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UNITED STATES
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 JANUARY 29, 1995
COMMISSION FILE NUMBER: 0-17017
DELL COMPUTER CORPORATION
2112 KRAMER LANE, BUILDING 1
AUSTIN, TEXAS 78758-4012
(512) 338-4400
A DELAWARE CORPORATION IRS EMPLOYER ID NO. 74-2487834
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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, and (2) it 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/
As of March 1, 1995, the aggregate market value of the Common Stock held by
non-affiliates of the registrant was $1,201,662,480.
As of March 1, 1995, the registrant had outstanding 39,719,402 shares of
its Common Stock, $.01 Par Value.
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Unless otherwise indicated, all references to years in connection with
financial information refer to the Company's fiscal years and all references to
quarters in connection with financial information refer to the Company's fiscal
quarters. The Company's fiscal year ends on the Sunday closest to January 31 of
each year. Fiscal 1995 ended on January 29, 1995, fiscal 1994 ended on January
30, 1994, fiscal 1993 ended on January 31, 1993, and fiscal 1996 will end on
January 28, 1996.
All percentage amounts used in describing operating results are based on
the related dollar amounts rounded to the nearest thousand which are set forth
in the Selected Consolidated Financial Data and the Consolidated Financial
Statements and related notes thereto included in this annual report.
PART I
ITEM 1. BUSINESS
Dell Computer Corporation (the "Company" or "Dell") designs, develops,
manufactures, markets, services and supports a broad range of personal
computers, including desktops, notebooks and servers compatible with industry
standards under the Dell(R) brand name. With revenue of nearly $3.5 billion for
1995, Dell is the world's leading direct marketer of personal computers and one
of the top five personal computer vendors in the world.
Dell primarily markets its personal computer products and services directly
to its customers, which include major corporate, government, medical and
education accounts as well as small businesses and individuals. The Company
believes that its direct customer relationships provide it with a competitive
advantage because the information that the Company gathers and analyzes from
these relationships enables it to better understand and respond to customer
demands for computer products and services. Additionally, such information
enables the Company to focus its computer product development efforts on the
technologies that are most valued by its customers. Dell's approach also
generally avoids the inefficiency and mark-ups associated with the typical
industry model, where products move through a multi-step process involving
manufacturers, distributors, retail stores and a variety of value-added service
providers. Dell supplements its direct marketing strategy by selling personal
computer systems through certain value-added remarketers and system integrators
("VARs") and, in certain international geographical regions, third-party
distributors and consumer retailers.
The Company employs a build-to-order manufacturing process that enables the
Company to achieve rapid inventory turnover and reduced inventory levels, which
reduces the Company's exposure to the risk of declining inventory values. This
flexible manufacturing process also allows the Company to rapidly incorporate
new technologies and components into its product offerings.
The Company's product development efforts are focused on designing and
developing personal computer products which adhere to industry standards and
incorporate technologies and features at reasonable price levels that the
Company believes are the most desired by its customers. As of March 1, 1995, the
Company offered 64 personal computer systems, many of which can be custom
configured with a variety of hardware including multimedia and communication
devices as well as an assortment of memory, mass storage and other options. As
part of its commitment to provide personal computer solutions, the Company also
markets a wide range of software, peripherals, and service and support programs.
Dell Computer Corporation was originally incorporated in Texas in May 1984.
In October 1987, the current Delaware corporation was formed and the renamed
successor to the Texas company became a subsidiary of the Delaware corporation.
Based in Austin, Texas, the Company operates wholly-owned subsidiaries in the
Americas, Europe, Japan, Asia, Australia, and other international locations.
Dell Computer Corporation's Common Stock, $.01 Par Value, (the "Common Stock")
is quoted on the Nasdaq National Market under the trading symbol DELL.
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THE DELL DIRECT RELATIONSHIP MARKETING STRATEGY
Dell's primary strategy has been to develop and utilize direct customer
relationships to understand end users' needs and to deliver high quality
personal computer products and services tailored to meet those needs. The
Company provides its customers with individualized service, from the initial
order through custom configured manufacturing to post-sale service and support,
including technical support and on-site service. The Company uses feedback from
its broad base of customer contacts to refine its product development, marketing
and customer support plans.
Dell's direct marketing strategy provides the Company with several
competitive advantages. First, Dell can price its products aggressively because
it avoids typical dealer mark-ups and high inventory costs of physical stores.
Second, it can offer a broader line of products because it is not constrained by
physical retail shelf space. Third, the Company can accelerate time-to-market on
new product introductions which reduces obsolescence risk because it does not
need to support an extensive pipeline of dealer inventory. Fourth, direct
customer contact provides valuable information that is used to shape future
product offerings and post-sale service and support. Fifth, the Company
continually adds to its database of information about its customers, enabling it
to market future product offerings more cost-effectively. Finally, by providing
its end users with a full range of services, the Company believes it has a
greater opportunity to develop customer loyalty than those who market through
retail stores.
There is no single customer of Dell, or any VAR or distributor of the
Company's products, to which aggregate sales amounted to ten percent or more of
the Company's consolidated revenue for any of the last three fiscal years ended
in 1995.
Although the Company believes its direct marketing strategy offers many
advantages to certain customers, a portion of personal computer buyers
(primarily certain medium- to small-sized businesses and individuals) desire
physical access to products, particularly when making their first personal
computer purchase. Direct marketing typically does not offer these end-users
physical access to products before the purchase decision. However, the Company's
personal computer products have achieved customer acceptance with a large number
of customers who are comfortable purchasing directly from the manufacturer.
Accordingly, the Company is dependent on the growth of direct distribution
channels to have a growing market in which to sell its products and services.
There can be no assurance that worldwide direct marketing channels will grow or
that the Company would be able to establish a more significant presence in
indirect channels of distribution if it becomes necessary or desirable in the
future.
INTERNATIONAL OPERATIONS
The Company currently sells personal computer products in more than 125
countries through selected distributors and wholly-owned and operated
subsidiaries in the Americas, Europe, Japan, Asia, Australia, and other
international locations. Many of the Company's international subsidiaries were
originally formed as stand-alone businesses providing sales, technical support
and customer service. While this approach facilitated effective and rapid market
penetration, it also created redundant marketing and support programs among the
subsidiaries. During 1995, the Company continued its process of consolidating
common functions, primarily in Europe, into regional business units to reduce
redundant costs and improve the Company's ability to deliver its products and
services in these markets. International operations benefited in 1995 from
improvements in manufacturing logistics and efficiencies from its vendor
certification program and from improved inventory management.
Dell's manufacturing facility in Limerick, Ireland now supplies virtually
all of the products the Company sells in Europe, Japan, Australia, the Middle
East and Africa. The Company expects to begin construction in March 1995 of a
238,000 square foot combination office and manufacturing facility on a nine-acre
site in Penang, Malaysia, to meet the needs of its expanding Asia-Pacific
business. Dell intends to continue to expand its international activities by
increasing market presence in existing markets, improving support systems,
pursuing additional distribution opportunities, and entering new markets. The
success and profitability of international operations may be adversely affected
by risks associated with international activities, including economic and labor
conditions, political instability, tax laws (including U.S. taxes on foreign
subsidiaries),
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and changes in the value of the United States dollar versus the local currency
in which products are sold. Changes in exchange rates may adversely affect the
Company's consolidated net sales (as expressed in United States dollars) and
gross profit margins from international operations. The Company attempts to
mitigate this exposure through hedging transactions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Activities."
The Company's European operations contributed net revenue of $953 million
for 1995, representing a 22% increase over $782 million in net revenue for 1994.
European revenue for 1994 represented a 41% increase over $553 million in net
revenue for 1993. Other international sales increased 126% to $122 million for
1995 primarily driven by Japan which more than doubled in 1995 compared with
1994. Other international sales increased in 1994 to $54 million from $1.3
million in 1993. These increases resulted primarily from increased sales in
existing geographic markets and, to a lesser extent, expansion into new
geographic markets. In prior years, the Company consolidated its international
operating results on a one-month delay to facilitate consolidated financial
reporting. In the fourth quarter of 1995, the Company eliminated this one-month
delay. Accordingly, the Company's income before income taxes for 1995 includes
one additional month of international operations. Net earnings before taxes of
$5.7 million for this additional month are included in the consolidated
statement of operations in financing and other income (expense) resulting in an
additional $4.1 million of net income or $0.10 of primary earnings per common
share. Net earnings for this additional month of international operations had no
effect on the Company's operating income.
MARKETING AND SALES
Dell markets its personal computer products and services directly to
businesses, government agencies, medical and educational institutions and
individuals, primarily by means of telephone and catalogs and through a growing
field sales force calling on major customers. The Company provides related
technical support and other customer services primarily by telephone as well as
through on-site field service contracts. Specialized marketing approaches are
tailored to meet the needs of each type of customer in a cost effective manner.
National and Multi-National Accounts
Dell currently has a broad base of business among Fortune 500(R) companies
and governmental, medical and educational institutions worldwide. The Company's
government customers include the U.S. Federal government and various state and
local governments. The Company has held a U.S. General Services Administration
Schedule contract since June 1987, through which U.S. federal governmental
agencies purchase the Company's computers and equipment.
The Company has developed direct sales marketing programs and services
specifically geared to large corporate, government, medical, and educational
customers. Dell account management teams consisting of sales, customer service
and technical support representatives form long-term customer relationships to
provide each large account with a single source of assistance on issues ranging
from order placement to system configuration, connectivity and technology
transitioning. To support these teams, Dell has account executives in many major
cities in the Americas, Europe and other international locations. For customers
with in-house maintenance organizations, Dell offers a variety of programs
including specialized personal computer training programs, a repair parts
assistance program, and other customized programs to provide access to the
Company's technical support team. Customized product delivery and service
programs are available on a worldwide basis.
The Company also markets its products through VARs that customize these
computer systems with specific end-user applications through the addition of
hardware, software or services. Because VARs frequently package complete
application-specific solutions, they are in position to benefit from the
Company's custom manufacturing and technical and marketing support programs. To
provide VARs with added flexibility, the Company offers several programs
tailored directly to their needs. For example, VARs can purchase complete
systems from the Company and have them shipped directly to the user's
installation site, allowing VARs to reduce inventory, handling and other related
costs.
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Net sales from national and multi-national accounts increased 26% to $2.3
billion in 1995 from $1.8 billion in 1994. Revenue from national accounts
increased 50% in 1994 from $1.2 billion in 1993. Sales to this customer group as
a percentage of consolidated net sales represented approximately 67% in 1995,
64% in 1994 and 61% in 1993.
Medium- to Small-Sized Businesses and Individuals
The Company markets its personal computer products and services to medium-
to small-sized businesses and individuals by advertising in trade and general
business publications and mailing a broad range of direct marketing publications
such as promotional pieces, catalogs and customer newsletters. The Company
believes these customers value its ability to provide: reliable computer systems
that are custom configured to their performance, features and other system
requirements; knowledgeable sales assistance; and post-sale support and on-site
service offerings.
The Company supplements its direct marketing strategy through distribution
agreements with retail mass merchants primarily in Japan and a catalog
distribution company in the United Kingdom. In June 1994, the Company adopted a
plan to discontinue sales through consumer retailers in the United States and
Canada to better focus on its direct marketing model.
Net revenue from medium- to small-sized businesses and individuals
increased 12% to $1.2 billion in 1995 from $1.0 billion in 1994. Net revenue
from medium- to small-businesses and individuals increased 31% in 1994 from $787
million in 1993. Sales to this customer group represented 33% of consolidated
net sales in 1995, 36% in 1994 and 39% in 1993.
SERVICE AND SUPPORT
The Company offers customers several service and support programs tailored
to meet varying levels of customer requirements and toll-free telephone access
to trained technical specialists, 24 hours a day, 7 days a week. These
specialists maintain close contact with marketing, manufacturing, and product
design groups and have on-line access to the original system configuration and
the customer's service history. The Company tracks customer support calls by
category in order to identify and correct trends that may signal a design or
manufacturing concern. Many of Dell's current systems include software that
enables customers to diagnose and communicate system problems. Several models
also include a built-in diagnostics system that can provide on-line information
about system malfunctions. The Company has experienced delays in its telephone
support system due to high volumes of customer calls for technical support at
particular times. The Company is currently expanding its telephone support
operations.
In addition to personal support by telephone, the Company offers
alternative support avenues through the Internet and many of the on-line
subscription services such as CompuServe, America Online and Prodigy. Dell also
provides customers access to the Company's bulletin board system, TechFax(SM)
and AutoTech systems which provide free technical information and answers to
frequently asked questions.
In the United States, basic warranty coverage for Optiplex(TM) desktops,
advanced server systems and the Latitude XP(TM) notebook is a three year
limited-warranty while Dimension(TM) desktop products and the Latitude(TM) line
of notebook computers come with a one year limited-warranty. Standard services
under these warranties include: (i) unlimited, toll-free 24-hour customer
service and technical support; (ii) "Getting Started" hotline support; (iii)
parts delivery and on-site labor service, with limited warranty coverage varying
by product type. Additionally, Dell offers an unconditional 30 day money back
guarantee for any customer buying directly from Dell.
Recognizing that customer requirements vary, Dell enables customers to pay
for customized levels of service to support their needs. These services include:
(i) enhancement of basic warranty coverage for extended periods or on-site
support through the SelectCare(SM) Services program; (ii) a Shared Maintenance
Program to provide instruction and support for servicing Dell computers to
companies with their own service capabilities or a third party service provider;
(iii) Dell BusinessCare(SM), which is designed for corporate users with servers
on local or wide area networks, and includes network software support by Dell
and next business
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day on-site services delivered by BancTec Service Corp., an independent
contractor; and (iv) upgrades to faster response through four hour on-site
service provided by Digital Equipment Corporation.
Many of the support services described above are offered exclusively or
primarily to Dell's customers in the United States. A full line of warranty,
service and support options are available in Dell's international markets, but
these options can vary significantly based on the local market and customer
requirements.
PRODUCT DEVELOPMENT
The Company's product development efforts are focused on designing and
developing personal computer products which adhere to industry standards and
incorporate technologies and features at reasonable price levels that the
Company believes are the most desired by its customers. The Company employs a
product development team that includes programmers, technical project managers
and engineers experienced in system architecture, logic board and chip design,
sub-system development, mechanical engineering, manufacturing processing and
operating systems design. This cross-functional approach to product design has
enabled the Company to develop systems with improved functionality,
manufacturability, reliability, serviceability and performance while keeping
costs competitive. The Company takes steps to ensure that new products are
compatible with industry standards and that they meet cost objectives based on
competitive pricing targets.
The Company's expenditures on research, development and engineering
activities approximated $65 million in fiscal 1995 compared with $49 million for
1994 and $42 million for 1993. The Company considers its research, development
and engineering activities to be important to its success and growth. See
"Business -- Patents, Trademarks and Licenses."
To maintain its competitive position, the Company must continue to enhance
its existing products while developing new products. To do so it must obtain and
incorporate new hardware, software, communications and peripheral technologies
that are primarily developed by others. The Company believes that it is
necessary for its products to adhere to generally accepted industry standards,
which are subject to change in ways that are not within the control of the
Company. There can be no assurance that the Company's product development
activities will be successful, that new technologies will be available to the
Company, that the Company will be able to deliver commercial quantities of new
products in a timely manner, that those products will adhere to generally
accepted industry standards, or that the products will achieve market
acceptance. Some new products introduced by the Company are intended to replace
existing products. Although the Company monitors the products that are intended
to be replaced and attempts to phase out the manufacture of those products in a
timely manner, there can be no assurance that such transitions will be executed
without adversely affecting the Company's results of operations or financial
conditions.
In addition, the personal computer industry is characterized by continuing
improvements in technology which vendors must incorporate into their products in
order to remain competitive. The Company's direct marketing model and
build-to-order manufacturing process has allowed it to participate in these
technology transitions, including the transition to Pentium processor-based
computer systems, earlier than some of its competitors. As a new technology
matures and an increasing number of competitors incorporate this technology into
their products, price competition typically increases. There can be no assurance
that the Company will be able to continue to effectively manage technology
transitions or that there will be technology improvements in the personal
computer business sufficient to allow the Company to take advantage of its
direct model and build-to-order manufacturing process.
THE DELL PRODUCT PORTFOLIO
As of January 29, 1995, the Company had seven Dell-branded lines of
personal computer systems comprised of a total of 64 systems. The Company's
award-winning 486-based notebook computer line targeted at users running
mainstream applications includes five Latitude and five Latitude XP systems
which offer industry-leading performance, flexible system expansion and advanced
battery and power management technology. The OmniPlex(TM) line is comprised of
four Pentium processor-based and five 486-based systems that are targeted for
corporate and other major account customers with high performance personal
computing needs. The OptiPlex line is comprised of four Pentium processor-based
systems and twelve 486-based systems
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that are targeted at corporate customers who require advanced features and
performance. The Dell Dimension XPS(TM) line is comprised of four Pentium
processor-based systems that are targeted at technologically sophisticated
businesses and individual users. The Dell Dimension product line is comprised of
five 486-based personal computer systems targeted at medium- to small-sized
businesses and individual users. Each Dell Dimension XPS system and some of the
Dell Dimension systems can be configured in either a desktop or a floorstanding
model. Each system can be custom configured with a variety of hardware including
multimedia and communication devices as well as an assortment of memory, mass
storage and other options and is backed by Dell's comprehensive service and
support program, which includes compatibility, service and response guarantees.
