______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number 1-9026
COMPAQ COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0011617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20555 SH 249, Houston, Texas 77070
(713) 370-0670
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 par value New York Stock Exchange
Debt Securities None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant on January 31, 1996 (based on the last
sale price on the New York Stock Exchange as of such date), was $12.5
billion.
The number of shares of the registrant's Common Stock, $.01 par
value, outstanding as of January 31, 1996, was 267 million.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual
Report on Form 10-K the information contained in the registrant's
proxy statement for its annual meeting of stockholders to be held
April 25, 1996.
______________________________________________________________________
<PAGE>
PART I
Item 1. Business
General
Compaq Computer Corporation, founded in 1982, designs, develops,
manufactures, and markets a wide range of personal computing products,
including desktop personal computers, portable computers, and tower PC
servers and peripheral products that store and manage data in network
environments. The Company markets its products primarily to business,
home, government, and education customers. 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.
In 1995 the Company reinforced its position as the largest
supplier of personal computers in the world. It maintained
approximately 10% of the expanding worldwide PC market by focusing its
business activities on expanding sales to new customers while
augmenting sales to its existing customer base. Business customers
account for the largest portion of the Company's sales. Business
customers are attracted to the Company's products for a variety of
reasons, including the Company's reputation for reliability, price,
product performance and technological excellence, the availability of
a wide variety of application software, ease of use, and connectivity
solutions.
In the future, 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 a leading provider of enterprise-wide solutions for business as
well as information appliances for the home 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 marketing skills, engineering talent, purchasing power,
manufacturing capabilities, distribution strengths, and brand name to
bring to market high-quality cost-competitive products in different
price ranges with features that appeal to a wide variety of customers.
Compaq Products
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's PC CPU products are backed by three-year limited
warranties, which are among the most comprehensive in the industry.
In 1995 sales of commercial desktop personal computers and
related options accounted for 45% of the Company's sales. The Deskpro
product line is the Company's high-performance line with advanced
features; ProLinea products are the Company's business value line. In
March 1995 the Company announced the largest product introduction in
its history, which included more than 100 models of its next
generation ProLinea and Deskpro desktop PCs. The new Deskpro PCs
delivered an innovative set of desktop management tools and features
that reduce the total cost of PC ownership. Compaq's "Intelligent
Manageability" solutions result from bringing the Company's server
management technology to the desktop, combined with joint development
efforts with leading network software providers. Later in the year
the Company announced additional desktop products, including products
that feature Intel's Pentium Pro processor and a rewritable optical CD-
ROM drive. These new PCs include the Compaq Deskpro XL 6150, Compaq's
most powerful desktop, and the ProLinea 6150E, which offers powerful
technology at a more affordable price.
In May 1995 the Company formed the Consumer Products Division as
part of its on-going effort to intensify its focus on consumer PCs and
the retail marketplace. In 1995 sales of computers and related
options aimed at the consumer and home office market accounted for 16%
of the Company's sales. Building on the success of the Compaq family
of Presario consumer PCs, the Company introduced the industry's first
"quad-speed" CD-ROM drives on all Presario models early in the year,
and in the fourth quarter, introduced the next generation Presario
9500, 7100 and 5500 Series, featuring innovative audio and video
technology.
Sales of portable personal computers and related options
accounted for 17% of the Company's sales in 1995. In October the
Company began shipping its high-performance LTE 5000 family of
products featuring 64-bit Pentium architecture and the industry's
highest hard drive storage and memory capacity. The Company also made
significant enhancements to its Contura value line, featuring faster
processors, larger displays, higher capacity hard drives, and more
memory.
Sales of PC system products and related options accounted for 22%
of the Company's sales in 1995. Delivering mid-range functionality in
its most powerful, most tightly integrated server platforms to date,
Compaq introduced new ProLiant 4500 and 1500 models, including the
ProLiant 4500 NT/Array model--the first server product to ship with
Microsoft BackOffice. Compaq also announced new versions of
SmartStart, Compaq's integration tool that optimizes software/hardware
configuration and simplifies installation and delivery of reliable
servers, and Compaq Insight Manager, Compaq's application for managing
network desktops and servers. In the fourth quarter of 1995 the
Company acquired NetWorth, Inc., a publicly-held developer,
manufacturer, and supplier of fast ethernet hubs, switches, and
related products, and Thomas-Conrad Corporation, a privately-held
maker of network interface cards and hubs. Through these
acquisitions, third-party alliances, and existing products, the
Company plans to offer total end-to-end network solutions from the
server to the client.
The Company offers a number of options products for its desktop,
portable, and systems products, including add-on video display
monitors, memory upgrades, storage and backup devices, docking
stations, and communications products. In January 1996 the Company
announced five new monitors, each with energy conservation features
and low emissions (MPR-II compliant) as well as a Sony Trinitron
display tube, for graphics-intensive uses.
Product Development
The Company is actively engaged in the design and development of
additional products and enhancements to its existing products. During
1995, 1994, and 1993, the Company expended $270 million, $226 million,
and $169 million, respectively, on research and development. 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 manufacturing efficiency and lower production costs. In 1995
the Company focused on technological developments for PC products
related to color and monochrome active matrix flat panels, power
conservation, communication devices, full-motion video and stereo
sound, full-duplex speaker telephone, television tuner, user-friendly
software, component densification, speech recognition technology, and
server and client management software.
In 1996 the Company's Systems Division plans to reinforce its
leadership position in the file server market and to expand its
presence in the distributed enterprise market for complex enterprise-
class networks. In February Compaq introduced the ProLiant 4500 5/166
enterprise-class server as well as enterprise-class network storage
solutions and microprocessor upgrades in other high performance
ProLiant and ProSignia servers. The Company also announced additional
enhancements to SmartStart and Compaq Insight Manager. In the second
half of 1996 Compaq will formally introduce the first router products
from its newly-formed Internetworking Products Group and introduce its
first Pentium Pro server. Throughout 1996, the Company plans to
deliver leadership platforms; enhance the integration, maintenance and
management of servers; and build upon strategic alliances with joint
development partners, software vendors, reseller channels, systems
integrators and service providers. The Company intends to be a
leading provider of platforms, tools, and services that enable
customers to have instant access through networked information systems
to up-to-the minute data essential to running their businesses. In
October the Company announced a collaboration with Tandem Computer
Corporation and Microsoft Corporation to develop an industry standard
for clustering, a technique that permits the resources of several
computers to be linked. The Company and Tandem Computer Corporation
will collaborate on an industry standard means of providing high
speed, fault tolerant messaging between clustered servers. This
technology will fit into the WindowsNT server availability and
scalability strategy also announced by Microsoft Corporation.
The Company intends to be the Internet platform leader, both on
the network server side and the client side. On the network server
side, the Company will leverage its strong partnerships along with its
existing strength in servers and internetworking devices to deliver
optimized, cost-effective Internet servers. On the client side, the
Company will leverage existing strengths in home and commercial PCs to
ensure the highest level of Internet readiness, and will develop new
lower-cost devices that can open new markets for Internet access.
Compaq plans to continue its desktop leadership in 1996 with the
delivery of the Pentium Pro-based products that will address the high
performance and graphic-display intensive needs of engineering and
financial analyst workstation customers. The Company also plans to
continue its leadership in Intelligent Manageability by introducing
desktop enhancements that help companies further reduce their overall
cost of ownership. In October the Company and Intel Corporation
announced their plans to develop and co-market integrated desktop
standards-based, real-time video conferencing solutions for the
business environment based on Intel's ProShare Personal Conferencing
technology. This effort is expected to result in a broad, multi-
product array of interoperable conferencing solutions.
The Company has initiated an aggressive 1996 new product strategy
in its Portables Division, including a new product family that will
bring to market significant advances in sound quality, telephone and
communications capabilities. In January the Company introduced its
first Ethernet LAN PC card that allows users of notebook computers to
connect easily to any corporate network. Customers can also expect to
see extensions to the LTE 5000 product family, with new options,
larger screens, faster processors, and extended communications
devices.
In January 1996 the Company introduced its spring lineup of home
multimedia PCs that includes the industry's first combination
scanner/keyboard, "rewritable" CD-ROM drives, 6X-speed CD-ROM drives,
and Pentium processors. Entering the field of "edutainment" for the
first time, in early 1996 the Company and Fisher-Price, Inc. unveiled
Wonder Tools, a new line of interactive computer toys, peripherals and
software titles designed for children ages three to seven. The
products are designed to be used with any Windows-based PC, and are
scheduled to be available in North America during the second half of
1996. In the second half of the year, the Company plans to announce
its fall line-up of home PCs. This product line will represent the
first "grounds-up" redesign of home PCs resulting from the formation
of the Compaq Consumer Division in May 1995. This product lineup will
target distinct customer segments and introduce entirely new product
categories for the home PC buyer. In addition, the Company is
currently evaluating technology developments such as videophone
communications, arcade-level graphics, easier to use software
interfaces, and colorful new PC designs.
Manufacturing and Materials
The Company's PC 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. Certain of the Company's products are manufactured
by third party original equipment manufacturers. The Company has PC
manufacturing operations located in Houston, Texas; Erskine, Scotland;
Singapore; Jaguariuna, Brazil; and Shenzhen, China. 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 Asia are primarily manufactured in
Singapore, while products sold in Latin America are primarily
manufactured in Houston, Texas, and Jaguariuna, Brazil. In addition,
the Company manufactures hubs and high speed switches in Irving,
Texas, and network interface cards in Austin, Texas.
The Company believes that there is a sufficient number of
competent vendors for most components and subassemblies. A
significant number of components, however, are purchased from single
sources due to technology, availability, price, quality, or other
considerations. Key components and processes currently obtained from
single sources include certain of the Company's displays,
microprocessors, application specific integrated circuits and other
custom chips, and certain processes relating to construction of the
plastic housing for the Company's computers. In addition, new
products introduced by the Company often initially utilize custom
components obtained from only one source until the Company has
evaluated whether there is a need for additional suppliers. In the
event that a supply of a key single-sourced material, process, or
component were delayed or curtailed, the Company's ability to ship the
related product in desired quantities and in a timely manner could be
adversely affected. The Company attempts to mitigate these risks by
working closely with key suppliers on product plans, strategic
inventories, and coordinated product introductions.
Like other participants in the personal computer industry, Compaq
ordinarily acquires materials and components through purchase orders
typically covering the Company's requirements for periods averaging 90
to 120 days. From time to time the Company has experienced
significant price increases and limited availability of certain
components that are available from multiple sources, such as dynamic
random-access memory devices. At times the Company has been
constrained by parts availability in meeting product orders and future
constraints could have an adverse effect on the Company's operating
results. On occasion the Company acquires component inventory in
anticipation of supply constraints. A restoration of component
availability and resulting decline in component pricing more quickly
than anticipated could have an adverse effect on the Company's
operating results.
Marketing and Distribution
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 primarily through
dealers, value-added resellers, and systems integrators and to small
business and home customers principally through dealers and consumer
channels. In response to changing industry practices and customer
preferences, the Company is continuing its expansion of distribution
establishments, especially mass merchandise stores, consumer
electronics outlets, and computer superstores. The Company also sells
directly to small business and home customers through the Company's
DirectPlus mail order business that features a variety of personal
computers, printers, and software products.
In 1995 North American Division sales constituted 49% of the
Company's total sales and Europe, Middle East, and Africa Division
sales constituted 36%. The Company's North America Division markets
its products in the United States and Canada, while the Company's
Europe, Middle East, and Africa Division, based in Munich, Germany,
focuses on opportunities in Europe as well as in parts of Africa and
the Middle East. The sales of the Company's Asia/Pacific, Japan, and
Latin America Divisions, which focus on opportunities in these high
growth areas, constitute the remaining 15% of the Company's total
sales. The Company's products are now sold by dealers in more than
100 countries. For further geographic information for 1995, 1994, and
1993, see Management's Discussion and Analysis of Financial Condition
and Results of Operations and Note 10 of Notes to Consolidated
Financial Statements.
Service and Support
The Company provides support and warranty repair to its customers
through full-service computer dealers and independent third-party
service companies. The Company offers its customers CompaqCare, which
includes a number of customer service and support programs, most
notably three-year limited warranties on PC products (excluding
monitors and batteries) and in the U.S. round-the-clock lifetime
telephone technical support for Compaq hardware products at no
additional charge to the customer. In 1995 Digital Multivendor
Customer Services became the Company's Global Service and Support
Provider for its systems products.
Patents, Trademarks, and Licenses
The Company held 422 patents (including 73 design patents) and
had 455 patent applications (including 27 design patent applications)
pending with the United States Patent and Trademark Office at the
close of 1995. In addition, the Company has registered certain
trademarks in the United States and in a number of foreign countries.
While the Company believes that patent and trademark protection plays
an important part in its business, the Company relies primarily upon
the technological expertise, innovative talent, and marketing
abilities of its employees.
The Company has from time to time entered into cross-licensing
agreements with other companies holding patents to technology used in
the Company's products as well as companies using patents to
technology held by the Company. The Company holds a license from IBM
for all patents issuing on applications filed prior to July 1, 1993,
and has entered into a patent cross-license agreement with Texas
Instruments, Inc., for all patents issuing on applications filed prior
to December 31, 2005. In January 1996 the Company and Intel
Corporation entered into a ten year patent cross-license agreement.
Seasonality
Although the Company does not consider its business to be highly
seasonal, the Company in general experiences seasonally higher sales
and earnings in the fourth quarter of the year.
Working Capital
Information regarding the Company's working capital position and
practices is set forth under Item 7 of this Annual Report on Form 10-K
under the caption "Liquidity and Capital Resources."
Customers
No customer of the Company accounted for 10% or more of sales for
1995. Ingram Micro, Inc. and Intelligent Electronics, Inc. accounted
for 7% and 5% of 1995 sales, respectively.
Backlog
The Company's resellers typically purchase products on an as-
needed basis and resellers frequently change delivery schedules and
order rates depending on market conditions. Unfilled orders can be,
and often are, canceled at will and without penalties. In the
Company's experience, however, the actual amount of unfilled orders at
any particular time is not a meaningful indication of its future
business prospects since orders rapidly become balanced as soon as
supply begins meeting demand. In 1995 the Company was unable to
produce certain products on a timely basis due to supply constraints
on certain components. Should the Company be unable to meet demand
for its products on a timely basis, customer satisfaction and sales
could be adversely affected.
Competition
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 developments 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. While the Company believes that its products
compete favorably based on each of these elements, the Company could
be adversely affected if its competitors introduce innovative or
technologically superior products or offer their products at
significantly lower prices than the Company. No assurance can be
given that the Company will have the financial resources, marketing
and service capability, or technological knowledge to continue to
compete successfully. The Company's results could also be adversely
affected should it be unable to implement effectively its
technological and marketing alliances with other companies, such as
Microsoft, Intel, Sharp, Novell, Oracle, SAP, Sybase, Cisco Systems,
Texas Instruments, AMD, and VLSI, among others, and to manage the
competitive risks associated with these relationships.
Environmental Laws and Regulations
The Company recognizes that operating in a manner that is
compatible with the environment is good for its community, employees,
customers, and business. The Company integrates numerous
environmental features in the product design and manufacturing process
that reduce the potential environmental impact during the lifecycle of
its products and its products are designed and manufactured to meet a
variety of the world's environmental standards and expectations. The
Company uses no chlorofluorocarbons (CFCs) in its worldwide
manufacturing operations and undertakes ongoing environmental
programs, including waste reduction, energy conservation, recycling,
and design for environment. The Company maintains a worldwide
environmental health and safety audit program. The audit program
includes management system and compliance evaluations. Compliance
with laws enacted for protection of the environment to date has had no
material effect upon the Company's capital expenditures, earnings, or
competitive position. Although the Company does not anticipate any
material adverse effects in the future based on the nature of its
operations and the purpose of environmental laws and regulations,
there can be no assurance that such laws or future laws will not have
a material adverse effect on the Company.
Employees
At December 31, 1995 the Company had 17,055 full-time regular
employees and 6,829 temporary and contract workers engaged in
manufacturing operations, engineering, research and development,
marketing, sales, service, and administrative activities. The Company
believes that its ability to attract and retain skilled personnel
appropriately is critical to its success. Accordingly, the Company
has developed competitive human resources policies consistent with its
business plan.
Item 2. Properties
The Company's principal administrative facilities and a
manufacturing facility are located in Houston, Texas. These
facilities include 860,000 square feet of manufacturing space on the
Company's 1,000-acre Compaq Center in Houston. The Company owns 13
administrative buildings with a total of 2,600,000 square feet of
space at Compaq Center. The Company leases sales offices in eight
cities in the United States as well as certain administrative and
warehouse facilities. The Company leases manufacturing facilities in
Austin, Texas, and Irving, Texas, that are used in the manufacture of
hubs, high speed switches, and network interface cards.
The Company also owns or leases certain facilities abroad. The
Company owns a 43-acre tract in Erskine, Scotland, where it has
540,000 square feet of manufacturing space. In Singapore the Company
owns 720,000 square feet of manufacturing space and leases 150,000
square feet. In Brazil the Company owns a 150,000 square foot
manufacturing facility and in China the Company leases a 90,000 square
foot manufacturing facility. The Company leases sales and
administrative offices in 35 European and African locations, 9
locations in Latin America, 21 locations in the Asia Pacific region, 3
locations in Japan, and 5 locations in Canada. The Company's 372,000
square foot European distribution center is located in Gorinchem, The
Netherlands. The Company also leases warehouse space in a number of
locations.
Item 3. Legal Proceedings
The Company has been named as a defendant in a number of
repetitive stress injury lawsuits, primarily in New York state courts
or federal district courts for the New York City area. In each of
these lawsuits the plaintiff alleges that he or she suffers from
symptoms generally known as repetitive stress injury, which allegedly
were caused by the design of the keyboard or a failure to warn of the
hazards of misuse. The suits naming the Company are similar to those
filed against other major suppliers of personal computers. Ultimate
resolution of the litigation against the Company may depend on
progress in resolving this type of litigation overall. The Company is
unable to determine at this time the outcome of these suits or the
likelihood of the Company being named in additional suits by
plaintiffs alleging similar injuries. The Company has denied these
claims and intends to defend vigorously the suits. The Company
believes that the claims will not have a material adverse effect on
the Company's consolidated financial position or operating results.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of 1995.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Market for Common Stock
The Company's Common Stock is listed on the New York Stock
Exchange and trades under the symbol CPQ. The following table
presents the high and low sale prices for the Company's Common Stock
for each quarter of 1995 and 1994 (adjusted to reflect a three-for-one
stock split effective May 31, 1994), as reported by Dow Jones
Historical Stock Quote Reporter Service.
1995 1994
High Low High Low
------ ------ ------ ------
1st quarter $44.38 $31.75 $34.96 $24.17
2nd quarter 46.25 30.38 39.88 30.75
3rd quarter 54.75 42.75 39.38 29.50
4th quarter 56.75 42.75 42.12 30.75
Holders of Record
At January 31, 1996, there were 8,984 holders of record of the
Company's common stock.
Dividends
The Company has never paid cash dividends on its common stock.
Registration Statements on Form S-8
For the purposes of complying with the amendments to the rules
governing Form S-8 under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on
Form S-8 Nos. 33-44115, 33-31819, 33-23504, 33-7499, 2-89925, 33-
10106, 33-38044, 33-16987, and 33-62603.
That, insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers,
and controlling persons of the Registrant pursuant to any provision or
arrangement whereby the Registrant may indemnify a director, officer,
or controlling person of the Registrant against liabilities arising
under the Securities Act, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Termination of Stockholders Rights Plan
On May 18, 1989, the Company's Board of Directors approved a
Stockholders Rights Plan, which was registered with the Securities and
Exchange Commission on Form 8-A and listed with the New York Stock
Exchange on June 5, 1989. In December 1995, the Rights Agreement was
amended, terminating this plan on December 31, 1995.
<PAGE>
Item 6. Selected Consolidated Financial Data
The following data have been derived from consolidated
financial statements that have been audited by Price Waterhouse
LLP, 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 appearing elsewhere in this Annual
Report on Form 10-K.
Year ended December 31,
In millions,
except per share amounts 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------
Consolidated Statement of Income Data:
Sales $14,755 $10,866 $7,191 $4,100 $3,271
Cost of sales 11,367 8,139 5,493 2,905 2,053
-------------------------------------------
3,388 2,727 1,698 1,195 1,218
-------------------------------------------
Selling, general, and
administrative expense 1,594 1,235 837 699 722
Research and development costs 270 226 169 173 197
Purchased in-process
technology 241
Other income and expense, net 95 94 76 28 145
-------------------------------------------
2,200 1,555 1,082 900 1,064
-------------------------------------------
Income from consolidated
companies before provision
for income taxes 1,188 1,172 616 295 154
Provision for income taxes 399 305 154 97 43
-------------------------------------------
Income from consolidated
companies 789 867 462 198 111
Equity in net income of
affiliated company 15 20
-------------------------------------------
Net income $ 789 $ 867 $ 462 $ 213 $ 131
===========================================
Earnings per common and
common equivalent share:
Primary $ 2.88 $ 3.23 $ 1.82 $ .86 $ .50
===========================================
Assuming full dilution $ 2.87 $ 3.21 $ 1.78 $ .84 $ .50
===========================================
December 31,
In millions 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------
Consolidated Balance Sheet Data:
Total assets $ 7,818 $ 6,166 $4,084 $3,142 $2,826
Long-term debt 300 300 73
Stockholders' equity 4,614 3,674 2,654 2,006 1,931
<PAGE>
Item 7. 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, 1995.
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------
Sales 100.0% 100.0% 100.0%
Cost of sales 77.0 74.9 76.4
--------------------------
Gross margin 23.0 25.1 23.6
--------------------------
Selling, general, and
administrative expense 10.8 11.4 11.6
Research and development costs 1.8 2.1 2.3
Purchased in-process technology (1) 1.6
Other income and expense, net .7 .8 1.1
--------------------------
14.9 14.3 15.0
--------------------------
Income from consolidated companies before
provision for income taxes 8.1% 10.8% 8.6%
==========================
(1) Represents impact of a $241 million non-recurring, non-tax
deductible charge for purchased in-process technology in
connection with acquisitions that occurred during 1995.
