NOTICE OF ANNUAL MEETING PROXY STATEMENT 2005

Transcription

1 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2005 Dear Fellow Stockholders: May 31, 2005 On behalf of the Board of Directors, it is my pleasure to invite you to Dell's 2005 Annual Meeting of Stockholders. The meeting will be held on Friday, July 15, 2005, at 8:00 a.m. Central Time, in Ballroom D on the 4th Floor of the Austin Convention Center, 500 E. Cesar Chavez, Austin, Texas For your convenience, we are also oåering a Webcast of the meeting. If you choose to view the Webcast, go to shortly before the meeting time and follow the instructions provided. If you miss the meeting, you can view a replay of the Webcast on that site until August 15, You will Ñnd information regarding the matters to be voted on in the attached Notice of Annual Meeting of Stockholders and Proxy Statement. A copy of our Annual Report on Form 10-K and a copy of the brochure entitled ""Dell Fiscal 2005 in Review'' are enclosed with these materials. We also oåer you the opportunity to receive future stockholder communications electronically. By signing up for electronic delivery, you can receive stockholder communications faster and can help us reduce our printing and mailing costs. For more information, see ""Electronic Delivery of Stockholder Communications'' on page ii inside. This meeting is for Dell stockholders. If you attend the meeting in person, you will need the enclosed admission ticket and proper photo identiñcation for entry into the meeting. If you have received your materials electronically, you may request a ticket from You may also receive a ticket at the door by presenting proper photo identiñcation and an account statement showing your ownership of Dell stock. Whether or not you plan to attend the meeting in person, please submit your vote using one of the voting methods described in the attached materials. Submitting your vote by any of these methods will not aåect your right to attend the meeting and vote in person should you so choose. If you have any questions concerning the meeting, please contact Dell's Investor Relations Department at or Dell Investor Relations@dell.com. For questions regarding your stock ownership, you may contact our transfer agent, American Stock Transfer & Trust Company, at or Sincerely, Michael S. Dell Chairman of the Board

2 TABLE OF CONTENTS Notice of Annual Meeting of Stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ i Electronic Delivery of Stockholder CommunicationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ ii Webcast of Annual MeetingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ ii Proxy Statement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Proposal 1 Ì Election of Directors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 Director Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 Corporate Governance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 Corporate Governance Principles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 Director Independence ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 Committees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 Meetings and AttendanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10 Communicating with Directors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10 Director Compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10 Proposal 2 Ì RatiÑcation of Independent AuditorÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 Stockholder Proposal 1 Ì Majority Voting for Directors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13 Dell's Statement in Opposition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15 Stockholder Proposal 2 Ì Expensing Stock OptionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 Dell's Statement in Opposition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18 Executive Compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19 Compensation Committee Report ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19 Compensation Committee Interlocks and Insider Participation ÏÏÏÏÏÏÏÏÏÏ 23 Summary Compensation TableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24 Stock Options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 Option Grants in Last Fiscal Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Long-Term Cash Incentive Bonus Program ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26 Equity Compensation PlansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 Other BeneÑt Plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28 Employment Agreements and Change-in-Control Arrangements ÏÏÏÏÏÏÏÏ 29 Five-Year Performance Graph ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30 Stock Ownership ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31 Stock Ownership Requirements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32 Report of the Audit Committee ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32 Additional Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 Record Date; Shares Outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 Quorum ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 Proxies; Right to Revoke ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 Default Voting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 Voting by Street Name Holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34 Tabulation of Votes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34 Proxy Solicitation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34 Director Nomination ProcessÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35 Stockholder Proposals for Next Year's Meeting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37 Section 16(a) BeneÑcial Ownership Reporting Compliance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37 Code of Conduct ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37 Stockholder List ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 38 Annual Report on Form 10-K ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 38

3 DELL INC. One Dell Way Round Rock, Texas NOTICE OF ANNUAL MEETING OF STOCKHOLDERS Date ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Friday, July 15, 2005 Time ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8:00 a.m., Central Time Place ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Austin Convention Center Ì Ballroom D, 4th Floor 500 E. Cesar Chavez Austin, Texas Webcast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Proposals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Proposal 1 Ì Election of Directors Record DateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ May 20, 2005 Proposal 2 Ì RatiÑcation of Independent Auditor Stockholder Proposal 1 Ì Majority Voting for Directors Stockholder Proposal 2 Ì Expensing Stock Options Voting MethodsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Internet Ì Go to Telephone Ì Use the toll-free number shown on the proxy card Written ballot Ì Complete and return a proxy card In person Ì Attend and vote at the meeting Stockholders will also transact any other business properly brought before the meeting. At this time, the Board of Directors knows of no other proposals or matters to be presented. The Proxy Statement is accompanied by a copy of the Annual Report on Form 10-K and a copy of the brochure entitled ""Dell Fiscal 2005 in Review.'' On behalf of the Board of Directors: Lawrence P. Tu, Secretary May 31, 2005

