Dell 1999 Annual Report Download - page 30

period beginning on the date of grant. The Company records unearned compensation equal to the market value of the restricted shares
on the date of grant and charges the unearned compensation to expense over the vesting period.
There were 264 million, 162 million, and 40 million shares of common stock available for future grants under the Incentive Plan at
January 28, 2000, January 29, 1999, and February 1, 1998, respectively.
The Company also has an employee stock purchase plan that qualifies under Section 423 of the Internal Revenue Code and permits
substantially all employees to purchase shares of common stock. Participating employees may purchase common stock through
payroll deductions at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value of the
common stock at the beginning or the end of the participation period. Common stock reserved for future employee purchases under
the plan aggregated 44 million shares at January 28, 2000, 47 million shares at January 29, 1999, and 52 million shares at February 1,
1998. Common stock issued under this plan totaled three million shares in fiscal year 2000, five million shares in fiscal year 1999, and
nine million shares in fiscal year 1998.
The weighted average fair value of stock options at date of grant was $22.64, $11.77, and $4.06 per option for options granted during
fiscal years 2000, 1999, and 1998, respectively. Additionally, the weighted average fair value of the purchase rights under the
employee stock purchase plan granted
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in fiscal years 2000, 1999, and 1998 was $11.12, $2.51, and $1.53 per right, respectively. The weighted average fair value of options
and purchase rights under the employee stock purchase plan was determined based on the Black-Scholes model, utilizing the
following assumptions:
Fiscal Year Ended
January 28, 2000 January 29, 1999 February 1, 1998
Expected term:
Stock options 5 years 5 years 5 years
Employee stock purchase plan 6 months 6 months 6 months
Interest rate 5.81% 5.42% 6.28%
Volatility 51.03% 52.12% 54.92%
Dividends 0% 0% 0%
Had the Company accounted for its Incentive Plan and employee stock purchase plan by recording compensation expense based on
the fair value at the grant date on a straight-line basis over the vesting period, stock-based compensation costs would have reduced
pretax income by $329 million ($224 million, net of taxes), $194 million ($136 million, net of taxes), and $100 million ($69 million,
net of taxes) in fiscal years 2000, 1999, and 1998, respectively. The pro forma effect on basic earnings per common share would have
been a reduction of $0.09, $0.05, and $0.03 for fiscal years 2000, 1999, and 1998, respectively. The pro forma effect on diluted
earnings per common share would have been a reduction of $0.08, $0.05, and $0.02 for fiscal years 2000, 1999, and 1998,
respectively.
401(k) Plan — The Company has a defined contribution retirement plan that complies with Section 401(k) of the Internal Revenue
Code. Substantially all employees in the U.S. are eligible to participate in the plan. The Company matches 100% of each participant's
voluntary contributions, subject to a maximum Company contribution of 3% of the participant's compensation. The Company's
contributions during fiscal years 2000, 1999, and 1998 were $51 million, $21 million, and $20 million, respectively.
NOTE 9 — Preferred Share Purchase Rights
On November 29, 1995, the Board of Directors declared a dividend of one Preferred Share Purchase Right ("Right") for each
outstanding share of common stock. The distribution of the Rights was made on December 13, 1995, to the stockholders of record on
that date. Each Right entitles the holder to purchase one thirty-two thousandth of a share of Junior Preferred Stock at an exercise price
of $225 per one-thousandth of a share.
If a person or group acquires 15% or more of the outstanding common stock, each Right will entitle the holder (other than such person
or any member of such group) to purchase, at the Right's then current exercise price, the number of shares of common stock having a
market value of twice the exercise price of the Right. If exercisable, the Rights contain provisions relating to merger or other business
combinations.
In certain circumstances, the Board of Directors may, at its option, exchange part or all of the Rights (other than Rights held by the
acquiring person or group) for shares of common stock at an exchange rate of one share of common stock for each Right.
The Company will be entitled to redeem the Rights at $.001 per Right at any time before a 15% or greater position has been acquired
by any person or group. Additionally, the Company may lower the 15% threshold to not less than the greater of (a) any percentage
greater than the largest percentage of common stock known by the Company to be owned by any person (other than Michael S. Dell)
or (b) 10%. The Rights expire on November 29, 2005.
Neither the ownership nor the further acquisition of common stock by Michael S. Dell will cause the Rights to become exercisable or
nonredeemable or will trigger the other features of the Rights.
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