Interests of the Company’s Directors and Executive Officers in the Merger
In considering the recommendation of the Board (without Mr. Dell’s participation) that you vote to approve the proposal to adopt the merger agreement, you should be aware that, aside from their interests as stockholders of the Company, the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, interests of other stockholders of the Company generally. In particular, as is described elsewhere in this proxy statement, Mr. Dell, who is Chairman of the Board and Chief Executive Officer of the Company, is a director, officer and stockholder of Parent and will be a controlling stockholder of Parent after completion of the merger.
With regard to our directors serving on the Special Committee and the Board (other than Mr. Dell), areas where their interests may differ from those of stockholders in general relate to the impact of the transaction on the directors’ outstanding equity awards and the provision of indemnification and insurance arrangements pursuant to the merger agreement and the Company’s certificate of incorporation, bylaws and indemnification agreements, which reflect the fact that, by their service on the Board, they may be subject to claims arising from such service. Because of their existing compensation arrangements, the differences in interests for our executive officers involve the possible receipt of the following types of payments and benefits that may be triggered by or otherwise relate to the merger:
| • | cash payments under executive officer severance agreements; |
| • | the treatment of executive officer equity awards; |
| • | the provision of indemnification and insurance arrangements pursuant to the merger agreement; and |
| • | related benefits. |
These interests are described in more detail below, and certain of them are quantified in the tables below. In addition, Parent has the right, under the merger agreement, to negotiate and enter into agreements with other executive officers prior to the closing of the merger pursuant to which our executive officers would roll over some or all of their shares of Common Stock or Company RSU Awards into Parent equity interests, though no
agreements, arrangements or understandings with respect to any such potential investment exist between the Parent Parties and any executive officer (other than Mr. Dell) as of the date of this proxy statement.
The members of the Special Committee evaluated and negotiated the merger agreement and evaluated whether the merger is in the best interests of the Company’s unaffiliated stockholders. Mr. Dell did not participate in the deliberations of the Special Committee regarding the merger agreement and the transactions contemplated by the merger agreement. The members of the Special Committee were aware of these differing interests and considered them, among other matters, in evaluating and negotiating the merger agreement and the merger and in recommending to the stockholders that the merger agreement be adopted. See “—Background of the Merger” beginning on page 20 and “—Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 50 for a further discussion of these matters. You should take these interests into account in deciding whether to vote “FOR” the proposal to adopt the merger agreement.
In consideration of the time and effort required of the members of the Special Committee in connection with evaluating strategic alternatives available to the Company, the proposed merger (including negotiating the terms and conditions of the merger agreement), the go-shop process and possible negotiations with parties making alternative acquisition proposals, the Board, in a meeting held March 28, 2013, determined that each member of the Special Committee will receive a monthly retainer of $7,500, beginning in September 2012, during the duration of their service on the Special Committee and a meeting fee of $1,500 (or in the case of the Chairman of the Special Committee, $2,000) for each meeting of the Special Committee such member attends in person or by teleconference, plus out of pocket expenses. In light of the extent of the efforts required to be expended by the Special Committee, the Board, in a meeting held May 25, 2013, determined that effective February 1, 2013, the Chairman of the Special Committee would receive a monthly retainer of $30,000 and each other member of the Special Committee would receive a monthly retainer of $25,000, with Special Committee members no longer receiving per-meeting fees. These fees are not dependent on the closing of the merger or on the Special Committee’s or the Board’s approval of, or recommendations with respect to, the merger or any other transaction. As of the date of the filing of this proxy statement, the aggregate amount payable to the Chairman of the Special Committee for his service on the Special Committee was approximately $209,500, and the aggregate amount payable to each of the other Special Committee members for their service on the Special Committee was approximately $176,500.
Severance Agreements
The Company previously has entered into severance agreements with each of its executive officers (other than Mr. Dell). None of these agreements entitles our executive officers to any severance payments upon the completion of the merger (either on a “single trigger” or “double trigger” basis). Rather, the agreements entitle our executive officers to receive certain severance payments upon a qualifying termination event without regard to the completion of the merger. However, because it is possible that changed circumstances due to the merger could result in the employment of the executives being terminated thereafter on a basis entitling them to severance payments, those agreements are described below.
Under the severance agreements, if an executive officer’s employment is terminated “without cause,” the executive will receive a severance payment equal to 200% of his or her base salary. In general, a termination is deemed to be “without cause” under these agreements unless the executive is terminated for violating confidentiality obligations, violating certain laws, being charged with a criminal offense which constitutes a felony or involves moral turpitude or dishonesty, engaging in acts of gross negligence or insubordination, breaching a fiduciary duty to the Company or its stockholders, violating the Company’s Code of Conduct, unsatisfactory job performance or willful misconduct. In addition, as a condition to receiving severance payments under the severance agreements, the executive officers are obligated to comply with certain noncompetition and nonsolicitation obligations for a period of twelve months following termination of employment.
Deferred Compensation Plan
The Company maintains a nonqualified deferred compensation plan that is available to executives and a separate plan that is available to our non-employee directors. Upon a merger, consolidation, liquidation or other type of reorganization that would constitute a change of control of the Company under either plan, vested amounts for which a distribution event has not been triggered prior to the effective time will be paid. Thus, the accrued vested account balances of the employees, including the named executives, or directors participating in either of these plans, for which a distribution event has not been triggered prior to the effective time will be paid out promptly following the effective time of the merger. However, there will be no increase in the amounts credited to accounts of any such participants. If a distribution event has been triggered prior to the effective time, vested account balances will be paid out according to the participant’s original distribution election and will not be paid out a result of the merger.
