Dell 1997 Annual Report Download - page 36

(to be paid in July 1997), the Board of Directors decided to review the
Company's non-employee director compensation arrangement and, pending completion
of that review, unanimously elected to forego the adjustment in their annual
option awards for the July 1997 stock split. Consequently, each non-employee
director who was serving immediately after the stockholders' meeting in 1997
received an annual option award covering 24,000 shares (rather than 48,000,
which would have been the award had the split adjustment been made).
In November 1997, after completing a thorough review and analysis of
non-employee director compensation plans at various companies deemed comparable
for this purpose, the Board of Directors unanimously determined that it was in
the best interests of the Company and its stockholders to modify the terms of
the compensation paid to non-employee directors, including the size of the
automatic option awards, and adopted new non-employee director compensation
arrangements. Under the new arrangements, the number of shares of common stock
subject to each annual option award for a Service Year will be equal to the
"Annual Award Base Number" for that Service Year divided by the fair market
value of the common stock on the date of grant. The number of shares subject to
an initial option award for a new non-employee director will be equal to the
"Initial Award Base Number" divided by the fair market value of the common stock
on the date of grant, and the first annual option award for a new non-employee
director will be prorated on the same basis as the director's annual retainer
fee, as described above. The Annual Award Base Number will be $650,000 (subject
to an annual escalation factor of 10%), and the Initial Award Base Number at any
given time will be 300% of the then-applicable Annual Award Base Number. The
annual option awards for each Service Year are to be granted as of the first day
of that Service Year, and an initial option award is to be granted to a new
non-employee director as of the date of the first Board of Directors meeting
attended. Under the new arrangements, the method of computing the number of
shares subject to the initial and annual option awards will not be adjusted to
take into account future stock splits (including the two-for-one split of the
common stock paid in March 1998); however, once an option has been issued, the
number of shares subject to the option and the exercise price of the option will
be adjusted to take into account any subsequent stock splits.
As a result of these new non-employee director compensation arrangements, each
of the Company's current non-employee directors will receive, effective as of
the date of the upcoming annual meeting of stockholders (which is scheduled for
July 17, 1998), an annual option award covering a number of shares equal to
$650,000 divided by the fair market value of the common stock on the date of
grant. It is not possible to compute the size of the award at the present time;
however, if the number were computed on the basis of the fair market value of
the common stock as of March 31, 1998, the size of the award would be
approximately 9,600 shares, which is substantially smaller than it would have
been (96,000 shares) had the non-employee director compensation arrangements not
been changed.
In the case of both initial awards and annual awards, the exercise price of the
option is equal to the "fair market value" of the common stock on the date of
grant, which is defined as the average of the high and low reported sales price
of the common stock on that date. The option vests and becomes exercisable with
respect to 20% of the shares on each of the first five anniversaries of the date
of grant, so long as the director remains a member of the Board of Directors
through those dates. The option terminates when the director ceases to be a
member of the Board of Directors (if the Board of Directors demands or requests
the director's resignation), 90 days after the director ceases to be a member of
the Board of Directors (if the director resigns for any other reason) or one
year after the director ceases to be a member of the Board of Directors because
of death or permanent disability. In any event, the option terminates on the
tenth anniversary of the date of grant.
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Because Mr. Mandl was appointed to the Board of Directors at the time that the
new compensation arrangement was approved, his compensation is based on the new
arrangement. Consequently, effective November 21, 1997, the date of the first
Board of Directors meeting that Mr. Mandl attended, Mr. Mandl received an option
covering 61,356 shares of common stock, 46,017 were attributable to his initial
award and 15,339 were attributable to the annual award for the Service Year that
commenced in 1997. Had the Board of Directors not changed the non-employee
director compensation arrangement, Mr. Mandl would have received an option
covering 240,000 shares.
Other Benefits -- The Company reimburses non-employee directors for their
reasonable expenses associated with attending Board of Directors meetings and
provides the directors with liability insurance coverage with respect to their
activities as directors of the Company.
Compensation During Fiscal 1998 -- The following table describes the fiscal 1998
fees and stock option grants for each of the Company's non-employee directors.
CASH
NAME PAYMENTS OPTIONS GRANTED(A)
---- -------- ------------------
Mr. Carty............................................ $35,000(b) 48,000 shares