursuant to the Incentive Plan. Non-employee directors of Dell may elect to receive non-qualified options in lieu of all or a portion of their annual fee. The exercise price of the options will be the fair market value of the date of grant (which will be the date the fee otherwise would have been paid), the option will vest in annual amounts of 20% on each of the first five anniversaries of the date of grant, and the option will expire on the tenth anniversary of the date of grant. The number of options issued will be calculated by dividing the amount of the annual fee foregone by the value of such an option for one share of Common Stock on the date of grant (calculated using the Black-Scholes Model based on the applicable assumptions used in calculating option values in the most recent annual meeting proxy statement of Dell). Tax Withholding The Incentive Plan allows for the satisfaction of a participant's tax withholding with respect to an award by the withholding of shares of Common Stock issuable pursuant to the award or the delivery of previously 19 23 owned shares of Common Stock, in either case based upon the fair market value of the applicable shares and subject to any limitations or conditions the Compensation Committee adopts. New Plan Benefits Table The following table sets forth, to the extent determinable, the benefits or amounts that would have been granted in fiscal 1994 to the following persons if the Incentive Plan had been effective during fiscal 1994: (i) the named executive officers; (ii) the current executive officers as a group, (iii) the current directors who are not executive officers as a group; and (iv) all employees, including all current officers who are not executive officers, as a group. The number of options that each non-employee director would have received under the Incentive Plan is 1,500 shares greater than the number of options the non-employee director received under the Current Plans. See "Management Compensation Compensation of Directors." The table also sets forth the total number of shares that may be issued pursuant to awards under the Incentive Plan to all executive officers, non-employee directors, eligible employees of Dell and its subsidiaries, and certain other persons who are not employees but who from time to time provide substantial advice or other assistance or services to Dell. NEW PLAN BENEFITS Dell Computer Corporation Incentive Plan
NUMBER OF SECURITIES NAME AND PRINCIPAL POSITION UNDERLYING AWARDS - - - - ------------------------------------------------------------ ------------------------------ Michael S. Dell 0 Chairman of the Board, Chief Executive Officer Joel J. Kocher 0 (1) Senior Vice President. L. Scott Flaig 0 (1) Senior Vice President, Worldwide Operations Thomas J. Meredith 0 (1) Chief Financial Officer Thomas L. Thomas 0 (1) Chief Information Officer Executive Group (8 persons) 0 (1) Non-Executive Director Group (6 persons) 66,000 Non-Executive Officer Employee Group 0 (1) Total Shares Available for Awards to All Directors, Executive Officers and Other Eligible Persons 4,490,207 - - - - --------------------------------
(1) Not determinable because all awards to such persons are discretionary. 20 24 CHANGE IN CONTROL Any awards granted under the Incentive Plan may provide that, on the occurrence of a change in control of Dell, (a) the options and SARs represented by the award will become immediately exercisable; (b) all restriction periods and restrictions imposed on restricted stock subject to the award will lapse; and (c) the target payout opportunity attainable under the award will be deemed to have been fully earned for the entire performance periods as of the effective date of the change in control, the vesting of the awards denominated in shares will be accelerated as of the effective date of the change in control, and the holder of the award will be paid in cash within thirty days following the change in control a pro rata portion of all targeted cash payout opportunities associated with outstanding cash-based awards (based on the number of complete and partial calendar months within the performance period that had elapsed as of the change in control). The award may also provide that the award will remain exercisable for its original term whether or not employment is terminated following a change in control. The provisions of the preceding clause (c) will not apply to awards that were granted fewer than six months before the change in control. In addition, the Compensation Committee may make any modifications to the awards other than those for which a stockholder vote is required or that would cancel the awards. In general, the Incentive Plan defines a change of control as any person (other than Mr. Dell) acquiring 30% or more of Dell's voting securities, a change in the majority of the members of the Board of Directors during any two year period if the change was not approved by the vote of at least two-thirds of the directors previously in office, and certain liquidations, sales of assets, and mergers involving Dell. AMENDMENT, MODIFICATION AND TERMINATION The Board of Directors may at any time and from time to time, alter, amend, suspend or terminate the Incentive Plan in whole or in part; except that under current law no amendment that materially increases the number of shares of Common Stock subject to the Incentive Plan, materially increases the benefits to participants in the Incentive Plan, or materially modifies the requirements for eligibility to participate in the Incentive Plan may be made without stockholder approval if the Incentive Plan is to receive certain securities law exemptions for Dell's executive officers. No awards may be granted under the Incentive Plan after June 22, 2004. No stockholder approval will be sought for amendments to the Incentive Plan except as required by law or the rules of any national securities exchange or inter-dealer quotation system on which the Common Stock is then listed or quoted. FEDERAL INCOME TAX CONSEQUENCES Participants in the Incentive Plan who receive an ISO will not recognize income for federal income tax purposes as a result of the receipt or exercise of the ISO. However, exercise of the ISO will increase the optionee's alternative minimum taxable income for purposes of the alternative minimum tax in an amount equal to the excess of the fair market value of the Common Stock received over the exercise price. Dell and its participating subsidiaries will not be entitled to a deduction with respect to the grant or exercise of an ISO. Provided the shares are held as a capital asset, gain recognized on the disposition of Common Stock acquired by exercise of an ISO ("incentive stock") will be treated as long-term capital gain if (a) the incentive stock has been held by the optionee more than two years after the date the ISO was granted and more than one year after the date the ISO was exercised (the "Statutory Holding Period") and (b) certain other requirements of the Code are satisfied by the holder of the incentive stock. Gain recognized on disposition of incentive stock held by the optionee for less than the Statutory Holding Period (a "disqualifying disposition") generally will be compensation income to the optionee to the extent of the 21 25 excess of the fair market value of the incentive stock when received (or, if less, the amount realized on disposition of the incentive stock) over the applicable exercise price. However, if upon receipt the incentive stock is subject to a substantial risk of forfeiture within the meaning of Section 83(c) of the Code, then special rules apply concerning the date when the fair market value of the incentive stock is determined. Any gain recognized in excess of the amount taxed as compensation generally will be characterized as capital gain. If an optionee pays the exercise price of an ISO solely with cash, the optionee's initial tax basis of the incentive stock received is equal to the amount of cash paid. An optionee who pays all or a portion of the exercise price of an ISO with shares of Common Stock will be subject to detailed rules as provided in regulations concerning recognition of income or gain and the determination of basis in the shares received. In the event of a disqualifying disposition, Dell or a participating subsidiary of Dell will be entitled to a corresponding deduction for federal income tax purposes equal to the amount of compensation income includible by the optionee (provided the optionee's total compensation for that year is otherwise deductible and the applicable withholding requirements are satisfied). The grant of a NQSO should neither result in recognition of taxable income by the optionee nor give rise to a deduction by Dell and its participating subsidiaries. However, an optionee who exercises a NQSO must generally, as of the exercise date, recognize as compensation the income equal to the excess (if any) of the then fair market value of the Common Stock received over the exercise price of the option. If the Common Stock received upon exercise of a NQSO is subject to a substantial risk of forfeiture within the meaning of Section 83(c) of the Code, then, unless the optionee makes an election pursuant to Section 83(b) of the Code to be taxed currently on the excess of the fair market value of the shares over the price paid, the excess would not be includible as compensation income unless and until the substantial risk of forfeiture has lapsed. Any gain or loss on the subsequent sale or exchange of Common Stock received on exercise of a NQSO will be treated as capital gain or loss, provided the stock is held as a capital asset. If an optionee pays the exercise price of a NQSO solely with cash, the tax basis of the Common Stock received will equal the sum of the cash paid plus the amount of compensation income includible by the optionee resulting from the exercise. An optionee who pays all or a portion of the exercise price of a NQSO with shares of Common Stock is subject to detailed rules as provided in regulations concerning recognition of income or gain and the determination of basis in the shares received. The amount of compensation income includible in gross income by an optionee is deductible by Dell during Dell's taxable year in which the income is includible by the optionee (provided the optionee's total compensation for that year is otherwise deductible and the applicable withholding requirements are satisfied). A participant generally will not recognize taxable income upon the grant under the Incentive Plan of either a stock appreciation right or other performance-based award. Upon the exercise of a stock appreciation right or the payment of other performance-based awards, the participant will recognize ordinary income in an amount equal to the cash and fair market value of other property received, including Common Stock. The value of the shares will be determined (1) on the date received, if the shares are substantially vested as of that date or (2) the first date on which the shares become substantially vested. Delivery of shares of Common Stock previously owned by the participant to Dell (or its subsidiary) to satisfy any tax withholding obligations of Dell (or its subsidiary) will be a taxable event to the participant with respect to the surrendered shares. Dell and its participating subsidiaries will be entitled to a deduction in the amount and at the time that the participant recognizes ordinary income in connection with the exercise of a stock appreciation right or the payment of a performance unit, provided that the participant's compensation is otherwise deductible and Dell withholds the applicable federal income taxes (if required to do so). If the stock appreciation right or other performance-based award is paid, in whole or in part, in shares of Common Stock, the amount recognized by the participant as ordinary income with respect to such shares becomes the participant's basis in the shares of Common Stock for purposes of determining any gain or loss on the subsequent sale of those shares. 22 26 A participant who receives a restricted stock award will recognize ordinary income equal to the fair market value of the restricted Common Stock received at the time the restrictions lapse, unless the participant makes an election under Section 83(b) of the Code to report the fair market value of the restricted Common Stock as ordinary income at the time of receipt. At the time the participant is required to include such ordinary income in gross income, Dell and its participating subsidiaries may deduct a corresponding amount, provided the participant's compensation is reasonable and Dell withholds the applicable federal income taxes (if required to do so). During the period in which a participant holds restricted Common Stock, before the lapse of the restrictions, if dividends are declared but not distributed to the participant until the restrictions lapse, the dividends will be treated for tax purposes by the participant and Dell in the following manner: (1) if the participant makes an election under Section 83(b) of the Code to recognize income at the time of receipt of the restricted Common Stock, the dividends will be taxed as dividend income to the participant when the restrictions lapse and Dell will not be entitled to a deduction and will not be required to withhold income tax, and (2) if no election is made under Section 83(b) by the participant, the dividends will be taxed as compensation to the participant at the time the restrictions lapse and will be deductible by Dell and subject to any required income tax withholding at that time. In each case, Dell's ability to deduct amounts with respect to any awards for U.S. federal income tax purposes will be subject to compliance with the conditions or limitations of Section 162(m) of the Code. 23 27 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT No director or executive officer of Dell owns any shares of Dell Series A Convertible Preferred Stock. The following table provides information about the beneficial ownership of Common Stock as of May 1, 1994, (i) by each person who is known by Dell to own beneficially more than five percent of the outstanding shares of Common Stock; (ii) by each director including Michael S. Dell, Dell's Chairman of the Board and Chief Executive Officer; (iii) by the other executive officers named in the Summary Compensation Table in "Management Compensation"; and (iv) by all directors and executive officers as a group. To Dell's knowledge, each person has sole investment and voting power over the shares indicated, except as otherwise indicated.
AMOUNT AND NATURE OF PERCENTAGE OF NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS - - - - ------------------------------------------------------------ -------------------------- ----------------- Michael S. Dell ............................................ 10,382,051(1) 27.1% 9505 Arboretum Boulevard Austin, Texas 78759 FMR Corp. .................................................. 4,307,400(2) 11.3 82 Devonshire Street Boston, Massachusetts 02109 Donald J. Carty. ........................................... 4,000(3) * Paul O. Hirschbiel, Jr. .................................... 1,864(4) * Michael H. Jordan .......................................... 8,000(3) * George Kozmetsky ........................................... 228,780(5) * Thomas W. Luce III ......................................... 8,500(6) * Claudine B. Malone ......................................... 3,000(7) * Joel J. Kocher ............................................. 107,450(8) * L. Scott Flaig ............................................. 26,496(9) * Thomas J. Meredith ......................................... 59,557(10) * Thomas L. Thomas ........................................... 4,500(7) * All Directors and Executive Officers as a Group (14 persons) ............................................ 10,950,297(11) 28.4 Andrew Harris .............................................. 36,407 * G. Glenn Henry ............................................. 20,954 * - - - - -------------------