Sales
Sales for 1995 increased approximately $3.9 billion or 36% over
the prior year as compared with an increase of $3.7 billion or 51% in
1994 from 1993. Sales growth occurred in all regions. North American
sales, which include Canada, increased 33% during 1995, compared with
an increase of 49% in 1994 from 1993. International sales, excluding
Canada, represented 51% of total sales in 1995 as compared with 50% in
1994 and 49% in 1993. European sales increased 40% during 1995
compared to an increase of 41% in 1994 from 1993. Other international
sales, excluding Canada, increased 37% during 1995, compared with an
increase of 95% in 1994 from 1993. The Company believes that the
lower rates of growth in Asia and Latin America in 1995 were related
to economic conditions in certain Latin American countries and a
general tightening of the Company's credit practices in Latin America
and Asia Pacific.
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.
Approximately 75% of the Company's CPU sales in 1995 were derived from
products introduced in 1995. 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 significant increase in sales in 1995 stemmed primarily from
an increase in the number of units sold and an increase in sales of
options associated with CPU products. In 1995 the Company's worldwide
unit sales increased 20% while they increased 54% in 1994. The 1995
increase included an 18% expansion in unit sales of the Company's
commercial desktop CPU products, a 6% decrease for the Company's
portable CPU products, a 44% increase for the Company's consumer
desktop CPU products, and a 53% increase for the Company's systems CPU
products. Unit sales growth primarily resulted from the Company's
aggressively priced Compaq ProLinea line in its commercial desktop
products, the Compaq Presario line in its consumer products, and the
Compaq ProSignia line in its tower systems products. The Company
believes that its 1995 sales in dollars increased more rapidly than
the personal computer industry as a whole while its unit sales did not
increase as much as the industry as a whole. According to third-party
estimates, worldwide unit sales of personal computers increased
approximately 25% in 1995 in contrast to a 23% increase in 1994.
Third-party estimates also indicate that industry sales increased by
approximately 30% worldwide in 1995, compared to a 22% increase in
1994.
The Company's average sales price per unit increased in 1995 from
1994, primarily as a result of a higher mix of option and systems
products, a generally higher mix of units using Pentium
microprocessors, and currency fluctuations. 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 Japanese market in particular experienced a very aggressive
pricing environment in the fourth quarter of 1995 as certain Japanese
competitors sought to gain market share. The Company attempts to
mitigate the effect of any pricing actions through implementation of
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 was 23.0% in 1995, down
from 25.1% in 1994 and 23.6% in 1993. The decrease from 1994
primarily resulted from pricing actions, a rising proportion of sales
of the Company's consumer products, a lower ratio of sales of its
portables products, increased competitiveness in the Japanese market,
and product transition costs, partially offset by a higher mix of
options and systems CPU products and currency fluctuations. The
Company maintains a strategy designed to increase its market share
profitably and continues to expand its presence in the price sensitive
consumer market segment. This strategy, along with the expectation of
a continued aggressive pricing environment, particularly in Japan, and
scheduled product transitions, will continue to put pressure on the
Company's gross margins.
Operating Expenses
Research and development costs increased 19% in absolute dollars
(to $270 million from $226 million) while declining as a percentage of
sales in 1995 as compared to 1994. 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 1996.
Selling, general, and administrative expense increased 29% in
amount in 1995 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 sales and gross margin
levels. The increase in the amount of expense resulted from domestic
and international selling expense associated with higher unit volumes
as well as expense incurred in connection with the introduction of new
products, the entry into new markets (both domestically and
internationally), the expansion of distribution channels, and a
greater emphasis on advertising, customer service, and technical
support. The Company anticipates that in 1996 selling, general, and
administrative expense will increase in absolute dollars as it expands
into new markets, supports significant new product introductions, and
increases its investment in the area of service and support,
especially in support of its systems business. The Company strives to
manage total operating expenses in line with sales growth and gross
margin levels.
Other Items
Interest expense, net of interest and dividend income from
investment of excess funds, was $46 million, $49 million, and $43
million in 1995, 1994, and 1993, respectively. Net interest expense
was lower in 1995 when compared to 1994 primarily due to an increase
in interest and dividend income associated with generally higher cash
balances throughout 1995, partially offset by higher interest expense
in connection with the Company's borrowings in Latin America and
worldwide foreign exchange hedging program. Net interest expense was
higher for 1994 than 1993 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 net losses of $33 million,
$46 million, and $15 million in 1995, 1994, and 1993, respectively.
In 1995 the Company recorded a charge associated with its
purchase of NetWorth, Inc. and Thomas-Conrad Corporation during the
fourth quarter and another small company purchased earlier in 1995.
The non-recurring, non-tax deductible charge for purchased in-process
technology totaled $241 million. 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.
The Company's effective tax rate was 34% in 1995, 26% in 1994,
and 25% in 1993. The increase from 1993 to 1994 is due to a decline
in the ratio of Singapore earnings to total earnings The increase
from 1994 to 1995 is attributable to the non-tax deductible charge
associated with the Company's acquisitions and a decline in the ratio
of earnings derived from the Company's Singaporean manufacturing
subsidiary to total earnings. The Company anticipates that the
proportion of its Singaporean earnings will continue to decline in
1996 and, as a result, estimates that its tax rate in 1996 will be
approximately 30%. The Company's tax rate is heavily dependent upon
the mix of earnings of its Singaporean manufacturing subsidiary due to
this subsidiary's earnings not being subject to taxes in Singapore
until August 2001 (with potential extension to August 2004 if certain
cumulative investment levels and other conditions are met) and the
Company's decision to invest a portion of the undistributed earnings
of this subsidiary indefinitely in operations outside the United
States. These earnings would become subject to U.S. tax if they were
actually or deemed to be remitted to the Company as dividends or if
the Company should sell its stock in this subsidiary. As a result,
the Company does not provide tax on these earnings, which lowers its
effective tax rate. The Company has invested $713 million of the
undistributed earnings of this subsidiary since 1993, and anticipates
that the investment will reach $1 billion during 1996. Should the
Company choose to discontinue its permanent reinvestment policy, the
Company's effective tax rate will increase at that time.
Liquidity and Capital Resources
During 1995 the Company's working capital increased to $3.8
billion compared to $3.1 billion at December 31, 1994.
The Company's cash, cash equivalents, and short-term investments
increased to $745 million at December 31, 1995, from $471 million at
December 31, 1994, primarily because of cash received in connection
with higher sales volumes and cash received in connection with the
exercise of employee stock options, partially offset by increases in
inventories and accounts receivable related to the Company's support
of higher production and sales volumes and cash used for acquisitions.
Accounts receivable increased to $3.1 billion at December 31, 1995,
from $2.3 billion at December 31, 1994, primarily as a result of
higher sales levels. Inventory levels increased to $2.2 billion from
$2.0 billion during that period. The increase in inventory resulted
from production planning associated with higher sales levels partially
offset by improvements in inventory turns.
Cash used in 1995 for the purchase of property, plant, and
equipment totaled $391 million. The Company estimates that capital
expenditures for land, buildings, and equipment during 1996 will be
$450 million. The Company has commitments for only a small portion of
such amounts and the actual level of spending will depend on a variety
of factors, including general economic conditions and the Company's
business. 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
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 financing arrangements. The Company has a $250 million syndicated
credit facility, which will expire in October 1996, and a $1 billion
syndicated credit facility, which will expire in October 2000, both of
which were unused at December 31, 1995. The Company has established a
commercial paper program, which is supported by the syndicated credit
facility. In the U.S. and various international locations the Company
has uncommitted bank lines of credit, of which $14 million was
outstanding at December 31, 1995. The Company believes that these
sources of credit provide sufficient financial flexibility to meet
future funding requirements. The Company continually evaluates the
need to establish other sources of working capital and will pursue
those it considers appropriate based upon Company needs and market
conditions.
Factors That May Affect Future Results
The Company participates in a highly volatile industry that is
characterized by fierce industry-wide competition for market share
resulting in aggressive pricing practices, continually changing
customer demand patterns, growing competition from well-capitalized
high technology and consumer electronics companies, and rapid
technological development carried out in the midst of legal battles
over intellectual property rights. In developing strategies to
achieve continued increases in sales and operating profits, the
Company anticipates the continued expansion of the computer market and
spending on information technology. In this environment the Company
will seek profitable PC market share growth while expanding its
product offerings. The Company's operating results could be adversely
affected should the Company be unable to anticipate customer demand
accurately, to maintain short design cycles while meeting evolving
industry performance standards, to manage its product transitions,
inventory levels, and manufacturing processes efficiently, to
distribute its products quickly in response to customer demand, to
differentiate its products from those of its competitors, or to
compete successfully in the markets for its new products. In
accordance with the provisions of the Private Securities Litigation
Reform Act of 1995, the cautionary statements set forth below identify
important factors that could cause actual results to differ materially
from those in the forward-looking statements contained in this report.
Competitive Environment. The Company expects the PC market in 1996 to
expand in line with third party research organizations' forecasts of
unit growth in the range of 17% to 20%. The Company is putting in
place programs and products focused on meeting market demand and
gaining market share profitably. Competition for PC market share
remains fierce. Several of the Company's competitors have announced
plans to increase their PC market shares. Two of the Company's
competitors recently merged, creating an entity whose 1995 U.S. unit
market share exceeded the Company's. A number of the Company's
suppliers also manufacture and market PCs or motherboards, which
contain the microprocessor and other internal operating components of
the PC. In addition, a number of consumer electronics companies may
enter the PC market as it expands into the consumer sector as consumer
models expand multi-media features. Each of these companies may be
willing to accept lower profit margins to win market share. In
addition, when the Company lowers prices on existing products or
announces new products at lower price points, the Company must
increase the volume of unit sales to achieve sales targets. On March
1, 1996, the Company announced an update to its previous business
outlook. The Company stated that it had expected seasonally slower
sales in January, but February sales had not met anticipated growth
levels. The Company stated that, in response to a more competitive
market environment, especially in North America, it was stepping up
promotional programs and taking selected price reductions to achieve
first quarter sales objectives. The Company anticipates sales growth
of approximately 35% over the $3.0 billion achieved in first quarter
1995. Earnings per share in the first quarter 1996 are expected to
exceed the $.80 per share recorded in the same period last year. The
Company expects sales and profitability to improve in the remaining
quarters of the year. The Company's ability to achieve targeted sales
and earnings levels depends upon a number of competitive and market
factors and is subject to the risks set forth in this report.
Gross Margin Pressures and Operating Expenses. In order to maintain
or increase its market share, the Company must continue to price its
products competitively and from time to time may use various incentive
programs to increase sales. Some of these strategies lower the
average sales price per unit and may cause declines in gross margin
and profitability. Other sales incentives increase operating expenses
and may lower profitability. To compensate for the impact of reduced
prices and sales incentives on its sales, gross margins, and
profitability, the Company must increase unit shipments, especially of
its high-end systems products and options, aggressively reduce costs,
and maintain tight control over operating expenses. The promotional
activities and pricing actions the Company is taking in the first
quarter 1996 put pressure on first quarter gross margin, which is
likely to be below the 21.7 percent of fourth quarter 1995. Compaq
expects gross margin to improve in the remaining quarters of the year.
And, despite quarterly fluctuations, Compaq remains focused on its
long-standing gross margin model of 23 percent. Although the
percentage of operating expense will vary depending upon sales, the
Company is taking immediate actions to adjust its operating expenses
to lower levels. The Company's ability to achieve higher gross margin
levels and lower operating expenses as a percentage of sales in the
second half of the year depends upon a variety of competitive and
market factors and is subject to the other risks set forth in this
report.
Inventory. In 1995 the Company continued to invest in higher levels
of inventory to support higher sales. The Company anticipates that
its inventory turns, which increased to 5.5 in 1995 from 5.2 in 1994,
will fluctuate in 1996. The Company anticipates that inventory turns
will be down in the first half of the year in comparison with fourth
quarter 1995 but expects inventory turns to improve in the second half
of 1996 as a result of increased efficiencies accompanying the
reengineering of certain internal processes. In the event of a drop
in worldwide demand for PC products, lower than anticipated demand for
one or more of the Company's products, difficulties in managing
product transitions, or component pricing movements that affect the
value of raw material inventory, there could be an adverse impact on
inventory, cash, and related profitability. The Company faces product
transitions throughout 1996, particularly in its commercial desktop
and systems divisions. In each product transition cycle the Company
confronts the challenge of managing the inventory of its older
products and facilitating the sale of older Compaq inventory held by
resellers as it increases sales of newer PCs. The Company provides
currently for estimated product returns and price protection that may
occur under programs the Company has with its customers and under
floor planning arrangements with third-party finance companies. The
Company and resellers in the U.S. currently hold substantial amounts
of inventory of certain of the Company's products. The Company
expects anticipated selected pricing actions and aggressive marketing
programs in the first half of 1996 to raise dealer sales of these
products, which will facilitate product transitions. The success of
this strategy depends upon a variety of competitive and market factors
and is subject to the other risks set forth in this report. Should
the Company be unable to sell its inventory of older products at
anticipated prices or if dealers hold higher than expected amounts of
inventory subject to price protection at the time of planned price
reductions, there could be a resulting adverse impact on sales, gross
margins, and profitability.
Reengineering Implementation. The Company continues to expand
manufacturing and distribution capacity as well as reengineer its
internal processes to support continued growth. During 1996 the
Company will continue to focus on making its business processes more
efficient in order to increase customer satisfaction, improve
productivity, and lower costs. In the event of a delay in
reengineering implementation, there could be an adverse impact on
inventory, cash, and related profitability. As the Company has grown
it has outstripped the ability of certain of its systems to support
continued expansion. In connection with its reengineering efforts the
Company is moving many of its systems from a legacy environment of
proprietary systems to client-server architectures. Should the
Company's transition to new systems not occur in a smooth and orderly
manner, the Company could experience disruptions in the operations of
its business, which could have an adverse financial impact.
Alliance and Acquisition Strategy. Because of the rapid pace of
technological advances in information technology, the Company must
introduce on a timely basis new products offering competitive features
that appeal to a wide variety of customers. The Company's product
development efforts are centered on aggressively developing new areas
in which the Company can differentiate its products and add value,
focusing on innovative platform features, the integration of hardware
and software, and new related products and services, such as storage
devices, toys and software titles. Because the Company's business now
intersects with a number of areas in which other companies have
significantly greater technological, marketing, and service expertise,
the Company has focused on forming alliances with third parties that
have complementary products and skills as well as acquisitions that
target incremental business opportunities. This philosophy extends to
service alliances and in 1995 the Company expanded its internal
service and support capability while naming Digital Multivendor
Customer Services as the Company's Global Service and Support Provider
for its systems products. The Company believes that its alliance and
acquisition strategies enable it to provide best-in-class solutions
integrated in its platforms while expanding its offerings of
complementary products. Each of these approaches, however, carries
significant risks. In its acquisition activities the Company
confronts significant challenges in retaining key employees and
reconciling diverse corporate cultures, synchronizing product roadmaps
and business processes, and integrating logistics, marketing, product
development, and manufacturing operations to achieve greater
efficiencies. If the Company is unable to complete the transition
phase with respect to its 1995 acquisitions as anticipated, the
expansion of its market in the internetworking arena could be delayed.
In developing business plans based on an alliance model, the Company
must rely on the performance of third parties, many of whom may
compete with the Company in other parts of their businesses. In
addition, particularly in attempting to expand its systems business
into enterprise computing through an alliance model, the Company
competes against businesses that are vertically integrated and offer
customers the convenience of dealing with only one vendor for their
enterprise-wide systems. Customers' willingness to adopt the
Company's more cost-effective solution will depend upon the reputation
for reliability that it and its business allies earn in this area.
Technology Standards. Participants in the PC industry generally rely
on the creation and implementation of technology standards to win the
broadest market acceptance for their products. The Company must
successfully manage and participate in the development of standards
while continuing to differentiate its products in a manner valued by
customers. While industry participants generally accept, and may
encourage, the use of their intellectual property by third parties
under license, when intellectual property owned by competitors or
suppliers becomes accepted as an industry standard, the Company must
obtain a license, purchase components utilizing such technology from
the owners of such technology or their licensees, or otherwise acquire
rights to use such technology, which could result in increased Company
costs. In addition, delays in access to technology developed by
competitors and suppliers could slow the Company's design and
manufacture of components and subsystems that distinguish its
products.
Supplier Issues. In managing production levels, product transitions,
and developments in microprocessor and other component technology, the
Company must develop and implement effective strategies that
anticipate availability and pricing by suppliers as well as forecast
customer demand for its products. The Company attempts to select
suppliers that can provide sufficient and timely supplies of high
quality material. There can be no assurance, however, that the
Company will acquire sufficient supplies of components, including
microprocessors, to deliver its products in volume in response to
shifts in customer demand. Order lead times and cancellation
requirements vary by supplier and component. Should the Company
underestimate the component supplies needed to meet demand, the
Company could be unable to meet customer demand. Should the Company
overestimate the component supplies needed to meet customer demand,
the Company's cash and profitability could be adversely affected. Many
of the components used in the Company's products, particularly
microprocessors, experience steep price declines over their product
lives. If the Company is unable to manage its purchases and
utilization of such components efficiently to maintain low inventory
levels immediately prior to major price declines, the Company could be
unable to take immediate advantage of such declines to lower its
product costs, which could adversely affect the Company's sales and
gross margins. In planning product transitions the Company evaluates
the speed at which customers are likely to switch to newer products.
The contrast between the prices of old and new products, which is
related to component costs, is a critical variable in predicting
customer decisions to move to the next generation of products.
Product transitions may occur more quickly or more slowly than
anticipated based on pricing decisions by industry component
suppliers, particularly microprocessor prices set by Intel
Corporation. Because of the lead times associated with the Company's
volume production, should the Company be unable to predict the rate of
a product transition accurately, the Company's inventory levels, cash
and profitability could be negatively affected. In addition, certain
of the Company's products are manufactured by third party original
equipment manufacturers, which could fail to respond in a timely
manner to the Company's purchase orders or could fail to meet the
Company's quality standards. The Company attempts to maintain tight
control over production by third party original equipment
manufacturers to ensure that these products comply with its standards
and schedule.
Intellectual Property Infringement. Because of rapid technological
changes in the computer industry, extensive patent and copyright
coverage, and the rapid establishment of new copyright and patent
rights, certain components of the Company's products designed by the
Company or purchased from third parties may unknowingly infringe
intellectual property rights of others. The Company believes, based
in part on industry practices, that if any infringements do exist, the
Company will be able to modify its products to avoid infringement,
obtain components that do not infringe, or obtain licenses or rights
to such intellectual property on terms not having a material adverse
effect on the Company. There can be no assurance, however, that the
Company will be able to ensure that component supplies and the cost of
components are not adversely affected by legal proceedings in which an
adverse determination is made with respect to intellectual property
rights of the Company or one of its suppliers. To minimize the impact
of intellectual property claims by third parties, the Company pursues
an active patent portfolio development plan.
Product Distribution. During 1995 the Company continued to broaden
its product distribution. Offering its products in an increasing
number of geographic locations and through a variety of distribution
channels, including dealers, distributors, value-added resellers, mass
merchandise stores, consumer electronic outlets, computer
superstores, and mail order, requires the Company to increase its
geographic presence and to provide increased levels of sales and
support interface with customers. There can be no assurance, however,
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 in a cost effective manner, particularly with respect to the
levels of service and support desired by customers to support systems
products in enterprise-wide computing solutions. While the Company
anticipates that its geographic expansion will continue and the number
of outlets for its products will continue to increase in 1996, a
reduction in the pace of this growth could affect sales and
profitability. Geographic expansion, particularly the expansion of
manufacturing operations in developing countries, such as Brazil and
China, and the expansion of sales into economically and politically
volatile areas such as China, Hong Kong, Latin America, and Eastern
Europe, subject the Company to a number of economic and other risks,
such as currency devaluation, expropriation, and financial instability
among resellers in these regions. The Company continues to evaluate
its business operations in these regions and attempts to take
measures to limit its risks in these areas.
Credit Risks. The Company's primary means of distribution remains
third-party resellers. The Company continuously monitors and manages
the credit it extends to resellers and attempts to limit credit risks
by broadening its distribution channels, utilizing certain risk
transfer instruments, and obtaining security interests in property
owned by its debtors. The Company's business could be adversely
affected in the event that the financial condition of third-party
computer resellers worsens. Upon 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 generally has experienced longer
accounts receivable cycles in its emerging markets, in particular
China and Latin America, when compared to its U.S. and European
markets. In the event that accounts receivable cycles in these
developing markets lengthen further or one or more of the Company's
larger resellers in these regions fail, the Company could be adversely
affected.
Forecasting Issues. Because of the pace of technological advances in
the computer industry, the Company must introduce on a timely basis
new products that offer customers competitive technologies while
managing the production and marketing cycles of its existing products.
Forecasting demand for newly-introduced products is complicated by the
availability of different product models, which may include various
types of built-in peripherals and software, and the configuration
requirements, such as language localization, in certain markets. As a
result, while overall demand may be in line with the Company's
projections and manufacturing implementation, local market variations
can lead to differences between expected and actual demand and
resulting delays in shipment, which can affect the Company's financial
results.
Currency and Hedging Risks. The value of the U.S. dollar continues to
affect the Company's financial results. The functional currency for
the Company's international subsidiaries is the U.S. dollar. When the
U.S. dollar strengthens against other currencies, sales made in those
currencies translate into lower 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 positively or negatively affect the
Company's sales (as expressed in U.S. dollars), gross margins, and
operating expenses, 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 hedging programs
aimed at limiting in part the impact of currency fluctuations.
Through these programs the Company hedges its non-U.S. dollar net
monetary assets and its Japanese yen denominated purchase commitments
primarily through the use of forward exchange and option contracts.