The Dell PowerEdge(TM) line includes twenty servers consisting of twelve
Pentium processor-based systems and eight 486-based systems which can be used as
file servers, database servers, applications servers, and
communications/groupware servers in a networked computing environment. Four of
the twelve Pentium processor-based systems contain dual processors which enable
the server to support several multiprocessing operating systems and
applications.
In addition to its own branded products, the Company offers a broad range
of software and peripheral products through its DellWare(R) program. The
DellWare line offers more than 7,000 of the most popular software packages and
hardware and communication peripherals. In February 1993, Dell expanded its
third-party applications software integration capabilities with ReadyWare(SM), a
collection of more than 150 popular software applications and interface cards
that can be factory-installed on all Dell systems. The Company offers next
business day delivery as well as an extended training and support program from
Software Support, Inc. of Lake Mary, Florida, on more than 120 of its software
offerings. This support program includes a 24-hour toll-free software support
line.
The Company enhances its personal computer systems offerings with a number
of specialized services, including custom hardware and software integration and
network installation and support. For example, the Company offers custom
configuration, installation and support of integrated network solutions based on
Novell's network operating systems. Under this program, the Company offers
turnkey solutions for networking offices that need basic local area networks or
for linking workgroups with more complex networks. The Company offers a number
of other hardware and software integration services tailored to specific
end-user needs.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems enable the Company to track
each unit sold from the initial sales contacts through the manufacturing process
and post-sale service and support and assists the Company in tracking key
information about many of its customers. The Company is able to target marketing
activities specifically to particular types of customers using its database to
assess purchasing trends, advertising effectiveness, and customer and product
groupings. This database, unique to Dell's direct model, allows the Company to
gauge customer satisfaction issues as well as the opportunity to test new
propositions in the marketplace prior to product or service introductions.
The Company is in the process of transitioning its management information
systems to more fully integrate them on an enterprise wide basis, to reduce
redundancy and to incorporate enhanced functionality. The Company currently
expects this transition, which involves both hardware and software enhancements,
to continue at least through 1998. There can be no assurance that this
management information system transition can be accomplished on a timely basis
or without disruptions of the Company's operations, or management information
functions, which could have a material adverse effect on the Company's results
of operations.
The Company has experienced rapid growth, which has required it to enhance
and expand its management team, information systems, manufacturing operations,
and other aspects of its infrastructure. If the Company continues to experience
rapid growth, of which there can be no assurance, it will need to continue to
improve and expand its infrastructure. There can be no assurance that the
Company will be able to manage expansion of its infrastructure to support future
growth effectively, nor can there be any assurance that
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the Company's results of operations will not be adversely affected by any such
growth, enhancements or expansion.
GOVERNMENT REGULATION
In the United States, the Federal Communications Commission ("FCC")
regulates the radio frequency emissions of personal computing equipment. The FCC
has established two standards for computer products, Class A and Class B. Only
Class B products may be sold for use in a residential environment. Both Class A
and Class B products may be sold for use in a commercial environment. The
Company periodically tests or hires consultants to test its products to ensure
that the products satisfy applicable FCC regulations. All of the Company's
current desktop and portable systems are sold under the more restrictive Class B
certification. Many of the network servers sold by the Company are under Class A
certification, but some are sold under Class B certification. From time to time,
the Company has experienced delays in securing FCC certification and there can
be no assurance that such delays will not occur in the future.
The Company is also required to obtain regulatory approvals in other
countries prior to the sale or shipment of personal computing equipment. In
certain jurisdictions such requirements are more stringent than in the United
States, and many developing nations are just beginning to establish safety,
environmental and other regulatory requirements which may vary greatly from U.S.
requirements. Any delays or failures in obtaining necessary approvals from
foreign jurisdictions may impede or preclude the Company's efforts to penetrate
such markets and there can be no assurance that such failures or delays will not
occur in the future.
THE DELL MANUFACTURING PROCESS
The Company manufactures all of its desktop and server personal computer
systems at its Austin, Texas and Limerick, Ireland manufacturing facilities. The
Company expects to begin construction in March 1995 of a 238,000 square foot
combination office and manufacturing facility on a nine-acre site in Penang,
Malaysia, to meet the needs of its expanding Asia-Pacific business. The Company
contracts with Quanta Computer, Inc. and Sony Corporation to manufacture
unconfigured base Latitude and Latitude XP notebook personal computers,
respectively, which the Company custom configures for shipment to customers.
The Company's manufacturing process consists of assembly, functional
testing and quality control of the Company's products as well as components,
parts and subassemblies from suppliers. The Company has pursued a build-to-order
manufacturing strategy which is designed to allow it to rapidly produce personal
computer solutions customized to customer specifications. The Company's
build-to-order manufacturing process enables the Company to achieve rapid
inventory turnover and reduced inventory levels, which somewhat reduces the
Company's exposure to the risk of declining inventory values. This flexible
manufacturing process also allows the Company to rapidly incorporate new
technologies or components into its product offerings. However, the
build-to-order manufacturing process makes it more difficult for the Company to
achieve the same manufacturing efficiencies as computer manufacturers that sell
standardized products in high volume.
Quality control is maintained through testing of components, parts and
subassemblies at various stages in the manufacturing process. Quality control
also includes a burn-in period for completed units after assembly, on-going
production reliability audits, failure tracking for early identification of
production and component problems, and information from the Company's customers
obtained through its toll-free telephone support service. During 1995, the
Company implemented a voluntary vendor certification program under which
qualified vendors commit to meet defined quality specifications. Both the U.S.
and the Ireland manufacturing facilities have been certified as meeting ISO 9002
quality standards.
The Company's manufacturing process requires a high volume of quality
components that are procured from third party suppliers. Reliance on suppliers,
as well as industry supply conditions, generally involves several risks,
including the possibility of defective parts, a shortage of components,
increases in component costs, and reduced control over delivery schedules, any
or all of which could adversely affect the Company's financial results. The
Company has several single supplier relationships and the lack of availability
of timely and reliable supply of components from these sources could adversely
affect the Company's business. Even
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when multiple vendors are available, the Company may establish a working
relationship with a single source when the Company believes it is advantageous
for total cost of ownership reasons, including performance, quality, support,
delivery and price considerations. Also, the Company has occasionally
experienced certain defective components, which can affect the reliability and
reputation of its products. There can be no assurance that the Company will be
able to continue to obtain additional supplies of reliable components in a
timely or cost-effective manner. In particular, the Company obtains its supply
of microprocessors from Intel Corporation, although certain comparable
microprocessors are available from other sources. The Company is continuing to
increase its shipments of products incorporating Intel's Pentium microprocessor.
In November 1994, an inaccuracy in Intel's Pentium microprocessor was
publicized that, in some cases, may cause errors in division. Based on
information from Intel Corporation, the Company believes only a limited number
of its Pentium microprocessor customers perform calculations affected by the
inaccuracy. Nonetheless, Intel has offered replacement microprocessors to
end-users for any Pentium microprocessor exhibiting this inaccuracy. By early
February 1995, all of the Company's new shipments of Pentium processor-based
products contained the corrected Pentium microprocessors. Although the Company
had an inventory of Pentium microprocessors that exhibited the inaccuracy and
previously shipped products which included such microprocessors, the Company
believes that the costs associated with this inventory and replacement of
Pentium microprocessors which exhibit this inaccuracy previously shipped to
customers will not have a material adverse effect on the Company's results of
operations or financial condition.
BACKLOG
The Company does not believe that backlog is a meaningful indicator of
sales that can be expected for any period. The Company attempts to reduce
manufacturing costs by more efficiently managing its flow of customer orders,
which resulted in an increase in backlog to $95 million at January 29, 1995,
compared with $38 million at January 30, 1994. Consistent with the Company's
unconditional 30 day return policy, customers may cancel or reschedule without
penalty prior to commencement of manufacturing.
COMPETITION
The personal computer industry is highly competitive and is characterized
by the frequent introduction of new products, continual improvement in product
price/performance characteristics, price sensitivity on the part of customers,
and a large number of competitors. The industry also has been characterized by
rapid technological advances in hardware performance and features and software
functionality based on existing or emerging industry standards. Principle
competitive factors include product performance, quality and reliability,
customer service and support, marketing and distribution capabilities and price.
The Company believes it competes effectively on the basis of these factors
although there can be no assurance that the Company will be able to maintain its
competitive position with respect to these or other factors. The Company and
other manufacturers of personal computers that adhere to industry standards
generally have access to and make use of many of the same components, often from
the same group of suppliers. The prices of many of these components decline
periodically, and the general practice of the Company and other personal
computer manufacturers is to reduce the prices of their personal computer
products to reflect these component price declines. The Company may take
additional pricing actions as it attempts to maintain a competitive mix of
price, performance, and customer support services while managing its liquidity,
profitability and growth. The Company attempts to mitigate the effects of price
reductions by improving product mix, further reducing component costs and
lowering operating costs. There can be no assurance that pricing actions will be
effective in stimulating higher levels of sales or that cost reduction efforts
will offset the effects of pricing actions on the Company's gross margin. Some
of the Company's competitors have greater financial, marketing, manufacturing
and technological resources, broader product lines, greater brand name
recognition, and larger installed customer bases than those of the Company.
There can be no assurance that the Company will continue to compete
successfully.
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PATENTS, TRADEMARKS AND LICENSES
The Company holds 61 United States patents and six foreign patents. As of
March 1, 1995, the Company had 276 United States patent applications pending,
and 32 foreign applications pending in several European and Asian countries. The
Company's United States patents expire in years 2005 through 2015. The
inventions claimed in its patents and patent applications cover aspects of the
Company's current and possible future personal computer products and related
technologies. The Company is developing a portfolio of patents which it
anticipates will be of value in negotiating intellectual property rights with
others in the industry.
The Company has obtained U.S. federal trademark registration for its DELL
word mark and its Dell logo mark. The Company owns registrations for twelve of
its other marks in the U.S. The Company has pending applications for
registration of 16 other trademarks. The DELL word mark, Dell logo and other
trademark and service mark registrations in the U.S. may be renewed as long as
the mark continues to be used in interstate commerce. The Company believes that
establishment of the DELL mark and logo in the U.S. is material to the Company's
operations. The Company has also applied for or obtained registration of the
DELL mark and/or several other marks in approximately 91 other countries or
jurisdictions where the Company conducts or anticipates expanding its
international business. The Company also has taken steps to reserve corporate
names and to form non-operating subsidiaries in certain foreign countries where
the Company anticipates expanding its international business. The Company is
precluded from obtaining a registration for trademarks comprising or
incorporating the term "Dell" in certain foreign countries. The Company does not
believe that its inability to register "Dell" as a trademark in such countries
will have a material adverse effect on its business.
On March 5, 1993, Dell and Texas Instruments, Inc. ("TI") entered into an
agreement to cross-license their respective patent portfolios. Under the terms
of the agreement, Dell makes annual royalty payments to TI. The agreement
expires on January 31, 1998.
The Company entered into a patent license agreement with International
Business Machines ("IBM") in August 1993, under which the parties have licensed
to one another within prescribed fields of use all current patents and all
patents entitled to an effective application filing date prior to February 1,
1999, which are owned by either of the parties or any of their subsidiaries.
Under the agreement, the Company will also make royalty payments to IBM. The
agreement terminates on the latest expiration date of the patents licensed
thereunder.
The Company has entered into non-exclusive licensing agreements with
Microsoft Corporation for various software packages, including a license for its
MS-DOS and Windows operating system software. The license grants the Company the
right to distribute copies of MS-DOS and Windows through March 31, 1996, with
the right, at the Company's election, to extend the license for up to five
additional years. In addition, the Company has entered into a non-exclusive
license agreement with Phoenix Technologies, Ltd. ("Phoenix") for basic
input-output system (BIOS) and other software that facilitates compatibility
between the Company's products and products manufactured and sold by other
companies. The license agreement with Phoenix provides for a perpetual license
on a royalty-free basis for a nominal annual maintenance fee.
From time to time, other companies and individuals assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies or
marks that are important to the personal computer industry or the Company's
business. The Company evaluates each claim relating to its products and, if
appropriate, seeks a license to use the protected technology. The licensing
agreements generally do not require the counterpart to assist the Company in
duplicating its patented technology nor do these agreements protect the Company
from trade secret, copyright or other violations by the Company or its suppliers
in developing or selling these products. There can be no assurance, however,
that the Company will be able to obtain licenses to intellectual property of
third parties on commercially reasonable terms, if at all. In addition, the
Company could be at a disadvantage if its competitors obtain licenses for
protected technologies with more favorable terms than does the Company. If the
Company or its suppliers are unable to license protected technology used in the
Company's products, the Company could be prohibited from marketing those
products or may have to market products without desirable features. The Company
could also incur substantial costs to redesign its products or to defend any
legal action taken against the Company. If the Company's products should be
found
9
<PAGE> 11
to infringe protected technology, the Company could be enjoined from further
infringement and required to pay damages to the infringed party. Any of these
could have a material effect on the Company.
TRADEMARKS
Several United States trademarks appear in this Annual Report. Dell and
DellWare are registered trademarks of the Company. Dell Dimension, Dimension
XPS, Latitude, Latitude XP, OmniPlex, OptiPlex, and PowerEdge are trademarks of
the Company. BusinessCare, ReadyWare, SelectCare and TechFax are service marks
of the Company. This document also contains other trademarks and tradenames of
other entities. The Company disclaims proprietary interest in the marks and
names of others.
EMPLOYEES
At January 29, 1995, the Company had approximately 6,400 full-time
employees, approximately 4,500 in the United States and 1,900 in other
countries. The Company has never experienced a work stoppage due to labor
difficulties and believes that its employee relations are good.
SEGMENTS AND SEASONALITY
Dell operates in one industry segment: the design, development,
manufacture, sale, service and support of a broad range of personal computers
and related products. The Company experiences seasonal trends in its U.S. and
European corporate and government sectors. The seasonal trends of these
geographical regions have substantially offset each other in the past but there
can be no assurance that these geographical regions will continue to offset each
other or that the Company will not experience seasonal trends in the future.
ITEM 2. PROPERTIES
The Company's principal offices and manufacturing and warehousing
facilities are located in the Austin, Texas area. As of January 29, 1995, the
Company's Austin area offices and facilities totaled approximately 1,571,000
square feet, which included 1,347,000 square feet of leased office,
manufacturing and warehouse space in several buildings under leases with
expiration dates ranging from April 1995 to April 2003. In 1995, the Company
completed construction and took occupancy of a 224,000 square foot office
building on land owned by Dell in Round Rock, Texas, which is used as a direct
sales, marketing and support center. The Company also leases office and
warehouse space in Canada and Mexico totaling approximately 108,000 square feet.
At January 29, 1995, Dell's international facilities were composed of
office, manufacturing and warehousing space which totaled approximately 700,000
square feet including approximately 290,000 square feet of office space in
seventeen countries. The Company's European manufacturing and warehousing
activities are conducted at a 300,000 square foot site in Limerick, Ireland
owned by the Company. The Company also leases a 110,000 square foot warehouse in
Ireland under a lease that expires in June 1995.
Dell has a 228,000 square foot office building under construction in Round
Rock, Texas, to be completed in October 1995, on Company owned land contiguous
to its other Round Rock building. Also, the Company expects to begin
construction of a 238,000 square foot combination office and manufacturing
facility in Malaysia in March 1995. The Company is evaluating other
opportunities to expand facilities in anticipation of increasing needs. The
Company believes that it can readily obtain appropriate additional space as may
be required at competitive rates.
ITEM 3. LEGAL PROCEEDINGS
Set forth below is a discussion of certain legal proceedings involving the
Company, some of which could have a material adverse effect on the Company if
resolved against it. The Company is also party to other legal proceedings
incidental to its business, none of which the Company believes to be material.
The Company and its Chairman, Michael S. Dell, were defendants in nineteen
lawsuits filed between May and November 1993, in the United States District
Court for the Western District of Texas, Austin
10
<PAGE> 12
Division. On November 17, 1994, the Company announced that Mr. Dell and the
Company had reached settlement with the plaintiffs. Under the settlement, the
Company and its insurers will pay a total of $13.4 million (plus accrued
interest from the settlement date) to the plaintiffs. In the settlement, neither
the Company nor Mr. Dell admitted liability or obligation of any kind in
connection with the lawsuit or the underlying allegations. The court approved
the settlement and entered a final judgment of dismissal on February 24, 1995.
The settlement did not have a material effect on Dell's financial position or
results of operations, since the settlement amount was covered by insurance or
previously taken reserves.
As of March 1, 1995, the Company has been named as a defendant in 26
repetitive stress injury lawsuits, most of which are in New York state courts or
United States District Courts for the New York City area. One is in the Federal
District Court for the State of Pennsylvania. The allegations in all of these
lawsuits are similar: each plaintiff alleges that he or she suffers from
symptoms generally known as "repetitive stress injury," which allegedly were
caused by the design or manufacture of the keyboard supplied with the computer
the plaintiff used. The Company has denied or is in the process of denying the
claims and intends to vigorously defend the suits. The suits naming the Company
are just a few of many lawsuits of this type which have been filed, often naming
Apple, Atex, Compaq, IBM, Keytronic and other major suppliers of keyboard
products. The Company currently is not able to predict the outcome of these
suits. It is possible that the Company may be named in additional suits.
