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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, 1996 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
(281) 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
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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, 1997 (assuming all officers and directors are
affiliates and based on the last sale price on the New York Stock Exchange as of
such date) was $23.6 billion.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of January 31, 1997, was 274 million.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part II and Part III of this
Annual Report on Form 10-K certain of the information contained in the
registrant's annual report to stockholders for the year ended December 31, 1996,
and the registrant's proxy statement for its annual meeting of stockholders to
be held April 24, 1997 which will be filed by the registrant within 120 days
after December 31, 1996.
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PART I
Item 1. Business
General
Compaq Computer Corporation ("Compaq"), founded in 1982, designs,
develops, manufactures and markets a wide range of computing products, including
desktop computers, portable computers, workstations, communications products and
tower PC servers and peripheral products that store and manage data in network
environments. Compaq markets its products primarily to business, home,
government and education customers, operating in one principal industry segment
across geographically diverse markets.
In 1996, Compaq 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 Compaq's sales. Business
customers are attracted to Compaq's products for a variety of reasons, including
Compaq's reputation for reliability, price, product performance and
technological excellence, the availability of a wide variety of application
software products, ease of use and connectivity solutions.
Also in 1996, Compaq maintained its world leadership position in
distributed enterprise solutions with an approximate 30% worldwide market
share in PC server products. In November 1996, Compaq shipped its
one-millionth server. Over the last few years, Compaq has expanded its
servers to new levels of midrange class functionality, availability, fault
tolerance and manageability for both mainstream and mission-critical
applications.
In the future, Compaq will continue to integrate 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, Compaq 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. Compaq believes its key to success
is leveraging Compaq'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
Compaq's products are available with a broad variety of functions and
features designed to accommodate a wide range of user needs. In 1996, Compaq
formed a new organization by pulling new and existing divisions into four
customer-focused, global product groups: PC Products, Enterprise Computing,
Consumer Products and Communication Products. Compaq also consolidated its five
geographic sales regions into a worldwide, sales, marketing, service and support
organization, strengthening the focus on global sales, global marketing, global
brand management and global service and support.
PC Products Group. In 1996, the PC Products Group, responsible for
desktop and portable PC products, accounted for 58% of Compaq's sales. In July
1996, Compaq redesigned and consolidated its commercial desktop PC line under a
single brand name, Deskpro. In the summer of 1996, Compaq announced the broadest
new range of products in its history, including three distinct families of new
portable PCs under a single brand name, Armada. Compaq plans to continue its
desktop leadership in 1997 with the continued delivery of Pentium Pro-based
products that will address the high performance and graphic-display intensive
needs of engineering and financial customers. In 1997, Compaq plans to introduce
a new product family that will bring to market significant advances in sound
quality, telephone and communications capabilities.
Enterprise Computing Group. The Enterprise Computing Group had sales of
PC system products and related options that
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accounted for 26% of Compaq's sales in 1996. Compaq's powerful platforms deliver
industry-leading price/performance ratios and are supported by new clustering
and internetworking solutions, strategic partnerships with leading enterprise
software vendors and world-class, seven days a week, 24 hour, global service and
support. Beginning in February 1996, all of Compaq's servers were shipped with
Internet server capabilities. In October 1996, Compaq introduced five models of
workstations based on Intel Pentium Pro microprocessors and the Microsoft
Windows NT operating system. In 1997, the Enterprise Computing Group plans to
reinforce its strong position in the file server market and to expand its
presence in the distributed enterprise market for complex enterprise-class
networks. Compaq will continue its efforts in developing an industry standard
for clustering, a technique that permits the resources of several computers to
be linked. In addition, Compaq intends to be the Internet platform leader, both
on the network server side and the client side.
Consumer Products Group. In 1996, the Consumer Products Group, which
markets computers and related options aimed at the consumer and home office
market, accounted for 16% of Compaq's sales. In January 1996, Compaq introduced
its spring lineup of home multimedia PCs that included the industry's first
combination scanner/keyboard, "rewritable" CD-ROM drives and Pentium processors.
Also in 1996, Compaq unveiled a new family of Presario home PCs designed for
every member of the family. To meet the specific needs of five distinct market
segments (Home and Family, Home Office, Multimedia Enthusiast, Design Conscious
and Mobile Computing), each Presario product family has been engineered as a
solution that will satisfy the needs of every aspect of the evolving home PC
market. In addition, Compaq is currently evaluating technology developments such
as videophone communications, arcade-level graphics, easier to use software
interfaces and colorful new PC designs. In February 1997, Compaq announced the
Presario 2000 series, a series of PCs that combine leading-edge technology and
features at low prices.
Communication Products Group. In March 1996, Compaq introduced the
Compaq Netelligent networking product line, consisting of more than 100
individual networking products, including managed and unmanaged switches and
repeaters and Ethernet and Token Ring controllers. The Compaq Netelligent
product line is a range of scaleable, network solutions for smaller businesses
and workgroups/departments in larger corporations. Some of the Communication
Products Group's offerings include the industry's first Fast Ethernet controller
optimized for use in Pentium Pro servers, Fast Ethernet stackable repeaters that
break the $100 per port price barrier and the unique Smart Uplink option that
allows Netelligent Fast Ethernet networks to scale beyond the physical distances
supported by most competitive offerings. In 1997, the Communication Products
Group will continue to deliver products focused on easing the migration to
high-speed networks. Development efforts will center on switches, repeaters and
options that lower the cost and complexity of Ethernet to Fast Ethernet
migration, as well as access products for high performance remote/mobile office
connectivity.
Compaq offers a number of options through each of its product groups,
including memory upgrades, storage and backup devices, docking stations,
keyboards and communications products and is the world's leading seller of video
display monitors. In 1996, Compaq launched a number of new server, desktop and
portable option products, including five new monitors, an advanced modem PC card
for its "Telephony-Ready" portable computers, a new 120MB diskette drive and
other personal storage management solutions, such as a scanner keyboard and a
rewriteable optical drive.
Product Development
Compaq is actively engaged in the design and development of additional
products and enhancements to its existing products. During 1996, 1995 and 1994,
Compaq expended $407 million, $270 million and $226 million, respectively, on
research and development. Since personal computer technology develops rapidly,
Compaq's continued success is dependent on the
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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 1996, Compaq focused significant attention on technological developments for
enterprise computing, including SMP servers, high-availability and failover
solutions, storage technology, enterprise systems management, integration and
configuration optimization, Internet and Intranet technologies, as well as
networking and communications products. In the portable area, Compaq focused on
increasing commonality of subassemblies and incorporating testability features
in order to reduce testing time and test equipment requirements. In desktops,
Compaq focused on design innovations and new technologies to improve run rate
and ease assembly and serviceability.
Compaq's product development efforts are centered on aggressively
developing new areas in which Compaq can differentiate its products and add
value, focusing on innovative platform features, the integration of hardware and
software, and new related products and services. Because Compaq's business now
intersects with a number of areas in which other companies have significantly
greater technological, marketing and service expertise, Compaq has focused on
alliances with third parties that have complementary products and skills as well
as acquisitions that target incremental business opportunities.
Manufacturing and Materials
Compaq's PC manufacturing operations consist of manufacturing finished
products and various circuit boards from components and subassemblies that
Compaq acquires from a wide range of vendors. Certain of Compaq's products are
manufactured by third party original equipment manufacturers. Compaq has
manufacturing operations located in Houston, Texas; Erskine, Scotland;
Singapore; Jaguarina, Brazil; and Shenzhen, China. Products sold in Europe are
manufactured primarily in Compaq's facilities in Erskine, Scotland, and
Singapore. Products sold in the U.S. are primarily manufactured in Compaq'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 Jaguarina, Brazil. In addition, Compaq
manufactures hubs and high speed switches in Irving, Texas, and network
interface cards in Austin, Texas.
Compaq 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. Order lead times and cancellation
requirements vary by supplier and component. Key components and processes
currently obtained from single sources include certain of Compaq's displays,
operating systems, microprocessors, application-specific integrated circuits and
other custom chips and certain processes relating to construction of the housing
for Compaq's computers. Compaq will begin negotiation of a renewal of its
operating system license agreement with Microsoft Corporation in 1997. In
addition, new products introduced by Compaq often initially utilize custom
components obtained from only one source until Compaq 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,
Compaq's ability to ship the related product in desired quantities and in a
timely manner could be adversely affected. Compaq attempts to mitigate these
risks by working closely with key suppliers on product plans, inventory
management and coordinated product introductions.
Like other participants in the personal computer industry, Compaq
ordinarily acquires materials and components through purchase orders typically
covering Compaq's requirements for periods averaging 90 to 120 days. From time
to time Compaq has experienced significant price increases and limited
availability of certain components that are available from multiple sources. At
times Compaq has been constrained by parts availability in meeting product
orders and future constraints could have an adverse effect on Compaq's operating
results. On occasion, Compaq
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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 Compaq's
operating results.
Marketing and Distribution
Compaq distributes its products principally through third-party computer
resellers. Compaq'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, Compaq is continuing its expansion of distribution
establishments, especially mass merchandise stores, consumer electronics outlets
and computer superstores. Compaq also sells directly to small business and home
customers through Compaq's mail order business that features a variety of
personal computers, printers and software products.
In 1996, North American sales constituted 53% of Compaq's total sales
and Europe, Middle East and Africa sales constituted 33%. Compaq's North America
Division markets its products in the United States and Canada, while Compaq'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 Compaq's Asia/Pacific, Japan and Latin America Divisions, which focus
on opportunities in these high growth areas, constitute the remaining 14% of
Compaq's total sales. Compaq's products are now sold by dealers in more than 100
countries. For further geographic information for 1996, 1995 and 1994, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 10 of the Notes to Consolidated Financial Statements
contained in Compaq's annual report to stockholders for the year ended December
31, 1996.
In January 1997, Compaq announced its plans to provide financial product
offerings for its end user customers that will provide more flexible financing
alternatives for advanced information systems. These products are initially
targeted for introduction in North America in 1997.
Service and Support
Compaq provides support and warranty repair to its customers through
full-service computer dealers and independent third-party service companies.
Compaq offers its customers CompaqCare, which includes a number of customer
service and support programs, most notably one- to three-year limited warranties
on PC products and in the U.S., round-the-clock telephone technical support for
Compaq hardware products.
Patents, Trademarks, and Licenses
Compaq held 528 patents, had 87 patents accepted and awaiting issuance
and had 671 patent applications pending with the United States Patent and
Trademark Office at the close of 1996, as well as related international patents
and patent applications. In addition, Compaq has registered certain trademarks
in the United States and in a number of foreign countries. While Compaq believes
that patent and trademark protection plays an important part in its business,
Compaq relies primarily upon the technological expertise, innovative talent and
marketing abilities of its employees.
Compaq has from time to time entered into cross-licensing agreements
with other companies holding patents to technology used in Compaq's products as
well as with companies using patents to technology held by Compaq. Compaq 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, Compaq and Intel Corporation entered into a
ten-year patent cross-license agreement
Because of rapid technological changes in the computer industry,
extensive patent and
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copyright coverage, and the rapid establishment of new copyright and patent
rights, certain components of the products designed by Compaq or purchased from
third parties may unknowingly infringe intellectual property rights of others.
Compaq believes, based in part on industry practices, that if any infringements
do exist, Compaq will be able to modify its products to avoid infringement,
obtain components that are licensed or do not infringe, or obtain licenses or
rights to such intellectual property on terms not having a material adverse
effect on Compaq. There can be no assurance, however, that Compaq will be able
to ensure that component supplies or that 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 Compaq or one of its
suppliers. To minimize the impact of intellectual property claims by third
parties, Compaq pursues an active patent portfolio development plan.
Seasonality
General economic conditions have an impact on Compaq's business and
financial results. From time to time, the markets in which Compaq sells its
products experience weak economic conditions that may negatively affect sales.
Although Compaq does not consider its business to be highly seasonal, Compaq in
general experiences seasonally higher sales and earnings in the second half of
the year. Should Compaq's retail business expand relative to its other
businesses, Compaq could experience an increase in the seasonality of its
business and financial results could become more dependent on retail business
fluctuations.
Customers
No customer of Compaq accounted for 10% or more of sales for 1996. In
1996, Compaq's five largest resellers represented approximately 27% of Compaq's
1996 sales.
Backlog
Compaq'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 Compaq'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 1996, Compaq was unable to produce certain products on
a timely basis due to supply constraints on certain components. 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 Compaq's projections and manufacturing implementation, local market
variations can lead to differences between expected and actual demand and
resulting delays in shipment. Should Compaq 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
Compaq believes that its products compete favorably based on each of these
elements, Compaq could be adversely affected if its competitors introduce
innovative or technologically superior products or offer their products at
significantly lower prices than Compaq. Compaq's results could also be adversely
affected should it be unable to implement effectively its technological and
marketing alliances with other companies, such as
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Microsoft, Intel, Novell, Oracle, SAP and Texas Instruments, among others,
and to manage the competitive risks associated with these relationships.
Environmental Laws and Regulations
Compaq recognizes that operating in a manner that is compatible with the
environment is good for its community, employees, customers and business. Compaq
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. Compaq uses
no chlorofluorocarbons (CFCs) in its worldwide manufacturing operations and
undertakes ongoing environmental programs, including waste reduction, energy
conservation, recycling and design for environment. Compaq 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 Compaq's
capital expenditures, earnings or competitive position. Although Compaq 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 Compaq.
Employees
At December 31, 1996 Compaq had approximately 18,900 full-time regular
employees and 7,500 temporary and contract workers engaged in manufacturing
operations, engineering, research and development, marketing, sales, service and
administrative activities. Compaq believes that its ability to attract and
retain skilled personnel appropriately is critical to its success. Accordingly,
Compaq has developed competitive human resources policies consistent with its
business plan.
Item 2. Properties
Compaq's principal administrative facilities and a manufacturing
facility are located in Houston, Texas. These facilities include 632,000 square
feet of manufacturing space, 327,000 square feet of distribution center space
and 250,000 square feet of warehouse space on Compaq's 1,000-acre Compaq Center
in Houston. Compaq owns 13 administrative buildings with a total of 2,363,000
square feet of space at Compaq Center. Compaq leases sales offices in twelve
cities in the United States as well as certain administrative and warehouse
facilities. Compaq leases manufacturing facilities in Austin, Texas, and Irving,
Texas, that are used in the manufacture of hubs, high speed switches and network
interface cards.
Compaq also owns or leases certain facilities abroad. Compaq owns a
43-acre tract in Erskine, Scotland, where it has 540,000 square feet of
manufacturing space. In Singapore, Compaq owns 720,000 square feet of
manufacturing space and leases 150,000 square feet. In Brazil, Compaq owns a
150,000 square foot manufacturing facility and in China, Compaq leases a 90,000
square foot manufacturing facility. Compaq leases sales and administrative
offices in 40 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. Compaq owns a 372,000 square foot European distribution center in
Gorinchem, The Netherlands. Compaq also leases warehouse space in a number of
locations.
Item 3. Legal Proceedings
Compaq is subject to legal proceedings and claims that 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 Compaq's financial
condition or results of operations.
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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 1996.
PART II
Items 5 to 9 inclusive.
These items have been omitted in accordance with the general
instructions to Form 10-K Annual Report. Reference is made to the information
provided on pages 24 through 54 and page 56 of Compaq's annual report to
stockholders for the year ended December 31, 1996, which information is hereby
incorporated by reference.
PART III
Items 10 to 13 inclusive.
These items have been omitted in accordance with the general
instructions to Form 10-K Annual Report. The Registrant will file with the
Commission in March 1997, pursuant to Regulation 14A, a definitive proxy
statement that will involve the election of directors. The information required
by these items will be included in such proxy statement and are incorporated
herein by reference.
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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:
1. Financial Statements.
The financial statements listed below are incorporated by reference as part of
this annual report:
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1996 and 1995
Consolidated Statement of Income for the three years ended
December 31, 1996
Consolidated Statement of Cash Flows for the three years ended
December 31, 1996
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 1996
Notes to Consolidated Financial Statements
Financial Statement Schedule; the following items are filed as part of this
annual report.