For certain of its markets, particularly Latin America, the Company
has determined that ongoing hedging of its non-U.S. dollar net
monetary assets is not cost effective and instead attempts to minimize
currency exposure risk through working capital management. There can
be no assurance that such an approach will be successful, especially
in the event of a significant and sudden decline in the value of local
currencies. From time to time the Company purchases foreign currency
option contracts as well as short-term forward exchange contracts to
protect against currency exchange risks associated with the
anticipated sales of its international marketing subsidiaries,
principally in Europe and Japan. These instruments provide only
limited protection against currency exchange risks. The Company
varies the percentage of anticipated sales that it attempts to protect
against currency exchange risks based upon its judgment of currency
markets and the costs of these instruments, and in some markets,
particularly in developing areas, the Company's ability to utilize
such instruments is limited. If the Company overestimates the hedging
amount needed to protect anticipated sales during a period in which
the dollar weakens or yen-denominated purchase commitments during a
period when the dollar strengthens, the Company could incur expense
that would not be balanced by the impact of exchange rate movements on
its sales and purchase commitments. All currency contracts that are
entered into by the Company are components of its hedging programs and
are entered into for the sole purpose of hedging an existing or
anticipated currency exposure, not for speculation. Although the
Company maintains these programs to 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.
Tax Rate. The Company's tax rate is heavily dependent upon the
proportion of earnings that are derived from its Singaporean
manufacturing subsidiary and its ability to reinvest those earnings
permanently outside the U.S. If the earnings of this subsidiary as a
percentage of the Company's total earnings were to decline, or should
the Company's ability to reinvest these earnings be reduced, the
Company's tax rate would increase beyond the estimated 30%. In
addition, should the Company's intercompany transfer pricing with
respect to its Singaporean manufacturing subsidiary require
significant adjustment due to audits or regulatory changes, the
Company's overall tax rate could increase.
Seasonality. General economic conditions have an impact on the
Company's business and financial results. From time to time the
markets in which the Company sells its products experience weak
economic conditions that may negatively affect sales of the Company's
products. Although the Company does not consider its business to be
highly seasonal, it has experienced seasonally higher sales and
earnings in the fourth quarter of the year. The continued expansion
of its retail business is likely to result in the increased
seasonality of the Company's business, particularly in the fourth
quarter of the year, and its financial results being more dependent on
retail business fluctuations.
Facilities. Certain of the Company's facilities, including its
European distribution center in Gorinchem, The Netherlands, and
critical suppliers are located in areas that are at risk for natural
disasters such as floods, tornadoes, hurricanes and earthquakes.
While the Company attempts to minimize the potential for loss through
preventative planning and insurance risk transfer products, such
natural disasters could negatively affect the Company's sales,
profitability, and cash flow.
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.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1995 and 1994
Consolidated Statement of Income for the three years ended
December 31, 1995
Consolidated Statement of Cash Flows for the three years ended
December 31, 1995
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 1995
Notes to Consolidated Financial Statements
Financial Statement Schedules:
For the three years ended December 31, 1995:
Schedule VIII - Valuation and Qualifying Accounts
Item 9. Disagreements on Accounting and Financial Disclosure
None.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Compaq Computer Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Compaq Computer Corporation and its subsidiaries
at December 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
January 23, 1996
<PAGE>
COMPAQ COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEET
December 31,
Dollars in millions, except par value 1995 1994
- ----------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 745 $ 471
Accounts receivable, less allowance of $100 and $75 3,141 2,287
Inventories 2,156 2,005
Deferred income taxes 365 303
Prepaid expenses and other current assets 120 92
---------------
Total current assets 6,527 5,158
---------------
Property, plant, and equipment,
less accumulated depreciation 1,110 944
Other assets 181 64
---------------
$7,818 $6,166
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,379 $ 888
Income taxes payable 190 246
Other current liabilities 1,111 879
---------------
Total current liabilities 2,680 2,013
---------------
Long-term debt 300 300
---------------
Deferred income taxes 224 179
---------------
Commitments and contingencies
Stockholders' equity:-
Preferred stock, $.01 par value
(authorized: 10 million shares; issued: none)
Common stock and capital in excess of $.01 par value
(authorized: 1 billion shares; issued and outstanding:
267.1 million shares at December 31, 1995 and
261.0 million shares at December 31, 1994) 890 739
Retained earnings 3,724 2,935
---------------
Total stockholders' equity 4,614 3,674
---------------
$7,818 $6,166
===============
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31,
In millions, except per share amounts 1995 1994 1993
- ---------------------------------------------------------------------------
Sales $ 14,755 $ 10,866 $ 7,191
Cost of sales 11,367 8,139 5,493
-----------------------------------
3,388 2,727 1,698
-----------------------------------
Selling, general, and
administrative expense 1,594 1,235 837
Research and development costs 270 226 169
Purchased in-process technology 241
Other income and expense, net 95 94 76
-----------------------------------
2,200 1,555 1,082
-----------------------------------
Income before provision for income taxes 1,188 1,172 616
Provision for income taxes 399 305 154
-----------------------------------
Net income $ 789 $ 867 $ 462
===================================
Earnings per common and common
equivalent share:
Primary $ 2.88 $ 3.23 $ 1.82
===================================
Assuming full dilution $ 2.87 $ 3.21 $ 1.78
===================================
Shares used in computing earnings per
common and common equivalent share:
Primary 273.6 268.6 254.1
===================================
Assuming full dilution 275.0 270.1 258.9
===================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
In millions 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Cash received from customers $ 13,910 $ 9,986 $ 6,731
Cash paid to suppliers and employees (12,437) (9,778) (6,331)
Interest and dividends received 53 22 20
Interest paid (100) (65) (64)
Income taxes paid (483) (266) (116)
--------------------------------
Net cash provided by (used in)
operating activities 943 (101) 240
--------------------------------
Cash flows from investing activities:
Purchases of property, plant,
and equipment, net (391) (357) (145)
Acquisition of businesses, (318)
net of cash acquired
Other, net 6 (51)
--------------------------------
Net cash used in
investing activities (703) (408) (145)
--------------------------------
Cash flows from financing activities:
Issuance of common stock pursuant
to stock option plans 79 100 142
Issuance of long-term debt 300
--------------------------------
Net cash provided by
financing activities 79 400 142
--------------------------------
Effect of exchange rate changes on cash (45) (47) 33
--------------------------------
Net increase (decrease) in cash and
cash equivalents 274 (156) 270
Cash and cash equivalents at beginning of year 471 627 357
--------------------------------
Cash and cash equivalents at end of year $ 745 $ 471 $ 627
================================
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income $ 789 $ 867 $ 462
Depreciation and amortization 214 169 156
Tax benefit associated with stock options 60 53 44
Provision for bad debts 43 36 33
Purchased in-process technology 241
Deferred income taxes (17) (184) (38)
Loss on disposal of assets 2 2 2
Exchange rate effect 33 46 15
Increase in accounts receivable (863) (926) (484)
Increase in inventories (135) (882) (289)
Decrease (increase) in prepaid expenses and
other current assets (41) (55) 24
Increase in accounts payable 479 248 125
Increase (decrease) in income taxes payable (61) 173 34
Increase in other current liabilities 199 352 156
--------------------------------
Net cash provided by (used in)
operating activities $ 943 $ (101) $ 240
================================
Supplemental Cash Flow Information
Year ended December 31,
In millions 1995
- ------------------------------------------------------
Acquisitions (Note 2)
Fair value of assets acquired $ 432
Liabilities assumed (69)
Stock issued (12)
Options assumed (14)
-------
Cash paid 337
Less: cash acquired (19)
-------
Net cash paid for acquisitions $ 318
=======
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common stock
--------------------
Par value
Number and capital
In millions, of in excess Retained
except number of shares in thousands shares of par earnings Total
- -----------------------------------------------------------------------------
Balance, December 31, 1992 239,490 $ 400 $ 1,606 $ 2,006
Issuance pursuant to stock
option plans 13,553 142 142
Tax benefit associated with
stock options 44 44
Net income 462 462
----------------------------------------
Balance, December 31, 1993 253,043 586 2,068 2,654
Issuance pursuant to stock
option plans 7,994 100 100
Tax benefit associated with
stock options 53 53
Net income 867 867
----------------------------------------
Balance, December 31, 1994 261,037 739 2,935 3,674
Issuance pursuant to stock
option plans 5,792 79 79
Issuance pursuant to
business acquired 241 12 12
Tax benefit associated with
stock options 60 60
Net income 789 789
----------------------------------------
Balance, December 31, 1995 267,070 $ 890 $ 3,724 $ 4,614
========================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPAQ COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of Business and Significant Accounting Policies:
Description of business - Compaq Computer Corporation designs,
develops, manufactures, and markets a wide range of personal computing
products, including desktop personal computers, portable computers,
tower PC servers and peripheral products that store and manage data
in network environments. The Company markets its products primarily to
business, home, government, and education customers. The Company
operates in one principal industry segment across geographically
diverse markets.
Principles of consolidation - The consolidated financial statements
include the accounts of Compaq Computer Corporation and its
subsidiaries. All significant intercompany transactions have been
eliminated.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the related
reported amounts of sales and expenses during the reporting period.
Actual results could differ from those estimates. Management believes
that the estimates are reasonable.
Cash and cash equivalents - Cash and cash equivalents include cash on
hand, amounts due from banks, money market instruments, commercial
paper, and other investments having maturities of three months or less
at date of acquisition and are reflected as such for purposes of
reporting cash flows and are stated at cost which approximates fair
value.
Inventories - Inventories are stated at the lower of cost or market,
cost being determined on a first-in, first-out basis.
Property, plant, and equipment - Property, plant, and equipment are
stated at cost. Major renewals and improvements are capitalized; minor
replacements, maintenance, and repairs are charged to current
operations. Depreciation is computed by applying the straight-line
method over the estimated useful lives of the related assets, which
are 30 years for buildings and range from three to ten years for
equipment. Leasehold improvements are amortized over the shorter of
the useful life of the improvement or the life of the related lease.
Purchased technology, other intangible assets, and goodwill -
Purchased technology, other intangible assets including licenses and
trademarks, and goodwill are carried at cost less accumulated
amortization, which is being provided on a straight-line basis over
the economic lives of the respective assets, generally three to seven
years.
Sales recognition - The Company recognizes sales at the time products
are shipped to its customers. Provision is made currently for
estimated product returns and price protection which may occur under
programs the Company has with its customers and under floor planning
arrangements with third-party finance companies.
Post sales support and warranty expense - The Company provides
currently for the estimated cost that may be incurred for post sales
support and product warranties.
Advertising costs - Advertising costs are charged to operations when
incurred. The cost of direct-response advertising is not significant.
Advertising expenses for 1995, 1994, and 1993 were $201 million, $193
million, and $114 million, respectively.
Foreign currency - The Company uses the U.S. dollar as its functional
currency. Financial statements of the Company's foreign subsidiaries
are translated to U.S. dollars for consolidation purposes using
current rates of exchange for monetary assets and liabilities and
historical rates of exchange for nonmonetary assets and related
elements of expense. Sales and other expense elements are translated
at rates that approximate the rates in effect on the transaction
dates. Gains and losses from this process are included in the
Company's consolidated statement of income.
The Company hedges certain portions of its foreign currency exposure
primarily through the use of forward contracts and option contracts.
Generally, gains and losses associated with currency rate changes on
forward contracts are recorded currently, while the interest element
is recognized over the life of each contract. However, to the extent
such contracts hedge a commitment for capital expenditures or
inventory purchases, no gains or losses are recognized, and the rate
at the time the hedge is made is, effectively, the rate used to
determine the U.S. dollar value of the asset when it is recorded.
From time to time the Company hedges a portion of its anticipated but
not firmly committed sales of its international marketing subsidiaries
using purchased foreign currency options. Realized and unrealized
gains and the net premiums on these options are deferred and
recognized as a component of sales in the same period that the related
sales occur. In addition, at times the Company utilizes forward
contracts to protect the Company from the effects of currency
fluctuations on anticipated but not firmly committed sales which are
expected to occur within a three-month period. These forward contracts
do not extend beyond the end of any quarter or year.
Income taxes - The provision for income taxes is computed based on the
pretax income included in the consolidated statement of income.
Research and development tax credits are recorded to the extent
allowable as a reduction of the provision for federal income taxes in
the year the qualified research and development expenditures are
incurred. The asset and liability approach is used to recognize
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax bases of assets and liabilities.
Earnings per share - Primary earnings per common and common equivalent
share and earnings per common and common equivalent share assuming
full dilution are computed using the weighted average number of shares
outstanding adjusted for the incremental shares attributed to
outstanding options to purchase common stock.
Stock-based compensation - The Company has not elected early adoption
of Financial Accounting Standard No. 123 (FAS 123), Accounting for
Stock-Based Compensation. FAS 123 becomes effective beginning with the
Company's first quarter of 1996, and will not have a material effect
on the Company's consolidated financial position or operating results.
Upon adoption of FAS 123, the Company will continue to measure
compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, and will provide pro forma
disclosures of net income and earnings per share as if the fair value-
based method prescribed by FAS 123 had been applied in measuring
compensation expense.
Other recent pronouncements - In 1995 Financial Accounting Standards
No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, was issued and is
effective for fiscal years commencing after December 15, 1995. The
future adoption of FAS 121 is not expected to have a material effect
on the Company's consolidated financial position or operating results.
Reclassifications - Certain amounts have been reclassified to conform
to the 1995 presentation.
Note 2 - Acquisitions:
During the fourth quarter of 1995 the Company acquired all of the
outstanding shares of NetWorth, Inc., a publicly-held developer,
manufacturer, and supplier of fast ethernet hubs, switches, and
related products, and Thomas-Conrad Corporation, a privately-held
maker of network interface cards and hubs. In addition, during 1995
the Company acquired a small software company. The aggregate purchase
price of $386 million consisted of $359 million in cash of which
$22 million was paid subsequent to year end, assumption of
certain stock options and the issuance of 240,622 shares of common
stock of the Company.
The acquisitions were accounted for as purchases and, accordingly, the
operating results of the acquired businesses and the estimated fair
market values of the acquired assets and liabilities were included in
the Company's consolidated financial statements from the dates of
acquisition. The aggregate purchase price plus $5 million of costs
directly attributable to the completion of the acquisitions, has been
allocated to the assets and liabilities acquired. The aggregate
purchase price included $241 million which represented the value of in-
process technology that had not yet reached technological feasibility
and had no alternative future use. This amount was expensed in the
Company's consolidated statement of income during the fourth quarter
of 1995. In addition, the aggregate purchase price included $126
million representing purchased technology, other identifiable
intangibles and goodwill. These assets are included in other assets at
December 31, 1995.
The following summary, prepared on a pro forma basis, combines the
operating results as if the companies had been acquired as of the
beginning of the periods presented. The summary includes the impact of
certain adjustments such as goodwill amortization and estimated
changes in interest income due to cash outlays associated with the
transactions and the related income tax effects:
Year ended December 31, (unaudited)
In millions, except per share amounts 1995 1994
- ------------------------------------------------------------------------
Sales $ 14,849 $ 10,978
Net income 992 837
Net income per share 3.61 3.10
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisitions had been in effect for the
periods presented. In addition, they are not intended to be a forecast
of future results and do not reflect any synergies that might be
achieved from the combined operations.
Note 3 - Inventories:
Inventories consisted of the following components:
December 31,
In millions 1995 1994
- ------------------------------------------------------------------------
Raw material $ 772 $ 1,013
Work-in-process 271 266
Finished goods 1,113 726
----------------------
$ 2,156 $ 2,005
======================
Note 4 - Property, Plant, and Equipment:
Property, plant, and equipment are summarized below:
December 31,
In millions 1995 1994
- ------------------------------------------------------------------------
Land $ 72 $ 71
Buildings 565 556
Machinery and equipment 1,067 878
Furniture and fixtures 78 61
Leasehold improvements 57 35
Construction-in-progress 142 71
----------------------
1,981 1,672
Less-accumulated depreciation 871 728
----------------------
$ 1,110 $ 944
======================
Interest aggregating $7 million and $3 million was capitalized and
added to the cost of the Company's property, plant, and equipment in
1995 and 1994, respectively. No interest was capitalized during 1993.
Depreciation expense totaled $214 million, $168 million, and $155
million in 1995, 1994, and 1993, respectively.
Note 5 - Other Current Liabilities:
The estimated costs which may be incurred for post sales support and
product warranties of $347 million and $306 million were included in
other current liabilities at December 31, 1995 and 1994, respectively.
Note 6 - Credit Agreements and Financing Arrangements:
In October 1995 the Company entered into agreements for a $1.25
billion syndicated credit facility (of which $250 million expires in
October 1996 and $1 billion expires in October 2000) which remains
unused at December 31, 1995. The Company has a $750 million commercial
paper program, which is supported by the $1.0 billion portion of the
syndicated credit facility. No commercial paper was outstanding at
December 31, 1995. The commercial paper program and various
uncommitted bank lines of credit were used during 1995, with usage
levels ranging from a high of $280 million to $14 million at December
31, 1995.
In March 1994 the Company issued $300 million in senior notes,
including $150 million 6 1/2% notes due March 15, 1999 and $150
million 7 1/4% notes due March 15, 2004. Interest on the notes is
payable semiannually on March 15 and September 15 of each year. The
notes are not redeemable prior to maturity and are not entitled to any
sinking fund.
Note 7 - Other Income and Expense:
Other income and expense consisted of the following components:
Year ended December 31,
In millions 1995 1994 1993
- -----------------------------------------------------------------------------
Interest and dividend income $ (53) $ (22) $ (20)
Interest expense associated with hedging 18 9 22
Other interest expense 81 62 41
Currency losses, net 33 46 15
Restructuring charges and other asset write-downs 12
Other, net 16 (1) 6
---------------------------
$ 95 $ 94 $ 76
===========================
In the fourth quarter of 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. No
reserves related to these restructurings remained at December 31, 1995
and 1994.
Note 8 - Provision for Income Taxes:
The components of income before provision for income taxes were as
follows:
Year ended December 31,
In millions 1995 1994 1993
- -----------------------------------------------------------------------
Domestic $ 500 $ 566 $ 284
Foreign 688 606 332
---------------------------
$1,188 $1,172 $ 616
===========================
The provision for income taxes charged to operations was as follows:
Year ended December 31,
In millions 1995 1994 1993
- -----------------------------------------------------------------------
Current tax expense
U.S. federal $ 274 $ 303 $ 130
State and local 11 7 4
Foreign 142 134 58
---------------------------
Total current 427 444 192
---------------------------
Deferred tax expense
U.S. federal (8) (114) (18)
State and local (2) (6)
Foreign (18) (19) (20)
---------------------------
Total deferred (28) (139) (38)
---------------------------
Total provision $ 399 $ 305 $ 154
===========================
Total income tax expense for 1995, 1994, and 1993 resulted in
effective tax rates of 34%, 26%, and 25%, respectively. The reasons
for the differences between these effective tax rates and the U.S.
statutory rate of 35% are as follows:
Year ended December 31,
In millions 1995 1994 1993
- -----------------------------------------------------------------------
Tax expense at U.S. statutory rate $ 416 $ 410 $ 216
Foreign tax effect, net (79) (97) (64)
Non-deductible purchased
in-process technology 85
Other, net (23) (8) 2
---------------------------
$ 399 $ 305 $ 154
===========================
In connection with the acquisitions that occurred during 1995, the
Company expensed $241 million for a non-recurring, non-tax deductible
charge for purchased in-process technology which resulted in an
increase in the 1995 effective tax rate from 28% to 34%.
The Company increased its U.S. deferred tax liability in 1993 as a
result of legislation enacted during 1993 which increased the
corporate tax rate to 35% from 34% retroactive to January 1, 1993. The
increase had an immaterial effect on the consolidated financial
statements.
The Company benefits from a tax holiday in Singapore which expires in
2001, with a potential extension to August 2004 if certain cumulative
investment levels and other conditions are met. During the first
quarter of 1993 the Company determined that a portion of the
undistributed earnings of its Singaporean manufacturing subsidiary
will be reinvested indefinitely. As a result of this determination, no
provision for U.S. income tax was made on $337 million, $218 million,
and $158 million of earnings of this subsidiary during 1995, 1994 and
1993, respectively. These earnings would become subject to U.S. tax if
they were actually or deemed to be remitted to the Company as
dividends or if the Company should sell its stock in this subsidiary.
The Company estimates an additional tax provision of $250 million
would be required at such time if the full amount of these accumulated
earnings became subject to U.S. tax. The decision to reinvest such
earnings indefinitely had the effect of increasing earnings per share
by $0.43, $0.28, and $0.21 on a fully diluted basis in 1995, 1994, and
1993, respectively.
Deferred tax liabilities (assets) at December 31, 1995 and 1994 are
comprised of the following:
December 31,
In millions 1995 1994
- -----------------------------------------------------------------------
Unremitted earnings of foreign subsidiaries $ 226 $ 182
Difference arising from different tax and
financial reporting year ends 33 19
Depreciation and property, plant, and
equipment basis differences 18 4
Unrealized currency gains 2
Other 13 17
----------------------
Gross deferred tax liabilities 290 224
----------------------
Post sales support and warranty accruals (117) (103)
Receivable valuation allowances (84) (65)
Stock option compensation (56) (45)
Intercompany profit eliminations (29) (40)
Inventory valuation allowances (39) (36)
Loss carryforwards (41) (20)
Unrealized currency losses (10)
Depreciation and property, plant, and
equipment basis differences (17) (9)
Other (45) (30)
----------------------
Gross deferred tax assets (438) (348)
----------------------
Deferred tax asset valuation allowance 7
----------------------
$ (141) $ (124)
======================
Note 9 - Stockholders' Equity and Employee Benefit Plans:
Equity incentive plans - At December 31, 1995, there were 55,728,062
shares of common stock reserved by the Board of Directors for issuance
under the Company's employee stock option plans. Options are generally
granted at the fair market value of the common stock at the date of
grant and generally vest over four to five years. In limited
circumstances, options may be granted at prices less than fair market
value and may vest immediately. Options granted under the plans must
be exercised not later than ten years from the date of grant. Options
on 12,421,495 shares were exercisable at December 31, 1995.
In connection with the acquisitions discussed in Note 2, the Company
assumed certain outstanding options to purchase common stock of the
acquired companies and exchanged them for options to acquire 529,053
shares of the Company's common stock at exercise prices of $6.49 to
$32.75 per share.
