option plans are the large contracts that govern stock options programs.
Stock option agreements are the individual options grants, vesting
schedules, and other employee-specific information.
option plans are written by lawyers. The language is difficult to
understand - employees, human resource professionals, even top executives
have a tough time interpreting stock option plans.
asked some of its stock options experts to interpret a stock option
plan from Dell Computer Corporation. Bill Coleman and Keith Fortier,
neither of whom is a lawyer, have summarized each section in plain
English and explained why it matters to the person who has stock
options under the plan. The sections in italics are the actual language
of the plan; the sections in regular type are Salary.com's interpretation.
Overall, the Dell plan says the following.
This is a stock option plan for employees of Dell and its
subsidiaries, excluding employees above level "D2"
This is just one of several stock and incentive programs for
Dell, each of which has its own legal plan document.
This plan authorizes 7 million shares. At the time this plan
was issued, there were 1.3 billion shares outstanding.
The plan awards nonqualified stock options only, at a price
equal to fair market value at grant.
and length of individual option awards are made on a discretionary
special circumstances discussed include change of control, employees
outside the United States, recapitalization, and restructuring.
name of the plan was amended and restated as of Oct. 30, 1998.
AMENDED AND RESTATED
DELL COMPUTER CORPORATION
1998 BROAD-BASED STOCK OPTION PLAN
EFFECTIVE DATE: OCTOBER 30, 1998
PURPOSE OF THE PLAN
The DELL COMPUTER CORPORATION 1998 BROAD-BASED STOCK OPTION PLAN
(the "Plan") is intended to provide a means whereby certain employees
of DELL COMPUTER CORPORATION, a Delaware corporation (the "Company"),
and its subsidiaries may develop a sense of proprietorship and personal
involvement in the development and financial success of the Company,
and to encourage them to remain with and devote their best efforts
to the business of the Company, thereby advancing the interests
of the Company and its stockholders. Accordingly, the Company may
grant to certain employees ("Optionees") the option ("Option") to
purchase shares of the common stock of the Company ("Stock"), as
hereinafter set forth. The only options which may be granted under
the Plan shall be options which do not constitute incentive stock
options, within the meaning of section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code").
Purpose The plan was implemented to give employees a sense of ownership,
and to encourage them to stay with the company longer. The plan
only awards nonqualified stock options, not incentive stock options,
as defined in Section 422 (b) of the Internal Revenue Code.
this matters. Incentive stock options can be better for employees
than nonqualified stock options because the taxes can be lower.
(See stories titled, "Tax
Implications of Stock Options" and "The Alternative
The Plan shall be administered by the Office of the Chief Executive
Officer of the Company (the "OOC"). The OOC shall have sole authority
to select the Optionees from among those individuals eligible hereunder
and to establish the number of shares which may be issued under
each Option. In selecting the Optionees from among individuals eligible
hereunder and in establishing the number of shares that may be issued
under each Option, the OOC may take into account the nature of the
services rendered by such individuals, their present and potential
contributions to the Company's success and such other factors as
the OOC in its discretion shall deem relevant. The OOC is authorized
to interpret the Plan and may from time to time adopt such rules
and regulations, consistent with the provisions of the Plan, as
it may deem advisable to carry out the Plan. All decisions made
by the OOC in selecting the Optionees, in establishing the number
of shares which may be issued under each Option and in construing
the provisions of the Plan shall be final.
The management team in the office of the CEO administers the plan
and decides who will receive options, how many options to give each
participant, when participants will receive options, and the terms
of each option grant. The plans are sometimes administered by the
Compensation Committee and/or the Board of Directors.
this matters. Since the vesting period and the number of options
are not part of the plan itself, these things are negotiable.
(a) Each Option shall be evidenced by a written agreement executed
on behalf of the Company ("Option Agreement") which shall contain
such terms and conditions as may be approved by the OOC. The terms
and conditions of the respective Option Agreements need not be identical.
Any question as to the interpretation of any provision of an Option
Agreement, including the determination of the existence or nonexistence
of a specified condition or circumstance, shall be determined by
the OOC, and its determination shall be final.
The OOC may at any time and from time to time, in its sole discretion,
accelerate the time at which an Option then outstanding may be exercised.
Any such action by the OOC may vary among individual Optionees and
may vary among Options held by any individual Optionee.