Ultimate resolution of the litigation against the Company may depend on progress
in resolving this type of litigation overall.
For information about a Securities and Exchange Commission informal inquiry
relating to the Company's foreign currency hedging and trading activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Activities." By letter dated July 21, 1993, the Commission
notified the Company that it was extending the informal inquiry to the
circumstances and events surrounding the public announcement on July 14, 1993,
about the Company's expected losses for its second quarter of 1994 and into the
Company's procedures for estimating sales.
On August 11, 1993, the Department of Commerce ("DOC") served a subpoena on
the Company, requesting documents relating to possible prohibited exports of
486/66 MHz personal computers that may have been shipped from Dell to Russia,
Ireland, Iran or Iraq during the period from January 1992 through October 1993.
Dell formally responded to the DOC in November 1993. The Company is still
awaiting a response from the DOC regarding the Company's authority under the
Company's Irish export license to make certain shipments to Russia. If the
Office of Export Enforcement's investigators determine that the Company has
violated applicable regulations, the government could potentially file civil or
criminal charges. The Company is cooperating in the investigation. The Company
does not believe this investigation or its outcome will have a material adverse
effect on the Company's financial condition or results of operations.
The Company has received a request from the Federal Trade Commission
("FTC") dated January 5, 1994, to provide documents and other information in
connection with the FTC's inquiry into the computer industry to determine
whether the Company's advertising and marketing claims regarding cathode ray
tube ("CRT") monitor screen sizes are in violation of the Federal Trade
Commission Act. In general, the inquiry focuses on differences between
advertising and marketing claims as to the size of CRT monitor screen sizes, and
the size of the display area actually viewable by the consumer. The Company is
cooperating with the FTC in this inquiry. The Company does not believe that the
inquiry or its outcome will have a material adverse effect on the Company's
financial condition or results of operations.
In April 1994 the State of California Attorney General notified Dell and 12
other personal computer manufacturers that certain of their advertisements with
regard to monitor screen sizes were believed to be deceptive and misleading,
based on the same concepts expressed by the FTC. The Company is responding to
this investigation in coordination with other companies in the industry. The
Company does not believe that the inquiry or its outcome will have a material
adverse effect on the Company's financial condition or results of operations.
The Company has received a subpoena from the FTC dated July 18, 1994, in
connection with an inquiry with respect to whether the Company may have
misrepresented or improperly failed to disclose patent rights that would
conflict with open use of a local high-speed personal computer bus standard
promulgated by the
11
<PAGE> 13
Video Electronics Standards Association ("VESA"). The Company is cooperating in
this inquiry. The Company does not believe that the inquiry or its outcome will
have a material adverse effect on the Company's financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock is quoted on the Nasdaq National Market under the trading
symbol DELL. The following table sets forth, for the fiscal quarters indicated,
the high and low reported bid sale price for the Common Stock as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1995
Fourth Quarter
(October 31, 1994, through January 29, 1995)............................ $47 3/4 $36 3/4
Third Quarter
(August 1, 1994, through October 30, 1994).............................. $44 $27 1/2
Second Quarter
(May 2, 1994, through July 31, 1994).................................... $30 3/4 $21 1/2
First Quarter
(January 31, 1994, through May 1, 1994)................................. $30 1/8 $19 1/8
FISCAL 1994
Fourth Quarter
(November 1, 1993, through January 30, 1994)............................ $28 1/8 $20 1/8
Third Quarter
(August 2, 1993, through October 31, 1993).............................. $21 5/8 $15 1/8
Second Quarter
(May 3, 1993, through August 1, 1993)................................... $34 3/4 $13 7/8
First Quarter
(February 1, 1993, through May 2, 1993)................................. $49 1/4 $27 5/8
</TABLE>
HOLDERS
As of March 1, 1995, there were 3,244 holders of record of the Common
Stock.
DIVIDENDS
The Company has never paid cash dividends on its common stock. The Company
intends to retain earnings for use in its business and, therefore, does not
anticipate paying any cash dividends on common stock for at least the next
twelve months. In addition, the terms of the Company's current loan agreements
and credit facilities place restrictions on the payment of cash dividends by the
Company.
12
<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the consolidated financial statements, including the Notes to Consolidated
Financial Statements. The information set forth below is not necessarily
indicative of results of future operations. The information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 2, FEBRUARY 3,
1995(A) 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales:
Americas................................... $2,400,012 $2,037,221 $1,459,607 $ 648,082 $ 397,271
Europe..................................... 952,943 781,905 552,999 241,857 148,964
Other International........................ 122,388 54,039 1,318 -- --
----------- ----------- ----------- ---------- ----------
Consolidated net sales................... 3,475,343 2,873,165 2,013,924 889,939 546,235
Cost of sales................................ 2,737,290 2,440,349 1,564,472 607,768 364,183
----------- ----------- ----------- ---------- ----------
Gross profit.......................... 738,053 432,816 449,452 282,171 182,052
Operating expenses:
Selling, general and administrative........ 423,429 422,906 267,982 182,155 115,016
Research, development and engineering...... 65,361 48,934 42,358 33,140 22,444
----------- ----------- ----------- ---------- ----------
Total operating expenses................. 488,790 471,840 310,340 215,295 137,460
----------- ----------- ----------- ---------- ----------
Operating income (loss)............... 249,263 (39,024) 139,112 66,876 44,592
Financing and other income (expense), net.... (36,267) 258 4,180 6,539 (1,020)
----------- ----------- ----------- ---------- ----------
Income (loss) before income taxes.......... 212,996 (38,766) 143,292 73,415 43,572
Provision for income taxes (benefit)......... 63,819 (2,933) 41,650 22,504 16,340
----------- ----------- ----------- ---------- ----------
Net income (loss)..................... 149,177 (35,833) 101,642 50,911 27,232
Preferred stock dividends.................... (8,750) (3,743) -- -- --
----------- ----------- ----------- ---------- ----------
Net income (loss) applicable to common
stockholders........................ $ 140,427 $ (39,576) $ 101,642 $ 50,911 $ 27,232
========== ========== ========== ========== ==========
Earnings (loss) per common share
Primary.................................... $ 3.38 $ (1.06) $ 2.59 $ 1.40 $ .91
========== ========== ========== ========== ==========
Fully diluted.............................. $ 3.15 $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
Weighted average shares used to compute
earnings per share
Primary.................................... 41,542 37,333 39,235 36,274 30,064
========== ========== ========== ========== ==========
Fully diluted.............................. 47,322 -- -- -- --
========== ========== ========== ========== ==========
Statement of Financial Position Data:
Working capital.............................. $ 718,951 $ 510,397 $ 358,948 $ 282,646 $ 95,163
Total assets................................. $1,594,000 $1,140,480 $ 927,005 $ 559,563 $ 264,222
Long-term debt............................... $ 113,429 $ 100,000 $ 48,373 $ 41,450 $ --
Preferred stock.............................. $ 120,151 $ 120,151 $ -- $ -- $ --
Total stockholders' equity................... $ 651,736 $ 471,108 $ 369,200 $ 274,180 $ 112,005
</TABLE>
- ---------------
(a) In prior years, the Company consolidated its international operating results
on a one-month delay to facilitate consolidated financial reporting. In the
fourth quarter of 1995, the Company eliminated this one-month delay.
Accordingly, the Company's income before income taxes for 1995 includes one
additional month of international operations. Net earnings before taxes of
$5.7 million for this additional month are included in the consolidated
statement of operations in financing and other income (expense) resulting
in an additional $4.1 million of net income or $0.10 of primary earnings
per common share. Net earnings for this additional month of international
operations had no effect on the Company's operating income.
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income of $149.2 million or $3.38 per common share
for 1995 compared with a net income (loss) of ($35.8) million or ($1.06) per
common share for 1994 and $101.6 million or $2.59 per common share in 1993.
In prior years, the Company consolidated its international operating
results on a one-month delay to facilitate consolidated financial reporting. In
the fourth quarter of 1995, the Company eliminated this one-month delay.
Accordingly, the Company's income before income taxes for 1995 includes one
additional month of international operations. Net earnings before taxes of $5.7
million for this additional month are included in the consolidated statement of
operations in financing and other income (expense) resulting in an additional
$4.1 million of net income or $0.10 of primary earnings per common share. Net
earnings for this additional month of international operations had no effect on
the Company's operating income.
The table below sets forth for the years indicated the percentage of
consolidated net sales represented by certain items in the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED NET SALES
-----------------------------------------
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Americas.................................................. 69.1% 70.9% 72.5%
Europe.................................................... 27.4 27.2 27.5
Other international....................................... 3.5 1.9 --
----------- ----------- -----------
Consolidated net sales................................. 100.0 100.0 100.0
Cost of sales............................................. 78.8 84.9 77.7
----------- ----------- -----------
Gross profit........................................... 21.2 15.1 22.3
Operating expenses:
Selling, general and administrative....................... 12.2 14.7 13.3
Research, development and engineering..................... 1.9 1.7 2.1
----------- ----------- -----------
Total operating expenses............................... 14.1 16.4 15.4
----------- ----------- -----------
Operating income (loss)........................... 7.1 (1.3) 6.9
Financing and other income (expense), net................... (1.0) -- 0.2
----------- ----------- -----------
Income (loss) before income taxes......................... 6.1 (1.3) 7.1
Provision for income taxes (benefit) ....................... 1.8 (0.1) 2.1
----------- ----------- -----------
Net income (loss)......................................... 4.3 (1.2) 5.0
Preferred stock dividends................................... (0.3) (0.1) --
----------- ----------- -----------
Net income (loss) applicable to common stockholders....... 4.0% (1.3)% 5.0%
=========== =========== ===========
</TABLE>
Net Sales
Consolidated net sales increased 21% to $3.5 billion in 1995 from $2.9
billion for 1994. Consolidated net sales for 1994 increased 43% from $2.0
billion in sales for 1993. Average revenue per unit increased 12% and unit
volumes increased 8% for 1995 over 1994 primarily because of strong demand for
the Company's Pentium processor-based products and notebook computers. Average
revenue per unit declined by 12% in 1994 compared with 1993 because of shifts in
the Company's product mix and industry-wide pricing strategies. Unit volumes
increased by 61% in 1994 over 1993 due to increased volumes of the Company's
desktop and server products, offset somewhat by the cancellation of its prior
notebook product line in the second quarter of 1994. The Company's consolidated
net sales (expressed in United States dollars) benefited by .5% and 2.4% in 1995
and 1993, respectively, and were reduced by 3.9% in 1994, due to fluctuations in
the average value of the United States dollar relative to its average value in
the comparable periods of the prior year.
14
<PAGE> 16
Since January 30, 1994, the Company has introduced the Latitude family of
notebook computers as well as several Pentium processor-based systems in its
PowerEdge server line and in its Dimension, OmniPlex and OptiPlex desktop
product lines. The Company believes that its success is largely dependent upon
continued growth of its notebook and server product lines and its ability to
continue to efficiently manage the transition to Pentium processor-based
computers and other technological advancements as they become commercially
available. There can be no assurance that the Company's development activities
will be successful, that product technologies will be available to the Company,
that the Company will be able to deliver commercial quantities of computer
products in a timely manner, or that such products will achieve market
acceptance.
Consolidated net sales consisted primarily of sales of computer systems,
including hardware, certain software and accessories, which amounted to 88%, 87%
and 86% of consolidated net sales for 1995, 1994 and 1993, respectively. The
balance of consolidated net sales consisted of revenue from sales of computer
peripherals as well as other hardware, software and accessories sold separately
from computer systems and from sales of extended service contracts. Revenue from
the Company's Pentium processor-based products represented 29% and 1% of system
revenue in 1995 and 1994, respectively. Pentium processor-based sales continued
to gain momentum with fourth quarter sales representing 44% of total system
revenue. The substantial increase in such system sales resulted from the
Company's rapid introduction of Pentium processor-based systems relative to its
competitors and increased customer acceptance of these systems. Sales of the
Company's 486-based systems reflected the shift in demand toward Pentium
processor-based systems and decreased to 71% of system revenue for 1995 (56% in
the fourth quarter of 1995) from 92% of system revenue for 1994. Sales of
486-based products represented 68% of system revenue in 1993 with 386-based
products representing the remaining 32% of system revenue.
Sales of the Company's Latitude family of notebook computers represented 8%
of system revenue for 1995. The Company's notebook computer sales grew
throughout the year with fourth quarter 1995 notebook computer revenue totaling
$128 million or 14% of system revenue, compared with sales of $122 million for
the first three quarters of 1995 combined or 6% of system revenue. The increase
in notebook computer revenue during 1995 primarily resulted from strong customer
acceptance of the Company's Latitude XP notebook computer line introduced in
August 1994. Sales of the Company's notebook computers declined to 3% of system
revenue for 1994 from 12% for 1993 primarily due to the cancellation of the
Company's prior notebook computer product line in the second quarter of 1994.
Net revenue from the Americas (United States, Canada, Mexico and Latin
America) increased 18% in 1995 to $2.4 billion from $2.0 billion in 1994. Net
revenue from the Americas increased 40% in 1994 from $1.5 billion in 1993. The
Company's European operations contributed net revenue of $953 million for 1995,
representing a 22% increase over $782 million in net revenue for 1994. European
revenue for 1994 represented a 41% increase over $553 million in net revenue for
1993. Other international sales increased 126% to $122 million for 1995
primarily driven by Japan where revenue more than doubled in 1995 compared with
1994. Other international sales increased to $54 million in 1994 from $1.3
million in 1993. The Company expects to begin construction in March 1995 of a
238,000 square foot combination office and manufacturing facility on a nine-acre
site in Penang, Malaysia, to meet the needs of its expanding Asia-Pacific
business. Dell intends to continue to expand its international activities by
increasing market presence in existing markets, improving support systems,
pursuing additional distribution opportunities, and entering new markets
primarily through third-party resellers.
Consolidated net sales to national accounts, consisting of sales to major
corporate, government and education accounts and value-added resellers, led
sales gains with a 26% increase to $2.3 billion in 1995 from $1.8 billion in
1994. Consolidated sales to national accounts increased 50% in 1994 from $1.2
billion in 1993. Sales to medium- to small-sized businesses and individuals
increased 12% to $1.2 billion for 1995 from $1.0 billion for 1994 despite the
decline in sales to consumer retailers due to the discontinuation of traditional
consumer retailer sales in the United States and Canada in July 1994. Sales to
medium- to small-sized businesses and individuals increased 31% in 1994 from
$787 million for 1993.
15
<PAGE> 17
Gross Profit Margin
The Company's 1995 gross profit margin increased to 21.2% from 15.1% in
1994. Gross profit margin for 1994 was adversely affected by $70.3 million of
inventory write-downs and related costs incurred during the first half of 1994.
Excluding these charges, gross profit margin would have been 17.5% for 1994. The
increase in gross profit margin to 21.2% from 17.5% (as adjusted) is due to
improvements in manufacturing logistics and efficiencies, component costs and
quality due to the Company's vendor certification and vendor consolidation
programs, and lower charges for inventory obsolescence attributable to improved
inventory management. Gross profit margins also benefited from higher average
revenue per unit resulting from: a more moderate pricing environment in the last
half of 1995; a higher margin sales mix driven by notebook computers and Pentium
processor-based systems; and changes in the Company's sales incentive programs.
The decline in gross profit margin for 1994 from 22.3% in 1993 was also
attributable to significant price reductions to maintain competitive position;
manufacturing inefficiencies associated with system and process weaknesses; and
price reductions on older products to avoid incurring additional charges for
excess and obsolete inventory.
The Company may take pricing actions as it attempts to maintain a
competitive mix of price, performance, and customer support services while
managing its liquidity, profitability and growth. The Company attempts to
mitigate the effects of price reductions by improving product mix, further
reducing component costs and lowering operating costs. There can be no assurance
that pricing actions will be effective in stimulating higher levels of sales or
that cost reduction efforts will offset the effects of pricing actions on the
Company's gross margin.
Operating Expenses
Operating expenses as a percentage of consolidated net sales decreased to
14.1% for 1995 from 16.4% for 1994. Operating expenses increased 4% to $488.8
million for 1995 from $471.8 million for 1994. Operating expenses as a
percentage of consolidated net sales would have been 15.7% for 1994, but was
increased by $21 million of charges for consolidating operations, write-offs of
certain assets, and employee severance payments. The decrease in operating
expenses as a percentage of consolidated net sales in 1995 from 1994 is
primarily due to infrastructure investments incurred during the Company's
regional consolidation efforts commenced in 1994 and reduced advertising and
promotion expenses offset by increased compensation expense as the Company
strengthened its management team and increased research, development and
engineering expenses in 1995. Research and development expenses increased 34% in
1995 compared with 1994 primarily due to higher compensation expense relating to
a 24% increase in headcount and higher development costs related to notebook
computers and other product development efforts. Operating expenses for 1994 of
15.7%, (as adjusted) were relatively flat compared with 15.4% for 1993.
The Company believes that its ability to manage operating costs is an
important factor in its ability to remain price competitive. During 1995, the
Company continued its process of consolidating common functions, primarily in
Europe, into regional business units to reduce redundant costs and improve the
Company's ability to deliver its products and services in these markets.