Under the terms of the deferred compensation plan for executives, the Company matches 100% of each participant’s voluntary deferrals up to 3% of the participant’s compensation that exceeds the qualified plan compensation limit. A participant may defer up to 50% of the participant’s base salary and up to 100% of the participant’s annual incentive bonus. Matching contributions vest ratably over the first five years of employment (20% per year) and thereafter matching contributions vest immediately. In general, absent an extraordinary transaction of the type referred to above, a participant’s funds are distributed upon the participant’s death, disability or separation from service or, under certain circumstances and at the request of the participant, during the participant’s employment, and can be taken in a lump sum or installments (monthly, quarterly, or annually) over a period of up to ten years.
Retention Cash Bonus Awards
On April 17, 2013, the Leadership Development and Compensation Committee of the Board approved a program to provide special retention awards in the form of performance-based cash bonuses to aid in the retention of certain key Dell employees, including members of the executive leadership team, vice presidents and executive directors of the Company who are critical to the Company’s future success. The key employees include the named executive officers of the Company other than Mr. Dell.
Under the terms of the retention awards, award recipients are entitled to receive a retention award in the form of a performance-based cash bonus ranging from 0% to 100% of their respective base salaries based on the Company’s fiscal year 2014 free operating cash flow performance. The retention award will be payable in March 2014 if the award recipient has remained continuously employed by the Company through the payment date. If the Company terminates the award recipient’s employment prior to the March 2014 payout date “without cause,” the award recipient is entitled to receive 75% of the maximum retention award value as soon as administratively practicable following termination of employment. In general, a termination is deemed to be “without cause” for purposes of the retention awards unless the employee engages in the type of conduct that would constitute “cause” for purposes of the Company’s agreements with its executive officers described above under “—Severance Agreements” beginning on page 113. In addition, the award recipient is obligated to comply with certain noncompetition and nonsolicitation obligations until March 31, 2015, and will be required to return the award in the event of non-compliance.
The retention awards provide that if any rights, payments or benefits provided by the Company to an award recipient following a “change in control” of the Company would be subject to the excise tax imposed under Section 4999 or non-deductibility under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), payment of the retention award will be reduced or eliminated to the extent necessary to avoid application of the excise tax so long as the reduction or elimination would result in a larger net after-tax payment to the award recipient. The consummation of the merger will constitute a change in control of the Company for purposes of Sections 280G and 4999 of the Code.
Amendments to Equity Award Agreements
Also on April 17, 2013, the Leadership Development and Compensation Committee of the Board approved amendments to the Company’s equity award agreements for grants of restricted stock, restricted stock units and performance-based restricted stock units issued under the 2002 Plan and the 2012 Plan. The grants subject to the amendments include awards held by the Company’s currently serving named executive officers, other than Mr. Dell. No amendments were made to any equity award grants held by Mr. Dell or by members of the Board.
The amendments provide for accelerated vesting of the grants if the recipient’s employment with the Company is terminated “without cause” within two years following a “change in control” of the Company. Any accrued dividend equivalents with respect to restricted stock units or performance-based restricted stock units will vest and be paid in cash upon delivery of the shares underlying those grants. In addition, in connection with a change in control of the Company, the amendments provide that the Board or the Leadership Development and Compensation Committee of the Board may direct that, in lieu of delivering shares of Company common stock upon the vesting of awards, the Company may provide for award holders to receive cash or other consideration of at least equal value. The amendments do not affect the treatment provided for in the merger agreement with respect to any executive officer equity awards, except that, as with the retention awards described above, the amendments to the equity award agreements provide for reduction or elimination of vesting or payment of long-term incentive plan awards to the extent necessary to produce the best after-tax results in the application of the excise tax imposed under Section 4999 of the Code.
The consummation of the merger will constitute a change in control of the Company for purposes of the amendments. In general, a termination is deemed to be “without cause” for purposes of the amendments unless the employee engages in the type of conduct that would constitute “cause” for purposes of the Company’s agreements with its executive officers described above under “—Severance Agreements” beginning on page 113.
Indemnification and Insurance
Under the merger agreement, the Company’s directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies from the surviving corporation. For more information regarding such indemnification and insurance coverage, see “The Merger Agreement—Other Covenants and Agreements—Indemnification of Directors and Officers; Insurance” beginning on page 154.
Treatment of Executive Officer and Director Common Stock
As is the case for any stockholder, the Company’s directors (other than Mr. Dell) and executive officers other than those executive officers, if any, who enter into agreements with Parent prior to the closing of the merger to roll over some or all of their shares of Common Stock into Parent equity interests, will receive $13.65 in cash less any applicable withholding taxes for each share of Common Stock (including, subject to the attainment of applicable vesting conditions, any shares of restricted stock) that they own at the effective time of the merger. For a discussion of the rollover shares of Common Stock by Mr. Dell, please see “—Financing for the Merger—MD Investors Equity Financing” beginning on page 103. For a discussion of the potential rollover of shares of Common Stock by our other executive officers, please see “—New Management Arrangements” beginning on page 123. For information regarding the treatment of Company restricted stock, please see “The Merger Agreement—Treatment of Company Stock Options, Company RSU Awards and Company Restricted Shares” beginning on page 141. For information regarding beneficial ownership of the Common Stock by each of the Company’s current directors and certain executive officers and all directors and executive officers as a group, see “Important Information Regarding Dell—Security Ownership of Certain Beneficial Owners and Management” beginning on page 174.