* Represents less than 1% of the 38,249,741 shares of Common Stock issued and outstanding at May 1, 1994. (1) Includes 174,316 shares of Common Stock held in a trust of which Mr. Dell is the grantor. Does not include 169,528 shares of Common Stock held in a trust of which Mr. Dell's wife is the grantor or 763,009 shares of Common Stock held by Mr. Dell's wife, and Mr. Dell disclaims any beneficial ownership in all of such shares. (2) Includes 336,800 shares of Common Stock issuable upon conversion of Dell Series A Convertible Preferred Stock. Also includes 2,737,100 shares of Common Stock owned by Fidelity Magellan Fund, which is an investment company for which the investment advisor is Fidelity Management & Research Company, a wholly-owned subsidiary of FMR Corp. Edward C. Johnson 3d owns 34.0% of the outstanding voting stock of FMR Corp. and, with other family members and trusts, is part of a controlling group with respect to FMR Corp. 24 28 (3) Includes 3,000 shares subject to options that are currently exercisable or exercisable within 60 days of May 1, 1994. (4) Includes 60 shares held in trusts for two of Mr. Hirschbiel's children. Mr. Hirschbiel is the trustee under these trusts. (5) Includes 34,884 shares held by the KOZ Fund, Ltd., an affiliate of Mr. Kozmetsky. (6) Includes 6,000 shares subject to options which are currently exercisable or exercisable within 60 days of May 1, 1994. The other 2,500 shares are owned by the Hughes & Luce Retirement Plan for the benefit of Mr. Luce. (7) All shares are subject to options that are currently exercisable or exercisable within 60 days of May 1, 1994. (8) Includes 97,770 shares subject to options that are currently exercisable or exercisable within 60 days of May 1, 1994. (9) Includes 10,736 shares subject to options that are currently exercisable or exercisable within 60 days of May 1, 1994. (10) Includes 27,400 shares subject to options that are currently exercisable or exercisable within 60 days of May 1, 1994. (11) Includes 257,056 shares subject to options that are currently exercisable or exercisable within 60 days of May 1, 1994. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The executive officers and members of Dell's Board of Directors are required to file reports with the Securities and Exchange Commission disclosing the amount and nature of their beneficial ownership in Common Stock, as well as changes in that ownership. During fiscal 1994, Savino R. Ferrales filed one report late reporting five transactions; Eric F. Harslem filed one report late reporting his initial beneficial ownership; G. Glenn Henry filed one report late reporting three transactions; Paul O. Hirschbiel, Jr., filed one report late reporting one transaction; and Bobby R. Inman filed one report late reporting two transactions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On December 17, 1993, Dell loaned $224,940 to Thomas J. Meredith, Dell's Chief Financial Officer, to pay the exercise price of a share stock option and the related federal income tax obligation. The loan is unsecured, has a term of one year, and bears interest at the rate of 6% per annum. As of May 1, 1994, the amount outstanding under the loan, including interest, was $230,199. 25 29 Thomas W. Luce III is a partner of the law firm Hughes & Luce, L.L.P., in Dallas, Texas. Dell retained that firm during fiscal 1994 to provide various legal services, and the dollar amount of fees that Dell paid to that firm did not exceed five percent of that firm's gross revenues for the year. ADDITIONAL INFORMATION SOLICITATION This solicitation of proxies is made on behalf of the Board of Directors and may be made by mail, personal interview, telephone and telegraph by officers, directors, and employees of Dell. Dell may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of the Common Stock that those companies or persons hold of record. Dell will pay all costs of the solicitation and will reimburse the forwarding expenses. STOCKHOLDER PROPOSALS Any stockholder desiring to present a proposal for action at the Annual Meeting of Stockholders to be held in 1995 must deliver the proposal to the Secretary of Dell no later than January 24, 1995, unless Dell notifies the stockholders otherwise. Such proposals must be submitted in writing and addressed to the attention of the Secretary, at 9505 Arboretum Boulevard, Austin, Texas 78759-7299. Only those proposals that are proper for stockholder action and otherwise proper may be included in Dell's proxy statement. ANNUAL REPORT The Annual Report to Stockholders for Dell's fiscal year ended January 30, 1994, is being mailed to stockholders concurrently with this Proxy Statement and does not form any part of the proxy solicitation material. A COPY OF DELL'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE SENT TO ANY STOCKHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST ADDRESSED TO INVESTOR RELATIONS, DELL COMPUTER CORPORATION, 9505 ARBORETUM BOULEVARD, AUSTIN, TEXAS 78759-7299. 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 IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE. By Order of the Board of Directors Richard E. Salwen Secretary Austin, Texas May 24, 1994 26 30 DELL COMPUTER CORPORATION PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DELL COMPUTER CORPORATION FOR THE JUNE 22, 1994, ANNUAL MEETING OF STOCKHOLDERS AND ANY ADJOURNMENT(S) THEREOF. The undersigned hereby (a) acknowledges receipt of the Notice of Annual Meeting of Stockholders of Dell Computer Corporation ("Dell") to be held on June 22, 1994, and the associated Proxy Statement; (b) appoints Michael S. Dell and Paul O. Hirschbiel, Jr., as Proxies, or any of them, each with the power to appoint a substitute; (c) authorizes the Proxies to represent and vote, as designated below, all the shares of Dell Common Stock held of record by the undersigned on May 13, 1994, at the Annual Meeting and at any adjournment(s) thereof; and (d) revokes any proxies previously given. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED AND FOR THE FOLLOWING PROPOSALS: 1. Election of two Class III directors. Nominees: George Kozmetsky and Claudine B. Malone. / / FOR ALL NOMINEES / / WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES TO VOTE FOR ONE NOMINEE ONLY, PRINT THE NAME OF THE NOMINEE YOU WISH TO VOTE FOR BELOW: ______________________________________________________________________ 2. A Proposal to Ratify the Selection of Price Waterhouse as Dell's Independent Accountants for Fiscal 1995. / / FOR / / AGAINST / / ABSTAIN 3. A Proposal to Approve the Dell Computer Corporation Incentive Plan. / / FOR / / AGAINST / / ABSTAIN 4. 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. 31 THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR DIRECTORS AND FOR EACH OTHER PROPOSAL. THE PROXIES WILL USE THEIR DISCRETION WITH REGARD TO ANY MATTER REFERRED TO IN ITEM 4. PLEASE SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE ENVELOPE PROVIDED. Dated: _____________________________, 1994. __________________________________________ __________________________________________ SIGNATURE(S) OF STOCKHOLDER(S) Joint owners should each sign. Signature(s) should correspond with the name(s) printed on this Proxy. Attorneys, executors, administrators and guardians should give full title. 32 DELL COMPUTER CORPORATION INCENTIVE PLAN SCOPE AND PURPOSE OF PLAN Dell Computer Corporation, a Delaware corporation (the "Corporation"), has adopted this Dell Computer Corporation Incentive Plan (the "Plan") to provide for the granting of: (a) Incentive Options (hereafter defined) to certain Key Employees (hereafter defined); (b) Nonstatutory Options (hereafter defined) to certain Key Employees and other persons; (c) Performance Units (hereafter defined) to certain Key Employees and other persons; (d) Restricted Stock Awards (hereafter defined) to certain Key Employees, Non-employee Directors (hereafter defined), and other persons; and (e) Stock Appreciation Rights (hereafter defined) to certain Key Employees and other persons. The purpose of the Plan is to provide an incentive for Key Employees, directors, and certain consultants and advisors of the Corporation or its Subsidiaries (hereafter defined) to remain in the service of the Corporation or its Subsidiaries, to extend to them the opportunity to acquire a proprietary interest in the Corporation so that they will apply their best efforts for the benefit of the Corporation, and to aid the Corporation in attracting able persons to enter the service of the Corporation and its Subsidiaries. SECTION 1. DEFINITIONS 1.1 "Acquiring Person" means any Person other than the Corporation, any of the Corporation's Subsidiaries, any employee benefit plan of the Corporation or of a Subsidiary of the Corporation or of a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or of a Subsidiary of the Corporation or of a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same 33 proportions as their ownership of stock of the Corporation, or Michael S. Dell. 1.2 "Award" means the grant of any form of Option, Performance Unit, Reload Option, Restricted Stock Award, or Stock Appreciation Right under the Plan, whether granted singly, in combination, or in tandem, to a Holder pursuant to the terms, conditions, and limitations that the Committee may establish in order to fulfill the objectives of the Plan. 1.3 "Award Agreement" means the written agreement between the Corporation and a Holder evidencing the terms, conditions, and limitations of the Award granted to that Holder. 1.4 "Board of Directors" means the board of directors of the Corporation. 1.5 "Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of Texas are authorized or obligated by law or executive order to close. 1.6 "Change in Control" means the event that is deemed to have occurred if: (a) any Acquiring Person is or becomes the "beneficial owner" (as defined in Rule l3d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing thirty percent or more of the combined voting power of the then outstanding Voting Securities of the Corporation; or (b) over a period of twenty-four months or less, members of the Incumbent Board cease for any reason to constitute at least a majority of the Board of Directors; or (c) a public announcement is made of a tender or exchange offer by any Acquiring Person for fifty percent or more of the outstanding Voting Securities of the Corporation, and the Board of Directors approves or fails to oppose that tender or exchange offer in its statements in Schedule 14D-9 under the Exchange Act; or (d) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation or partnership (or, if no such approval is required, the consummation of such a merger or consolidation of the Corporation), other than a merger or consolidation that would result in the Voting Securities of the Corporation outstanding immediately before the consummation thereof continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity or of 2 34 a parent of the surviving entity) a majority of the combined voting power of the Voting Securities of the surviving entity (or its parent) outstanding immediately after that merger or consolidation; or (e) the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets (or, if no such approval is required, the consummation of such a liquidation, sale, or disposition in one transaction or series of related transactions) other than a liquidation, sale or disposition of all or substantially all the Corporation's assets in one transaction or a series of related transactions to a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation. 1.7 "Code" means the Internal Revenue Code of 1986, as amended. 1.8 "Committee" means the committee appointed pursuant to Section 3 by the Board of Directors to administer this Plan. 1.9 "Corporation" means Dell Computer Corporation, a Delaware corporation. 1.10 "Date of Grant" has the meaning given it in Paragraph 4.3. 1.11 "Disability" has the meaning given it in Paragraph 12.5. 1.12 "Disinterested Person" has the meaning given it in Rule 16b-3. 1.13 "Effective Date" means the date on which the Plan is approved by the stockholders of the Corporation. 1.14 "Eligible Individuals" means (a) Key Employees, (b) Non-employee Directors only for purposes of Awards pursuant to Section 5, and (c) any other Person that the Committee designates as eligible for an Award (other than for Incentive Options) because the Person performs bona fide consulting or advisory services for the Corporation or any of its Subsidiaries (other than services in connection with the offer or sale of securities in a capital-raising transaction) and the Committee determines that the Person has a direct and significant effect on the financial development of the Corporation or any of its Subsidiaries. Notwithstanding the foregoing provisions of this Paragraph 1.14, to ensure that the requirements of the fourth sentence of Paragraph 3.1 are satisfied, the Board of Directors may from time to time specify individuals who shall not be eligible for the grant of Awards or options or 3 35 stock appreciation rights or allocations of stock under any plan of the Corporation or its affiliates (as those terms are used in subsection (d)(3) of Rule 16b-3). Nevertheless, the Board of Directors may at any time determine that an individual who has been so excluded from eligibility shall become eligible for grants of Awards and grants of such other options or stock appreciation rights or allocations of stock under any plans of the Corporation or its affiliates so long as that eligibility will not impair the Plan's satisfaction of the conditions of Rule 16b-3. 1.15 "Employee" means any employee of the Corporation or of any of its Subsidiaries, including officers and directors of the Corporation who are also employees of the Corporation or of any of its Subsidiaries. 1.16 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 1.17 "Executive Officer" means an Eligible Individual who, as of the earlier of the date an Award is vested, the date restrictions with respect to an Award lapse, or a payment is made pursuant to the terms of the Award Agreement, is one of the "covered employees" defined in regulations promulgated under section 162(m) or any successor provision of law. 1.18 "Exercise Notice" has the meaning given it in Paragraph 6.5. 1.19 "Exercise Price" has the meaning given it in Paragraph 6.4. 1.20 "Fair Market Value" means, for a particular day: (a) If shares of Stock of the same class are listed or admitted to unlisted trading privileges on any national or regional securities exchange at the date of determining the Fair Market Value, then the last reported sale price, regular way, on the composite tape of that exchange on the last Business Day before the date in question or, if no such sale takes place on that Business Day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to unlisted trading privileges on that securities exchange; or (b) If shares of Stock of the same class are not listed or admitted to unlisted trading privileges as provided in subparagraph 1.19(a) and if sales prices for shares of Stock of the same class in the over-the-counter market are reported by the National Association of Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National Market System (or such other system then in use) at the date of determining 4 36 the Fair Market Value, then the last reported sales price so reported on the last Business Day before the date in question or, if no such sale takes place on that Business Day, the average of the high bid and low asked prices so reported; or (c) If shares of Stock of the same class are not listed or admitted to unlisted trading privileges as provided in subparagraph 1.20(a) and sales prices for shares of Stock of the same class are not reported by the NASDAQ National Market System (or a similar system then in use) as provided in subparagraph 1.20(b), and if bid and asked prices for shares of Stock of the same class in the over-the-counter market are reported by NASDAQ (or, if not so reported, by the National Quotation Bureau Incorporated) at the date of determining the Fair Market Value, then the average of the high bid and low asked prices on the last Business Day before the date in question; or (d) If shares of Stock of the same class are not listed or admitted to unlisted trading privileges as provided in subparagraph 1.20(a) and sales prices or bid and asked prices therefor are not reported by NASDAQ (or the National Quotation Bureau Incorporated) as provided in subparagraph 1.20(b) or subparagraph 1.20(c) at the date of determining the Fair Market Value, then the value determined in good faith by the Committee, which determination shall be conclusive for all purposes; or (e) If shares of Stock of the same class are listed or admitted to unlisted trading privileges as provided in subparagraph 1.20(a) or sales prices or bid and asked prices therefor are reported by NASDAQ (or the National Quotation Bureau Incorporated) as provided in subparagraph 1.20(b) or subparagraph 1.20(c) at the date of determining the Fair Market Value, but the volume of trading is so low that the Board of Directors determines in good faith that such prices are not indicative of the fair value of the Stock, then the value determined in good faith by the Committee, which determination shall be conclusive for all purposes notwithstanding the provisions of subparagraphs 1.20(a), (b), or (c). For purposes of valuing Incentive Options, the Fair Market Value of Stock shall be determined without regard to any restriction other than one that, by its terms, will never lapse. For purposes of the redemption provided for in clause 11.3(d)(v), Fair Market Value shall have the meaning and shall be determined as provided above; provided, however, that the Committee, with respect to any such redemption, shall have the right to determine that the Fair Market Value for purposes of the redemption should be an amount measured by the value of the shares of stock, other securities, cash or property otherwise being received by holders of shares of Stock in 5 37 connection with the Restructure, and upon that determination the Committee shall have the power and authority to determine Fair Market Value for purposes of the redemption based upon the value of such shares of stock, other securities, cash or property. Any such determination by the Committee shall be conclusive for all purposes. 