However, the Company will invest in key global information systems through 1998
to manage and support its growth. No assurance can be given that the Company's
efforts to manage future operating expenses will be successful.
16
<PAGE> 18
Financing and Other Income (Expense), net
Financing and other income (expense) was ($36.3) million, $.3 million and
$4.2 million for 1995, 1994 and 1993, respectively. The table below sets forth
for the years indicated the components of financing and other income (expense):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Financing and other income (expense):
Investment income (loss), net:
Short-term investments............................ $ (7,031) $ 8,772 $12,945
Investment derivatives............................ (23,948) 5,184 2,505
Interest expense..................................... (12,203) (8,350) (7,869)
Foreign currency transactions........................ 2,790 777 9,084
Foreign currency trading............................. -- -- (9,649)
International year-end transition.................... 5,725 -- --
Other................................................ (1,600) (6,125) (2,836)
-------- ------- -------
$(36,267) $ 258 $ 4,180
======== ======= =======
</TABLE>
Short-term investment income (loss) was ($7.0) million in 1995 compared
with $8.8 million in 1994 and $12.9 million in 1993. Investment losses for 1995
were primarily due to realized losses of $24.4 million on certain of the
Company's short-term investments offset by investment income of approximately
$17.4 million for 1995. The investment losses were primarily a result of
interest rate increases in the United States, Canadian, Japanese, and European
interest rate markets. The increase in investment income to $17.4 million for
1995 compared with $8.8 million for 1994 was primarily due to higher average
investment balances and higher effective interest rates. Other unrealized losses
on short-term investments in the amount of $4.0 million ($2.6 million net of
tax) at January 29, 1995, were assessed to be temporary and recorded as a
separate component of stockholders' equity.
The Company has historically employed a variety of interest rate derivative
instruments to manage its principal, market and credit risks and enhance its
investment yield. Derivative instruments utilized include interest rate swaps,
written and purchased interest rate options and swaptions (options to enter into
interest rate swaps). Prior to June 1994, the Company structured derivative
instruments in interest rate markets where it had foreign operations. Interest
rate derivatives generally involve exchanges of interest payments based upon
fixed and floating interest rates without exchanges of underlying notional
amounts. At January 29, 1995 the Company had no investment derivatives
outstanding. At January 30, 1994, the Company had outstanding investment
derivative contracts with a notional amount of $355 million. For the first and
second quarters of 1995, the average fair value of these investment derivative
financial instruments totaled ($11.9) million and ($7.8) million, respectively.
The Company closed all remaining investment derivatives during the second
quarter of 1995. Realized and unrealized net gains (losses) on investment
derivatives recognized in income for 1995 were ($23.9) million compared with
$5.2 million for 1994 and $2.5 million for 1993.
All of the Company's foreign exchange and interest rate derivative
instruments involve elements of market and credit risk in excess of the amounts
recognized in the financial statements. The counterparties to financial
instruments consist of a number of major financial institutions. In addition to
limiting the amount of agreements and contracts it enters into with any one
party, the Company regularly monitors the credit quality of the financial
institutions which are counterparties to these financial instruments. The
Company does not anticipate nonperformance by the counterparties.
Interest expense incurred for 1995 increased to $12.2 million from $8.4
million for 1994. The increase in interest expense in 1995 was primarily due to
higher average debt balances outstanding and higher net interest costs
associated with the 11% Senior Notes (the "Notes") issued in the third quarter
of 1994. Concurrently with the issuance of the Notes, the Company entered into
interest rate swap agreements to reduce its interest costs associated with the
Notes. The swap agreements effectively changed the Company's interest rate
17
<PAGE> 19
exposure from a fixed-rate to a floating-rate basis. However, in response to
increasing interest rates, in August 1994, the Company entered into offsetting
swap agreements to effectively change its interest rate exposure from a
floating-rate basis to a fixed-rate basis. The interest rate swap agreements
mature on August 15, 1998, the first available redemption date of the Notes. At
January 29, 1995, the Company had outstanding receive fixed/pay floating
interest rate swaps with an aggregate notional amount of $100 million offset by
receive floating/pay fixed interest rate swaps with an aggregate notional amount
of $100 million. In addition, the Company had an interest rate swap which
matured in February 1995, with a notional amount of $50 million which was used
to change floating interest rate reset dates on the receive fixed/pay floating
interest rate swaps. The weighted average interest rate, adjusted by the swaps,
was 12.1% and 9.5% for 1995 and 1994, respectively. At January 29, 1995, the
Company is paying a net interest cost of 13.8% on the Notes.
Net foreign currency gains (losses) were $2.8 million, $.8 million and
($.6) million for 1995, 1994 and 1993, respectively. During 1993, the Company
entered into foreign currency forward and option contracts with the intent to
profit from anticipated movements in exchange rates. The Company marked the
contracts to market and recognized resulting gains and losses as a component of
net financing and other income. Net foreign exchange losses recognized during
1993 consisted of $9.6 million in losses related to foreign currency trading
activities and $9.0 million in foreign currency transaction gains associated
with unhedged intercompany balances and other foreign currency transactions. The
Company resumed its intercompany hedging practices in the third quarter of 1993.
During 1994 and 1995, the Company did not enter into foreign currency contracts
with the intent to profit from movements in exchange rates. Accordingly, net
foreign currency transaction gains recognized during 1994 resulted from
remeasuring non-functional currency denominated assets and liabilities, net of
transaction hedge results.
In prior years, the Company consolidated its international operating
results on a one-month delay to facilitate consolidated financial reporting. In
the fourth quarter of 1995, the Company eliminated this one-month delay.
Accordingly, the Company's income before income taxes for 1995 includes one
additional month of international operations. Net earnings before taxes of $5.7
million for this additional month are included in the consolidated statement of
operations in financing and other income (expense) resulting in an additional
$4.1 million of net income or $0.10 of primary earnings per common share.
Financing fees and other income (expense) were ($1.6) million for 1995,
($6.1) million for 1994 and ($2.8) million for 1993. In 1995, the reduction in
financing fees and other costs was primarily due to higher financing-related
expenses incurred in 1994 in connection with refinancing of debt and credit
facilities during 1994.
Income Tax
The Company's effective tax rate was 30.0% for 1995 compared with 7.6% and
29.1% for 1994, and 1993, respectively. The change in the effective tax rate
resulted from changes in the geographical distribution of income and losses and
from significant second quarter 1994 losses.
Fluctuations in Operating Results
The Company's operating results may fluctuate from period to period and
will depend on numerous factors, including, but not limited to, customer demand
and market acceptance of the Company's products, new product introductions,
product obsolescence, component price fluctuations, varying product mix, foreign
currency exchange rates, foreign currency and interest rate hedging, and other
factors. In addition, the Company has operated without a material backlog so
that net sales in a given quarter are dependent on customer orders received in
that quarter and operating expenditures are primarily based on forecasts of
customer demand. As a result, if demand does not meet the Company's expectations
in any given period, the sales shortfall may result in an increased impact on
operating results due to the Company's inability to adjust operating
expenditures quickly enough to compensate for such shortfall. The Company's
business is sensitive to the spending patterns of its customers, which in turn
are subject to prevailing economic conditions and other factors beyond the
Company's control. The Company's results of operations could be materially
adversely affected by changes in economic conditions or customer spending
patterns for personal computer products.
18
<PAGE> 20
HEDGING ACTIVITIES
The results of the Company's international operations are affected by
changes in exchange rates between certain foreign currencies and the United
States dollar. The financial statements of the Company's international sales
subsidiaries have generally been measured using the local currency as the
functional currency. An increase in the value of the United States dollar
increases costs incurred by the Company's international operations because many
of its international subsidiaries' component purchases are denominated in the
United States dollar. Changes in exchange rates may negatively affect the
Company's consolidated net sales (as expressed in United States dollars) and
gross profit margins from international operations. Effective January 30, 1995,
most of the Company's European sales will be made from a U.S. dollar functional
currency entity.
The purpose of the Company's hedging program is to reduce the Company's
exposure to the risk that the dollar-value equivalent of anticipated cash flows
will be adversely affected by changes in foreign currency exchange rates. The
Company attempts to reduce its exposure to currency fluctuations involving
anticipated, but not firmly committed, transactions and involving transactions
with firm foreign currency commitments through the use of purchased foreign
currency option contracts and forward contracts.
Realized and unrealized gains or losses and premiums on foreign currency
purchased option contracts that are designated and effective as hedges of
probable anticipated, but not firmly committed, foreign currency transactions
are deferred and recognized in income in the same period as the hedged
transaction. The risk of loss associated with purchased options is limited to
premium amounts paid for the option contracts, which could be significant.
Forward contracts designated as hedges of anticipated transactions are accounted
for on a mark-to-market basis and included in income as a component of cost of
sales. Transaction exposures representing firm foreign currency commitments are
generally hedged using foreign exchange forward contracts. Forward contracts
related to transaction exposures are accounted for on a mark-to-market basis
with realized and unrealized gains or losses included in financing and other
income (expense) as an offset to the underlying hedged transaction. The risk of
loss associated with forward contracts is limited to the exchange rate
differential from the time the contract is made until the time it is settled.
The Company enters into foreign currency purchased options and, to a lesser
extent, forward contracts to hedge a portion of its anticipated, but not firmly
committed, transactions including sales by international subsidiaries, which
includes international sales by a U.S. dollar functional currency entity and
intercompany shipments to certain international subsidiaries, and foreign
currency denominated purchases of certain components. Foreign currency purchased
options generally expire in twelve months or less and forward contracts
generally mature in three months or less. The principal hedge currencies are the
German mark, the British pound and the Japanese yen. At January 29, 1995, the
Company held purchased option contracts that were designated and effective as
hedges of anticipated sales by international subsidiaries with a total notional
amount of $434.3 million and a combined net realized and unrealized loss of $2.1
million. At January 29, 1995, the Company held purchased options that were
designated and effective as hedges of foreign currency denominated purchases
with a total notional amount of $65.0 million and a combined net realized and
unrealized gain of $1.6 million. Based upon foreign currency exchange rates at
January 30, 1994 and January 31, 1993, option contracts which hedged anticipated
intercompany shipments had a combined net realized and unrealized gain of $2.2
million and $2.0 million, respectively.
Prior to March 20, 1992, the Company principally used combination foreign
currency option contracts to hedge anticipated intercompany sales to its
international subsidiaries. During this period, the accounting for combination
option contracts was actively deliberated by the accounting profession. The
Company closely followed the deliberations of the accounting profession during
this period. Prior to March 20, 1992, the Company accounted for open combination
option contracts entered into with the same strike prices and maturities
("synthetic forward contracts") which were originally entered into to hedge
anticipated 1993 sales to international subsidiaries on a mark-to-market basis.
On March 19, 1992, the Chief Accountant of the Securities and Exchange
Commission (the "Commission") settled much of the accounting controversy
associated with hedge accounting for anticipated transactions when he issued a
letter indicating that the Commission would object to deferral of realized and
unrealized gains or losses arising from complex options
19
<PAGE> 21
and similar transactions entered into after March 20, 1992. Subsequent to that
date, the Company has not entered into any combination option contracts to hedge
anticipated transactions as described above.
In 1992, the Company realized $1.7 million in losses on forward contracts
entered into to hedge anticipated 1993 sales to its international subsidiaries,
which losses were deferred at February 2, 1992, and recognized in the first two
quarters of 1993. Generally accepted accounting principles do not afford hedge
accounting treatment to forward contracts intended to hedge anticipated
transactions. The Company does not believe the losses are material in the
context of the Company's financial condition or results of operations taken as a
whole.
On November 30, 1992, the Commission's Division of Enforcement notified the
Company about an informal inquiry regarding the Company's accounting practices
for foreign currency hedging and trading activities and the completeness of the
Company's public disclosure about those activities. The Company and its
independent accountants are voluntarily cooperating with the Commission in this
informal inquiry. The Commission's Division of Corporation Finance has also
indicated it has concerns about the deferred accounting treatment the Company
afforded gains and losses on forward and option contracts entered into to hedge
anticipated transactions and has not expressed its definitive views about
whether the Company's accounting for these forward and option contracts complies
with generally accepted accounting principles in all material respects. The
Company has not received correspondence from the Commission regarding this
matter since September 1993.
The table below shows the effect on income before income taxes, net income
and earnings per common share for each of the four quarters of 1993, 1994, and
1995, if gains and losses on hedging contracts had been accounted for on a
mark-to-market basis. However, if the Company had believed this accounting
treatment to be appropriate, it likely would have followed different hedging
strategies, which could have received differing accounting treatment than
indicated below. Accordingly, the Company does not believe that the net income
on a mark-to-market basis or the earnings per common share on a mark-to-market
basis included in the following table accurately reflect its business results or
the effect of hedging on its net income.
<TABLE>
<CAPTION>
1993
------------------------------------------------------------
QUARTER ENDED
---------------------------------------------- YEAR ENDED
MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, JANUARY 31,
1992 1992 1992 1993 1993
------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Effect on income before income taxes:
Forward contracts.......................... $ 1.0 $ 0.7 $ -- $ -- $ 1.7
Synthetic forward contracts................ 1.8 2.0 0.9 -- 4.7
Other option contracts..................... (4.9) (13.7) 29.8 9.5 20.7
------ ------- --------- -------- --------
Total effect on income before
income taxes..................... $ (2.1) $ (11.0) $30.7 $ 9.5 $ 27.1
====== ======= ========= ======== ========
Deferred realized and unrealized gain
(loss)..................................... $(27.2) $ (38.2) $(7.5) $ 2.0 $ 2.0
====== ======= ========= ======== ========
Effect on net income and earnings
per common share:
Net income on a mark-to-market basis....... $ 18.4 $ 14.7 $48.9 $38.0 $ 120.8
Net income as reported..................... $ 19.8 $ 21.9 $28.6 $31.3 $ 101.6
Earnings per common share on a
mark-to-market basis.................... $ .48 $ .38 $1.24 $ .94 $ 3.08
Earnings per common share as reported...... $ .52 $ .57 $ .72 $ .77 $ 2.59
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
1994
------------------------------------------------------------
QUARTER ENDED
---------------------------------------------- YEAR ENDED
MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30, JANUARY 30,
1993 1993 1993 1994 1994
------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Effect on income (loss) before income taxes:
Forward contracts........................... $ -- $ -- $ -- $ -- $ --
Synthetic forward contracts................. -- -- -- -- --
Other option contracts...................... (0.3) 5.3 (6.4) 1.6 0.2
------ --------- ----------- ----------- -----------
Total effect on income (loss) before
income taxes...................... $(0.3) $ 5.3 $(6.4) $ 1.6 $ 0.2
===== ======= ======== ======== ========
Deferred realized and unrealized gain
(loss)...................................... $ 1.7 $ 7.0 $ .6 $ 2.2 $ 2.2
===== ======= ======== ======== ========
Effect on net income (loss) and earnings
(loss) per common share:
Net income (loss) on a mark-to-market
basis.................................... $10.0 $ (71.8) $ 7.8 $18.7 $ (35.6)
Net income (loss) as reported .............. $10.2 $ (75.8) $12.0 $17.7 $ (35.8)
Earnings (loss) per common share on a
mark-to-market basis..................... $ .25 $ (1.93) $ .16 $ .41 $ (1.06)
Earnings (loss) per common share as
reported................................. $ .25 $ (2.03) $ .26 $ .39 $ (1.06)
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
QUARTER ENDED
--------------------------------------------- YEAR ENDED
MAY 1, JULY 31, OCTOBER 30, JANUARY 29, JANUARY 29,
1994 1994 1994 1995 1995
------ -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Effect on income (loss) before income taxes:
Forward contracts............................ $ -- $ -- $ -- $ -- $ --
Synthetic forward contracts.................. -- -- -- -- --
Other option contracts....................... (1.9) (8.2) 0.3 7.1 (2.7)
------ -------- ----------- ----------- -----------
Total effect on income (loss) before
income taxes....................... $ (1.9) $ (8.2) $ 0.3 $ 7.1 $ (2.7)
====== ====== ======== ======== ========
Deferred realized and unrealized gain (loss)... $ 0.3 $ (7.9) $(7.6) $(0.5) $ (0.5)
====== ====== ======== ======== ========
Effect on net income (loss) and earnings (loss)
per common share:
Net income (loss) on a mark-to-market
basis..................................... $ 17.7 $ 22.9 $41.6 $65.3 $ 147.3
Net income (loss) as reported ............... $ 19.0 $ 28.6 $41.4 $60.3 $ 149.2
Earnings (loss) per common share on a
mark-to-market basis...................... $ .38 $ .51 $ .94 $1.47 $ 3.33
Earnings (loss) per common share as
reported.................................. $ .42 $ .65 $ .93 $1.36 $ 3.38
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities in 1995 was $243.4
million, which represented the Company's primary source of cash. At January 29,
1995, the Company's working capital totaled $719.0 million. Days in accounts
receivable at the end of 1995 decreased to 47 days from 50 days at the end of
1994. Days in accounts payable increased to 49 days at the end of 1995 from 42
days at the end of 1994. Inventory levels decreased to 32 days of supply at the
end of the 1995 from 33 days at the end of 1994. Maintaining the Company's
current inventory level is dependent upon the Company's ability to achieve
targeted revenue and product mix, to further minimize complexities in its
product line, and to maximize commonality of parts. There can be no assurance
that the Company will be able to maintain these low inventory levels in future
periods.