The following table summarizes activity under the plans for each of
the three years in the period ended December 31, 1995:
Shares Price per share
(In thousands)
Options outstanding, December 31, 1992 41,910
Options granted 6,456 $ 14.88-24.63
Options lapsed or cancelled (2,154)
Options exercised (13,469) .09-23.25
-------
Options outstanding, December 31, 1993 32,743
Options granted 5,567 28.66-40.13
Options lapsed or cancelled (1,021)
Options exercised (7,901) .78-35.38
-------
Options outstanding, December 31, 1994 29,388
Options granted 6,469 6.49-55.63
Options lapsed or cancelled (1,116)
Options exercised (5,785) .97-40.13
-------
Options outstanding, December 31, 1995 28,956
=======
There were 25,583,736; 17,802,000; and 22,554,000 shares available for
grants under the plans at December 31, 1995, 1994, and 1993,
respectively.
The Company has a Stock Option Plan for Non-Employee Directors (the
Director Plan). At December 31, 1995, there were 1,190,310 shares of
common stock reserved for issuance under the Director Plan. Pursuant
to the terms of the plan, each non-employee director is entitled to
receive options to purchase common stock of the Company upon initial
appointment to the Board (initial grants) and upon subsequent
reelection to the Board (annual grants). Initial grants are
exercisable during the period beginning one year after initial
appointment to the Board and ending ten years after the date of grant.
Annual grants vest over two years and are exercisable thereafter until
the tenth anniversary of the date of grant. Both initial grants and
annual grants have an exercise price equal to the fair market value of
the Company's stock on the date of grant. Additionally, pursuant to
the terms of the Director Plan, non-employee directors may elect to
receive stock options in lieu of all or a portion of the annual
retainer to be earned. Such options are granted at 50% of the price of
the Company's common stock at the date of grant and are exercisable
during the period beginning one year after the grant date and ending
ten years after the date of grant. Options totaling 458,853 were
exercisable under the Director Plan at December 31, 1995. Activity
under the plan for each of the three years in the period ended
December 31, 1995 was as follows:
Shares Price per share
(In thousands)
Options outstanding, December 31, 1992 477
Options granted 105 $ 8.13-16.25
Options lapsed or cancelled (15)
Options exercised (84) 4.23-13.35
----
Options outstanding, December 31, 1993 483
Options granted 113 18.12-36.25
Options exercised (93) 2.54-20.33
----
Options outstanding, December 31, 1994 503
Options granted 126 19.50-48.38
Options exercised (7) 2.54-18.12
----
Options outstanding, December 31, 1995 622
====
There were 568,241; 694,000; and 807,000 shares available for grants
under the plan at December 31, 1995, 1994, and 1993, respectively.
Compaq Computer Corporation Investment Plan - The Company has an
Investment Plan available to all domestic employees and intended to
qualify as a deferred compensation plan under Section 401(k) of the
Internal Revenue Code of 1986. Employees may contribute to the plan up
to 14% of their salary with a yearly maximum not to exceed the maximum
allowable by the Internal Revenue Service. The Company will match
employee contributions for an amount up to 6% of each employee's base
salary. Contributions are invested at the direction of the employee in
one or more funds or can be directed to purchase common stock of the
Company at fair market value. Company contributions generally vest
over three years although Company contributions for those employees
having five years of service vest immediately. Company contributions
are charged to expense in accordance with their vesting. Amounts
charged to expense were $22 million, $19 million, and $16 million in
1995, 1994, and 1993, respectively.
Incentive compensation plan - The Company has an incentive
compensation plan for the majority of its employees. Provision for
payments to be made under the plan is based on 6% of net income from
operations, as defined, and is payable semiannually. The amount
expensed under the plan was $59 million, $51 million, and $27 million
in 1995, 1994, and 1993, respectively.
Stock split - All share and per share information has been
retroactively restated in the accompanying financial data to reflect
the three-for-one stock split effected in the form of a stock dividend
effective May 31, 1994.
Note 10 - Certain Market and Geographic Data:
The Company has subsidiaries in various foreign countries that
manufacture and sell the Company's products in their respective
geographic areas. Summary information with respect to the Company's
geographic operations in 1995, 1994, and 1993 follows:
United
States & Other Elimin- Consol-
In millions Canada Europe countries nations idated
- ----------------------------------------------------------------------------
1995
- ----
Sales to customers $ 7,255 $ 5,370 $ 2,130 $ 14,755
Intercompany transfers 1,632 307 1,676 $ (3,615)
---------------------------------------------------
$ 8,887 $ 5,677 $ 3,806 $ (3,615) $ 14,755
===================================================
Income (loss) from
operations $ 663 $ 672 $ 265 $ (8) $ 1,592
=========================================
Corporate expenses, net (1) (404)
---------
Pretax income $ 1,188
=========
Identifiable assets $ 3,697 $ 1,898 $ 1,487 $ (9) $ 7,073
=========================================
General corporate assets 745
---------
Total assets $ 7,818
=========
1994
- ----
Sales to customers $ 5,473 $ 3,829 $ 1,564 $ 10,866
Intercompany transfers 1,526 175 1,660 $ (3,361)
---------------------------------------------------
$ 6,999 $ 4,004 $ 3,224 $ (3,361) $ 10,866
===================================================
Income (loss) from
operations $ 533 $ 470 $ 292 $ (1) $ 1,294
=========================================
Corporate expenses, net (122)
---------
Pretax income $ 1,172
=========
Identifiable assets $ 2,835 $ 1,591 $ 1,274 $ (5) $ 5,695
=========================================
General corporate assets 471
---------
Total assets $ 6,166
=========
1993
- ----
Sales to customers $ 3,670 $ 2,718 $ 803 $ 7,191
Intercompany transfers 1,514 109 990 $ (2,613)
---------------------------------------------------
$ 5,184 $ 2,827 $ 1,793 $ (2,613) $ 7,191
===================================================
Income from operations $ 310 $ 183 $ 245 $ 5 $ 743
=========================================
Corporate expenses, net (127)
---------
Pretax income $ 616
=========
Identifiable assets $ 1,905 $ 970 $ 586 $ (4) $ 3,457
=========================================
General corporate assets 627
---------
Total assets $ 4,084
=========
(1) Includes a $241 million non-recurring, non-tax deductible charge
for purchased in-process technology in connection with acquisitions
that occurred during 1995.
Note 11 - Commitments, Contingencies, Financial Instruments, and
Factors that May Affect Future Operations:
Derivative financial instruments and fair value of financial
instruments - The Company utilizes primarily forward contracts and
purchased foreign currency options to reduce its exposure to
potentially adverse changes in foreign currency exchange rates. The
Company does not hold or issue financial instruments for trading
purposes nor does it hold or issue interest rate or leveraged
derivative financial instruments. Additional discussion related to the
Company's programs to reduce its foreign currency exposure is
presented in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
At December 31, 1995 and 1994, the Company had purchased currency
options outstanding aggregating $26 million and $208 million,
respectively, to buy Japanese yen related to commitments for inventory
purchases and certain capital expenditures. The Company also had yen-
denominated investments aggregating $72 million outstanding at
December 31, 1995 relating to these commitments. Unrealized gains,
losses, and deferred costs related to option contracts associated with
such commitments at these dates were not material. Any gains or
losses, if realized, or costs related to these contracts are recorded
as part of the cost of the inventory or capital item upon acquisition.
The maturity dates of the yen-denominated investments and currency
option contracts which were outstanding at December 31, 1995 extended
from one month to 45 days.
The Company's program to reduce the currency exposure associated with
the net monetary assets of the Company's international subsidiaries
includes agreements to exchange various foreign currencies for U.S.
dollars. At December 31, 1995 and 1994, such agreements to sell
foreign currencies included forward contracts aggregating $1.4 billion
and $1.2 billion, respectively, and purchased currency option
contracts aggregating $45 million at December 31, 1994. Unrealized and
realized gains and losses resulting from these contracts are included
in other income and expense in the Company's consolidated statement of
income and generally are recognized currently, while the interest
element associated with forward contracts is recognized as interest
expense over the life of each contract. Unrealized gains and losses on
these contracts are reflected in accounts receivable or other current
liabilities in the Company's consolidated balance sheet and
approximate the fair value of such contracts at December 31, 1995 and
1994. The maturity dates of the forward contracts and currency option
contracts which were outstanding at December 31, 1995 extended from
two days to six months.
The Company has utilized purchased currency option contracts to hedge
a portion of the anticipated but not firmly committed sales of its
international marketing subsidiaries. Although no such contracts were
outstanding at December 31, 1994, contracts aggregating $253 million
were outstanding at December 31, 1995 related to the hedge of such
sales for a six-month period. The unrealized gain deferred on these
contracts at December 31, 1995 was $2 million. Gains and premium costs
associated with such purchased currency option contracts are reflected
as a component of sales in the Company's consolidated statement of
income.
The Company has utilized forward contracts to protect the Company
against potentially adverse changes in foreign currency exchange rates
on anticipated but not firmly committed sales of its international
marketing subsidiaries which are expected to occur within a three-
month period. No such contracts were outstanding at December 31, 1995
and 1994. During 1995 and 1994 the amount of any gain or loss on these
contracts was immaterial.
In the event of a failure to honor one of these forward contracts by
one of the banks with which the Company had contracted, management
believes any loss would be limited to the exchange rate differential
from the time the contract was made until the time it was compensated.
To the extent the Company has option contracts outstanding, the amount
of any loss resulting from a breach of contract would be limited to
the amount of premiums paid for the options and the unrealized gain,
if any, related to such contracts.
The Company enters into various other types of financial instruments
in the normal course of business. Fair values for certain financial
instruments are based on quoted market prices. For other financial
instruments, fair values are based on the appropriate pricing models
using current market information. The amounts ultimately realized upon
settlement of these financial instruments will depend on actual market
conditions during the remaining life of the instruments. Fair values
of cash and cash equivalents, accounts receivable, accounts payable,
and other current liabilities reflected in the December 31, 1995 and
1994 consolidated balance sheets approximate carrying value at that
date. The fair value of the Company's long-term debt at December 31,
1995 and 1994 was estimated to be $312 million and $279 million,
respectively, compared with its carrying value of $300 million.
Concentration of credit risk - The Company's cash and cash equivalents
and accounts receivable are subject to potential credit risk. The
Company's cash management and investment policies restrict investments
to low risk, highly-liquid securities and the Company performs
periodic evaluations of the relative credit standing of the financial
institutions with which it deals.
The Company distributes products primarily through third-party
resellers and as a result maintains individually significant accounts
receivable balances from various major resellers. The Company
evaluates the credit worthiness of its resellers on an ongoing basis
and may, from time to time, tighten credit terms to particular
resellers. Such tightening may take the form of shorter payment terms,
requiring security, reduction of credit availability, or the
deauthorization of a reseller. In addition, the Company uses various
risk transfer instruments such as credit insurance, factoring, and
floor planning with third-party finance companies and financial
institutions; however, there can be no assurance that these
arrangements will be sufficient to avoid significant accounts
receivable losses or will continue to be available. While the Company
believes that its distribution strategies will serve to minimize the
risk associated with the loss of a reseller or the decline in sales to
a reseller due to tightened credit terms, there can be no assurance
that disruption to the Company's sales and profitability will not
occur. If the financial condition and operations of these resellers
deteriorate, the Company's operating results could be adversely
affected. At December 31, 1995 the receivable balances from the
Company's five largest resellers represented approximately 20% of
accounts receivable. The Company generally has experienced longer
accounts receivable cycles in its emerging markets, in particular
China and Latin America, when compared to its U.S. and European
markets. In the event that accounts receivable cycles in these
developing markets lengthen further or one or more of the Company's
larger resellers in these regions fail, the Company could be adversely
affected.
The Company's resellers typically purchase products on an as-needed
basis through purchase orders. Certain of the Company's resellers
finance a portion of their inventories through third-party finance
companies. Under the terms of the financing arrangements, the Company
may be required, in limited circumstances, to repurchase certain
products from the finance companies. Additionally, the Company has on
occasion guaranteed a portion of certain resellers' outstanding
balances with third-party finance companies and financial
institutions. Guarantees under these and other arrangements
aggregating $55 million and $28 million were outstanding at
December 31, 1995 and 1994, respectively. During the years that the
Company has supported these financing programs, claims under these
arrangements have been negligible. The Company makes provisions for
estimated product returns and bad debts which may occur under these
programs.
Factors that may affect future operations - The Company participates
in a highly volatile industry that is characterized by fierce industry-
wide competition for market share resulting in aggressive pricing
practices, continually changing customer demand patterns, growing
competition from well-capitalized high technology and consumer
electronics companies, and rapid technological development. The
Company's operating results could be adversely affected should the
Company be unable to anticipate customer demand accurately, to
maintain short design cycles while meeting evolving industry
performance standards, to manage its product transitions, inventory
levels, and manufacturing processes efficiently, to distribute its
products quickly in response to customer demand, to differentiate its
products from those of its competitors, or to compete successfully in
the markets for its new products.
Significant numbers of components are purchased from single sources
due to technology, availability, price, quality, or other
considerations. Key components and processes currently obtained from
single sources include certain of the Company's displays,
microprocessors, application specific integrated circuits and other
custom chips, and certain processes relating to construction of the
plastic housing for the Company's computers. In addition, new products
introduced by the Company often initially utilize custom components
obtained from only one source until the Company has evaluated whether
there is a need for additional suppliers. In the event that a supply
of a key single-sourced material, process, or component were delayed
or curtailed, the Company's ability to ship the related product in
desired quantities and in a timely manner could be adversely affected.
The Company attempts to mitigate these risks by working closely with
key suppliers on product plans, strategic inventories, and coordinated
product introductions.
Litigation - The Company is subject to legal proceedings and claims
which arise in the ordinary course of its business. Management does
not believe that the outcome of any of those matters will have a
material adverse effect on the Company's consolidated financial
position or operating results. Additional discussion on legal
proceedings is presented in Part I (Item 3) of this Annual Report on
Form 10-K.
Lease commitments - The Company leases certain manufacturing and
office facilities and equipment under noncancelable operating leases
with terms from one to 30 years. Rent expense for 1995, 1994, and 1993
was $75 million, $48 million, and $32 million, respectively.
The Company's minimum rental commitments under noncancelable operating
leases at December 31, 1995 were as follows:
Year Amount
(In millions)
------- ---------
1996 $ 42
1997 35
1998 26
1999 19
2000 16
Thereafter 177
---------
$ 315
=========
Note 12 - Selected Quarterly Financial Data (not covered by report of
independent accountants):
The table below sets forth selected financial information for each
quarter of the last two years.
In millions, 1st 2nd 3rd 4th
except per share amounts quarter quarter quarter quarter
- ------------------------------------------------------------------------------
1995
Sales $ 2,959 $ 3,501 $ 3,594 $ 4,701
Gross margin 724 826 819 1,019
Net income (1) 216 246 245 82
Earnings per common and
common equivalent share
Primary (1) 0.80 0.90 0.89 0.30
Assuming full dilution (1) 0.80 0.90 0.89 0.30
1994
Sales $ 2,278 $ 2,499 $ 2,838 $ 3,251
Gross margin 617 663 653 794
Net income 213 210 201 243
Earnings per common and
common equivalent share
Primary 0.80 0.78 0.75 0.90
Assuming full dilution 0.80 0.78 0.75 0.90
(1) Includes a $241 million ($.87 per share) non-recurring, non-tax
deductible charge for purchased in-process technology in connection
with acquisitions that occurred during the fourth quarter of 1995.
Earnings per common and common equivalent share are computed
independently for each of the quarters presented and therefore may not
sum to the totals for the year.
<PAGE>
PART III
Items 10 to 13 inclusive.
These items have been omitted in accordance with instructions to
Form 10-K Annual Report. The Registrant will file with the Commission
in March 1996, pursuant to Regulation 14A, a definitive proxy
statement that will involve the election of directors.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules - See
Index to Consolidated Financial Statements at Item 8 of this report.
Exhibit
No. Description of Exhibits
3.1 Restated Certificate of Incorporation of Registrant.
3.2 Bylaws of Registrant, as amended (incorporated herein by
reference to Exhibit No. 3.5 to the Registrant's Form 10-Q
for the quarter ended June 30, 1992).
4.1 Senior Debt Indenture dated as of March 1, 1994, between the
Registrant and NationsBank of Texas, National Association,
Trustee (incorporated by reference to Exhibit 4.a to the
Registrant's Registration Statement No. 33-63436 on Form S-3
(the "Form S-3")).
4.2 Subordinated Debt Indenture dated as of March 1,
1994, between the Registrant and NationsBank of Texas,
National Association, Trustee (incorporated by reference
to Exhibit 4.b to the Form S-3).
4.3 Specimen of the Registrant's 6 1/2% senior notes
due March 1999 (incorporated by reference to the
Registrant's Form 8-K dated March 10, 1994 (the "March
1994 Form 8-K")).
4.4 Specimen of the Registrant's 7 1/4% senior notes
due March 15, 2004 (incorporated by reference to the
March 1994 Form 8-K).
10.1 Registrant's 1982 Stock Option Plan, as amended
(incorporated herein by reference to the corresponding
exhibit in the Registrant's Form 10-Q for the quarter
ended June 30, 1989 (the "1989 Second Quarter Form 10-Q")). *
10.2 Registrant's 1983 Nonqualified Stock Option Plan,
as amended (incorporated herein by reference to the
corresponding exhibit in the Registrant's Form 10-K for
the year ended December 31, 1988). *
10.3 Registrant's 1985 Stock Option Plan (incorporated
herein by reference to Exhibit 10.3 to the Registrant's
Form 10-K for the year ended December 31, 1991 (the
"1991 Form 10-K")). *
10.4 Registrant's 1985 Executive and Key Employees Stock
Option Plan, as amended (incorporated herein by
reference to Exhibit 10.3 to the 1989 Second Quarter
Form 10-Q). *
10.5 Registrant's 1985 Nonqualified Stock Option Plan,
as amended (incorporated herein by reference to Exhibit
10.4 to the 1989 Second Quarter Form 10-Q). *
10.6 Forms of Stock Option Agreements relating to
Exhibits 10.1 through 10.5 (incorporated herein by
reference to Exhibit 10.6 to the Registrant's Form 10-K
for the year ended December 31, 1987). *
10.7 Registrant's 1989 Equity Incentive Plan, as amended
(incorporated herein by reference to Exhibit 10.7 to the
1991 Form 10-K). *
10.8 Form of Stock Option Notice relating to Exhibit
10.7 (incorporated herein by reference to Exhibit 10.8
to the 1991 Form 10-K). *
10.9 Registrant's 1995 Equity Incentive Plan. *
10.10 Form of Stock Option Notice relating to Exhibit 10.9. *
10.11 Registrant's Bonus Incentive Plan. *
10.12 Registrant's Stock Option Plan for Non-Employee
Directors, as amended. *
10.13 Registrant's Forms of Stock Option Agreement
relating to Exhibit 10.12. *
10.14 Registrant's Deferred Compensation and
Supplemental Savings Plan, as amended (incorporated
herein by reference to Exhibit 10.10 to the Registrant's
Form 10-K for the year ended December 31, 1993). *
10.15 Employment Agreement dated as of January 1,
1992 between the Registrant and Eckhard Pfeiffer
(incorporated by reference to Exhibit 10.15 to the 1991
Form 10-K). *
10.16 Form of letter agreement between Registrant
and its executive officers (incorporated by reference to
Exhibit 10.16 to the 1991 Form 10-K). *
10.17 $250,000,000 Credit Agreement dated as of
October 31, 1995 among Compaq Computer Corporation, the
banks signatory thereto, Bank of America National Trust
and Savings Association as Agent, and NationsBank of
Texas, N.A. and Citibank, N.A. as Co-agents
(incorporated by reference to Exhibit (b)(2) to the
Registrant's Schedule 14D-1 relating to the acquisition
of NetWorth, Inc. filed on November 9, 1995 (the "14D-1")).
10.18 $1,000,000,000 Credit Agreement dated as of October
31, 1995 among Compaq Computer Corporation, the banks
signatory thereto, Bank of America National Trust and
Savings Association as Agent, and NationsBank of Texas,
N.A. and Citibank, N.A. as Co-agents (incorporated by
reference to Exhibit (b)(1) to the 14D-1).
11 Statement regarding the computation of per share
earnings.
21 Subsidiaries of Registrant.
23 Consent of Price Waterhouse LLP, independent
accountants.
27 Financial Data Schedule (EDGAR version only).
* Indicates management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K:
Report on Form 8-K dated January 24, 1996, containing the
Company's news release dated January 24, 1996, with respect to its
financial results for the period ended December 31, 1995, including an
unaudited consolidated balance sheet as of December 31, 1995, and an
unaudited consolidated statement of income for the year ended December
31, 1995.
Report on Form 8-K dated March 1, 1996, containing the Company's
news release dated March 1, 1996.
Compaq, ProLinea, ProLiant, Deskpro, Contura, Compaq Insight
Manager, LTE, Presario, and Smart Start Registered United States
Patent and Trademark Office. DirectPlus and CompaqCare are a
registered service marks of Compaq Computer Corporation. ProSignia
and Intelligent Manageability are trademarks of Compaq Computer
Corporation. Wonder Tools is a trademark of Compaq Computer
Corporation and Fisher-Price, Inc. Other product names mentioned
herein may be trademarks or registered trademarks of their respective
companies.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Compaq Computer Corporation
By: /s/ ECKHARD PFEIFFER
-------------------------------
Eckhard Pfeiffer, President and
Chief Executive Officer
Date: March 4, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date
President and Director
/s/ ECKHARD PFEIFFER (principal executive officer) March 4, 1996
- -------------------------
(Eckhard Pfeiffer)
Senior Vice President-Finance
and Chief Financial Officer
/s/ DARYL J. WHITE (principal financial officer) March 4, 1996
- -------------------------
(Daryl J. White)
Chairman of the
/s/BENJAMIN M. ROSEN Board of Directors February 29, 1996
- -------------------------
(Benjamin M. Rosen)
/s/LAWRENCE T. BABBIO, JR. Director February 29, 1996
- -------------------------
(Lawrence T. Babbio, Jr.)