4 ELECTRONIC DELIVERY OF STOCKHOLDER COMMUNICATIONS Our Proxy Statement, Annual Report on Form 10-K and ""Dell Fiscal 2005 in Review'' brochure are available electronically. As an alternative to receiving printed copies of these materials in future years, you may elect to receive and access them electronically. By signing up for electronic delivery, you can receive stockholder communications as soon as they are available without waiting for them to arrive in the mail. You can also reduce the number of bulky documents in your personal Ñles, eliminate duplicate mailings, conserve natural resources and help us reduce our printing and mailing costs. To sign up for electronic delivery, please vote via the Internet at and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years. If you have any questions about electronic delivery, please contact Dell's Investor Relations Department at or Dell Investor For additional information, please visit. WEBCAST OF ANNUAL MEETING We are pleased to oåer a Webcast of our 2005 annual meeting, and viewers, like attendees, will have the ability to ask questions online during the question and answer session. If you choose to view the Webcast, go to shortly before the meeting time and follow the instructions provided. If you miss the meeting, you can view a replay of the Webcast on that site until August 15, Please note that you will not be able to vote your shares via the Webcast. If you plan to view the Webcast, please submit your vote using one of the methods described in the accompanying materials prior to the meeting. ii

5 PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation of proxies by Dell Inc., on behalf of the Board of Directors, for the 2005 Annual Meeting of Stockholders. This Proxy Statement and the related proxy form are being distributed on or about June 8, You can vote your shares using one of the following methods: Vote through the Internet at using the instructions on the proxy card Vote by telephone using the toll-free number shown on the proxy card Complete and return a written proxy card Attend and vote at the meeting Internet and telephone voting are available 24 hours a day, and if you use one of those methods, you do not need to return a proxy card. Unless you are planning to vote at the meeting, your vote must be received by 11:59 p.m., Eastern Time, on July 14, Even if you submit your vote by one of the Ñrst three methods mentioned above, you may still vote at the meeting if you are a record holder of your shares or hold a legal proxy from the record holder. See ""Additional Information Ì Voting by Street Name Holders.'' Your vote at the meeting will constitute a revocation of your earlier voting instructions. Stockholders are being asked to consider four proposals at the meeting. The following is a summary of the proposals and the voting recommendations of the Board of Directors: SUMMARY OF PROPOSALS Board Proposal Recommendation 1 Ó Election of DirectorsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ FOR 2 Ó RatiÑcation of Independent Auditor ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ FOR Stockholder Proposal 1 Ó Majority Voting for Directors ÏÏÏÏÏÏÏÏÏÏÏÏ AGAINST Stockholder Proposal 2 Ó Expensing Stock Options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AGAINST The details of each proposal are set forth below. 1

6 PROPOSAL 1 Ì ELECTION OF DIRECTORS The Ñrst proposal to be voted on at the meeting is the election of directors. The directors elected at this meeting will serve until next year's annual meeting. The Board of Directors currently consists of ten director positions, and the Board's nominees for those positions are: Donald J. Carty Michael S. Dell William H. Gray, III Judy C. Lewent Thomas W. Luce, III Klaus S. Luft Alex J. Mandl Michael A. Miles Samuel A. Nunn, Jr. Kevin B. Rollins Each of these nominees is currently serving as a Dell director. Biographical information about each of these nominees is included under ""Director Information'' below. The Board of Directors recommends a vote ""FOR'' all nominees. If a nominee becomes unable or unwilling to accept nomination or election, the Board will either select a substitute nominee or reduce the size of the Board. If you have submitted a proxy and a substitute nominee is selected, your shares will be voted for the election of the substitute nominee. President George W. Bush has nominated Mr. Luce to be Assistant Secretary of Education (Planning, Evaluation and Policy Development). Mr. Luce intends to continue to serve on the Dell Board until his nomination is conñrmed by the U.S. Senate. Subject to that limited exception, the Board has no reason to believe that any other nominee would be unable or unwilling to serve if elected. In accordance with Dell's Bylaws, directors are elected by a plurality of the votes of shares represented and entitled to be voted at the meeting. That means the nominees will be elected if they receive more açrmative votes than any other nominees. 2

7 Director Information Set forth below is biographical and other information, as of May 20, 2005, about the persons who will make up the Board following the meeting, assuming election of the nominees named above. Donald J. Carty Age: 58 Director since December 1992 Board committees: Audit (Chair) Michael S. Dell Age: 40 Director since May 1984 No Board committees Mr. Carty is the former Chairman of the Board and Chief Executive OÇcer of AMR Corporation, positions he held from 1998 until April From 1998 to 2002, Mr. Carty also held the position of President of AMR Corporation. From 1995 to 1998, he was President AMR Airline Group/ AA for American Airlines, Inc., a subsidiary of AMR Corporation. Mr. Carty held other executive level positions with American Airlines, Inc. or its subsidiaries from 1978 to Mr. Carty is also a director of Sears Holdings Corporation, CHC Helicopter Corporation, Hawaiian Holdings, Inc., SolutionsInc. Ltd. and PlacerDome, Inc. Mr. Dell currently serves as Chairman of the Board of Directors of Dell. He has held this role since he founded the company in Mr. Dell also served as Chief Executive OÇcer of Dell from 1984 until July He sits on the Foundation Board of the World Economic Forum, serves on the executive committee of the International Business Council and is a member of the U.S. Business Council. He also serves on the U.S. President's Council of Advisors on Science and Technology and sits on the governing board of the Indian School of Business in Hyderabad, India. 3