21
<PAGE> 23
The Company utilized $63.7 million of cash during 1995 to construct
facilities and to acquire information systems and personal computer office
equipment. Capital expenditures for 1996 are expected to be approximately $100
million, primarily related to the construction of manufacturing and
administrative facilities, the acquisition and development of an integrated
management information system and the acquisition of computer equipment for
internal use.
Effective June 10, 1994, the Company entered into a new line of credit
facility which bears interest at a defined Base Rate or Eurocurrency Rate with
covenants based on quarterly income, maintenance of net worth, a maximum ratio
of total liabilities to tangible net worth, and a maximum inventory level.
Maximum amounts available under the credit facility are limited to $90 million
less the aggregate of outstanding letters of credit. During the commitment
period, the Company is obligated to pay a fee on the unused portion of the
credit facility. No borrowings are outstanding under this credit facility, and
the maximum available totaled $77.3 million as of January 29, 1995.
The Company's subsidiary, Dell Receivables Corporation, has a Receivables
Purchase Agreement, which was renewed effective May 24, 1994, pursuant to which
the Company may raise up to $100 million through the sale of interests in
certain of its accounts receivable. The funding expense is based on the rate of
interest on commercial paper issued by the purchaser. The Company is obligated
to pay a commitment fee based on the unused portion of the amount available
under the Receivable Purchase Agreement. This facility was unused during 1995
and the maximum available at January 29, 1995 totaled $100 million.
On August 26, 1993, the Company issued $100 million of 11% Senior Notes due
August 15, 2000. Interest on the Notes is payable semiannually, commencing
February 15, 1994. The Notes are redeemable, in whole or in part, at the option
of the Company, on and after August 15, 1998 at redemption prices decreasing
from 103.50% to 101.75% of principal, depending upon the redemption date.
Concurrent with the issuance of the Notes, on August 26, 1993, the Company
sold 1,250,000 shares of Series A Preferred Stock generating gross proceeds of
$125 million. Each share of Series A Preferred Stock entitles its holder to 7%
cumulative annual dividends and to convert to shares of common stock. In the
event of voluntary or involuntary liquidation, each share of Preferred Stock
entitles its holder to receive $100 per share liquidation preference plus an
amount equal to accrued and unpaid dividends before any distributions to common
stockholders. On February 21, 1995, the Company offered to pay a cash premium of
$8.25 for each share of its Series A Preferred that is converted to common
stock. The offer of premium upon conversion is available to holders of Series A
Preferred Stock until March 22, 1995 unless extended by the Company. The Company
has offered to register resales of the shares of common stock issued upon
conversion of the Series A Preferred Stock pursuant to the offer of premium for
a limited period with the Securities and Exchange Commission. For purposes of
primary earnings per share, the effect of payment of the conversion premium and
the expenses of the conversion offer will be treated as an additional dividend
on the Series A Preferred Stock for financial reporting purposes in the period
in which the conversion offer is completed.
In December 1994, the Company obtained a $14 million loan secured by its
recently-constructed facility in Round Rock, Texas. The loan is for 15 years at
an interest rate of 10.28% with monthly payments of principal and interest,
payable in arrears, commencing in February 1995. The long-term portion of the
loan was $13.4 million at January 29, 1995.
Repayment of the Company's $100 million in 11% Senior Notes due August 15,
2000, the $14 million loan secured by its facilities in Round Rock, Texas and
its operating lease commitments constitute the Company's long-term commitments
to use cash.
Management believes that sufficient resources will be available to meet the
Company's cash requirements through at least the next twelve months. Cash
requirements for periods beyond the next twelve months depend on the Company's
profitability, its ability to manage working capital requirements, and its rate
of growth.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Accountants................................................... 24
Consolidated Statement of Financial Position at January 29, 1995 and January 30,
1994............................................................................. 25
Consolidated Statement of Operations for the three years ended January 29, 1995..... 26
Consolidated Statement of Cash Flows for the three years ended January 29, 1995..... 27
Consolidated Statement of Stockholders' Equity for the three years ended January 29,
1995............................................................................. 28
Notes to Consolidated Financial Statements.......................................... 29
Financial Statement Schedule:
For the three years ended January 29, 1995
Schedule VIII -- Valuation and Qualifying Accounts............................... 59
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dell Computer Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Dell Computer Corporation and its subsidiaries at January 29, 1995
and January 30, 1994, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended January 29, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Austin, Texas
February 21, 1995
24
<PAGE> 26
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash.............................................................. $ 42,953 $ 3,355
Short-term investments............................................ 484,294 333,667
Accounts receivable, net.......................................... 537,974 410,774
Inventories....................................................... 292,925 220,265
Other current assets.............................................. 112,215 80,323
----------- -----------
Total current assets...................................... 1,470,361 1,048,384
Property and equipment, net......................................... 116,981 86,892
Other assets........................................................ 6,658 5,204
----------- -----------
$1,594,000 $1,140,480
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 447,071 $ 282,708
Accrued liabilities............................................... 279,402 237,651
Income taxes...................................................... 24,937 17,628
----------- -----------
Total current liabilities................................. 751,410 537,987
Long-term debt...................................................... 113,429 100,000
Other liabilities................................................... 77,425 31,385
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value; shares authorized: 5,000,000;
shares outstanding: 1,250,000.................................. 13 13
Common stock: $.01 par value; shares authorized: 100,000,000;
shares issued and outstanding: 39,679,638 and 37,929,031,
respectively................................................... 397 379
Additional paid-in capital........................................ 356,768 320,041
Unrealized (loss) gain on short-term investments.................. (2,628) 3,230
Retained earnings................................................. 311,217 170,790
Cumulative translation adjustment................................. (14,031) (23,345)
----------- -----------
Total stockholders' equity................................ 651,736 471,108
----------- -----------
$1,594,000 $1,140,480
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 27
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................ $3,475,343 $2,873,165 $2,013,924
Cost of sales............................................ 2,737,290 2,440,349 1,564,472
---------- ---------- ----------
Gross profit........................................... 738,053 432,816 449,452
Operating expenses:
Selling, general and administrative.................... 423,429 422,906 267,982
Research, development and engineering.................. 65,361 48,934 42,358
---------- ---------- ----------
Total operating expenses....................... 488,790 471,840 310,340
---------- ---------- ----------
Operating income (loss)........................ 249,263 (39,024) 139,112
Financing and other income (expense), net................ (36,267) 258 4,180
---------- ---------- ----------
Income (loss) before income taxes...................... 212,996 (38,766) 143,292
Provision for income taxes (benefit)..................... 63,819 (2,933) 41,650
---------- ---------- ----------
Net income (loss)...................................... 149,177 (35,833) 101,642
Preferred stock dividends................................ (8,750) (3,743) --
---------- ---------- ----------
Net income (loss) applicable to common stockholders...... $ 140,427 $ (39,576) $ 101,642
========== ========== ==========
Earnings (loss) per common share:
Primary................................................ $ 3.38 $ (1.06) $ 2.59
========== ========== ==========
Fully Diluted.......................................... $ 3.15 $ -- $ --
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 149,177 $ (35,833) $ 101,642
Charges to income not requiring cash outlays:
Depreciation and amortization.................... 33,141 30,646 19,597
Net loss on short-term investments............... 21,218 -- --
Other............................................ 3,476 3,971 149
Changes in:
Operating working capital........................ (2,664) 97,008 (162,521)
Non-current assets and liabilities............... 39,034 17,254 2,111
---------- ---------- ----------
Net cash provided by (used in) operating
activities..................................... 243,382 113,046 (39,022)
Cash used in investing activities:
Short-term investments:
Purchases........................................ (4,643,768) (2,587,858) (1,808,464)
Maturities and other redemptions................. 4,339,505 2,287,998 1,750,919
Sales............................................ 123,406 46,560 76,570
Capital expenditures................................ (63,691) (48,055) (47,251)
---------- ---------- ----------
Net cash used in investing activities............ (244,548) (301,355) (28,226)
Cash flows from financing activities:
Net proceeds from (payments for) short-term
borrowings....................................... -- (8,500) 8,500
Borrowings from long-term debt...................... 13,429 96,654 7,270
Repayments of borrowings............................ (695) (49,861) (711)
Net proceeds from issuance of preferred stock....... -- 120,151 --
Preferred stock dividends paid...................... (8,750) (1,921) --
Issuance of common stock under employee plans....... 35,000 21,935 12,244
---------- ---------- ----------
Net cash provided by financing activities........ 38,984 178,458 27,303
---------- ---------- ----------
Effect of translation exchange rate changes on cash... 1,780 (1,742) (567)
---------- ---------- ----------
Net increase (decrease) in cash....................... 39,598 (11,593) (40,512)
Cash at beginning of period........................... 3,355 14,948 55,460
---------- ---------- ----------
Cash at end of period................................. $ 42,953 $ 3,355 $ 14,948
========== ========== ==========
</TABLE>
See Note 10 for Supplemental Consolidated Statement of Cash Flow
Information.
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 29
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------------------------------------------------
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS OTHER TOTAL
--------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at February 2, 1992.............. $-- $358 $165,745 $106,902 $ 1,175 $274,180
Net income.............................. -- -- -- 101,642 -- 101,642
Issuance of 1,056,328 shares of common
stock under employee plans........... -- 11 12,233 -- -- 12,244
Foreign currency translation
adjustment........................... -- -- -- -- (18,866) (18,866)
--- ------ -------- -------- -------- --------
Balances at January 31, 1993.............. -- 369 177,978 208,544 (17,691) 369,200
Net loss................................ -- -- -- (35,833) -- (35,833)
Issuance of 1,250,000 shares of
preferred stock...................... 13 -- 120,138 -- -- 120,151
Issuance of 1,071,083 shares of common
stock under employee plans........... -- 10 21,925 -- -- 21,935
Preferred stock dividends paid.......... -- -- -- (1,921) -- (1,921)
Unrealized gain on short-term
investments.......................... -- -- -- -- 3,230 3,230
Foreign currency translation
adjustment........................... -- -- -- -- (5,654) (5,654)
--- ------ -------- -------- -------- --------
Balances at January 30, 1994.............. 13 379 320,041 170,790 (20,115) 471,108
Net income.............................. -- -- -- 149,177 -- 149,177
Issuance of 1,750,607 shares of common
stock under employee plans........... -- 18 36,727 -- -- 36,745
Preferred stock dividends paid.......... -- -- -- (8,750) -- (8,750)
Unrealized loss on short-term
investments.......................... -- -- -- -- (5,858) (5,858)
Foreign currency translation
adjustment........................... -- -- -- -- 9,314 9,314
--- ------ -------- -------- -------- --------
Balances at January 29, 1995.............. $13 $397 $356,768 $311,217 $(16,659) $651,736
=== ====== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 30
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company designs, develops, manufactures, markets, services and supports
a broad range of personal computers, including desktops, notebooks and servers
compatible with industry standards under the Dell(R) brand name. The Company's
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. The fiscal year of the Company ends on
the Sunday nearest January 31. Unless otherwise indicated, all references to
years in connection with financial information refer to the Company's fiscal
years and all references to quarters refer to the Company's fiscal quarters. The
Company's significant accounting policies are set forth below.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Dell Computer Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. Certain prior period amounts have been reclassified for comparative
purposes.
In prior years, the Company consolidated its international operating
results on a one-month delay to facilitate consolidated financial reporting. In
the fourth quarter of 1995, the Company eliminated the one-month delay.
Accordingly, the Company's income before income taxes for 1995 includes one
additional month of international operations. Net earnings before taxes of $5.7
million for this additional month are included in the consolidated statement of
operations in financing and other income (expense) and the related cash flows
have been included in operating cash flows in the consolidated statement of cash
flows. Net earnings for this additional month of international operations had no
effect on the Company's operating income.
Short-term Investments -- Short-term investments consist primarily of debt
securities and equity securities with readily determinable fair values. The
Company accounts for highly liquid investments with maturities of three months
or less at date of acquisition as short-term investments. The Company's
short-term investments are classified as available-for-sale and accordingly are
reported at fair value, with unrealized gains and losses reported net of taxes
in a separate component of stockholders' equity. Unrealized losses whose decline
is determined to be other than temporary are charged against income. The
specific identification method is used to determine the cost of securities sold.
Investments whose turnover is quick and maturities are short are reflected as
gross purchases and gross maturities and other redemptions in the Consolidated
Statement of Cash Flows. Effective January 30, 1994, the Company adopted
Statement of Financial Accounting Standards 115, "Accounting for Certain
Investments in Debt and Equity Securities," which had no effect on the Company's
results of operations. Prior to January 30, 1994, short-term investments were
classified as available-for-sale and carried at the lower of aggregate amortized
cost or market, with changes in the valuation allowance recognized in current
period income.
Inventories --Inventories are stated at the lower of cost or market, cost
being determined on a first-in, first-out basis.
Property and Equipment -- Property and equipment are carried at cost.
Depreciation is provided using the straight-line method over the economic lives
of the assets ranging from ten to thirty years for buildings and two to five
years for all other assets. Leasehold improvements are amortized over the
shorter of five years or the lease term.
Foreign Currency Translation -- The financial statements for most of the
Company's international subsidiaries are generally measured using the local
currency as the functional currency. Accordingly, assets and liabilities of
these subsidiaries are translated at current rates of exchange at the balance
sheet date of the reporting entity. The resulting gains or losses from
translation are included in a separate component of stockholders' equity. Income
and expense items for these subsidiaries are translated using monthly average
exchange rates. Gains or losses resulting from remeasuring monetary asset and
liability accounts that are denominated in currencies other than a subsidiary's
functional currency are included currently as a component of financing and other
income (expense) in the consolidated financial statements. Financial statements
for international subsidiaries with a U.S. dollar functional currency, such as
the Company's European manufac-
29
<PAGE> 31
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
turing facility, are translated to U.S. dollars using current rates of exchange
for monetary assets and liabilities and historical rates of exchange for
nonmonetary assets. Income and expense items for these subsidiaries are
translated using monthly average exchange rates. Gains and losses from this
process are included in the results of operations.
Financial Instruments -- In the normal course of business, the Company has
utilized derivative financial instruments to manage its exposure to fluctuations
in foreign currency exchange and interest rates. Additionally, the Company has
utilized certain derivative financial instruments for trading purposes. In the
future, the Company intends to use derivative financial instruments only to
manage its exposure to fluctuations in foreign currency exchange rates and to
manage market risk on components of its debt and equity.
Foreign currency hedging instruments -- The Company enters into
foreign exchange option and forward contracts to hedge its anticipated, but
not firmly committed, transactions and transaction foreign currency
exposures. Subsequent to March 20, 1992, anticipated foreign currency
transactions have been hedged using purchased foreign currency option
contracts for periods not exceeding twelve months and, to a lesser extent,
foreign exchange forward contracts, generally for periods not exceeding
three months. Realized and unrealized gains or losses and premiums on
foreign currency purchased option contracts that are designated and
effective as hedges of probable anticipated currency transactions are
deferred and recognized in income in the same period as the hedged
transaction. The risk of loss associated with purchased options is limited
to premium amounts paid for the option contracts, which could be
significant.
Prior to March 21, 1992, the Company principally used combination
option contracts that were designated as hedges of probable anticipated,
but not firmly committed, foreign currency transactions. Gains and losses
on such transactions were deferred and recognized in income in the same
period as the hedged transaction.
Forward contracts designated as hedges of anticipated transactions are
accounted for on a mark-to-market basis and included in income as a
component of cost of sales. Transaction exposures representing firm foreign
currency commitments are generally hedged using foreign exchange forward
contracts. Forward contracts related to transaction exposures are accounted
for on a mark-to-market basis with realized and unrealized gains or losses
included in financing and other income (expense) as an offset to the
underlying hedged transaction.
Interest rate management -- Interest rate differential to be paid or
received on interest rate swaps which are designated to specific borrowings
are accrued and recognized as an adjustment to interest expense. Realized
gains or losses on terminated interest rate swap positions designated to
specific borrowings are recognized as an adjustment to interest expense
over the original life of the interest rate swaps.
Investment derivatives -- Derivative financial instruments that are
not designated to a specific asset or liability are considered investment
derivatives and are accounted for on a mark-to-market basis, with realized
and unrealized gains or losses recognized as incurred and included as a
component of financing and other income (expense), in the consolidated
financial statements. The Company discontinued its investment derivative
program in the second quarter of 1995.
Additionally, during 1993, the Company actively traded foreign
currency forward and option contracts with the intent to profit from
anticipated changes in the financial markets. These contracts were
designated at inception as trading activities and accordingly, were
accounted for on a mark-to-market basis with the realized and unrealized
gain or loss recognized as a component of financing and other income
(expense) in the consolidated financial statements.
Revenue Recognition -- Sales revenue is recognized at the date of shipment
to customers. Provision is made currently for estimated product returns. Revenue
from separately priced extended warranty programs is
30
<PAGE> 32
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred and recognized over the extended warranty period and the related
extended warranty costs are recognized as incurred.
Warranty and Other Post-sales Support Programs -- The Company provides
currently for the estimated costs which may be incurred under its warranty and
other post-sales support programs.