1.21 "Holder" means an Eligible Individual to whom an Award has been granted. 1.22 "Incentive Option" means an incentive stock option as defined under Section 422 of the Code and regulations thereunder. 1.23 "Incumbent Board" means the individuals who, as of the Effective Date, constitute the Board of Directors and any other individual who becomes a director of the Corporation after that date and whose election or appointment by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board. 1.24 "Key Employee" means any Employee whom the Committee identifies as having a direct and significant effect on the performance of the Corporation or any of its Subsidiaries. 1.25 "Non-employee Director" means a director of the Corporation who while a director is not (and who in the year before becoming a director has not been) an Employee. 1.26 "Nonstatutory Option" means a stock option that does not satisfy the requirements of Section 422 of the Code or that is designated at the Date of Grant or in the applicable Option Agreement to be an option other than an Incentive Option. 1.27 "Non-Surviving Event" means an event of Restructure as described in either subparagraph (b) or (c) of Paragraph 1.37 1.28 "Normal Retirement" means the separation of the Holder from employment with the Corporation and its Subsidiaries on account of retirement at any time on or after the date on which the Holder reaches age sixty. 1.29 "Option Agreement" means an Award Agreement for an Incentive Option or a Nonstatutory Option. 1.30 "Option" means either an Incentive Option or a Nonstatutory Option, or both. 1.31 "Performance Period" means a period of one or more fiscal years of the Corporation, beginning with the fiscal year in which Performance Units are granted and over which performance is measured, for the purpose of determining the payment value of 6 38 Performance Units. A Performance Period shall not exceed ten years. 1.32 "Performance Unit" means a unit representing a contingent right to receive a specified amount of cash or shares of Stock at the end of a Performance Period. 1.33 "Person" means any person or entity of any nature whatsoever, specifically including (but not limited to) an individual, a firm, a company, a corporation, a partnership, a trust or other entity. A Person, together with that Person's affiliates and associates (as those terms are defined in Rule 12b-2 under the Exchange Act for purposes of this definition only), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting or disposing of securities of the Corporation with that Person, shall be deemed a single "Person." 1.34 "Plan" means the Dell Computer Corporation Incentive Plan, as it may be amended from time to time. 1.35 "Reload Option" has the meaning given it in Paragraph 6.10. 1.36 "Restricted Stock Award" means the grant or purchase, on the terms and conditions that the Committee determines or on the terms and conditions of Section 8, of Stock that is nontransferable and subject to substantial risk of forfeiture until specific conditions are met. 1.37 "Restructure" means the occurrence of any one or more of the following: (a) The merger or consolidation of the Corporation with any Person, whether effected as a single transaction or a series of related transactions, with the Corporation remaining the continuing or surviving entity of that merger or consolidation and the Stock remaining outstanding and not changed into or exchanged for stock or other securities of any other Person or of the Corporation, cash, or other property; (b) The merger or consolidation of the Corporation with any Person, whether effected as a single transaction or a series of related transactions, with (i) the Corporation not being the continuing or surviving entity of that merger or consolidation or (ii) the Corporation remaining the continuing or surviving entity of that merger or consolidation but all or a part of the outstanding shares of Stock are changed into or 7 39 exchanged for stock or other securities of any other Person or the Corporation, cash, or other property; or (c) The transfer, directly or indirectly, of all or substantially all of the assets of the Corporation (whether by sale, merger, consolidation, liquidation or otherwise) to any Person whether effected as a single transaction or a series of related transactions. 1.38 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act, or any successor rule, as it may be amended from time to time. 1.39 "Securities Act" means the Securities Act of 1933, as amended. 1.40 "Stock" means the Corporation's authorized common stock, par value $.01 per share, as described in the Corporation's Certificate of Incorporation, or any other securities that are substituted for the Stock as provided in Section 11. 1.41 "Stock Appreciation Right" means the right to receive an amount equal to the excess of the Fair Market Value of a share of Stock (as determined on the date of exercise) over, as appropriate, the Exercise Price of a related Option or the Fair Market Value of the Stock on the Date of Grant of the Stock Appreciation Right. 1.42 "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person. 1.43 "Total Shares" has the meaning given it in Paragraph 11.2. 1.44 "Voting Securities" means any securities that are entitled to vote generally in the election of directors, in the admission of general partners, or in the selection of any other similar governing body. SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN 2.1 Maximum Amount of Shares. Subject to the provisions of Paragraph 2.6 and Section 11 of the Plan, the aggregate number of shares of Stock that may be issued, transferred or exercised pursuant to Awards under the Plan shall be 4,840,898 shares of Stock. 2.2 Reduction in Available Shares. In computing the total number of shares available at a particular time for Awards under the Plan, there shall be counted against the limitations stated in Paragraph 2.1 the number of shares of Stock subject to issuance 8 40 upon exercise or settlement of Awards, the number of shares of Stock that equal the value of Performance Units determined in each case as of the Date of Grant of each Award (other than Awards designated to be paid only in cash), and the number of shares of Stock that have been issued upon exercise or settlement of Awards (except as otherwise provided in Paragraph 2.3). 2.3 Restoration of Unused and Surrendered Shares. If Stock subject to any Award is not issued or transferred, or ceases to be issuable or transferable for any reason, including (but not exclusively) because an Award is forfeited, terminated, expires unexercised, is settled in cash in lieu of Stock, or is exchanged for other Awards, the shares of Stock that were subject to that Award shall no longer be charged against the number of available shares provided for in Paragraph 2.2 and shall again be available for issue, transfer, or exercise pursuant to Awards under the Plan to the extent of such forfeiture, termination, expiration, or other cessation of its subjection to an Award. 2.4 Description of Shares. The shares to be delivered under the Plan shall be made available from (a) authorized but unissued shares of Stock, (b) Stock held in the treasury of the Corporation, or (c) previously issued shares of Stock reacquired by the Corporation, including shares purchased on the open market, in each situation as the Board of Directors or the Committee may determine from time to time at its sole option. 2.5 Registration and Listing of Shares. From time to time, the Board of Directors and appropriate officers of the Corporation shall and are authorized to take whatever actions are necessary to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make shares of Stock available for issuance pursuant to Awards. 2.6 Reduction in Outstanding Shares of Stock. Nothing in this Section 2 shall impair the right of the Corporation to reduce the number of outstanding shares of Stock pursuant to repurchases, redemptions, or otherwise; provided, however, that no reduction in the number of outstanding shares of Stock shall (a) impair the validity of any outstanding Award, whether or not that Award is fully exercisable or fully vested or (b) impair the status of any shares of Stock previously issued pursuant to an Award or thereafter issued pursuant to a then-outstanding Award as duly authorized, validly issued, fully paid, and nonassessable shares. 2.7 Limitation on Certain Stock Awards. No more than twenty-five percent of the aggregate shares of Stock which may be issued under the Plan may be issued pursuant to Restricted Stock Awards, Stock Bonus Awards or similar awards which grant Stock; provided, however, that the limitation expressed in this Section 2.7 shall not apply with respect to shares of Stock issued in connection with 9 41 the exercise of an Option Award, Stock Appreciation Right Award or Performance Unit. SECTION 3. ADMINISTRATION OF THE PLAN 3.1 Committee. The Committee shall administer the Plan with respect to all Eligible Individuals who are subject to Section 16(b) of the Exchange Act, but shall not have the power to appoint members of the Committee or to terminate, modify, or amend the Plan. The Board of Directors may administer the Plan with respect to all other Eligible Individuals or may delegate all or part of that duty to the Committee or to any other person or persons. Except for references in Paragraphs 3.1, 3.2, and 3.3 and unless the context otherwise requires, references herein to the Committee shall also refer to the Board of Directors as administrator of the Plan for Eligible Individuals who are not subject to Section 16(b) of the Exchange Act. The Committee shall be constituted so that, as long as Stock is registered under Section 12 of the Exchange Act, each member of the Committee shall be a Disinterested Person who is a member of the Board of Directors and so that the Plan in all other applicable respects will qualify transactions related to the Plan for the exemptions from Section 16(b) of the Exchange Act provided by Rule 16b-3, to the extent exemptions thereunder may be available. No discretion regarding Awards to Eligible Individuals who are subject to Section 16(b) of the Exchange Act shall be afforded to a person who is not a Disinterested Person. The number of persons that shall constitute the Committee shall be determined from time to time by a majority of all the members of the Board of Directors, and, unless that majority of the Board of Directors determines otherwise, shall be no less than two persons. Persons elected to serve on the Committee as Disinterested Persons shall not be eligible to receive Awards or equity securities under any plan of the Corporation or its affiliates (as those terms are used in Rule 16b-3) while they are serving as members of the Committee; shall not have been eligible to receive Awards or such equity securities under any plan of the Corporation or its affiliates within one year before their appointment to the Committee becomes effective; and shall not be eligible to receive Awards or such equity securities under any plan of the Corporation or its affiliates for such period following service on the Committee as may be required by Rule 16b-3 for that person to remain a Disinterested Person, in each case except for Awards or equity securities pursuant to paragraphs (c)(2)(i)(A), (B), (C) or (D) of Rule 16b-3. 3.2 Duration, Removal, Etc. The members of the Committee shall serve at the pleasure of the Board of Directors, which shall have the power, at any time and from time to time, to remove members from or add members to the Committee. Removal from the Committee may be with or without cause. Any individual serving as a member of the Committee shall have the right to resign from membership in the Committee by at least three day's written notice 10 42 to the Board of Directors. The Board of Directors, and not the remaining members of the Committee, shall have the power and authority to fill vacancies on the Committee, however caused. The Board of Directors shall promptly fill any vacancy that causes the number of members of the Committee to be below two or any other number that Rule 16b-3 may require from time to time. 3.3 Meetings and Actions of Committee. The Board of Directors shall designate which of the Committee members shall be the chairman of the Committee. If the Board of Directors fails to designate a Committee chairman, the members of the Committee shall elect one of the Committee members as chairman, who shall act as chairman until he ceases to be a member of the Committee or until the Board of Directors elects a new chairman. The Committee shall hold its meetings at those times and places as the chairman of the Committee may determine. At all meetings of the Committee, a quorum for the transaction of business shall be required, and a quorum shall be deemed present if at least a majority of the members of the Committee are present. At any meeting of the Committee, each member shall have one vote. All decisions and determinations of the Committee shall be made by the majority vote or majority decision of all of its members present at a meeting at which a quorum is present; provided, however, that any decision or determination reduced to writing and signed by all of the members of the Committee shall be as fully effective as if it had been made at a meeting that was duly called and held. The Committee may make any rules and regulations for the conduct of its business that are not inconsistent with the provisions of the Plan, the Certificate of Incorporation, the by-laws of the Corporation, and Rule 16b-3 so long as it is applicable, as the Committee may deem advisable. 3.4 Committee's Powers. Subject to the express provisions of the Plan and Rule 16b-3, the Committee shall have the authority, in its sole and absolute discretion, (a) to adopt, amend, and rescind administrative and interpretive rules and regulations relating to the Plan; (b) to determine the Eligible Individuals to whom, and the time or times at which, Awards shall be granted; (c) to determine the number of shares of Stock that shall be the subject of each Award; (d) to determine the terms and provisions of each Award Agreement (which need not be identical), including provisions defining or otherwise relating to (i) the term and the period or periods and extent of exercisability of the Options, (ii) the extent to which the transferability of shares of Stock issued or transferred pursuant to any Award is restricted, (iii) the effect of termination of employment on the Award, and (iv) the effect of approved leaves of absence (consistent with any applicable regulations of the Internal Revenue Service); (e) to accelerate, pursuant to Section 6, the time of exercisability of any Option that has been granted; (f) to construe the respective Award Agreements and the Plan; (g) to make determinations of the Fair Market Value of the Stock pursuant to the Plan; (h) to delegate its duties under the Plan to such agents as it may appoint from time to 11 43 time, provided that the Committee may not delegate its duties with respect to making Awards to Eligible Individuals who are subject to Section 16(b) of the Exchange Act; and (i) to make all other determinations, perform all other acts, and exercise all other powers and authority necessary or advisable for administering the Plan, including the delegation of those ministerial acts and responsibilities as the Committee deems appropriate. Subject to Rule 16b-3, the Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, in any Award, or in any Award Agreement in the manner and to the extent it deems necessary or desirable to carry the Plan into effect, and the Committee shall be the sole and final judge of that necessity or desirability. The determinations of the Committee on the matters referred to in this Paragraph 3.4 shall be final and conclusive. SECTION 4. ELIGIBILITY AND PARTICIPATION 4.1 Eligible Individuals. Awards may be granted pursuant to the Plan only to persons who are Eligible Individuals at the time of the grant thereof. 4.2 Grant of Awards. Subject to the express provisions of the Plan, the Committee shall determine which Eligible Individuals shall be granted Awards from time to time. In making grants, the Committee shall take into consideration the contribution the potential Holder has made or may make to the success of the Corporation or its Subsidiaries and such other considerations as the Committee may from time to time specify. The Committee shall also determine the number of shares or cash amounts subject to each of the Awards and shall authorize and cause the Corporation to grant Awards in accordance with those determinations. 