Report of Independent Accountants
For the three years ended December 31, 1996:
Schedule II: Valuation and Qualifying Accounts
3. Exhibits.
Exhibit
No. Description of Exhibits
3.1 Restated Certificate of Incorporation of Registrant
(incorporated herein by reference to Exhibit 3.1 to the
Registrant's Form 10-Q for the quarter ended
September 30, 1996).
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 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")).
4.3 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 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")). *
10.3 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). *
10.4 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). *
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10.5 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). *
10.6 Registrant's 1989 Equity Incentive Plan, as amended. *
10.7 Form of Stock Option Notice relating to Exhibit 10.6,
as amended. *
10.8 Registrant's 1995 Equity Incentive Plan, as amended. *
10.9 Form of Stock Option Notice relating to Exhibit 10.8,
as amended. *
10.10 Registrant's Bonus Incentive Plan (incorporated herein by
reference to Exhibit 10.11 to the Registrant's Form 10-K for
the year ended December 31, 1995).*
10.11 Registrant's Stock Option Plan for Non-Employee Directors,
as amended. *
10.12 Registrant's Forms of Stock Option Notice relating to
Exhibit 10.11. *
10.13 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). *
10.14 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). *
10.15 Form of letter agreement between Registrant and its executive
officers (incorporated by reference to Exhibit 10.16 to the
1991 Form 10-K). *
10.16 $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 Administrative Agent (incorporated by reference to Exhibit
10.17 to the Registrant's From 10-K for the year ended
December 31, 1995).
10.17 Amended and Restated Credit Agreement dated as of October 29,
1996 relating to the Credit Agreement identified in Exhibit
10.16 above (and increasing such facility to $500,000,000).
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
Administrative Agent (incorporated by reference to Exhibit
10.18 to the Registrant's From 10-K for the year ended
December 31, 1995).
10.19 Amended and Restated Credit Agreement dated as of October 29,
1996 relating to the $1,000,000,000 Credit Agreement identified
in Exhibit 10.18 above.
11 Statement regarding the computation of per share earnings.
13 Pages 24 through 54 and page 56 of the Registrant's annual
report to stockholders for the year ended December 31, 1996.
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.
Current Report on Form 8-K dated October 16, 1996.
Current Report on Form 8-K dated January 22, 1996.
Compaq, the Compaq logo, ProLiant, Deskpro, Compaq Insight Manager, LTE,
Presario, ProSignia, SmartStart, and Smart Uplink are registered trademarks of
Compaq Computer Corporation. DirectPlus and CompaqCare are registered service
marks of Compaq Computer CorporationOther product names mentioned herein may be
trademarks or registered trademarks of their respective companies.
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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 on this 26th day of
February, 1997.
Compaq Computer Corporation
By: /s/ ECKHARD PFEIFFER
--------------------------------
Eckhard Pfeiffer, President and
Chief Executive Officer
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
--------- ----- ----
/s/ ECKHARD PFEIFFER President and Director February 26,1997
- ------------------------------- (principal executive officer)
(Eckhard Pfeiffer)
/s/ EARL L. MASON Senior Vice President February 26,1997
- ------------------------------- and Chief Financial Officer
(Earl L. Mason) (principal financial officer)
/s/ BENJAMIN M. ROSEN Chairman of the February 26,1997
- ------------------------------- Board of Directors
(Benjamin M. Rosen)
/s/ LAWRENCE T. BABBIO, JR. Director February 26,1997
- -------------------------------
(Lawrence T. Babbio, Jr.)
/s/ ROBERT TED ENLOE, III Director February 26,1997
- -------------------------------
(Robert Ted Enloe, III)
/s/ GEORGE H. HEILMEIER Director February 26,1997
- -------------------------------
(George H. Heilmeier)
/s/ GEORGE E.R. KINNEAR II Director February 26,1997
- -------------------------------
(George E.R. Kinnear II)
/s/ PETER N. LARSON Director February 26,1997
- -------------------------------
(Peter N. Larson)
/s/ KENNETH L. LAY Director February 26,1997
- -------------------------------
(Kenneth L. Lay)
11
<PAGE> 12
/s/ KENNETH ROMAN Director February 26,1997
- -------------------------------
(Kenneth Roman)
/s/ LUCILLE S. SALHANY Director February 26,1997
- -------------------------------
(Lucille S. Salhany)
12
<PAGE> 13
COMPAQ COMPUTER CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Compaq Computer Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 21, 1997 appearing in the 1996 Annual Report to Stockholders of
Compaq Computer Corporation (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Houston, Texas
January 21, 1997
<PAGE> 14
SCHEDULE II
COMPAQ COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
- -------------------------------------------------------------------------------
Year ended December 31,
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
Balance, beginning of period $ 100 $ 75 $ 49
Additions charged to expense 155 43 36
Reductions (28) (18) (10)
----------------------------------------
Balance, end of period $ 227 $ 100 $ 75
========================================
<PAGE> 15
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibits
10.6 Registrant's 1989 Equity Incentive Plan, as amended. *
10.7 Form of Stock Option Notice relating to Exhibit 10.6,
as amended. *
10.8 Registrant's 1995 Equity Incentive Plan, as amended. *
10.9 Form of Stock Option Notice relating to Exhibit 10.8,
as amended. *
10.11 Registrant's Stock Option Plan for Non-Employee Directors,
as amended. *
10.12 Registrant's Forms of Stock Option Notice relating to
Exhibit 10.11. *
10.17 Amended and Restated Credit Agreement dated as of October 29,
1996 relating to the Credit Agreement identified in Exhibit
10.16 above (and increasing such facility to $500,000,000).
10.19 Amended and Restated Credit Agreement dated as of October 29,
1996 relating to the $1,000,000,000 Credit Agreement identified
in Exhibit 10.18 above.
11 Statement regarding the computation of per share earnings.
13 Pages 24 through 54 and page 56 of the Registrant's annual
report to stockholders for the year ended December 31, 1996.
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.
<PAGE> 1
EXHIBIT 10.6
Amended December 12, 1996
COMPAQ COMPUTER CORPORATION
1989 EQUITY INCENTIVE PLAN
SECTION 1. Purpose. The purposes of the Compaq Computer Corporation
1989 Equity Incentive Plan (the "Plan") are to encourage eligible employees of
Compaq Computer Corporation (the "Company") and its Affiliates to acquire a
proprietary and vested interest in the growth and performance of the Company,
to generate an increased incentive to contribute to the Company's future
success and prosperity, thus enhancing the value of the Company for the benefit
of its stockholders, and to enhance the ability of the Company and its
Affiliates to attract and retain talented and highly competent individuals upon
whom, in large measure, the sustained progress, growth, and profitability of
the Company depend.
SECTION 2. Definitions. As used in the Plan, the following terms
shall have the meanings set forth below:
(a) "Affiliate" shall mean (i) any Person that directly, or
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock Award, or any other right, interest, or option relating to
Shares granted pursuant to the provisions of the Plan.
(c) "Award Notice" shall mean any written notice, agreement, or
other instrument or document evidencing any Award granted by the Committee
hereunder signed by the Company and delivered to the Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" shall mean the Human Resources Committee of the
Board of Directors, composed of not less than two directors each of whom is a
Non-Employee Director.
(g) "Common Stock" shall mean the common stock, $.01 par value, of
the Company.
(h) "Company" shall mean Compaq Computer Corporation.
(i) "Employee" shall mean any employee of the Company or of any
Affiliate.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934 as
amended.
(k) "Fair Market Value" shall mean (i) with respect to the Common
Stock, 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) with respect to any other property, or with respect
to the Common Stock if it is not then listed for trading on the New York Stock
Exchange, the market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee.
(l) "Incentive Stock Option" shall mean an Option granted under
Section 6 hereof that is intended to meet the requirements of Section 422A of
the Code or any successor provision thereto.
(m) "Net After-Tax Amount" shall mean the net amount of compensation,
assuming for this purpose only that all vested options are exercised upon such
Change in Control, to be received (or deemed to have been received) by such
optionee in connection with such Change of Control under any Award Agreement
and under any other
<PAGE> 2
plan, arrangement or contract of the company to which such optionee is a party,
after giving effect to all income and excise taxes applicable to such payments.
(n) "Non-Employee Director" shall have the meaning set forth in
Rule 13e-3(b)(3)(i) promulgated by the Securities and Exchange Commission under
the Exchange Act.
(o) "Nonqualified Stock Option" shall mean an Option granted under
Section 6 hereof that is not intended to be an Incentive Stock Option.
(p) "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 the Committee shall determine.
(q) "Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
(r) "Person" shall mean any natural person, corporation,
partnership, association, joint stock company, trust, unincorporated
organization, or government or political subdivision thereof.
(s) "Restricted Stock" shall mean any share of capital stock of
the Company issued with the restriction that the holder may not sell, transfer,
pledge, or assign such share and with such other restrictions as the Committee,
in its sole discretion, may impose (including, without limitation, any
restriction on the right to vote such shares and the right to receive any cash
dividends), which restrictions may lapse separately or in combination at such
time or times, in installments or otherwise, as the Committee may deem
appropriate.
(t) "Restricted Stock Award" shall mean an Award of Restricted
Stock under Section 8 hereof.
(u) "Shares" shall mean the Common Stock and such other securities
of the Company as the Committee may from time to time determine.
(v) "Stock Appreciation Right" shall mean any right granted to a
Participant pursuant to Section 7 hereof to receive, upon exercise by the
Participant, the excess of (i) the Fair Market Value of one Share on the date
of exercise or, if the Committee shall so determine in the case of any such
right other than one related to any Incentive Stock Option, at any time during
a specified period before the date of exercise over (ii) the grant price of the
right as specified by the Committee, in its sole discretion, on the date of
grant. The grant price of a right granted to an individual subject to Section
16 of the Exchange Act shall not be less than 50% of the Fair Market Value of
one Share on the date of grant. Any payment by the Company in respect of such
right may be made in cash, Shares, other property, or any combination thereof,
as the Committee, in its sole discretion, shall determine.
SECTION 3. Administration. The Plan shall be administered by the
Committee. The Committee shall have full power and authority, subject to such
orders or resolutions not inconsistent with the provisions of the Plan as may
from time to time be adopted by the Board, to: (i) select the Employees of the
Company and its Affiliates to whom Awards may from time to time be granted
hereunder; (ii) determine the type or types of Awards to be granted to each
Participant hereunder; (iii) determine the number of Shares to be covered by
each Award granted hereunder; (iv) determine the terms and conditions, not
inconsistent with the provisions of the Plan, of any Award granted hereunder;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled in cash, canceled, or suspended; (vi) determine whether, to what
extent, and under what circumstances Shares and other amounts payable with
respect to an Award under this Plan shall be deferred either automatically or
at the election of the Participant; (vii) interpret and administer the Plan and
any instrument or agreement entered into under the Plan; (viii) establish 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
administration of the Plan. Decisions of the Committee shall be final,
conclusive, and binding upon all persons, including the Company, any
Participant, any stockholder of the Company, and any Employee. A majority of
the members of the Committee may determine its actions and fix the time and
place of its meetings. The Committee may delegate its power and authority under
this Plan to a Chief Executive Officer of the Company who is a director of the
Company with respect to the administration of the Plan for grants to persons
other than executive officers. In the case of such delegation, the term
"Committee" as used in this Plan shall be deemed to refer to the Chief
Executive Officer of the Company.
2
<PAGE> 3
SECTION 4. Shares Subject to the Plan.
(a) Total Number. Subject to adjustment as provided in this
Section, the total number of Shares available for grant under the Plan
shall be 16,600,000 Shares.
(b) Reduction of Shares Available.
(i) The grant of an Option or Restricted Stock
Award will reduce the Shares available for grant by the number of Shares
subject to such Award.
(ii) The grant of Stock Appreciation Rights
related to an Option will reduce the number of Shares available for grant only
to the extent that the number of Stock Appreciation Rights granted exceeds the
number of Shares subject to the related Option.
(iii) The grant of Stock Appreciation Rights not
related to an Option will reduce the number of Shares available for grant by
the number of Stock Appreciation Rights granted.
(iv) 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.
(i) 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; provided that in the event the cancellation of an Option is due to the
exercise of Stock Appreciation Rights related to such Option, the cancellation
of such Option shall only increase the Shares available by the excess, if any,
of the number of Shares subject to such Option over the number of Stock
Appreciation Rights exercised.
(ii) The lapse, cancellation, or other termination
of Stock Appreciation Rights that have not been exercised shall increase the
available Shares by the number of Stock Appreciation Rights so lapsed,
canceled, or terminated; provided that in the event the cancellation of Stock
Appreciation Rights is due to the exercise of an Option related to such Stock
Appreciation Rights, the lapse, cancellation, or termination of such Stock
Appreciation Rights shall only increase the Shares available by the excess, if
any, of the number of Stock Appreciation Rights so lapsed, canceled, or
terminated over the number of Shares for which such Option is exercised.
(iii) Any Restricted Shares forfeited by a
Participant shall increase the available Shares by the number of Shares so
forfeited.
(d) Other Adjustments. The total number of shares of Common Stock
available for Awards under the Plan or which may be allocated to any one
Participant, the number of shares of Common Stock subject to outstanding
Options, the exercise price for such Options, the number of outstanding Stock
Appreciation Rights, the base value of such rights, and the number of
outstanding shares of Restricted Stock shall be appropriately adjusted by the
Committee for any increase or decrease in the number of outstanding Shares
resulting from a stock dividend, subdivision, or combination of Shares or
reclassification, as may be necessary to maintain the proportionate interest of
the Award holder. In the event of a merger or consolidation of the Company or
a tender offer for shares of Common Stock, the Committee may make such
adjustments with respect to Awards under the Plan and take such other action as
it deems necessary or appropriate to reflect or in anticipation of such merger,
consolidation, or tender offer including, without limitation, the substitution
of new Awards, the termination or adjustment of outstanding Awards, the
acceleration of Awards, or the removal of restrictions on outstanding Awards.
The payment to the Participant of an amount in cash equal to the excess, if
any, of the Fair Market Value of the number of shares subject to any Award over
the aggregate grant price thereof, in consideration of the cancellation thereof
pursuant to this Section 4(d), shall extinguish any rights of the Participant
in connection with such Award.
SECTION 5. Eligibility. Any Employee (excluding any member of the
Committee) shall be eligible to be selected as a Participant.
SECTION 6. Stock Options. Options may be granted hereunder to
Participants either alone or in addition to other Awards granted under the
Plan. The Company shall deliver an Award Notice to each Participant receiving
an Option. Any such Option shall be subject to the following terms and
conditions and to such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall deem desirable:
3
<PAGE> 4
(a) Option Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee in its sole discretion and set
forth in the applicable Award Notice; provided that such purchase price shall
not be less than (i) 100% of the Fair Market Value of the Share on the date of
the grant of the Option in the case of any Incentive Stock Option, or (ii) 50%
of such Fair Market Value in the case of any Nonqualified Stock Option granted
to an individual subject to Section 16 of the Exchange Act.
(b) Option Period. The term of each Option shall be fixed by the
Committee in its sole discretion and set forth in the applicable Award Notice;
provided that no Option shall be exercisable after the expiration of ten years
from the date the Option is granted.
(c) Exercisability. Options shall be exercisable at such time or
times as determined by the Committee in its sole discretion and set forth in
the applicable Award Notice. An executive officer of the Company may not
exercise an Option for a period of six months from the date of grant.
(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 Committee may specify. Unless otherwise specified in the applicable grant
and Award Notice, the Participant may make payment 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 owned by the Optionee, valued
at Fair Market Value.
(e) Incentive Stock Options. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Stock Options
held by any Participant become exercisable for the first time by such
Participant during any calendar year under the Plan (and under any other
benefit plans of the Company or of any parent or subsidiary corporation of the
Company) shall not exceed $100,000 or, if different, the maximum limitation in
effect at the time of grant under Section 422A of the Code, or any successor
provision, and any regulations promulgated thereunder. The terms of any
Incentive Stock Option granted hereunder shall comply in all respects with the
provisions of Section 422A of the Code, or any successor provision, and any
regulations promulgated thereunder.