Treatment of Executive Officer and Director Equity Awards
Treatment of Company Stock Options
As described under “The Merger Agreement—Treatment of Company Stock Options, Company RSU Awards and Company Restricted Shares” beginning on page 141, the merger agreement provides that, except as otherwise agreed by Parent and a holder of a Company stock option, each Company stock option granted under the Other LTIP Plans, whether vested or unvested and whether with an exercise price per share that is greater or less than or equal to $13.65, that is outstanding immediately prior to the effective time of the merger, will be canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Common Stock subject to such Company stock option and (ii) the excess, if any, of $13.65 over the exercise price per share of Common Stock subject to such Company stock option, less such amounts as are required to be withheld or deducted under applicable tax provisions. Parent has indicated to the Company that it intends to request, pursuant to the merger agreement, that the Company, before the completion of the merger, commence an option tender offer to purchase for cash, at prices to be determined by Parent, each tendered Company stock option granted under the 2002 Plan and the 2012 Plan, whether vested or unvested and whether with an exercise price per share that is greater or less than or equal to $13.65, that is outstanding immediately prior to the effective time of the merger. Subject to the terms and conditions of the option tender offer, which conditions would include the consummation of the merger, each such Company stock option that is validly tendered and not withdrawn by the holder thereof would be canceled in exchange for the applicable cash payment promptly after the completion of the merger. Also in accordance with the merger agreement, Company stock options granted under the 2002 Plan and the 2012 Plan that are outstanding immediately prior to the effective time of the merger and not accepted for cancellation and payment in the option tender offer would be converted at the effective time of the merger into options to purchase, on substantially the same terms and conditions (including vesting conditions) applicable to such Company stock option immediately prior to the effective time of the merger, shares of Parent common stock. Notwithstanding the provisions of the merger agreement, Mr. Dell would not participate in the option tender offer and his Company stock options will be canceled for no consideration in connection with the merger. Payments with respect to Company stock options granted under the Other LTIP Plans and canceled under the merger agreement will be made as soon as practicable following the effective time of the merger and without interest.
Treatment of Company Stock Unit Awards
As described under “The Merger Agreement—Treatment of Company Stock Options, Company RSU Awards and Company Restricted Shares” beginning on page 141, except as otherwise agreed to in writing prior to the effective time of the merger by Parent and a holder of Company Stock Unit Awards (as defined below) with respect to any of such holder’s Company Stock Unit Awards, each Company Stock Unit Award, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will be canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Common Stock subject to such Company Stock Unit Award multiplied by (ii) $13.65, less such amounts as are required to be withheld or deducted under applicable tax provisions, subject to the recipient remaining in service until the vesting date applicable with respect to such awards. For purposes of unvested Company Stock Unit Awards, any performance-based vesting condition will be treated as having been attained at the “target” level, and awards that are subject to performance-based vesting conditions will be deemed to vest ratably on the last day of each fiscal year during the portion of the performance period applicable to such awards that occurs following the effective time of the merger. In addition, holders of Company Stock Unit Awards will receive any additional amounts related to dividend equivalents credited with respect to such Company Stock Unit Awards prior to the effective time. Notwithstanding the provisions of the merger agreement, Mr. Dell’s unvested performance-based Company Stock Unit Awards will be canceled and converted into a right to receive a cash amount as described above; however, such cash amount will vest and pay out upon the Company Stock Unit Awards’ original vesting and payout dates.
As of May 22, 2013, the Company’s non-employee directors held Company stock options and Company Stock Units in the amounts set forth below under “—Quantification of Payments and Benefits—Payments to
Non-Employee Directors in Respect of Unvested Equity Awards and Deferred Compensation Table.” Except for Mr. Perot’s stock options, all Company stock options held by non-employee directors are currently vested and exercisable. Mr. Perot’s stock options were granted on August 14, 2010 and July 15, 2011, were fully vested at grant and become exercisable ratably over five years beginning on the first anniversary of the date of grant. The Company Stock Unit Awards made to non-employee directors under the Company’s directors compensation program following the annual meeting of stockholders in 2012 are expected to be fully vested prior to the effective time of the merger. One installment of the Company Stock Unit Awards granted under the Company’s directors compensation program in 2010 (pertaining, in the case of each affected director, to 5,550 units) will vest on August 14, 2013, or if the director’s service as a member of the Board ends within 30 days of August 14, 2013 (including as a result of the closing of the merger). Mr. Kleisterlee received a grant of Company Stock Unit Awards in 2011 upon his election as a member of the Board, of which 1,439 units are scheduled to vest on March 2, 2014. All other Company Stock Unit Awards held by each of our non-employee directors are fully vested. Mr. Carty, Mr. Duberstein and Mr. Gray each elected to delay settlement of one RSU award. We refer to these delayed RSUs as deferred stock units (and, together with the Company RSU Awards held by non-employee directors, as “Company Stock Unit Awards”). The deferred stock units convert to cash at closing and pay out pursuant to each director’s distribution election.