4.3 Date of Grant. The date on which the Committee completes all action constituting an offer of an Award to an individual, including the specification of the number of shares of Stock and the amount of cash to be subject to the Award, shall be the date on which the Award covered by an Award Agreement is granted (the "Date of Grant"), even though certain terms of the Award Agreement may not be determined at that time and even though the Award Agreement may not be executed until a later time. In no event shall a Holder gain any rights in addition to those specified by the Committee in its grant, regardless of the time that may pass between the grant of the Award and the actual execution of the Award Agreement by the Corporation and the Holder. 4.4 Award Agreements. Each Award granted under the Plan shall be evidenced by an Award Agreement that is executed by the Corporation and the Eligible Individual to whom the Award is granted and incorporating those terms that the Committee shall deem necessary or desirable. More than one Award may be granted under the Plan to the same Eligible Individual and be outstanding concurrently. In the event an Eligible Individual is granted both 12 44 one or more Incentive Options and one or more Nonstatutory Options, those grants shall be evidenced by separate Award Agreements, one for each of the Incentive Option grants and one for each of the Nonstatutory Option grants. 4.5 Limitation for Incentive Options. Notwithstanding any provision contained herein to the contrary, (a) a person shall not be eligible to receive an Incentive Option unless he is an Employee of the Corporation or a corporate Subsidiary (but not a partnership Subsidiary), and (b) a person shall not be eligible to receive an Incentive Option if, immediately before the time the Option is granted, that person owns (within the meaning of Sections 422 and 425 of the Code) stock possessing more than ten percent of the total combined voting power or value of all classes of stock of the Corporation or a Subsidiary. Nevertheless, this subparagraph 4.5(b) shall not apply if, at the time the Incentive Option is granted, the Exercise Price of the Incentive Option is at least one hundred and ten percent of Fair Market Value and the Incentive Option is not, by its terms, exercisable after the expiration of five years from the Date of Grant. 4.6 No Right to Award. The adoption of the Plan shall not be deemed to give any person a right to be granted an Award except pursuant to Section 5. 4.7 Limitation on Individual Awards. No Eligible Individual shall, in one calendar year, receive Awards to which more than 200,000 shares of Stock are subject. SECTION 5. AWARDS TO NON-EMPLOYEE DIRECTORS 5.1 Ineligibility for Other Awards. Non-employee Directors shall not be eligible to receive any Awards under the Plan other than the automatic and deferral Awards specified in this Section 5. 5.2 Automatic Grant of Awards. Awards of Nonstatutory Options shall be made automatically to Non-employee Directors as follows: (a) Beginning in 1994, each Non-employee Director who is a director of the Corporation as of both the day immediately preceding the annual meeting of the stockholders and the day immediately following such annual meeting shall automatically be granted a Nonstatutory Option for the purchase of 6,000 shares of Stock of the first meeting of the Board of Directors following such annual meeting. (b) Each non-Employee individual who becomes a Non-employee Director after the 60th day following the Effective Date shall, on the day after the first meeting of the Board of Directors at which the Non-employee Director is in attendance in person or by telephone as a Non-employee Director, 13 45 automatically be granted a Nonstatutory Stock Option for the purchase of 15,000 shares of Stock. 5.3 Available Stock. The automatic Awards specified in Paragraph 5.2 shall be made in the amounts specified in Paragraph 5.2 only if the number of shares of Stock available to be issued, transferred or exercised pursuant to Awards under the Plan (as calculated in Section 2) is sufficient to make all automatic grants required to be made by Paragraph 5.2 on the Date of Grant of those automatic Awards. In the event that a lesser number of shares of Stock are available to be issued, transferred, or exercised pursuant to Awards under the Plan on the Date of Grant of the automatic Awards described Paragraph 5.2, but their number is insufficient to permit the grant of the entire number of shares specified in the automatic Awards, then the number of available shares shall be apportioned equally among the automatic Awards made on that date, and the number of shares apportioned to each automatic Award shall be the amount of shares automatically subject to that automatic Award. 5.4 Terms and Conditions of Automatic Award. Award Agreements for Nonstatutory Option Awards to Non-employee Directors shall be in the form attached as Exhibit A and, except as expressly provided in those Award Agreements, the automatic Awards to Non-employee Directors shall not be subject to the provisions of Section 11 or 12. In addition, the following terms and conditions shall apply to Awards pursuant to this Section 5: (a) With respect to Nonstatutory Option Awards granted pursuant to Paragraph 5.2(a), (i) the exercise price for each share of Stock subject to such Option shall be the Fair Market value of a share of Stock on the Date of Grant of such Option, (ii) the Option shall become vested and exercisable with respect to 1,200 shares of Stock on each of the first five anniversaries of such Date of Grant so long as the Non-employee Director remains a director of the Corporation after the Date of Grant through those dates and (iii) such Option shall terminate on the earliest of (A) ten years from the Date of Grant, (B) the Holder ceasing to be a director, if the Board demands or requests the Holder's resignation from the Board, (C) 90 days after the Holder ceases to be a director for reasons other than the reasons specified in (B) above or (D) below, or (D) one year after the death or disability of the Holder. (b) With respect to Nonstatutory Option Awards granted pursuant to Paragraph 5.2(b), (i) the exercise price for each share of Stock subject to such Option shall be the Fair Market value of a share of Stock on the Date of Grant of such Option, (ii) the Option shall become vested and exercisable with respect to 3,000 shares of Stock on each of the first five anniversaries of such Date of Grant so long as the Non- 46 employee Director remains a director of the Corporation after the Date of Grant through those dates and (iii) such Option shall terminate on the earliest of (A) ten years from the Date of Grant, (B) the Holder ceasing to be a director, if the Board demands or requests the Holder's resignation from the Board, (C) 90 days after the Holder ceases to be a director for reasons other than the reasons specified in (B) above or (D) below, or (D) one year after the death or disability of the Holder. 5.5 Non-Employee Director Deferral Awards. A Non-employee Director may elect to receive a Nonstatutory Option in lieu of all or a portion of his or her fee for services as a Non-employee Director of the Corporation. The number of shares subject to such Option shall be determined by dividing the amount of the fee which the Non-employee Director has elected not to receive by the value of an option for one share of Common Stock on the Date of Grant having the terms set forth herein; provided that such value shall be calculated pursuant to the Black-Scholes Model based on the applicable assumptions used in calculating option values in the most recent annual meeting proxy Statement of the Corporation. The Date of Grant of such an Option shall be the date on which such fee otherwise would have been paid. The exercise price with respect to a share of Stock subject to such Option shall be the Fair Market Value of a share of Stock on the Option's Date of Grant. An Option issued pursuant to this Section 5.5 shall vest with respect to 20 percent of the shares subject to the Option on each of the first five anniversaries of the Option's Date of Grant so long as the Non-employee Director remains a director of the Corporation through such dates, and shall terminate as set forth in Section 5.4(a)(iii) above. 5.6 Tax Withholding. The Corporation shall have the right to require a Non-employee Director to pay to the Corporation the amount necessary to satisfy the Corporation's current or future obligation to withhold federal, state or local income or other taxes that the Non-employee Director incurs by vesting of an Option Award. Tax withholding obligations in respect of Option Awards to Non-employee Directors may not be satisfied by the Corporation's withholding of Stock subject to the Award or by the Non-employee Director's transfer of Stock to the Corporation. SECTION 6. TERMS AND CONDITIONS OF OPTIONS All Options granted under the Plan shall comply with, and the related Option Agreements shall be deemed to include and be subject to, the terms and conditions set forth in this Section 6 (to the extent each term and condition applies to the form of Option) and also to the terms and conditions set forth in Section 11 and Section 12; provided, however, that the Committee may authorize an Option Agreement that expressly contains terms and provisions that differ from the terms and provisions set forth in Paragraphs 11.2, 15 47 11.3, and 11.4 and any of the terms and provisions of Section 12 (other than Paragraph 12.11). 6.1 Number of Shares. Each Option Agreement shall state the total number of shares of Stock to which it relates. 6.2 Vesting. Each Option Agreement shall state the time or periods in which the right to exercise the Option or a portion thereof shall vest and the number of shares of Stock for which the right to exercise the Option shall vest at each such time or period. 6.3 Expiration of Options. Nonstatutory Options and Incentive Options may be exercised during the term determined by the Committee and set forth in the Option Agreement; provided that no Option shall be exercised after the expiration of a period of ten years commencing on the Date of Grant of the Incentive Option. 6.4 Exercise Price. Each Option Agreement shall state the exercise price per share of Stock (the "Exercise Price"). The exercise price per share of Stock subject to an Incentive Option shall not be less than the greater of (a) the par value per share of the Stock or (b) 100% of the Fair Market Value per share of the Stock on the Date of Grant of the Option. The exercise price per share of Stock subject to a Nonstatutory Option shall not be less than the greater of (a) the par value per share of the Stock or (b) fifty percent of the Fair Market Value per share of the Stock on the Date of Grant of the Option. 6.5 Method of Exercise. The Option shall be exercisable only by written notice of exercise (the "Exercise Notice") delivered to the Corporation during the term of the Option, which notice shall (a) state the number of shares of Stock with respect to which the Option is being exercised, (b) be signed by the Holder of the Option or, if the Holder is dead, by the person authorized to exercise the Option pursuant to Paragraph 12.3, (c) be accompanied by the Exercise Price for all shares of Stock for which the Option is exercised, and (d) include such other information, instruments, and documents as may be required to satisfy any other condition to exercise contained in the Option Agreement. The Option shall not be deemed to have been exercised unless all of the requirements of the preceding provisions of this Paragraph 6.5 have been satisfied. 6.6 Incentive Option Exercises. During the Holder's lifetime, only the Holder may exercise an Incentive Option. 6.7 Medium and Time of Payment. The Exercise Price of an Option shall be payable in full upon the exercise of the Option (a) in cash or by an equivalent means acceptable to the Committee, (b) on the Committee's prior consent, with shares of Stock owned by the Holder (including shares received upon exercise of the Option or restricted shares already held by the Holder) and having a Fair 16 48 Market Value at least equal to the aggregate Exercise Price payable in connection with such exercise, or (c) by any combination of clauses (a) and (b). If the Committee elects to accept shares of Stock in payment of all or any portion of the Exercise Price, then (for purposes of payment of the Exercise Price) those shares of Stock shall be deemed to have a cash value equal to their aggregate Fair Market Value determined as of the date of the delivery of the Exercise Notice. If the Committee elects to accept shares of restricted Stock in payment of all or any portion of the Exercise Price, then an equal number of shares issued pursuant to the exercise shall be restricted on the same terms and for the restriction period remaining on the shares used for payment. 6.8 Payment with Sale Proceeds. In addition, at the request of the Holder and to the extent permitted by applicable law, the Committee may (but shall not be required to) approve arrangements with a brokerage firm under which that brokerage firm, on behalf of the Holder, shall pay to the Corporation the Exercise Price of the Option being exercised, and the Corporation shall promptly deliver the exercised shares to the brokerage firm. To accomplish this transaction, the Holder must deliver to the Corporation an Exercise Notice containing irrevocable instructions from the Holder to the Corporation to deliver the stock certificates directly to the broker. Upon receiving a copy of the Exercise Notice acknowledged by the Corporation, the broker shall sell that number of shares of Stock or loan the Holder an amount sufficient to pay the Exercise Price and any withholding obligations due. The broker shall then deliver to the Corporation that portion of the sale or loan proceeds necessary to cover the Exercise Price and any withholding obligations due. The Committee shall not approve any transaction of this nature if the Committee believes that the transaction would give rise to the Holder's liability for short-swing profits under Section 16(b) of the Exchange Act. 6.9 Payment of Taxes. The Committee may, in its discretion, require a Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder is an employee of a Subsidiary of the Corporation), at the time of the exercise of an Option, the amount that the Committee deems necessary to satisfy the Corporation's or its Subsidiary's current or future obligation to withhold federal, state or local income or other taxes that the Holder incurs by exercising an Option. Upon the exercise of an Option requiring tax withholding, a Holder may (a) direct the Corporation to withhold from the shares of Stock to be issued to the Holder the number of shares necessary to satisfy the Corporation's obligation to withhold taxes, that determination to be based on the shares' Fair Market Value as of the date on which tax withholding is to be made; (b) deliver to the Corporation sufficient shares of Stock (based upon the Fair Market Value at date of withholding) to satisfy the Corporation's tax withholding obligations, based on the shares' Fair Market Value as of the date of exercise; or (c) deliver sufficient cash to the Corporation to satisfy its tax withholding 17 49 obligations. Holders who elect to use such a stock withholding feature must make the election at the time and in the manner that the Committee prescribes. The Committee may, at its sole option, deny any Holder's request to satisfy withholding obligations through Stock instead of cash. In the event the Committee subsequently determines that the aggregate Fair Market Value (as determined above) of any shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Holder shall pay to the Corporation, immediately upon the Committee's request, the amount of that deficiency. 6.10 Reload Provisions. Options may contain a provision pursuant to which a Holder who pays all or a portion of the Exercise Price of an Option or the tax required to be withheld pursuant to the exercise of an Option by surrendering shares of Stock shall automatically be granted an Option for the purchase of the number of shares of Stock equal to the number of shares surrendered (a "Reload Option"). The Date of Grant of the Reload Option shall be the date on which the Holder surrenders the shares of Stock in respect of which the Reload Option is granted. The Reload Option shall have an Exercise Price equal to the price determined in accordance with Paragraph 6.4 and shall have a term that is no longer than the original term of the underlying Option. 