<PAGE>
SUBJECT TO COMPLETION DATED MARCH 4, 1994.
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 1, 1993)
$300,000,000
{COMPAQ LOGO}
COMPAQ COMPUTER CORPORATION
$150,000,000 % SENIOR NOTES DUE MARCH , 1999
$150,000,000 % SENIOR NOTES DUE MARCH , 2004
Interest on the % Senior Notes due March , 1999 (the '1999 Notes') is
payable semi-annually on March and September of each year, beginning
September , 1994. Interest on the % Senior Notes due March , 2004 (the
'2004 Notes' and, together with the 1999 Notes, the 'Notes') is payable
semi-annually on March and September of each year, beginning September
, 1994. The Notes are not redeemable prior to maturity and are not entitled
to any sinking fund.
The Notes will be issuable and transferable in fully registered form, in
denominations of $1,000 and any integral multiple thereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
<S> <C> <C> <C>
Per 1999 Note---------------------------- % % %
Total------------------------------------ $ $ $
Per 2004 Note---------------------------- % % %
Total------------------------------------ $ $ $
(1) Plus accrued interest, if any, from March , 1994.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933. See 'Underwriting'.
(3) Before deducting expenses payable by the Company estimated to be $ .
</TABLE>
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and reject orders in whole or in part. It is expected that delivery
of the Notes will be made in New York, New York on or about March , 1994.
MERRILL LYNCH & CO. MORGAN STANLEY & CO.
INCORPORATED
The date of this Prospectus Supplement is March , 1994.
********************************************************************************
* INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS SUBJECT TO COMPLETION *
* OR AMENDMENT. A FINAL PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS WILL *
* BE DELIVERED TO PURCHASERS. THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING *
* PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN *
* OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN *
* WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
********************************************************************************
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMPANY
Compaq Computer Corporation (the 'Company'), founded in 1982, designs,
develops, manufactures, and markets personal computers, PC systems, and related
products for sale primarily to business, home, government, and education
customers. The Company operates in one principal industry segment across
geographically diverse markets.
The Company offers a wide range of personal computing products, including
desktop personal computers, battery-powered notebook computers, AC-powered
portable computers, and tower PC systems that store and manage data in network
environments. The Company's products are available with a broad variety of
functions and features designed to accommodate a wide range of user needs. The
Company is actively engaged in the design and development of additional products
and enhancements to its existing products. Since personal computer technology
develops rapidly, the Company's continued success is dependent on the timely
introduction of new products with the right price and features. Its engineering
effort focuses on new and emerging technologies as well as design features that
will increase efficiency and lower production costs.
The Company's manufacturing operations consist of manufacturing finished
products and various circuit boards from components and subassemblies that the
Company acquires from a wide range of vendors. The Company's principal
manufacturing operations are located in Houston, Texas; Erskine, Scotland; and
Singapore. Products sold in Europe are manufactured primarily in the Company's
facilities in Erskine, Scotland and Singapore. Products sold in the U.S. are
primarily manufactured in the Company's facilities in Houston, Texas, and
Singapore. Products sold in the Pacific Rim are primarily manufactured in
Singapore while products sold in Latin America are primarily manufactured in
Houston.
The Company distributes its products principally through third-party
computer resellers. The Company's products are sold to large and medium-sized
business and government customers through dealers, value-added resellers, and
systems integrators and to small business and home customers through dealers and
consumer channels, including mail order. The Company provides support and
warranty repair to its customers through full-service computer dealers and
independent third-party service companies. Compaq offers its customers
CompaqCare, which includes a number of customer service and support programs,
most notably a three-year warranty on PC products (excluding monitors and
batteries) and round-the-clock lifetime telephone technical support at no
additional charge to the customer.
The computer industry is intensely competitive with many U.S., Japanese, and
other international companies vying for market share. The market continues to be
characterized by rapid technological advances in both hardware and software
development that have substantially increased the capabilities and applications
of information management products and have resulted in the frequent
introduction of new products. The principal elements of competition are price,
product performance, product quality and reliability, service and support,
marketing and distribution capability, and corporate reputation.
The Company plans to capitalize on its leadership position in integrating
hardware and software to furnish the building blocks of personal and corporate
computing while participating in software and communications markets either
directly or through business alliances. Through this strategy, the Company
expects to become the leading computer platform provider in the information
technology industry by offering the products and services that customers need to
easily access and manage information. The Company believes its key to success is
leveraging the Company's engineering talent, purchasing power, manufacturing
capabilities, distribution strengths, and brand name to bring to market
high-quality cost-competitive products with different features in different
price ranges.
S-2
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data, except for the ratio of
earnings to fixed charges, have been derived from consolidated financial
statements of the Company that have been audited by Price Waterhouse,
independent accountants. The information set forth below is not necessarily
indicative of the results of future operations and should be read in conjunction
with the consolidated financial statements and notes thereto incorporated by
reference in the attached Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1992 1991 1990 1989
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Sales-------------------------------- $ 7,191 $ 4,100 $ 3,271 $ 3,599 $ 2,876
Cost of sales------------------------ 5,493 2,905 2,053 2,058 1,715
1,698 1,195 1,218 1,541 1,161
Research and development costs------- 169 173 197 186 132
Selling, general, and administrative
expense---------------------------- 837 699 722 706 539
Unrealized gain on investment in
affiliated
company---------------------------- -- -- -- (34) (13)
Other income and expenses, net------- 76 28 145 42 19
1,082 900 1,064 900 677
Income from consolidated companies
before provision for income
taxes------------------------------ 616 295 154 641 484
Provision for income taxes----------- 154 97 43 216 165
Income from consolidated
companies-------------------------- 462 198 111 425 319
Equity in net income of affiliated
company---------------------------- -- 15 20 30 14
Net income--------------------------- $ 462 $ 213 $ 131 $ 455 $ 333
Earnings per common and common
equivalent share:
Primary-------------------------- $ 5.45 $ 2.58 $ 1.49 $ 5.14 $ 3.89
Assuming full dilution----------- $ 5.35 $ 2.52 $ 1.49 $ 5.12 $ 3.88
Ratio of earnings to fixed
charges(1)------------------------- 9.3x 5.9x 3.6x 10.4x 9.7x
<CAPTION>
DECEMBER 31,
1993 1992 1991 1990 1989
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets------------------------- $ 4,084 $ 3,142 $ 2,826 $ 2,718 $ 2,090
Long-term debt----------------------- -- -- 73 74 274
Stockholders' equity----------------- 2,654 2,006 1,931 1,859 1,172
(1) For the purpose of calculating this ratio, earnings consist of income from
consolidated companies before provision for income taxes plus fixed charges
less capitalized interest. Fixed charges consist of interest expense and
capitalized interest and that portion of rental and lease expense that is
representative of interest.
</TABLE>
S-3
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1993, and as adjusted to reflect the issuance of the Notes offered hereby.
DECEMBER 31, 1993 AS ADJUSTED
(IN MILLIONS)
Long-term debt:
1999 Notes----------------------- -- $ 150
2004 Notes----------------------- -- 150
Total long-term debt--------- -- 300
Stockholders' equity:
Preferred Stock: $.01 par value;
10,000,000 shares authorized;
none outstanding--------------- -- --
Common Stock and capital in
excess of $.01 par value;
400,000,000 shares authorized;
84,348,000 shares issued and
outstanding-------------------- $ 586 586
Retained earnings---------------- 2,068 2,068
Total stockholders'
equity----------------------- 2,654 2,654
Total long-term debt and
stockholders' equity--------- $ 2,654 $ 2,954
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used for general
corporate purposes, which may include additions to working capital, capital
expenditures, acquisitions and stock repurchases.
S-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements.
RESULTS OF OPERATIONS
The following table presents, as a percentage of sales, certain selected
consolidated financial data for each of the three years in the period ended
December 31, 1993.
YEAR ENDED DECEMBER 31,
1993 1992 1991
Sales-------------------------------- 100.0% 100.0% 100.0%
Cost of sales------------------------ 76.4 70.9 62.8
Gross margin------------------------- 23.6 29.1 37.2
Research and development costs------- 2.3 4.2 6.0
Selling, general, and administrative
expense---------------------------- 11.6 17.0 22.1
Other income and expense, net-------- 1.1 0.7 4.4
15.0 21.9 32.5
Income from consolidated companies
before provision for income
taxes------------------------------ 8.6% 7.2% 4.7%
SALES
Sales for 1993 increased approximately 75% over the prior year as compared
with an increase of 25% in 1992 from 1991. In 1993 the geographic mix of sales
shifted as sales in the United States and Canada and Asia Pacific increased at a
faster pace than in Europe. North American sales, which include Canada,
increased 100% during 1993, compared with an increase of 32% in 1992 from 1991.