Quantification of Payments and Benefits
The following tables and related footnotes present information about the amounts of the payments and benefits that each executive officer and non-employee director of the Company would receive in connection with the merger, after giving effect to the merger as if it had occurred on May 22, 2013, the latest practicable date prior to the filing of this proxy statement, and, in the case of the executive officers (other than Mr. Dell), assuming that the employment of each such officer was terminated by the surviving corporation “without cause” on such date. The information in the tables below assumes that none of the executive officers roll over any of their shares of Common Stock or stock options for Parent equity interests.
Potential Change of Control Payments to Named Executive Officers Table. The table below and the related footnotes present information about the elements of compensation that may be affected by the merger and may be payable to the Company’s chief executive officer, chief financial officer and our other executive officers whose compensation was required to be disclosed in the Company’s most recent annual proxy statement, who are collectively referred to as the Company’s “named executive officers.” As is described herein, none of these named executive officers, nor any of our other executive officers, will receive any incremental payments on account of the merger above and beyond amounts to which they had already become entitled, except, in the case of Messrs. Gladden and Felice, to the extent of the cash payment offered pursuant to the anticipated option tender offer for the tender by such executive officers of their Company stock options granted under the 2002 Plan and the 2012 Plan, as described above under “—Treatment of Executive Officer and Director Equity Awards—Treatment of Company Stock Options” beginning on page 116. All of the Company stock options held by named executive officers are currently vested and exercisable. Under the terms of the applicable deferred compensation plan in which the named executive officers participate, the accrued and vested deferred compensation accounts of all eligible participants, including the named executive officers, will be paid out immediately following the effective time of the merger.
However, as is described below, certain other elements of the compensation made available to our executive officers under the Company’s practices and programs as in effect prior to entering into the merger agreement may be deemed affected by the merger and are included in the table to illustrate the greatest potential impact of the merger on the rights of the named executive officers under such practices and programs. Under the terms of the awards and the merger agreement, the amounts reported in the table with regard to the Company equity awards other than Company stock options will only be payable if the executive remains employed with the Company for specified periods (up to several years) after the effective time of the merger. The amounts shown as potential severance benefits would only become payable if the executive is involuntarily terminated from employment under specified circumstances. The compensation shown in the table below is subject to the proposal to approve, on an advisory (non-binding) basis, the compensation that may become payable to the
named executive officers of the Company in connection with the merger, as discussed under “The Special Meeting,” beginning on page 133. Because the vote to approve the executive compensation is advisory in nature only, it will not be binding on either the Company or Parent. Because the Company is contractually obligated to pay such executive compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the proposal to adopt the merger agreement is approved and regardless of the outcome of the advisory vote.
| Name(3) |
Cash (1) | Equity (2) | Total | |||||||||
| Michael S. Dell |
$ | — | $ | 14,709,149 | $ | 14,709,149 | ||||||
| Brian T. Gladden |
2,131,250 | 8,265,558 | 10,396,808 | |||||||||
| Stephen J. Felice |
2,200,000 | 7,632,937 | 9,832,937 | |||||||||
| (1) | As described above under “—Severance Agreements” beginning on page 113, the Company previously has entered into severance agreements with its executive officers (other than Mr. Dell). Under the severance agreements, the executive officer is entitled to severance payments upon a qualifying termination of employment. This table assumes for these purposes that a qualifying termination of employment would occur by virtue of the consummation of the merger. Under the severance agreements, executive officers are obligated to comply with certain noncompetition and nonsolicitation obligations for a period of 12 months following termination of employment as a condition to receiving severance payments. In addition, as described above under “—Retention Cash Bonus Awards” beginning on page 114, under the terms of the retention awards, each executive officer (other than Mr. Dell) is entitled to receive 75% of the maximum retention award payable under the retention program upon a qualifying termination of employment. The executive officers are obligated to comply with certain noncompetition and nonsolicitation obligations until March 31, 2015, and will be required to return the award in the event of non-compliance. This table assumes for these purposes that a qualifying termination of employment would occur by virtue of the consummation of the merger. The amount shown includes severance payments that would be payable to the executive officer under his employment agreements ($1.55 million for Mr. Gladden and $1.6 million for Mr. Felice) and 75% of his maximum retention award ($581,250 for Mr. Gladden and $600,000 for Mr. Felice). If a qualifying termination does not occur, the severance benefits shown in this column will not be payable to the executive. However, if a qualifying termination does not occur, and the executive remains continuously employed through the payment date, the executive would receive a cash retention award payment in March 2014 in the following amounts: Mr. Gladden, $775,000; and Mr. Felice, $800,000. |