6.11 Limitation on Aggregate Value of Shares That May Become First Exercisable During Any Calendar Year Under an Incentive Option. Except as is otherwise provided in Paragraph 11.2(b), with respect to any Incentive Option granted under this Plan, the aggregate Fair Market Value of shares of Stock subject to an Incentive Option and the aggregate Fair Market Value of shares of Stock or stock of any Subsidiary (or a predecessor of the Corporation or a Subsidiary) subject to any other incentive stock option (within the meaning of Section 422 of the Code) of the Corporation or its Subsidiaries (or a predecessor corporation of any such corporation) that first become purchasable by a Holder in any calendar year may not (with respect to that Holder) exceed $100,000, or such other amount as may be prescribed under Section 422 of the Code or applicable regulations or rulings from time to time. As used in the previous sentence, Fair Market Value shall be determined as of the date the Incentive Option is granted. For purposes of this Paragraph 6.12 "predecessor corporation" means (a) a corporation that was a party to a transaction described in Section 424(a) of the Code (or which would be so described if a substitution or assumption under that Section had been effected) with the Corporation, (b) a corporation which, at the time the new incentive stock option (within the meaning of Section 422 of the Code) is granted, is a Subsidiary of the Corporation or a predecessor corporation of any such corporations, or (c) a predecessor corporation of any such corporations. Failure to comply with this provision shall not impair the enforceability or 18 50 exercisability of any Option, but shall cause the excess amount of shares to be reclassified in accordance with the Code. 6.12 No Fractional Shares. The Corporation shall not in any case be required to sell, issue, or deliver a fractional share with respect to any Option. In lieu of the issuance of any fractional share of Stock, the Corporation shall pay to the Holder an amount in cash equal to the same fraction (as the fractional Stock) of the Fair Market Value of a share of Stock determined as of the date of the applicable Exercise Notice. 6.13 Modification, Extension and Renewal of Options. Subject to the terms and conditions of and within the limitations of the Plan, Rule 16b-3, and any consent required by the last sentence of this Paragraph 6.14, the Committee may (a) modify, extend or renew outstanding Options granted under the Plan, (b) accept the surrender of Options outstanding hereunder (to the extent not previously exercised) and authorize the granting of new Options in substitution for outstanding Options (to the extent not previously exercised), and (c) amend the terms of an Incentive Option at any time to include provisions that have the effect of changing the Incentive Option to a Nonstatutory Option. Nevertheless, without the consent of the Holder, the Committee may not modify any outstanding Options so as to specify a higher or lower Exercise Price or accept the surrender of outstanding Incentive Options and authorize the granting of new Options in substitution therefor specifying a higher or lower Exercise Price. In addition, no modification of an Option granted hereunder shall, without the consent of the Holder, alter or impair any rights or obligations under any Option theretofore granted hereunder to such Holder under the Plan except, with respect to Incentive Options, as may be necessary to satisfy the requirements of Section 422 of the Code or as permitted in clause (c) of this Paragraph 6.14. 6.14 Other Agreement Provisions. The Option Agreements authorized under the Plan shall contain such provisions in addition to those required by the Plan (including, without limitation, restrictions or the removal of restrictions upon the exercise of the Option and the retention or transfer of shares thereby acquired) as the Committee may deem advisable. Each Option Agreement shall identify the Option evidenced thereby as an Incentive Option or Nonstatutory Option, as the case may be, and no Option Agreement shall cover both an Incentive Option and a Nonstatutory Option. Each Agreement relating to an Incentive Option granted hereunder shall contain such limitations and restrictions upon the exercise of the Incentive Option to which it relates as shall be necessary for the Incentive Option to which such Agreement relates to constitute an incentive stock option, as defined in Section 422 of the Code. SECTION 7. STOCK APPRECIATION RIGHTS 19 51 All Stock Appreciation Rights granted under the Plan shall comply with, and the related Award Agreements shall be deemed to include and be subject to, the terms and conditions set forth in this Section 7 (to the extent each term and condition applies to the form of Stock Appreciation Right) and also the terms and conditions set forth in Section 11 and Section 12; provided, however, that the Committee may authorize an Award Agreement related to a Stock Appreciation Right that expressly contains terms and provisions that differ from the terms and provisions set forth in Paragraphs 11.2, 11.3, and 11.4 and any of the terms and provisions of Section 12 (other than Paragraph 12.11). 7.1 Form of Right. A Stock Appreciation Right may be granted to an Eligible Individual (a) in connection with an Option, either at the time of grant or at any time during the term of the Option, or (b) without relation to an Option. 7.2 Rights Related to Options. A Stock Appreciation Right granted pursuant to an Option shall entitle the Holder, upon exercise, to surrender that Option or any portion thereof, to the extent unexercised, and to receive payment of an amount computed pursuant to subparagraph 7.2(b). That Option shall then cease to be exercisable to the extent surrendered. Stock Appreciation Rights granted in connection with an Option shall be subject to the terms of the Award Agreement governing the Option, which shall comply with the following provisions in addition to those applicable to Options: (a) Exercise and Transfer. Subject to Paragraph 11.10, a Stock Appreciation Right granted in connection with an Option shall be exercisable only at such time or times and only to the extent that the related Option is exercised and shall not be transferable except to the extent that the related Option is transferable. To the extent that an Option has been exercised the Stock Appreciation Rights granted in connection with such Option shall terminate. (b) Value of Right. Upon the exercise of a Stock Appreciation Right related to an Option, the Holder shall be entitled to receive payment from the Corporation of an amount determined by multiplying: (i) The difference obtained by subtracting the Exercise Price of a share of Stock specified in the related Option from the Fair Market Value of a share of Stock on the date of exercise of the Stock Appreciation Right, by (ii) The number of shares as to which that Stock Appreciation Right has been exercised. 20 52 7.3 Right Without Option. A Stock Appreciation Right granted without relationship to an Option shall be exercisable as determined by the Committee and set forth in the Award Agreement governing the Stock Appreciation Right, which Award Agreement shall comply with the following provisions: (a) Number of Shares. Each Award Agreement shall state \ the total number of shares of Stock to which the Stock Appreciation Right relates. (b) Vesting. Each Award Agreement shall state the time or periods in which the right to exercise the Stock Appreciation Right or a portion thereof shall vest and the number of shares of Stock for which the right to exercise the Stock Appreciation Right shall vest at each such time or period. (c) Expiration of Rights. Each Award Agreement shall state the date at which the Stock Appreciation Rights shall expire if not previously exercised. (d) Value of Right. A Stock Appreciation Right granted without relationship to an Option shall entitle the Holder, upon exercise of the Stock Appreciation Right, to receive payment of an amount determined by multiplying: (i) The difference obtained by subtracting the Fair Market Value of a share of Stock on the date the Stock Appreciation Right is granted from the Fair Market Value of a share of Stock on the date of exercise of that Stock Appreciation Right, by (ii) The number of rights as to which the Stock Appreciation Right has been exercised. 7.4 Limitations on Rights. Notwithstanding subparagraph 7.2(b) and subparagraph 7.3(d), the Committee may limit the amount payable upon exercise of a Stock Appreciation Right. Any such limitation must be determined as of the Date of Grant and be noted on the instrument evidencing the Holder's Stock Appreciation Right. 7.5 Payment of Rights. Payment of the amount determined under subparagraph 7.2(b) or subparagraph 7.3(d) and Paragraph 7.4 may be made solely in whole shares of Stock valued at Fair Market Value on the date of exercise of the Stock Appreciation Right or, in the sole discretion of the Committee, solely in cash or a combination of cash and Stock. If the Committee decides to make full payment in shares of Stock and the amount payable results in a fractional share, payment for the fractional share shall be made in cash. 21 53 7.6 Payment of Taxes. The Committee may, in its discretion, require a Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder is an employee of a Subsidiary of the Corporation), at the time of the exercise of a Stock Appreciation Right, the amount that the Committee deems necessary to satisfy the Corporation's or its Subsidiary's current or future obligation to withhold federal, state or local income or other taxes that the Holder incurs by exercising a Stock Appreciation Right. Upon the exercise of a Stock Appreciation Right requiring tax withholding, a Holder may (a) direct the Corporation to withhold from the shares of Stock to be issued to the Holder the number of shares necessary to satisfy the Corporation's obligation to withhold taxes, that determination to be based on the shares' Fair Market Value as of the date on which tax withholding is to be made; (b) deliver to the Corporation sufficient shares of Stock (based upon the Fair Market Value at date of withholding) to satisfy the Corporation's tax withholding obligations, based on the shares' Fair Market Value as of the date of exercise; or (c) deliver sufficient cash to the Corporation to satisfy its tax withholding obligations. Holders who elect to use such a stock withholding feature must make the election at the time and in the manner that the Committee prescribes. The Committee may, in its sole discretion, deny any Holder's request to satisfy withholding obligations through Stock instead of cash. In the event the Committee subsequently determines that the aggregate Fair Market Value (as determined above) of any shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Holder shall pay to the Corporation, immediately upon the Committee's request, the amount of that deficiency. 7.7 Other Agreement Provisions. The Award Agreements authorized relating to Stock Appreciation Rights shall contain such provisions in addition to those required by the Plan (including, without limitation, restrictions or the removal of restrictions upon the exercise of the Stock Appreciation Right and the retention or transfer of shares thereby acquired) as the Committee may deem advisable. SECTION 8. RESTRICTED STOCK AWARDS All Restricted Stock Awards granted under the Plan (other than the automatic Awards to Non-employee Directors pursuant to Section 5) shall comply with, and the related Award Agreements shall be deemed to include, and be subject to the terms and conditions set forth in this Section 8 and also to the terms and conditions set forth in Section 10 and Section 11; provided, however, that the Committee may authorize an Award Agreement related to a Restricted Stock Award that expressly contains terms and provisions that differ from the terms and provisions set forth in Paragraphs 11.2, 11.3, and 11.4 and the terms and provisions set forth in Section 12 (other than Paragraph 12.11). 22 54 8.1 Restrictions. All shares of Restricted Stock Awards granted or sold pursuant to the Plan shall be subject to the following conditions: (a) Transferability. The shares may not be sold, transferred or otherwise alienated or hypothecated until the restrictions are removed or expire. (b) Conditions to Removal of Restrictions. Conditions to removal or expiration of the restrictions may include, but are not required to be limited to, continuing employment or service as a director, officer, consultant, or advisor or achievement of performance objectives described in the Award Agreement. (c) Legend. Each certificate representing Restricted Stock Awards granted pursuant to the Plan shall bear a legend making appropriate reference to the restrictions imposed. (d) Possession. The Committee may require the Corporation to retain physical custody of the certificates representing Restricted Stock Awards during the restriction period and may require the Holder of the Award to execute stock powers in blank for those certificates and deliver those stock powers to the Corporation, or the Committee may require the Holder to enter into an escrow agreement providing that the certificates representing Restricted Stock Awards granted or sold pursuant to the Plan shall remain in the physical custody of an escrow holder until all restrictions are removed or expire. The Corporation may issue shares subject to stop-transfer restrictions or may issue such shares subject only to the restrictive legend described in subparagraph 8.1(c). (e) Other Conditions. The Committee may impose other conditions on any shares granted or sold as Restricted Stock Awards pursuant to the Plan as it may deem advisable, including, without limitation, (i) restrictions under the Securities Act or Exchange Act, (ii) the requirements of any securities exchange upon which the shares or shares of the same class are then listed, and (iii) any state securities law applicable to the shares. 8.2 Expiration of Restrictions. The restrictions imposed in Paragraph 8.1 on Restricted Stock Awards shall lapse as determined by the Committee and set forth in the applicable Award Agreement, and the Corporation shall promptly deliver to the Holder of the Restricted Stock Award a certificate representing the number of shares for which restrictions have lapsed, free of any restrictive legend relating to the lapsed restrictions. Each Restricted Stock Award may have a different restriction period, in the discretion of the Committee. The Committee may, in its discretion, prospectively reduce the restriction period applicable to a particular Restricted 23 55 Stock Award. The foregoing notwithstanding, no restriction shall remain in effect for more than ten years after the date of the Awards. 8.3 Rights as Stockholder. Subject to the provisions of Paragraphs 8.1 and 12.11, the Committee may, in its discretion, determine what rights, if any, the Holder shall have with respect to the Restricted Stock Awards granted or sold, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto. 8.4 Payment of Taxes. The Committee may, in its discretion, require a Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder is an employee of a Subsidiary of the Corporation) the amount that the Committee deems necessary to satisfy the Corporation's or its Subsidiary's current or future obligation to withhold federal, state or local income or other taxes that the Holder incurs by reason of the Restricted Stock Award. The Holder may (a) direct the Corporation to withhold from the shares of Stock to be issued to the Holder the number of shares necessary to satisfy the Corporation's obligation to withhold taxes, that determination to be based on the shares' Fair Market Value as of the date on which tax withholding is to be made; (b) deliver to the Corporation sufficient shares of Stock (based upon the Fair Market Value at date of withholding) to satisfy the Corporation's tax withholding obligations, based on the shares' Fair Market Value as of the date of exercise; or (c) deliver sufficient cash to the Corporation to satisfy its tax withholding obligations. Holders who elect to use such a stock withholding feature must make the election at the time and in the manner that the Committee prescribes. The Committee may, in its sole discretion, deny any Holder's request to satisfy withholding obligations through Stock instead of cash. In the event the Committee subsequently determines that the aggregate Fair Market Value (as determined above) of any shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Holder shall pay to the Corporation, immediately upon the Committee's request, the amount of that deficiency. 8.5 Other Agreement Provisions. The Award Agreements relating to Restricted Stock Awards shall contain such provisions in addition to those required by the Plan as the Committee may deem advisable. 8.6 Limitations on Awards of Restricted Stock. No more than 100,000 shares of Stock may be awarded to any Holder in any year. SECTION 9. CASH AND STOCK BONUS AWARDS 9.1 Cash Bonus. The Committee, in its sole discretion, may award a cash bonus to an Eligible Individual. The basis for such 24 56 Award may, but need not, be recognition of previous performance by such Eligible Individual. 9.2 Bonus Stock. The Committee, in its sole discretion, may award an Eligible Individual shares of stock. Unless the Committee specifically provides otherwise, shares of Stock awarded pursuant to this Section 9.2 shall not be subject to vesting or other restrictions hereunder. The basis for such Award may, but need not, be recognition of previous performance by such Eligible Individual. 