/s/ROBERT TED ENLOE, III Director February 29, 1996
- -------------------------
(Robert Ted Enloe, III)
/s/GEORGE H. HEILMEIER Director February 29, 1996
- -------------------------
(George H. Heilmeier)
/s/GEORGE E.R. KINNEAR II Director February 29, 1996
- -------------------------
(George E.R. Kinnear II)
/s/ PETER N. LARSON Director February 29, 1996
- -------------------------
(Peter N. Larson)
/s/ KENNETH L. LAY Director February 29, 1996
- -------------------------
(Kenneth L. Lay)
/s/ KENNETH ROMAN Director February 29, 1996
- -------------------------
(Kenneth Roman)
<PAGE>
PAGE S-1
SCHEDULE VIII
COMPAQ COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
Year ended December 31,
In millions 1995 1994 1993
- --------------------------------------------------------------------
Balance, beginning of period $ 75 $ 49 $ 25
Additions charged to expense 43 36 33
Reductions (18) (10) (9)
------------------------------
Balance, end of period $ 100 $ 75 $ 49
==============================
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
COMPAQ COMPUTER CORPORATION
COMPAQ Computer Corporation, originally incorporated as
GATEWAY TECHNOLOGY, INC., a corporation duly organized and
existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The name of the Corporation is COMPAQ Computer
Corporation, which was originally incorporated as GATEWAY
TECHNOLOGY, Inc.
SECOND: The original Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the
State of Delaware on February 16, 1982.
THIRD: This Restated Certificate of Incorporation has
been duly adopted in accordance with Section 245 of the
General Corporation Law of the State of Delaware.
FOURTH: This Restated Certificate of Incorporation of
the Corporation only restates and integrates and does not
further amend the provisions of the Corporation's
Certificate of Incorporation as heretofore amended or
supplemented, and there is no discrepancy between those
provisions and the provisions of this Restated Certificate
of Incorporation.
FIFTH: The Restated Certificate of Incorporation is
hereby restated to read in its entirety as follows:
Article 1
The name of the corporation is: COMPAQ Computer
Corporation.
Article 2
The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in
the City of Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is
The Corporation Trust Company.
Article 3
The purpose for which the Corporation is organized is
to engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
Article 4
A. Authorized Shares and Classes of Stock:
The total number of shares of stock which the
Corporation shall have authority to issue is 1,010,000,000
shares composed of (i) 1,000,000,000 shares of Common Stock,
par value $.01 per share (Common Stock); and (ii) 10,000,000
shares of Preferred Stock, par value $.01 per share
(Preferred Stock).
B. Designations, Rights, Preferences and Powers of
Preferred Stock:
The designations, rights, preferences and powers in
respect of the shares of Preferred Stock shall be as
follows:
1. Shares of Preferred Stock may be issued in one or
more series which may have such voting powers, full or
limited, or no voting power as the Board of Directors may
determine.
2. Authority is hereby expressly granted to the Board
of Directors to fix from time to time, by resolution or
resolutions providing for the issuance of any series of
Preferred Stock, the designations, preferences and relative,
participating, optional or other special rights and
qualifications, limitations or restrictions thereof.
3. Except as otherwise provided in any resolution or
resolutions of the Board of Directors providing for the
issue of any particular series of Preferred Stock, the
number of shares of stock of any such series so set forth in
such resolution or resolutions may be increased or decreased
(but not below the number of shares of such series then
outstanding) by a resolution or resolutions adopted by the
Board of Directors.
4. Except as otherwise provided in any resolution or
resolutions of the Board of Directors providing for the
issue of any particular series of Preferred Stock, Preferred
Stock redeemed or otherwise acquired by the Corporation
shall assume the status of authorized but unissued Preferred
Stock and shall be unclassified as to series and may
thereafter, subject to the provisions of this Article 4 and
to any restrictions contained in any resolution or
resolutions of the Board of Directors providing for the
issue of any such series of Preferred Stock, be reissued in
the same manner as other authorized but unissued Preferred
Stock.
___________________________________
RESOLVED, that pursuant to the authority vested in the
Board of Directors of this Corporation in accordance with
the provisions of its Restated Certificate of Incorporation,
a series of Preferred Stock of the Corporation be and it
hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the
shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of
such series shall be designated as "Series A Participating
Cumulative Preferred Stock" and the number of shares
constituting such series shall be 1,000,000.
Section 2. Dividends and Distributions.
(A) The holders of shares of Series A Participating
Cumulative Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends
payable in cash on the tenth day of March, June, September
and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A
Participating Cumulative Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of
(a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in
shares of Common Stock (as hereinafter defined) or a
subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common
Stock, par value $.01 per share, of the Corporation (the
"Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series A Participating
Cumulative Preferred Stock. In the event the Corporation
shall at any time after May 18, 1989 (the "Rights
Declaration Date") (i) declare or pay any dividend on Common
Stock payable in shares of Common Stock (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Series A
Participating Cumulative Preferred Stock were entitled
immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Participating Cumulative
Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of
Common Stock); provided that in the event no dividend or
distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1.00 per share on the Series A
Participating Cumulative Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Participating Cumulative
Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A
Participating Cumulative Preferred Stock, unless the date of
issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of
Series A Participating Cumulative Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the
shares of Series A Participating Cumulative Preferred Stock
in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may
fix a record date for the termination of holders of shares
of Series A Participating Cumulative Preferred Stock
entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60
days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. In addition to any other
voting rights required by law, the holders of shares of
Series A Participating Cumulative Preferred Stock shall have
only the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Participating
Cumulative Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding
Common Stock or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the
number of votes per share to which holders of shares of
Series A Participating Cumulative Preferred Stock were
entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Participating Cumulative
Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to
a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A
Participating Cumulative Preferred Stock shall be in arrears
in an amount equal to six quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for
all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A
Participating Cumulative Preferred Stock then outstanding
shall have been declared and paid or set apart for payment.
During each default period, all holders of Preferred Stock
(including holders of the Series A Participating Cumulative
Preferred Stock) with dividends in arrears in an amount
equal to six quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two
Directors.
(ii) During any default period, such voting right
of the holders of Series A Participating Cumulative
Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders, provided that
neither such voting right nor the right of the holders of
any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be
exercised unless the holders of ten percent in number of
shares of Preferred Stock outstanding shall be present in
person or by proxy. The absence of a quorum of the holders
of Common Stock shall not affect the exercise by the holders
of Preferred Stock of such voting right. At any meeting at
which the holders of Preferred Stock shall exercise such
voting right initially during an existing default period,
they shall have the right, voting as a class, to elect
Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two Directors or, if such
right is exercised at an annual meeting, to elect two
Directors. If the number which may be so elected at any
special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make
such increase in the number of Directors as shall be
necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default
period and during the continuance of such period, the number
of Directors shall not be increased or decreased except by
vote of the holders of Preferred Stock as herein provided or
pursuant to the rights of the equity securities ranking
senior to or pari passu with the Series A Participating
Cumulative Preferred Stock.
(iii) Unless the holders of Preferred Stock
shall, during an existing default period, have previously
exercised their right to elect Directors, the Board of
Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent of the
total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of special
meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, any Senior Vice
President, any Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to
vote pursuant to this paragraph (C) (iii) shall be given to
each holder of record of Preferred Stock by mailing a copy
of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall
be called for a time not earlier than 20 days and not later
than 60 days after such order or request or in default of
the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by
any stockholder or stockholders owning in the aggregate not
less than ten percent of the total number of shares of
Cumulative Preference Stock outstanding. Notwithstanding
the provisions of this paragraph (C) (iii), no such special
meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual
meeting of the stockholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if
applicable, shall continue to be entitled to elect the whole
number of Directors until the holders of Preferred Stock
shall have exercised their right to elect two (2) Directors
voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock shall
continue in office until their successors shall have been
elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C) (ii) of
this Section 3) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of
the class of stock which elected the Director whose office
shall have become vacant. References in this paragraph (C)
to Directors elected by the holders of a particular class of
stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a
class to elect Directors shall cease, (y) the term of any
Directors elected by the holders of Preferred Stock as a
class shall terminate, and (z) the number of Directors shall
be such number as may be provided for in the certificate of
incorporation or by-laws irrespective of any increase made
pursuant to the provisions of paragraph (C) (ii) of this
Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the
certificate of incorporation or by-laws). Any vacancies in
the Board of Directors effected by the provisions of clauses
(y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A
Participating Cumulative Preferred Stock shall have no
special voting rights and their consent shall not be
required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating
Cumulative Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on
shares of Series A Participating Cumulative Preferred Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Participating Cumulative Preferred
Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Participating
Cumulative Preferred Stock, except dividends paid ratably on
the Series A Participating Cumulative Preferred Stock and
all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Participating Cumulative
Preferred Stock; provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Participating Cumulative Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Participating
Cumulative Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating Cumulative
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. Reacquired Shares. Any shares of Series
A Participating Cumulative Preferred Stock purchased or
otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth in the
Certificate of Incorporation.
Section 6. Liquidation, Dissolution or Winding Up.
Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the
holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Participating Cumulative Preferred Stock
unless, prior thereto, the holders of shares of Series A
Participating Cumulative Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the
holders of shares of Series A Participating Cumulative
Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of Common
Stock, or (2) to the holders of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Participating Cumulative
Preferred Stock, except distributions made ratably on the
Series A Participating Cumulative Preferred Stock and all
other such parity stock in proportion to the total amounts
to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up. In the event
the Corporation shall at any time after the Rights
Declaration Date declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in
each such case the aggregate amount to which holders of
shares of Series A Participating Cumulative Preferred Stock
were entitled immediately prior to such event under the
provision in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any
such case the shares of Series A Participating Cumulative
Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock or (iii) combine
the outstanding Common Stock into a smaller number of shares
then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of
Series A Participating Cumulative Preferred Stock shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A
Participating Cumulative Preferred Stock shall not be
redeemable.
Section 9. Rank. The Series A Participating
Cumulative Preferred Stock shall rank junior with respect to
payment of dividends and on liquidation to all other series
of the Corporation's preferred stock except any series that
specifically provides that such series shall rank junior to
the Series A Participating Cumulative Preferred Stock.
Section 10. Amendment. The Certificate of
Incorporation of the Corporation shall not be amended in any
manner (whether by merger or otherwise) so as to adversely
affect the powers, preferences or special rights of the
Series A Participating Cumulative Preferred Stock without
the affirmative vote of the holders of a majority or more of
the outstanding shares of Series A Participating Cumulative
Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Participating
Cumulative Preferred Stock may be issued in fractions of a
share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have
the benefit of all other rights of holders of Series A
Participating Cumulative Preferred Stock.
___________________________________
Article 5
The Board of Directors is authorized to adopt, amend or
repeal the by-laws of the Corporation. Election of
directors need not be by written ballot.
Article 6
No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director;
provided, however, that the foregoing clause shall not apply
to any liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper
personal benefit. This Article 6 shall not eliminate or
limit the personal liability of a director for any act or
omission occurring prior to the date this Article 6 becomes
effective. If the Delaware General Corporation Law is
hereafter amended to further eliminate or limit the
liability of a director of a corporation, then a director of
the Corporation, in addition to the circumstances set forth
herein, shall have no liability as a director (or such
liability shall be limited) to the fullest extent permitted
by the Delaware General Corporation Law as so amended. No
repeal or modification of the foregoing provisions of this
Article 6 nor, to the fullest extent permitted by law, any
modification of law, shall adversely affect any right or
protection of a director of the Corporation existing at the
time of such repeal or modification.
IN WITNESS WHEREOF, COMPAQ Computer Corporation has
caused this Certificate to be signed by Eckhard Pfeiffer,
its President and Chief Executive Officer, this 29 day of
June, 1995.
COMPAQ Computer Corporation
By: _______________________
Eckhard Pfeiffer, President
and Chief Executive Officer
EXHIBIT 10.9
Compaq Computer Corporation
1995 Equity Incentive Plan
SECTION 1. Purpose.
The purposes of the Compaq Computer Corporation 1995
Equity Incentive Plan are to promote the interests of Compaq
Computer Corporation and its stockholders by (i) attracting and
retaining exceptional executive personnel and other key
employees of the Company and its Affiliates, as defined below;
(ii) motivating such employees by means of performance-related
incentives to achieve long-range performance goals; and (iii)
enabling such employees to participate in the long-term growth
and financial success of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings
set forth below:
"Affiliate" shall mean (i) any entity that, directly or
indirectly, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, in either
case as determined by the Committee.
"Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Award or other Stock-Based
Award.
"Award Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing any Award, which
may, but need not, be executed or acknowledged by a
Participant.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall be deemed to have occurred if: (i)
any "person" as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Company, any trustee or
other fiduciary holding securities under any employee benefit
plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of Stock of the
Company), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities; (ii) during any period of two consecutive years
(not including any period prior to the adoption of the Plan),
individuals who at the beginning of such period constitute the
Board of Directors, and any new director (other than a director
designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (i),
(iii), or (iv) of this paragraph whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at
the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board of
Directors; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the
combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person acquires
more than 30% of the combined voting power of the Company's
then outstanding securities shall not constitute a Change in
Control of the Company; or (iv) the stockholders of the Company
approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets. If any of the
events enumerated in clauses (i) through (iv) occur, the Board
shall determine the effective date of the Change in Control
resulting therefrom, for purposes of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" shall mean a committee of the Board designated by
the Board to administer the Plan and composed of not less than
the minimum number of persons from time to time required by
Rule 16b-3, each of whom, to the extent necessary to comply
with Rule 16b-3 only, is a "disinterested person" within the
meaning of Rule 16b-3. Until otherwise determined by the
Board, the Compensation Committee designated by the Board shall
be the Committee under the Plan.
"Company" shall mean Compaq Computer Corporation, together with
any successor thereto.
"Employee" shall mean an employee of the Company or of any
Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Executive Officer" shall mean, at any time, an individual who
is an executive officer of the Company within the meaning of
Exchange Act Rule 3b-7 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time, or who is an officer of
the Company within the meaning of Exchange Act Rule 16a-1(f) as
promulgated and interpreted by the SEC under the Exchange Act,
or any successor rule or regulation thereto as in effect from
time to time.
"Fair Market Value" shall mean the fair market value of the
property or other item being valued, as determined by the
Committee in its sole discretion.
"Incentive Stock Option" shall mean a right to purchase Shares
from the Company that is granted under Section 6 of the Plan
and that is intended to meet the requirements of Section 422 of
the Code or any successor provision thereto.
"Net After-Tax Amount" shall mean the net amount of
compensation, assuming for this purpose only that all vested
Awards and other forms of compensation subject to vesting upon
such Change of Control are exercised upon such Change in
Control, to be received (or deemed to have been received) by
such Participant in connection with such Change of Control
under any option agreement and under any other plan,
arrangement or contract of the Company to which such
Participant is a party, after giving effect to all income and
excise taxes applicable to such payments.
"Non-Qualified Stock Option" shall mean a right to purchase
Shares from the Company that is granted under Section 6 of the
Plan and that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-
Qualified Stock Option and shall include a Restoration Option.
"Other Stock-Based Award" shall mean any right granted under
Section 10 of the Plan.
"Participant" shall mean any Employee selected by the Committee
to receive an Award under the Plan.
"Performance Award" shall mean any right granted under Section
9 of the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated
organization, government or political subdivision thereof or
other entity.
"Plan" shall mean this Compaq Computer Corporation 1995 Equity
Incentive Plan.
"QDRO" shall mean a domestic relations order meeting such
requirements as the Committee shall determine, in its sole
discretion.
"Restoration Option" shall mean an Option granted pursuant to
Section 6(e) of the Plan.
"Restricted Stock" shall mean any Share granted under Section 8
of the Plan.
"Restricted Stock Unit" shall mean any unit granted under
Section 8 of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and
interpreted by the SEC under the Exchange Act, or any successor
rule or regulation thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the staff thereof.
"Shares" shall mean shares of the common stock, $.0l par value,
of the Company, or such other securities of the Company as may
be designated by the Committee from time to time.
"Stock Appreciation Right" shall mean any right granted under
Section 7 of the Plan.
"Substitute Awards" shall mean Awards granted in assumption of,
or in substitution for, outstanding awards previously granted
by a company acquired by the Company or with which the Company
combines.
SECTION 3. Administration.
(a) Authority of Committee. The Plan shall be administered by
the Committee. Subject to the terms of the Plan and applicable
law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall
have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to an
eligible Employee; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights, or other
matters are to be calculated in connection with, Awards; (iv)
determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards
may be settled or exercised in cash, Shares, other securities,
other Awards or other property, or canceled, forfeited, or
suspended and the method or methods by which Awards may be
settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Awards, other property,
and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the holder
thereof or of the Committee; (vii) interpret and administer the
Plan and any instrument or agreement relating to, or Award made
under, the Plan; (viii) establish, amend, suspend, or waive
such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and
(ix) make any other determination and take any other action
that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Committee Discretion Binding. Unless otherwise expressly
provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of
the Committee, may be made at any time and shall be final,
conclusive, and binding upon all Persons, including the
Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any stockholder and any Employee.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in
Section 4(b), the number of Shares with respect to which Awards
may be granted under the Plan shall be 13 million. If, after
the effective date of the Plan, any Shares covered by an Award
granted under the Plan or by an award granted under any prior
stock award plan of the Company, or to which such an Award or
award relates, are forfeited, or if such an Award or award is
settled for cash or otherwise terminates or is canceled without
the delivery of Shares, then the Shares covered by such Award
or award, or to which such Award or award relates, or the
number of Shares otherwise counted against the aggregate number
of Shares with respect to which Awards may be granted, to the
extent of any such settlement, forfeiture, termination or
cancellation, shall again become Shares with respect to which
Awards may be granted. In the event that any Option or other
Award granted hereunder or any award granted under any prior
stock award plan of the Company is exercised through the
delivery of Shares or in the event that withholding tax
liabilities arising from such Award or award are satisfied by
the withholding of Shares by the Company, the number of Shares
available for Awards under the Plan shall be increased by the
number of Shares so surrendered or withheld. Notwithstanding
the foregoing and subject to adjustment as provided in Section
4(b), no Executive Officer of the Company may receive Awards
under the Plan in any calendar year that relate to more than
500,000 Shares; provided, however, a new employee who begins
service as Chief Executive Officer may receive Awards that
relate to up to 1,000,000 Shares in the calendar year in which
employment with the Company begins.
(b) Adjustments. In the event that the Committee determines
that any dividend or other distribution (whether in the form of
cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other
securities of the Company, issuance of warrants or other rights
to purchase Shares or other securities of the Company, or other
similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number of
Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards
may be granted, (ii) the number of Shares or other securities
of the Company (or number and kind of other securities or
property) subject to outstanding Awards, and (iii) the grant or
exercise price with respect to any Award, or, if deemed
appropriate, make provision for a cash payment to the holder of
an outstanding Award; provided, in each case, that (A) with
respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would
cause the Plan to violate Section 422(b)(1) of the Code, as
from time to time amended and (B) with respect to any Award no
such adjustment shall be authorized to the extent that such
authority would be inconsistent with the Plan's meeting the
requirements of Section 162(m) of the Code, as from time to
time amended.
(c) Substitute Awards. Any Shares underlying Substitute
Awards shall not, except in the case of Shares with respect to
which Substitute Awards are granted to Employees who are
officers or directors of the Company for purposes of Section 16
of the Exchange Act or any successor section thereto, be
counted against the Shares available for Awards under the Plan.
(d) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in
part, of authorized and unissued Shares or of treasury Shares.
SECTION 5. Eligibility.
Any Employee, including any officer or employee-director of the
Company or any Affiliate, who is not a member of the Committee,
shall be eligible to be designated a Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine
the Employees to whom Options shall be granted, the number of
Shares to be covered by each Option, the option price therefor
and the conditions and limitations applicable to the exercise
of the Option. The Committee shall have the authority to grant
Incentive Stock Options, or to grant Non-Qualified Stock
Options, or to grant both types of options. In the case of
Incentive Stock Options, the terms and conditions of such
grants shall be subject to and comply with such rules as may be
prescribed by Section 422 of the Code, as from time to time
amended, and any regulations implementing such statute.
(b) Exercise Price. Subject to the requirement set forth in
Section 6(e) the Committee in its sole discretion shall
establish the exercise price at the time each option is
granted.
(c) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may,
in its sole discretion, specify in the applicable Award
Agreement or thereafter. The Committee may impose such
conditions with respect to the exercise of options, including
without limitation, any relating to the application of federal
or state securities laws, as it may deem necessary or
advisable.
(d) Payment. No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price
therefor is received by the Company. Such payment may be made
in cash, or its equivalent, or, if and to the extent permitted
by the Committee, by exchanging Shares owned by the optionee
(which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that
the combined value of all cash and cash equivalents and the
Fair Market Value of any such Shares so tendered to the Company
as of the date of such tender is at least equal to such option
price.
(e) Restoration Options. In the event that any Participant
delivers Shares in payment of the exercise price of any Option
granted hereunder in accordance with Section 6(d) or of any
option granted under a prior stock award plan of the Company,
or in the event that the withholding tax liability arising upon
exercise of any such Option or option by a Participant is
satisfied through the withholding by the Company of Shares
otherwise deliverable upon exercise of the Option or option,
the Committee shall have the authority to grant or provide for
the automatic grant of a Restoration Option to such
Participant. The grant of a Restoration Option shall be
subject to the satisfaction of such conditions or criteria as
the Committee in its sole discretion shall establish from time
to time. A Restoration Option shall entitle the holder thereof
to purchase a number of Shares equal to the number of such
Shares so delivered or withheld upon exercise of the original
Option or option. A Restoration Option shall have a per share
exercise price of not less than 100% of the per Share Fair
Market Value on the date of grant of such Restoration Option
and such other terms and conditions as the Committee in its
sole discretion shall determine.
SECTION 7. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine
the Employees to whom Stock Appreciation Rights shall be
granted, the number of Shares to be covered by each Stock
Appreciation Right Award, the grant price thereof and the
conditions and limitations applicable to the exercise thereof.