(f) Form of Settlement. In its sole discretion, the Committee may
provide, at the time of grant, that the Shares to be issued upon an Option's
exercise shall be in the form of Restricted Stock or other similar securities.
(g) Certificates. Upon the Company's determination that an Option
has been validly exercised as to any of the Shares, the Secretary of the
Company shall issue certificates in the Participant's name for such Shares.
However, the Company shall not be liable to the Participant for damages
relating to any delays in issuing the certificates to him, any loss of the
certificates, or any mistakes or errors in the issuance of the certificates or
in the certificates themselves.
SECTION 7. Stock Appreciation Rights. Stock Appreciation Rights may
be granted hereunder to Participants either alone or in addition to other
Awards granted under the Plan and may, but need not, relate to a specific
Option granted under Section 6. The provisions of Stock Appreciation Rights
need not be the same with respect to each recipient. Any Stock Appreciation
Right related to a Nonqualified Stock Option may be granted at the same time
such Option is granted or at any time thereafter before exercise or expiration
of such Option. Any Stock Appreciation Right related to an Incentive Stock
Option must be granted at the same time such Option is granted. In the case of
any Stock Appreciation Right related to any Option, the Stock Appreciation
Right Award or applicable portion thereof shall terminate and no longer be
exercisable upon the termination or exercise of the related Option, except that
a Stock Appreciation Right Award granted with respect to fewer than the full
number of Shares covered by a related Option shall not be reduced until the
number of Shares issued upon exercise or canceled upon termination of the
related Option exceeds the number of shares not covered by the Stock
Appreciation Right Award. Any Option related to any Stock Appreciation Right
shall no longer be exercisable to the extent the related Stock Appreciation
Right has been exercised. No Stock Appreciation Right unrelated to any Option
shall be exercisable after the expiration of ten years from the date such Award
is granted. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate. The
Company shall deliver an Award Notice to each Participant receiving a Stock
Appreciation Right.
4
<PAGE> 5
SECTION 8. Restricted Stock.
(a) Issuance. Restricted Stock Awards may be issued hereunder to
Participants, for no cash consideration or for such nominal consideration as
may be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient. The Company shall deliver an Award
Notice to each Participant receiving a Restricted Stock Award.
(b) Registration. Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of Restricted Stock awarded under the Plan, such
certificate shall be registered in the name of the Participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award. Promptly after the lapse of restrictions with
respect to any shares of Restricted Stock, the lapse of such restrictions shall
be evidenced in such manner as the Committee shall deem appropriate.
SECTION 9. Termination or Suspension of Employment.
(a) Nonqualified Stock Options and Stock Appreciation Rights.
(i) If the Participant's employment with the Company or
its Affiliates is terminated for any reason other than death, 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) If the Participant's employment with the Company or
its Affiliates is terminated by reason of death, 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.
(iii) 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, and (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.
(iv) Any time spent by a Participant in the status of
"leave without pay" shall be disregarded for purposes of determining the extent
to which an Option or any portion thereof has vested.
(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 the related Stock Appreciation
Right will be exercisable during the period set forth in Section 9(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 422A 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
5
<PAGE> 6
Participant for such Restricted Stock; provided that in the event of a
Participant's retirement, permanent 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) Disability and Retirement. The term "disability" means total and
permanent disability. The meaning of the terms "total and permanent
disability" and "retirement" shall be determined by the Committee.
(e) Acceleration of Exercisability. Nothing contained herein shall
in any way limit the authority of the Committee in its sole discretion to cause
any outstanding Option or Stock Appreciation Right to become immediately
exercisable when it finds that such acceleration would be in the best interests
of the Company.
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 Awards shall vest, become immediately exercisable or payable, or
have all restrictions lifted as may apply to the type of Award; 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 optionee, taking into account the accelerated vesting provided for by
this paragraph 10(a) as well as all other payments to be received by such
optionee in connection with such Change in Control, would be higher if options
did not vest in accordance with the foregoing paragraph 10(a), then, and to
such extent, the options shall not vest. The determination of whether any such
option should not vest shall be made by a nationally recognized accounting firm
selected by the Company, which shall be instructed to consider that (i) stock
options 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,
any other payment contingent upon a Change of Control shall be deemed to have
occurred after any acceleration of options. Further, no outstanding Stock
Appreciation Right may be terminated, amended, or suspended upon or after a
Change in Control.
(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 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
agree ment with the Company to effect a transaction described in clause (i),
(iii), or (iv) of this Section 10(b)) 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 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.
6
<PAGE> 7
SECTION 11. Amendments and Termination.
(a) The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made that would impair the
rights of a Participant under an Award theretofore granted, without the
Participant's consent, or that without the approval of the stockholders would:
(i) except as is provided in Section 4(b) of the Plan, increase
the total number of Shares reserved for the purpose of the Plan; or
(ii) change the employees or class of employees eligible to
participate in the Plan.
(b) The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without his consent. The Committee may also
substitute new Awards for previously granted Awards, including without
limitation previously granted Options and Stock Appreciation Rights having
higher option prices.
(c) Employee Status Change to Part-Time. At such time as a
full-time employee becomes a part-time employee of the Company, on the next
vesting date following such status change, all Awards previously granted to
such employee will be automatically amended to reflect the vesting of all such
Awards to be reduced by one-half with respect to any portion of the Awards not
yet vested.
SECTION 12. General Provisions.
(a) Nontransferability. 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, provided,
however, that an Award may be transferable, to the extent set forth in the
applicable Award Notice and in accordance with procedures adopted by the
Committee, (i) if such Award Notice 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.
(b) No Claims. No Employee or Participant shall have any claim to
be granted any Award under the Plan and there is no obligation for uniformity
of treatment of Employees or Participants under the Plan.
(c) Notices. Any notice necessary under this Plan or any Award
hereunder shall be addressed to the Company in care of its Secretary at the
principal executive office of the Company in Houston, Texas and to the
Participant at the address appearing in the personnel records of the Company
for such Participant or to either party at such other address as either party
hereto may hereafter designate in writing to the other. Any such notice shall
be deemed effective upon receipt thereof by the addressee.
(d) Unusual Events. The Committee shall be authorized to make
adjustments in the terms and conditions of Awards in recognition of unusual or
nonrecurring events affecting the Company or its financial statements or
changes in applicable laws, regulations, or accounting principles. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry it into effect. In the event the Company shall assume
outstanding employee benefit awards or the right or obligation to make such
future awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such adjustments in
the terms of Awards under the Plan as it shall deem appropriate.
(e) Compliance Requirements. All certificates for Shares
delivered under the Plan pursuant to any Award shall be subject to such stock
transfer orders and other restrictions as the Committee 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 Committee 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 (i) 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 Committee in its sole discretion shall deem to be necessary
or appropriate and (ii) to the Participant's entering into such written
representations, warranties, and agreements as the Company may reasonably
request in order to comply with applicable securities laws or with this Plan.
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<PAGE> 8
(f) Dividends. Subject to the provisions of this Plan, the
recipient of an Award may, if so determined by the Committee at the time of
grant, be entitled to receive, currently or on a deferred basis, interest or
dividends, or interest or dividend equivalents, with respect to the number of
shares covered by the Award, as determined at the time of the Award by the
Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Shares
or otherwise reinvested.
(g) No Other Consideration. Except as otherwise required in any
applicable grant and Award Notice or by the terms of the Plan, recipients of
Awards under the Plan shall not be required to make any payment or provide
consideration other than the rendering of services.
(h) Withholding. The Company shall be authorized to withhold from
any Award granted or payment due under the Plan the amount of withholding taxes
due in respect of an Award or payment hereunder and to take such other action
as may be necessary in the opinion of the Company to satisfy any of its
obligations with respect to the payment of such taxes.
(i) 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.
(j) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan and any Award hereunder
shall be determined in accordance with the laws of the State of Delaware and
applicable federal law.
(k) 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 Award under any law deemed applicable by the
Committee, 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 Committee, 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. Effective Date of Plan. The Plan shall be effective as
of January 18, 1989 (the "Effective Date"), subject to approval by the
Company's stockholders within one year thereafter. Awards may be granted at any
time after the Effective Date and prior to termination of the Plan by the
Board, except that no Incentive Stock Option shall be granted pursuant to the
Plan after 10 years from the Effective Date, but any Award theretofore granted
may extend beyond that date. The Plan will expire when no Shares are available
for issuance.
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<PAGE> 1
KEY GRANT EXHIBIT 10.7
CONFIDENTIAL
FORM OF NONQUALIFIED STOCK OPTION NOTICE
1989 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTIONEE GRANT DATE SHARES GRANTED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PLAN NAME PLAN NUMBER VESTING CODE OPTION PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUB. CODE COST CENTER SOCIAL SECURITY NUMBER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
We are pleased to inform you that you have been granted an option to purchase
Compaq common stock. Your grant has been made under the Company's 1989 Equity
Incentive Plan (the "1989 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 1989 Plan is available on
Inline. Please review it carefully; capitalized terms in this Notice have the
same meaning as the 1989 Plan.
1. Vesting: Subject to the conditions set forth below and in the 1989
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. [Transferability: Your Option may be transferred to a member of your
immediate family or to an estate planning vehicle in accordance with
the policies adopted by the Human Resources Committee. No subsequent
transfers are permitted other than by laws of descent and
distribution.]
4. Termination or Suspension of Employment: The 1989 Plan sets forth the
terms and conditions of this grant that apply in the event of your
termination or suspension of employment.
5. 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.
6. Taxes and Withholding: Upon exercise, appropriate arrangements must
be made with the Company must be made 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.
7. Relevant Documents on Compaq Inline: An electronic copy of the 1989
Plan, a brochure relating to your stock options and other information
about your options is available on Inline. Requests for paper copies
of such documents may be made in writing to Shareholder Services.
<PAGE> 1
EXHIBIT 10.8
AMENDED SEPTEMBER 26, 1996
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.
<PAGE> 2
"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 "Non-Employee Director disinterested
person" within the meaning of Rule 16b-3. Until otherwise determined by the
Board, the Human Resources 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.
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<PAGE> 3
"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, $.01 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;
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<PAGE> 4
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. An executive officer of
the Company may not exercise an Option for a period of six months from the date
of grant.
(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
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<PAGE> 5
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.
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<PAGE> 6
(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
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<PAGE> 7
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
7
<PAGE> 8
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.
(e) Employee Status Change to Part-Time. At such time as a full-time
employee becomes a part-time employee of the Company, on the next vesting date
following such status change, all Awards previously granted to such employee
will be automatically amended to reflect the vesting of all such Awards to be
reduced by one-half with respect to any portion of the Awards not yet vested.
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) Nontransferability. 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 and in
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<PAGE> 9
accordance with procedures adopted by the Committee, (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.
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<PAGE> 10
(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.
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<PAGE> 1
EXHIBIT 10.9
KEY GRANT
CONFIDENTIAL
FORM OF NONQUALIFIED STOCK OPTION NOTICE
1989 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTIONEE GRANT DATE SHARES GRANTED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PLAN NUMBER VESTING CODE OPTION PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUB. CODE COST CENTER SOCIAL SECURITY NUMBER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
We are pleased to inform you that you have been granted 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 available on
Inline. 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. [Transferability: Your Option may be transferred to a member of your
immediate family or to an estate planning vehicle in accordance with
the policies adopted by the Human Resources Committee. No subsequent
transfers are permitted other than by laws of descent and
distribution.]
4. 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.
5. 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.
6. Taxes and Withholding: Upon exercise, arrangements must be made 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.
7. Relevant Documents on Compaq Inline: An electronic copy of the 1995
Plan, a brochure relating to your stock options and other information
about your options is available on Inline. Requests for paper copies
of such documents may be made in writing to Shareholder Services.
<PAGE> 1
EXHIBIT 10.11
Amended December 12, 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 December 12, 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.
<PAGE> 2
(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) "Grant Notice" shall mean a written notice evidencing an Option
granted hereunder.
(k) "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.
(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.
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<PAGE> 3
(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 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.
3
<PAGE> 4
(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 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
4
<PAGE> 5
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
5
<PAGE> 6
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.
6
<PAGE> 7
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) Nontransferability. No Option 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, provided,
however, that an Option may be transferable, to the extent set forth in the
applicable Grant Notice or agreement and in accordance with procedures adopted
by the Board, if such provisions do not disqualify such Option for exemption
under Rule 16b-3.
(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.
7
<PAGE> 8
(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. Expiration. The Plan will expire when no Shares are
available for issuance.
8
<PAGE> 1
EXHIBIT 10.12
DIRECTOR KEY GRANT
CONFIDENTIAL
FORM OF NONQUALIFIED STOCK OPTION NOTICE
NONQUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTIONEE GRANT DATE SHARES GRANTED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PLAN NUMBER VESTING CODE OPTION PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUB. CODE COST CENTER SOCIAL SECURITY NUMBER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
We are pleased to inform you have been granted you an option to
purchase Compaq common stock under the Company's Nonqualified Stock Option plan
for Non-Employee Directors (the "Director Plan"), which, together with the
terms contained in this Notice, sets forth the terms and conditions of your
grant is incorporated herein by reference. a copy of the director Plan has
been provided to you. Please review it carefully; capitalized terms in this
Notice have the same meaning as the Director Plan.
1. Vesting: Subject to the conditions set forth below and in the
Director 1995 Plan, you may exercise this Option in whole or in part
(i) with respect to 50% of the Shares, one year from the date of grant
and (ii) with respect to the remaining 50% of the Shares, two years
from the date of grant to purchase a number of Shares equal to the
difference between A and B, where
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. Transferability: Your Option may be transferred to a member of your
immediate family or to an estate planning vehicle in accordance with
the policies adopted by Board of Directors. No subsequent transfers
are permitted other than by laws of descent and distribution.
4. Termination of Service as Director Suspension of Employment: The
Director Plan sets forth the terms and conditions of this grant that
apply in the event of your termination of service as Director.
employment.
5. 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.
<PAGE> 2
DIRECTOR GRANT IN LIEU OF RETAINER
CONFIDENTIAL
FORM OF NONQUALIFIED STOCK OPTION NOTICE
NONQUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTIONEE GRANT DATE SHARES GRANTED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PLAN NUMBER VESTING CODE OPTION PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUB. CODE COST CENTER SOCIAL SECURITY NUMBER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
You have elected to receive all or a portion of your retainer for acting as a
director of Compaq in the form of options to purchase Compaq common stock under
the Company's Nonqualified Stock Option Plan for Non-Employee Directors (the
"Director Plan"), which, together with the terms contained in this Notice, sets
forth the terms and conditions of your options and is incorporated herein by
reference. A copy of the Director Plan has been provided to you. Please
review it carefully; capitalized terms in this Notice have the same meaning as
the Director Plan.
1. Vesting: Subject to the conditions set forth below and in the
Director Plan, you may exercise this Option in whole or in part one
year from the date of grant.
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. Transferability: Your Option may be transferred to a member of your
immediate family or to an estate planning vehicle in accordance with
the policies adopted by the Board of Directors. No subsequent
transfers are permitted other than by laws of descent and
distribution.
4. Termination of Service as Director: The Director Plan sets forth the
terms and conditions of this grant that apply in the event of your
termination of service as Director.
5. 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.
<PAGE> 1
EXHIBIT 10.17
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
ARRANGED BY BA SECURITIES, INC.
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "Amendment
and Restatement") dated as of October 29, 1996, by and among COMPAQ COMPUTER
CORPORATION, a Delaware corporation (the "Company"), the several financial
institutions from time to time party hereto (the "Banks"), and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent for the Banks
(the "Agent").
RECITALS
A. The Company, Banks, and Agent are parties to a U.S. $250,000,000
Revolving Credit Agreement dated as of October 31, 1995 (the "Credit
Agreement").
B. The parties hereto desire to amend such Credit Agreement as set
forth herein and to restate such Credit Agreement in its entirety to read as
set forth in the Credit Agreement with the amendments specified below.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree that the
Credit Agreement shall be amended and restated in its entirety to read as set
forth in the Credit Agreement with the following amendments, and agree as
follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendments to Credit Agreement.
(a) Section 1.01 of the Credit Agreement shall be
amended by amending the following defined terms to read in their entirety as
follows:
"Agreement" means this Amended and Restated Revolving
Credit Agreement.