9.3 Payment of Taxes. The Committee may, in its discretion, require a Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder is an employee of a Subsidiary of the Corporation), at the time of the payment of cash or stock in connection with a bonus under this section 9 the amount that the Committee deems necessary to satisfy the Corporation's or its Subsidiary's current or future obligation to withhold federal, state or local income or other taxes that the Holder incurs with respect to such payment. Upon receiving notice that the Holder is required to satisfy tax withholding, a Holder may (a) if the payment is to be made in Stock, direct the Corporation to withhold from the shares of Stock to be issued to the Holder the number of shares necessary to satisfy the Corporation's obligation to withhold taxes, that determination to be based on the shares' Fair Market Value as of the date on which tax withholding is to be made; (b) deliver to the Corporation sufficient shares of Stock (based upon the Fair Market Value at date of withholding) to satisfy the Corporation's tax withholding obligations, based on the shares' Fair Market Value as of the date of exercise; (c) if the payment is to be made in cash, direct the Corporation to withhold from such payment the amount of cash required to satisfy the Corporation's obligation to withhold taxes; or (d) deliver sufficient cash to the Corporation to satisfy its tax withholding obligations. Holders who elect to use such a stock withholding feature must make the election at the time and in the manner that the Committee prescribes. The Committee may, at its sole option, deny any Holder's request to satisfy withholding obligations through Stock instead of cash. In the event the Committee subsequently determines that the aggregate Fair Market Value (as determined above) of any shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Holder shall pay to the Corporation, immediately upon the Committee's request, the amount of that deficiency. SECTION 10. PERFORMANCE UNITS 10.1 Multiple Grants. The Committee may make grants of Performance Units in such a manner that more than one Performance Period is in progress simultaneously. At or before the beginning of each Performance Period, the Committee will establish the 25 57 contingent value of each Performance Unit for that Performance Period, which may vary depending on the degree to which performance objectives established by the Committee are met. 10.2 Performance Standards. (a) In General. At or before the beginning of each Performance Period, the Committee will (i) establish the beginning and ending dates of the Performance Period, (ii) establish for that Performance Period specific performance objectives as the Committee believes are relevant to the Corporation's overall business objectives, (iii) determine the minimum and maximum value of a Performance Unit and the value of a Performance Unit based on the degree to which performance objectives are achieved, exceeded or not achieved, (iv) determine a minimum performance level below which Performance Units will be assigned a value of zero, and a maximum performance level above which the value of Performance Units will not increase, and (v) notify each Holder of a Performance Unit for that Performance Period in writing of the established performance objectives and minimum, target, and maximum Performance Unit value for that Performance Period. At the Discretion of the Committee, the performance standards with respect to a Performance Unit Award may include one or more objectives relating to total shareholder return, net income of the Corporation, return on sales, equity or assets, performance of a division or other defined unit of the Corporation and individual performance. (b) Special Rules for Executive Officers. Unless the Committee determines that an Award of Performance Units to an Executive Officer is not intended to qualify for the exemption for performance-based compensation under section 162(m) of the Code, (i) the maximum payment to the Executive Officer for performance Units granted in one fiscal year shall be 300 percent of the Executive Officer's base salary on the first day of the fiscal year of the Corporation in which such Performance Units are granted, (ii) a Performance Unit Award which will be settled in Stock shall have a base value equal to the Fair Market Value of a share of Stock on the Date of Grant of such Performance Unit, and (iii) the period over which the performance standards must be satisfied shall not be less than six months. In addition, unless the stockholders approve otherwise or such approval is not required to obtain a deduction under section 162(m) of the Code, or the Committee determines that satisfaction of the deduction requirements of section 162(m) of the Code with respect to a Performance Unit Awarded is not in the Corporation's best interests, the performance standards applicable to a Performance Unit Award to an Executive Officer shall be based on one or more of the following choices: (i) total stockholder return (Stock price appreciation plus dividends); (ii) net income; (iii) earnings per share; (iv) return on sales; (v) return on equity; (vi) return on assets; (vii) increase in the market price of Stock or other securities; (viii) the performance of the Corporation in 26 58 any of the items mentioned in clause (i) through (vii) in comparison to the average performance of the companies included in the S&P Computer Systems Index; and (ix) the performance of the Corporation in any of the items mentioned in clause (i) through (vii) in comparison to the average performance of the companies used in a self-constructed peer group established below the beginning of the performance period. 10.3 Modification of Standards. If the Committee determines in its sole discretion that the established performance measures or objectives are no longer suitable to Corporation objectives because of a change in the Corporation's business, operations, corporate structure, capital structure, or other conditions the Committee deems to be material, the Committee may modify the performance measures and objectives as it considers appropriate and equitable. 10.4 Payment. The basis for payment of Performance Units for a given Performance Period will be the achievement of those financial performance objectives determined by the Committee at the beginning of the Performance Period. If minimum performance is not achieved or exceeded for a Performance Period, no payment will be made and all contingent rights will cease. If minimum performance is achieved or exceeded, the value of a Performance Unit will be based on the degree to which actual performance exceeded the pre-established minimum performance standards. The amount of payment will be determined by multiplying the number of Performance Units granted at the beginning of the Performance Period by the final Performance Unit value. Payments will be made in cash or Stock as soon as administratively possible following the close of the applicable Performance Period. 10.5 Payment of Taxes. The Committee may, in its discretion, require a Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder is an employee of a Subsidiary of the Corporation), at the time of the payment of cash or stock in connection with a Performance Unit, the amount that the Committee deems necessary to satisfy the Corporation's or its Subsidiary's current or future obligation to withhold federal, state or local income or other taxes that the Holder incurs with respect to such payment. Upon receiving notice that the Holder is required to satisfy tax withholding, a Holder may (a) if the payment is to be made in Stock, direct the Corporation to withhold from the shares of Stock to be issued to the Holder the number of shares necessary to satisfy the Corporation's obligation to withhold taxes, that determination to be based on the shares' Fair Market Value as of the date on which tax withholding is to be made; (b) deliver to the Corporation sufficient shares of Stock (based upon the Fair Market Value at date of withholding) to satisfy the Corporation's tax withholding obligations, based on the shares' Fair Market Value as of the date of exercise; (c) if the payment is to be made in cash, direct the Corporation to withhold from such payment the amount of cash required to satisfy the Corporation's obligation to withhold 27 59 taxes; or (d) deliver sufficient cash to the Corporation to satisfy its tax withholding obligations. Holders who elect to use such a stock withholding feature must make the election at the time and in the manner that the Committee prescribes. The Committee may, at its sole option, deny any Holder's request to satisfy withholding obligations through Stock instead of cash. In the event the Committee subsequently determines that the aggregate Fair Market Value (as determined above) of any shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Holder shall pay to the Corporation, immediately upon the Committee's request, the amount of that deficiency. 10.6 Other Agreement Provisions. The Award Agreements, if any, authorized relating to Performance Units shall contain such provisions in addition to those required by the Plan (including, without limitation, restrictions or the removal of restrictions upon the transfer of shares thereby acquired) as the Committee may deem advisable. SECTION 11. ADJUSTMENT PROVISIONS 11.1 Adjustment of Awards and Authorized Stock. The terms of an Award and the number of shares of Stock authorized pursuant to Paragraph 2.1 for issuance under the Plan shall be subject to adjustment, from time to time, in accordance with the following provisions: (a) If at any time or from time to time, the Corporation shall subdivide as a whole (by reclassification, by a Stock split, by the issuance of a distribution on Stock payable in Stock or otherwise) the number of shares of Stock then outstanding into a greater number of shares of Stock, then (i) the maximum number of shares of Stock available for the Plan as provided in Paragraph 2.1 shall be increased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (ii) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any Award shall be increased proportionately, and (iii) the price (including Exercise Price) for each share of Stock (or other kind of shares or unit of other securities) subject to then outstanding Awards shall be reduced proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions. (b) If at any time or from time to time, the Corporation shall consolidate as a whole (by reclassification, reverse Stock split, or otherwise) the number of shares of Stock then outstanding into a lesser number of shares of Stock, (i) the maximum number of shares of Stock available for the Plan as 28 60 provided in Paragraph 2.1 shall be decreased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (ii) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any Award shall be decreased proportionately, and (iii) the price (including Exercise Price) for each share of Stock (or other kind of shares or unit of other securities) subject to then outstanding Awards shall be increased proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions. (c) Whenever the number of shares of Stock subject to outstanding Awards and the price for each share of Stock subject to outstanding Awards are required to be adjusted as provided in this Paragraph 11.1, the Committee shall promptly prepare and provide to each Holder a notice setting forth, in reasonable detail, the event requiring adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the change in price and the number of shares of Stock, other securities, cash or property purchasable subject to each Award after giving effect to the adjustments. (d) Adjustments under subparagraph 11.1(a) and (b) shall be made by the Committee, and its determination as to what adjustments shall be made and the extent thereof shall be final, binding and conclusive. No fractional interest shall be issued under the Plan on account of any such adjustments. 11.2 Changes in Control. Any Award Agreement may provide that, upon the occurrence of a Change in Control, (a) each Holder of an Option shall immediately be granted corresponding Stock Appreciation Rights; (b) all outstanding Stock Appreciation Rights and Options shall immediately become fully vested and exercisable in full, including that portion of any Stock Appreciation Award or Option that pursuant to the terms and provisions of the applicable Award Agreement had not yet become exercisable (the total number of shares of Stock as to which a Stock Appreciation Right or Option is exercisable upon the occurrence of a Change in Control is referred to herein as the "Total Shares"); (c) the restriction period of any Restricted Stock Award shall immediately be accelerated and the restrictions shall expire; and (d) the maximum value of any Performance Unit which has been outstanding for at least six months as of the effective date of the Change in Control will be deemed to be earned for all Performance Periods ending on or before such date, and a pro rata cash distribution shall be made within 30 days following such date. If a Change in Control involves a Restructure or occurs in connection with a series of related transactions involving a Restructure and if such Restructure is in the form of a Non-Surviving Event and as a part of such Restructure shares of stock, other securities, cash or property shall be issuable or deliverable in exchange for Stock, then the Holder of an Award 29 61 shall be entitled to purchase or receive (in lieu of the Total Shares that the Holder would otherwise be entitled to purchase or receive), as appropriate for the form of Award, the number of shares of stock, other securities, cash or property to which that number of Total Shares would have been entitled in connection with such Restructure (and, for Options, at an aggregate exercise price equal to the Exercise Price that would have been payable if that number of Total Shares had been purchased on the exercise of the Option immediately before the consummation of the Restructure). Nothing in this Paragraph 11.2 shall impose on a Holder the obligation to exercise any Award immediately before or upon the Change of Control, nor shall the Holder forfeit the right to exercise the Award during the remainder of the original term of the Award because of a Change in Control or because the Holder's employment is terminated for any reason following a Change in Control. 11.3 Restructure and No Change in Control. In the event a Restructure should occur at any time while there is any outstanding Award hereunder and that Restructure does not occur in connection with a Change in Control or in connection with a series of related transactions involving a Change in Control, then: (a) no Holder of an Option shall automatically be granted corresponding Stock Appreciation Rights; (b) neither any outstanding Stock Appreciation Rights nor any outstanding Options shall immediately become fully vested and exercisable in full merely because of the occurrence of the Restructure; (c) the restriction period of any Restricted Stock Award shall not immediately be accelerated and the restrictions expire merely because of the occurrence of the Restructure; and (d) at the option of the Committee, the Corporation may (but shall not be required to) take any one or more of the following actions: (i) grant each Holder of an Option corresponding Stock Appreciation Rights; (ii) accelerate in whole or in part the time of the vesting and exercisability of any one or more of the outstanding Stock Appreciation Rights and Options so as to provide that those Stock Appreciation Rights and Options shall be exercisable before, upon, or after the consummation of the Restructure; (iii) accelerate in whole or in part the expiration of some or all of the restrictions on any 30 62 Restricted Stock Award so that the Stock subject to that Awards shall be owned by the Holder without restriction or risk of forfeiture; (iv) if the Restructure is in the form of a Non-Surviving Event, cause the surviving entity to assume in whole or in part any one or more of the outstanding Awards upon such terms and provisions as the Committee deems desirable; or (v) redeem in whole or in part any one or more of the outstanding Awards (whether or not then exercisable) in consideration of a cash payment, as such payment may be reduced for tax withholding obligations as contemplated in the Section governing the particular form of Award, in an amount equal to: (A) for Options and Stock Appreciation Rights granted in connection with Options, the excess of (1) the Fair Market Value, determined as of a date immediately preceding the consummation of the Restructure, of the aggregate number of shares of Stock subject to the Award and as to which the Award is being redeemed over (2) the Exercise Price for that number of shares of Stock; (B) for Stock Appreciation Rights not granted in connection with an Option, the excess of (1) the Fair Market Value, determined as of a date immediately preceding the consummation of the Restructure, of the aggregate number of shares of Stock subject to the Award and as to which the Award is being redeemed over (2) the Fair Market