For all purposes under the Plan, the fair market value of a share
of Stock on a particular date shall be equal to the average of the
high and low sales prices of the Stock (i) reported by the Nasdaq
National Market on that date or (ii) if the Stock is listed on a
national stock exchange, reported on the stock exchange composite
tape on that date; or, in either case, if no prices are reported
on that date, on the last preceding date on which such prices of
the Stock are so reported. If the Stock is traded over the counter
at the time a determination of its fair market value is required
to be made hereunder, its fair market value shall be deemed to be
equal to the average between the reported high and low or closing
bid and asked prices of Stock on the most recent date on which Stock
was publicly traded. In the event Stock is not publicly traded at
the time a determination of its value is required to be made hereunder,
the determination of its fair market value shall be made by the
OOC in such manner as it deems appropriate.
Each Option and all rights granted thereunder shall not be transferable
other than by will or the laws of descent and distribution.
As used in Option Agreements, the following terms shall have the
respective meanings set forth below:
"Disability" shall mean, with respect to a person, a physical
or mental impairment of sufficient severity that, in the opinion
of the Company, the person is unable to continue performing the
duties the person performed before such impairment and that impairment
or condition is cited by the Company as the reason for termination
of the person's employment with the Company and its Subsidiaries
(as defined below).
"Normal Retirement" shall mean, with respect to a person, the termination
of such person's employment with the Company and its Subsidiaries
by reason of retirement at any time on or after the date on which
the person reaches age 65 if the person is employed in the United
States of America or such other age as provided for by the OOC as
the normal retirement age in the country where the person is employed.
Option agreements are put into writing, including in particular
the discretionary aspects of individual agreements, such as vesting,
terms of the option, etc. The company can decide to accelerate vesting
if it wants to. The fair market value of the stock price is defined
as the average of the high and low sales price for a particular
day, not the closing price; and it is used later in determining
the exercise price. Transfer rules and exercise rights are defined.
Disability and normal retirement are defined. Rules of separation
for special treatment are defined.
this matters. You usually can't transfer the options before
exercising them. Terms are defined because death, disability, and
retirement are often cases of special treatment. Types of special
treatment include accelerated vesting and longer terms to exercise
ELIGIBILITY OF OPTIONEE
Options may be granted hereunder to any individual who (a) is an
employee of the Company or any Subsidiary of the Company at the
time the Option is granted and (b) holds a position with the Company
or such Subsidiary that is within or below the grade of "D2" (as
specified in the Company's current employee job and pay classification
system) or equivalent. For purposes of the Plan, the term "Subsidiary"
of the Company shall mean any corporation, limited partnership or
other entity of which a majority of the voting power of the voting
equity securities or a majority of the equity interests is owned,
directly or indirectly, by the Company.
of optionee Eligibility is specifically defined, and subsidiary is defined
for purposes of eligibility. Exclusion is also defined ("D2"
this matters. This exclusion leads one to conclude that Dell
also has other stock option plans.
SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options
granted under the Plan shall not exceed 7,000,000 shares of Stock.
Such shares may consist of authorized but unissued shares of Stock
or (where permitted by applicable law) previously issued shares
of Stock reacquired by the Company. Any of such shares which remain
unissued and which are not subject to outstanding Options at the
termination of the Plan shall cease to be subject to the Plan, but,
until termination of the Plan, the Company shall at all times make
available a sufficient number of shares to meet the requirements
of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such
2 Option may again be subject to an Option granted under the Plan.
The aggregate number of shares which may be issued under the Plan
shall be subject to adjustment in the same manner as provided in
Paragraph VIII hereof with respect to shares of Stock subject to
Options then outstanding. Exercise of an Option in any manner shall
result in a decrease in the number of shares of Stock which may
thereafter be available by the number of shares as to which the
Option is exercised.
subject to the plan
This section sets the number of shares available to grant and where
shares are issued from: authorized but unissued shares, which means
dilution. Previously issued shares are required by the company (buyback).
Any options granted and forfeited go back into the pool, for example
in the case of someone who terminates employment without vesting,
or underwater options past the term. The aggregate number of shares
is adjusted for a stock split. (This is restated in section 8.)
this matters. The number of shares outstanding affects the price
per share. If the company issues new shares, it is "diluting"
the existing shares. For example, if there are 100 shares outstanding
at $1 per share, the company is worth $100. If the company issues
10 new shares, but the value of the company has not increased, each
share is now worth only 91 cents. Dell's dilution is very small:
1.3 billion plus 7 million over 1.3 billion, or about half a percent.