International sales, excluding Canada, represented 49% of total sales in 1993 as
compared with 55% in 1992 and 58% in 1991. European sales increased 44% during
1993 compared to an increase of 9% in 1992 from 1991. Other international sales,
excluding Canada, increased 111% during 1993, compared with an increase of 139%
in 1992 from 1991. The Company believes that the lower comparable rate of growth
in Europe in 1993 was related to the weak European economy, the rapid expansion
of the personal computer market in Asia and Latin America, and the increase in
the consumer computer market in North America.
The personal computer industry is highly competitive and marked by frequent
product introductions, continual improvement in product price/performance
characteristics, and a large number of competitors. The Company significantly
altered its product line in 1993 by introducing 35 new notebook, desktop, and
server computer models. Approximately 36% of the Company's CPU sales and 30% of
the Company's sales in 1993 were derived from products introduced in 1993. These
new products have been designed to allow the Company to achieve low product
costs while maintaining the quality and reliability for which the Company's
products have been known, thereby increasing the Company's ability to compete on
price and value.
The Company's significant increase in consolidated sales in 1993 stemmed
primarily from an increase in the number of units sold. In 1993 the Company's
worldwide unit shipments increased 98%, while they increased 78% in 1992. The
1993 increase included a 196% expansion in unit shipments of the Company's tower
server CPU products. Unit growth primarily resulted from the Company's
aggressively priced Compaq ProLinea line in its desktop products, the Compaq
Contura portable lines, and the Compaq Prosignia products in its tower systems.
The Company believes that the personal computer industry as a whole experienced
significant increases in unit shipments in 1993, especially in North America,
with industry unit growth worldwide according to third party
S-5
<PAGE>
estimates increasing approximately 20% in contrast to a 19% increase in
1992. Industry unit growth did not translate directly into sales growth
because of significantly lower unit prices. Third-party estimates indicate that
industry sales increased by approximately 16% worldwide in 1993, compared to an
11% increase in 1992.
The Company's average sales price per unit decreased slightly in 1993 from
1992, primarily as a result of the lower prices of the Company's products aimed
at the small business and consumer markets, pricing actions undertaken by the
Company on existing products, and currency fluctuations. The relative stability
in the Company's average sales price per unit resulted from a more stabilized
pricing environment and a higher sales mix of units using 486 microprocessors.
Price competition continues to have a significant impact on prices of the
Company's products, especially those aimed at the consumer market, and
additional pricing actions may occur as the Company attempts to maintain its
competitive mix of price and performance characteristics. The Company attempts
to mitigate the effect of any pricing actions through implementation of
effective design-to-cost goals, the aggressive pursuit of reduced component
costs, manufacturing efficiencies, and control of operating expenses.
GROSS MARGIN
Gross margin as a percentage of sales declined to 23.6% in 1993, from 29.1%
in 1992 and 37.2% in 1991, primarily as a result of industrywide competitive
pressures and associated pricing and promotional actions. Although it appears
that gross margin has stabilized in recent quarters, and the gross margin
percentage during the fourth quarter of 1993 was 23.7% compared to 23.6% in the
first nine months of 1993, there can be no assurance that currency fluctuations,
competitive actions affecting pricing, or increases in product costs will not
place additional pressure on gross margins. Although the Company continues to
aggressively pursue the reduction of product costs both at the supplier and
manufacturing levels, the Company anticipates that gross margins for its
personal computers will remain under pressure and pricing actions in 1994 could
result in further reductions of gross margin.
The Company's operating strategy and pricing take into account changes in
foreign currency exchange rates over time; however, the Company's results of
operations may be significantly affected in the short-term by fluctuations in
foreign currency exchange rates. When the value of the dollar strengthens
against other currencies, sales made in those currencies translate into fewer
dollars. The opposite effect occurs when the dollar weakens.
The Company attempts to reduce the impact of currency movements on net
income primarily through the use of forward exchange contracts that are used to
hedge a portion of the net monetary assets of its international subsidiaries.
The Company also utilizes forward exchange contracts and foreign currency
options to hedge certain capital expenditures and inventory purchases. In 1992
the Company began to hedge a portion of the probable anticipated sales of its
international marketing subsidiaries through the use of purchased currency
options. The gains associated with the hedging of anticipated sales of the
Company's international marketing subsidiaries, net of premium costs associated
with the related purchased currency options, are included in sales and were $13
million in 1993 compared to $3 million in 1992. See 'Other Items' below for the
impact of translation gains and losses.
OPERATING EXPENSES
Research and development costs decreased in absolute dollars (to $169
million from $173 million) and as a percentage of sales in 1993 as compared to
1992. Because the personal computer industry is characterized by rapid product
cycles and price cuts on older products, the Company believes that its long-term
success is directly related to its ability to bring new products to market on a
timely basis and to reduce the costs of new and existing products. Accordingly,
it is committed to continuing a significant research and development program and
research and development costs are likely to increase in absolute dollars in
1994.
S-6
<PAGE>
Selling, general, and administrative expense increased in amount in 1993
while declining as a percentage of sales. The decrease as a percentage of sales
reflects the Company's ongoing efforts to manage operating expense growth
relative to gross margin levels. The increase in absolute dollars was the result
of higher domestic and international selling expense related to the entry into
new markets (both domestically and internationally), the expansion of
distribution channels, and a greater emphasis on advertising, sales and
marketing programs, customer service, technical support, and general
infrastructure. Advertising expense increased to $114 million in 1993 from $82
million in 1992. The Company continues to expand geographically, especially in
Asia and Eastern Europe, and the ongoing costs necessary to penetrate
successfully new international markets will cause additional selling, general,
and administrative expense.
The Company continues to face the challenge of managing growth in selling,
general, and administrative expense relative to gross margin levels. The Company
believes its ability to control operating expenses is an important factor in its
ability to be price competitive and accordingly continues to pursue cost
reduction alternatives throughout the Company. In an environment of increased
efforts to penetrate new markets, greater diversity of distribution channels,
and increased customer support, the Company may not be successful in identifying
areas to cut additional costs.
OTHER ITEMS
Interest expense, net of interest and dividend income from investment of
excess funds, was $43 million, $12 million, and $6 million in 1993, 1992, and
1991, respectively. Net interest expense was higher in 1993 when compared to
1992 primarily due to increased interest expense associated with financing
resellers' inventories, increased interest expense in connection with the
Company's hedging program, and lower interest income due to lower levels of
invested cash at lower rates of interest. Net interest expense was higher for
1992 than 1991 for similar reasons.
The translation gains and losses relating to the financial statements of the
Company's international subsidiaries, net of offsetting gains and losses
associated with hedging activities related to the net monetary assets of these
subsidiaries, are included in other income and expense and resulted in a net
loss of $15 million in 1993, a net loss of $11 million in 1992, and a net gain
of $4 million in 1991.
In 1993 the Company recorded charges associated with its plans to withdraw
from the printer business, including costs related to certain contractual
liabilities and the write-downs of the carrying value of certain assets. The
charge, net of the reversal of previously recorded restructuring reserves,
totaled $10 million. In 1992 and 1991 the Company recorded restructuring charges
associated principally with reducing the number of employees and consolidating
and streamlining operations. The charges totaled $73 million in 1992 and $135
million in 1991. In addition, in 1992 and 1991 the Company had charges related
to the disposition or write-downs of the carrying value of certain fixed assets.
In the third quarter of 1992 the Company sold its equity interest in Conner
Peripherals, Inc. ('Conner') realizing a gain of $86 million. The Company's
ownership in Conner created an after-tax contribution to the Company's net
income of $10 million in 1992 and $13 million in 1991.
The Company's effective tax rate was 25% in 1993, 33% in 1992, and 28% in
1991. The decline in 1993 from 1992 is attributable to the Company's decision to
invest indefinitely a portion of the undistributed earnings of the Company's
Singaporean subsidiaries in operations outside the United States. The Company
anticipates that it will continue this international investment strategy for
several years. The Company has adopted the provisions of the Financial
Accounting Standards Board's Statement No. 109 (FAS 109), Accounting for Income
Taxes, changing the method of determining reported income tax expense. Adoption
of the provisions of FAS 109 had an immaterial impact on the Company's financial
statements.
S-7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During 1993 the Company's working capital increased to $2.0 billion compared
to $1.4 billion at December 31, 1992. The Company's cash and cash equivalents
increased to $627 million at December 31, 1993, from $357 million at December
31, 1992, primarily because of positive cash flow from operating activities and
cash received in connection with the exercise of employee stock options,
partially offset by capital expenditures. Accounts receivable increased to $1.4
billion at December 31, 1993, from $1.0 billion at December 31, 1992. Accounts
receivable days stood at 59 days at the end of 1993 compared to 62 days at the
end of 1992. Inventory increased to $1.1 billion at December 31, 1993, from $834
million at December 31, 1992. The Company's higher levels of inventory,
associated with higher sales levels, could adversely affect the Company in the
event of a drop in worldwide demand for PC products.