8 William H. Gray, III Age: 63 Director since November 2000 Board committees: Audit, Governance and Nominating Judy C. Lewent Age: 56 Director since May 2001 Board committees: Finance, Compensation Thomas W. Luce, III Age: 64 Director since November 1991 Board committees: Audit, Finance Beginning June 2005, Mr. Gray will be the Head of Public Policy and Business Diversity of Buchanan Ingersoll PC. He is the former President and Chief Executive Of- Ñcer of The College Fund/ UNCF, positions he held from September 1991 to June In June 2005, Mr. Gray will become Pastor Emeritus of the Bright Hope Baptist Church in Philadelphia, after having served as Senior Minister since From 1979 to 1991, Mr. Gray served as a United States Congressman from Pennsylvania. During his tenure, he was Chairman of the House Budget Committee, a member of the Appropriations Committee, Chairman of the House Democratic Caucus and Majority Whip. Mr. Gray is also a director of J.P. Morgan Chase & Co., Prudential Financial Inc., Visteon Corporation and PÑzer Corporation. Ms. Lewent is Executive Vice President, Chief Financial OÇcer and President, Human Health Asia of Merck & Co., Inc. She has served as Chief Financial OÇcer of Merck since 1990 and has also held various other Ñnancial and management positions since joining Merck in Ms. Lewent is a director of Motorola, Inc. Ms. Lewent is also a trustee and the chairperson of the audit committee of the Rockefeller Family Trust, a life member of the Massachusetts Institute of Technology Corporation, a director of the National Bureau of Economic Research, a member of the Penn Medicine Board and a member of the American Academy of Arts and Sciences. Mr. Luce is a partner with Luce & Williams, Ltd., a business advisory Ñrm. He was formerly Of Counsel with the law Ñrm Hughes & Luce, L.L.P., Dallas, Texas, having retired in December 2003 after having co-founded the Ñrm in From October 1991 through April 1992, Mr. Luce was Chairman of the Board and Chief Executive OÇcer of First Southwest Company, a Dallas-based investment Ñrm that is a member of the National Association of Securities Dealers, Inc. 4

9 Klaus S. Luft Age: 63 Director since March 1995 Board committees: Compensation Alex J. Mandl Age: 61 Director since November 1997 Board committees: Finance (Chair) Mr. Luft is the founder and Chairman of the Supervisory Board of Artedona AG, a privately held mail order e-commerce company established in 1999, headquartered in Munich, Germany. He is also owner and President of Munich-based MATCH Ì Market Access for Technology Services GmbH. Since August 1990, Mr. Luft has served and continues to serve as Vice Chairman and International Advisor to Goldman Sachs Europe Limited. From March 1986 to November 1989, he was Chief Executive Of- Ñcer of Nixdorf Computer AG, where he served for more than 17 years in a variety of executive positions in marketing, manufacturing and Ñnance. Mr. Luft is the donator and Chairman of the Klaus Luft Foundation, which focuses on supporting young students' university education and the arts. He is also the Honorary Consul of the Republic of Estonia in the State of Bavaria. 5 Mr. Mandl has been President and Chief Executive OÇcer and a member of the Board of Directors of Gemplus International S.A. since August He has served as Principal of ASM Investments, a company focusing on early stage funding in the technology sector since April From 1996 to March 2001, Mr. Mandl was Chairman and CEO of Teligent, Inc., which oåered business customers an alternative to the Bell Companies for local, long distance and data communication services. With the collapse of the new local competitive telecom (CLEC) industry and the closing of capital markets for this sector, on May 21, 2001 Teligent Ñled for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. Mr. Mandl was AT&T's President and Chief Operating Of- Ñcer from 1994 to 1996, and its Executive Vice President and Chief Financial OÇcer from 1991 to From 1988 to 1991, Mr. Mandl was Chairman of the Board and Chief Executive OÇcer of Sea-Land Services Inc. Mr. Mandl is a board member of Haas School of Business at the University of California at Berkeley, Willamette Univer