Value of the number of shares of Stock on the Date of Grant; (C) for Restricted Stock Awards, the Fair Market Value, determined as of a date immediately preceding the consummation of the Restructure, of the aggregate number of shares of Stock subject to the Award and as to which the Award is being redeemed; and (D) for Performance Units, the amount per Performance Unit as the Committee in its sole discretion may determine (which may be zero dollars). The Corporation shall promptly notify each Holder of any election or action taken by the Corporation under this Paragraph 11.3. In the event of any election or action taken by the Corporation pursuant to this Paragraph 11.3 that requires the amendment or 31 63 cancellation of any Award Agreement as may be specified in any notice to the Holder thereof, that Holder shall promptly deliver that Award Agreement to the Corporation in order for that amendment or cancellation to be implemented by the Corporation and the Committee. The failure of the Holder to deliver any such Award Agreement to the Corporation as provided in the preceding sentence shall not in any manner effect the validity or enforceability of any action taken by the Corporation and the Committee under this Paragraph 11.3, including, without limitation, any redemption of an Award as of the consummation of a Restructure. Any cash payment to be made by the Corporation pursuant to this Paragraph 11.3 in connection with the redemption of any outstanding Awards shall be paid to the Holder thereof currently with the delivery to the Corporation of the Award Agreement evidencing that Award; provided, however, that any such redemption shall be effective upon the consummation of the Restructure notwithstanding that the payment of the redemption price may occur subsequent to the consummation. If all or any portion of an outstanding Award is to be exercised or accelerated to upon or after the consummation of a Restructure that is in the form of a Non-Surviving Event and as a part of that Restructure shares of stock, other securities, cash or property shall be issuable or deliverable in exchange for Stock, then the Holder of the Award shall thereafter be entitled to purchase or receive (in lieu of the number of shares of Stock that the Holder would otherwise be entitled to purchase or receive) the number of shares of stock, other securities, cash or property to which such number of shares of Stock would have been entitled in connection with the Restructure (and, for Options, at an aggregate exercise price equal to the Exercise Price that would have been payable if that number of Total Shares had been purchased on the exercise of the Option immediately before the consummation of the Restructure). 11.4 Notice of Change in Control or Restructure. The Corporation shall attempt to keep all Holders informed with respect to any Change in Control or Restructure or of any potential Change in Control or Restructure to the same extent that the Corporation's stockholders are informed by the Corporation of any such event or potential event. SECTION 12. ADDITIONAL PROVISIONS 12.1 Termination of Employment. Subject to the last sentence of Paragraph 11.2, if a Holder is an Eligible Individual because the Holder is an Employee and if that employment relationship is terminated for any reason other than Normal Retirement or that Holder's death or Disability (hereafter defined), then, unless specified otherwise in the Award Agreement, the following provisions shall apply to all Awards held by that Holder that were granted because that Holder was an Employee: (a) If the termination is by the Holder's employer, then Performance Share Awards which have not become payable at the 32 64 time of termination shall be null and void and that portion, if any, of any and all Awards covering Options, Stock Appreciation Rights or Restricted Stock held by that Holder that are not yet exercisable (or for which restrictions have not lapsed) and the portion of any Option which is exercisable but has not been exercised as of the date of the termination shall become null and void as of the date of the termination. (b) If such termination is by the Holder, then Performance Share Awards which have not become payable at the time of termination shall be null and void and Awards covering Options, Stock Appreciation Rights or Restricted Stock held by that Holder shall become immediately exercisable (and all restrictions thereon shall lapse) to the extent that such exercisability or lapse is approved by the Committee, and any Option or Stock Appreciation Right, to the extent exercisable, shall survive the termination of employment for a period of the lesser of (i) the remainder of the term of the Award or (ii) (A) one month in the case of a Nonstatutory Option or Stock Appreciation Right which is granted in tandem with a Nonstatutory Option or was not granted in tandem with an Option, and (B) three months in the case of an Incentive Option and a Stock Appreciation Right granted in tandem with an Incentive Option. 12.2 Other Loss of Eligibility. If a Holder is an Eligible Individual because the Holder is serving in a capacity other than as an Employee and if that capacity is terminated for any reason other than the Holder's death, then, unless specified otherwise in the Award Agreement, that portion, if any, of any and all Awards held by the Holder that were granted because of that capacity which are not yet exercisable (or for which restrictions have not lapsed) as of the date of the termination shall become null and void as of the date of the termination; provided, however, that the portion, if any, of any and all of the Awards held by the Holder that are exercisable (or for which restrictions have lapsed) as of the date of the termination shall survive the termination. 12.3 Death. Upon the death of a Holder, then, unless specified otherwise in the Award Agreement, any and all Awards covering Options, Stock Appreciation Rights or Restricted Stock held by the Holder shall become immediately exercisable (and all restrictions shall lapse) and any Option or Stock Appreciation Right shall be exercisable by that Holder's legal representatives, legatees or distributees for a period of the lesser of (a) the remainder of the term of the Award or (b) 12 months following the date of the Holder's death. Any portion of an Award not exercised upon the expiration of the periods specified in (a) or (b) shall be null and void. Except as expressly provided in this Section 12.3, all Awards held by a Holder shall not be exercisable after the death of that Holder. With respect to any Performance Unit Award for which the Performance Period has not expired at the time of the 33 65 Holder's death, there shall be a payment calculated by the Committee, in its sole discretion, to reflect the pro rata portion of the Performance Unit Award value earned as of the date of death considering the achievement of the applicable performance standards as of such date. Such payment will be made as soon as practicable after the date of the Holder's death. 12.4 Retirement. If a Holder is an Eligible Individual because the Holder is an Employee and if that employment relationship is terminated by reason of the Holder's Normal Retirement, then, unless specified otherwise in the Award Agreement, (a) the portion, if any, of any and all Awards covering Options, Stock Appreciation Rights or Restricted Stock held by the Holder that are not yet exercisable (or for which restrictions have not lapsed) as of the date of that retirement shall become null and void as of the date of retirement except to the extent that the Committee, in its sole discretion, determines otherwise; provided, however, that the portion, if any, of any and all Awards held by the Holder that are exercisable as of the date of that retirement shall survive the retirement for a period of the lesser of (i) the remainder of the term of the Award or (ii) (A) thirty-six months in the case of a Nonstatutory Option or a Stock Appreciation Right which is not granted in tandem with an Incentive Option, and (B) three months in the case of an Incentive Option and any Stock Appreciation Right granted in tandem with an Incentive Option, and (b) any Performance Unit Award for which the Performance Period has not expired at the time of the Holder's retirement shall be payable, at the end of the original Performance Period, in an amount calculated by the Committee, in its sole discretion, to reflect the pro rata portion of the Performance Unit value earned as of the date of retirement considering the achievement of the applicable performance standards as of such date. 12.5 Disability. If a Holder is an Eligible Individual because the Holder is an Employee and if that employment relationship is terminated by reason of the Holder's Disability, then, unless specified otherwise in the Award Agreement, the portion, if any, of any and all Awards covering Options, Stock Appreciation Rights or Restricted Stock held by the Holder shall become exercisable (and all restrictions shall lapse) and any Option or Stock Appreciation Right shall be exercisable by the Holder, his guardian, or his legal representative for a period of the lesser of (a) the remainder of the term of the Award or (b)(i) thirty-six months in the case of a Nonstatutory Option or a Stock Appreciation Right which is not granted in tandem with an Incentive Option, and (ii) twelve months in the case of an Incentive Option or a Stock Appreciation Right granted in tandem with an Incentive Option. With respect to any Performance Unit Award for which the Performance Period has not expired at the time of the Holder's Disability, there shall be a payment calculated by the Committee, in its sole discretion, to reflect the pro rata portion of the Performance Unit Award value earned as of the date of Disability. 34 66 Such payment shall be made as soon as practicable after the date of Disability. "Disability" shall have the meaning given it in the employment agreement of the Holder; provided, however, that if that Holder has no employment agreement, "Disability" shall mean a physical or mental impairment of sufficient severity that, in the opinion of the Corporation, either the Holder is unable to continue performing the duties he performed before such impairment or the Holder's condition entitles him to disability benefits under any insurance or employee benefit plan of the Corporation or its Subsidiaries and that impairment or condition is cited by the Corporation as the reason for termination of the Holder's employment. 12.6 Leave of Absence. With respect to an Award, the Committee may, in its sole discretion, determine that any Holder who is on leave of absence for any reason will be considered to still be in the employ of the Corporation, provided that rights to that Award during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began. 12.7 Transferability of Awards. In addition to such other terms and conditions as may be included in a particular Award Agreement, an Award requiring exercise shall be exercisable during a Holder's lifetime only by that Holder or by that Holder's guardian or legal representative. An Award requiring exercise shall not be transferrable other than by will or the laws of descent and distribution. The foregoing notwithstanding, a Nonstatutory Option may be transferred to a trust established for the benefit of one or more of the Holders spouse, children or grandchildren. Such transfer shall not be effective until the Corporation receives written notice of such transfer. 12.8 Forfeiture and Restrictions on Transfer. Each Award Agreement may contain or otherwise provide for conditions giving rise to the forfeiture of the Stock acquired pursuant to an Award or otherwise and may also provide for those restrictions on the transferability of shares of the Stock acquired pursuant to an Award or otherwise that the Committee in its sole and absolute discretion may deem proper or advisable. The conditions giving rise to forfeiture may include, but need not be limited to, the requirement that the Holder render substantial services to the Corporation or its Subsidiaries for a specified period of time. The restrictions on transferability may include, but need not be limited to, options and rights of first refusal in favor of the Corporation and stockholders of the Corporation other than the Holder of such shares of Stock who is a party to the particular Award Agreement or a subsequent holder of the shares of Stock who is bound by that Award Agreement. 12.9 Delivery of Certificates of Stock. Subject to Paragraph 11.10, the Corporation shall promptly issue and deliver a 35 67 certificate representing the number of shares of Stock as to which (a) an Option has been exercised after the Corporation receives an Exercise Notice and upon receipt by the Corporation of the Exercise Price and any tax withholding as may be requested; (b) a Stock Appreciation Right has been exercised and upon receipt by the Corporation of any tax withholding as may be requested; (c) restrictions have lapsed with respect to a Restricted Stock Award and upon receipt by the Corporation of any tax withholding as may be requested; and (d) performance objectives have been achieved during a Performance Period relating to a Performance Unit for Stock. The value of the shares of Stock, cash or notes transferable because of an Award under the Plan shall not bear any interest owing to the passage of time, except as may be otherwise provided in an Agreement. If a Holder is entitled to receive certificates representing Stock received for more than one form of Award under the plan separate Stock certificates shall be issued with respect to each such Award and for Incentive Options and Nonstatutory Stock Options separately. 12.10 Conditions to Delivery of Stock. Nothing herein or in any Award granted hereunder or any Award Agreement shall require the Corporation to issue any shares with respect to any Award if that issuance would, in the opinion of counsel for the Corporation, constitute a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect. At the time of any exercise of an Option or Stock Appreciation Right, or at the time of any grant of a Restricted Stock Award or Performance Unit, the Corporation may, as a condition precedent to the exercise of such Option or Stock Appreciation Right or vesting of any Restricted Stock Award or Performance Unit, require from the Holder of the Award (or in the event of his death, his legal representatives, heirs, legatees, or distributees) such written representations, if any, concerning the Holder's intentions with regard to the retention or disposition of the shares of Stock being acquired pursuant to the Award and such written covenants and agreements, if any, as to the manner of disposal of such shares as, in the opinion of counsel to the Corporation, may be necessary to ensure that any disposition by that Holder (or in the event of the Holder's death, his legal representatives, heirs, legatees, or distributees), will not involve a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable state or federal statute or regulation, or any rule of any applicable securities exchange or securities association, as then in effect. 12.11 Certain Directors and Officers. With respect to Holders who are directors or officers of the Corporation or any Subsidiary and who are subject to Section 16(b) of the Exchange Act, and if Rule 16b-3 requires the following conditions at the time of the Award, Awards and all rights under the Plan, contingent 36 68 or otherwise, shall be exercisable during the Holder's lifetime only by the Holder or the Holder's guardian or legal representative, but not for at least six months after grant, unless death or Disability of the Holder occurs before the expiration of the six-month period. In addition, no such officer or director shall exercise any stock appreciation right or use shares to pay tax withholding obligations within the first six months of the term of the Award. No share of stock acquired by such an officer or director pursuant to a Restricted Stock Award or a Performance Unit may be sold for at least six months after the Date of Grant, except in the case of death or Disability. Any election by any such officer or director to have tax withholding obligations satisfied by the withholding of shares of Stock shall be irrevocable and shall be communicated to the Committee during the period beginning on the third day following the date of release of quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date (the "Window Period") or within any other periods that the Committee shall specify from time to time. Any election by such an officer or director to receive cash in full or partial settlement of a Stock Appreciation Right, as well as any exercise by such person of a Stock Appreciation Right for such cash, shall be made during the Window Period or within any other periods that the Committee shall specify from time to time. 12.12 Securities Act Legend. Certificates for shares of Stock, when issued, may have the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS. This legend shall not be required for shares of Stock issued pursuant to an effective registration statement under the Securities Act. 12.13 Legend for Restrictions on Transfer. Each certificate representing shares issued to a Holder pursuant to an Award granted under the Plan shall, if such shares are subject to any transfer restriction, including a right of first refusal, provided for under this Plan or an Agreement, bear a legend that complies with applicable law with respect to the restrictions on transferability contained in this Paragraph 12.12, such as: 37 69 THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT ENTITLED "DELL COMPUTER CORPORATION INCENTIVE PLAN" AS ADOPTED BY Dell Computer Corporation (THE "CORPORATION") ON ____________, 1994, AND AN AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND (HOLDER) DATED ______________________, 199_, AND MAY NOT BE TRANSFERRED, SOLD, OR OTHERWISE DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION WILL FURNISH A COPY OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. 