During 1993 the Company funded its capital expenditures and other investing
activities with cash generated from operations and previously accumulated cash
balances. The Company estimates that capital expenditures for land, buildings,
and equipment during 1994 will be approximately $250 million. Such expenditures
are currently expected to be funded from a combination of available cash
balances, internally generated funds, and, if necessary, external financing.
Although the Company fully expects that such expenditures will be made, it has
commitments for only a small portion of such amounts.
The Company's ability to fund its activities from operations is directly
dependent on its rate of growth, inventory management, the terms and financing
arrangements under which it extends credit to its customers, and the manner in
which it finances any capital expansion. The Company currently expects to fund
expenditures for capital requirements as well as liquidity needs created by
changes in working capital from a combination of available cash balances,
internally generated funds, and borrowings as appropriate. The Company from time
to time may borrow funds for actual or anticipated funding needs or because it
is economically beneficial to borrow funds for the Company's needs instead of
repatriating funds in the form of dividends from its foreign subsidiaries. The
Company has in place committed lines of credit totaling $300 million. The
Company believes that these lines of credit, together with the proceeds of this
offering, provide financial flexibility to meet future funding requirements and
to take advantage of attractive market conditions.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company participates in a highly volatile industry that is characterized
by dynamic customer demand patterns, rapid technological advances, and
industry-wide competition resulting in aggressive pricing practices. The
Company's operating results could be adversely affected should the Company be
unable to accurately anticipate customer demand, to introduce new products on a
timely basis, to manage lead times required to obtain components in order to be
responsive to short-term shifts in customer demand patterns, to offer customers
the latest competitive technologies while effectively managing the impact on
inventory levels and the potential for customer confusion created by product
proliferation, or to effectively manage the impact on the Company of
industry-wide pricing pressures. The Company's results of operations also could
be adversely affected, and inventory valuation reserves could result, if
anticipated unit growth projections for new and current product offerings are
not realized.
In order to maintain or increase its market share, the Company must continue
to price its products competitively, which lowers the average sales price per
unit and may cause declines in gross margin. To compensate for the impact on its
sales and profitability, the Company must increase unit shipments, aggressively
reduce costs, and maintain tight control over operating expenses. The Company
believes its pricing and product strategies are competitive and have created
demand for its products and the Company is actively engaged in cost reduction
programs. If the Company takes pricing actions and does not achieve significant
unit shipment increases and cost reductions, however, there could be an adverse
impact on sales and profitability.
S-8
<PAGE>
Because of the pace of technological advances in the personal computer
industry, the Company must design and develop new and more sophisticated
products in its core business while expanding its product offering into other
markets. The Company's product strategy focuses in part on marketing products
with distinctive features and at prices that appeal to a variety of purchasers.
The Company designs many of its own components for its products. Across the
Company's product range, however, certain elements of product strategy are
dependent on technological developments by other manufacturers. There can be no
assurance that the Company will obtain the delivery of the technology needed to
introduce new products in a timely manner, will be able to obtain a sufficient
supply of components utilizing such technology, or will be able to obtain any
competitive advantage in access to such technology. If the Company were unable
to develop and launch new products in a timely fashion, this failure could have
a material adverse effect on the Company's business.
During 1993 the Company continued to broaden its product distribution into
new geographic locations and new sales channels. Certain of the Company's sales
were to newly appointed resellers and new locations for sale of the Company's
products as well as direct sales through the Company's mail order program.
Offering its products in an increasing number of geographic locations and
through a variety of distribution channels, including distributors, electronics
superstores, and mail order, requires the Company to increase its geographic
presence and to provide direct sales and support interface with customers. There
can be no assurance, however, that this direction will be effective, or that the
requisite service and support to ensure the success of the Company's operations
in new locations or through new channels can be achieved without significantly
increasing overall expenses. While the Company anticipates that its geographic
expansion will continue and the number of outlets for its products will increase
in 1994, a reduction in this growth could affect sales.
The Company's primary means of distribution remains third-party resellers.
While the Company continuously monitors and manages the credit it extends to
resellers to limit its credit risk, the Company's business could be adversely
affected in the event that the generally weak financial condition of third-party
computer resellers worsens. In the event of the financial failure of a major
reseller, the Company could experience disruptions in its distribution as well
as the loss of the unsecured portion of any outstanding accounts receivable. The
Company believes that the continued expansion of its distribution outlets and
geographic growth will help mitigate any potential impact on its sales.
The value of the U.S. dollar continues to affect the Company's financial
results. The functional currency for the Company's international marketing
subsidiaries is the U.S. dollar. When the U.S. dollar strengthens against other
currencies, sales made in those currencies translate into fewer sales in U.S.
dollars; and when the U.S. dollar weakens, sales made in local currencies
translate into higher sales in U.S. dollars. Correspondingly, costs and expenses
incurred in non-U.S. dollar currencies increase when the U.S. dollar weakens and
decline when the U.S. dollar strengthens. Accordingly, changes in exchange rates
may negatively affect the Company's consolidated sales (as expressed in U.S.
dollars) and gross margins and the Company's results of operations can be
significantly affected in the short term by fluctuations in foreign currency
exchange rates. The Company engages in a program to hedge a portion of
anticipated sales of its international marketing subsidiaries using purchased
foreign currency options. In addition, the Company hedges its Japanese yen
denominated purchase commitments through the use of forward exchange contracts
and option contracts. Although these programs may reduce the impact of changes
in currency exchange rates, when the U.S. dollar sustains a strengthening
position against currencies in which the Company sells its products or a
weakening exchange rate against currencies in which the Company incurs costs,
particularly the Japanese yen, the Company's sales or its costs are adversely
affected.
The majority of the Company's research and development activities, its
corporate headquarters, its U.S. manufacturing operations, and other critical
business operations are approximately 75 miles from the Texas Gulf Coast. The
Company's business and operating results could be adversely affected in the
event of a major hurricane.
S-9
<PAGE>
General economic conditions have an impact on the Company's business and
financial results. Many of the markets in which the Company sells its products
are currently experiencing economic recession and the Company cannot predict
when these conditions will improve or if conditions in these and other markets
will decline. Although the Company does not consider its business to be highly
seasonal, it generally experiences seasonally higher sales and earnings in the
first and fourth quarters of the year. In the fourth quarter of 1993 the Company
experienced a higher degree of seasonality as its sales increased, especially in
North America, in connection with the expansion of the consumer retail portion
of its business. The continued expansion of its retail business is likely to
result in the increased seasonality of the Company's business and its results
being more dependent on retail business fluctuations.
Because of the foregoing factors, as well as other variables affecting the
Company's operating results, past financial performance should not be considered
a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods. In
addition, the Company's participation in a highly dynamic industry often results
in significant volatility of the Company's common stock price.
DESCRIPTION OF THE NOTES
The following description of the particular terms of the 1999 Notes and the
2004 Notes offered hereby supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Senior
Securities set forth in the Prospectus, to which reference is hereby made. The
following summary of the Notes is qualified in its entirety by reference to the
Senior Indenture referred to in the Prospectus. Capitalized terms not defined
herein have the meanings assigned to such terms in the Prospectus.
1999 NOTES
The 1999 Notes constitute Senior Securities described in the Prospectus and
will be issued under the Senior Indenture with NationsBank of Texas, National
Association, as Trustee.
The 1999 Notes constitute a single series for purposes of the Senior
Indenture and are limited to $150,000,000 aggregate principal amount. The 1999
Notes will bear interest from , 1994 at the rate of % per annum and will
mature on , 1999. The 1999 Notes will be issued only in fully registered
form without coupons and in denominations of $1,000 and integral multiples
thereof. The 1999 Notes will be unsecured obligations of the Company and will
rank equally with the 2004 Notes and all other unsecured indebtedness of the
Company and prior to any of its subordinated indebtedness. The 1999 Notes will
not be redeemable prior to maturity and will not be entitled to the benefit of
any mandatory redemption or sinking fund. The Senior Indenture does not limit
the aggregate principal amount of Debt Securities that may be issued and
provides that Debt Securities may be issued from time to time in one or more
series. As of the date of this Prospectus Supplement, no Debt Securities were
outstanding under the Senior Indenture.
Interest will be payable semi-annually on , and , of each year,
beginning , 1994, to the person in whose names the 1999 Notes are registered
at the close of business on the preceding and , respectively. Principal
of and interest on the 1999 Notes will be payable, and the transfer or exchange
of the 1999 Notes will be registrable, at the office or agency of the Trustee,
NationsBank of Georgia, N.A., 715 Peachtree, 7th Floor, Atlanta, Georgia
30308-1927, provided that, at the option of the Company, interest may be paid by
check mailed to the address of the person entitled thereto as it appears on the
registry books.
2004 NOTES
The 2004 Notes constitute Senior Securities described in the Prospectus and
will be issued under the Senior Indenture with NationsBank of Texas, National
Association, as Trustee.