Dell is making up for the small dilution by creating a means to
recapture some outstanding shares.
The purchase price of Stock issued under each Option shall be determined
by the OOC, but such purchase price shall not be less than 100 percent
of the fair market value of Stock subject to the Option on the date
the Option is granted.
price The purchase and strike price are defined. This plan does not
allow discounted stock options.
this matters. Since Dell is a public company whose stock price
has become relatively stable, this plan may have less potential
upside than that of a startup. The employee has the option to purchase
the stock at the market price as of the date the options were issued,
not at a discount. But an employee who remains with the company
for some time might see some nice gains, if the stock price continues
TERM OF PLAN
The Plan shall be effective upon the date of its adoption by the
Board of Directors of the Company (the "Board"). Except with respect
to Options then outstanding, if not sooner terminated under the
provisions of Paragraph IX, the Plan shall terminate upon and no
further Options shall be granted after the expiration of ten years
from the date of its adoption by the Board.
of plan The term is defined as 10 years. This does not imply, however,
that the option term is 10 years. Options that have already been
granted do not expire at the termination of the plan.
this matters. This doesn't have a significant impact on the
employee granted options right now.
RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder
shall not affect in any way the right or power of the Board or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of
the Company, any issue of debt or equity securities, the dissolution
or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any
other corporate act or proceeding.
The shares with respect to which Options may be granted are shares
of Stock as presently constituted, but if, and whenever, prior to
the expiration of an Option theretofore granted, the Company shall
effect a subdivision or consolidation of shares of Stock or the
payment of a stock dividend on Stock without receipt of consideration
by the Company, the number of shares of Stock with respect to which
such Option may thereafter be exercised (i) in the event of an increase
in the number of outstanding shares shall be proportionately increased,
and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding
shares shall be proportionately reduced, and the purchase price
per share shall be proportionately increased.
If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"),
the number and class of shares of Stock covered by an Option theretofore
granted shall be adjusted so that such Option shall thereafter cover
the number and class of shares of stock and/or securities to which
the Optionee would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization,
the Optionee had been the holder of record of the number of shares
of Stock then covered by such Option. If (i) the Company shall not
be the surviving entity in any merger, consolidation or other reorganization
(or survives only as a subsidiary of an entity), (ii) the Company
sells, leases or exchanges all or substantially all of its assets
to any other person or entity, (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains
ownership 3 or control (including, without limitation, power to
vote) of more than 50% of the outstanding shares of the Company's
voting stock (based upon voting power), or (v) as a result of or
in connection with a contested election of directors, the persons
who were directors of the Company before such election shall cease
to constitute a majority of the Board (each such event is referred
to herein as a "Corporate Change"), no later than (a) ten days after
the approval by the stockholders of the Company of such merger,
consolidation, reorganization, sale, lease or exchange of assets
or dissolution or such election of directors or (b) thirty days
after a change of control of the type described in Clause (iv),
the Board, acting in its sole discretion without the consent or
approval of any Optionee, shall act to effect one or more of the
following alternatives, which may vary among individual Optionees
and which may vary among Options held by any individual Optionee:
(1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited
period of time on or before a specified date (before or after such
Corporate Change) fixed by the Board, after which specified date
all unexercised Options and all rights of Optionees thereunder shall
terminate, (2) require the mandatory surrender to the Company by
selected Optionees of some or all of the outstanding Options held
by such Optionees (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before
or after such Corporate Change, specified by the Board, in which
event the Board shall thereupon cancel such Options and the Company
shall pay to each Optionee an amount of cash per share equal to
the excess, if any, of the amount calculated in Subparagraph (d)
below (the "Change of Control Value") of the shares subject to such
Option over the exercise price(s) under such Options for such shares,
(3) make such adjustments to Options then outstanding as the Board
deems appropriate to reflect such Corporate Change (provided, however,
that the Board may determine in its sole discretion that no adjustment
is necessary to Options then outstanding) or (4) provide that the
number and class of shares of Stock covered by an Option theretofore
granted shall be adjusted so that such Option shall thereafter cover
the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Optionee would
have been entitled pursuant to the terms of the agreement of merger,
consolidation or sale of assets and dissolution if, immediately
prior to such merger, consolidation or sale of assets and dissolution,
the Optionee had been the holder of record of the number of shares
of Stock then covered by such Option.