Stock Appreciation Rights may be granted in tandem with another
Award, in addition to another Award, or freestanding and
unrelated to another Award. Stock Appreciation Rights granted
in tandem with or in addition to an Award may be granted either
at the same time as the Award or at a later time. Stock
Appreciation Rights shall not be exercisable earlier than six
months after grant, and shall have a grant price as determined
by the Committee on the date of grant.
(b) Exercise and Payment. A Stock Appreciation Right shall
entitle the Participant to receive an amount equal to the
excess of the Fair Market Value of a Share on the date of
exercise of the Stock Appreciation Right over the grant price
thereof, provided that the Committee may for administrative
convenience determine that, with respect to any Stock
Appreciation Right that is not related to an Incentive Stock
Option and that can only be exercised for cash during limited
periods of time in order to satisfy the conditions of Rule 16b-
3, the exercise of such Stock Appreciation Right for cash
during such limited period shall be deemed to occur for all
purposes hereunder on the day during such limited period on
which the Fair Market Value of the Shares is the highest. Any
such determination by the Committee may be changed by the
Committee from time to time and may govern the exercise of
Stock Appreciation Rights granted prior to such determination
as well as Stock Appreciation Rights thereafter granted. The
Committee shall determine whether a Stock Appreciation Right
shall be settled in cash, Shares or a combination of cash and
Shares.
(c) Other Terms and Conditions. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall
determine, at or after the grant of a Stock Appreciation Right,
the term, methods of exercise, methods and form of settlement,
and any other terms and conditions of any Stock Appreciation
Right. Any such determination by the Committee may be changed
by the Committee from time to time and may govern the exercise
of Stock Appreciation Rights granted or exercised prior to such
determination as well as Stock Appreciation Rights granted or
exercised thereafter. The Committee may impose such conditions
or restrictions on the exercise of any Stock Appreciation Right
as it shall deem appropriate.
SECTION 8. Restricted Stock and Restricted Stock Units.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine
the Employees to whom Shares of Restricted Stock and Restricted
Stock Units shall be granted, the number of Shares of
Restricted Stock and/or the number of Restricted Stock Units to
be granted to each Participant, the duration of the period
during which, and the conditions under which, the Restricted
Stock and Restricted Stock Units may be forfeited to the
Company, and the other terms and conditions of such Awards.
(b) Transfer Restrictions. Shares of Restricted Stock and
Restricted Stock Units may not be sold, assigned, transferred,
pledged or otherwise encumbered, except, in the case of
Restricted Stock, as provided in the Plan or the applicable
Award Agreements. Certificates issued in respect of Shares of
Restricted Stock shall be registered in the name of the
Participant and deposited by such Participant, together with a
stock power endorsed in blank, with the Company. Upon the
lapse of the restrictions applicable to such Shares of
Restricted Stock, the Company shall deliver such certificates
to the Participant or the Participant's legal representative.
(c) Payment. Each Restricted Stock Unit shall have a value
equal to the Fair Market Value of a Share. Restricted Stock
Units shall be paid in cash, Shares, other securities or other
property, as determined in the sole discretion of the
Committee, upon the lapse of the restrictions applicable
thereto, or otherwise in accordance with the applicable Award
Agreement.
(d) Dividends and Distributions. Dividends and other
distributions paid on or in respect of any Shares of Restricted
Stock may be paid directly to the Participant, or may be
reinvested in additional Shares of Restricted Stock or in
additional Restricted Stock Units, as determined by the
Committee in its sole discretion.
SECTION 9. Performance Awards.
(a) Grant. The Committee shall have sole and complete
authority to determine the Employees who shall receive a
"Performance Award," which shall consist of a right that is (i)
denominated in cash or Shares, (ii) valued, as determined by
the Committee, in accordance with the achievement of such
performance goals during such performance periods as the
Committee shall establish, and (iii) payable at such time and
in such form as the Committee shall determine.
(b) Terms and Conditions. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall
determine the performance goals to be achieved during any
performance period, the length of any performance period, the
amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance
Award.
(c) Payment of Performance Awards. Performance Awards may be
paid in a lump sum or in installments following the close of
the performance period or, in accordance with procedures
established by the Committee, on a deferred basis.
SECTION 10. Other Stock-Based Awards.
The Committee shall have authority to grant to eligible Employees
an "Other Stock-Based Award," which shall consist of any right
that is (i) not an Award described in Sections 6 through 9 above
and (ii) an Award of Shares or an Award denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities
convertible into Shares), as deemed by the Committee to be
consistent with the purposes of the Plan; provided that any
such rights must comply, to the extent deemed desirable by the
Committee, with Rule 16b-3 and applicable law. Subject to the
terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of any such
Other Stock-Based Award.
SECTION 11. Termination or Suspension of Employment.
The following provisions shall apply in the event of the
Participant's termination of employment unless the Committee
shall have provided otherwise, either at the time of the grant
of the Award or thereafter.
(a) Nonqualified Stock Options and Stock Appreciation Rights.
(i) Termination of Employment. If the Participant's
employment with the Company or its Affiliates is
terminated for any reason other than death, permanent and
total disability, or retirement, the Participant's right
to exercise any Nonqualified Stock Option or Stock
Appreciation Right shall terminate, and such Option or
Stock Appreciation Right shall expire, on the earlier of
(A) the first anniversary of such termination of
employment or (B) the date such Option or Stock
Appreciation Right would have expired had it not been for
the termination of employment. The Participant shall have
the right to exercise such Option or Stock Appreciation
Right prior to such expiration to the extent it was
exercisable at the date of such termination of employment
and shall not have been exercised.
(ii) Death, Disability or Retirement. If the
Participant's employment with the Company or its
Affiliates is terminated by death, permanent and total
disability, or retirement, the Participant or his
successor (if employment is terminated by death) shall
have the right to exercise any Nonqualified Stock Option
or Stock Appreciation Right to the extent it was
exercisable at the date of such termination of employment
and shall not have been exercised, but in no event shall
such option be exercisable later than the date the Option
would have expired had it not been for the termination of
such employment. The meaning of the terms "total and
permanent disability" and "retirement" shall be determined
by the Committee.
(iii) Acceleration and Extension of Exercisability.
Notwithstanding the foregoing, the Committee may, in its
discretion, provide (A) that an Option granted to a
Participant may terminate at a date earlier than that set
forth above, (B) that an Option granted to a Participant
not subject to Section 16 of the Exchange Act may
terminate at a date later than that set forth above,
provided such date shall not be beyond the date the Option
would have expired had it not been for the termination of
the Participant's employment, and (C) that an Option or
Stock Appreciation Right may become immediately
exercisable when it finds that such acceleration would be
in the best interests of the Company.
(b) Incentive Stock Options. Except as otherwise determined
by the Committee at the time of grant, if the Participant's
employment with the Company is terminated for any reason, the
Participant shall have the right to exercise any Incentive
Stock Option and any related Stock Appreciation Right during
the 90 days after such termination of employment to the extent
it was exercisable at the date of such termination, but in no
event later than the date the option would have expired had it
not been for the termination of such employment. If the
Participant does not exercise such Option or related Stock
Appreciation Right to the full extent permitted by the
preceding sentence, the remaining exercisable portion of such
Option automatically will be deemed a Nonqualified Stock
Option, and such Option and any related Stock Appreciation
Right will be exercisable during the period set forth in
Section 11(a) of the Plan, provided that in the event that
employment is terminated because of death or the Participant
dies in such 90-day period, the option will continue to be an
Incentive Stock Option to the extent provided by Section 421 or
Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder.
(c) Restricted Stock. Except as otherwise determined by the
Committee at the time of grant, upon termination of employment
for any reason during the restriction period, all shares of
Restricted Stock still subject to restriction shall be
forfeited by the Participant and reacquired by the Company at
the price (if any) paid by the Participant for such Restricted
Stock, provided that in the event of a Participant's
retirement, permanent and total disability, or death, or in
cases of special circumstances, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best
interests of the Company, waive in whole or in part any or all
remaining restrictions with respect to such participant's
shares of Restricted Stock.
(d) Leave Without Pay. Any time spent by a Participant in the
status of "leave without pay" shall be disregarded for purposes
of determining the extent to which any Award or portion thereof
has vested or otherwise becomes exercisable or nonforfeitable.
SECTION 12. Change in Control.
Notwithstanding any other provision of the Plan to the contrary,
upon a Change in Control all outstanding Awards shall vest, become
immediately exercisable or payable or have all restrictions lifted
as may apply to the type of Award and no outstanding Stock Appreciation
Right may be terminated, amended, or suspended upon or after a Change
in Control; provided, however, that unless otherwise determined by the
Committee at the time of award or thereafter, if it is determined that
the Net After-Tax Amount to be realized by any Participant, taking into
account the accelerated vesting provided for by this Section as well
as all other payments to be received by such Participant in connection
with such Change in Control, would be higher if Awards did not vest in
accordance with this Section, then and to such extent the Awards shall
not vest. The determination of whether any such Award should not vest
shall be made by a nationally recognized accounting firm selected by
the Company, which shall be instructed to consider that (i) Awards
and other forms of compensation subject to vesting upon a Change of
Control shall be vested in the order in which they were granted and
within each grant in the order in which they would otherwise have
vested and (ii) unless and to the extent any other plan, arrangement
or contract of the Company pursuant to which any such payment is to
be received provides to the contrary, such other payment shall be
deemed to have occurred after any acceleration of Awards or other
forms of compensation subject to vesting upon a Change of Control.
SECTION 13. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or any portion
thereof at any time; provided that no such amendment,
alteration, suspension, discontinuation or termination shall be
made without stockholder approval if such approval is necessary
to comply with any tax or regulatory requirement, including for
these purposes any approval requirement that is a prerequisite
for exemptive relief from Section 16(b) of the Exchange Act,
for which or with which the Board deems it necessary or
desirable to qualify or comply. Notwithstanding anything to
the contrary herein, the Committee may amend the Plan in such
manner as may be necessary so as to have the Plan conform with
local rules and regulations in any jurisdiction outside the
United States.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or alter,
suspend, discontinue, cancel or terminate, any Award
theretofore granted, prospectively or retroactively; provided
that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation, or termination that would
adversely affect the rights of any Participant or any holder or
beneficiary of any Award theretofore granted shall not to that
extent be effective without the consent of the affected
Participant, holder, or beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby
authorized to make adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual
or nonrecurring events (including, without limitation, the
events described in Section 4(b) hereof) affecting the Company,
any Affiliate, or the financial statements of the Company or
any Affiliate, or of changes in applicable laws, regulations,
or accounting principles, whenever the Committee determines
that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan; provided that no
such adjustment shall be authorized to the extent that such
authority would be inconsistent with the Plan's meeting the
requirements of Section 162(m) of the Code, as from time to
time amended.
(d) Cancellation. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may
cause any Award granted hereunder to be canceled in
consideration of a cash payment or alternative Award made to
the holder of such canceled Award equal in value to the Fair
Market Value of such canceled Award.
SECTION 14. General Provisions.
(a) Dividend Equivalents. In the sole and complete discretion
of the Committee, an Award, whether made as an Other Stock-
Based Award under Section 10 or as an Award granted pursuant to
Sections 6 through 9 hereof, may provide the Participant with
dividends or dividend equivalents, payable in cash, Shares,
other securities or other property on a current or deferred
basis.
(b) Nontransferabilitv. No Award shall be assigned,
alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant, except by will or the laws of
descent and distribution or pursuant to a QDRO, provided,
however, that an Award may be transferable, to the extent set
forth in the applicable Award Agreement, (i) if such Award
Agreement provisions do not disqualify such Award for exemption
under Rule 16b-3 or (ii) if such Award is not intended to
qualify for exemption under such rule.
(c) No Rights to Awards. No Employee, Participant or other
Person shall have any claim to be granted any Award, and there
is no obligation for uniformity of treatment of Employees,
Participants, or holders or beneficiaries of Awards. The terms
and conditions of Awards need not be the same with respect to
each recipient.
(d) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the
Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which such Shares
or other securities are then listed, and any applicable Federal
or state laws, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate
reference to such restrictions.
(e) Delegation. Subject to the terms of the Plan and
applicable law, the Committee may delegate to one or more
officers or managers of the Company or any Affiliate, or to a
committee of such officers or managers, the authority, subject
to such terms and limitations as the Committee shall determine,
to grant Awards to, or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend, or terminate
Awards held by, Employees who are not officers or directors of
the Company for purposes of Section 16 of the Exchange Act, or
any successor section thereto, or who are otherwise not subject
to such Section.
(f) Withholding. A participant may be required to pay to the
Company or any Affiliate and the Company or any Affiliate shall
have the right and is hereby authorized to withhold from any
Award, from any payment due or transfer made under any Award or
under the Plan or from any compensation or other amount owing
to a Participant the amount (in cash, Shares, other securities,
other Awards or other property) of any applicable withholding
taxes in respect of an Award, its exercise, or any payment or
transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company
to satisfy all obligations for the payment of such taxes. The
Committee may provide for additional cash payments to holders
of Awards to defray or offset any tax arising from the grant,
vesting, exercise, or payments of any Award.
(g) Award Agreements. Each Award hereunder shall be evidenced
by an Award Agreement that shall be delivered to the
Participant and shall specify the terms and conditions of the
Award and any rules applicable thereto.
(h) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any
Affiliate from adopting or continuing in effect other
compensation arrangements, which may, but need not, provide for
the grant of options, restricted stock, Shares and other types
of Awards provided for hereunder (subject to stockholder
approval if such approval is required), and such arrangements
may be either generally applicable or applicable only in
specific cases.
(i) No Right to Employment. The grant of an Award shall not
be construed as giving a Participant the right to be retained
in the employ of the Company or any Affiliate. Further, the
Company or an Affiliate may at any time dismiss a Participant
from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any
Award Agreement.
(j) No Rights as Stockholder. Subject to the provisions of
the applicable Award, no Participant or holder or beneficiary
of any Award shall have any rights as a stockholder with
respect to any Shares to be distributed under the Plan until he
or she has become the holder of such Shares. Notwithstanding
the foregoing, in connection with each grant of Restricted
Stock hereunder, the applicable Award shall specify if and to
what extent the Participant shall not be entitled to the rights
of a stockholder in respect of such Restricted Stock.
(k) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan and
any Award Agreement shall be determined in accordance with the
laws of the State of Delaware.
(l) Severability. If any provision of the Plan or any Award
is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction or as to any Person or Award,
or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed
or deemed amended to conform to the applicable laws, or if it
cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent
of the Plan or the Award, such provision shall be stricken as
to such jurisdiction, Person or Award and the remainder of the
Plan and any such Award shall remain in full force and effect.
(m) Other Laws. The Committee may refuse to issue or transfer
any Shares or other consideration under an Award if, acting in
its sole discretion, it determines that the issuance or
transfer of such Shares or such other consideration might
violate any applicable law or regulation or entitle the Company
to recover the same under Section 16(b) of the Exchange Act,
and any payment tendered to the Company by a Participant, other
holder or beneficiary in connection with the exercise of such
Award shall be promptly refunded to the relevant Participant,
holder, or beneficiary. Without limiting the generality of the
foregoing, no Award granted hereunder shall be construed as an
offer to sell securities of the Company, and no such offer
shall be outstanding, unless and until the Committee in its
sole discretion has determined that any such offer, if made,
would be in compliance with all applicable requirements of the
U.S. federal securities laws and any other laws to which such
offer, if made, would be subject.
(n) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund
of any kind or a fiduciary relationship between the Company or
any Affiliate and a Participant or any other Person. To the
extent that any Person acquires a right to receive payments
from the Company or any Affiliate pursuant to an Award, such
right shall be no greater than the right of any unsecured
general creditor of the Company or any Affiliate.
(o) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award, and the
Committee shall determine whether cash, other securities, or
other property shall be paid or transferred in lieu of any
fractional Shares or whether such fractional Shares or any
rights thereto shall be canceled, terminated, or otherwise
eliminated.
(p) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate
reference. Such headings shall not be deemed in any way
material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 15. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of January
26, 1995, subject to approval by the stockholders of the
Company within one year thereafter.
(b) Expiration Date. No Incentive Stock Option shall be
granted under the Plan after January 25, 2005. Unless
otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award granted hereunder may, and the
authority of the Board or the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Award or to
waive any conditions or rights under any such Award shall,
continue after the authority for grant of new Awards hereunder
has been exhausted.
EXHIBIT 10.10
NEW EMPLOYEE KEY GRANT
CONFIDENTIAL
NONQUALIFIED STOCK OPTION NOTICE
1995 EQUITY INCENTIVE PLAN
OPTIONEE GRANT DATE SHARES PLAN VESTING OPTION
GRANTED NUMBER CODE PRICE
SUB. COST SOCIAL SECURITY NUMBER
CODE CENTER
We are pleased to inform you that the Compensation Committee of the Board
has granted you an option to purchase Compaq common stock. Your grant has
been made under the Company's 1995 Equity Incentive Plan (the "1995
Plan"), which, together with the terms contained in this Notice, sets
forth the terms and conditions of your grant and is incorporated herein by
reference. A copy of the 1995 Plan is attached. Please review it
carefully; capitalized terms in this Notice have the same meaning as the
1995 Plan.
1. Vesting: Subject to the conditions set forth below and in the 1995
Plan, you may exercise this Option to purchase a number of Shares
equal to the difference between A and B, where
A = the product of the number of Shares subject to your Option
multiplied by a fraction, the numerator of which is the number of
whole months which have elapsed since the grant date set forth
above (not to exceed 60) and the denominator of which is 60; and
B =the number of Shares you previously acquired by the exercise of
this Option.
2. Exercise: Your Option may be exercised to the extent vested at any
time during the period beginning one year from the grant date and
ending ten years from the date hereof; provided that you may only
exercise this Option with respect to whole shares.
3. Termination or Suspension of Employment: The 1995 Plan sets forth
the terms and conditions of this grant that apply in the event of
your termination or suspension of employment.
4. To Exercise: You may exercise this grant by delivering to the
Company at its principal office notice of intent to exercise and
payment in full of the exercise price. This option is a nonqualified
option. Please refer to the attached Prospectus for a description of
the federal income tax treatment of nonqualified options.
5. Taxes and Withholding: You shall be required to make appropriate
arrangements with the Company for satisfaction of any applicable
federal, state, or local income tax, withholding requirements or like
requirements, including the payment to the Company at the time of
exercise of all such required amounts.
==========================================================================
KEY GRANT
CONFIDENTIAL
NONQUALIFIED STOCK OPTION NOTICE
1995 EQUITY INCENTIVE PLAN
OPTIONEE GRANT DATE SHARES PLAN VESTING OPTION
GRANTED NUMBER CODE PRICE
SUB. COST SOCIAL SECURITY NUMBER
CODE CENTER
We are pleased to inform you that the Compensation Committee of the Board
has granted you an option to purchase Compaq common stock. Your grant has
been made under the Company's 1995 Equity Incentive Plan (the "1995
Plan"), which, together with the terms contained in this Notice, sets
forth the terms and conditions of your grant and is incorporated herein by
reference. A copy of the 1995 Plan is attached. Please review it
carefully; capitalized terms in this Notice have the same meaning as the
1995 Plan.
1. Vesting: Subject to the conditions set forth below and in the 1995
Plan, you may exercise this Option to purchase a number of Shares
equal to the difference between A and B, where
A = the product of the number of Shares subject to your Option
multiplied by a fraction, the numerator of which is the number of
whole months which have elapsed since the grant date set forth
above (not to exceed 60) and the denominator of which is 60; and
B =the number of Shares you previously acquired by the exercise of
this Option.
2. Exercise: Your Option may be exercised to the extent vested at any
time during the period beginning on the grant date and ending ten
years from the date hereof; provided that you may only exercise this
Option with respect to whole shares.
3. Termination or Suspension of Employment: The 1995 Plan sets forth
the terms and conditions of this grant that apply in the event of
your termination or suspension of employment.
4. To Exercise: You may exercise this grant by delivering to the
Company at its principal office notice of intent to exercise and
payment in full of the exercise price. This option is a nonqualified
option. Please refer to the attached Prospectus for a description of
the federal income tax treatment of nonqualified options.
EXHIBIT 10.11
Compaq Computer Corporation
Bonus Incentive Plan
SECTION 1. Purpose. The purpose of the Compaq Computer
Corporation Bonus Incentive Plan (the "Plan") is to provide
incentives for senior executives and other key employees whose
performance in fulfilling the responsibilities of their
positions can have a major impact on the profitability and
future growth of Compaq Computer Corporation (the "Company")
and its subsidiaries.
SECTION 2. Definitions. For the purposes of the Plan, the
following terms shall have the meanings indicated:
"Award" shall mean the grant of an award by the Committee to a
Participant pursuant to Section 4(a) or Section 4(d).
"Award Year" shall mean any calendar year with respect to the
Company's performance in which an Award is granted.
"Board of Directors" shall mean the Board of Directors of the
Company.
"Committee" shall mean the Committee designated pursuant to
Section 3. Until otherwise determined by the Board of
Directors, the Compensation Committee designated by the Board
of Directors shall be the Committee under the Plan.
"Covered Officer" shall mean at any date (i) any individual
who, with respect to the previous taxable year of the Company,
was a "covered employee" of the Company within the meaning of
Section 162(m), as hereinafter defined; provided, however, that
the term "Covered Officer" shall not include any such
individual who is designated by the Committee, in its
discretion, at the time of any Award or at any subsequent time,
as reasonably expected not to be such a "covered employee" with
respect to the current taxable year of the Company and (ii) any
individual who is designated by the Committee, in its
discretion, at the time of any Award or at any subsequent time,
as reasonably expected to be such a "covered employee" with
respect to the current taxable year of the Company or with
respect to the taxable year of the Company in which any
applicable Award will be paid.
"Net Income" shall mean for any Award Year, operating income
before taxes as determined by the Company's independent
accountants for the Award Year, reduced by the aggregate amount
of dividends on the Company's preferred stock, if any.