10 sity and the American Enterprise Institute for Public Policy Research. Michael A. Miles Age: 65 Director since February 1995 Board committees: Compensation (Chair), Governance and Nominating Samuel A. Nunn, Jr. (Presiding Director) Age: 66 Director since December 1999 Board committees: Audit, Governance and Nominating (Chair) Kevin B. Rollins Age: 52 Director since July 2004 No Board committees Mr. Miles is a special limited partner and a member of the Advisory Board of the investment Ñrm Forstmann Little and Co. He is the former Chairman of the Board and Chief Executive OÇcer of Philip Morris Companies Inc., having served in those positions from September 1991 to July Prior to September 1991, Mr. Miles was Vice Chairman and a member of the board of directors of Philip Morris Companies Inc. Mr. Miles is also a director of Time Warner Inc., AMR Corporation, Morgan Stanley, Citadel Broadcasting Corporation and Sears Holdings Corporation Mr. Miles is also a trustee of Northwestern University. Mr. Nunn is co-chairman and Chief Executive OÇcer of the Nuclear Threat Initiative (NTI), a charitable organization working to reduce the global threats from nuclear, biological and chemical weapons. He was a Senior Partner at the law Ñrm of King & Spalding, Atlanta, Georgia, from 1997 until December From 1972 through 1996, he served as a United States Senator from Georgia. During his tenure as Senator, he served as Chairman of the Senate Armed Services Committee and the Permanent Subcommittee on Investigations. He also served on the Intelligence and Small Business Committees. Mr. Nunn serves as a director of the following publicly-held companies: ChevronTexaco Corporation, The Coca-Cola Company, General Electric Company, Internet Security Systems, Inc. and ScientiÑc-Atlanta, Inc. Mr. Rollins is President and Chief Executive OÇcer of Dell. He joined Dell in April 1996 as Senior Vice President, Corporate Strategy, was named Senior Vice President, General Manager Ì Americas in May 1996, and was named Vice Chairman in In 2001, Mr. Rollins' title was changed from Vice Chairman to President and Chief Operating OÇcer, and he was named Chief Executive OÇcer in July For 12 years 6

11 prior to joining Dell, Mr. Rollins was employed by Bain & Company, an international strategy consulting Ñrm, most recently serving as a director and partner. Mr. Rollins is a member of the President's Leadership Council and the Marriott School National Advisory Council at Brigham Young University, where he founded and continues to sponsor the Rollins Center for E-Commerce. In April 2003, Mr. Rollins was appointed by President George W. Bush to serve on the Advisory Committee for Trade Policy and Negotiation, oåering counsel to the U.S. Trade Representative on matters of policy aåecting national interests, and is a member of the Computer Systems Policy Project and the U.S. Business Council. Mr. Rollins is also a member of the board of directors of Catalyst Inc., a leading nonproñt organization dedicated to the advancement of women in the workplace. Corporate Governance Corporate Governance Principles Ì The Board of Directors believes that adherence to sound corporate governance policies and practices is important in ensuring that Dell is governed and managed with the highest standards of responsibility, ethics and integrity and in the best interests of its stockholders. The Board maintains a set of Corporate Governance Principles, which provide an eåective corporate governance framework for Dell and are intended to reöect a set of core values that provide the foundation for Dell's governance and management systems and its interactions with others. A copy of those principles can be found on Dell's website at Director Independence Ì The Board believes that the interests of the stockholders are best served by having a substantial number of objective, independent representatives on the Board. For this purpose, a director will be considered to be ""independent'' only if the Board açrmatively determines that the director does not have any direct or indirect material relationship with Dell that may impair, or appear to impair, the director's ability to make independent judgments. 7

12 The Board has recently evaluated all relationships between each director and Dell and has made the following determinations with respect to each director's independence: DIRECTOR INDEPENDENCE Director Mr. CartyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. Dell ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. Gray ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ms. LewentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. Luce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. Luft ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. Mandl ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. MilesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. NunnÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Mr. Rollins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Status a Independent Not independent b Independent Independent Independent c Independent Independent Independent Independent Not independent d a Ó Unless otherwise noted, the Board's determination that a director is independent was made on the basis of the standards set forth in the Corporate Governance Principles. b Ó Mr. Dell is the Chairman of the Board and an executive oçcer of Dell and, therefore, is not independent in accordance with the standards set forth in the Corporate Governance Principles. c Ó During 2004, Mr. Luce served as a director of, but was not compensated by, AP Strategies, Inc., a not-for-proñt organization dedicated to increasing successful participation in advanced placement curriculum classes by minority and underserved children. During 2004, The Michael and Susan Dell Foundation contributed $325,000 to AP Strategies, Inc., which amount constituted approximately 3% of the organization's charitable receipts for The Board has concluded that the contribution is not material and does not otherwise impair, or appear to impair, Mr. Luce's ability to make independent judgments and, therefore, does not prevent Mr. Luce from being considered an ""independent'' director. d Ó Mr. Rollins is Dell's President and Chief Executive OÇcer and, therefore, is not independent in accordance with the standards set forth in the Corporate Governance Principles. The Board will continue to monitor the standards for director independence established under applicable law or Nasdaq listing requirements and will ensure that Dell's Corporate Governance Principles continue to be consistent with those standards. Dell purchases services, supplies and equipment in the normal course of business from many suppliers and sells or leases products and services to many customers. In some instances, these transactions occur with companies with which members of the Board of Directors have relationships as directors or executive oçcers. For Ñscal 2005, none of these transactions was signiñcant or reportable, either individually or collectively. 8