"Applicable Fee Amount" means, for any date, 0.060%
per annum.
"5-Year Credit Agreement" means that U.S.
$1,000,000,000 Amended and Restated Revolving Credit Agreement dated
as of this date among the Company, BofA as Administrative Agent and
the lenders party thereto, under which such lenders have agreed to
extend credit to the Company on a five-year basis.
"Interest Period" means (a) as to any Adjusted CD
Rate Revolving Loan, the period commencing on the Borrowing Date or on
the Conversion/Continuation Date on which a Revolving Loan is
converted into or continued as an Adjusted CD Rate Revolving Loan, and
ending on the date 30, 60, 90 or 180 days thereafter, as selected by
the Company in its Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, (b) as to any LIBOR
Revolving Loan, the period commencing on the Borrowing Date or on the
Conversion/Continuation Date on which a Revolving Loan is converted
into or continued as a LIBOR Revolving Loan, and ending on the day
which numerically corresponds to such date one,
<PAGE> 2
two, three or six months thereafter (or if such month has no
numerically corresponding day, on the last Business Day of such
month), as selected by the Company in its Notice of Borrowing or
Notice of Conversion/Continuation, as the case may be, and (c) as to
any Swingline Loan, the period commencing on the Borrowing Date of
such Loan and ending on such date, not more than 10 days later, as
agreed upon by the Company and the Swingline Bank at the time of the
Borrowing of such Loan; provided that:
(i) if any Interest Period pertaining to
a CD Loan would otherwise end on a day that is not a Business
Day, that Interest Period shall be extended to the following
Business Day;
(ii) if any Interest Period pertaining to
an Offshore Loan would otherwise end on a day that is not a
Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension
would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the
preceding business Day; and
(iii) no Interest Period for any Loan shall
extend beyond the date set forth in clause (a) of the
definition of "Revolving Termination Date."
"Revolving Termination Date" means the earlier to
occur of:
(a) October 28, 1997; and
(b) the date on which the commitments of the
Banks to make Loans terminate in whole in accordance with
Section 2.07, Section 2.09(b) or 2.09(c) or Section 8.02.
(b) Section 2.06 of the Credit Agreement shall be amended to
read in its entirety as follows:
2.06 Increase of Commitments. The Company shall
have the right, without the consent of the Banks but subject to the
approval of the Agent (which approval shall not be unreasonably
withheld), to effectuate from time to time an increase in the total
Commitments under this Agreement by adding to this Agreement one or
more Persons that are Eligible Assignees (who shall, upon completion
of the requirements stated in this Section, constitute "Banks"
hereunder), or by allowing one or more Banks to increase their
Commitments hereunder, so that such added and increased Commitments
shall equal the increase in Commitments effectuated pursuant to this
Section; provided that (a) no increase in Commitments pursuant to this
Section shall result in the total Commitments exceeding $550,000,000
or shall result in the aggregate amount of the increases in the
Commitments effectuated pursuant to this Section since the date of
this Agreement being in excess of the sum of $50,000,000 plus the
aggregate amount (but not greater than $50,000,000) of all non-ratable
reductions and terminations of Commitments effectuated pursuant to
Section 2.08; (b)no Bank's Commitment shall be increased without the
consent of such Bank; (c) there has occurred and is continuing no
Default or Event of Default, and (d) there has been no ratable
reduction of Commitments pursuant to Section 2.07. The Company shall
deliver or pay, as applicable, to the Agent each of the following
items prior to 11:00 a.m. (Houston time) (i) three Business Days prior
to the requested effective date of such increase in the Commitments,
if such date is a No Loan Date, or (ii) five Business Days prior to
the requested effective date of such increase in the Commitments, if
such date is not a No Loan
2
<PAGE> 3
Date:
(A) a written notice of the Company's
intention to increase the total Commitments pursuant to this
Section, which shall specify each new Eligible Assignee, if
any, the changes in amounts of Commitments that will result,
and such other information as is reasonably requested by the
Agent;
(B) a document in form and substance as
may be reasonably required by the Agent, executed and
delivered by each new Eligible Assignee and each Bank agreeing
to increase its Commitment, pursuant to which it becomes a
party hereto or increases its Commitment, as the case may be,
which document, in the case of a new Eligible Assignee, shall
(among other matters) specify the CD Lending Office, Domestic
Lending Office and LIBOR Lending Office of such new Eligible
Assignee;
(C) a Note in the principal amount of
the Commitment of each new Eligible Assignee, or a replacement
Note in the principal amount of the increased Commitment of
each Bank agreeing to increase its Commitment, as the case may
be, executed and delivered by the Company, which Note shall be
in form and substance as may be reasonably required by Agent;
and
(D) a non-refundable processing fee of
$3,500, for the sole account of the Agent.
Upon receipt of any notice referred to in clause (A) above, the Agent
will promptly notify each Bank thereof. Upon execution and delivery
of such documents and the payment of such fee, such new Eligible
Assignee shall constitute a "Bank" hereunder with a Commitment as
specified therein, or such Bank's Commitment shall increase as
specified therein, as the case may be. The Company agrees to pay to
the Banks any and all amounts to the extent payable pursuant to
Section 3.02 as a result of any such increase in the Commitments.
(c) With effect from and after the Effective Date (i) each
Person listed on the signature pages hereof which is not a party to the Credit
Agreement (a "New Bank") shall become a Bank party to the Credit Agreement, as
amended and restated hereby, and (ii) the Commitment of each Bank shall be the
amount set forth opposite the name of such Bank on the signature pages hereof.
Any Bank which was a party to the Credit Agreement but is not listed on the
signature pages hereof shall upon the Effective Date cease to be a Bank party
to the Credit Agreement, as amended and restated hereby, and all accrued fees
and other amounts payable under the Credit Agreement for the account of such
Bank shall be due and payable on such date; provided that the provisions of the
Credit Agreement which expressly survive payment of all Obligations shall inure
to the benefit of, or, as applicable, shall continue to be binding on, such
Bank with respect to the period prior to the Effective Date.
3. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) All representations and warranties of the Company
contained in the Credit Agreement are true and correct as though made on and as
of this date.
3
<PAGE> 4
(c) The Company is entering into this Amendment and
Restatement on the basis of its own investigation and for its own reasons,
without reliance upon the Agent and the Banks or any other Person.
4. Effective Date. This Amendment and Restatement will become
effective as of October 29, 1996 (the "Effective Date"), provided that each of
the following conditions precedent is satisfied:
(a) The Agent has received from the Company and each of the
Banks a duly executed original (or, if elected by the Agent, an executed
facsimile copy) of this Amendment and Restatement.
(b) The Agent has received from the Company a copy of a
resolution passed by the board of directors of the Company, certified by the
Secretary or an Assistant Secretary of the Company as being in full force and
effect on the date hereof, authorizing the execution, delivery and performance
of this Amendment and Restatement.
(c) The Agent shall have received an opinion of the General
Counsel of the Company and another internal counsel of the Company licensed to
practice law in the State of New York, substantially in the form of Exhibit D-1
and Exhibit D-2 to the Credit Agreement, with reference to this Amendment and
Restatement, the Notes and the Credit Agreement as amended and restated hereby.
(d) The Agent shall have received a certificate signed by a
Responsible Officer of the Company, dated as of the Effective Date, stating
that the representations and warranties set forth in Article V of the Credit
Agreement are true and correct in all material respects and that no Default or
Event of Default has occurred and is continuing or would result as a result of
any Borrowing.
(e) The Agent shall have received a duly executed Note for
each of the New Banks (a "New Note") and a duly executed Amended and Restated
Note (an "Amended Note") in the form of Exhibit A to this Amendment and
Restatement, payable to the order of each of the Banks which is not a New Bank.
5. Reservation of Rights. The Company acknowledges and agrees
that the execution and delivery by the Agent and the Banks of this Amendment
and Restatement shall not be deemed to create a course of dealing or otherwise
obligate the Agent or the Banks to execute any amendments or amendments and
restatements in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants
and provisions of the Credit Agreement are and shall remain in full force and
effect and all references therein and in the other Loan Documents to such
Credit Agreement shall henceforth refer to the Credit Agreement as amended and
restated hereby, and all references in the Credit Agreement and in the other
Loan Documents to the Notes shall refer to the New Notes and the Amended Notes.
The words "hereof", "herein", "hereunder" and similar words contained in the
Credit Agreement shall refer to the Agreement as amended and restated hereby.
(b) This Amendment and Restatement shall be binding upon and
inure to the benefit of the parties hereto and thereto and their respective
successors and assigns. No third party beneficiaries are intended in
connection with this Amendment and Restatement.
(c) This Amendment and Restatement shall be governed by and
construed in accordance
4
<PAGE> 5
with the law of the State of New York.
(d) This Amendment and Restatement may be executed in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each
of the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of a Bank or the Company shall bind such Bank or the
Company, respectively, with the same force and effect as the delivery of a hard
copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(e) The Company covenants to pay to or reimburse the Agent,
upon demand, for all costs and expenses (including allocated costs of in house
counsel) incurred in connection with the development, preparation, negotiation,
execution and delivery of this Amendment and Restatement.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment and Restatement as of the date first above written.
COMPAQ COMPUTER CORPORATION
By:
---------------------------------------
Title:
------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By:
---------------------------------------
Title:
------------------------------------
Commitment: $44,761,905 BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Swingline Bank and as a
Bank
By:
---------------------------------------
Title:
------------------------------------
Commitment: $43,004,761 CITIBANK, N.A., as Co-Agent and as a Bank
By:
---------------------------------------
Title:
------------------------------------
Commitment: $43,004,761 NATIONSBANK TEXAS, N.A., as Co-Agent and
as a Bank
By:
---------------------------------------
Title:
------------------------------------
6
<PAGE> 7
Commitment: $22,800,000 ABN AMRO BANK N.V.
By: ABN AMRO North America, Inc., as agent
By:
---------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 BANQUE NATIONALE DE PARIS, HOUSTON AGENCY
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 COMMERZBANK AG, ATLANTA AGENCY
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 DEUTSCHE BANK AG
NEW YORK AND/OR CAYMAN ISLANDS BRANCHES
By:
---------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 DRESDNER BANK AG
By:
---------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Title:
------------------------------------
7
<PAGE> 8
Commitment: $22,857,143 FLEET NATIONAL BANK
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 PNC BANK, N.A.
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 ROYAL BANK OF CANADA
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 SOCIETE GENERALE, SOUTHWEST AGENCY
By:
---------------------------------------
Title:
------------------------------------
8
<PAGE> 9
Commitment: $22,857,143 THE CHASE MANHATTAN BANK
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 THE FUJU BANK, LIMITED, HOUSTON AGENCY
By:
---------------------------------------
Title:
------------------------------------
Commitment: $15,000,000 THE SANWA BANK LIMITED, DALLAS AGENCY
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 THE SUMITOMO BANK, LIMITED, HOUSTON AGENCY
By:
---------------------------------------
Title:
------------------------------------
Commitment: $22,857,143 TORONTO DOMINION (TEXAS), INC.
By:
---------------------------------------
Title:
------------------------------------
9
<PAGE> 10
Commitment: $11,428,571 WELLS FARGO BANK, N.A.
By:
---------------------------------------
Title:
------------------------------------
10
<PAGE> 11
EXHIBIT A
FORM OF
AMENDED AND RESTATED PROMISSORY NOTE
U.S. $__________ Dated: October 29, 1996
FOR VALUE RECEIVED, the undersigned, Compaq Computer Corporation, a
Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of
____________________(the "Bank") for the account of its applicable Lending
Office (as defined in the Credit Agreement referred to below) on the Revolving
Termination Date (as defined in the Credit Agreement) the principal sum of
________ U.S. dollars (U.S. $__________) or, if less, the aggregate unpaid
principal amount of the Revolving Loans (as defined in the $500,000,000 Amended
and Restated Revolving Credit Agreement dated as of October 29, 1996 among the
Company, the Bank, certain other lenders parties thereto and Bank of America
National Trust and Savings Association, as Administrative Agent for the Bank
and such other lenders; such Amended and Restated Revolving Credit Agreement,
as amended or amended and restated from time to time being herein referred to
as the "Credit Agreement") owing to the Bank outstanding on the Revolving
Termination Date (as defined in the Credit Agreement), together with the
principal amount of any outstanding Swingline Loans (as defined in the Credit
Agreement) made by the Bank as Swingline Bank (as defined in the Credit
Agreement).
The Company promises to pay interest on the unpaid principal amount of
each Loan owing to the Bank from the date of such Loan until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Bank of America National Trust and Savings Association, as
Administrative Agent, at the Agent's Payment Office (as defined in the Credit
Agreement), in immediately available funds. Each Loan owed to the Bank by the
Company pursuant to the Credit Agreement, and all payments made on account of
principal thereof, shall be recorded by the Bank and, prior to any transfer
hereof, endorsed on the grid attached hereto which is part of this Amended and
Restated Promissory Note; provided that the failure of the Bank to make any
such recordation or endorsement shall not affect the obligations of the Company
hereunder or under the Credit Agreement.
This Amended and Restated Promissory Note is one of the Notes referred
to in, and is subject to and is entitled to the benefits of, the Credit
Agreement. The Credit Agreement, among other things, (i) provides for the
making of Revolving Loans by the Bank to the Company from time to time in an
aggregate amount not to exceed the U.S. dollar amount first above mentioned and
the making of Swingline Loans by the Bank as Swingline Bank to the Company from
time to time in an aggregate amount not to exceed the Swingline Commitment (as
such terms are defined in the Credit Agreement) the indebtedness of the
Company resulting from each Loan owing to the Bank being evidenced by this
Amended and Restated Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. This Amended and
Restated Promissory Note is an amendment and restatement of, and has been
issued by the Company in substitution for and not in satisfaction of, any Note
held by the Bank under the Credit Agreement as in effect prior to the amendment
and restatement thereof effective as of the date hereof.
11
<PAGE> 12
This Amended and Restated Promissory Note shall be governed by, and
construed in accordance with, the internal laws of the State of New York.
COMPAQ COMPUTER CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
12
<PAGE> 13
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount Principal Unpaid
of Type of Paid or Principal Notation
Date Loan Loan Prepaid Balance Made By
- ---- ----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
13
<PAGE> 1
EXHIBIT 10.19
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
ARRANGED BY BA SECURITIES, INC.
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "Amendment
and Restatement") dated as of October 29, 1996, by and among COMPAQ COMPUTER
CORPORATION, a Delaware corporation (the "Company"), the several financial
institutions from time to time party hereto (the "Banks"), and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent for the Banks
(the "Agent").
RECITALS
A. The Company, Banks, and Agent are parties to a U.S. $1,000,000,000
Revolving Credit Agreement dated as of October 31, 1995 (the "Credit
Agreement").
B. The parties hereto desire to amend such Credit Agreement as set
forth herein and to restate such Credit Agreement in its entirety to read as
set forth in the Credit Agreement with the amendments specified below.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree that the
Credit Agreement shall be amended and restated in its entirety to read as set
forth in the Credit Agreement with the following amendments, and agree as
follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in the
Credit Agreement.
2. Amendments to Credit Agreement.
(a) Section 1.01 of the Credit Agreement shall be amended
by amending the following defined terms to read in their entirety as follows:
"Agreement" means this Amended and Restated Revolving Credit Agreement.
