updated 2/20/2007 6:58:18 PM ET 2007-02-20T23:58:18

Dell Inc. will pay its former chief executive a severance package including $5 million in cash over the next two years, the computer maker disclosed Tuesday.

Kevin Rollins stepped down on Jan. 31 and was replaced by founder Michael Dell.

Rollins also gave up his director’s seat and will leave the company May 4, the Round Rock-based firm said in a regulatory filing. Rollins signed a separation agreement Feb. 13.

Dell has suffered disappointing earnings, a big recall of notebook computer batteries, an accounting investigation and the loss of its market-leading position to rival Hewlett-Packard Co. The company has been buffeted by competition from low-cost personal computers and disappointing sales of its high-end desktops and notebooks.

Rollins joined Dell from the Bain & Co. management consulting firm in 1996. He served as chief operating officer before he took Michael Dell’s place as CEO in July 2004.

Dell said Rollins will continue to receive his salary while serving as an adviser into early May. He was paid a salary of $944,231 in the fiscal year that ended January 2006, the latest year for which figures are available.

Under the severance agreement, Rollins will get payments of $1 million in May, August and November of this year and February and April 2008. He agreed not to buy or sell Dell stock until the company releases its annual financial report.

A year ago, Dell said Rollins held exercisable, in-the-money options for more than 12 million shares, then valued at $93 million, according to another Dell filing with the Securities and Exchange Commission.

The severance agreement included a noncompete clause barring Rollins from working for a competing company for one year after leaving Dell.

Rollins agreed to cooperate with Dell in defending any claims or lawsuits against the company related to his tenure and not to disparage the company.

The company and Rollins have been named in class-action shareholder lawsuits. Dell agreed to pay Rollins’ attorney fees.

Dell shares rose 14 cents to close at $24.53 on the Nasdaq Stock Market before Dell’s filing was made public. The shares fell 3 cents in after-hours trading.

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