| (2) | For each executive officer, the amount under “Equity” assumes that none of such named executive officer’s Company stock options or Company RSU Awards are rolled over into Parent equity interests as discussed under “—Treatment of Executive Officer and Director Equity Awards—Treatment of Company Stock Options” and “—New Management Arrangements.” The amounts under “Equity” for Mr. Dell consist of (i) $0, equal to the value of payments in cancellation of his Company stock options and (ii) $14,709,149, equal to the product of (x) the total number of shares of Common Stock subject to his Company RSU Awards multiplied by (y) $13.65, plus any additional amounts related to dividend equivalents credited with respect to such Company RSU Awards prior to the effective time. The amounts under “Equity” for Mr. Gladden consist of (i) $2,026,601, equal to the value of payments in cancellation of his Company stock options and (ii) $6,238,957, equal to the product of (i) the total number of shares of Common Stock subject to such Company RSU Awards multiplied by (ii) $13.65, plus any additional amounts related to dividend equivalents credited with respect to such Company RSU Awards prior to the effective time. The amounts under “Equity” for Mr. Felice consist of (i) $723,176, equal to the value of payments in cancellation of his Company stock options and (ii) $6,909,761, equal to the product of (i) the total number of shares of Common Stock subject to such Company RSU Awards multiplied by (ii) $13.65, plus any additional amounts related to dividend equivalents credited with respect to such Company RSU Awards prior to the effective time. With respect to all named executive officers, for purposes of unvested Company RSU Awards, any performance-based |
| vesting condition will be treated as having been attained at the “target” level and all cash amounts received with respect to Company RSU Awards and Company restricted shares are subject to the applicable vesting provisions as described above under “Summary Term Sheet—Treatment of Company Stock Options, Company RSU Awards and Company Restricted Shares.” |
| (3) | Paul Bell and Stephen F. Schuckenbrock were also named executive officers for purposes of the Company’s most recent annual proxy statement; however, Messrs. Bell and Schuckenbrock have since terminated employment with the Company and accordingly are not included in this table. Messrs. Bell and Schuckenbrock are not entitled to any potential benefit in connection with the merger of the types described in this table. |
Potential Change of Control Payments to Other Executive Officers Table. The table below and the related footnotes present information about the elements of compensation payable to the Company’s other current executive officers that may be affected by the merger. As is described below, certain elements of the compensation shown in the table will only be payable if the executive remains employed with the Company for up to several years after the effective time of the merger and other elements may only become payable if the executive is involuntarily terminated from employment under specified circumstances. Although SEC rules do not require presentation of this information in this format, it has been included to permit a uniform presentation of the quantification of the maximum potential change of control payments and benefits that could be received by all of the Company’s executive officers in connection with the merger
| Name |
Cash (1) | Equity (2) | Total | |||||||||
| Jeffrey W. Clarke |
$ | 2,200,000.00 | $ | 10,080,122.40 | $ | 12,280,122.40 | ||||||
| Steven H. Price |
1,390,125.00 | 3,726,099.30 | 5,116,224.30 | |||||||||
| Karen H. Quintos |
1,277,375.00 | 3,679,112.13 | 4,956,487.13 | |||||||||
| John A. Swainson |
2,062,500.00 | 1,221,547.80 | 3,284,047.80 | |||||||||
| Lawrence P. Tu |
1,944,250.00 | 6,025,769.30 | 7,970,019.30 | |||||||||
| Marius Haas |
1,925,000.00 | 4,286,058.00 | 6,211,058.00 | |||||||||
| Suresh Vaswani |
1,705,000.00 | 1,000,497.37 | 2,705,497.37 | |||||||||
| (1) | The amounts under “Cash” consist of severance payments pursuant to the severance agreements into which the Company has entered with each executive officer, as described above under “—Severance Agreements.” This table assumes for these purposes that a qualifying termination of employment would occur following consummation of the merger. Under the severance agreements, executive officers are obligated to comply with certain noncompetition and nonsolicitation obligations for a period of 12 months following termination of employment as a condition to receiving severance payments. In addition, as described above under “—Retention Cash Bonus Awards” beginning on page 114, under the terms of the retention awards, each executive officer is entitled to receive 75% of the maximum retention award payable under the retention program upon a qualifying termination of employment. The executive officers are obligated to comply with certain noncompetition and nonsolicitation obligations until March 31, 2015, and will be required to return the award in the event of non-compliance. This table assumes for these purposes that a qualifying termination of employment would occur by virtue of the consummation of the merger. If a qualifying termination does not occur, the severance benefits listed in this column will not be payable to the executive. However, if a qualifying termination does not occur, and the executive remains continuously employed through the payment date, the executive would receive a cash retention award payment in March 2014 in the following amounts: Mr. Clarke, $800,000; Mr. Price, $505,500; Ms. Quintos, $464,500; Mr. Swainson, $750,000; Mr. Tu, $707,000; Mr. Haas, $700,000; and Mr. Vaswani, $620,000. |
| (2) | For each executive officer (other than Mr. Tu) the amounts under “Equity” assume that none of such executive officer’s Company stock options or Company RSU Awards are rolled over into Parent equity interests as discussed under “—Treatment of Executive Officer and Director Equity Awards—Treatment of Company Stock Options” and “—New Management Arrangements,” and |