"Applicable Fee Amount" means, for any date,
the per annum percentage amount set forth below based on the
Applicable Rating on such date:
<TABLE>
<CAPTION>
Applicable
Rating Fee Percentage
---------- --------------
<S> <C>
A+/A1 (or higher) 0.0600%
A/A2 0.0650%
A-/A3 0.0725%
BBB+/Baa1 0.0800%
BBB/Baa2 0.1000%
BBB /Baa3 0.1500%
BB+/Ba1 0.2000%
(or lower, or no
Applicable Rating)
</TABLE>
1
<PAGE> 2
"Applicable Margin" means, on any date and
with respect to each CD Loan or Offshore Loan outstanding on
such date, the applicable margin (on a per annum basis) set
forth below based on the Applicable Rating on such date:
<TABLE>
<CAPTION>
Applicable CD Offshore
Rating Loans Loans
---------- ----- --------
<S> <C> <C>
A+/A1 (or higher) 0.2000% 0.2000%
A/A2 0.2250% 0.2250%
A-/A3 0.2500% 0.2500%
BBB+/Baa1 0.2800% 0.2800%
BBB/Baa2 0.3750% 0.3750%
BBB /Baa3 0.4000% 0.4000%
BB+/Ba1 0.6250% 0.6250%
(or lower, or no
Applicable Rating)
</TABLE>
Provided, that at any time as the aggregate outstanding
principal amount of Revolving Loans, together with the
aggregate outstanding principal amount of "Revolving Loans"
under, and as that term is defined in, the 364-Day Credit
Agreement, exceeds 50% of the combined Commitments of all the
Banks, together with the combined "Commitments" (as that term
is defined in the 364-Day Credit Agreement) of all the lenders
under the 364-Day Credit Agreement (and any time after the
termination of commitments to lend under clause (a) of
Section 8.02 or under paragraph (b) or (c) of Section 2.09
hereof, or of the 364-Day Credit Agreement, as applicable),
the Applicable Margin in respect of CD Loans and Offshore
Loans hereunder shall be increased by an additional 0.125
percentage points.
"Interest Period" means (a) as to any Adjusted CD
Rate Revolving Loan, the period commencing on the Borrowing
Date or on the Conversion/Continuation Date on which a
Revolving Loan is converted into or continued as an Adjusted
CD Rate Revolving Loan, and ending on the date 30, 60, 90 or
180 days thereafter, as selected by the Company in its Notice
of Borrowing or Notice of Conversion/Continuation, as the case
may be, (b) as to any LIBOR Revolving Loan, the period
commencing on the Borrowing Date or on the
Conversion/Continuation Date on which a Revolving Loan is
converted into or continued as a LIBOR Revolving Loan, and
ending on the day which numerically corresponds to such date
one, two, three or six months thereafter (or if such month has
no numerically corresponding day, on the last Business Day of
such month), as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation, as the case
may be, and (c) as to any Swingline Loan, the period
commencing on the Borrowing Date of such Loan and ending on
such date, not more than 10 days later, as agreed upon by the
Company and the Swingline Bank at the time of the Borrowing of
such Loan; provided that:
(i) if any Interest Period pertaining to
a CD Loan would otherwise end on a day that is not a
Business Day, that Interest Period shall be extended
to the following Business Day;
2
<PAGE> 3
(ii) if any Interest Period pertaining
to an Offshore Loan would otherwise end on a day
that is not a Business Day, that Interest Period
shall be extended to the following Business Day
unless the result of such extension would be to
carry such Interest Period into another calendar
month, in which event such Interest Period shall end
on the preceding Business Day; and
(iii) no Interest Period for any Loan
shall extend beyond the date set forth in clause (a)
of the definition of "Revolving Termination Date."
"Revolving Termination Date" means the earlier to
occur of:
(a) October 31, 2001; and
(b) the date on which the commitments of the
Banks to make Loans terminate in whole in accordance with Section
2.07, Section 2.09(b) or 2.09(c) or Section 8.02.
"Subordinated Debt" means any Debt of the Company (i)
that expressly provides that it is subordinate in right of payment to
the Loans made by the Banks hereunder, and (ii) under the terms of
which no payments of principal shall be payable (whether by scheduled
maturity, required prepayment, or otherwise, unless as a result of the
acceleration of such Debt, in accordance with the terms thereof) prior
to the date set forth in clause (a) of the definition of "Revolving
Termination Date."
"364-Day Credit Agreement" means that U.S.
$500,000,000 Amended and Restated Revolving Credit Agreement dated as
of this date among the Company, BofA as Administrative Agent and the
lenders party thereto, under which such lenders have agreed to extend
credit to the Company on a 364-day basis.
(b) With effect from and after the Effective Date (i)
each Person listed on the signature pages hereof which is not a party to the
Credit Agreement (a "New Bank") shall become a Bank party to the Credit
Agreement, as amended and restated hereby, and (ii) the Commitment of each Bank
shall be the amount set forth opposite the name of such Bank on the signature
pages hereof. Any Bank which was a party to the Credit Agreement but is not
listed on the signature pages hereof shall upon the Effective Date cease to be
a Bank party to the Credit Agreement, as amended and restated hereby, and all
accrued fees and other amounts payable under the Credit Agreement for the
account of such Bank shall be due and payable on such date; provided that the
provisions of the Credit Agreement which expressly survive payment of all
Obligations shall inure to the benefit of, or, as applicable, shall continue to
be binding on, such Bank with respect to the period prior to the Effective
Date.
3. Representations and Warranties. The Company hereby represents
and warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) All representations and warranties of the Company
contained in the Credit Agreement are true and correct as though made
on and as of this date.
3
<PAGE> 4
(c) The Company is entering into this Amendment and
Restatement on the basis of its own investigation and for its own reasons,
without reliance upon the Agent and the Banks or any other Person.
4. Effective Date. This Amendment and Restatement will become
effective as of October 29, 1996 (the "Effective Date"), provided that each of
the following conditions precedent is satisfied:
(a) The Agent has received from the Company and each of
the Banks a duly executed original (or, if elected by the Agent, an executed
facsimile copy) of this Amendment and Restatement.
(b) The Agent has received from the Company a copy of a
resolution passed by the board of directors of the Company, certified by the
Secretary or an Assistant Secretary of the Company as being in full force and
effect on the date hereof, authorizing the execution, delivery and performance
of this Amendment and Restatement.
(c) The Agent shall have received an opinion of the
General Counsel of the Company and another internal counsel of the Company
licensed to practice law in the State of New York, substantially in the form of
Exhibit D-1 and Exhibit D-2 to the Credit Agreement, with reference to this
Amendment and Restatement, the Notes and the Credit Agreement as amended and
restated hereby.
(d) The Agent shall have received a certificate signed by
a Responsible Officer of the Company, dated as of the Effective Date, stating
that the representations and warranties set forth in Article V of the Credit
Agreement are true and correct in all material respects and that no Default or
Event of Default has occurred and is continuing or would result as a result of
any Borrowing.
(e) The Agent shall have received a duly executed Note
for each of the New Banks (a "New Note") and a duly executed Amended and
Restated Note (an "Amended Note") in the form of Exhibit A to this Amendment
and Restatement, payable to the order of each of the Banks which is not a New
Bank.
5. Reservation of Rights. The Company acknowledges and agrees
that the execution and delivery by the Agent and the Banks of this Amendment
and Restatement shall not be deemed to create a course of dealing or otherwise
obligate the Agent or the Banks to execute any amendments or amendments and
restatements in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms,
covenants and provisions of the Credit Agreement are and shall remain in full
force and effect and all references therein and in the other Loan Documents
(including the Notes) to such Credit Agreement shall henceforth refer to the
Credit Agreement as amended and restated hereby, and all references in the
Credit Agreement and in the other Loan Documents to the Notes shall refer to
the New Notes and the Amended Notes. The words "hereof", "herein", "hereunder"
and similar words contained in the Credit Agreement shall refer to the
Agreement as amended and restated hereby.
(b) This Amendment and Restatement shall be binding upon
and inure to the benefit of the parties hereto and thereto and their respective
successors and assigns. No third party beneficiaries are intended in
connection with this Amendment and Restatement.
(c) This Amendment and Restatement shall be governed by
and construed in accordance with the law of the State of New York.
4
<PAGE> 5
(d) This Amendment and Restatement may be executed in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each
of the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of a Bank or the Company shall bind such Bank or the
Company, respectively, with the same force and effect as the delivery of a hard
copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(e) The Company covenants to pay to or reimburse the
Agent, upon demand, for all costs and expenses (including allocated costs of in
house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment and Restatement.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment and Restatement as of the date first above written.
COMPAQ COMPUTER CORPORATION
By:
---------------------------------
Title:
------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent
By:
---------------------------------
Title:
------------------------------
Commitment: $71,619,048 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Swingline
Bank and as a Bank
By:
---------------------------------
Title:
------------------------------
Commitment: $63,333,333 CITIBANK, N.A., as Co-Agent and as
a Bank
By:
---------------------------------
Title:
------------------------------
Commitment: $63,333,333 NATIONSBANK TEXAS, N.A., as Co-Agent
and as a Bank
By:
---------------------------------
Title:
------------------------------
6
<PAGE> 7
Commitment: $36,571,851 ABN AMRO BANK N.V.
By: ABN AMRO North America,
Inc., as agent
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 BANQUE NATIONALE DE PARIS,
HOUSTON AGENCY
By:
---------------------------------
Title:
------------------------------
Commitment: $20,000,000 BARCLAYS BANK PLC
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 COMMERZBANK AG, ATLANTA AGENCY
By:
---------------------------------
Title:
------------------------------
Commitment: $20,000,000 DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
7
<PAGE> 8
Commitment: $36,571,429 DEUTSCHE BANK AG NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,000 DRESDNER BANK AG
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Commitment: $10,000,000 FIRST NATIONAL BANK OF BOSTON
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 FLEET NATIONAL BANK
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:
---------------------------------
Title:
------------------------------
8
<PAGE> 9
Commitment: $20,000,000 NATIONAL AUSTRALIA BANK LIMITED
By:
---------------------------------
Title:
------------------------------
Commitment: $20,000,000 NATIONAL WESTMINSTER BANK PLC,
NEW YORK BRANCH
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 PNC BANK, N.A.
By:
---------------------------------
Title:
------------------------------
Commitment: $46,571,429 ROYAL BANK OF CANADA
By:
---------------------------------
Title:
------------------------------
9
<PAGE> 10
Commitment: $36,571,429 SOCIETE GENERALE, SOUTHWEST AGENCY
By:
---------------------------------
Title:
------------------------------
Commitment: $20,000,000 BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
---------------------------------
Title:
------------------------------
Commitment: $56,571,429 THE CHASE MANHATTAN BANK
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 THE FUJI BANK, LIMITED, HOUSTON
AGENCY
By:
---------------------------------
Title:
------------------------------
Commitment: $20,000,000 THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., NEW YORK BRANCH
By:
---------------------------------
Title:
------------------------------
10
<PAGE> 11
Commitment: $20,000,000 THE NORTHERN TRUST COMPANY
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 THE SANWA BANK LIMITED, DALLAS AGENCY
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 THE SUMITOMO BANK, LIMITED,
HOUSTON AGENCY
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 TORONTO DOMINION (TEXAS), INC.
By:
---------------------------------
Title:
------------------------------
Commitment: $36,571,429 WELLS FARGO BANK, N.A.
By:
---------------------------------
Title:
------------------------------
11
<PAGE> 12
EXHIBIT A
FORM OF
AMENDED AND RESTATED PROMISSORY NOTE
U.S. $_________ Dated: October 29, 1996
FOR VALUE RECEIVED, the undersigned, Compaq Computer Corporation, a
Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of
__________________________________________________ (the "Bank") for the account
of its applicable Lending Office (as defined in the Credit Agreement referred
to below) on the Revolving Termination Date (as defined in the Credit
Agreement) the principal sum of _________________ U.S. dollars (U.S.
$__________) or, if less, the aggregate unpaid principal amount of the
Revolving Loans (as defined in the $1,000,000,000 Amended and Restated
Revolving Credit Agreement dated as of October 29, 1996 among the Company, the
Bank, certain other lenders parties thereto and Bank of America National Trust
and Savings Association, as Administrative Agent for the Bank and such other
lenders; such Amended and Restated Revolving Credit Agreement, as amended or
amended and restated from time to time being herein referred to as the "Credit
Agreement") owing to the Bank outstanding on the Revolving Termination Date (as
defined in the Credit Agreement), together with the principal amount of any
outstanding Swingline Loans (as defined in the Credit Agreement) made by the
Bank as Swingline Bank (as defined in the Credit Agreement).
The Company promises to pay interest on the unpaid principal amount of
each Loan owing to the Bank from the date of such Loan until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Bank of America National Trust and Savings Association, as
Administrative Agent, at the Agent's Payment Office (as defined in the Credit
Agreement), in immediately available funds. Each Loan owed to the Bank by the
Company pursuant to the Credit Agreement, and all payments made on account of
principal thereof, shall be recorded by the Bank and, prior to any transfer
hereof, endorsed on the grid attached hereto which is part of this Amended and
Restated Promissory Note; provided that the failure of the Bank to make any
such recordation or endorsement shall not affect the obligations of the Company
hereunder or under the Credit Agreement.
This Amended and Restated Promissory Note is one of the Notes referred
to in, and is subject to and is entitled to the benefits of, the Credit
Agreement. The Credit Agreement, among other things, (i) provides for the
making of Revolving Loans by the Bank to the Company from time to time in an
aggregate amount not to exceed the U.S. dollar amount first above mentioned
and the making of Swingline Loans by the Bank as Swingline Bank to the Company
from time to time in an aggregate amount not to exceed the Swingline Commitment
(as such terms are defined in the Credit Agreement), the indebtedness of the
Company resulting from each Loan owing to the Bank being evidenced by this
Amended and Restated Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. This Amended and
Restated Promissory Note is an amendment and restatement of, and has been
issued by the Company in substitution for and not in satisfaction of, any Note
held by the Bank under the Credit Agreement as in effect prior to the amendment
and restatement thereof effective as of the date hereof.
12
<PAGE> 13
This Amended and Restated Promissory Note shall be governed by, and
construed in accordance with, the internal laws of the State of New York.
COMPAQ COMPUTER CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
13
<PAGE> 14
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount Principal Unpaid
of Type of Paid or Principal Notation
Date Loan Loan Prepaid Balance Made By
- ---- ------ ------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
14
<PAGE> 1
EXHIBIT 11
COMPAQ COMPUTER CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Year ended December 31,
In millions, except per share amounts 1996 1995 1994
- -------------------------------------------------------------------------------
Primary earnings per share:
Shares used in computing earnings per share:
Weighted average number of shares outstanding 269.7 264.0 257.5
Incremental shares attributed
to outstanding options 8.6 9.6 11.1
-----------------------------
278.3 273.6 268.6
=============================
Earnings:
Net income $ 1,313 $ 789 $ 867
-----------------------------
Earnings per common and common equivalent share $ 4.72 $ 2.88 $ 3.23
=============================
Earnings per share - assuming full dilution:
Shares used in computing earnings per share:
Weighted average number of shares outstanding 269.7 264.0 257.5
Incremental shares attributed to
outstanding options 11.7 11.0 12.6
-----------------------------
281.4 275.0 270.1
=============================
Earnings:
Net income $ 1,313 $ 789 $ 867
=============================
Earnings per common and common equivalent share $ 4.66 $ 2.87 $ 3.21
=============================
<PAGE> 1
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990
==================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Sales $18,109 $14,755 $ 10,866 $ 7,191 $ 4,100 $ 3,271 $ 3,599
Cost of sales 13,913 11,367 8,139 5,493 2,905 2,053 2,058
----------------------------------------------------------------------------------
4,196 3,388 2,727 1,698 1,195 1,218 1,541
----------------------------------------------------------------------------------
Selling, general and administrative
expense 1,912 1,594 1,235 837 699 722 706
Research and development costs 407 270 226 169 173 197 186
Purchased in-process technology (1) 241
Unrealized gain on investment in
affiliated company (34)
Other income and expense, net (2) 1 95 94 76 28 145 42
----------------------------------------------------------------------------------
2,320 2,200 1,555 1,082 900 1,064 900
----------------------------------------------------------------------------------
Income before provision for income
taxes 1,876 1,188 1,172 616 295 154 641
Provision for income taxes (3) 563 399 305 154 97 43 216
----------------------------------------------------------------------------------
Income from consolidated companies 1,313 789 867 462 198 111 425
Equity in net income of affiliated
company 15 20 30
----------------------------------------------------------------------------------
Net income $ 1,313 $ 789 $ 867 $ 462 $ 213 $ 131 $ 455
==================================================================================
Earnings per share (4) $ 4.66 $ 2.87 $ 3.21 $ 1.78 $ 0.84 $ 0.50 $ 1.71
==================================================================================
Shares used in computing earnings
per share (4) 281.4 275.0 270.1 258.9 254.1 264.3 268.8
==================================================================================
FINANCIAL POSITION
Current assets $ 9,169 $ 6,527 $ 5,158 $ 3,291 $ 2,318 $ 1,782 $ 1,688
Total assets 10,526 7,818 6,166 4,084 3,142 2,826 2,718
Current liabilities 3,852 2,680 2,013 1,244 960 638 644
Long-term debt 300 300 300 73 74
Stockholders' equity 6,144 4,614 3,674 2,654 2,006 1,931 1,859
OTHER INFORMATION
Income before provision for income
taxes as a percentage of sales 10.4% 9.7%* 10.8% 8.6% 7.2% 4.7% 17.8%
Effective tax rate (3) 30.0% 28.0%* 26.0% 25.0% 33.0% 28.0% 34.0%
Net income as a percentage of sales 7.2% 7.0%* 8.0% 6.4% 5.2% 4.0% 12.6%
Net income as a percentage of average
total assets 14.3% 14.7%* 16.9% 12.8% 7.1% 4.7% 18.9%
Net income as a percentage of average
stockholders' equity 24.4% 24.9%* 27.4% 19.8% 10.8% 6.9% 30.0%
Current ratio 2.4 2.4 2.6 2.6 2.4 2.8 2.6
Working capital $ 5,317 $ 3,847 $ 3,145 $ 2,047 $ 1,358 $ 1,144 $ 1,044
Number of employees 18,863 17,055 14,372 10,541 9,559 10,059 11,420
</TABLE>
(1) Represents a $241 million ($.87 per share) non-recurring, non-tax
deductible charge for purchased in-process technology in connection with
acquisitions in 1995.