"Participant" shall mean a senior executive or other key
employee of the Company selected by the Committee in accordance
with Section 4(a) or Section 4(d) who receives an Award.
"Plan Funding Amount" shall mean with respect to any Award Year
an amount equal to six percent of Net Income for such year.
"QDRO" shall mean a domestic relations order acceptable to the
Committee in its sole discretion.
"Retirement" shall mean retirement from active service to the
Company upon attaining 55 years of age, if the Participant's
age plus years of active service equals at least 65, or as
otherwise determined by the Committee.
"Section 162(m)" shall mean Section 162(m) of the Internal
Revenue Code of 1986 and the rules and other authorities
thereunder promulgated by the Internal Revenue Service of the
Department of the Treasury.
SECTION 3. Administration.
(a) Committee. Subject to the authority and powers of the
Board of Directors in relation to the Plan as hereinafter
provided, the Plan shall be administered by a Committee
designated by the Board of Directors consisting of two or more
members of the Board of Directors each of whom is an "outside
director" within the meaning of Section 162(m). The Committee
shall have full authority to interpret the Plan and from time
to time to adopt such rules and regulations for carrying out
the Plan as it may deem best; provided, however, that the
Committee may not exercise any authority otherwise granted to
it hereunder if such action would have the effect of increasing
the amount of an Award to any Covered Officer.
(b) Committee Determinations. All determinations by the
Committee shall be made by the affirmative vote of a majority
of its members, but any determination reduced to writing and
signed by a majority of the members shall be fully as effective
as if it had been made by a majority vote at a meeting duly
called and held. All decisions by the Committee pursuant to
the provisions of the Plan and all orders or resolutions of the
Board of Directors pursuant thereto shall be final, conclusive
and binding on all persons, including the Participants, the
Company and its subsidiaries, and stockholders.
SECTION 4. Eligibility for and Payment of Awards.
(a) Eligible Employees. Subject to the provisions of the
Plan, in each calendar year the Committee may select officers
or employees (including officers or employees who are also
directors) of the Company or any of its subsidiaries who will
be eligible to earn Awards under the Plan with respect to such
year and determine the amount of such Awards and the conditions
under which they may be earned.
(b) Payment of Awards. Awards that are earned with respect to
any Award Year shall be paid in cash to Participants at such
times and in such amounts as are determined by the Committee.
(c) Deferred Compensation Plan. Notwithstanding the
provisions of Section 4(b), if, prior to any date established
by the Committee for payment of any Award or portion thereof, a
Participant shall so elect, in accordance with procedures
established by the Committee, all or any part of an Award or
portion thereof shall be deferred and paid in one or more
periodic installments in accordance with the Compaq Computer
Corporation Deferred Compensation and Supplemental Savings
Plan.
(d) Awards to Covered Officers.
(i) Notwithstanding the provisions of Sections 4(a),
4(b), and 5(a) hereof, any Award to any Covered Officer
shall be granted in accordance with the provisions of this
Section 4(d). Subject to the discretion of the Committee
as set forth in Section 5(b) hereof, the amount of the
Award that may be granted with respect to any Award Year
to any Covered Officer at the time of such grant shall be
15% of the Plan Funding Amount for such Award Year.
(ii) Any provision of the Plan to the contrary
notwithstanding, no Covered Officer shall be entitled to
any payment of an Award with respect to an Award Year
unless the members of the Committee shall have certified
the Plan Funding Amount for such Award Year.
SECTION 5. General Provisions.
(a) Adjustments to Net Income. If Net Income for any year
shall have been affected by special factors (including material
changes in accounting policies or practices, material
acquisitions or dispositions of property, or other unusual
items) that in the Committee's judgment should or should not be
taken into account, in whole or in part, in the equitable
administration of the Plan, the Committee may, for any purpose
of the Plan, adjust Net Income and make payments accordingly
under the Plan.
(b) No Adjustments for Covered Officers. Notwithstanding the
provisions of subparagraph (a) above, any adjustments made in
accordance with or for the purposes of subparagraph (a) shall
be disregarded for purposes of calculating the Plan Funding
Amount if and to the extent that such adjustments would have
the effect of increasing the Plan Funding Amount. In addition,
the Committee may, in the exercise of its discretion, reduce or
eliminate the amount of an Award to a Covered Officer otherwise
calculated in accordance with the provisions of Section 4(d)
prior to payment thereof.
(c) No Assignment. No portion of any Award under the Plan may
be assigned or transferred otherwise than by will or by the
laws of descent and distribution or pursuant to a QDRO prior to
the payment thereof.
(d) Tax Requirements. All payments made pursuant to the Plan
shall be subject to withholding in respect of income and other
taxes required by law to be withheld, in accordance with
procedures to be established by the Committee.
(e) No Additional Participant Rights. The selection of an
individual for participation in the Plan shall not give such
Participant any right to be retained in the employ of the
Company or any of its subsidiaries, and the right of the
Company or any such subsidiary to dismiss or discharge any such
Participant, or to terminate any arrangement pursuant to which
any such Participant provides services to the Company is
specifically reserved. The benefits provided for Participants
under the Plan shall be in addition to, and shall in no way
preclude, other forms of compensation to or in respect of such
Participants.
(f) Liability. The Board of Directors and the Committee shall
be entitled to rely on the advice of counsel and other experts,
including the independent accountants for the Company. No
member of the Board of Directors or of the Committee or any
officers of the Company or its subsidiaries shall be liable for
any act or failure to act under the Plan, except in
circumstances involving bad faith on the part of such member or
officer.
(g) Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any subsidiary or affiliate
of the Company from adopting or continuing in effect other
compensation arrangements, which arrangements may be either
generally applicable or applicable only in specific cases.
SECTION 6. Amendment and Termination of the Plan. The
Board of Directors may at any time terminate, in whole or in
part, or from time to time amend the Plan, provided that,
except as otherwise provided in the Plan, no such amendment or
termination shall adversely affect the rights of any
Participant under any Awards deferred by such Participant
pursuant to Section 4(c). In the event of such termination, in
whole or in part, of the Plan, the Committee may in its sole
discretion direct the payment to Participants of any Awards not
theretofore paid out prior to the respective dates upon which
payments would otherwise be made hereunder to such
Participants, in a lump sum or installments as the Committee
shall prescribe with respect to each such Participant. The
Board of Directors may at any time and from time to time
delegate to the Committee any or all of its authority under
this Section 6. Any amendment to the Plan that would affect
any Covered Officer shall be approved by the Company's
stockholders if required by and in accordance with Section
162(m).
EXHIBIT 10.12
Amended January 25, 1996
COMPAQ COMPUTER CORPORATION
NONQUALIFIED STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
SECTION 1. Amendment and Restatement. The Compaq Computer
Corporation Nonqualified Stock Option Plan for Non-Employee
Directors (the "Plan") amends and restates in its entirety the
Compaq Computer Corporation 1987 Nonqualified Stock Option Plan
for Non-Employee Directors.
SECTION 2. Purpose. The purposes of the Plan are to
attract and retain the services of experienced and knowledgeable
non-employee directors, to encourage eligible directors of Compaq
Computer Corporation (the "Company") to acquire a proprietary and
vested interest in the growth and performance of the Company, and
to generate an increased incentive for directors to contribute to
the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of its stockholders.
SECTION 3. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
(a) "Amendment Date" shall mean January 25, 1996, the
effective date of the amendment and restatement of the Plan.
(b) "Annual Retainer" shall mean the amount that an
Eligible Director would be entitled to receive for serving as a
director in the year following an Election Date, but shall not
include fees associated with service on any committee of the
Board, any meeting fees, or any fees associated with other
services to be provided to the Company.
(c) "Board" shall mean the Board of Directors of the
Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(e) "Company" shall mean Compaq Computer Corporation.
(f) "Election Date" shall mean with respect to an Option
hereunder the date of the appointment, election, or re-election
of the Director that prompted the grant of such Option.
(g) "Eligible Director" shall mean each director of the
Company who is not an employee of the Company or any of the
Company's subsidiaries (as defined in Section 425(f) of the
Code).
(h) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(i) "Fair Market Value" shall mean with respect to the
Common Stock (i) the last sale price of the Common Stock on the
date on which such value is determined, as reported on the
consolidated tape of New York Stock Exchange issues or, if there
shall be no trades on such date, on the date nearest preceding
such date; (ii) if the Common Stock is not then listed for
trading on the New York Stock Exchange, the last sale price of
the Common Stock on the date on which such value is determined,
as reported on another recognized securities exchange or on the
NASDAQ National Market System if the Common Stock shall then be
listed and traded upon such exchange or system or, if there shall
be no trades on such date, on the date nearest preceding such
date; or (iii) the mean between the bid and asked quotations for
such stock on such date (as reported by a recognized stock
quotation service) or, in the event that there shall be no bid or
asked quotations on such date, then upon the basis of the mean
between the bid and asked quotations on the date nearest
preceding such date.
(j) "Option" shall mean any right granted to a Participant
allowing such Participant to purchase Shares at such price or
prices and during such period or periods as set forth under the
Plan. All Options shall be nonqualified options not entitled to
special tax treatment under Section 422A of Code.
(k) "Option Agreement" shall mean a written agreement,
contract, or other instrument evidencing an Option granted
hereunder and signed by both the Company and the Participant.
(l) "Participant" shall mean an Eligible Director who
receives an Option under the Plan.
(m) "Price Percentage" shall mean 50 percent unless
adjusted in accordance with Section 8(e).
(n) "Release Date" shall mean the fifth business day
occurring after the Company's earnings release for the preceding
fiscal period. In calculating the Release Date, the day of an
earnings release shall be counted if the earnings release is made
before the opening of trading on the New York Stock Exchange and
shall not be counted if such release is made after the opening of
trading.
(o) "Share Percentage" shall be 50 percent unless adjusted
in accordance with Section 8(e).
(p) "Shares" shall mean shares of the common stock, $.01
par value, of the Company.
(q) "Window" shall mean a period of time beginning on a
Release Date and ending at the end of the second month of the
fiscal quarter in which such Release Date occurs.
SECTION 4. Administration. The Plan shall be administered
by the Board. Subject to the terms of the Plan, the Board shall
have the power to interpret the provisions and supervise the
administration of the Plan.
SECTION 5. Shares Subject to the Plan.
(a) Total Number. Subject to adjustment as provided in
this Section, the total number of Shares as to which Options may
be granted under the Plan shall be 1,500,000 Shares. Any Shares
issued pursuant to Options hereunder may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
(b) Reduction of Shares Available.
(i) The grant of an Option will reduce the Shares as
to which Options may be granted by the number of Shares subject
to such Option.
(ii) Any Shares issued by the Company through the
assumption or substitution of outstanding grants from an acquired
company shall not reduce the Shares available for grants under
the Plan.
(c) Increase of Shares Available. The lapse, cancellation,
or other termination of an Option that has not been fully
exercised shall increase the available Shares by the number of
Shares that have not been issued upon exercise of such Option.
(d) Other Adjustments. The total number and kind of shares
available for Options under the Plan or which may be allocated to
any one Participant, the number and kind of shares of Common
Stock subject to outstanding Options, and the exercise price for
such Options shall be appropriately adjusted by the Board for any
increase or decrease in the number of outstanding Shares
resulting from a stock dividend, subdivision, combination of
Shares, reclassification, or other change in corporate structure
affecting the Shares or for any conversion of the Shares into or
exchange of the Shares for other shares as a result of any merger
or consolidation (including a sale of assets) or other
recapitalization as may be necessary to maintain the
proportionate interest of the Option holder.
SECTION 6. Initial Options. Initial Options shall be
granted to Eligible Directors as follows:
(a) Initial Grants. Each Eligible Director who is first
elected or appointed to the Board during the period beginning on
the Amendment Date and ending April 24, 1996, shall be granted
one Option to acquire 30,000 Shares. Each Eligible Director who
is first elected or appointed to the Board on or after April 25,
1996, shall be granted one Option to acquire 12,500 Shares. In
the event that the Election Date occurs during the Window, such
Option shall be granted on the Election Date with respect to such
Option. In the event that such Director's election or
appointment does not occur during the Window, then such Option
shall be granted on the next Release Date.
(b) Terms and Conditions. Any Option granted under this
Section 6 shall be subject to the following terms and conditions:
(i) Option Price. The purchase price per Share
purchasable under an Option granted under Section 6 shall be 100%
of the Fair Market Value of a Share on the date of the grant of
the Option.
(ii) Exercisability. An Option granted under Section
6(a) shall be exercisable on the first anniversary of the
Election Date.
SECTION 7. Annual Options. Annual Options shall be granted
to Eligible Directors as follows:
(a) Reelected Directors. Each Eligible Director who is
reelected to the Board at an annual meeting of the Company's
stockholders on or after the Amendment Date and who has not
received a grant under Section 6 during the period since the most
recent previous annual meeting of the Company's stockholders
shall be granted an Option to acquire 10,000 Shares on each
Election Date on which he is reelected.
(b) Chairman of the Board. Each Eligible Director who is
elected or re-elected Chairman of the Board by the Board at its
meeting following an annual meeting of the Company's stockholders
on or after the Amendment Date and who has not received a grant
under Section 6 during the period since the most recent annual
meeting of the Company's stockholders shall be granted on each
Election Date on which he is elected or reelected Chairman of the
Board an Option to acquire 2,500 Shares in addition to any
applicable Option granted under Section 7(a).
(c) Terms and Conditions. Any Option granted under this
Section 7 shall be subject to the following terms and conditions:
(i) Option Price. The purchase price per Share
purchasable under an Option shall be 100% of the Fair Market
Value of a Share on the date of the grant of the Option.
(ii) Exercisability. An Option granted under this
Section 7 shall be exercisable (A) with respect to 50% of the
Shares thereunder on the first anniversary of the Election Date
related to such Option and (B) with respect to the remaining 50%
of the Shares thereunder on the second anniversary of such
Election Date.
SECTION 8. Options in Lieu of Cash Compensation. Options
shall be granted to Directors in lieu of cash compensation as
follows:
(a) Election to Receive Option. An option shall be granted
automatically to any Eligible Director who six months prior to an
Election Date on which such director is re-elected to the Board
by the Company's stockholders, files with the Secretary of the
Company an irrevocable election to receive an Option in lieu of
all or a portion of his or her Annual Retainer. On the following
Election Date, each Eligible Director making such a filing under
this Section 8(a) shall be granted an Option for the number of
Shares determined under Section 8(b) below.
(b) Option Formula. The number of Option shares granted on
an Election Date to any Eligible Director under this Section 8
shall be equal to the nearest number of whole shares determined
in accordance with the following formula:
(Elected Portion)(Annual Retainer) = Number of
-----------------------------------
(Share Percentage) (Fair Market Value) Shares
where Elected Portion refers to the portion of Annual Retainers
elected under Section 8(a) and Fair Market Value refers to the
Fair Market Value of a Share on the date of grant.
(c) Option Price. The purchase price per Share covered by
each Option granted under this Section 8 shall be the Fair Market
Value of a Share on the date of grant multiplied by the Price
Percentage.
(d) Exercisability. An Option granted under this Section 8
shall be exercisable one year from the date of grant.
(e) Adjustment. In the event that any law, ruling, or
regulation shall be proposed, promulgated, or adopted after the
Amendment Date that provides that a higher Option price shall be
required so that Options granted under Section 8 of the Plan will
be treated as options for tax purposes, the Share Percentage and
Price Percentage of Options granted hereafter under this Section
8 shall be automatically adjusted to comply therewith; provided,
however, the sum of the Share Percentage and the Price Percentage
shall remain 100 percent.
SECTION 9. General Terms. The following provisions shall
apply to any Option granted under the Plan.
(a) Option Period. Each Option shall expire ten years from
its date of grant. Each Option shall be subject to termination
before its date of expiration as hereinafter provided.
(b) Termination of Service as Director. If a Participant's
service as a Director is terminated for any reason other than
death or disability, the Participant or his beneficiary shall
have the right to exercise any Option to the extent it was
exercisable at the date of such termination of service and shall
not have been exercised. The right to exercise such Option to
the extent set forth herein shall continue until the expiration
of the Option.
(c) Death or Disability. If the Participant's service as a
Director is terminated by death or disability, the Participant
shall have the right to exercise a prorated number of the Shares
under any Option that is not fully exercisable prior to such
event, such number to be determined by multiplying (i) the total
number of Shares subject to such Option by (ii) a fraction equal
to (A) the total of number of completed months of service since
the Election Date related to such Option divided by (B) the total
number of completed months of service from the Election Date
related to such Option until such Option would have become fully
exercisable. The right to exercise such Option to the extent set
forth herein shall continue until the expiration of the Option.
(d) Method of Exercise. Any Option may be exercised by the
Participant in whole or in part at such time or times and by such
methods as the Board may specify. The applicable Option
Agreement may provide that the Participant may make payment of
the Option price in cash, Shares, or such other consideration as
the Board may specify, or any combination thereof, having a Fair
Market Value on the exercise date equal to the total option
price.
SECTION 10. Change in Control.
(a) Immediate Vesting. Notwithstanding any other provision
of the Plan to the contrary, upon a Change in Control, as defined
below, all outstanding Options shall vest and become immediately
exercisable.
(b) Change in Control. A "Change in Control" shall be
deemed to have occurred if: (i) any "person" as such term is
used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company, any trustee or other fiduciary holding securities
under any employee benefit plan of the Company, or any company
owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of Stock
of the Company), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities; (ii) during any period of two consecutive years (not
including any period prior to January 18, 1989), individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a
transaction described in clause (i), (iii), or (iv) of this
Section 10(b)) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who
either were directors at the beginning of the two-year period or
whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
of the Board of Directors; (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than 30% of
the combined voting power of the Company's then outstanding
securities shall not constitute a Change in Control of the
Company; or (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of
the Company's assets.
SECTION 11. Amendments and Termination.
(a) Board Authority. The Board may amend, alter, or
discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made (i) that would impair the rights of
a Participant under an Option theretofore granted, without the
Participant's consent, or (ii) without the approval of the
stockholders if such approval is necessary to comply with any tax
or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief
from Section 16(b) of the Exchange Act, or (iii) to Section 6,
Section 7 or Section 8 more often than once every six months.
(b) Prior Stockholder and Participant Approval. Anything
herein to the contrary notwithstanding, in the event that
amendments to the Plan are required in order that the Plan or any
other stock-based compensation plan of the Company comply with
the requirements of Rule 16b-3 issued under the Exchange Act as
amended from time to time or any successor rules promulgated by
the Securities and Exchange Commission related to the treatment
of benefit and compensation plans under Section 16 of the
Exchange Act, the Board is authorized to make such amendments
without the consent of Participants or the stockholders of the
Company.
SECTION 12. General Provisions.
(a) No Assignment. No Option shall be assignable or
transferable by a Participant otherwise than by will or by the
laws of descent and distribution. Each Option shall be
exercisable, during the Participant's lifetime, only by the
Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative.
(b) Compliance Requirements. All certificates for Shares
delivered under the Plan pursuant to any Option shall be subject
to such stock-transfer orders and other restrictions as the Board
may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock
exchange upon which the Shares are then listed, and any
applicable federal or state securities law, and the Board of
Directors may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
The Company shall not be required to issue or deliver any Shares
under the Plan prior to the completion of any registration or
qualification of such Shares under any federal or state law, or
under any ruling or regulation of any governmental body or
national securities exchange that the Board in its sole
discretion shall deem to be necessary or appropriate.
(c) Other Plans. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is
required by applicable law or the rules of any stock exchange on
which the Common Stock is then listed; and such arrangements may
be either generally applicable or applicable only in specific
cases.
(d) Governing Law. The validity, construction, and effect
of the Plan and any rules and regulations relating to the Plan
shall be determined in accordance with the laws of the State of
Delaware and applicable federal law.
(e) Conformity With Law. If any provision of this Plan is
or becomes or is deemed invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Option under
any law deemed applicable by the Board, such provision shall be
construed or deemed amended in such jurisdiction to conform to
applicable laws or if it cannot be construed or deemed amended
without, in the determination of the Board, materially altering
the intent of the Plan, it shall be stricken and the remainder of
the Plan shall remain in full force and effect.
SECTION 13. Amendment Date and Expiration. The amendment
of the Compaq Computer Corporation 1987 Nonqualified Stock Option
Plan for Non-Employee Directors shall be effective March 15,
1990, subject to approval by the Company's stockholders within
one year thereafter. Options may be granted at any time after
the Amendment Date and prior to termination of the Plan by the
Board. The Plan will expire when no Shares are available for
issuance.
EXHIBIT 10.13
CONFIDENTIAL INITIAL GRANT
COMPAQ COMPUTER CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
FOR THE
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
THIS AGREEMENT, made this _____ day of___________,
________, in Houston, Texas between COMPAQ COMPUTER CORPORATION,
a Delaware corporation (hereinafter called the "Company"),
and______________________ (hereinafter called the "Optionee"):
R E C I T A L S:
The Company has adopted the Compaq Computer Corporation
Nonqualified Stock Option Plan for Non-Employee Directors
(the "Plan"), which Plan is incorporated herein by reference
and made a part of the Agreement.
The Company has determined that it would be in the best
interests of the Company and its stockholders to grant the
option provided for herein (the "Option") to the Optionee
pursuant to the Plan and the terms set forth herein
as an inducement to serve as a director of the Company and
to provide Optionee with a proprietary interest in the future
of the Company;
NOW THEREFORE, in consideration of the mutual
covenants hereinafter set forth, the parties hereto agree as
follows:
1. Grant of the Option. The Company hereby grants to Optionee
the right and option to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of
_________ shares of the presently authorized but unissued Common
Stock of the Company (hereinafter called the "Stock"). The
purchase price of the Stock subject to this option shall be
$_______ per share, being the market price of the Common Stock
on the Date of Grant, as defined in the Plan.
2. Exercise of Option.
(a) This Option may be exercised in whole or in part
at any time during the period beginning one year after the Date
of Grant and ending ten years from the Date of Grant, provided
that Optionee may not exercise this Option more often than twice
during any calendar year. The option is not transferable or
assignable by the Optionee other than by will or the laws of
descent and distribution. During the Optionee's lifetime, this
option shall be exercisable only by the optionee.