| consist of the sum of (i) the aggregate value of payments in cancellation of Company stock options plus, (ii) with respect to Company RSU Awards, an amount in cash equal to the product of (A) the total number of shares of Common Stock subject to such Company RSU Awards multiplied by (B) $13.65, plus any additional amounts related to dividend equivalents credited with respect to such Company RSU Awards prior to the effective time. For Mr. Tu, in addition to the amounts described above, the amounts under “Equity” assume that none of such executive officer’s Company restricted shares are rolled over into Parent equity interests as discussed under “—New Management Arrangements” and accordingly include the value of payments in cancellation of his Company restricted shares, equal to the product of (x) the total number of Company restricted shares multiplied by (y) $13.65, plus any additional amounts related to dividends payable on such Company restricted shares prior to the effective time but which remain subject to the vesting of the Company restricted shares. With respect to all executive officers, for purposes of unvested Company RSU Awards, any performance-based vesting condition will be treated as having been attained at the “target” level and all cash amounts received with respect to Company RSU Awards and Company restricted shares are subject to the applicable vesting provisions as described above under “The Merger Agreement—Treatment of Company Stock Options, Company Stock Unit Awards and Company Restricted Shares” beginning on page 141. |
Payments to Non-Employee Directors in Respect of Unvested Equity Awards and Deferred Compensation Table. The table below shows the outstanding stock options and Company Stock Unit Awards held by each of the Company’s non-employee directors and the value of the payments to be made in consideration of the cancellation of such awards in connection with the merger, as described above under “—Treatment of Executive Officer and Director Equity Awards” beginning on page 116. Except for Mr. Perot’s stock options, all outstanding stock options held by non-employee directors are fully vested and exercisable. Mr. Perot’s stock options were granted on August 14, 2010 and July 15, 2011, were fully vested at grant and became exercisable ratably over five years beginning on the first anniversary of the date of grant. The compensation shown in the table below is not subject to an advisory vote of the Company’s stockholders at the special meeting:
| Name |
Number of Options |
Value of Options |
Number of Company Stock Units |
Value of Company Stock Units |
Value of Accumulated Dividend Equivalent Rights |
|||||||||||||||
| James W. Breyer |
0 | $ | 0 | 22,596 | $ | 308,435.40 | $ | 5,423.04 | ||||||||||||
| Donald J. Carty |
498,047 | 134,110.70 | 22,596 | 308,435.40 | 5,423.04 | |||||||||||||||
| Janet F. Clark |
0 | 0 | 17,046 | 232,677.90 | 4,091.04 | |||||||||||||||
| Laura Conigliaro |
0 | 0 | 17,046 | 232,677.90 | 4,091.04 | |||||||||||||||
| Kenneth M. Duberstein |
0 | 0 | 17,046 | 232,677.90 | 4,091.04 | |||||||||||||||
| William H. Gray, III |
40,403 | 8,772.80 | 22,596 | 308,435.40 | 5,423.04 | |||||||||||||||
| Gerard J. Kleisterlee |
0 | 0 | 18,485 | 252,320.25 | 4,436.40 | |||||||||||||||
| Klaus S. Luft |
42,802 | 9,012.70 | 22,596 | 308,435.40 | 5,423.04 | |||||||||||||||
| Alex J. Mandl |
48,302 | 9,562.70 | 22,596 | 308,435.40 | 5,423.04 | |||||||||||||||
| Shantanu Narayen |
0 | 0 | 22,596 | 308,435.40 | 5,423.04 | |||||||||||||||
| H. Ross Perot, Jr. |
31,341 | 35,767.80 | 22,596 | 308,435.40 | 5,423.04 | |||||||||||||||
Interim Investors Agreement
Parent, the MD Investors, the MSDC Investor, the SLP Investors, Silver Lake Technology Investors III, L.P. (together with the SLP Investors, collectively, the “Silver Lake Parties”) and, solely for the limited purposes therein, the Gift Trusts, have entered into an interim investors agreement. The interim investors agreement provides for, among other things, the following:
| • | Actions of Parent Parties Prior to the Merger. Subject to certain limited exceptions, Mr. Dell and the Silver Lake Parties may cause Parent to act or refrain from taking any action in order for Parent to comply with its obligations or exercise its rights under the merger agreement and the securities purchase agreement. If the Parent Parties receive notice of an intervening event or superior proposal pursuant to the terms of the merger agreement, the Silver Lake Parties may require the MD Investors to discuss whether to amend the merger agreement and the Silver Lake Parties may cause Parent to negotiate with the Company to make such amendments unless the MD Investors inform the Silver Lake Parties that the purchase price per share of Common Stock associated with such amendments is higher than the highest per share price at which the MD Investors are willing to provide equity financing for an acquisition of the Company. The MD Investors have agreed not to enter into any agreement that prevents them from entering into or conducting negotiations with the Silver Lake Parties, modifying or changing their agreements with Parent and/or the Silver Lake Parties or participating in any proposal to modify the terms of the merger agreement or agreeing to any such modification. |
| • | Certain Matters. Each of the parties to the interim investors agreement has represented and covenanted to the other parties thereto that, other than certain limited exceptions, it has not entered, and will not enter, into any agreement with any other potential investor or acquiror of the Company, or with the Company, that relates to the interim investors agreement or any of the related transaction agreements. However, Mr. Dell is not limited or restricted from acting in his capacity as an officer or director of the Company. In addition, prior to adoption of the merger agreement by the Company’s stockholders, Mr. Dell, the other MD Investors and the MSDC Investor are also not limited or restricted from having negotiations or entering into any agreements in connection with an acquisition proposal so long as (i) the Company is permitted to engage in discussions with such persons regarding an acquisition proposal under the merger agreement and (ii) any such agreements do not prevent Mr. Dell, the other MD Investor and the MSDC Investor from fulfilling their obligations under the interim investors agreement. |
| • | Employee Arrangements. The interim investors agreement provides that Parent will, and will cause the Company to, enter into an employment agreement with Mr. Dell at the merger closing on the terms described under “—New Employment Agreement with Mr. Dell” beginning on page 122. |