(2) Includes restructuring charges of $12 million, $87 million and $139 million
in 1993, 1992 and 1991, respectively, and a realized gain on investment in
affiliated company of $86 million in 1992.
(3) The Company's effective tax rate in 1996, 1995, 1994 and 1993 reflects the
Company's decision to reinvest indefinitely a portion of the undistributed
earnings of its Singaporean manufacturing subsidiary.
(4) All share and per share data have been adjusted to reflect the company's
three-for-one and two-for-one stock splits in 1994 and 1990, respectively.
* Excludes a $241 million ($.87 per share) non-recurring, non-tax
deductible charge for purchased in-process technology in connection with
acquisitions in 1995.
C O M P A Q
24
<PAGE> 2
Compaq Computer Corporation
<TABLE>
<CAPTION>
1989 1988 1987 1986
================================================
<S> <C> <C> <C>
STATEMENT OF INCOME
Sales $ 2,876 $ 2,066 $ 1,224 $ 625
Cost of sales 1,715 1,234 717 360
------------------------------------------------
1,161 832 507 265
------------------------------------------------
Selling, general and administrative expense 539 397 226 152
Research and development costs 132 75 47 27
Purchased in-process technology (1)
Unrealized gain on investment in affiliated company (13) (10) (4)
Other income and expense, net (2) 19 3 10 9
------------------------------------------------
677 465 279 188
------------------------------------------------
Income before provision for income taxes 484 367 228 77
Provision for income taxes (3) 165 119 93 32
------------------------------------------------
Income from consolidated companies 319 248 135 45
Equity in net income of affiliated company 14 7 1 (2)
------------------------------------------------
Net income $ 333 $ 255 $ 136 $ 43
================================================
Earnings per share (4) $ 1.29 $ 1.04 $ 0.59 $ 0.22
================================================
Shares used in computing earnings per share (4) 264.3 252.9 235.8 210.0
================================================
FINANCIAL POSITION
Current assets $ 1,312 $ 1,114 $ 681 $ 260
Total assets 2,090 1,590 901 378
Current liabilities 563 479 342 119
Long-term debt 274 275 149 73
Stockholders' equity 1,172 815 400 183
OTHER INFORMATION
Income before provision for income taxes as a percentage of sales 16.8% 17.8% 18.6% 12.3%
Effective tax rate (3) 34.0% 32.0% 41.0% 42.0%
Net income as a percentage of sales 11.6% 12.3% 11.1% 6.9%
Net income as a percentage of average total assets 18.1% 20.5% 21.3% 12.5%
Net income as a percentage of average stockholders' equity 33.5% 42.0% 46.7% 26.9%
Current ratio 2.3 2.3 2.0 2.2
Working capital $ 749 $ 635 $ 339 $ 141
Number of employees 9,539 6,503 4,052 2,209
</TABLE>
C O M P A Q
25
<PAGE> 3
Compaq Computer Corporation
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, selected consolidated
financial data for each of the three years in the period ended December 31.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
===============================================================================
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 76.8 77.0 74.9
-------------------------------
Gross margin 23.2 23.0 25.1
-------------------------------
Selling, general and administrative expense 10.6 10.8 11.4
Research and development costs 2.2 1.8 2.1
Purchased in-process technology (1) 1.6
Other income and expense, net 0.7 0.8
-------------------------------
12.8 14.9 14.3
-------------------------------
Income before provision for income taxes 10.4% 8.1% 10.8%
===============================
</TABLE>
(1) Represents impact of a $241 million ($.87 per share) non-recurring,
non-tax deductible charge for purchased in-process technology in
connection with acquisitions in 1995.
SALES
Sales for 1996 increased approximately $3.4 billion or 23% over the prior year
as compared with an increase of $3.9 billion or 36% in 1995 from 1994. North
American sales, which include Canada, increased 33% during 1996, compared with
an increase of 33% in 1995 from 1994. International sales, excluding Canada,
represented 47% of total sales in 1996 as compared with 51% in 1995 and 50% in
1994. European sales increased 12% during 1996 compared to an increase of 40%
in 1995 from 1994. Other international sales, excluding Canada, increased 17%
during 1996, compared with an increase of 37% in 1995 from 1994. We believe
that the lower rates of growth in Europe were related to lower market growth
in this region. Certain other international markets also experienced adverse
market conditions. The Japanese market in particular experienced a very
aggressive pricing environment throughout 1996.
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
C O M P A Q
26
<PAGE> 4
Compaq Computer Corporation
76% of Compaq's CPU sales in 1996 were derived from products introduced in
1996. These new products have been designed to allow us to achieve low product
costs while maintaining the quality and reliability for which our products have
been known, thereby increasing our ability to compete on price and value.
The significant increase in sales in 1996 stemmed primarily from an increase in
the number of units sold and an increase in sales of options associated with
CPU products. In 1996 Compaq's worldwide unit sales increased 22% while they
increased 20% in 1995. The 1996 increase included a 25% expansion in unit sales
of commercial CPU products, an 11% increase for consumer CPU products and a 33%
increase for enterprise CPU products. According to third-party estimates,
worldwide unit sales of personal computers increased approximately 16% to 18%
in 1996 in contrast to a 25% to 26% increase in 1995. Competition continues to
have a significant impact on prices of our products, especially those aimed at
the consumer market, and additional pricing actions may occur as we attempt to
maintain our competitive mix of price/performance characteristics. We attempt
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 23.2% in 1996, up slightly from 23.0%
in 1995 and down from 25.1% in 1994. The increase in gross margins from 1995
primarily resulted from the introduction of significant new products with
higher margins, cost savings due to improvements in logistics and overall
better asset management. Compaq operates in a very aggressive pricing
environment that will continue to put pressure on gross margins. Despite this
pressure, we expect that the combination of changes in product mix, continued
improvements in logistics and asset management, reductions in the cost of
materials, and higher margins on new products should allow Compaq to improve
its gross margin levels in 1997.
OPERATING EXPENSES
Research and development costs increased 51% in absolute dollars (to $407
million from $270 million) and as a percentage of sales (to 2.2% from 1.8%) in
1996 as compared to 1995. Because the personal computer industry is
characterized by rapid product cycles and price cuts on older products, we
believe that our long-term success is directly related to our ability to bring
new products to market on a timely basis and to reduce the costs of new and
existing products. Accordingly, we are committed to continuing a significant
research and development program, and research and development costs are likely
to increase in absolute dollars in 1997.
Selling, general and administrative expense increased 20% in absolute dollars
in 1996 while slightly declining as a percentage of sales. The decrease as a
percentage of sales reflects our 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, the expansion of
distribution channels and a greater emphasis on customer service and technical
support.We anticipate that in 1997 selling, general and administrative expense
will increase in absolute dollars as Compaq supports significant new product
C O M P A Q
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<PAGE> 5
Compaq Computer Corporation
introductions, expands into new markets and increases investment in the area of
service and support, especially in support of Compaq's enterprise business.
OTHER ITEMS
In 1996, interest and dividend income, net of interest expense, was $22
million, compared to net interest expense of $46 million and $49 million in
1995 and 1994, respectively. Compaq had net interest income in 1996 compared to
net interest expense in 1995 due to an increase in interest and dividend income
associated with higher cash balances throughout 1996.
The translation gains and losses relating to the financial statements of
Compaq's international subsidiaries, net of offsetting gains and losses
associated with hedging activities relating to the net monetary assets of these
subsidiaries, are included in other income and expense and resulted in net
losses of $14 million, $33 million and $46 million in 1996, 1995 and 1994,
respectively.
In 1995, Compaq recorded a charge associated with its purchase of NetWorth,
Inc., Thomas-Conrad Corporation and another smaller company. The aggregate
non-recurring, non-tax deductible charge for purchased in-process technology
totaled $241 million.
Compaq's effective tax rate was 30% in 1996, 34% in 1995 and 26% in 1994.
Compaq's tax rate increased in 1995 due to a non-tax deductible charge
associated with acquisitions and a decline in the ratio of earnings derived
from Singaporean manufacturing activities to total earnings. The proportion of
Compaq's Singaporean earnings continued to decline in 1996, bringing the rate
to 30%.We anticipate that Compaq's worldwide profits will increase and the
proportion of our Singaporean earnings will continue to decline in 1997 and, as
a result, we estimate that Compaq's effective tax rate in 1997 will be
approximately 32%. Note 8 of the Notes to Consolidated Financial Statements
describes the dependence of Compaq's effective tax rate on the mix of earnings
from its Singaporean manufacturing subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, Compaq's working capital increased to $5.3 billion compared to
$3.8 billion at December 31, 1995.
Compaq's cash, cash equivalents and short-term investments increased to $4.0
billion at December 31, 1996, from $745 million at December 31, 1995, primarily
due to positive cash flow from operating activities and better management of
inventory, accounts receivable and accounts payable. Accounts receivable
increased to $3.2 billion at December 31, 1996, from $3.1 billion at December
31, 1995, primarily as a result of higher sales levels offset by improved
accounts receivable management.
C O M P A Q
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Compaq Computer Corporation
Inventory levels decreased to $1.2 billion from $2.2 billion during that
period. The decrease in inventory resulted from improvements in production
planning and continuing logistical reengineering. Inventory turns increased to
8.4 in 1996, from 5.5 in 1995.
Cash used in 1996 for the purchase of property, plant and equipment totaled
$342 million. We estimate that capital expenditures for land, buildings and
equipment during 1997 will be $505 million. Compaq has committed 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 Compaq's
business.
We currently expect to fund expenditures for capital requirements as well as
liquidity needs from a combination of available cash balances, internally
generated funds and financing arrangements. Compaq from time to time may borrow
funds for actual or anticipated funding needs or because it is economically
beneficial to borrow funds instead of repatriating funds in the form of
dividends from Compaq's foreign subsidiaries. In October 1996, Compaq entered
into agreements for a $1.5 billion syndicated credit facility (of which $500
million expires in October 1997 and $1 billion expires in October 2001) that
remains unused at December 31, 1996. Compaq has established a commercial paper
program, supported by the syndicated credit facility, which was unused at
December 31, 1996. We believe that these sources of credit provide sufficient
financial flexibility to meet future funding requirements. We continually
evaluate the need to establish other sources of working capital and will pursue
those we consider appropriate based upon Compaq's needs and market conditions.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Compaq participates in a highly volatile industry that is characterized by
fierce industry-wide competition for market share. Industry participants
confront 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 accordance
with the provisions of the Private Securities Litigation Reform Act of 1995,
the cautionary statements set forth below discuss important factors that could
cause actual results to differ materially from the projected results contained
in the forward-looking statements in this report.
COMPETITIVE ENVIRONMENT. We expect the computer market in 1997 to expand in
line with third party research organizations' forecasts of unit growth in the
range of 17% to 20%.We have programs and products focused on meeting market
demand and gaining market share profitably. Competition remains fierce with a
large number of competitors vying for market share. We will build on our
profitable PC market share growth by continuing to expand our product
offerings. Several of our suppliers also manufacture and market computers or
motherboards, which contain the microprocessor and other internal operating
components of industry-standard architecture computers. In addition, a number
of large consumer electronics companies are entering the PC market. Each of
these companies may be willing to accept lower profit margins to win market
share.
C O M P A Q
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<PAGE> 7
Compaq Computer Corporation
GROSS MARGIN PRESSURES AND OPERATING EXPENSES. Despite quarterly fluctuations,
we remain focused on achieving annual gross margins between 23% and 25%. Our
ability to continue to achieve this gross margin target and to hold operating
expense as a percentage of sales at the 1996 level depends upon a variety of
competitive and market factors and is subject to the other risks set forth in
this report.
INVENTORY. We anticipate that Compaq's inventory turns, which increased to 8.4
in 1996 from 5.5 in 1995, will continue to increase in 1997. These increases
are a result of improved product cycle management and other 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 our 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.
RAPID TECHNOLOGY CYCLES. We believe the computer industry will continue to
drive rapid technology cycles. In planning product transitions, we evaluate the
speed at which customers are likely to switch to newer products. The contrast
between 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. Because of the lead times associated with Compaq's
volume production, should we be unable to gauge the rate of product transitions
accurately, inventory levels, cash and profitability could be negatively
affected.
PRODUCT TRANSITIONS. In each product cycle, we confront the risk of delays in
production that could impact sales of newer products while we manage the
inventory of older products and facilitate the sale of older inventory held by
resellers. To ease product transitions, we carry out pricing actions and
marketing programs to raise sales in reseller channels. Compaq provides
currently for estimated product returns and price protection that may occur
under programs Compaq has with its resellers and under floor planning
arrangements with third-party finance companies. Should we be unable to sell
the 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. We continue to expand manufacturing capacity as
well as reengineer internal processes to support continued growth. During 1997,
we continue to focus on making our 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. In connection with our
reengineering efforts, we are moving many of our systems from a legacy
environment of proprietary systems to client-server architectures. Should our
transition to new systems not occur in a smooth and orderly manner, Compaq
could experience disruptions in operations, which could have an adverse
financial impact.
C O M P A Q
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<PAGE> 8
Compaq Computer Corporation
ALLIANCE AND ACQUISITION STRATEGY. Because of the rapid pace of technological
advances in information technology, Compaq must introduce on a timely basis new
products offering competitive features that appeal to a wide variety of
customers. We believe that our alliance and acquisition strategies enable us to
provide best-in-class solutions while expanding offerings of complementary
products. In our acquisition activities, we confront 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. In developing business plans based on an alliance
model, we must rely on the performance of third parties, many of whom may
compete with Compaq in other parts of their businesses. In addition,
particularly in offering full enterprise computing solutions for our customers
through an alliance model, we compete 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 Compaq's
more cost-effective solution will depend upon the reputation for reliability
and support that we and our business allies earn in this area.
TECHNOLOGY STANDARDS. Participants in the computer industry generally rely on
the creation and implementation of technology standards to win the broadest
market acceptance for their products. We must successfully manage and
participate in the development of standards while continuing to differentiate
our 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, Compaq 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 costs. In addition, delays in
access to technology developed by competitors and suppliers could slow the
design and manufacture of components and subsystems that distinguish our
products.
PRODUCTION FORECASTS. In managing production, we must forecast customer demand
for our products. Should we underestimate the supplies needed to meet demand,
Compaq could be unable to meet customer demand. Should we overestimate the
supplies needed to meet customer demand, Compaq's cash and profitability could
be adversely affected. Many of the components used in our products,
particularly microprocessors and memory, experience steep price declines over
their product lives. If we are unable to manage purchases and utilization of
such components efficiently to maintain low inventory levels immediately prior
to major price declines, Compaq could be unable to take immediate advantage of
such declines to lower product costs, which could adversely affect Compaq's
sales and gross margins. In addition, certain of our products are manufactured
by third-party original equipment manufacturers, which could fail to respond in
a timely manner to purchase orders or could fail to meet quality standards. We
attempt to maintain tight control over production by third-party original
equipment manufacturers to ensure that these products comply with Compaq's
standards and schedule.