12.14 Rights as a Stockholder. A Holder shall have no right as a stockholder with respect to any shares covered by his Award until a certificate representing those shares is issued in his name. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or other property) or distributions or other rights for which the record date is before the date that certificate is issued, except as contemplated by Section 11. Nevertheless, dividends and dividend equivalent rights may be extended to and made part of any Award denominated in Stock or units of Stock, subject to such terms, conditions, and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents for deferred payment denominated in Stock or units of Stock. 12.15 Furnish Information. Each Holder shall furnish to the Corporation all information requested by the Corporation to enable it to comply with any reporting or other requirement imposed upon the Corporation by or under any applicable statute or regulation. 12.16 Obligation to Exercise. The granting of an Award hereunder shall impose no obligation upon the Holder to exercise the same or any part thereof. 12.17 Adjustments to Awards. Subject to the general limitations set forth in Sections 6, 7 and 11, the Committee may make any adjustment in the exercise price of, the number of shares subject to or the terms of a Nonstatutory Option or Stock Appreciation Right by cancelling an outstanding Nonstatutory Option or Stock Appreciation Right and regranting a Nonstatutory Option or Stock Appreciation Right. Such adjustment shall be made by amending, substituting or regranting an outstanding Nonstatutory Option or Stock Appreciation Right. Such amendment, substitution or regrant may result in terms and conditions that differ from the terms and conditions of the original Nonstatutory Option or Stock Appreciation Right. The Committee may not, however, impair the rights of any Holder to previously granted Nonstatutory Options or Stock Appreciation Rights without that Holder's consent. If such 38 70 action is effected by amendment, the effective date of such amendment shall be the date of the original grant. 12.18 Remedies. The Corporation shall be entitled to recover from a Holder reasonable attorneys' fees incurred in connection with the enforcement of the terms and provisions of the Plan and any Award Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise. 12.19 Information Confidential. As partial consideration for the granting of each Award hereunder, the Holder shall agree with the Corporation that he will keep confidential all information and knowledge that he has relating to the manner and amount of his participation in the Plan; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Holder's spouse, tax and financial advisors, or to a financial institution to the extent that such information is necessary to secure a loan. In the event any breach of this promise comes to the attention of the Committee, it shall take into consideration that breach in determining whether to recommend the grant of any future Award to that Holder, as a factor militating against the advisability of granting any such future Award to that individual. 12.20 Consideration. No Option or Stock Appreciation Right shall be exercisable, no restriction on any Restricted Stock Award shall lapse, and no Performance Unit shall be settled in Stock with respect to a Holder unless and until the Holder shall have paid cash or property to, or performed services for, the Corporation or any of its Subsidiaries that the Committee believes is equal to or greater in value that the par value of the Stock subject to such Award. 12.21 Deferral of Payment. (a) Deferral Opportunity. The Committee, in its sole discretion, may permit a Holder to defer receipt of all or part of a payment of a cash or Stock in connection with an Award. Such Deferral must satisfy all conditions prescribed by the Committee, including but not limited to the period during which the Holder must request such deferral. (b) Measurement of Deferred Payments. Payments deferred shall be recorded in a bookkeeping account maintained by the Corporation. The value of such payments shall be adjusted to reflect the performance of any measurement standard (including the price of Stock) prescribed by the Committee or, in the discretion of the Committee, elected by the Participant. (c) Payment of Deferred Payments. The value of payments deferred under this Paragraph 12.21 shall be paid to the Holder or his or her beneficiary in one or more payments made or commencing on the date specified by the Holder with the 39 71 consent of the Committee; provided, however, that all such payments shall be subject to the following conditions: (i) All payments unpaid at the time of a Holder's death or Disability shall be paid in a single sum as soon as practicable after the Committee's receipt of notice of such death or Disability; (ii) Payments must commence no later than 90 days after the termination of the Holders' services for the Corporation; and (iii) Installment payments shall be made no less frequently than annually and over a period which does not exceed 10 years. (d) Plan Remains Unfunded. Notwithstanding any deferral under this Paragraph 12.21, the Plan shall remain unfunded, as described in Paragraph 14.7. SECTION 13. DURATION AND AMENDMENT OF PLAN 13.1 Duration. No Awards may be granted hereunder after the date that is ten (10) years from the earlier of (a) the date the Plan is adopted by the Board of Directors or (b) the Effective Date the Plan is approved by the stockholders of the Corporation. 13.2 Amendment. The Board of Directors may, insofar as permitted by law, suspend or discontinue the Plan or revise or amend it in any respect whatsoever, and may amend any provision of the Plan or any Award Agreement to make the Plan or the Award Agreement, or both, comply with Section 16(b) of the Exchange Act and the exemptions from that Section in the regulations thereunder, the Code, the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or the regulations promulgated under the Code or ERISA. The Board of Directors may also amend, modify, suspend or terminate the Plan for the purpose of meeting or addressing any changes in other legal requirements applicable to the Corporation or the Plan or for any other purpose permitted by law. The Plan may not be amended without the consent of the holders of a majority of the shares of Stock then outstanding to (a) increase materially the aggregate number of shares of Stock that may be issued under the Plan (except for adjustments pursuant to Section 11 of the Plan), (b) increase materially the benefits accruing to Eligible Individuals under the Plan, or (c) modify materially the requirements about eligibility for participation in the Plan; provided, however, that such amendments may be made without the consent of stockholders of the Corporation if changes occur in law or other legal requirements (including 16b-3) that would permit otherwise. The provisions in Section 5 shall not be amended more 40 72 than once every six months other than to comport with changes in the Code, ERISA or the rules under the Code or ERISA. SECTION 14. GENERAL 14.1 Application of Funds. The proceeds received by the Corporation from the sale of shares pursuant to Awards shall be used for general corporate purposes. 14.2 Right of the Corporation and Subsidiaries to Terminate Employment. Nothing contained in the Plan, or in any Award Agreement, shall confer upon any Holder the right to continue in the employ of the Corporation or any Subsidiary, or interfere in any way with the rights of the Corporation or any Subsidiary to terminate his employment any time. 14.3 No Liability for Good Faith Determinations. Neither the members of the Board of Directors nor any member of the Committee shall be liable for any act, omission, or determination taken or made in good faith with respect to the Plan or any Award granted under it, and members of the Board of Directors and the Committee shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage, or expense (including attorneys' fees, the costs of settling any suit, provided such settlement is approved by independent legal counsel selected by the Corporation, and amounts paid in satisfaction of a judgment, except a judgment based on a finding of bad faith) arising therefrom to the full extent permitted by law and under any directors and officers liability or similar insurance coverage that may from time to time be in effect. This right to indemnification shall be in addition to, and not a limitation on, any other indemnification rights any member of the Board of Directors or the Committee may have. 14.4 Other Benefits. Participation in the Plan shall not preclude the Holder from eligibility in any other stock or stock option plan of the Corporation or any Subsidiary or any old age benefit, insurance, pension, profit sharing retirement, bonus, or other extra compensation plans that the Corporation or any Subsidiary has adopted, or may, at any time, adopt for the benefit of its Employees. Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Corporation for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 14.5 Exclusion From Pension and Profit-Sharing Compensation. By acceptance of an Award (whether in Stock or cash), as 41 73 applicable, each Holder shall be deemed to have agreed that the Award is special incentive compensation that will not be taken into account in any manner as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan of the Corporation or any Subsidiary. In addition, each beneficiary of a deceased Holder shall be deemed to have agreed that the Award will not affect the amount of any life insurance coverage, if any, provided by the Corporation or a Subsidiary on the life of the Holder that is payable to the beneficiary under any life insurance plan covering employees of the Corporation or any Subsidiary. 14.6 Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of shares of Stock to the Holder, or to his legal representative, heir, legatee, or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder. The Committee may require any Holder, legal representative, heir, legatee, or distributee, as a condition precedent to such payment, to execute a release and receipt therefor in such form as it shall determine. 14.7 Unfunded Plan. Insofar as it provides for Awards of cash and Stock, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Holders who are entitled to cash, Stock or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Corporation shall not be required to segregate any assets that may at any time be represented by cash, Stock or rights thereto, nor shall the Plan be construed as providing for such segregation, nor shall the Corporation nor the Board of Directors nor the Committee be deemed to be a trustee of any cash, Stock or rights thereto to be granted under the Plan. Any liability of the Corporation to any Holder with respect to a grant of cash, Stock or rights thereto under the Plan shall be based solely upon any contractual obligations that may be created by the Plan and any Award Agreement; no such obligation of the Corporation shall be deemed to be secured by any pledge or other encumbrance on any property of the Corporation. Neither the Corporation nor the Board of Directors nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan. 14.8 No Guarantee of Interests. Neither the Committee nor the Corporation guarantees the Stock of the Corporation from loss or depreciation. 14.9 Payment of Expenses. All expenses incident to the administration, termination, or protection of the Plan, including, but not limited to, legal and accounting fees, shall be paid by the Corporation or its Subsidiaries; provided, however, the Corporation or a Subsidiary may recover any and all damages, fees, expenses, 42 74 and costs arising out of any actions taken by the Corporation to enforce its right to purchase Stock under this Plan. 14.10 Corporation Records. Records of the Corporation or its Subsidiaries regarding the Holder's period of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Committee to be incorrect. 14.11 Information. The Corporation and its Subsidiaries shall, upon request or as may be specifically required hereunder, furnish or cause to be furnished, all of the information or documentation which is necessary or required by the Committee to perform its duties and functions under the Plan. 14.12 No Liability of Corporation. The Corporation assumes no obligation or responsibility to the Holder or his legal representatives, heirs, legatees, or distributees for any act of, or failure to act on the part of, the Committee. 14.13 Corporation Action. Any action required of the Corporation shall be by resolution of its Board of Directors or by a person authorized to act by resolution of the Board of Directors. 14.14 Severability. If any provision of this Plan is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included herein. If any of the terms or provisions of this Plan conflict with the requirements of Rule 16b-3 (as those terms or provisions are applied to Eligible Individuals who are subject to Section 16(b) of the Exchange Act) or Section 422 of the Code (with respect to Incentive Options), then those conflicting terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3 or Section 422 of the Code. With respect to Incentive Options, if this Plan does not contain any provision required to be included herein under Section 422 of the Code, that provision shall be deemed to be incorporated herein with the same force and effect as if that provision had been set out at length herein; provided, further, that, to the extent any Option that is intended to qualify as an Incentive Option cannot so qualify, that Option (to that extent) shall be deemed a Nonstatutory Option for all purposes of the Plan. 14.15 Notices. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered, or, whether actually received or not, on the third Business Day after it is deposited in the United States 43 75 mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Corporation or a Holder may change, at any time and from time to time, by written notice to the other, the address which it or he had previously specified for receiving notices. Until changed in accordance herewith, the Corporation and each Holder shall specify as its and his address for receiving notices the address set forth in the Agreement pertaining to the shares to which such notice relates. 14.16 Waiver of Notice. Any person entitled to notice hereunder may waive such notice. 14.17 Successors. The Plan shall be binding upon the Holder, his legal representatives, heirs, legatees, and distributees, upon the Corporation, its successors, and assigns, and upon the Committee, and its successors. 14.18 Headings. The titles and headings of Sections and Paragraphs are included for convenience of reference only and are not to be considered in construction of the provisions hereof. 14.19 Governing Law. All questions arising with respect to the provisions of the Plan shall be determined by application of the laws of the State of Delaware except to the extent Delaware law is preempted by federal law. Questions arising with respect to the provisions of an Agreement that are matters of contract law shall be governed by the laws of the state specified in the Agreement, except to the extent Delaware corporate law conflicts with the contract law of such state, in which event Delaware corporate law shall govern. The obligation of the Corporation to sell and deliver Stock hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock. 14.20 Word Usage. Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Plan dictates, the plural shall be read as the singular and the singular as the plural. IN WITNESS WHEREOF, Dell Computer Corporation, acting by and through its officer hereunto duly authorized, has executed this instrument, this the ______ day of _________________, 1994. DELL COMPUTER CORPORATION By:________________________________ Name:___________________________ Title:__________________________ 44 -----END PRIVACY-ENHANCED MESSAGE-----