| • | Transfer Restrictions. Each of the MD Investors and the Gift Trusts have agreed not to transfer prior to the termination date of the interim investors agreement any shares of Common Stock or other voting securities of the Company they beneficially own, or enter into any contract, option or other agreement or understanding with respect to any such transfer, subject to exceptions for certain permitted transfers. However, the Gift Trusts have agreed to sell to Mr. Dell, on or prior to the consummation of the merger (but conditional upon the occurrence of the closing of the merger), all of the shares of Common Stock owned by such Gift Trusts as of February 5, 2013. |
| • | Expenses. In the event that the merger is consummated, Parent will, and to the extent necessary, will cause the surviving corporation to, assume and pay or reimburse each of the MD Investors, the MSDC Investor, the Silver Lake Parties and the Gift Trusts for third party costs and expenses incurred in connection with the merger agreement, securities purchase agreement, the merger and any other agreements or transactions contemplated hereby and thereby. In the event that the merger is not consummated and neither termination fees nor expense reimbursement are payable by the Company to Parent, then each of the MD Investors and the SLP Investors will pay 50% of the costs and expenses payable by the Parent Parties, the Silver Lake Parties, the MD Investors and the MSDC Investor. In the event that the merger is not consummated and a termination fee or expense reimbursement is payable |
| by the Company, then each of the Silver Lake Parties, the MD Investors and the MSDC Investor will bear their own expenses. |
| • | Payments. The interim investors agreement provides that any termination fee paid by the Company to Parent in accordance with the merger agreement shall be paid only to the Silver Lake Parties or their designees; none of Mr. Dell, the other MD Investor or the MSDC Investor is entitled to receive any portion of any such termination fee paid by the Company. Furthermore, the interim investors agreement provides that the MD Investors, the MSDC Investor and the Silver Lake Parties are entitled to receive a pro rata share of any payments (excluding any termination fee paid by the Company) payable to the Parent Parties pursuant to or under the merger agreement or as damages relating to a failure of the debt financing. See “The Merger Agreement—Specific Performance” beginning on page 165. |
The foregoing summary of the interim investors agreement is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.
Equity Investment by Mr. Dell
Parent and the MD Investors have entered into the MD equity commitment letter described above under “—Financing for the Merger—MD Investors Equity Financing” beginning on page 103.
New Employment Agreement with Mr. Dell
Effective as of the closing of the merger, Mr. Dell has agreed to enter into a new employment agreement with Parent and the Company. The principal terms of the proposed employment agreement with Mr. Dell are set forth below:
| • | Title. Mr. Dell will serve as the Chief Executive Officer of Parent and the Company and as Chairman of both Parent’s board of directors and the Company’s board of directors. |
| • | Term. The term of Mr. Dell’s employment is indefinite and may only be terminated (i) by Mr. Dell; or (ii) by Parent’s board of directors (a) for cause at any time or (b) following a change in control of Parent or an initial public offering, whichever occurs earlier. |
| • | Base Salary. Mr. Dell will be entitled to receive an initial annual base salary of $950,000. The base salary will be subject to annual review by Parent’s board of directors and may be increased, but not decreased. |
| • | Annual Bonus. Mr. Dell will be eligible to earn an annual bonus pursuant to the bonus plan applicable to senior executive officers of the Company, with a target equal to 200% of base salary. |
| • | Equity Compensation. Following the closing of the merger, Parent will grant Mr. Dell stock options with a 10-year term to purchase shares of Parent common stock having an aggregate exercise price of $150 million, with a per share exercise price equal to the price per share paid by the SLP Investors and/or their respective affiliates to acquire shares of Parent common stock in the merger. Subject to Mr. Dell’s continued employment with Parent and the Company or continued service as a director on the Company’s board of directors or Parent’s board of directors on each applicable vesting date, the options will vest in equal installments on each of the first five anniversaries of the merger (i.e., 20% per year). The options will fully vest upon the occurrence of a change in control of Parent. |
| • | Perquisites. In addition to being able to participate in the employee benefit plans and perquisite and fringe benefit programs provided to the Company’s senior executives, Mr. Dell will be entitled to (a) reimbursement up to $12,500 per year for fees incurred with respect to financial counseling and tax preparation assistance; (b) reimbursement up to $5,000 per person per year for costs associated with a comprehensive annual physical for himself and his spouse; (c) Company-provided business-related security protection and (d) reimbursement for all travel and business expenses. |
| • | Section 280G Golden Parachute Payments. Following the closing of the merger and while no stock of the Company or Parent is readily tradable on an established securities market, if any payments or benefits Mr. Dell would receive would trigger an excise tax under Section 4999 of the Code, the Company and Parent will use their reasonable best efforts to obtain a vote of shareholders satisfying the requirements of Section 280G of the Code such that no portion of such payments or benefits will be subject to the excise tax. |
| • | Restrictive Covenants. Mr. Dell will be subject to a perpetual confidentiality covenant for sensitive information relating to Parent, the Company and any of their subsidiaries, and to a covenant assigning to Parent, the Company and their affiliates intellectual property created by him during and within the scope of his employment. |
The foregoing summary of the employment agreement is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.