Income Taxes -- The provision for income taxes is based on earnings
reported in the financial statements under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities and their
reported amounts for financial statement purposes.
Earnings (Loss) Per Common Share -- Primary earnings or loss per common
share are computed by dividing net income applicable to common stockholders by
the weighted average number of common shares and common share equivalents
outstanding (if dilutive) during each period. Common share equivalents include
stock options. The Series A Convertible Preferred Stock is not a common share
equivalent for purposes of computing earnings or loss per common share. The
number of common equivalent shares outstanding, is computed using the treasury
stock method. Shares used in the fully diluted earnings per share have been
adjusted for the assumed conversion of the Company's Series A Convertible
Preferred Stock. See Note 4 -- Stockholders' Equity, Preferred Stock.
NOTE 2 -- SHORT-TERM INVESTMENTS
Short-term investments at January 29, 1995 and January 30, 1994, are as
follows:
<TABLE>
<CAPTION>
JANUARY 29, 1995
--------------------------------------------------
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Preferred stock.................................... $ 70,048 $367 $ 21 $ 70,394
Mutual funds....................................... 54,750 -- 235 54,515
State and municipal securities..................... 188,678 214 327 188,565
U.S. corporate and bank debt....................... 137,860 131 4,171 133,820
International corporate and bank debt.............. 36,999 1 -- 37,000
-------- -------- -------- ---------
Total short-term investments............. $488,335 $713 $4,754 $ 484,294
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 30, 1994
--------------------------------------------------
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Preferred stock.................................... $ 52,470 $ 484 $3,250 $ 49,704
Mutual funds....................................... 10,000 -- 14 9,986
State and municipal securities..................... 133,340 263 17 133,586
U.S. corporate and bank debt....................... 136,124 4,345 78 140,391
-------- -------- -------- ---------
Total short-term investments............. $331,934 $5,092 $3,359 $ 333,667
======== ======== ======== =========
</TABLE>
The Company's gross realized gains on the sale of short-term investments
were $2.8 million for 1995 and $0.6 million for 1994 and 1993. Gross realized
losses were $24.4 million for 1995, $1.1 million for 1994 and $0.03 million for
1993.
31
<PAGE> 33
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The contractual maturities of debt securities classified as
available-for-sale carried at fair value at January 29, 1995 are as follows:
<TABLE>
<CAPTION>
LESS THAN 60 DAYS TO ONE TO
60 DAYS ONE YEAR THREE YEARS TOTAL
--------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal securities............. $ 114,525 $ 68,164 $ 5,876 $188,565
U.S. Corporate and bank debt............... 62,981 28,910 41,929 133,820
International corporate and bank debt...... 27,000 10,000 -- 37,000
--------- --------- -------- --------
Total debt securities............ $ 204,506 $ 107,074 $47,805 $359,385
========= ========= ======== ========
</TABLE>
NOTE 3 -- FINANCING ARRANGEMENTS
On August 26, 1993, the Company issued $100 million of 11% Senior Notes
(the "Notes") due August 15, 2000. Interest on the Notes is payable semiannually
on February 15 and August 15. The Notes are redeemable, in whole or in part, at
the option of the Company, on and after August 15, 1998 at redemption prices
decreasing from 103.50% to 101.75% of principal, depending upon the redemption
date, plus accrued interest to the date of redemption.
The Indenture governing the Notes contains certain covenants including
limitations on the amount of future indebtedness and restrictions on the payment
of common stock dividends under certain circumstances. However, covenants
limiting future indebtedness may be inapplicable from time to time if the Notes
are assigned an investment grade rating by both of the major rating services.
Concurrently with the issuance of the Notes, the Company entered into
interest rate swap agreements to reduce its interest costs associated with the
Notes. The swap agreements effectively changed the Company's interest rate
exposure from a fixed-rate to a floating-rate basis. However, in response to
increasing interest rates, in August 1994, the Company entered into offsetting
swap agreements to effectively change its interest rate exposure from a
floating-rate basis to a fixed-rate basis. The interest rate swap agreements
mature on August 15, 1998, the first available redemption date of the Notes. At
January 29, 1995, the Company had outstanding receive fixed/pay floating
interest rate swaps with an aggregate notional amount of $100 million offset by
receive floating/pay fixed interest rate swaps with an aggregate notional amount
of $100 million. In addition, the Company had an interest rate swap which
matured in February 1995, with a notional amount of $50 million which was used
to change floating interest rate reset dates on the receive fixed/pay floating
interest rate swaps. The weighted average interest rate, adjusted by the swaps,
was 12.1% and 9.5% for 1995 and 1994, respectively. At January 29, 1995, the
Company is paying a net interest cost of 13.8% on the Notes.
In December 1994, the Company obtained a $14 million loan secured by its
recently-constructed facility in Round Rock, Texas. The loan is for 15 years at
an interest rate of 10.28% with monthly payments of principal and interest, paid
in arrears, commencing in February 1995. The long-term portion of the loan was
$13.4 million at January 29, 1995. Principal due under the loan over the next
five years is as follows: 1996 -- $.4 million; 1997 -- $.5 million; 1998 -- $.5
million; 1999 -- $.6 million; 2000 -- $.6 million.
Effective June 10, 1994, the Company entered into a new line of credit
facility which bears interest at a defined Base Rate or Eurocurrency Rate with
covenants based on quarterly income, maintenance of net worth, a maximum ratio
of total liabilities to tangible net worth, and a maximum inventory level.
Maximum amounts available under the credit facility are limited to $90 million
less the aggregate of outstanding letters of credit. During the commitment
period, the Company is obligated to pay a fee on the unused portion of the
credit facility. At January 29, 1995, no amounts were outstanding under this
credit facility, and the maximum amount available totaled $77.3 million.
32
<PAGE> 34
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's subsidiary, Dell Receivables Corporation, has a Receivable
Purchase Agreement, which was renewed effective May 24, 1994, pursuant to which
the Company may raise up to $100 million through the sale of interests in
certain of its accounts receivable. The Company is obligated to pay a commitment
fee on the unused portion of the amount available under the Receivable Purchase
Agreement. The discount on sale of receivables is included in financing and
other income (expense). During 1994, the Company sold $85 million of
receivables. As of January 30, 1994, there were no receivables sold which
remained to be collected. This facility was unused in 1995.
In fiscal 1994, the Company repaid its borrowings under Section 84 of
Ireland's Corporation Tax Act of 1976 and retired its commercial paper program.
NOTE 4 -- STOCKHOLDERS' EQUITY
Preferred Stock -- On August 26, 1993, the Company sold 1,250,000 shares of
Series A Convertible Preferred Stock (the "Preferred Stock") generating gross
proceeds of $125 million. Preferred stock issuance costs were approximately $4
million. Each share of Preferred Stock entitles its holder to receive annual
cumulative cash dividends of $7 and to convert it into 4.2105 shares of common
stock (equivalent to a conversion price of $23.75 per share of common stock),
subject to adjustment to prevent dilution in certain circumstances. In the event
of voluntary or involuntary liquidation, each share of Preferred Stock entitles
its holder to receive up to $100 per share plus an amount equal to accrued and
unpaid dividends before any distributions to common stock. The aggregate
liquidation preference value of the Preferred Stock at January 29, 1995,
including accrued and unpaid dividends, was $126.8 million. The preferred shares
are not redeemable before August 25, 1996. On and after August 25, 1996, the
Preferred Stock may be redeemed by the Company, at its option, in whole or in
part at any time at a redemption price per share decreasing from $104.67 to
$100, depending on the redemption date, together in each case with any accrued
and unpaid dividends.
Dividends on the Preferred Stock are cumulative, have priority over
dividends on common stock, and must be paid in the event of liquidation and
before any distribution to holders of common stock. On January 26, 1995, the
Board of Directors declared a $1.75 per share quarterly cash dividend which was
paid on February 15, 1995, to Preferred Stockholders of record on January 27,
1995.
In addition, so long as any Preferred Stock is outstanding, the Company may
not, without the affirmative vote or consent of the holders of at least 66 2/3%
(unless a higher percentage shall then be required by applicable law) of all
outstanding shares of Preferred Stock, voting separately as a class, (i) amend,
alter or repeal any provision of the Company's Certificate of Incorporation or
Bylaws so as to affect adversely the relative rights, preferences,
qualifications, limitations, or restrictions of the Preferred Stock, (ii)
create, authorize or issue, or reclassify any authorized stock of the Company
into, or increase the authorized amount of, any series or class of stock that
ranks senior to the Preferred Stock as to dividends or distributions of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or any security convertible into any such class or series of such
stock, or (iii) enter into a share exchange that affects the Preferred Stock,
consolidate with or merge into another entity, or permit another entity to
consolidate with or merge into the Company, unless in each such case each share
of Preferred Stock remains outstanding and unaffected or is converted into or
exchanged for convertible preferred stock of the surviving entity having powers,
preferences and relative participating optional or other rights and
qualification limitations and restrictions thereof identical to that of a share
of Preferred Stock (except for changes that do not affect the holders of the
Preferred Stock adversely).
The holders of the Preferred Stock have no voting rights except if
dividends have not been paid in an aggregate amount for at least six quarterly
dividends on such shares. Under these circumstances, the number of members of
the Company's Board of Directors will be increased by two, and the holders of
the Preferred
33
<PAGE> 35
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock will be entitled to elect two additional directors at any meeting of
stockholders at which directors are to be elected held during the period such
dividends remain in arrears.
On February 21, 1995, the Company offered to pay a cash premium of $8.25
for each share of its Preferred Stock that is converted to common stock. The
offer of premium upon conversion is available to holders of Preferred Stock
through March 22, 1995 unless extended by the Company. The Company has offered
to register the resale of the shares of common stock issued upon conversion of
the Preferred Stock for a 50-day period with the Securities and Exchange
Commission (the "Commission"). Assuming all of the outstanding shares of Series
A Preferred Stock are converted during the conversion period, the holders of
Preferred Stock will receive an aggregate of 5,263,125 shares of common stock
and $10,312,500 in cash. The payment of the conversion premium and the expenses
of the conversion offer will be treated as an additional dividend on Preferred
Stock for financial reporting purposes. Accordingly, the aggregate amount of the
conversion premium and expenses paid will be deducted from net income to
determine the net income applicable to common stockholders for the period in
which the conversion offer is completed, which will be the first quarter of 1996
unless the offer is extended or withdrawn. In addition, weighted average shares
outstanding used to compute primary earnings per common share will include the
shares of common stock issued upon conversion from the closing of the conversion
until the end of the period.
Common Stock -- During 1993, the Company's Board of Directors declared a 3
for 2 stock split in the form of a 50% stock dividend. All share and per-share
information has been retroactively restated in the consolidated financial
statements to reflect the stock split.
Employee Stock Purchase Plan -- The Company has an Employee Stock Purchase
Plan which permits substantially all employees to acquire the Company's common
stock. Participating employees may acquire common stock at the end of each
period at a purchase price of 85% of the lower of the fair market value at the
beginning or the end of the participation period. Periods are semi-annual and
begin on January 1 and July 1 of each year. Employees may designate up to 10% of
their base compensation for the purchase of common stock. Common stock reserved
for future employee purchases aggregated 1,370,592 shares at January 29, 1995
and 1,655,036 shares at January 30, 1994. Shares issued under this plan were
284,444 shares in 1995, 238,539 shares in 1994 and 150,326 shares in 1993. There
have been no charges to income in connection with the issuance of these shares.
The 401(k) Plan -- The Company has a defined contribution retirement plan
which complies with section 401(k) of the Internal Revenue Code. Substantially
all employees who have completed three months of service are eligible to
participate in the plan. Effective January 1, 1995, the plan was amended to
provide for Company matching contributions of 100% of the employees' voluntary
contributions, up to a maximum of 3% of the employees' compensation, and to
reduce the service period to three months. Prior to the change, the plan
provided for Company matching contributions of 50% of the employees' voluntary
contributions, up to a maximum of 6% of the employees' compensation, and
required a service period of six months. The Company has accrued for its
estimated matching amounts to be funded from authorized, previously unissued,
shares of the Company's common stock. Shares are issued to the plan based on the
fair market value of the Company's common stock at the time of issuance. The
amounts expensed for the Company's matching contribution during 1995, 1994, and
1993, were $4.1 million, $3.0 million and $2.0 million, respectively.
Stock Option Plans -- On June 22, 1994, the Company's stockholders approved
the Dell Computer Corporation Incentive Plan (the "Incentive Plan") which
effectively replaced the 1993 Stock Option Plan (the "1993 Plan") and the 1989
Stock Option Plan (the "1989 Plan"), as amended. At the time of approval of the
Incentive Plan, 4,500,923 shares of common stock were reserved for issuance
under the Incentive Plan; that amount equaled the remaining shares reserved for
issuance under the 1993 Plan and 1989 Plan, as amended, which were subsequently
canceled. The Incentive Plan has provisions which are substantially the same as
those of the 1993 Plan and the 1989 Plan, as amended. The Incentive Plan,
administered by the Compensation Committee of the Board of Directors, provides
for the granting of incentive awards in the form
34
<PAGE> 36
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of stock options, stock appreciation rights ("SARs"), stock and cash to
directors, executive officers, employees of the Company and its subsidiaries and
certain other persons who are not employees of the Company who provide
substantial advice or other assistance or services to the Company. Awards under
the Incentive Plan must be granted within ten years of the plan adoption date.
Options granted may be either incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or nonqualified options. The right to
purchase shares under the existing stock option plans typically vest over a five
year period beginning on the option's date of grant. Stock options must be
exercised within ten years from date of grant. Stock options are generally
issued at fair market value. For stock options which have been issued at
discounted prices, the Company accrues compensation expense over the vesting
period for the difference between the exercise price and the fair market value
on the measurement date. During 1995, the Company also granted 140,000 shares of
restricted stock, all of which were held for vesting at January 29, 1995.
Restricted shares typically vest over a seven year period beginning on the date
of grant; restrictions may not extend more than ten years from date of grant.
For grants of restricted stock, the Company accrues compensation expense, equal
to the fair market value at the date of grant, and recognizes such expense over
the vesting period. Options vesting over a ten year period with an exercise
price of $.01 per share were granted to certain key employees in 1995, 1994 and
1993 at fair market values ranging from $24.88 to $27.94, $18.50 to $36.50 and
$15.75 to $35.88 in 1995, 1994 and 1993, respectively.
Under the Incentive Plan, each non-employee director automatically receives
nonqualified stock options on the day after the first Board of Directors meeting
he attends in person or by telephone as a non-employee director. In addition,
each non-employee director who is a member of the Board of Directors as of both
the day before and after the Company's annual meeting of stockholders each year
beginning with 1994 will automatically be granted nonqualified stock options on
the date of the first Board of Directors meeting following the annual meeting of
stockholders.
Prior to the adoption of the 1989 Stock Option Plan, the Company had two
incentive stock option plans and a nonqualified stock option plan for its
employees and directors. Options under those plans must be exercised within ten
years from date of grant.
The following table summarizes stock option activity under the plans for
each of the three years ended January 29, 1995:
<TABLE>
<CAPTION>
STOCK OPTION PLANS
-----------------------------------
PRICE RANGE NUMBER
OF SHARES OF SHARES
UNDER OPTION UNDER OPTION
-------------- ----------------
<S> <C> <C>
Outstanding at February 2, 1992........................ $.11-$19.55 3,727,773
Granted.............................................. $.01-$36.31 2,642,079
Canceled............................................. $.01-$24.69 (475,729)
Exercised............................................ $.11-$23.31 (850,135)
-------------
Outstanding at January 31, 1993........................ $.01-$36.31 5,043,988
Granted.............................................. $.01-$36.31 2,505,590
Canceled............................................. $.01-$30.69 (1,204,814)
Exercised............................................ $.01-$23.66 (726,412)
--------------
Outstanding at January 30, 1994........................ $.01-$36.31 5,618,352
Granted.............................................. $.01-$46.63 2,161,249
Canceled............................................. $.01-$30.69 (820,551)
Exercised............................................ $.01-$36.31 (1,367,527)
-------------
Outstanding at January 29, 1995........................ $.01-$46.63 5,591,523
=============
</TABLE>
35
<PAGE> 37
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options on 1,418,672 shares were exercisable under the plans at January 29,
1995. Shares available for future grants under the plans are 2,409,614 at
January 29, 1995. On August 24, 1993, the Company granted 390,623 nonqualified
options to purchase its common stock at $18.69 per share under the 1993 Plan in
exchange for cancellation of outstanding options to purchase its common stock
for $30.69 which had been previously granted under the 1989 Plan. Pursuant to
the exchange agreement, vesting of these options shall occur on the earlier of
August 24, 2002, or the date that the Company's common stock has traded for
thirty consecutive days at or above $32.69 per share, which occurred in 1995.
NOTE 5 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1995 1994 1993
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Domestic............................................ $51,600 $ 29,404 $ 42,827
Foreign............................................. 15,895 8,033 12,727
Prepaid............................................... (3,676) (40,370) (13,904)
------- -------- --------
Provision for income taxes (benefit).................. $63,819 $ (2,933) $ 41,650
======= ======== ========
</TABLE>
Income (loss) before income taxes included approximately $126 million,
($32) million and $51 million related to foreign operations in the fiscal years
ended January 29, 1995, January 30, 1994 and January 31, 1993, respectively.