For the purposes of clause (2) in Subparagraph (c) above, the "Change
of Control Value" shall equal the amount determined in clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per
share price offered to stockholders of the Company in any such merger,
consolidation, reorganization, sale of assets or dissolution transaction,
(ii) the price per share offered to stockholders of the Company
in any tender offer or exchange offer whereby a Corporate Change
takes place, or (iii) if such Corporate Change occurs other than
pursuant to a tender or exchange offer, the fair market value per
share of the shares into which such Options being surrendered are
exercisable, as determined by the Board as of the date determined
by the Board to be the date of cancellation and surrender of such
Options. In the event that the consideration offered to stockholders
of the Company in any transaction described in this Subparagraph
(d) or Subparagraph (c) above consists of anything other than cash,
the Board shall determine the fair cash equivalent of the portion
of the consideration offered which is other than cash.
Any adjustment provided for in Subparagraphs (b) or (c) above shall
be subject to any required shareholder action.
Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into 4 such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number of shares
of Stock subject to Options theretofore granted or the purchase
price per share.
or reorganization Regardless of the implied promises of the plan, it can't prevent
or override any future recapitalization, reorganization, or other
major corporate events. If the stock is restructured - for instance
a stock split, reverse split, or stock dividend - the shares authorized
under the plan will be adjusted accordingly.
section determines what will happen if there is a change of control
in the company: if Dell is acquired, if it sells all or most of
the company, if the company dissolves or is liquidated, or of there
is a change of more than half of the directors. If one of these
things occurs, the board can do one of four things with each outstanding
option (it can do different things for different people and different
things for different grants). It can accelerate vesting or the ability
to exercise; it can require the optionee to forfeit the right to
the option in exchange for cash settlement; it can modify options
to reflect the change of control; or it can adjust them to keep
the optionee whole (same economic position).
value of stock after a change of control is defined for use in the
previous section. If shareholders need to approve action, it must
be approved. The adjustments made to outstanding options under this
plan in the event of a change of control are limited. Other items,
like warrants and outright shares owned, are not included.
this matters. This is very important language. With the language
above, if someone has 10,000 options with an exercise price of $48,
and a 2-1 split occurs, that person would have twice as many shares
at half the price (20,000 shares at a $24 strike price). The optionee's
economic position would not change. But if this language weren't
here and the stock split, the employee with 10,000 options with
an exercise at $48 would still have 10,000 options with an exercise
price of $48. The optionee would have the economic equivalent of
half the options at twice the strike price.
happened to three top executives of Computer Associates International
Inc. in a highly publicized case in November 1999. The shareholders
had never agreed to adjust the number of shares awarded in the event
of a stock split. Consequently, a court ruled that the executives
must forfeit a potential gain of more than half a billion dollars.
AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options have not theretofore been
granted. The Board shall have the right to alter or amend the Plan
or any part thereof from time to time. In addition, the OOC (without
the necessity of specific Board action) shall have the power and
authority to make or approve revisions or modifications to the terms
and provisions of the Plan on behalf of the Board and from time
to time, so long as such revisions or modifications are (in the
judgment of the OOC) necessary, appropriate or desirable to effectuate
the purposes of the Plan and do not effect a material change in
the structure or purposes of the Plan. Notwithstanding the above,
however, no change in any Option theretofore granted may be made
which would impair the rights of the Optionee without the consent
of such Optionee.
or termination of plan The board can make any change to the plan, including termination,
prior to its term. The OOC can also make changes "without the
necessity of board action." Neither the board nor the OOC action
will affect rights or promises associated with options that have
already been granted, unless the optionee agrees. Examples are options
repricing and acceleration of vesting.
this matters. The company has considerable latitude to change
the plan, but if you already have options under this plan, the changes
won't affect you unless you agree to them.
(a) The Company shall not be obligated to issue any Stock pursuant
to any Option granted under the Plan at any time when the offering
of the shares covered by such Option have not been registered under
the Securities Act of 1933 (the "Securities Act") and such other
state, federal or foreign laws, rules or regulations as the Company
or the Board deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements
of such laws, rules or regulations available for the offering and
sale of such shares.