New Management Arrangements
As of the date of this proxy statement, other than the arrangements previously discussed in this section “—Interests of the Company’s Directors and Executive Officers in the Merger,” none of our executive officers (other than Mr. Dell, as described under “—Equity Investment by Mr. Dell” and “—New Employment Agreement with Mr. Dell”) has entered into any agreement, arrangement or understanding with the Company or its subsidiaries or with the Parent Parties or their respective affiliates specifically regarding employment with, or the right to participate in the equity of, the surviving corporation or Parent on a going-forward basis following the completion of the merger and, except for Mr. Dell, no member of our Board of Directors has entered into any agreement, arrangement or understanding with Parent or its affiliates regarding the right to participate in the equity of Parent following the completion of the merger.
Parent has indicated that it or its affiliates may pursue agreements, arrangements or understandings with the Company’s executive officers, which may include cash, stock and other equity co-investment opportunities such as the potential rollover of shares of Common Stock and Company RSU Awards. Prior to the effective time of the merger, Parent may initiate negotiations of these agreements, arrangements and understandings, and may enter into definitive agreements regarding employment with, or the right to participate in the equity of, the surviving corporation or Parent on a going-forward basis following the completion of the merger.
Voting Agreement
The Company has entered into the voting agreement with the MD Investors and the Gift Trusts. As of May 22, 2013, the last practicable date before the printing of this proxy statement, the MD Investors and the Gift Trusts hold shares of the Company’s Common Stock representing approximately 15.6% of the Company’s total issued and outstanding shares.
Pursuant to the voting agreement, the MD Investors and the Gift Trusts agreed, unless the Board has made a change of recommendation, to vote, or cause to be voted, all outstanding shares of the Common Stock owned by them in favor of the proposal to adopt the merger agreement and the approval of the transactions contemplated thereby and against any other action or agreement that would reasonably be expected to (i) result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the merger agreement, (ii) result in any of the conditions to the consummation of the merger under the merger agreement not being fulfilled or (iii) impede, frustrate, interfere with, delay, postpone or adversely affect the merger and the other transactions contemplated by the merger agreement.
In addition, pursuant to the voting agreement, the MD Investors and the Gift Trusts have agreed in the voting agreement to vote their shares of Common Stock in the same proportion to the number of shares voted by the
Company’s unaffiliated stockholders (i) in favor of a superior proposal if the merger agreement is terminated and, in connection with such termination, the Company enters into a definitive agreement with respect to such superior proposal, which superior proposal is recommended to the stockholders by action of the Board, the Special Committee or any other duly constituted committee of the Board (or, in each of the MD Investors’ and/or Gift Trusts’ sole discretion, to vote all of their shares in favor of such superior proposal) or (ii) in favor of the adoption of the merger agreement in the event of a change of recommendation.
In addition, pursuant to the voting agreement, the MD Investors and the Gift Trusts have agreed in the voting agreement, if requested to do so by the Board or the Special Committee, to explore in good faith the possibility of working with any third parties regarding any alternative acquisition proposal to the extent the Company is permitted to engage in discussion with such third parties under the merger agreement, including by reviewing and responding to proposals and taking part in meetings and negotiations with respect thereto, and have represented that they are not subject to any agreement that would prevent them from doing so.
The voting agreement will terminate at the effective time of the merger or, if earlier, the date of the termination of the merger agreement, unless there is a superior proposal, in which case the termination will occur upon the earlier of the consummation of the superior proposal and the termination of the definitive agreement relating to the superior proposal.
Advisory Vote on Specified Compensation
In accordance with Section 14A of the Exchange Act, the Company is providing its stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may become payable to the named executive officers of the Company in connection with the merger, the value of which is set forth in the table above. As required by Section 14A of the Exchange Act, the Company is asking its stockholders to vote on the adoption of the following resolution:
“RESOLVED, that the compensation that may be paid or become payable to the Company’s named executive officers in connection with the merger, as disclosed in the table under “—Interests of the Company’s Directors and Executive Officers in the Merger—Quantification of Payments and Benefits—Potential Change of Control Payments to Named Executive Officers Table,” including the associated footnotes and narrative discussion, is hereby APPROVED.”
The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote on the proposal to adopt the merger agreement. Accordingly, you may vote to approve the executive compensation and vote not to approve the proposal to adopt the merger agreement and vice versa. Because the vote to approve the executive compensation is advisory in nature only, it will not be binding on either the Company or Parent. Because the Company is contractually obligated to pay such executive compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the proposal to adopt the merger agreement is approved and regardless of the outcome of the advisory vote.
Approval of the advisory resolution on executive compensation payable to the Company’s named executive officers in connection with the merger requires the affirmative vote of the holders of a majority of the voting power of the Common Stock present or represented by proxy and entitled to vote thereon. Abstentions will have the same effect as a vote “AGAINST” the proposal, but the failure to vote your shares will have no effect on the outcome of the proposal. Broker non-votes will have no effect on the outcome of the proposal.
The Board (without Mr. Dell’s participation) recommends a vote “FOR” this proposal.