PRODUCT DISTRIBUTION. Certain of our competitors focus their efforts on direct
end user sales and support and are generating competitive pricing pressures on
the traditional indirect model. Today, Compaq products are
C O M P A Q
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<PAGE> 9
Compaq Computer Corporation
manufactured at a lower cost than direct manufacturers, however, total
delivered cost through the indirect channel is sometimes higher. We are
addressing the issue of total delivered cost through several measures designed
to reduce costs, including the implementation of "build to order" and
"configure to order" delivery models and the modification of business processes
to reduce finished goods inventories and speed product delivery to customers
and other improvements to ensure that our products have the lowest cost of
ownership in the computer industry. We are exploring a variety of ways to
market our products to different types of customers.
CREDIT RISKS. Compaq's primary means of distribution remains third-party
resellers. We continually monitor and manage the credit Compaq extends to
resellers and attempt to limit credit risks by broadening distribution
channels, utilizing certain risk transfer instruments and obtaining security
interests. Compaq'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, Compaq could experience disruptions in
distribution as well as the loss of the unsecured portion of any outstanding
accounts receivable. 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, subjects Compaq to a number
of economic and other risks, such as currency devaluation, expropriation and
financial instability among resellers in these regions. Compaq generally has
experienced longer accounts receivable cycles in emerging markets, in
particular China and Latin America, when compared to U.S. and European markets.
In the event that accounts receivable cycles in these developing markets
lengthen further or one or more of Compaq's larger resellers in these regions
fail, Compaq could be adversely affected. We continue to evaluate Compaq's
business operations in these regions and attempt to take measures to limit
risks in these areas.
CURRENCY AND HEDGING RISKS. The value of the U.S. dollar continues to affect
Compaq's financial results. The functional currency for Compaq'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; 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 Compaq's sales (as expressed in U.S. dollars),
gross margins and operating expenses, and Compaq's results of operations can be
significantly affected in the short term by fluctuations in foreign currency
exchange rates. Compaq engages in hedging programs aimed at limiting in part
the impact of currency fluctuations. Through these programs, Compaq hedges its
non-U.S. dollar net monetary assets primarily through the use of forward
exchange contracts. For certain markets, particularly Latin America, we have
determined that ongoing hedging of non-U.S. dollar net monetary assets is not
cost effective and instead attempt 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 Compaq 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 Compaq's international marketing
C O M P A Q
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<PAGE> 10
Compaq Computer Corporation
subsidiaries, principally in Europe and Japan. These instruments provide only
limited protection against currency exchange risks. We vary the percentage of
anticipated sales that we attempt to protect against currency exchange risks
based upon our judgment of currency markets and the costs of these instruments,
and in some markets, particularly in developing areas, our ability to utilize
such instruments is limited. If we overestimate the hedging amount needed to
protect anticipated sales during a period in which the dollar weakens or
underestimate the hedging amount during a period when the dollar strengthens,
Compaq could incur expense that would not be balanced by the impact of exchange
rate movements on sales. All currency contracts that are entered into by Compaq
are components of our hedging programs and are entered into for the sole
purpose of hedging an existing or anticipated currency exposure, not for
speculation. Although Compaq 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 Compaq sells products or a
weakening exchange rate against currencies in which Compaq incurs costs,
particularly the Japanese yen, Compaq's sales or costs are adversely affected.
TAX RATE. Compaq's tax rate is heavily dependent upon the proportion of
earnings that are derived from its Singaporean manufacturing subsidiary and our
ability to reinvest those earnings permanently outside the U.S. If the earnings
of this subsidiary as a percentage of Compaq's total earnings were to decline
significantly from anticipated levels, or should our ability to reinvest these
earnings be reduced, Compaq's effective tax rate would exceed the currently
estimated 32% rate for 1997. In addition, should Compaq's intercompany transfer
pricing with respect to its Singaporean manufacturing subsidiary require
significant adjustment due to audits or regulatory changes, Compaq's overall
effective tax rate could increase.
STOCK PRICE. Compaq's participation in a highly dynamic industry often results
in significant volatility of its stock price. The factors identified in the
preceding paragraphs, as well as changes in revenue or earnings estimates by
the investment community and speculation in the press or investment community,
are among the factors affecting Compaq's stock price. In addition, the stock
price may be affected by general market conditions and other variables that are
unrelated to Compaq's performance. Past financial performance should not be
considered to be a reliable indicator of future performance and investors
should not use historical trends to anticipate results or trends in future
periods.
C O M P A Q
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<PAGE> 11
Compaq Computer Corporation
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, In millions, except par value 1996 1995
====================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,920 $ 745
Short-term investments 1,073
Accounts receivable, less allowance of $227 and $100 3,168 3,141
Inventories 1,152 2,156
Deferred income taxes 761 365
Other current assets 95 120
------------------
Total current assets 9,169 6,527
Property, plant and equipment, less accumulated depreciation 1,172 1,110
Other assets 185 181
------------------
$10,526 $ 7,818
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,962 $ 1,379
Income taxes payable 322 190
Other current liabilities 1,568 1,111
------------------
Total current liabilities 3,852 2,680
------------------
Long-term debt 300 300
------------------
Deferred income taxes 230 224
------------------
Commitments and contingencies (Note 11)
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:
273.6 million shares at December 31, 1996 and
267.1 million shares at December 31, 1995) 1,107 890
Retained earnings 5,037 3,724
------------------
Total stockholders' equity 6,144 4,614
------------------
$10,526 $ 7,818
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
C O M P A Q
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<PAGE> 12
Compaq Computer Corporation
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31,
In millions, except per share amounts 1996 1995 1994
===============================================================================
Sales $18,109 $14,755 $10,866
Cost of sales 13,913 11,367 8,139
----------------------------
4,196 3,388 2,727
----------------------------
Selling, general and administrative expense 1,912 1,594 1,235
Research and development costs 407 270 226
Purchased in-process technology 241
Other income and expense, net 1 95 94
----------------------------
2,320 2,200 1,555
----------------------------
Income before provision for income taxes 1,876 1,188 1,172
Provision for income taxes 563 399 305
----------------------------
Net income $ 1,313 $ 789 $ 867
============================
Earnings per common and common equivalent share:
Primary $ 4.72 $ 2.88 $ 3.23
============================
Assuming full dilution $ 4.66 $ 2.87 $ 3.21
============================
Shares used in computing earnings per common
and common equivalent share:
Primary 278.3 273.6 268.6
============================
Assuming full dilution 281.4 275.0 270.1
============================
The accompanying notes are an integral part of these financial statements.
C O M P A Q
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<PAGE> 13
Compaq Computer Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, In millions 1996 1995 1994
===============================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 17,939 $ 13,910 $ 9,986
Cash paid to suppliers and employees (13,639) (12,437) (9,778)
Interest and dividends received 110 53 22
Interest paid (91) (100) (65)
Income taxes paid (911) (543) (319)
---------------------------------
Net cash provided by (used in) operating activities 3,408 883 (154)
---------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (342) (391) (357)
Purchases of short-term investments (1,401)
Proceeds from short-term investments 328
Acquisition of businesses, net of cash acquired (22) (318)
Other, net (26) 6 (51)
---------------------------------
Net cash used in investing activities (1,463) (703) (408)
---------------------------------
Cash flows from financing activities:
Issuance of common stock pursuant to stock option plans 112 79 100
Tax benefit associated with stock options 91 60 53
Issuance of long-term debt 300
---------------------------------
Net cash provided by financing activities 203 139 453
---------------------------------
Effect of exchange rate changes on cash 27 (45) (47)
---------------------------------
Net increase (decrease) in cash and cash equivalents 2,175 274 (156)
Cash and cash equivalents at beginning of year 745 471 627
---------------------------------
Cash and cash equivalents at end of year $ 2,920 $ 745 $ 471
=================================
Reconciliation of net income to net cash provided by
(used in) operating activities:
Net income $ 1,313 $ 789 $ 867
Depreciation and amortization 285 214 169
Provision for bad debts 155 43 36
Purchased in-process technology 241
Deferred income taxes (371) (17) (184)
Loss on disposal of assets 5 2 2
Exchange rate effect 14 33 46
Increase in accounts receivable (210) (863) (926)
Decrease (increase) in inventories 1,004 (135) (882)
Decrease (increase) in other current assets 5 (41) (55)
Increase in accounts payable 586 479 248
Increase (decrease) in income taxes payable 131 (61) 173
Increase in other current liabilities 491 199 352
---------------------------------
Net cash provided by (used in) operating activities $ 3,408 $ 883 $ (154)
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
C O M P A Q
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Compaq Computer Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year ended December 31, In millions 1995
===============================================================================
<S> <C>
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
=======
</TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
--------------------------
Par value
Number of and capital in Retained
In millions, except number of shares in thousands shares excess of par earnings Total
===============================================================================================
<S> <C> <C> <C> <C>
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
Issuance pursuant to stock option plans 6,502 126 126
Tax benefit associated with stock options 91 91
Net income 1,313 1,313
--------------------------------------------
BALANCE, DECEMBER 31, 1996 273,572 $1,107 $5,037 $6,144
============================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
C O M P A Q
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<PAGE> 15
Compaq Computer Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS - Compaq Computer Corporation (the "Company") designs,
develops, manufactures and markets a wide range of computing products,
including desktop computers, portable computers, workstations, communications
products 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.
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. Cash
equivalents are stated at cost which approximates fair value.
SHORT-TERM INVESTMENTS - Short-term investments include certificate of
deposits, commercial paper and other investments having maturities longer than
three months at date of acquisition. For reporting purposes, such investments
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.
LONG-LIVED ASSETS - In accordance with Statement of Financial Accounting
Standards No. 121 ("FAS 121"), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, the Company reviews
C O M P A Q
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Compaq Computer Corporation
for the impairment of long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Under FAS 121, an impairment loss would be
recognized when estimated future cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount. No
such impairment losses have been identified by the Company.
PURCHASED TECHNOLOGY, OTHER INTANGIBLE ASSETS AND GOODWILL - Purchased
technology, other intangible assets including licenses and trademarks and
goodwill are included in other assets and 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.
Accumulated amortization was $26 million and $2 million at December 31, 1996
and 1995, respectively.
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 1996, 1995 and 1994 were $156 million, $201 million and $193
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
C O M P A Q
39
<PAGE> 17
Compaq Computer Corporation
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. 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 pursuant to the treasury stock method.
STOCK-BASED COMPENSATION - The Company adopted Statement of Financial
Accounting Standard No. 123 (FAS 123), Accounting for Stock-Based Compensation
beginning with the Company's first quarter of 1996. Upon adoption of FAS 123,
the Company continued to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed by APB
No. 25, Accounting for Stock Issued to Employees, and has provided in Note 9
pro forma disclosures of the effect on net income and earnings per share as if
the fair value-based method prescribed by FAS 123 had been applied in measuring
compensation expense.
RECENT PRONOUNCEMENT - In 1996 Financial Accounting Standards No. 125 (FAS 125)
Accounting for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities was issued. FAS 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996. The Company will adopt FAS 125 in 1997. Adoption of FAS 125 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
1996 presentation.
NOTE 2 - ACQUISITIONS:
During 1995 the Company acquired two companies that develop, manufacture, and
supply fast ethernet hubs, switches and related products, and a small software
company. The aggregate purchase price of $386 million consisted of the
assumption of certain stock options, the issuance of 240,622 shares of Compaq
common stock and $359 million in cash of which $22 million was paid in 1996.
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
C O M P A Q
40
<PAGE> 18
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 which have
been included in other assets.
The following summary, prepared on a pro forma basis, reflects the Company's
operating results as if these entities 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 thereof:
<TABLE>
<CAPTION>
Year ended December 31, (unaudited)
In millions, except per share amounts 1995 1994
=============================================================================
<S> <C> <C>
Sales $14,849 $10,978
Net income 992 837
Net income per share 3.61 3.10
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, In millions 1996 1995
============================================================================
<S> <C> <C>
Raw material and work-in-process $ 552 $1,043
Finished goods 600 1,113
------------------------
$1,152 $2,156
========================
</TABLE>
C O M P A Q
41
<PAGE> 19
Compaq Computer Corporation
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are summarized below:
<TABLE>
<CAPTION>
December 31, In millions 1996 1995
============================================================================
<S> <C> <C>
Land $ 72 $ 72
Buildings 626 565
Machinery and equipment 1,257 1,067
Furniture and fixtures 91 78
Leasehold improvements 62 57
Construction-in-progress 111 142
----------------------
2,219 1,981
Less accumulated depreciation 1,047 871
----------------------
$1,172 $1,110
======================
</TABLE>
Interest aggregating $8 million, $7 million and $3 million was capitalized and
added to the cost of the Company's property, plant and equipment in 1996, 1995
and 1994, respectively.
Depreciation expense totaled $262 million, $214 million and $168 million in
1996, 1995 and 1994, respectively.
NOTE 5 - OTHER CURRENT LIABILITIES:
The estimated costs which may be incurred for post sales support and product
warranties of $469 million and $347 million were included in other current
liabilities at December 31, 1996 and 1995, respectively.
NOTE 6 - CREDIT AGREEMENTS AND FINANCING ARRANGEMENTS:
In October 1996, the Company entered into agreements for a $1.5 billion
syndicated credit facility (of which $500 million expires in October 1997 and
$1 billion expires in October 2001) that remains unused at December 31, 1996.
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, 1996.
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.
C O M P A Q
42
<PAGE> 20
Compaq Computer Corporation
NOTE 7 - OTHER INCOME AND EXPENSE:
Other income and expense consisted of the following components:
<TABLE>
<CAPTION>
Year ended December 31, In millions 1996 1995 1994
=================================================================================================
<S> <C> <C> <C>
Interest and dividend income $(110) $ (53) $ (22)
Interest expense (income) associated with hedging (3) 18 9
Other interest expense 91 81 62
Currency losses, net 14 33 46
Other, net 9 16 (1)
--------------------------------------
$ 1 $ 95 $ 94
======================================
</TABLE>
NOTE 8 - PROVISION FOR INCOME TAXES:
The components of income before provision for income taxes were as follows:
<TABLE>
<CAPTION>
Year ended December 31, In millions 1996 1995 1994
================================================================================================
<S> <C> <C> <C>
Domestic $ 1,016 $ 500 $ 566
Foreign 860 688 606
-------------------------------------
$ 1,876 $ 1,188 $ 1,172
=====================================
</TABLE>
The provision for income taxes charged to operations was as follows:
<TABLE>
<CAPTION>
Year ended December 31, In millions 1996 1995 1994
=====================================================================================================
<S> <C> <C> <C>
Current tax expense
U.S. federal $ 672 $ 274 $ 303
State and local 33 11 7
Foreign 202 142 134
------------------------------------------
Total current 907 427 444
------------------------------------------
Deferred tax expense
U.S. federal (308) (8) (114)
State and local (15) (2) (6)
Foreign (21) (18) (19)
------------------------------------------
Total deferred (344) (28) (139)
------------------------------------------
Total provision $ 563 $ 399 $ 305
==========================================
</TABLE>
C O M P A Q
43
<PAGE> 21
Compaq Computer Corporation
Total income tax expense for 1996, 1995 and 1994 resulted in effective tax
rates of 30%, 34% and 26%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% are as
follows:
<TABLE>
<CAPTION>
Year ended December 31, In millions 1996 1995 1994
=========================================================================
<S> <C> <C> <C>
Tax expense at U.S. statutory rate $ 656 $ 416 $ 410
Foreign tax effect, net (109) (79) (97)
Non-deductible purchased in-process technology 85
Other, net 16 (23) (8)
------------------------
$ 563 $ 399 $ 305
========================
</TABLE>
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 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 would be reinvested indefinitely. As a
result of this determination, no provision for U.S. income tax was made on $335
million, $337 million and $218 million of earnings of this subsidiary during
1996, 1995 and 1994, 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 $367 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 $0.42, $0.43, and $0.28 on a fully diluted
basis in 1996, 1995 and 1994, respectively.