The Company intends to register for issuance under the Securities
Act the shares of common stock issuable upon exercise of Options
and to keep such registration effective throughout the period any
Options are exercisable. In the absence of such effective registration
or an available exemption from registration under the Securities
Act, issuance of shares of common stock issuable upon exercise of
Options may be delayed until registration of such shares is effective
or an exemption from registration under the Securities Act is available.
The Company intends to use its best efforts to ensure that no such
delay will occur. In the event exemption from registration under
the Securities Act is available upon an exercise of Options, the
Option holder (or the person otherwise permitted to exercise such
Options), if requested by the Company to do so, shall execute and
deliver to the Company in writing an agreement containing such provisions
as the Company may require to assure compliance with applicable
At the time of any exercise of an Option, the Company may, as a
condition precedent to the exercise of such Option, require from
the holder of the Option 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 such exercise
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
Company, may be necessary to ensure that any disposition by that
holder will not involve a violation of the Securities Act or any
other applicable securities law or regulation.
The certificates representing the shares of common stock issued
pursuant to an exercise of Options may bear such legend or legends
as the OOC deems appropriate in order to assure compliance with
applicable securities laws and regulations. The Company may refuse
to register the transfer of the shares of common stock issued pursuant
to an exercise of 5 Options on the stock transfer records of the
Company if such proposed transfer would, in the opinion of counsel
to the Company, constitute a violation of any applicable securities
law or regulation, and the Company may give related instructions
to its transfer agent, if any, to stock registration of the transfer
of the shares of common stock issued pursuant to an exercise of
laws There is standard language regarding compliance with federal,
state, and SEC regulations. The company will not have to offer shares
unless they are duly registered by jurisdictions governing the recipient.
There is enabling language for the SEC (Securities Act of 1933).
All shares issued under the plan need to be duly registered under
the Securities Act of 1933 unless exceptions apply. The company
will make a good faith effort to comply. The company will ask for
information regarding what the exercisor will do with the shares
(to comply with insider trading rules, potential lockout periods,
and restrictions on sale). The company will comply with the SEC
with a regard to restrictions of stock certificates and may write
actual restrictions on the face of stock certificates.
this matters. Most option holders can ignore this section, which
more or less is boilerplate language that says the company will
abide by the laws governing securities. But it is cause for alarm
if your stock option plan doesn't contain this or similar language.
The OOC shall determine, in its discretion, whether it is desirable
or feasible under local law, custom and practice to grant Options
under the Plan to eligible employees described in Paragraph IV in
countries other than the United States. In order to facilitate the
grant of Options under this Paragraph, the OOC may provide for such
modifications and additional terms and conditions ("special terms")
in Option awards to employees who are employed outside the United
States (or who are foreign nationals temporarily within the United
States) as the OOC may consider necessary, appropriate or desirable
to accommodate differences in local law, policy or custom or to
facilitate administration of the Plan. The special terms may provide
that the grant of an Option is subject to (a) applicable governmental
or regulatory approval or other compliance with local legal requirements
or (b) the execution by the employee of a written instrument in
the form specified by the OOC, and that in the event such requirements
or conditions are not satisfied, the grant shall be void. The special
terms may (but need not) also provide that an Option shall become
exercisable if an employee's employment with the Company and its
Subsidiaries ends as a result of workforce reduction, realignment
or similar measure. The OOC may adopt or approve sub-plans, appendices
or supplements to, or amendments, restatements or alternative versions
of, the Plan as it may consider necessary, appropriate or desirable
for purposes of implementing any special terms, without thereby
affecting the terms of the Plan as in effect for any other purpose.
The special terms and any appendices, supplements, amendments, restatements
or alternative versions, however, shall not include any provisions
that are inconsistent with the terms of the Plan as then in effect,
unless the Plan could have been amended to eliminate such inconsistency
without further approval by the Board.
employees At the company's discretion, employees outside the United States
or foreign nationals working in the United States may participate
in the plan and modifications may be made to comply with specific
government regulations in other countries.
this matters. Dell is an international corporation. Employees
working in offices in countries other than the United States, and
employees who are not U.S. citizens, are not excluded from the plan.
The Plan, and all Option Agreements issued under the Plan, shall
be governed by, and construed in accordance with, the laws of the
State of Delaware.
law Delaware is legal jurisdiction under this plan and all agreements.
this matters. Delaware has the most favorable corporate laws
in the United States. Many businesses are incorporated in Delaware.
In the event of a legal action, the prevailing laws would be favorable
to the company.