S-10
<PAGE>
The 2004 Notes constitute a single series for purposes of the Senior
Indenture and are limited to $150,000,000 aggregate principal amount. The 2004
Notes will bear interest from , 1994 at the rate of % per annum and will
mature on , 2004. The 2004 Notes will be issued only in fully registered
form without coupons and in denominations of $1,000 and integral multiples
thereof. The 2004 Notes will be unsecured obligations of the Company and will
rank equally with the 1999 Notes and all other unsecured indebtedness of the
Company and prior to any of its subordinated indebtedness. The 2004 Notes will
not be redeemable prior to maturity and will not be entitled to the benefit of
any mandatory redemption or sinking fund. The Senior Indenture does not limit
the aggregate principal amount of Debt Securities that may be issued and
provides that Debt Securities may be issued from time to time in one or more
series. As of the date of this Prospectus Supplement, no Debt Securities were
outstanding under the Senior Indenture.
Interest will be payable semi-annually on , and , of
each year, beginning , 1994, to the person in whose names the 2004
Notes are registered at the close of business on the preceding and
, respectively. Principal of and interest on the 2004 Notes will be
payable, and the transfer or exchange of the 2004 Notes will be registrable, at
the office or agency of the Trustee, NationsBank of Georgia, N.A., 715
Peachtree, 7th Floor, Atlanta, Georgia 30308-1927, provided that, at the option
of the Company, interest may be paid by check mailed to the address of the
person entitled thereto as it appears on the registry books.
S-11
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the 'Underwriting Agreement') among the Company and the several underwriters
named below (the 'Underwriters'), the Company has agreed to sell to the
Underwriters, and the Underwriters have severally agreed to purchase, the
respective principal amounts of the 1999 Notes and the 2004 Notes set forth
after their names below. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent, and
that the Underwriters will be obligated to purchase all of the Notes if any are
purchased.
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF 1999 NOTES OF 2004 NOTES
Merrill Lynch, Pierce, Fenner & Smith
Incorporated-------------- $ $
Morgan Stanley & Co. Incorporated----
Total--------------------- $ 150,000,000 $ 150,000,000
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering prices set forth on the
cover page of this Prospectus Supplement and to certain dealers at such prices
less concessions not in excess of the percentages of the principal amount of the
Notes set forth below. The Underwriters may allow, and such dealers may reallow,
discounts not in excess of the percentages of the principal amount of the Notes
set forth below to certain other dealers. After the initial public offering, the
public offering prices, concessions and discounts may be changed.
CONCESSION
TO DEALERS REALLOWANCE
1999 Notes--------------------------- % %
2004 Notes--------------------------- % %
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Notes will not be listed on any securities exchange, and there can be no
assurance that there will be a secondary market for the Notes. The Underwriters
have advised the Company that they intend to make a market in the Notes;
however, such market making may be discontinued at any time. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
Notes.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the Company
by Davis, Polk & Wardwell, New York, New York. Certain legal matters in
connection with the Notes will be passed upon for the Underwriters by Vinson &
Elkins L.L.P., Houston, Texas. Vinson & Elkins L.L.P. also provides legal
services to the Company from time to time.
EXPERTS
The consolidated financial statements of the Company incorporated herein by
reference to the Annual Report on Form 10-K for the year ended December 31,
1993, have been so incorporated in reliance on the report of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
S-12
<PAGE>
PROSPECTUS
$300,000,000
COMPAQ COMPUTER CORPORATION
DEBT SECURITIES
Compaq Computer Corporation (the "Company") may offer and issue from
time to time in one or more series debt securities (the "Debt Securities")
with an aggregate initial offering price not to exceed $300,000,000 (or the
equivalent in foreign currency or units based on or relating to currencies,
including European Currency Units). The Company will offer Debt Securities to
the public on terms determined by market conditions. Debt Securities may be
issuable in registered form without coupons or in bearer form with or without
coupons attached. Debt Securities may be sold for, and principal of and any
premium or interest on Debt Securities may be payable in, U.S. dollars,
foreign currency or currency units--in each case, as the Company specifically
designates.
The applicable Prospectus Supplement will set forth with respect to the
Debt Securities being offered thereby the ranking as senior or subordinated
Debt Securities, the specific designation, aggregate principal amount,
purchase price, maturity, interest rate (or manner of calculation thereof) and
time of payment of interest (if any), redemption provisions (if any), listing
(if any) on a securities exchange and any other specific terms of such Debt
Securities and the name of and compensation to each dealer, underwriter or
agent (if any) involved in the sale of such Debt Securities. The managing
underwriters with respect to each series sold to or through underwriters will
be named in the applicable Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Debt Securities may be offered through dealers, underwriters or agents
designated from time to time, as set forth in the applicable Prospectus
Supplement. Net proceeds to the Company will be the purchase price in the case
of a dealer, the public offering price less discount in the case of an
underwriter or the purchase price less commission in the case of an agent --
in each case, less other expenses attributable to issuance and distribution.
The Company may also sell Debt Securities directly to investors on its own
behalf. In the case of sales made directly by the Company, no commission will
be payable. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
September 1, 1993
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any underwriter, dealer or agent. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the
affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy Debt
Securities by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to any person to whom it is unlawful to make such
offer or solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and
other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New York,
New York 10048, and copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Such material can also be inspected at the
office of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005, on which exchange certain of the Company's securities are listed.
The Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus omits certain of the information contained in the Registration
Statement in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits
for further information with respect to the Company and the Debt Securities.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety
by such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1992 (including only those portions of the Company's proxy statement required
to be incorporated by reference therein), its Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993, its Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, its Current Report on Form 8-K dated May 10,
1993, and its Current Report on Form 8-K dated July 21, 1993 have been filed
by the Company with the Commission and are incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of any series of Debt Securities
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits unless specifically
incorporated by reference into the documents that this Prospectus
incorporates) may be obtained upon request by persons to whom this Prospectus
is delivered without charge from the Shareholder Services Department of the
Company, 20555 SH 249, Houston, Texas, 77070 (telephone number (713)
370-0670).
IN CONNECTION WITH AN OFFERING OF DEBT SECURITIES, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICES OF THE DEBT SECURITIES OFFERED HEREBY OR OTHER SECURITIES OF THE
COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
IN THE OVER-THE-COUNTER MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
COMPAQ COMPUTER CORPORATION
General
Compaq Computer Corporation, founded in 1982, designs, develops,
manufactures and markets personal computers, PC systems, printers and related
products. The Company operates in one principal industry segment across
geographically diverse markets. As used herein, the term "Company" means
Compaq Computer Corporation and its consolidated subsidiaries, unless the
context indicates otherwise.
The Company's personal computer products consist of desktop personal
computers, battery-powered notebook computers, and AC-powered portable
computers. The Company also produces tower PC systems that store and manage
data in network environments and high performance laser printers designed for
network environments. The Company's products are available with a broad
variety of functions and features designed to accommodate a wide range of user
needs.
The Company, a Delaware corporation, has its principal executive offices
at 20555 SH 249, Houston, Texas 77070 (telephone number (713) 370-0670).
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 1988-92 and for the three and six month periods ended June 30,
1992 and 1993 were 11.87, 9.68, 10.40, 3.60, 5.93, 2.99, 8.29, 4.21 and 8.25,
respectively. For the purpose of calculating this ratio, earnings consist of
income from consolidated companies before provision for income taxes and fixed
charges. Fixed charges consist of interest expense and capitalized interest
and that portion of rental and lease expense that is representative of
interest.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the
net proceeds from the sale of the Debt Securities will be used for general
corporate purposes, which may include additions to working capital, capital
expenditures, acquisitions, stock repurchases and repayment of indebtedness.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either senior or subordinated debt
of the Company and will be issued, in the case of senior debt, under a Senior
Debt Indenture (the "Senior Debt Indenture"), as it may be amended from time
to time, between the Company and NationsBank of Texas, N.A., as Trustee, and,
in the case of subordinated debt, under a Subordinated Debt Indenture (the
"Subordinated Debt Indenture"), as it may be amended from time to time,
between the Company and the trustee to be named in the Prospectus Supplements
relating to subordinated debt. The Senior Debt Indenture and the Subordinated
Debt Indenture are sometimes hereinafter referred to individually as an
"Indenture" and collectively as the "Indentures". NationsBank of Texas, N.A.
and the trustee to be named in the Prospectus Supplements relating to
subordinated debt are hereinafter referred to individually as a "Trustee" and
collectively as the "Trustees". The Indentures are included as exhibits to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indentures and the Debt Securities do
not purport to be complete and such summaries are subject to the detailed
provisions of the applicable Indenture to which reference is hereby made for a
full description of such provisions, including the definition of certain terms
used herein, and for other information regarding the Debt Securities.
Numerical references in parentheses below are to sections in the applicable
Indenture. Wherever particular sections or defined terms of the applicable
Indenture are referred to, such sections or defined terms are incorporated
herein by reference as part of the statement made, and the statement is
qualified in its entirety by such reference. The Indentures are substantially
identical, except for the provisions relating to subordination and certain
covenants. See "Senior Debt" and "Subordinated Debt".