The Company has not recorded a deferred income tax liability of $22.5
million for additional U.S. federal income taxes that would result from the
distribution of earnings of its foreign subsidiaries, if they were repatriated.
The Company currently intends to reinvest indefinitely the undistributed
earnings of its foreign subsidiaries.
The deferred tax asset is comprised of the following principal temporary
differences:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation........................................ $(4,994) $ (96) $ 1,578
Provisions for doubtful accounts and returns........ 22,499 19,988 13,472
Inventory and warranty provisions................... 26,431 27,626 13,032
Deferred service contract revenue................... 24,971 9,507 3,074
Other............................................... 8,899 7,239 (1,979)
-------- -------- --------
Deferred tax asset.................................. $77,806 $64,264 $29,177
======== ======== ========
</TABLE>
36
<PAGE> 38
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the income tax provisions in the consolidated
financial statements and the tax expense computed at the United States statutory
rates are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) computed at the U.S. federal
statutory rate of 35%, 35% and 34%, respectively.... $ 74,548 $(13,568) $48,719
Research and development credit....................... (1,438) (1,345) (1,007)
Foreign income taxed at different rate................ (15,584) 10,315 (7,849)
Net operating loss carryovers......................... 1,471 3,969 (204)
Other nondeductible accruals.......................... 383 (1,568) --
Other................................................. 4,439 (736) 1,991
-------- -------- -------
Provision (benefit) for income taxes.................. $ 63,819 $ (2,933) $41,650
======== ======== =======
Effective tax rates................................... 30.0% 7.6% 29.1%
======== ======== =======
</TABLE>
NOTE 6 -- FINANCIAL INSTRUMENTS
Financial instruments with off-balance sheet risk
Foreign currency hedging instruments -- The results of the Company's
international operations are affected by changes in exchange rates between
certain foreign currencies and the United States dollar. The financial
statements of the Company's international sales subsidiaries have generally been
measured using the local currency as the functional currency. Effective January
30, 1995, most of the Company's European sales will be made from a U.S. dollar
functional currency entity.
The Company attempts to reduce its exposure to currency fluctuations
involving anticipated, but not firmly committed, transactions and involving
transactions with firm foreign currency commitments through the use of purchased
foreign currency option contracts and forward contracts. The risk of loss
associated with forward contracts is limited to the exchange rate differential
from the time the contract is made until the time it is settled. The risk of
loss associated with purchased options is limited to premium amounts paid for
the option contracts, which could be significant.
Hedging of Anticipated Transactions. The Company enters into foreign
currency purchased options and, to a lesser extent, forward contracts to hedge a
portion of its anticipated, but not firmly committed, transactions including
sales by international subsidiaries, which includes international sales by a
U.S. dollar functional currency entity and intercompany shipments to certain
international subsidiaries, and foreign currency denominated purchases of
certain components. Foreign currency purchased options generally expire in
twelve months or less and forward contracts generally mature in three months or
less. The principal hedge currencies are the German mark, the British pound and
the Japanese yen. At January 29, 1995, the Company held purchased option
contracts that were designated and effective as hedges of anticipated sales by
international subsidiaries with a total notional amount of $434.3 million and a
combined net realized and unrealized loss of $2.1 million. At January 29, 1995,
the Company held purchased options that were designated and effective as hedges
of foreign currency denominated purchases with a total notional amount of $65.0
million and a combined net realized and unrealized gain of $1.6 million. Based
upon foreign currency exchange rates at January 30, 1994 and January 31, 1993,
option contracts which hedged anticipated intercompany shipments had a combined
net realized and unrealized gain of $2.2 million and $2.0 million, respectively.
On November 30, 1992, the Securities and Exchange Commission's Division of
Enforcement notified the Company about an informal inquiry regarding the
Company's accounting practices for foreign currency hedging and trading
activities and the completeness of the Company's public disclosure about those
activities.
37
<PAGE> 39
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes its accounting treatment for foreign currency hedging and
trading activities complies with generally accepted accounting principles in all
material respects and that the Company has provided appropriate disclosures of
its hedging activities. The Company has not received correspondence from the
Commission regarding this matter since September 1993.
Transaction Hedging. Transaction exposures representing firm foreign
currency commitments are generally hedged using foreign currency forward
contracts. Forward contracts with maturity dates of less than three months
designated to hedge foreign currency transaction exposures of $29.4 million and
$19 million were outstanding at January 29, 1995 and January 30, 1994,
respectively.
Investment Derivatives -- The Company has historically employed a variety
of interest rate derivative instruments to manage its principal, market and
credit risks and enhance its investment yield. Derivative instruments utilized
include interest rate swaps, written and purchased interest rate options and
swaptions (options to enter into interest rate swaps). Prior to June 1994, the
Company structured derivative instruments in interest rate markets where it had
foreign operations. Interest rate derivatives generally involve exchanges of
interest payments based upon fixed and floating interest rates without exchanges
of underlying notional amounts. At January 29, 1995 the Company had no
investment derivatives outstanding. At January 30, 1994, the Company had
outstanding investment derivative contracts with a notional amount of $355
million. For the first and second quarters of 1995, the average fair value of
these investment derivative financial instruments totaled ($11.9) million and
($7.8) million, respectively. The Company closed all remaining investment
derivatives during the second quarter of 1995. Realized and unrealized net gains
(losses) on investment derivatives recognized in income for 1995 were ($23.9)
million compared with $5.2 million for 1994 and $2.5 million for 1993.
Interest Rate Management -- The Company has also entered into certain
interest rate derivative instruments as a means of managing its interest rate
risk and the interest costs associated with the Senior Notes. See Note
3 -- Financing Arrangements.
38
<PAGE> 40
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The estimated fair value amounts disclosed below have been determined by
the Company using available market information and appropriate valuation
methodologies as described below. However, considerable judgment is necessary in
interpreting market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. Changes in assumptions
could significantly affect the estimates. Cash, accounts receivable, short-term
borrowings, accounts payable and accrued liabilities are reflected in the
financial statements at fair value because of the short-term maturity of these
instruments. The estimated fair values of the Company's other financial
instruments at January 29, 1995, and January 30, 1994, are as follows:
<TABLE>
<CAPTION>
JANUARY 29, 1995 JANUARY 30, 1994
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term investments................. $ 484,294 $ 484,294 $ 333,667 $ 333,667
Long-term debt......................... (113,429) (117,929) (100,000) (105,500)
Derivative financial instruments:
Transaction hedging:
Forward contracts................. 5,402 5,402 (81) (81)
Hedging of anticipated transactions:
Foreign currency option
contracts....................... 15,154 14,668 5,800 8,035
Interest rate management:
Receive fixed/pay floating
interest
rate swaps...................... -- (9,258) -- (1,170)
Receive floating/pay fixed
interest
rate swaps...................... -- (827) -- --
Investment derivatives:
Interest rate options and
swaptions....................... -- -- (2,444) (2,444)
Interest rate swaps............... -- -- 812 812
</TABLE>
The fair values of short-term investments, long-term debt and interest rate
derivative instruments were estimated based upon quotes from brokers. Foreign
exchange forward contracts fair values are estimated using market quoted rates
of exchange at the applicable balance sheet date. The estimated fair value of
foreign currency option contracts is based on market quoted rates of exchange at
the applicable balance sheet date and the Black-Scholes options pricing model.
Concentrations of credit risk
All of the Company's foreign exchange and interest rate derivative
instruments involve elements of market and credit risk in excess of the amounts
recognized in the financial statements. The counterparties to financial
instruments consist of a number of major financial institutions. In addition to
limiting the amount of agreements and contracts it enters into with any one
party, the Company monitors its positions with and the credit quality of the
financial institutions which are counterparties to these financial instruments.
The Company does not anticipate nonperformance by the counterparties.
The Company has business activities with large corporate, government and
education customers, small-to medium-sized businesses and individuals and
remarketers. Its receivables from such parties are well diversified. The Company
places its short-term investments with high quality financial institutions and
other companies and currently invests primarily in equity securities and debt
instruments that have maturities of less than three years. The Company's
receivables, short-term investments and financial instruments holdings are
39
<PAGE> 41
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to potential credit risk. However, in management's opinion, no
significant concentration of credit risk exists for the Company. There can be no
assurance that the credit quality of the financial institutions for which the
Company invests or transacts business with will be stable or that efforts to
diversify receivables, investments or financial instrument holdings will prevent
the Company from incurring material losses.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Legal Matters -- The Company is subject to certain legal proceedings and
claims which arise in the ordinary course of its business. Additionally, the
Company has been made aware of others in the industry who assert exclusive
rights to certain technologies, some of which have offered related licenses to
the Company. Such an offer of a license is usually taken in the industry as a
notice of a patent infringement claim. The Company's policy is to evaluate such
claims on a case-by-case basis and, if appropriate, to enter into licensing
arrangements that appear necessary or desirable. Management does not believe
that the outcome of any of these matters will have a material adverse effect on
the Company's financial condition or results of operations.
The Company and its Chairman, Michael S. Dell, were defendants in nineteen
lawsuits filed between May and November 1993, in the United States District
Court for the Western District of Texas, Austin Division. On November 17, 1994,
the Company announced that Mr. Dell and the Company had reached settlement with
the plaintiffs. Under the settlement, the Company and its insurers will pay a
total of $13.4 million (plus accrued interest from the settlement date) to the
plaintiffs. In the settlement, neither the Company nor Mr. Dell admits liability
or obligation of any kind in connection with the lawsuit or the underlying
allegations. The court approved the settlement and entered a final judgment of
dismissal in February 1995. The settlement did not have a material effect on
Dell's financial position or results of operations, since the settlement amount
was covered by insurance or previously taken reserves.
The Company has been named as a defendant in 26 repetitive stress injury
lawsuits, most of which are in New York state courts or United States District
Courts for the New York City area. One is in the Federal District Court for the
State of Pennsylvania. The allegations in all of these lawsuits are similar;
each plaintiff alleges that he or she suffers from symptoms generally known as
"repetitive stress injury," which allegedly were caused by the design or
manufacture of the keyboard supplied with the computer the plaintiff used. The
Company has denied or is in the process of denying the claims and intends to
vigorously defend the suits. The suits naming the Company are just a few of many
lawsuits of this type which have been filed, often naming Apple, Atex, Compaq,
IBM, Keytronic and other major suppliers of keyboard products. The Company
currently is not able to predict the outcome of these suits. It is possible that
the Company may be named in additional suits. Ultimate resolution of the
litigation against the Company may depend on progress in resolving this type of
litigation overall.
40
<PAGE> 42
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Commitments -- The Company is subject to certain patent royalty
agreements that require fixed cash payments with scheduled increases over the
next four years. The Company is also subject to ongoing software royalty
agreements for periods exceeding twelve months which require cash payments.
Additionally, the Company leases property and equipment, manufacturing
facilities and office space under non-cancelable leases. Certain leases obligate
the Company to pay taxes, maintenance and repair costs. Future minimum payments
under these leases at January 29, 1995 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
FISCAL YEAR --------------
----------------------------------------------------- (IN THOUSANDS)
<S> <C>
1996................................................. $ 18,597
1997................................................. 14,403
1998................................................. 11,044
1999................................................. 7,894
2000................................................. 4,189
Thereafter........................................... 2,760
-----------
Total minimum lease payments required...... $ 58,887
===========
</TABLE>
Rental expense recorded under all operating leases was $20 million, $19
million and $14 million for the fiscal years ended 1995, 1994, and 1993,
respectively.
NOTE 8 -- OTHER CHARGES
During the first half of 1994, the Company delayed and canceled certain
notebook development projects and reevaluated its probable future sales for the
notebook products then offered. The Company recorded over $39.3 million of
charges in the first half of 1994 due to the notebook inventory writedowns and
delayed and canceled notebook projects. The Company canceled its existing
notebook product line in August, 1993 and sold its then-remaining inventories of
notebooks at significantly reduced prices. The Company focused its efforts on
the development of a 486-based notebook product line and re-entered the notebook
computer market with a phased approach. Completion of the first phase of the
Company's reentry into the notebook computer market resulted in the introduction
on February 21, 1994, of the 486-based Dell Latitude family of notebook
computers.
During the first half of 1994, the Company also recorded $29.3 million of
other costs, consisting mostly of inventory writedowns and related costs. These
charges arose from the Company's determination that certain products and
inventory were excess or obsolete because the products were scheduled to be
replaced with newer products or because the Company otherwise had lowered its
estimates of expected demand for materials in inventory or under outstanding
purchase commitments.
Also during the first half of 1994, the Company recorded $22.8 million for
the costs of consolidating operations, writing off of certain assets, and making
employee severance payments. Most of the charges in this area were associated
with consolidating certain common functions in the European subsidiaries and
creating regional business units. This consolidation effort was designed to
reduce redundant costs and improve the Company's ability to deliver higher
levels of operational efficiency and higher quality support in European markets.
Operations in some subsidiaries were closed and transferred to other
subsidiaries, and some consolidation occurred outside of Europe. Approximately
60% of these charges were cash provisions, approximately half of which were
incurred in fiscal 1994. During fiscal 1995, the Company completed certain of
the consolidations and closure of a subsidiary. There are no reserves remaining
at January 29, 1995.
41
<PAGE> 43
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- GEOGRAPHIC AREA INFORMATION
The Company operates in one principal segment across geographically diverse
markets. Americas includes the United States, Canada, Mexico and Latin America.
Substantially all of Americas operating results and identifiable assets are in
the United States. Transfers between geographic areas are recorded at cost plus
a markup.
<TABLE>
<CAPTION>
FISCAL YEAR 1995
-------------------------------------------------------------------
OTHER
AMERICAS EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- --------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers...... $2,400,012 $ 952,943 $ 122,388 $ -- $ 3,475,343
Transfers between geographic areas... 3,861 108,769 -- (112,630) --
---------- ---------- --------- ---------- -----------
Total sales.......................... $2,403,873 $1,061,712 $ 122,388 $ (112,630) $ 3,475,343
========== ========== ========= ========== ===========
Operating income..................... $ 110,653 $ 132,297 $ 6,313 $ -- $ 249,263
========== ========== ========= ========== ===========
Identifiable assets.................. $1,121,790 $ 411,089 $ 61,121 $ -- $ 1,594,000
========== ========== ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1994
-------------------------------------------------------------------
OTHER
AMERICAS EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- --------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers...... $2,037,221 $ 781,905 $ 54,039 $ -- $ 2,873,165
Transfers between geographic areas... 1,035 98,553 -- (99,588) --
---------- --------- --------- ---------- -----------
Total sales.......................... $2,038,256 $ 880,458 $ 54,039 $ (99,588) $ 2,873,165
========== ========= ========= ========== ===========
Operating income..................... $ (35,540) $ 14,610 $ (18,094) $ -- $ (39,024)
========== ========= ========= ========== ===========
Identifiable assets.................. $ 894,867 $ 229,609 $ 16,004 $ -- $ 1,140,480
========== ========= ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1993
-------------------------------------------------------------------
OTHER
AMERICAS EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- --------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers...... $1,459,607 $ 552,999 $ 1,318 $ -- $ 2,013,924
Transfers between geographic areas... 35,326 -- $ -- (35,326) --
---------- --------- --------- ---------- -----------
Total sales.......................... $1,494,933 $ 552,999 $ 1,318 $ (35,326) $ 2,013,924
========== ========= ========= ========== ===========
Operating income..................... $ 110,761 $ 34,668 $ (6,317) $ -- $ 139,112
========== ========= ========= ========== ===========
Identifiable assets.................. $ 671,379 $ 251,633 $ 3,993 $ -- $ 927,005
========== ========= ========= ========== ===========
</TABLE>
42
<PAGE> 44
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION INFORMATION
Accounts receivable:
Gross accounts receivable............................................ $ 563,555 $ 436,789
Allowance for doubtful accounts...................................... (25,581) (26,015)
--------- - -----------
$ 537,974 $ 410,774
========== ===========
Inventories:
Production materials................................................. $ 262,150 $ 195,744
Work-in-process and finished goods................................... 30,775 24,521
---------- -----------
$ 292,925 $ 220,265
========== ===========
Other current assets:
Deferred premiums and other foreign exchange contracts............... $ 20,248 $ 8,035
Deferred income taxes................................................ 77,806 64,264
Other current assets................................................. 14,161 8,024
---------- -----------
$ 112,215 $ 80,323
========== ===========
Property and Equipment:
Land and buildings................................................... $ 41,954 $ 12,157
Computer equipment................................................... 73,125 63,531
Office furniture and fixtures........................................ 22,853 20,992
Machinery and other equipment........................................ 36,288 28,377
Leasehold improvements............................................... 33,633 26,645
---------- -----------
Total property and equipment......................................... 207,853 151,702
Accumulated depreciation and amortization............................ (90,872) (64,810)
---------- -----------
$ 116,981 $ 86,892
========== ===========
Accrued liabilities:
Royalties and licensing.............................................. $ 34,815 $ 50,185
Accrued compensation................................................. 35,060 14,396
Accrued warranty costs............................................... 65,468 49,201
Taxes other than income taxes........................................ 39,873 18,143
Deferred profit on warranty contracts................................ 22,451 21,106
Other accrued liabilities............................................ 81,735 84,620
---------- -----------
$ 279,402 $ 237,651
========== ===========
</TABLE>
43
<PAGE> 45
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS
INFORMATION
Research, development and engineering expenses:
Research and development expenses........................ $ 39,389 $ 36,338 $ 31,282
Engineering expenses..................................... 25,972 12,596 11,076
---------- --------- ----------
$ 65,361 $ 48,934 $ 42,358
========== ========= ==========
Financing and other income (expense):
Investment income (loss), net:
Short-term investments................................ $ (7,031) $ 8,772 $ 12,945
Investment derivatives................................ (23,948) 5,184 2,505
Interest expense......................................... (12,203) (8,350) (7,869)
Foreign currency transaction............................. 2,790 777 9,084
Foreign currency trading................................. -- -- (9,649)
International year-end transition........................ 5,725 -- --
Other.................................................... (1,600) (6,125) (2,836)
---------- --------- ----------
$ (36,267) $ 258 $ 4,180
========== ========= ==========
Weighted average shares used to compute earnings (loss)
per share:
Primary............................................... 41,542 37,333 39,235
========== ========= ==========
Fully Diluted......................................... 47,322 -- --
========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOW
INFORMATION
Changes in operating working capital accounts:
Accounts receivable, net................................. $ (116,621) $ (44,942) $ (222,470)
Inventories.............................................. (72,083) 81,605 (180,517)
Accounts payable......................................... 164,544 (5,260) 208,923
Accrued liabilities...................................... 37,889 70,782 56,208
Other.................................................... (16,393) (5,177) (24,665)
---------- --------- ----------
$ (2,664) $ 97,008 $ (162,521)
========== ========= ==========
Changes in non-current assets and liabilities:
Other assets............................................. $ (1,578) $ 974 $ (1,116)
Other liabilities........................................ 40,612 16,280 3,227
---------- --------- ----------
$ 39,034 $ 17,254 $ 2,111
========== ========= ==========
Supplemental cash flow information:
Income taxes paid........................................ $ 56,510 $ 6,671 $ 27,233
Interest paid............................................ $ 10,499 $ 5,024 $ 1,334
</TABLE>
44
<PAGE> 46
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- QUARTERLY RESULTS (UNAUDITED)
In prior years, the Company consolidated its international operating
results on a one-month delay to facilitate consolidated financial reporting. In
the fourth quarter of 1995, the Company eliminated this one-month delay.