13 Committees Ì The Board maintains the following committees to assist it in discharging its oversight responsibilities: Audit Committee Ì The Audit Committee assists the Board in fulñlling its responsibility to provide oversight with respect to Dell's Ñnancial statements and reports and other disclosures provided to stockholders, the system of internal controls, the audit process and legal and ethical compliance. Its primary duties include reviewing the scope and adequacy of Dell's internal and Ñnancial controls; reviewing the scope and results of the audit plans of Dell's independent and internal auditors; reviewing the objectivity, eåectiveness and resources of the internal audit function; appraising Dell's Ñnancial reporting activities and the accounting standards and principles followed; and reviewing and approving ethics and compliance policies. The Audit Committee also selects, engages, compensates and oversees Dell's independent auditor and pre-approves all services to be performed by that Ñrm. The Audit Committee is comprised entirely of directors who satisfy the standards of independence established under Dell's Corporate Governance Principles, as well as additional or supplemental independence standards applicable to audit committee members established under applicable law and Nasdaq listing requirements. The Board has determined that each Audit Committee member meets the Nasdaq ""Ñnancial literacy'' requirement and that Mr. Carty, the current Chair of the Audit Committee, is a ""Ñnancial expert'' within the meaning of the current rules of the Securities and Exchange Commission. Compensation Committee Ì The Compensation Committee reviews and approves, on behalf of the Board, the amounts and types of compensation to be paid to Dell's executive oçcers and the non-employee directors; reviews and approves, on behalf of the Board, all bonus and equity compensation to be paid to other Dell employees; and administers Dell's stock-based compensation plans. The Compensation Committee is comprised entirely of directors who satisfy the standards of independence established in Dell's Corporate Governance Principles, as well as additional or supplemental independence standards applicable to compensation committee members established under applicable law and Nasdaq listing requirements. Governance and Nominating Committee Ì The Governance and Nominating Committee oversees all matters of corporate governance for Dell, including formulating and recommending to the full Board governance policies and processes and monitoring and safeguarding the independence of the Board, and selects, evaluates and recommends to the full Board qualiñed candidates for election or appointment to the Board. This committee also recommends the structure and membership of the Board committees and administers an annual self-evaluation of Board performance. This committee is also responsible for monitoring, on behalf of the Board, Dell's sustainability and corporate responsibility activities and initiatives. The Governance and Nominating Committee is comprised entirely of directors who satisfy the standards of independence established in Dell's Corporate Governance Principles, as well as additional or supplemental independence standards applicable to 9

14 nominating committee members established under applicable law and Nasdaq listing requirements. For information regarding the Governance and Nominating Committee's policies and processes for identifying, evaluating and selecting director candidates, including candidates recommended by stockholders, see ""Additional Information Ì Director Nomination Process'' below. Finance Committee Ì The Finance Committee oversees all areas of corporate Ñnance for Dell, including capital structure, equity and debt Ñnancings, capital expenditures, cash management, banking activities and relationships, investments, foreign exchange activities and share repurchase activities. Each committee is governed by a written charter approved by the full Board. These charters form an integral part of the Corporate Governance Principles, and a copy of each charter can be found with those principles on Dell's website at Meetings and Attendance Ì During Ñscal 2005, the full Board held Ñve meetings, the Audit Committee met ten times, the Compensation Committee met Ñve times, the Governance and Nominating Committee met four times and the Finance Committee met four times. All current directors attended at least 75% of the meetings of the full Board and the meetings of the committees on which they served. It is Dell's policy that each director is expected to attend the annual meeting of stockholders, and that policy has been incorporated into the Corporate Governance Principles. All ten directors attended last year's stockholders meeting. Communicating with Directors Ì Dell stockholders may send communications to the Board of Directors as a whole, the independent directors as a group, any Board committee, the Presiding Director or any other individual member of the Board. Any stockholder who wishes to send such a communication may obtain the appropriate contact information at The Board has implemented procedures for processing stockholder communications, and a description of those procedures can also be found at Director Compensation Mr. Dell and Mr. Rollins are the only directors who are also Dell employees, and they do not receive any additional compensation for serving on the Board of Directors. Annual Retainer Fee Ì Each non-employee director receives an annual retainer fee, which was $60,000 during Ñscal The director can receive that amount in cash, can defer all or a portion of it into a deferred compensation plan or, at the discretion of the Compensation Committee, can receive fair market value stock options or restricted stock in lieu of cash. Amounts deferred into the deferred compensation plan are payable in a lump sum or in installments beginning upon termination of service as a director. The number of options or shares of restricted stock received in lieu of the annual retainer fee (or the method of computing the number) and the 10