3
<PAGE>
General
The Indentures do not limit the amount of additional indebtedness the
Company or any of its subsidiaries may incur. The Debt Securities will be
unsecured senior or subordinated obligations of the Company.
The Indentures provide that Debt Securities may be issued from time to
time in one or more series.
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Debt Securities of any series (to the extent
such terms are applicable): (i) the classification as senior or subordinated
Debt Securities, the specific designation, aggregate principal amount and
purchase price; (ii) the currency or units based on or relating to currencies
in which such Debt Securities are denominated and/or in which principal,
premium, if any, and/or interest, if any, will or may be payable; (iii) the
date or dates of maturity; (iv) any redemption, repayment or sinking fund
provisions; (v) the interest rate or rates, if any, and the dates on which any
such interest will be payable (or the method by which such rate or rates or
dates will be determined); (vi) the method by which amounts payable in respect
of principal, premium, if any, or interest, if any, on such Debt Securities
may be calculated, and any currencies, commodities or indices, or value, rate
or price, relevant to such calculation; (vii) the place or places where the
principal of, premium, if any, and interest, if any, on such Debt Securities
will be payable; (viii) whether such Debt Securities will be issuable in
registered form, without coupons, or bearer form, with or without coupons
("Bearer Securities") or both and, if Bearer Securities are issuable, any
restrictions applicable to the exchange of one form for another and to the
offer, sale and delivery of Bearer Securities; (ix) whether such Debt
Securities are to be issued in whole or in part in the form of one or more
temporary or permanent global Debt Securities and if so, the identity of the
depositary, if any, for such global Debt Securities; (x) any applicable United
States federal income tax consequences, including whether and under what
circumstances the Company will pay additional amounts on such Debt Securities
held by a person who is not a U.S. person (as defined in the Prospectus
Supplement) in respect of any tax, assessment or governmental charge withheld
or deducted and, if so, whether the Company will have the option to redeem
such Debt Securities rather than pay such additional amounts; (xi) the terms
and conditions upon which and the manner in which such Debt Securities may be
defeased or discharged if different from the defeasance provisions described
below; and (xii) any other specific terms of such Debt Securities, including
any additional or different events of default or covenants provided for with
respect to such Debt Securities, and any terms which may be required by or
advisable under applicable laws or regulations.
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Debt Securities and the
applicable Indenture. Such services will be provided without charge, other
than any tax or other governmental charge payable in connection therewith, but
subject to the limitations provided in the applicable Indenture. Bearer
Securities and the coupons, if any, appertaining thereto will be transferable
by delivery.
Debt Securities may bear interest at a fixed rate or a floating rate.
Debt Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate will be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par which are treated as having been issued at a
discount for United States federal income tax purposes are described in the
relevant Prospectus Supplement.
Debt Securities may be issued from time to time with payment terms which
are calculated by reference to the value, rate or price of one or more
currencies, commodities, indices or other factors. Holders of such Debt
Securities may receive a principal amount (including premium, if any) on any
principal payment date, or a payment of interest on any interest payment date,
that is greater than or less than the amount of principal (including premium,
if any) or interest otherwise payable on such dates, depending upon the value,
rate or price on such dates of the applicable currency, commodity, index or
other factor. Information as to the methods for determining the amount of
principal, premium, if any, or interest payable on any date, the currencies,
commodities, indices or other factors to which the amount payable on such date
is linked and certain additional tax considerations will be set forth in the
applicable Prospectus Supplement.
4
<PAGE>
Unless otherwise set forth in the Prospectus Supplement, the Debt
Securities will not contain any provisions which may afford holders of the
Debt Securities protection in the event of a change in control of the Company
or in the event of a highly leveraged transaction (whether or not such
transaction results in a change in control of the Company).
Global Securities
Registered Global Securities. The registered Debt Securities of a
series may be issued in the form of one or more fully registered global
Securities (a "Registered Global Security") that will be deposited with (and
registered in the name of) a depositary (a "Depositary") identified in the
Prospectus Supplement relating to such series or a nominee of the Depositary.
Unless and until it is exchanged in whole for Debt Securities in definitive
registered form, a Registered Global Security may not be transferred except as
a whole by the Depositary for such Registered Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or
another nominee of such Depositary or by such Depositary or any such nominee
to a successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered
Global Security will be described in the Prospectus Supplement relating to
such series. The Company anticipates that the following provisions will apply
to all depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depositary for such Registered Global Security will credit, on its book-entry
registration and transfer system, the participants' accounts with the
respective principal amounts of the Debt Securities represented by such
Registered Global Security beneficially owned by or through such participants.
The accounts to be credited initially shall be designated by any dealers,
underwriters or agents participating in the distribution of such Debt
Securities or by the Company, if such Debt Securities are offered and sold
directly by the Company. Ownership of beneficial interests in such Registered
Global Security will be shown on, and the transfer of such ownership interests
will be effected only through, records maintained by the Depositary for such
Registered Global Security (with respect to interests of participants) and on
the records of participants (with respect to interests of persons holding
through participants). The laws of some states and countries other than the
United States may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in
Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its
nominee, is the registered owner of such Registered Global Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Debt Securities represented by such Registered Global
Security for all purposes under the applicable Indenture. Except as set forth
below, owners of beneficial interests in a Registered Global Security will not
be entitled to have the Debt Securities represented by such Registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of such Debt Securities in definitive form and will not be
considered the owners or holders thereof under such Indenture. Accordingly,
each person owning a beneficial interest in a Registered Global Security must
rely on the procedures of the Depositary for such Registered Global Security
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a
holder under such Indenture. The Company understands that under existing
industry practices, if the Company requests any action of holders or if an
owner of a beneficial interest in a Registered Global Security desires to give
or take any action which a holder is entitled to give or take under the
Indenture, the Depositary for such Registered Global Security generally either
(i) authorizes the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or (ii)
otherwise acts upon the instructions of beneficial owners holding through
them.
5
<PAGE>
Payments of principal, premium, if any, and interest, if any, on Debt
Securities represented by a Registered Global Security registered in the name
of a Depositary or its nominee will be made to such Depositary or its nominee,
as the case may be, as the registered owner of such Registered Global
Security. None of the Company, the Trustee or any other agent of the Company
or of the Trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in such Registered Global Security or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary for any Debt Securities
represented by a Registered Global Security, upon receipt of any payment of
principal, premium or interest in respect of such Registered Global Security,
will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Registered
Global Security as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in
such Registered Global Security held through such participants will be the
responsibility of such participants and will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers or registered in "street name."
If the Depositary for any Debt Securities represented by a Registered
Global Security is at any time unwilling or unable to continue as Depositary
(because it is no longer a clearing agency registered under the Exchange Act),
and a successor Depositary registered as a clearing agency under the Exchange
Act is not appointed by the Company within 90 days, the Company will issue
such Debt Securities in definitive form in exchange for such Registered Global
Security. In addition, the Company may at any time and in its sole discretion
determine not to have any of the Debt Securities of a series represented by
one or more Registered Global Securities and, in such event, will issue Debt
Securities of such series in definitive form in exchange for all of the
Registered Global Security or Securities representing such Debt Securities.
Any Debt Securities issued in definitive form in exchange for a Registered
Global Security will be registered in such name or names as the Depositary
shall instruct the applicable Trustee. It is expected that such instructions
will be based upon directions received by the Depositary from participants
with respect to ownership of beneficial interests in such Registered Global
Security.
Bearer Global Securities. The Debt Securities of a series may also be
issued in the form of one or more bearer global Debt Securities (a "Bearer
Global Security") that will be deposited with a common depositary for Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euro-clear System and Centrale de Livraison de Valeurs Mobilieres S.A., or
with a nominee for such depositary identified in the Prospectus Supplement
relating to such series. The specific terms and procedures, including the
specific terms of the depositary arrangement, with respect to any portion of a
series of Debt Securities to be represented by a Bearer Global Security will
be described in the Prospectus Supplement relating to such series.
Senior Debt
The Debt Securities (and, in the case of Bearer Securities, any coupons
appertaining thereto) issued under the Senior Debt Indenture (the "Senior Debt
Securities") will rank pari passu with all other unsecured and unsubordinated
debt of the Company and senior to the Subordinated Debt Securities (as
hereinafter defined).