C O M P A Q
44
<PAGE> 22
Compaq Computer Corporation
Deferred tax liabilities (assets) at December 31, 1996 and 1995 are comprised
of the following:
<TABLE>
<CAPTION>
December 31, In millions 1996 1995
=========================================================================================
<S> <C> <C>
Unremitted earnings of foreign subsidiaries $ 239 $ 226
Difference arising from different tax and financial reporting year ends 33
Depreciation and property, plant and equipment basis differences 14 18
Unrealized currency gains 15
Other 2 13
---------------
Gross deferred tax liabilities 270 290
---------------
Post sales support and warranty accruals (149) (117)
Receivable allowances (237) (84)
Stock option compensation (84) (56)
Difference arising from different tax and financial reporting year ends (34)
Intercompany profit eliminations (17) (29)
Inventory adjustments (118) (39)
Loss carryforwards (45) (41)
Unrealized currency losses (10)
Depreciation and property, plant and equipment basis differences (20) (17)
Other (78) (45)
---------------
Gross deferred tax assets (782) (438)
---------------
Deferred tax asset valuation allowance 7
---------------
$(512) $(141)
===============
</TABLE>
NOTE 9 - STOCKHOLDERS' EQUITY AND EMPLOYEE BENEFIT PLANS:
Equity incentive plans - At December 31, 1996, there were 47,638,000 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. Options granted under the plans must be exercised not
later than ten years from the date of grant. Options on 11,504,000, 12,421,000
and 11,494,000 shares were exercisable at December 31, 1996, 1995 and 1994 with
a weighted average exercise price of $19.93, $15.89 and $13.02, respectively.
In connection with acquisitions during 1995, the Company assumed certain
outstanding options to purchase common stock of the acquired companies and
exchanged them for options to acquire 529,000 shares of the Company's common
stock at exercise prices of $6.49 to $32.75 per share.
C O M P A Q
45
<PAGE> 23
Compaq Computer Corporation
The following table summarizes activity under the employee stock option plans
for each of the three years in the period ended December 31, 1996:
<TABLE>
<CAPTION>
Shares Weighted average
In thousands Price per share price per share
========================================================================================
<S> <C> <C> <C>
Options outstanding, December 31, 1993 32,743 $14.02
Options granted 5,567 $28.66 - 40.13 37.59
Options lapsed or cancelled (1,021) 15.14
Options exercised (7,901) .78 - 35.38 12.58
-------
Options outstanding, December 31, 1994 29,388 18.88
Options granted 6,469 6.49 - 55.63 45.81
Options lapsed or cancelled (1,116) 24.25
Options exercised (5,785) .97 - 40.13 13.60
-------
Options outstanding, December 31, 1995 28,956 25.76
Options granted 7,730 38.63 - 79.63 74.66
Options lapsed or cancelled (2,265) 34.39
Options exercised (6,460) 1.87 - 55.63 17.31
-------
Options outstanding, December 31, 1996 27,961 40.42
=======
</TABLE>
There were 19,678,000, 25,584,000 and 17,802,000 shares available for grants
under the plans at December 31, 1996, 1995 and 1994, respectively.
The Company has a Stock Option Plan for Non-Employee Directors (the Director
Plan). At December 31, 1996, there were 1,148,000 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 on 537,000, 458,000 and
359,000 shares were exercisable under the Director Plan at December 31, 1996,
1995 and 1994 with a weighted average exercise price of $22.40, $16.54 and
$12.90, respectively. The expense resulting from options granted at 50% of the
price of the Company's common stock at the date of grant is charged to
operations over the vesting period.
C O M P A Q
46
<PAGE> 24
Compaq Computer Corporation
Activity under the plan for each of the three years in the period ended
December 31, 1996 was as follows:
<TABLE>
<CAPTION>
Shares Weighted average
In thousands Price per share price per share
========================================================================================
<S> <C> <C> <C>
OPTIONS OUTSTANDING, DECEMBER 31, 1993 483 $12.65
Options granted 113 $18.12 - 36.25 34.28
Options exercised (93) 2.54 - 20.33 10.45
---------
OPTIONS OUTSTANDING, DECEMBER 31, 1994 503 17.90
Options granted 126 19.50 - 48.38 39.89
Options exercised (7) 2.54 - 18.12 8.09
---------
OPTIONS OUTSTANDING, DECEMBER 31, 1995 622 22.45
Options granted 113 23.56 - 47.13 44.68
Options exercised (42) 2.54 - 33.50 5.87
---------
OPTIONS OUTSTANDING, DECEMBER 31, 1996 693 27.10
=========
</TABLE>
There were 454,000, 568,000 and 694,000 shares available for grants under the
plan at December 31, 1996, 1995 and 1994, respectively.
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Ranges of Shares Remaining Exercise Shares Exercise
Exercise Prices In thousands Life in Years Price In thousands Price
================================================================================================
<S> <C> <C> <C> <C> <C>
$3.95 to 10.00 2,762 3.9 $ 8.52 2,731 $ 8.52
10.01 to 20.00 6,517 5.0 14.78 5,282 14.57
20.01 to 30.00 2,720 6.7 23.89 1,494 23.68
30.01 to 40.00 4,069 7.8 38.05 1,537 37.95
40.01 to 50.00 5,167 8.9 48.28 982 48.30
50.01 to 60.00 220 9.1 53.76 15 53.48
60.01 to 70.00 1,529 9.7 63.63
70.01 to 79.63 5,670 9.9 79.51
</TABLE>
C O M P A Q
47
<PAGE> 25
Compaq Computer Corporation
The weighted average fair value at date of grant for options granted during
1996, 1995 and 1994 was $35.16, $24.36 and $19.36 per option, respectively. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
===============================================================================
<S> <C> <C> <C>
Expected life 5 5 5
Interest rate 6.18% 5.63% 7.78%
Volatility 43.6% 46.8% 46.2%
Dividend yield 0% 0% 0%
</TABLE>
Stock based compensation costs would have reduced pretax income by $32.2
million and $4.7 million in 1996 and 1995 ($20.9 million and $3.1 million after
tax and $.04 and $.01 per share) if the fair values of the options granted in
that year had been recognized as compensation expense on a straight-line basis
over the vesting period of the grant. The pro forma effect on net income for
1996 and 1995 is not representative of the pro forma effect on net income in
future years because it does not take into consideration pro forma compensation
expense related to grants made prior to 1995.
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
over their vesting period. Amounts charged to expense were $28 million, $22
million and $19 million in 1996, 1995 and 1994, 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 $76 million, $59 million
and $51 million in 1996, 1995 and 1994, respectively.
C O M P A Q
48
<PAGE> 26
Compaq Computer Corporation
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 1996, 1995
and 1994 follows:
<TABLE>
<CAPTION>
United States Other
In millions and Canada Europe countries Eliminations Consolidated
===================================================================================================
<S> <C> <C> <C> <C> <C>
1996
Sales to customers .......... $ 9,681 $ 5,953 $ 2,475 $ 18,109
Intercompany transfers ...... 2,091 355 1,665 $ (4,111)
------------------------------------------------------------------
$ 11,772 $ 6,308 $ 4,140 $ (4,111) $ 18,109
==================================================================
Income from operations ...... $ 1,233 $ 340 $ 323 $ 5 $ 1,901
===================================================
Corporate expenses, net ..... (25)
----------
Pretax income ............... $ 1,876
==========
Identifiable assets ......... $ 3,253 $ 1,924 $ 1,382 $ (26) $ 6,533
===================================================
General corporate assets .... 3,993
----------
Total assets ................ $ 10,526
==========
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
==========
</TABLE>
(1) Includes a $241 million non-recurring, non-tax deductible charge for
purchased in-process technology in connection with acquisitions in 1995.
C O M P A Q
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<PAGE> 27
Compaq Computer Corporation
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.
The Company may, from time to time, hedge commitments for inventory purchases
and capital expenditures. Any gain or losses, if realized, or costs related to
these contracts are recorded as part of inventory or capital items upon
acquisition. At December 31, 1996, the Company had no purchased options, yen
denominated investments or forward contracts related to these commitments.
However, at December 31, 1995, the Company had $26 million in purchased options
and $72 million in yen denominated investments related to hedge commitments for
inventory purchases.
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, 1996
and 1995, such agreements to sell foreign currencies included forward contracts
aggregating $1.2 billion and $1.4 billion, respectively. 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,
1996 and 1995. The maturity dates of the forward contracts which were
outstanding at December 31, 1996 extended from two days to five 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, 1996, 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. In
addition, 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. Gains,
losses and premium costs associated with such purchased currency option
contracts and forward contracts are reflected as a component of sales in the
Company's consolidated statement of income.
C O M P A Q
50
<PAGE> 28
Compaq Computer Corporation
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,
1996 and 1995 consolidated balance sheets approximate carrying value at these
dates. The fair value of the Company's long-term debt at December 31, 1996 and
1995 was estimated to be $302 million and $312 million, respectively, compared
with its carrying value of $300 million.
Concentration of credit risk - The Company's cash, cash equivalents, short-term
investments 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. If the financial condition and operations of these
resellers deteriorate, the Company's operating results could be adversely
affected. At December 31, 1996 the receivable balances from the Company's five
largest resellers represented approximately 25% 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.
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 $40 million and $55
million were outstanding at December 31, 1996 and 1995, respectively.
C O M P A Q
51
<PAGE> 29
Compaq Computer Corporation
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, operating results or cash flows.
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 1996, 1995 and 1994 was $81 million, $75
million and $48 million, respectively.
The Company's minimum rental commitments under noncancelable operating leases
at December 31, 1996, were $54 million in 1997, $41 million in 1998, $27
million in 1999, $21 million in 2000, $21 million in 2001 and $211 million
thereafter.
C O M P A Q
52
<PAGE> 30
Compaq Computer Corporation
SELECTED QUARTERLY UNAUDITED FINANCIAL DATA (NOT COVERED BY REPORT OF
INDEPENDENT ACCOUNTANTS):
The table below sets forth selected unaudited financial information for each
quarter of the last two years.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
In millions, except per share amounts quarter quarter quarter quarter
=============================================================================
<S> <C> <C> <C> <C>
1996
Sales $4,205 $4,001 $4,481 $5,422
Gross margin 885 921 1,067 1,323
Net income 234 267 350 462
Earnings per common and
common equivalent share
Primary 0.85 0.97 1.26 1.64
Assuming full dilution 0.85 0.96 1.25 1.64
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 0.80 0.90 0.89 0.30
</TABLE>
(1) Includes a $241 million ($.87 per share) non-recurring, non-tax deductible
charge for purchased in-process technology in connection with acquisitions
in 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.
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
C O M P A Q
53
<PAGE> 31
Compaq Computer Corporation
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Compaq Computer Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Compaq
Computer Corporation and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, 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.
/s/ PRICE WATERHOUSE, LLP
Houston, Texas
January 21, 1997
C O M P A Q
54
<PAGE> 32
Compaq Computer Corporation
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 1996 and 1995, as reported
by Dow Jones Historical Stock Quote.
<TABLE>
<CAPTION>
1996 1995
===============================================================================
High Low High Low
--------------------------- --------------------------
<S> <C> <C> <C> <C>
1st Quarter $ 54.00 $ 35.88 $ 44.38 $ 31.75
2nd Quarter 50.38 36.75 46.25 30.38
3rd Quarter 66.38 40.50 54.75 42.75
4th Quarter 87.13 63.63 56.75 42.75
</TABLE>
HOLDERS OF RECORD
At January 31, 1997, there were 8,676 holders of record of the Company's common
stock.
DIVIDENDS
The Company has never paid cash dividends on its common stock.
C O M P A Q
56
<PAGE> 1
EXHIBIT 21
COMPAQ COMPUTER CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION
OF
NAME INCORPORATION
- ------------------------------------------------------------------------------------
<S> <C>
Bit Jugglers, Inc. California
Compaq Asia Pte. Ltd. Singapore
Compaq Canada Incorporated/Incorporee Canada
Compaq Capital Corporation Delaware
Compaq Cayman Islands, Ltd. Cayman Islands, BWI
Compaq Computer (Malaysia) Sdn. Bhd. Malaysia
Compaq Computer (Proprietary) Limited South Africia
Compaq Computer (Thailand) Ltd. Thailiand
Compaq Computer A/S Denmark
Compaq Computer AB Sweden
Compaq Computer AE Greece
Compaq Computer AG Switzerland
Compaq Computer Asia Pte. Ltd. Singapore
Compaq Computer Asia/Pacific Pte. Ltd. Singapore
Compaq Computer Australia Pty. Limited Australia
Compaq Computer B.V. Netherlands
Compaq Computer Brasil - Industria e Comercio LTDA Brazil
Compaq Computer Comercializadora, S.A. de C.V. Mexico
Compaq Computer de Argentina S.A. Argentina
Compaq Computer de Colombia S.A. Colombia
Compaq Computer de Mexico, S.A. de C.V. Mexico
Compaq Computer de Venezuela, S.A. Venezuela
COMPAQ Computer EMEA GmbH Germany
Compaq Computer FZE United Arab Emirates
Compaq Computer Gesmbh Austria
Compaq Computer GmbH Germany
Compaq Computer Group Limited United Kingdom
Compaq Computer Hong Kong Limited Hong Kong
Compaq Computer International Corporation Delaware
Compaq Computer Trading Limited Liability Company Hungry
Compaq Computer Korea Limited Korea
Compaq Computer Limited United Kingdom
Compaq Computer Manufacturing Limited United Kingdom
Compaq Computer N.V./S.A. Belgium
Compaq Computer New Zealand Limited New Zealand
Compaq Computer Norway AS Norway
Compaq Computer OY Finland
Compaq Computer Portugal, Lda. Portugal
Compaq Computer S.A.R.L. France
Compaq Computer S.p.A. Italy
Compaq Computer Taiwan Limited Republic of China
Compaq Computer Technologies (China) Co. Ltd. China
Compaq Computer, S.A. Spain
Compaq Computer, Sp.zo.o. Poland
Compaq Computer, spol. s.r.o. Czech Republic
Compaq FSC (Barbados) Inc. Barbados
Compaq Holdings B.V. Netherlands
Compaq Holdings Pte. Ltd. Singapore
Compaq Houston Investment Corporation Delaware
Compaq Industrial, Comercial, Importadora E Exportadora Ltda. Brazil
Compaq International Corporation Texas
Compaq International Procurement Corporation Delaware
Compaq Kabushiki Kaisha Japan
Compaq Latin America Corporation Delaware
Compaq Project, Inc. Delaware
Compaq Technologies (Australia) Propietary Limited Australia
Compaq Telecommunications Corporation/Inactive Texas
Compaq Ventures Corporation Delaware
Compaq Ventures, Pte. Ltd. Singapore
Compaq-Austin, Inc. Texas
Compaq-Dallas, Inc. Delaware
CPQ Holdings, Inc. Delaware
</TABLE>
<PAGE> 1
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 21, 1997 appearing in the 1996 Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in this Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
February 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPAQ
COMPUTER CORPORATION'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATMENT OF
INCOME FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,920
<SECURITIES> 1,073
<RECEIVABLES> 3,395
<ALLOWANCES> 227
<INVENTORY> 1,152
<CURRENT-ASSETS> 9,169
<PP&E> 2,219
<DEPRECIATION> 1,047
<TOTAL-ASSETS> 10,526
<CURRENT-LIABILITIES> 3,852
<BONDS> 300
0
0
<COMMON> 1,107
<OTHER-SE> 5,037
<TOTAL-LIABILITY-AND-EQUITY> 10,526
<SALES> 18,109
<TOTAL-REVENUES> 18,109
<CGS> 13,913
<TOTAL-COSTS> 13,913
<OTHER-EXPENSES> 407
<LOSS-PROVISION> 155
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 1,876
<INCOME-TAX> 563
<INCOME-CONTINUING> 1,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,313
<EPS-PRIMARY> 4.72
<EPS-DILUTED> 4.66
</TABLE>