15 terms and conditions of those awards are determined from time to time by the Compensation Committee. Option or Stock Awards Ì The non-employee directors are also eligible for stock option and restricted stock awards. The number of options or shares awarded, as well as the other terms and conditions of the awards (such as vesting and exercisability schedules and termination provisions) are generally within the discretion of the Compensation Committee, except that (1) no non-employee director may receive awards (not including awards in lieu of annual cash retainer) covering more than 50,000 shares of stock in any year (other than the year the director joins the Board, when the limit is two times the normal annual limit), (2) no more than 20% of the awards granted to a non-employee director during a year (not including awards in lieu of annual cash retainer) may consist of restricted stock, (3) the exercise price of any option cannot be less than the fair market value of the stock on the date of grant and (4) no option can become exercisable, and no share of restricted stock can become transferable, earlier than six months from the date of grant. In addition, like all options granted under Dell's 2002 Long-Term Incentive Plan, no option granted to non-employee directors can be ""repriced'' if the eåect would be to reduce the exercise price per share. Other BeneÑts Ì Dell reimburses directors for the reasonable expenses associated with attending Board meetings and provides them with liability insurance coverage for their activities as directors of Dell. Under Dell's CertiÑcate of Incorporation and Bylaws, the directors are entitled to indemniñcation from Dell to the fullest extent permitted by Delaware corporate law. Dell has entered into indemniñcation agreements with each of the non-employee directors. Those agreements do not increase the extent or scope of the indemniñcation provided, but were entered into to establish processes and procedures for indemniñcation claims. Compensation During Fiscal 2005 Ì The following table describes the compensation paid to the non-employee directors for the last Ñscal year. Cash Restricted Options Name Payments Stock a Granted b Mr. Carty c ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0 3,559 7,492 Mr. Gray c ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30,000 2,716 7,492 Ms. Lewent c ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 3,559 7,492 Mr. Luce c ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 3,559 7,492 Mr. Luft c ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 3,559 7,492 Mr. Mandl c ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 3,559 7,492 Mr. Miles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60,000 1,873 7,492 Mr. Nunn d ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 1,873 12,549 a Ó EÅective July 16, 2004, each non-employee director received 1,873 shares of restricted stock. The restrictions lapse ratably over Ñve years (20% per year), so long as the director remains a member of the Board. All unvested restricted stock is forfeited when the director ceases to be a member of the Board for any reason other than death or permanent disability. All unvested restricted stock vests immediately upon death or permanent disability. 11

16 b Ó EÅective July 16, 2004, each non-employee director received options to purchase 7,492 shares of common stock with an exercise price of $ per share. The options vest and become exercisable ratably over Ñve years (20% per year), so long as the director remains a member of the Board. All unvested options terminate when the director ceases to be a member of the Board for any reason other than death or permanent disability. If the director ceases to be a member of the Board because of death or permanent disability, all unvested options vest immediately and all options terminate one year after the director ceases to be a member of the board. If the director resigns at the request or demand of the Board, or is otherwise removed from the Board, all vested options terminate immediately. If the director resigns for any other reason, all vested options terminate 90 days after such resignation. In any event, the options terminate ten years from the date of grant unless otherwise terminated as described above. The options are transferable to family members under speciñed conditions. c Ó Elected to receive restricted stock in lieu of some or all of the annual retainer. The number of shares of restricted stock granted was determined by dividing the foregone retainer amount by the fair market value of the common stock on the date of grant ($35.595). The restrictions lapsed on January 15, 2005, six months after the date of grant. d Ó Elected to receive options in lieu of the annual retainer. The number of options granted was determined by dividing 300% of the foregone retainer amount by the exercise price, which was set at the fair market value of the common stock on the date of grant ($35.595). The options are fully vested, but they become exercisable ratably over Ñve years (20% per year). The options terminate on the tenth anniversary of the date of grant. These options are also transferable to family members under speciñed conditions. PROPOSAL 2 Ì RATIFICATION OF INDEPENDENT AUDITOR The Audit Committee has selected PricewaterhouseCoopers LLP as Dell's independent auditor for Ñscal 2006, and the Board is asking stockholders to ratify that selection. Although current law, rules and regulations, as well as the Charter of the Audit Committee, require Dell's independent auditor to be engaged, retained and supervised by the Audit Committee, the Board considers the selection of independent auditor to be an important matter of stockholder concern and considers a proposal for stockholders to ratify such selection to be an important opportunity for stockholders to provide direct feedback to the Board on an important issue of corporate governance. The Board of Directors recommends a vote ""FOR'' the ratiñcation of PricewaterhouseCoopers LLP as Dell's independent auditor for Ñscal Approval of this proposal requires the açrmative vote of a majority of the shares of common stock represented at the meeting and entitled to vote. PricewaterhouseCoopers LLP is a registered public accounting Ñrm and has been Dell's independent auditor since In addition to retaining PricewaterhouseCoopers LLP to audit Dell's Ñnancial statements, Dell engages the Ñrm from time to time to perform other services. The following table sets forth the 12