(b) Options may be exercised in whole or in part
with respect to whole shares only within the period permitted
for exercise thereof, and shall be exercised by written notice
of intent to exercise the Option with respect to a specified
number of shares delivered to the Company at its principal
office and payment in full to the Company at its principal
office in the amount of the option price for the number of
shares of the Common Stock with respect to which the Option is
then being exercised. The payment of the option price shall be
made in cash or by certified check, bank draft, or postal or
express money order payable to the order of the Company, or,
with the consent of the Board (or the Committee, if
established by the Board), in whole or in part in Common Stock
valued at Fair Market Value which is owned by the Optionee.
(c) This option may not be exercised prior to the
registration of the Stock with the Securities and Exchange
Commission and any applicable state agencies. However, this
condition may be waived by the Board (or Committee, if any) if
it determines that such registration is not necessary in order
to legally issue shares of Stock to Optionee.
(d) Upon the Company's determination that the
Option has been validly exercised as to any of the Stock, the
Secretary of the Company shall issue certificates in the
Optionee's name for the number of shares set forth in his
written notice. However, the Company shall not be liable to
the Optionee for damages relating to any delays in issuing the
certificates to him, any loss of the certificate, or any
mistakes or errors in the issuance of the certificates or in
the certificates themselves.
3. Term of Directorship. This Option shall not grant
to Optionee any right to continue serving as a director of the
Company.
4. Notices. Any notice required to be given under the
terms of this Option Agreement shall be addressed to the
Company in care of its Secretary at the principal executive
office of the Company in Houston, Texas, and any notice to be
given to Optionee shall be addressed to him at the address
given by him beneath his signature hereto or such other
address as either party hereto may hereafter designate in
writing to the other. Any such notice shall be deemed to have
been duly given when addressed as aforesaid, registered or
certified mail, and deposited (postage or registration or
certification fee prepaid) in a post office or branch post
office regularly maintained by the United States.
5. Disputes. As a condition of the granting of the
Option hereby, the Optionee and his heirs and successors agree
that any dispute or disagreement which may arise hereunder
shall be determined by the Board (or Committee, if any) in its
sole discretion and judgment, and that any such determination
and any interpretation by the Board (or Committee, if any) of
the terms of this Option shall be final and shall be binding
and conclusive, for all purposes, upon the Company, Optionee,
his heirs and personal representatives.
6. Legend on Certificates. The certificates
representing the shares of Stock purchased by exercise of this
Option will be stamped or otherwise imprinted with a legend in
such form as the Company or its counsel may require with
respect to any applicable restrictions on sale or transfer and
the stock transfer records of the Company will reflect stop-
transfer instructions with respect to such shares.
7. Option Subject to Plan. This Option is subject to
the Plan. The terms and provisions of the Plan (including any
subsequent amendments thereto) are hereby incorporated herein
by reference thereto. In the event of a conflict between any
term or provision contained herein and a term or provision of
the Plan, the applicable terms and provisions of the Plan will
govern and prevail. All definitions of words and terms
contained in the Plan shall be applicable to this Option.
8. Miscellaneous.
(a) All decisions of the Board (or Committee, if
any) upon any questions arising under the Plan or under this
Option Agreement shall be conclusive.
(b) Nothing herein contained shall affect
Optionee's right to participate in and receive benefits from
and in accordance with the then current provisions of any
pension, insurance or other employee welfare plan or program
of the Company.
(c) Optionee agrees to make appropriate
arrangements with the Company for satisfaction of any
applicable federal, state or local income tax, withholding
requirements or like requirements, including the payment to
the Company at the time of exercise of the Option of all such
taxes and requirements.
(d) Whenever the term "Optionee" is used herein
under circumstances applicable to any other person or persons
to whom this Option, in accordance with the provisions hereof,
may be transferred, the word "Optionee" shall be deemed to
include such person or persons.
(e) Notwithstanding any of the other provisions
hereof, Optionee agrees that he will not exercise this Option
and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the
Option or the issuance of such shares of Common Stock would
constitute a violation by the Optionee or by the Company of
any provision of any law or regulation of any governmental
authority or national securities exchange. Upon the
acquisition of any shares pursuant to the exercise of the
option herein granted, Optionee will enter into such written
representations, warranties and agreements as the Company may
reasonably request in order to comply with applicable
securities laws or with this Agreement.
(f) This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company.
(g) The interpretation, performance and enforcement
of the Option Agreement shall be governed by the laws of the
State of Delaware.
IN WITNESS WHEREOF, the Company has, as of the date and
place first above written, caused this Agreement to be
executed on its behalf by its President or any Vice President,
and Optionee has hereunto set his hand as of the date and
place first above written, which date is the date of grant of
this Option.
COMPAQ COMPUTER CORPORATION
By__________________________________
Eckhard Pfeiffer
President and Chief Executive Officer
"OPTIONEE"
____________________________________
Address:
____________________________________
____________________________________
=============================================================
CONFIDENTIAL Annual Grant
COMPAQ COMPUTER CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
FOR THE
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
THIS AGREEMENT, made this _____ day of___________,
________, in Houston, Texas between COMPAQ COMPUTER CORPORATION,
a Delaware corporation (hereinafter called the "Company"),
and______________________ (hereinafter called the "Optionee"):
R E C I T A L S:
The Company has adopted the Compaq Computer Corporation
Nonqualified Stock Option Plan for Non-Employee Directors
(the "Plan"), which Plan is incorporated herein by reference
and made a part of the Agreement.
The Company has determined that it would be in the best
interests of the Company and its stockholders to grant the
option provided for herein (the "Option") to the Optionee
pursuant to the Plan and the terms set forth herein
as an inducement to serve as a director of the Company and
to provide Optionee with a proprietary interest in the future
of the Company;
NOW THEREFORE, in consideration of the mutual
covenants hereinafter set forth, the parties hereto agree as
follows:
1. Grant of the Option. The Company hereby grants to Optionee
the right and option to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of
_________ shares of the presently authorized but unissued Common
Stock of the Company (hereinafter called the "Stock"). The
purchase price of the Stock subject to this option shall be
$_______ per share, being the market price of the Common Stock
on the Date of Grant, as defined in the Plan.
2. Exercise of Option.
(a) This Option may be exercised in whole or in part
(i) with respect to 50% of the Shares one year from the date of this
Agreement and (ii) with respect to the remaining 50% of the
Shares two years from the date of this Agreement. This Option
shall be subject to exercise and termination before its date of
expiration as provided in the Plan.
(b) Options may be exercised in whole or in part
with respect to whole shares only within the period permitted
for exercise thereof, and shall be exercised by written notice
of intent to exercise the Option with respect to a specified
number of shares delivered to the Company at its principal
office and payment in full to the Company at its principal
office in the amount of the option price for the number of
shares of the Common Stock with respect to which the Option is
then being exercised. The payment of the option price shall be
made in cash or by certified check, bank draft, or postal or
express money order payable to the order of the Company, or,
with the consent of the Board (or the Committee, if
established by the Board), in whole or in part in Common Stock
valued at Fair Market Value which is owned by the Optionee.
(c) This option may not be exercised prior to the
registration of the Stock with the Securities and Exchange
Commission and any applicable state agencies. However, this
condition may be waived by the Board (or Committee, if any) if
it determines that such registration is not necessary in order
to legally issue shares of Stock to Optionee.
(d) Upon the Company's determination that the
Option has been validly exercised as to any of the Stock, the
Secretary of the Company shall issue certificates in the
Optionee's name for the number of shares set forth in his
written notice. However, the Company shall not be liable to
the Optionee for damages relating to any delays in issuing the
certificates to him, any loss of the certificate, or any
mistakes or errors in the issuance of the certificates or in
the certificates themselves.
3. Term of Directorship. This Option shall not grant
to Optionee any right to continue serving as a director of the
Company.
4. Notices. Any notice required to be given under the
terms of this Option Agreement shall be addressed to the
Company in care of its Secretary at the principal executive
office of the Company in Houston, Texas, and any notice to be
given to Optionee shall be addressed to him at the address
given by him beneath his signature hereto or such other
address as either party hereto may hereafter designate in
writing to the other. Any such notice shall be deemed to have
been duly given when addressed as aforesaid, registered or
certified mail, and deposited (postage or registration or
certification fee prepaid) in a post office or branch post
office regularly maintained by the United States.
5. Disputes. As a condition of the granting of the
Option hereby, the Optionee and his heirs and successors agree
that any dispute or disagreement which may arise hereunder
shall be determined by the Board (or Committee, if any) in its
sole discretion and judgment, and that any such determination
and any interpretation by the Board (or Committee, if any) of
the terms of this Option shall be final and shall be binding
and conclusive, for all purposes, upon the Company, Optionee,
his heirs and personal representatives.
6. Legend on Certificates. The certificates
representing the shares of Stock purchased by exercise of this
Option will be stamped or otherwise imprinted with a legend in
such form as the Company or its counsel may require with
respect to any applicable restrictions on sale or transfer and
the stock transfer records of the Company will reflect stop-
transfer instructions with respect to such shares.
7. Option Subject to Plan. This Option is subject to
the Plan. The terms and provisions of the Plan (including any
subsequent amendments thereto) are hereby incorporated herein
by reference thereto. In the event of a conflict between any
term or provision contained herein and a term or provision of
the Plan, the applicable terms and provisions of the Plan will
govern and prevail. All definitions of words and terms
contained in the Plan shall be applicable to this Option.
8. Miscellaneous.
(a) All decisions of the Board (or Committee, if
any) upon any questions arising under the Plan or under this
Option Agreement shall be conclusive.
(b) Nothing herein contained shall affect
Optionee's right to participate in and receive benefits from
and in accordance with the then current provisions of any
pension, insurance or other employee welfare plan or program
of the Company.
(c) Optionee agrees to make appropriate
arrangements with the Company for satisfaction of any
applicable federal, state or local income tax, withholding
requirements or like requirements, including the payment to
the Company at the time of exercise of the Option of all such
taxes and requirements.
(d) Whenever the term "Optionee" is used herein
under circumstances applicable to any other person or persons
to whom this Option, in accordance with the provisions hereof,
may be transferred, the word "Optionee" shall be deemed to
include such person or persons.
(e) Notwithstanding any of the other provisions
hereof, Optionee agrees that he will not exercise this Option
and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the
Option or the issuance of such shares of Common Stock would
constitute a violation by the Optionee or by the Company of
any provision of any law or regulation of any governmental
authority or national securities exchange. Upon the
acquisition of any shares pursuant to the exercise of the
option herein granted, Optionee will enter into such written
representations, warranties and agreements as the Company may
reasonably request in order to comply with applicable
securities laws or with this Agreement.
(f) This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company.
(g) The interpretation, performance and enforcement
of the Option Agreement shall be governed by the laws of the
State of Delaware.
IN WITNESS WHEREOF, the Company has, as of the date and
place first above written, caused this Agreement to be
executed on its behalf by its President or any Vice President,
and Optionee has hereunto set his hand as of the date and
place first above written, which date is the date of grant of
this Option.
COMPAQ COMPUTER CORPORATION
By__________________________________
Eckhard Pfeiffer
President and Chief Executive Officer
"OPTIONEE"
____________________________________
Address:
____________________________________
____________________________________
=============================================================
CONFIDENTIAL Grant in Lieu of Compensation
COMPAQ COMPUTER CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
FOR THE
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
THIS AGREEMENT, made this _____ day of___________,
________, in Houston, Texas between COMPAQ COMPUTER CORPORATION,
a Delaware corporation (hereinafter called the "Company"),
and______________________ (hereinafter called the "Optionee"):
R E C I T A L S:
The Company has adopted the Compaq Computer Corporation
Nonqualified Stock Option Plan for Non-Employee Directors
(the "Plan"), which Plan is incorporated herein by reference
and made a part of the Agreement.
The Company has determined that it would be in the best
interests of the Company and its stockholders to grant the
option provided for herein (the "Option") to the Optionee
pursuant to the Plan and the terms set forth herein
as an inducement to serve as a director of the Company and
to provide Optionee with a proprietary interest in the future
of the Company;
NOW THEREFORE, in consideration of the mutual
covenants hereinafter set forth, the parties hereto agree as
follows:
1. Grant of the Option. The Company hereby grants to Optionee
the right and option to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of
_________ shares of the presently authorized but unissued Common
Stock of the Company (hereinafter called the "Stock"). The
purchase price of the Stock subject to this option shall be
$_______ per share, being the market price of the Common Stock
on the Date of Grant, as defined in the Plan.
2. Exercise of Option.
(a) This Option may be exercised in whole or in part
at any time during the period beginning one year after the Date
of Grant and ending ten years from the Date of Grant, provided
that optionee may not exercise this Option more often than twice
during any calendar year. This option shall expire 10 years from
the date of this Agreement and shall be subject to exercise and
termination before its date of expiration as provided in the Plan.
(b) Options may be exercised in whole or in part
with respect to whole shares only within the period permitted
for exercise thereof, and shall be exercised by written notice
of intent to exercise the Option with respect to a specified
number of shares delivered to the Company at its principal
office and payment in full to the Company at its principal
office in the amount of the option price for the number of
shares of the Common Stock with respect to which the Option is
then being exercised. The payment of the option price shall be
made in cash or by certified check, bank draft, or postal or
express money order payable to the order of the Company, or,
with the consent of the Board (or the Committee, if
established by the Board), in whole or in part in Common Stock
valued at Fair Market Value which is owned by the Optionee.
(c) This option may not be exercised prior to the
registration of the Stock with the Securities and Exchange
Commission and any applicable state agencies. However, this
condition may be waived by the Board (or Committee, if any) if
it determines that such registration is not necessary in order
to legally issue shares of Stock to Optionee.
(d) Upon the Company's determination that the
Option has been validly exercised as to any of the Stock, the
Secretary of the Company shall issue certificates in the
Optionee's name for the number of shares set forth in his
written notice. However, the Company shall not be liable to
the Optionee for damages relating to any delays in issuing the
certificates to him, any loss of the certificate, or any
mistakes or errors in the issuance of the certificates or in
the certificates themselves.
3. Term of Directorship. This Option shall not grant
to Optionee any right to continue serving as a director of the
Company.
4. Notices. Any notice required to be given under the
terms of this Option Agreement shall be addressed to the
Company in care of its Secretary at the principal executive
office of the Company in Houston, Texas, and any notice to be
given to Optionee shall be addressed to him at the address
given by him beneath his signature hereto or such other
address as either party hereto may hereafter designate in
writing to the other. Any such notice shall be deemed to have
been duly given when addressed as aforesaid, registered or
certified mail, and deposited (postage or registration or
certification fee prepaid) in a post office or branch post
office regularly maintained by the United States.
5. Disputes. As a condition of the granting of the
Option hereby, the Optionee and his heirs and successors agree
that any dispute or disagreement which may arise hereunder
shall be determined by the Board (or Committee, if any) in its
sole discretion and judgment, and that any such determination
and any interpretation by the Board (or Committee, if any) of
the terms of this Option shall be final and shall be binding
and conclusive, for all purposes, upon the Company, Optionee,
his heirs and personal representatives.
6. Legend on Certificates. The certificates
representing the shares of Stock purchased by exercise of this
Option will be stamped or otherwise imprinted with a legend in
such form as the Company or its counsel may require with
respect to any applicable restrictions on sale or transfer and
the stock transfer records of the Company will reflect stop-
transfer instructions with respect to such shares.
7. Option Subject to Plan. This Option is subject to
the Plan. The terms and provisions of the Plan (including any
subsequent amendments thereto) are hereby incorporated herein
by reference thereto. In the event of a conflict between any
term or provision contained herein and a term or provision of
the Plan, the applicable terms and provisions of the Plan will
govern and prevail. All definitions of words and terms
contained in the Plan shall be applicable to this Option.
8. Miscellaneous.
(a) All decisions of the Board (or Committee, if
any) upon any questions arising under the Plan or under this
Option Agreement shall be conclusive.
(b) Nothing herein contained shall affect
Optionee's right to participate in and receive benefits from
and in accordance with the then current provisions of any
pension, insurance or other employee welfare plan or program
of the Company.
(c) Optionee agrees to make appropriate
arrangements with the Company for satisfaction of any
applicable federal, state or local income tax, withholding
requirements or like requirements, including the payment to
the Company at the time of exercise of the Option of all such
taxes and requirements.
(d) Whenever the term "Optionee" is used herein
under circumstances applicable to any other person or persons
to whom this Option, in accordance with the provisions hereof,
may be transferred, the word "Optionee" shall be deemed to
include such person or persons.
(e) Notwithstanding any of the other provisions
hereof, Optionee agrees that he will not exercise this Option
and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the
Option or the issuance of such shares of Common Stock would
constitute a violation by the Optionee or by the Company of
any provision of any law or regulation of any governmental
authority or national securities exchange. Upon the
acquisition of any shares pursuant to the exercise of the
option herein granted, Optionee will enter into such written
representations, warranties and agreements as the Company may
reasonably request in order to comply with applicable
securities laws or with this Agreement.
(f) This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company.
(g) The interpretation, performance and enforcement
of the Option Agreement shall be governed by the laws of the
State of Delaware.
IN WITNESS WHEREOF, the Company has, as of the date and
place first above written, caused this Agreement to be
executed on its behalf by its President or any Vice President,
and Optionee has hereunto set his hand as of the date and
place first above written, which date is the date of grant of
this Option.
COMPAQ COMPUTER CORPORATION
By__________________________________
Eckhard Pfeiffer
President and Chief Executive Officer
"OPTIONEE"
____________________________________
Address:
____________________________________
____________________________________
<PAGE>
EXHIBIT 11
COMPAQ COMPUTER CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Year ended December 31,
In millions, except per share amounts 1995 1994 1993
- -------------------------------------------------------------------------------
Primary earnings per share:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 264.0 257.5 246.0
Incremental shares attributed
to outstanding options 9.6 11.1 8.1
------------------------------
273.6 268.6 254.1
==============================
Earnings:
Net income $ 789 $ 867 $ 462
==============================
Earnings per common and common equivalent share $ 2.88 $ 3.23 $ 1.82
==============================
Earnings per share - assuming full dilution:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 264.0 257.5 246.0
Incremental shares attributed to
outstanding options 11.0 12.6 12.9
------------------------------
275.0 270.1 258.9
==============================
Earnings:
Net income $ 789 $ 867 $ 462
==============================
Earnings per common and common equivalent share $ 2.87 $ 3.21 $ 1.78
==============================
EXHIBIT 21
COMPAQ COMPUTER CORPORATION
SUBSIDIARIES
Jurisdiction
Name of
incorporation
Compaq Computer Australia Pty. Ltd. Australia
Compaq Computer Gesmbh Austria
Compaq Computer N.V./S.A. Belgium
Compaq Computer Brasil - Industria e Comercio LTDA Brazil
Compaq Canada Incorporated/Incorporee
(dba Compaq Canada, Inc.) Canada
Compaq Computer Technologies (China) Ltd. China
Compaq Computer de Colombia S.A. Colombia
Compaq Computer, spol.sr.o. Czech Republic
Compaq Latin America Corporation Delaware
Compaq Computer International Corporation Delaware
Compaq International Procurement Corporation Delaware
NetWorth, Inc. Delaware
Compaq Computer A/S Denmark
Compaq Computer Oy Finland
Compaq Computer S.A.R.L. France
Compaq Computer GmbH Germany
Compaq Computer EMEA GmbH Germany
Compaq Computer Hong Kong Limited Hong Kong
Compaq Computer KFT Hungary
Compaq Computer S.p.A. Italy
Compaq Kabushiki Kaisha Japan
Compaq Computer Korea Limited Korea
Compaq Computer (Malaysia) SDN.BHD. Malaysia
Compaq Computer de Mexico, S.A. de C.V. Mexico
Compaq Computer B.V. Netherlands
Compaq Computer New Zealand Limited New Zealand
Compaq Computer Norway A.S. Norway
Compaq Computer, Sp.zo.o Poland
Compaq Computer Portugal, Lda Portugal
Compaq Computer Asia Pte. Ltd. Singapore
Compaq Asia Pte. Limited Singapore
Compaq Computer Asia/Pacific Pte. Ltd. Singapore
Compaq Computer (Proprietary) Limited South Africa
Compaq Computer S.A. Spain
Compaq Computer AB Sweden
Compaq Computer AG Switzerland
Compaq-Austin, Inc. Texas
Compaq Computer (Thailand) Ltd. Thailand
Compaq Computer Taiwan Limited Taiwan
Compaq Computer FZE United Arab Emirates
Compaq Computer Manufacturing Limited United Kingdom
Compaq Computer Limited United Kingdom
Compaq Computer de Venezuela, S.A. Venezuela
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-44115, 33-31819, 33-23504, 33-7499,
2-89925, 33-10106, 33-38044, 33-16987, and 33-62603) of Compaq Computer
Corporation of our report dated January 23, 1996, which appears in this
Annual Report on Form 10-K for the year ended December 31, 1995. We also
consent to the reference to us under the heading "Selected Consolidated
Financial Data" in this Form 10-K. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial Data."
PRICE WATERHOUSE LLP
Houston, Texas
March 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COMPAQ COMPUTER CORPORATION'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUAILIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 745
<SECURITIES> 0
<RECEIVABLES> 3,241
<ALLOWANCES> 100
<INVENTORY> 2,156
<CURRENT-ASSETS> 6,527
<PP&E> 1,981
<DEPRECIATION> 871
<TOTAL-ASSETS> 7,818
<CURRENT-LIABILITIES> 2,680
<BONDS> 300
0
0
<COMMON> 890
<OTHER-SE> 3,724
<TOTAL-LIABILITY-AND-EQUITY> 7,818
<SALES> 14,755
<TOTAL-REVENUES> 14,755
<CGS> 11,367
<TOTAL-COSTS> 11,367
<OTHER-EXPENSES> 511<F1>
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 1,188
<INCOME-TAX> 399
<INCOME-CONTINUING> 789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 789
<EPS-PRIMARY> 2.88
<EPS-DILUTED> 2.87
<FN>
<F1>Includes research and development costs and purchased in-process technology.
</FN>
</TABLE>