Limitations on Liens. The Company covenants in the Senior Debt Indenture
that it will not, and will not permit any Subsidiary to, issue, incur, create,
assume or guarantee any debt for borrowed money (including all obligations
evidenced by bonds, debentures, notes or similar instruments) secured by a
mortgage, security interest, pledge, lien, charge or other encumbrance
("mortgage") upon any Principal Property or upon any shares of stock or
indebtedness of any Subsidiary that owns or leases a Principal Property
(whether such Principal Property, shares or indebtedness are now existing or
owed or hereafter created or acquired) without in any such case effectively
providing concurrently with the issuance, incurrence, creation, assumption or
guaranty of any such secured debt, or the grant of such mortgage, that the
Senior Debt Securities (together with, if the
6
<PAGE>
Company shall so determine, any other indebtedness of or guarantee by
the Company or such Subsidiary ranking equally with the Senior Debt
Securities) shall be secured equally and ratably with (or, at the option
of the Company, prior to) such secured debt. The foregoing restriction,
however, will not apply to: (a) mortgages on property, shares of stock
or indebtedness or other assets of any corporation existing at the time
such corporation becomes a Subsidiary, provided that such mortgages
or liens are not incurred in anticipation of such corporation's becoming a
Subsidiary; (b) mortgages on property, shares of stock or indebtedness or
other assets existing at the time of acquisition thereof by the Company or a
Subsidiary or mortgages thereon to secure the payment of all or any part of
the purchase price thereof, or mortgages on property, shares of stock or
indebtedness or other assets to secure any debt incurred prior to, at the time
of, or within 180 days after, the latest of the acquisition thereof or, in the
case of property, the completion of construction, the completion of
improvements or the commencement of substantial commercial operation of such
property for the purpose of financing all or any part of the purchase price
thereof, such construction or the making of such improvements; (c) mortgages
to secure indebtedness owing to the Company or to a Subsidiary; (d) mortgages
existing at the date of the initial issuance of any Senior Debt Securities
then outstanding; (e) mortgages on property of a person existing at the time
such person is merged into or consolidated with the Company or a Subsidiary or
at the time of a sale, lease or other disposition of the properties of a
person as an entirety or substantially as an entirety to the Company or a
Subsidiary, provided that such mortgage was not incurred in anticipation of
such merger or consolidation or sale, lease or other disposition; (f)
mortgages in favor of the United States of America or any state, territory or
possession thereof (or the District of Columbia), or any department, agency,
instrumentality or political subdivision of the United States of America or
any state, territory or possession thereof (or the District of Columbia), to
secure partial, progress, advance or other payments pursuant to any contract
or statute or to secure any indebtedness incurred for the purpose of financing
all or any part of the purchase price or the cost of constructing or improving
the property subject to such mortgages; or (g) extensions, renewals or
replacements of any mortgage referred to in the foregoing clauses (a), (b) or
(d) through (f); provided, however, that the principal amount of indebtedness
secured thereby shall not exceed the principal amount of indebtedness so
secured at the time of such extension, renewal or replacement. Any mortgages
permitted by any of the foregoing clauses (a) through (g) shall not extend to
or cover any other Principal Property of the Company or any Subsidiary or any
shares of stock or indebtedness of any such Subsidiary, subject to the
foregoing limitations, other than the property, including improvements
thereto, stock or indebtedness specified in such clauses. (Senior Debt
Indenture Section 3.7)
Notwithstanding the restrictions in the preceding paragraph, the Company
or any Subsidiary may issue, incur, create, assume or guarantee debt secured
by a mortgage which would otherwise be subject to such restrictions, without
equally and ratably securing the Senior Debt Securities, provided that after
giving effect thereto, the aggregate amount of all debt so secured by
mortgages (not including mortgages permitted under clauses (a) through (g)
above) does not exceed 10% of the Consolidated Net Tangible Assets of the
Company. (Senior Debt Indenture Section 3.7)
Limitations on Sale and Lease-Back Transactions. The Company covenants
in the Senior Debt Indenture that it will not, nor will it permit any
Subsidiary to, enter into any Sale and Lease-Back Transaction with respect to
any Principal Property, other than any such transaction involving a lease for
a term of not more than three years or any such transaction between the
Company and a Subsidiary or between Subsidiaries, unless: (a) the Company or
such Subsidiary would be entitled to incur indebtedness secured by a mortgage
on the Principal Property involved in such transaction at least equal in
amount to the Attributable Debt with respect to such Sale and Lease-Back
Transaction, without equally and ratably securing the Senior Debt Securities,
pursuant to the limitation on liens described above; or (b) the proceeds of
such transaction are at least equal to the fair market value thereof (as
determined in good faith by the Board of Directors of the Company) and the
Company applies an amount equal to the greater of the net proceeds of such
sale or the Attributable Debt with respect to such Sale and Lease-Back
Transaction within 180 days of such sale to either (or a combination of) (i)
the retirement (other than any mandatory retirement, mandatory prepayment or
sinking fund payment or by payment at maturity) of debt for borrowed money of
the Company or a Subsidiary (other than debt that is subordinated to the
Senior Debt
7
<PAGE>
Securities or debt to the Company or a Subsidiary) that matures more than
12 months after its creation or (ii) the purchase, construction or development
of other comparable property. (Senior Debt Indenture Section 3.8)
"Attributable Debt" with regard to a Sale and Lease-Back Transaction with
respect to any property is defined in the Senior Debt Indenture to mean, at
the time of determination, the lesser of: (a) the fair market value of such
property (as determined in good faith by the Board of Directors of the
Company); or (b) the present value of the total net amount of rent required to
be paid under such lease during the remaining term thereof (including any
period for which such lease has been extended), discounted at the rate of
interest set forth or implicit in the terms of such lease (or, if not
practicable to determine such rate, the Composite Rate) compounded
semi-annually. In the case of any lease which is terminable by the lessee upon
the payment of a penalty, such net amount shall be the lesser of the net
amount determined assuming termination upon the first date such lease may be
terminated (in which case the net amount shall also include the amount of the
penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated) or the
net amount determined assuming no such termination.
"Composite Rate" is defined in the Senior Debt Indenture to mean, at any
time, the rate of interest, per annum, compounded semi-annually, equal to the
sum of the rates of interest borne by each of the Senior Debt Securities
outstanding under the Senior Debt Indenture (as specified on the face of each
of the Senior Debt Securities, provided, that, in the case of the Senior Debt
Securities with variable rates of interest, the interest rate to be used in
calculating the Composite Rate shall be the interest rate applicable to such
Senior Debt Securities at the beginning of the year in which the Composite
Rate is being determined and, provided, further, that, in the case of Senior
Debt Securities which do not bear interest, the interest rate to be used in
calculating the Composite Rate shall be a rate equal to the yield to maturity
on such Senior Debt Securities, calculated at the time of issuance of such
Senior Debt Securities) multiplied, in the case of each of the Senior Debt
Securities, by the percentage of the aggregate principal amount of all of the
Senior Debt Securities then outstanding represented by such Senior Debt
Security. For the purposes of this calculation, the aggregate principal
amounts of outstanding Senior Debt Securities that are denominated in a
foreign currency shall be calculated in the manner set forth in Section 11.11
of the Senior Debt Indenture.
"Consolidated Net Tangible Assets" is defined in the Senior Debt
Indenture to mean, as of any particular time, the aggregate amount of assets
(less applicable reserves and other properly deductible items) after deducting
therefrom: (a) all current liabilities, except for current maturities of
long-term debt and of obligations under capital leases; and (b) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangible assets, to the extent included in said aggregate amount
of assets, all as set forth on the most recent consolidated balance sheet of
the Company and its consolidated subsidiaries and computed in accordance with
generally accepted accounting principles.
"Principal Property" is defined in the Senior Debt Indenture to mean the
land, improvements, buildings and fixtures (including any leasehold interest
therein) constituting the principal corporate office, any manufacturing plant
or any manufacturing or research or engineering facility (whether now owned or
hereafter acquired) which is owned or leased by the Company or any Subsidiary
and is located within the United States of America unless the Board of
Directors of the Company has determined in good faith that such office, plant
or facility is not of material importance to the total business conducted by
the Company and its Subsidiaries taken as a whole.
"Sale and Lease-Back Transaction" is defined in the Senior Debt Indenture
to mean any arrangement with any person providing for the leasing by the
Company or any Subsidiary of any Principal Property which property has been or
is to be sold or transferred by the Company or such Subsidiary to such person.