17 aggregate fees paid to PricewaterhouseCoopers LLP in connection with services rendered during the last two Ñscal years (in millions). Fee Type Fiscal 2005 Fiscal 2004 Audit Fees a ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 8.4 $3.9 Audit Related Fees b ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Tax Fees c ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $10.9 $7.0 a Ó This category includes fees paid for professional services rendered in connection with the audit of the annual Ñnancial statements, for the audit of internal controls under Section 404 of the Sarbanes-Oxley Act, for the review of the quarterly Ñnancial statements and for the statutory audits of international subsidiaries. b Ó This category includes fees paid for professional services rendered in connection with assurance and other activities not explicitly related to the audit of Dell's Ñnancial statements, including the audits of Dell's employee beneñt plans, contract compliance reviews and accounting research. c Ó This category includes fees paid for domestic and international income tax compliance and tax audit assistance, corporate-wide tax planning and executive tax consulting and return preparation. The Audit Committee considered whether the provision of the non-audit services described in note (c) above was compatible with maintaining the independence of PricewaterhouseCoopers LLP, and determined that the provision of such services was compatible with maintaining independence. All Ñscal 2005 and 2004 fees were pre-approved by the Audit Committee. The Audit Committee has adopted a policy requiring pre-approval by the committee of all services (audit and non-audit) to be provided to Dell by its independent auditor. In accordance with that policy, the Audit Committee has given its approval for the provision of audit services by PricewaterhouseCoopers LLP for Ñscal 2006 and has also given its approval for up to a year in advance for the provision by PricewaterhouseCoopers LLP of particular categories or types of audit-related, tax and permitted non-audit services, in each case subject to a speciñc budget. In cases where the Audit Committee's pre-approval is not covered by one of those approvals, a designated member of the Audit Committee has the delegated authority to pre-approve the provision of services, and such pre-approvals are then communicated to the full Audit Committee. Representatives of PricewaterhouseCoopers LLP will be present at the meeting to respond to appropriate questions, and they will have an opportunity to make a statement if they desire to do so. STOCKHOLDER PROPOSAL 1 Ì MAJORITY VOTING FOR DIRECTORS The United Brotherhood of Carpenters Pension Fund (the ""UBC Pension Fund''), which beneñcially owns 41,100 shares of Dell common stock, has requested that a proposal regarding majority voting for directors be presented for stockholder vote at the annual meeting. The proposal, along with the UBC Pension Fund's supporting 13

18 statement, is included verbatim below. The UBC Pension Fund's request was submitted by Douglas J. McCarron, Fund Chairman of the UBC Pension Fund, 101 Constitution Avenue, N.W., Washington, D.C For the reasons set forth following the proposal and supporting statement, management of Dell disagrees with the UBC Pension Fund's proposal and supporting statement. The Board of Directors recommends a vote ""AGAINST'' the UBC Pension Fund's proposal. Approval of the UBC Pension Fund's proposal requires the açrmative vote of a majority of the shares of common stock represented at the meeting and entitled to vote. UBC Pension Fund's Proposal and Supporting Statement Shareholder Resolution RESOLVED: That the shareholders of Dell Inc. (""Company'') hereby request that the Board of Directors initiate the appropriate process to amend the Company's governance documents (certiñcate of incorporation or bylaws) to provide that director nominees shall be elected by the açrmative vote of the majority of votes cast at an annual meeting of shareholders. Supporting Statement Our Company is incorporated in Delaware. Among other issues, Delaware corporate law addresses the issue of the level of voting support necessary for a speciñc action, such as the election of corporate directors. Delaware law provides that a company's certiñcate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). Further, the law provides that if the level of voting support necessary for a speciñc action is not speciñed in the certiñcate of incorporation or bylaws of the corporation, directors ""shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.'' Our Company presently uses the plurality vote standard for the election of directors. We feel that it is appropriate and timely for the Board to initiate a change in the Company's director election vote standard. SpeciÑcally, this shareholder proposal urges that the Board of Directors initiate a change to the director election vote standard to provide that in director elections a majority vote standard will be used in lieu of the Company's current plurality vote standard. SpeciÑcally, the new standard should provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board. Under the Company's current plurality vote standard, a director nominee in a director election can be elected or re-elected with as little as a single açrmative vote, even while a substantial majority of the votes cast are ""withheld'' from that 14

19 director nominee. So even if 99.99% of the shares ""withhold'' authority to vote for a candidate or all the candidates, a 0.01% ""for'' vote results in the candidate's election or re-election to the board. The proposed majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board. It is our contention that the proposed majority vote standard for corporate board elections is a fair standard that will strengthen the Company's governance and the Board. Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent directors who fail to receive a majority vote when standing for re-election under a majority vote standard or whether a plurality director election standard is appropriate in contested elections. We urge your support of this important director election reform. Dell's Statement in Opposition Dell believes that adherence to sound corporate governance policies and practices is important in ensuring that Dell is governed and managed with the highest standards of responsibility, ethics and integrity and in the best interests of its stockholders. Dell currently elects its directors by a plurality standard, meaning that the nominees who receive the most açrmative votes are elected to the board. This method of voting, which is permissible under Delaware corporate law and is the predominant method currently in use among U.S. public companies, has served Dell well for many years. In fact, in no instance can it be found that plurality voting prevented Dell stockholders from either electing the directors they wanted to elect or otherwise expressing their dissatisfaction with any particular director or the board as a whole. For the following reasons, Dell believes it would not be in the best interests of Dell stockholders to change the method by which directors are elected at this time: This proposal is unnecessary to the achievement of sound corporate governance at Dell. No director elected in Dell's 17-year history as a public company has received less than 93% favorable votes. Consequently, this proposal would have had no eåect whatsoever on any Dell board election to date. Even without this proposal, Dell stockholders have been highly successful in electing responsible, objective directors who consistently protect the best interests of the stockholders. Dell maintains a rigorous director nomination and election process that gives due regard to stockholder nominees. The Board of Directors maintains a Governance and Nominating Committee that is comprised entirely of independent directors. As described under ""Additional Information Ì Director Nomination Process'' below, the Governance and Nominating Committee maintains and applies a robust set of criteria in selecting candidates for election to the board and considers candidates 15

20 recommended by stockholders in the same manner as other candidates. Consequently, adoption of the UBC Pension Fund's proposal is not necessary in order to compel or encourage the board to consider stockholder interests and desires. Given the current state of applicable corporate law and practice, majority voting for directors may have unintended negative consequences. Plurality voting is the accepted standard for the election of directors of U.S. public companies, is the default method of electing directors under Delaware corporate law and oåers advantages over majority director voting. Delaware law provides that a director is elected to serve until his or her successor is elected and qualiñed. In the case of majority voting, if an incumbent director fails to receive a majority vote, or if no candidate in a contested election receives a majority vote, the incumbent would remain in oçce until removed by stockholders or until a successor was elected even if the opposing candidate received more favorable votes than the incumbent. Plurality voting, on the other hand, dictates that whoever received the most favorable votes would win the election. Furthermore, plurality voting gives stockholders the opportunity to express their dissatisfaction with some element of corporate governance (by voting ""withhold'' on one or more directors) without disrupting the elective process. Dell believes that adoption of the UBC Pension Fund's proposal would be inappropriate at this time, particularly in light of the fact that the proposal does not address the legal and practical issues of changing long-standing, successful voting procedures. Dell does not believe that stockholders should be asked to approve a proposal without understanding the full ramiñcations of its adoption. A majority voting standard is currently being considered and evaluated by governmental authorities, scholars, corporations and investors in an eåort to determine whether adoption of the standard for U.S. public companies is a worthy and workable goal. The Board of Directors of Dell is monitoring, and will continue to monitor, these discussions and will take appropriate action to maintain its commitment to the highest standards of corporate governance. For these reasons, the Board of Directors strongly urges Dell stockholders to vote against the UBC Pension Fund's proposal to require majority voting for the election of directors. STOCKHOLDER PROPOSAL 2 Ì EXPENSING STOCK OPTIONS The Laborers' International Union of North America StaÅ Pension Fund (the ""LIU Pension Fund''), which beneñcially owns 11,300 shares of Dell common stock, has requested that a proposal regarding the expensing of stock options be presented for stockholder vote at the annual meeting. The proposal, along with the LIU Pension Fund's supporting statement, is included verbatim below. The LIU Pension Fund's request was submitted on behalf of the LIU Pension Fund by Terence M. 16

21 O'Sullivan, General President of the Laborers' International Union of North America, th Street, NW, Washington, D.C For the reasons set forth following the proposal and supporting statement, management of Dell disagrees with the LIU Pension Fund's proposal and supporting statement. The Board of Directors recommends a vote ""AGAINST'' the LIU Pension Fund's proposal. Approval of the LIU Pension Fund's proposal requires the açrmative vote of a majority of the shares of common stock represented at the meeting and entitled to vote. The LIU Pension Fund's Proposal and Supporting Statement Shareholder Resolution RESOLVED: That the shareholders of Dell Inc. (""Company'') hereby request that the Company's Board of Directors establish a policy of expensing in the Company's annual income statement the cost of all future stock options issued by the Company. Supporting Statement Current accounting rules give companies the choice of reporting stock option expenses annually in the company income statement or as a footnote in the annual report. (Financial Accounting Standards Board Statement 123) Many companies, including ours, report the cost of stock options as a footnote in the annual report, rather than include the option costs in determining operating income. We believe that expensing stock options would more accurately reöect a company's operational earnings. Stock options are an important component of our Company's executive compensation program. We believe that the lack of option expensing can promote excessive use of options in a company's compensation plans, obscure and understate the cost of executive compensation and promote the pursuit of corporate strategies designed to promote short-term stock price rather than long-term corporate value. ""The failure to expense stock option grants has introduced a signiñcant distortion in reporting earnings,'' stated Federal Reserve Board Chairman Greenspan. ""Reporting stock options as expenses is a sensible and positive step toward a clearer and more precise accounting of a company's worth.'' Globe and Mail, ""Expensing Options is a Bandwagon Worth Joining,'' Aug. 16, Warren BuÅett wrote in a New York Times Op-Ed piece on July 24, 2002: There is a crisis of conñdence today about corporate earnings reports and the credibility of chief executives. And it's justiñed. For many years, I've had little conñdence in the earnings numbers reported by most corporations. I'm not talking about Enron and WorldCom Ì examples of 17