"Subsidiary" is defined in the Senior Debt Indenture to mean any
corporation of which outstanding voting stock having the power to elect a
majority of the board of directors of such corporation is at the time owned,
8
<PAGE>
directly or indirectly, by the Company or by one or more other Subsidiaries,
or by the Company and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock which ordinarily has voting power for
the election of directors, whether at all times or only so long as no senior
class of stock has such voting power by reason of any contingency. (Senior
Debt Indenture Sections 1.1, 3.7 and 3.8)
Subordinated Debt
The Debt Securities (and, in the case of Bearer Securities, any coupons
appertaining thereto) issued under the Subordinated Debt Indenture (the
"Subordinated Debt Securities") will rank junior to "Senior Indebtedness" (as
such term is defined in the Subordinated Debt Indenture). The payment of the
principal, premium, if any, and interest on the Subordinated Debt Securities
is subordinated and junior in right of payment, to the extent set forth in the
Subordinated Debt Indenture, to the prior payment in full of all "Senior
Indebtedness." Until such prior payment in full, no payment (including the
making of any deposit in trust with the Trustee in accordance with Section
10.1 of the Subordinated Debt Indenture) on account of principal, premium, if
any, or interest on any Subordinated Debt Securities or payment to acquire any
of the Subordinated Debt Securities for cash or property may be made if, at
the time of such payment or immediately after giving effect thereto, (i) any
insolvency, bankruptcy proceedings, receivership, liquidation or
reorganization of the Company, or the voluntary liquidation, dissolution or
winding up of the Company or the assignment for the benefit of creditors or
any other marshalling of assets of the Company shall have occurred, (ii) any
Subordinated Debt Security is declared due and payable before its expressed
maturity because of the occurrence of an Event of Default under the
Subordinated Debt Indebture (see "Events of Default" below), (iii) there shall
exist a default in the payment of the principal, premium, if any, or interest
with respect to any Senior Indebtedness, or (iv) for a period of 180 days
after delivery of notice referred to below, there shall exist a default (other
than a default in the payment of principal, premium, if any, or interest) with
respect to any Senior Indebtedness permitting the holders thereof to
accelerate the maturity thereof and written notice of such default shall have
been given to the Company and the Trustee pursuant to the Subordinated Debt
Indenture; provided that only one such 180-day blockage period following such
a notice of default may be commenced within any 365 consecutive days and no
default which existed on the date any blockage period commenced shall be the
basis for the commencement of any subsequent blockage period unless such
default is cured or waived for a period of not less than 90 consecutive days.
The foregoing provision shall not prevent the Trustee from making payments on
any Subordinated Debt Securities from monies or securities deposited with the
Trustee pursuant to the terms of Section 10.1 of the Subordinated Debt
Indenture if at the time such deposit was made or immediately after giving
effect thereto the above conditions did not exist. (Subordinated Debt
Indenture, Sections 13.1, 13.2 and 13.3)
Under the Subordinated Debt Indenture, the term "Senior Indebtedness"
means (a) all indebtedness and obligations of the Company existing on the date
of the Subordinated Debt Indenture or created, incurred or assumed thereafter,
and which (i) are for money borrowed; (ii) are evidenced by any bond, note,
debenture or similar instrument; (iii) represent the unpaid balance on the
purchase price of any assets or services of any kind; (iv) are obligations as
lessee under any lease of property, equipment or other assets required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles; (v) are reimbursement obligations with respect to
letters of credit or other similar instruments; (vi) are obligations under
interest rate, currency or other indexed exchange agreements, agreements for
caps or floors on interest rates, foreign exchange agreements or any other
similar agreements; (vii) are obligations under any guaranty, endorsement or
other contingent obligations in respect of, or to purchase or otherwise
acquire, indebtedness or obligations of other persons of the types referred to
in clauses (i) through (vi) above (other than endorsements for collection or
deposits in the ordinary course of business); or (viii) are obligations of
other persons of the type referred to in clauses (i) through (vii) above
secured by a lien to which any of the properties or assets of the Company are
subject, whether or not the obligations secured thereby shall have been issued
by the Company or shall otherwise be the legal liability of the Company; and
(b) any deferrals, renewals, amendments, modifications, refundings or
extensions of any such indebtedness or obligations of the types referred to
above; except that Senior Indebtedness shall not include (1)
9
<PAGE>
any indebtedness of the Company to any of its subsidiaries, (2) any
indebtedness or obligation of the Company which by its express terms
is stated to be not superior in the right of payment to the Subordinated
Debt Securities or to rank pari passu with, or to be subordinated to,
the Subordinated Debt Securities or (3) any indebtedness or obligation
incurred by the Company in connection with the purchase of any assets
or services in the ordinary course of business and which constitutes
a trade payable or account payable. (Subordinated Debt Indenture,
Section 1.1)
By reason of such subordination, in the event of insolvency, creditors of
the Company (including holders of Subordinated Debt Securities) who are not
holders of Senior Indebtedness may recover less, ratably, than holders of
Senior Indebtedness.
If this Prospectus is being delivered in connection with a series of
Subordinated Debt Securities, the applicable Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Indebtedness outstanding as of the end of the most recent
fiscal quarter.
Merger or Consolidation
Each of the Indentures provides that the Company may not merge or
consolidate with any other person or persons (whether or not affiliated with
the Company) or sell, convey, transfer or lease all or substantially all of
its property to any other person or persons (whether or not affiliated with
the Company), unless (a) either the Company shall be the continuing person, or
the successor person or the person which acquires by sale, conveyance,
transfer or lease substantially all the property of the Company (if other than
the Company) shall be a corporation organized under the laws of the United
States or any state thereof and shall expressly assume all the obligations of
the Company under such Indenture and the relevant Debt Securities and coupons
and (b) immediately after giving effect to such merger, consolidation, sale,
conveyance, transfer or lease, no Event of Default or event or condition
which, after notice or lapse of time or both, would become an Event of Default
with respect to the Debt Securities of any series under such Indenture shall
have occurred and be continuing. After any such transfer (except in the case
of a lease), the Company shall be discharged from all obligations and
covenants under such Indenture. (Senior and Subordinated Debt Indentures,
Sections 9.1 and 9.2)
Events of Default
An Event of Default is defined under each Indenture with respect to Debt
Securities of any series issued under such Indenture as being: (a) default in
payment of any principal of or premium, if any, on the Debt Securities of such
series, either at maturity, upon any redemption, by declaration or otherwise
(including a default in the deposit of any sinking fund payment with respect
to the Debt Securities of such series when and as due); (b) default for 30
days in payment of any interest on any Debt Securities of such series; (c)
default for 90 days after written notice in the observance or performance of
any other covenant or agreement in the Debt Securities of such series or such
Indenture other than a covenant or agreement which is not applicable to the
Debt Securities of such series; (d) certain events of bankruptcy, insolvency
or reorganization; or (e) any other Event of Default provided in the
supplemental indenture under which such series of Debt Securities is issued,
in the form of Debt Security for such series or otherwise established as
contemplated by the Senior and Subordinated Debt Indentures. (Senior and
Subordinated Debt Indentures, Section 5.1)
Each Indenture provides that (a) if an Event of Default due to the
default in payment of principal of, premium, if any, or interest on, any
series of Debt Securities issued under such Indenture or due to the default in
the performance of any other covenant or agreement of the Company applicable
to the Debt Securities of such series but not applicable to Debt Securities of
any other series issued under such Indenture shall have occurred and be
continuing, either the Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of such series may declare
the principal (or such portion thereof as may be specified in the terms
thereof) of all Debt Securities of such series and interest accrued thereon to
be due and payable immediately; and (b) if an Event of Default due to a
default in the performance of any covenants or agreements applicable to
10
<PAGE>
outstanding Debt Securities of more than one series issued under such
Indenture shall have occurred and be continuing, either the Trustee or the
holders of not less than 25% in principal amount of outstanding Debt
Securities of all such affected series (treated as one class) may declare the
principal (or such portion thereof as may be specified in the terms thereof)
of all such Debt Securities and interest accrued thereon to be due and payable
immediately, but upon certain conditions such declarations may be annulled and
past defaults may be waived (except a continuing default in payment of
principal of (or premium, if any) or interest on such Debt Securities) by the
holders of a majority in principal amount of the outstanding Debt Securities
of all such affected series (treated as one class). If an Event of Default due
to certain events of bankruptcy, insolvency or reorganization shall occur, the
principal (or such portion thereof as may be specified in the terms thereof)
of and interest accrued on all Debt Securities then outstanding shall become
due and payable immediately, without action by the Trustees or the holders of
any such Debt Securities. (Senior and Subordinated Debt Indentures,
Sections 5.1 and 5.10)
Each Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of
care, to be indemnified by the holders of Debt Securities issued under such
Indenture before proceeding to exercise any right or power under such
Indenture at the request of such holders. (Senior and Subordinated Debt
Indentures, Section 5.6) Subject to such provisions for the indemnification
and certain other limitations, the holders of a majority in principal amount
of the outstanding Debt Securities of each affected series issued under such
Indenture (treated as one class) may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee with respect to such
series. (Senior and Subordinated Debt Indentures, Section 5.9)
Each Indenture provides that no holder of Debt Securities of any series
or of any coupon issued under such Indenture may institute any action against
the Company under such Indenture (except actions for payment of overdue
principal, premium, if any, or interest) unless (1) such holder previously
shall have given to the Trustee written notice of default and continuance
thereof, (2) the holders of not less than 25% in aggregate principal amount of
the outstanding Debt Securities of each affected series issued under such
Indenture (treated as one class) shall have requested the Trustee to institute
such action and shall have offered the Trustee reasonable indemnity, (3) the
Trustee shall not have instituted such action within 60 days of such request
and (4) the Trustee shall not have received direction inconsistent with such
written request by the holders of a majority in principal amount of the
outstanding Debt Securities of each affected series issued under such
Indenture (treated as one class). (Senior and Subordinated Debt Indentures,
Sections 5.6 and 5.9)
Each Indenture contains a covenant that the Company will file annually
with the Trustee a certificate to the effect that no default exists under such
Indenture or a certificate specifying any default that exists. (Senior and
Subordinated Debt Indentures, Section 3.5)
Defeasance
Each Indenture provides that the Company may defease and be discharged
from any and all obligations (except as otherwise described in (a) below) with
respect to the Debt Securities of any series which have not already been
delivered to the Trustee for cancellation and which have either become due and
payable or are by their terms due and payable within one year (or scheduled
for redemption within one year) by irrevocably depositing with the Trustee, as
trust funds, money or, in the case of Debt Securities payable only in U.S.
dollars, U.S. Government Obligations (as defined) which through the payment of
principal and interest in accordance with their terms will provide money, in
an amount certified to be sufficient to pay at maturity (or upon redemption)
the principal of (and premium, if any) and interest on such Debt Securities.
In addition, each Indenture provides that with respect to each series of
Debt Securities issued under such Indenture, the Company may elect either (a)
to defease and be discharged from any and all obligations with respect to the
Debt Securities of such series (except for the obligations to register the
transfer or exchange of the Debt Securities of such series and of coupons
appertaining thereto, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities of such series and of coupons appertaining thereto, to
maintain an office or agency
11
<PAGE>
in respect of the Debt Securities of such series and to hold moneys
for payment in trust) or (b) to be released from the restrictions
described under "Senior Debt--Certain Covenants Applicable to Senior
Debt Securities", if applicable, and "Merger or Consolidation" and, to
the extent specified in connection with the issuance of such series of Debt
Securities, other covenants applicable to such series of Debt Securities, upon
the deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money or, in the case of Debt Securities payable only in U.S.
dollars, U.S. Government Obligations which through the payment of principal
and interest in accordance with their terms will provide money, in an amount
certified to be sufficient to pay at maturity (or upon redemption) the
principal of (and premium, if any) and interest on the Debt Securities of such
series. Such a trust may only be established if, among other things, the
Company has delivered to the Trustee an opinion of counsel (as specified in
the Indenture) to the effect that the holders of the Debt Securities of such
series will not recognize income, gain or loss for Federal income tax purposes
as a result of such defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred. Such opinion, in the case of a
defeasance under clause (a) above, must refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable Federal income tax law
occurring after the date of such Indenture.
In the event of any "legal" defeasance of any series of Subordinated Debt
Securities issued thereunder, the Subordinated Debt Indenture provides that
holders of all outstanding Senior Indebtedness will receive written notice of
such defeasance. (Senior and Subordinated Debt Indentures, Section 10.1)
The foregoing provisions relating to defeasance may be modified in
connection with the issuance of any series of Debt Securities, and any such
modification will be described in the applicable Prospectus Supplement.
Modification of the Indentures
Each Indenture provides that the Company and the Trustee may enter into
supplemental indentures without the consent of the holders of Debt Securities
to: (a) secure any Debt Securities, (b) evidence the assumption by a
successor corporation of the obligations of the Company, (c) add covenants or
Events of Default for the protection of the holders of any Debt Securities,
(d) cure any ambiguity or correct any inconsistency in such Indenture or add
any other provision which shall not adversely affect the interests of the
holders of the Debt Securities, (e) establish the forms or terms of Debt
Securities of any series or of the coupons appertaining to such Debt
Securities, (f) change, modify or eliminate any provision of the Senior Debt
Indenture or the Subordinated Debt Indenture which shall not be effective with
respect to any Debt Security issued prior to the execution of such
supplemental indenture and (g) evidence the acceptance of appointment by a
successor trustee. (Senior and Subordinated Debt Indentures, Section 8.1)
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Debt Securities of all series issued under such
Indenture then outstanding and affected (voting as one class), to add any
provisions to, or change in any manner or eliminate any of the provisions of,
such Indenture or modify in any manner the rights of the holders of the Debt
Securities of each series so affected; provided that the Company and the
Trustee may not, without the consent of the holder of each outstanding Debt
Security affected thereby, (a) extend the final maturity of any Debt Security,
or reduce the principal amount thereof, or reduce the rate (or alter the
method of computation) of interest thereon or reduce (or alter the method of
computation of) any amount payable in respect of or extend the time for
payment of interest thereon, or reduce any amount payable on or extend the
time for the redemption or repayment thereof or change the currency in which
the principal thereof, premium, if any, or interest thereon is payable or
reduce the amount payable upon acceleration or alter certain provisions of the
Indenture relating to the Debt Securities issued thereunder not denominated in
U.S. dollars or impair or affect the right to institute suit for the
enforcement of any payment on any Debt Security when due or, if the Debt
Securities provide therefor, any right of optional repayment at the option of
the holder of such Debt Securities or (b) modify any of the provisions of the
Indenture regarding modification of such Indenture, except to increase the
percentage in principal amount of Debt Securities of any series, the consent
of the holders of which is required for any such modification. (Senior and
Subordinated Debt Indentures, Section 8.2)
12
<PAGE>
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
consent of each holder of Senior Indebtedness then outstanding whose rights
would be adversely affected thereby. (Subordinated Debt Indenture, Section
8.6)
Governing Law
Each of the Indentures provide that it and the Debt Securities issued
thereunder shall be deemed to be a contract under, and for all purposes shall
be construed in accordance with, the laws of the State of New York.
Concerning the Senior Debt Indenture Trustee
NationsBank of Texas, N.A., the Trustee under the Senior Debt Indenture,
is one of a number of banks with which the Company maintains ordinary banking
relationships. The Company currently maintains a syndicated credit facility
with NationsBank of Texas, N.A. and other banks.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities being offered hereby in four
ways: (i) directly to purchasers, (ii) through agents, (iii) through
underwriters and (iv) through dealers.
Offers to purchase Debt Securities may be solicited by agents designated
by the Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the
offer or sale of any Debt Securities will be named, and any commissions
payable by the Company to such agent will be set forth, in the Prospectus
Supplement relating to such Debt Securities. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis
for the period of its appointment. Agents may be entitled under agreements
which may be entered into with the Company to indemnification by the Company
against certain liabilities, including liabilities under the Securities Act,
and may be customers of, engage in transactions with or perform services for
the Company in the ordinary course of business.
If any underwriters are utilized in the sale of any Debt Securities, the
Company will enter into an underwriting agreement with such underwriters at
the time of sale to them and the names of the underwriters and the terms of
the transaction will be set forth in the Prospectus Supplement relating to
such Debt Securities, which will be used by the underwriters to make resales
of such Debt Securities. The underwriters may be entitled, under the relevant
underwriting agreement, to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
If a dealer is utilized in the sale of any Debt Securities, the Company
will sell such Debt Securities to the dealer, as principal. The dealer may
then resell such Debt Securities to the public at varying prices to be
determined by such dealer at the time of resale. Dealers may be entitled under
agreements which may be entered into with the Company to indemnification by
the Company against certain liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with or
perform services for the Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain purchasers to
purchase Debt Securities from the Company at the public offering price set
forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject to only those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission
payable for solicitation of such offers.
Each series of Debt Securities will be a new issue of securities with no
established trading market. Any underwriters to whom Debt Securities are sold
by the Company for public offering and sale may make a market in such Debt
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for any Debt Securities.
13
<PAGE>
LEGAL OPINIONS
The validity of the Debt Securities is being passed upon for the Company
by Davis Polk & Wardwell.
Certain legal matters relating to offerings of Debt Securities will be
passed upon on behalf of the applicable dealers, underwriters or agents by
counsel named in the applicable Prospectus Supplement.
EXPERTS
The consolidated financial statements of the Company incorporated herein
by reference to the Annual Report on Form 10-K for the year ended December 31,
1992, have been so incorporated in reliance on the report of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
14
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFERS MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER OR A SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
The Company-------------------------- S-2
Selected Consolidated Financial
Data------------------------------- S-3
Capitalization----------------------- S-4
Use of Proceeds---------------------- S-4
Management's Discussion and Analysis
of Financial Condition and Results
of Operations---------------------- S-5
Description of the Notes------------- S-10
Underwriting------------------------- S-12
Legal Matters------------------------ S-12
Experts------------------------------ S-12
PROSPECTUS
Available Information---------------- 2
Incorporation of Documents by
Reference-------------------------- 2
Ratio of Earnings to Fixed
Charges---------------------------- 3
Use of Proceeds---------------------- 3
Description of Debt Securities------- 3
Plan of Distribution----------------- 13
Legal Opinions----------------------- 14
Experts------------------------------ 14
$300,000,000
{LOGO}
COMPAQ COMPUTER
CORPORATION
$150,000,000
% SENIOR NOTES
DUE MARCH , 1999
$150,000,000
% SENIOR NOTES
DUE MARCH , 2004
PROSPECTUS SUPPLEMENT
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
MARCH , 1994