Accordingly, the Company's income before income taxes for the fourth quarter of
1995 includes one additional month of international operations. Net earnings
before taxes of $5.7 million for this additional month are included in the
consolidated statement of operations in financing and other income (expense)
resulting in an additional $4.1 million of net income. Net earnings for this
additional month had no effect on operating income.
The Company believes that the following information reflects all normal
recurring adjustments necessary for a fair presentation of the information for
the periods presented. The following tables contain selected unaudited
consolidated statement of operations and stock price data for each quarter of
fiscal 1995 and 1994. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR 1995
---------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $1,032,663 $884,552 $791,496 $766,632
Gross profit..................................... 217,161 181,423 169,637 169,832
Operating income (loss).......................... 78,671 59,546 51,061 59,985
Net income (loss)................................ 60,291 41,354 28,559 18,973
Earnings (loss) per common share:
Primary........................................ $ 1.36 $ .93 $ .65 $ .42
Fully diluted.................................. $ 1.25 $ .86 $ .62 $ --
Weighted average shares used to compute earnings
(loss) per share:
Primary........................................ 42,862 42,091 40,620 40,315
Fully diluted.................................. 48,079 47,840 46,047
Stock bid prices per share:
High........................................... $ 47 3/4 $ 44 $ 30 3/4 $ 30 1/8
Low............................................ $ 36 3/4 $ 27 1/2 $ 21 1/2 $ 19 1/8
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1994
---------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $ 742,948 $757,284 $700,569 $672,364
Gross profit..................................... 138,350 135,568 45,774 113,124
Operating income (loss).......................... 27,156 17,789 (98,118) 14,149
Net income (loss)................................ 17,708 11,982 (75,708) 10,185
Earnings (loss) per common share:................ $ .39 $ .26 $ (2.03) $ .25
Weighted average shares used to compute earnings
(loss) per share:.............................. 39,870 39,653 37,229 40,455
Stock bid prices per share:
High........................................ $ 28 1/8 $ 21 5/8 $ 34 3/4 $ 49 1/4
Low......................................... $ 20 1/8 $ 15 1/8 $ 13 7/8 $ 27 5/8
</TABLE>
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the annual earnings per share.
45
<PAGE> 47
PART III
ITEM 10. DELL'S DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of Dell consists of one person who is an employee of
Dell and eight persons who are outside directors. The executive officers and
directors of Dell, and their ages as of March 1, 1995, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -------------------------------------------------
<S> <C> <C>
Michael S. Dell 30 Chairman of the Board, Chief Executive Officer,
and Director
Morton L. Topfer 58 Vice Chairman
L. Scott Flaig 50 Senior Vice President, Corporate Operations
Eric F. Harslem 49 Senior Vice President, Product Group
Richard N. Snyder 50 Senior Vice President, General Manager of Dell
Americas
Thomas J. Meredith 44 Chief Financial Officer
Thomas L. Thomas 45 Chief Information Officer
Thomas B. Green 40 General Counsel and Secretary
Phillip E. Kelly 37 Vice President, General Manager -- Asia
Martyn R. Ratcliffe 33 Vice President, General Manager -- Europe
Julie A. Sackett 51 Vice President, Human Resources
Donald J. Carty 48 Director
Paul O. Hirschbiel, Jr. 42 Director
Michael H. Jordan 58 Director
George Kozmetsky 77 Director
Thomas W. Luce III 54 Director
Klaus Luft 53 Director
Claudine B. Malone 58 Director
Michael A. Miles 55 Director
</TABLE>
Dell has classified its board of directors into three classes. Directors in
each class are elected to serve for three-year terms and until their successors
are elected and qualified. Each year, the directors of one class stand for
election as their terms of office expire. Messrs. Carty, Hirschbiel, and Luce
are designated as Class I directors, and their terms of office expire at the
Company's 1995 annual meeting of stockholders. Messrs. Dell, Jordan and Luft are
designated as Class II directors, and their terms of office expire at the
Company's 1996 annual meeting of stockholders. Mr. Kozmetsky, Ms. Malone and Mr.
Miles are designated as Class III directors, and their terms of office expire at
the Company's 1997 annual meeting of stockholders.
Executive officers serve at the discretion of the Board of Directors.
Set forth below are descriptions of the principal occupations of Dell's
executive officers and directors.
Michael S. Dell is Dell's founder and has been Chairman of the Board, Chief
Executive Officer and a director of Dell since May 1984.
Morton L. Topfer joined Dell in June 1994 as Vice Chairman. In this
position Mr. Topfer shares the Office of the Chief Executive Officer with
Michael Dell. Prior to being elected to his position at Dell, Mr. Topfer was
employed by Motorola, Inc. for 23 years, last serving as Corporate Executive
Vice President of Motorola, Inc. and President of Motorola's Land Mobile
Products Sector.
L. Scott Flaig was named Senior Vice President, Corporate Operations, in
February 1995. Mr. Flaig joined Dell in December 1992 as Senior Vice President,
Worldwide Operations. From April 1989 through November 1992, Mr. Flaig was a
partner with the accounting firm Ernst & Young, serving as National Director for
manufacturing services starting in June 1990.
46
<PAGE> 48
Eric F. Harslem joined Dell in June 1993 as Senior Vice President, Product
Group. Before joining Dell, he was Vice President of the Macintosh Desktop
Division of Apple Computer Corporation, where he was employed since 1983.
Richard N. Snyder joined Dell in February 1995 as Senior Vice President,
General Manager of Dell Americas. Before joining Dell, Mr. Snyder was General
Manager of the DeskJet Printer Group at Hewlett-Packard Co., where he was
employed for 22 years.
Thomas J. Meredith joined Dell in November 1992 as Chief Financial Officer.
He also served as Treasurer of Dell from November 1992 until March 1994. From
April 1990 to November 1992, he was Vice President and Treasurer of Sun
Microsystems, Inc. Before joining Sun, Mr. Meredith held financial positions
with Amdahl Corporation, most recently as President of Amdahl Capital
Corporation.
Thomas L. Thomas joined Dell in March 1993 as Chief Information Officer.
From March 1987 through February 1993, Mr. Thomas was Vice President and Chief
Information Officer of Kraft Commercial Products, a division of Philip Morris
Companies, Inc.
Thomas B. Green joined Dell in August 1994 as General Counsel and
Secretary. Before joining Dell, Mr. Green served as Executive Vice President,
General Counsel and Secretary for Chicago Title & Trust Company, a wholly-owned
subsidiary of Alleghany Corporation, where he was employed from October 1992 to
July 1994. Prior to that, he was Executive Vice President and General Counsel
for Trammell Crow Company from October 1990 to October 1992. From February 1989
to October 1990, Mr. Green was employed by Jones, Day, Reavis & Pogue, last
serving as a partner in that firm.
Phillip E. Kelly joined Dell in November 1994 as Vice President, General
Manager -- Asia. Prior to his employment with Dell, Mr. Kelly held a series of
positions during a 14 year career with Motorola, Inc., last serving as Vice
President and General Manager for the North Asia Division of Motorola's Land
Mobile Products Sector, based in Hong Kong.
Martyn R. Ratcliffe joined Dell in January 1994 as Vice President, General
Manager -- Europe. Prior to joining Dell, Mr. Ratcliffe served as the President
and Chief Operating Officer of Zeos International Ltd. from November 1992 to
December 1993. He was the Chief Operating Officer of VTech Computers from
February 1992 to October 1992. Prior to his employment with VTech, Mr. Ratcliffe
held several positions from June 1988 to December 1991 with Technophone Ltd. and
Nokia Mobile Phones, which acquired Technophone Ltd.
Julie A. Sackett joined Dell in December 1994 as Vice President, Human
Resources. Before joining Dell, Ms. Sackett was employed by Sequent Computer
Systems, Inc., where she served as Vice President of Human Resources. Prior to
her employment with Sequent, she held a series of human resource management
positions during an 18 year career with Motorola, Inc., including Vice President
of Compensation and Benefits and Vice President of Personnel Services for
Motorola's Semiconductor Sector, and Vice President and Director of Human
Resources and Security for that company's Government Electronics Group.
Donald J. Carty was elected to the Board of Directors of Dell in December
1992. Mr. Carty was named President of American Airlines, Inc., a subsidiary of
AMR Corporation, and President of AMR's Airline Group in March 1995. He
continues to serve as Executive Vice President of AMR Corporation. From October
1989 to March 1995, Mr. Carty also held the positions of Chief Financial Officer
of AMR Corporation and Executive Vice President, Finance & Planning for American
Airlines, Inc. He has held senior vice presidential positions with American
Airlines, Inc. since 1988.
Paul O. Hirschbiel, Jr. has been a director of Dell since October 1987. Mr.
Hirschbiel became a director of Dell pursuant to the terms of the Stock Purchase
Agreement, dated October 26, 1987, that was entered into between Dell and the
purchasers of Dell preferred stock. Mr. Hirschbiel has been a vice president or
director of Prudential Equity Investors, Inc. (formerly Prudential Venture
Capital Management, Inc.) since September 1983.
Michael H. Jordan was elected to the Board of Directors of Dell in December
1992. Since July 1993 he has been Chairman and Chief Executive Officer of
Westinghouse Electric Corporation. From September 1992 through June 1993, he was
a principal with the investment firm of Clayton, Dubilier and Rice. From
December 1990 through July 1992, he was Chairman of PepsiCo International. From
December 1986 to
47
<PAGE> 49
December 1990, he was Chairman of PepsiCo World-Wide Foods. He is a member of
the boards of directors of Aetna Life & Casualty Co., Melville Corp. and
Rhone-Poulenc Rorer Inc.
George Kozmetsky has been a director of Dell since March 1987. Since 1982,
Mr. Kozmetsky has been Executive Associate for Economic Affairs of the
University of Texas System and Director of the IC2 Institute of The University
of Texas at Austin.
Thomas W. Luce III was elected to the Board of Directors of Dell in
November 1991. Mr. Luce is a partner of the law firm Hughes & Luce, L.L.P., in
Dallas, Texas, and has been affiliated with the firm since 1973. From October
1991 through April 1992, Mr. Luce was Chairman of the Board and Chief Executive
Officer of First Southwest Company, a Dallas-based investment firm that is a
member of the National Association of Securities Dealers, Inc. He is a member of
the board of directors of Enserch Corporation.
Klaus Luft was elected to the Board of Directors of Dell on March 1, 1995.
He is the owner and the President of MATCH -- Market Access for Technology
Services GmbH, a private company headquartered in Munich, Germany. MATCH
provides sales and marketing services to high technology companies. Mr. Luft
also serves as International Advisor to Goldman Sachs Europe Limited. Prior to
establishing his own company, he was Chief Executive Officer until November 1989
for Nixdorf Computer AG, a manufacturer of computer systems in Paderborn,
Germany. During his 23 years with Nixdorf, Mr. Luft held executive board
positions in marketing, manufacturing and finance for more than 17 years before
becoming Chief Executive Officer.
Claudine B. Malone was elected to the Board of Directors of Dell in
February 1993. Ms. Malone is President of Financial & Management Consulting,
Inc., a firm she founded in 1982. She also taught at the business schools of the
University of Virginia, Harvard, and Georgetown University. Ms. Malone is a
trustee of the Massachusetts Institute of Technology and the Deputy Chairman of
the Federal Reserve Bank of Richmond. She is a member of the boards of directors
of Hannaford Brothers Co., Hasbro, Inc., Houghton Mifflin Corp., LAFARGE Corp.,
The Limited, Inc., Mallinckrodt Group Inc., Penn Mutual Life Insurance Co.,
SAIC, Scott Paper Company and Union Pacific Corporation.
Michael A. Miles was elected to the Board of Directors of Dell in February
1995. Mr. Miles is a special limited partner in the investment firm of Forstmann
Little and Co. From September 1991 to July 1994, he was Chairman of the Board
and Chief Executive Officer of Phillip Morris Companies Inc. Prior to assuming
that position, Mr. Miles was Vice Chairman and a member of the Board of
Directors of Phillip Morris Companies Inc. and Chairman and Chief Executive
Officer of Kraft General Foods, Inc., positions he held since December 1989. He
is also a member of Chase Manhattan's International Advisory Committee and a
trustee of Northwestern University. Mr. Miles is a member of the boards of
directors of Dean Witter, Discover & Co., Sears, Roebuck and Co. and Time Warner
Inc.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The executive officers and members of Dell's Board of Directors are
required to file reports with the Securities and Exchange Commission disclosing
the amount and nature of their beneficial ownership in common stock, as well as
changes in that ownership. Based solely on its review of forms received by the
Company, or written representations from certain reporting persons, the Company
believes that during fiscal 1995, all required reports were filed in a timely
manner.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of Dell who are not employees are compensated for their services.
In fiscal 1995, each outside director received an annual retainer of $25,000,
plus $1,000 for each meeting of the Board of Directors attended in person. The
outside directors are also entitled to initial and annual grants of options to
buy 15,000 and 6,000 shares of common stock, respectively. Dell provides its
outside directors with the ability to defer receipt of all or a portion of the
annual cash retainer, as well as the ability to elect to receive annual grants
of stock options in lieu of all or a portion of the annual cash retainer. Dell
also reimburses directors for their reasonable expenses associated with
attending Board of Directors meetings, and provides its directors with liability
insurance.
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<PAGE> 50
The following table sets forth the cash payments and stock option grants
that were made to Dell's outside directors during fiscal 1995.
<TABLE>
<CAPTION>
CASH OPTIONS
NAME PAYMENTS GRANTED(A)
---------------------------------------------------- -------- -------------
<S> <C> <C>
Mr. Carty........................................... $29,000 6,000 Shares
Mr. Hirschbiel...................................... $29,000 6,000 Shares
Mr. Jordan.......................................... $29,000 6,000 Shares
Mr. Kozmetsky....................................... $29,000 6,000 Shares
Mr. Luce............................................ $29,000 6,000 Shares
Mr. Luft............................................ n/a n/a(b)
Ms. Malone.......................................... $29,000 6,000 Shares
Mr. Miles........................................... n/a n/a(b)
</TABLE>
- ---------------
(a) These options were granted on August 19, 1994, with an exercise price of
$34.19 per share. Twenty percent of these options become exercisable on the
anniversary of the date of grant in each of the first five years if the
person has been a director of Dell continuously through that anniversary
date, and all options expire on the tenth anniversary of the date of grant.
(b) Messrs. Miles and Luft were elected to Dell's Board of Directors in February
1995 and March 1995, respectively. Both members were in attendance at the
March 1, 1995 Board of Directors meeting and have received an initial stock
option grant of 15,000 options with an exercise price of $40.25 per share
and $1,000 for attendance at the meeting.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table summarizes the compensation paid during the last three
fiscal years to Dell's Chief Executive Officer and Dell's four most highly
compensated executive officers other than the Chief Executive Officer.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION($)(A) SECURITIES
---------------------------------- UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS(#)(B) COMPENSATION($)(C)
- -------------------------- ------ -------- -------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Dell 1995 $374,850 $443,182 $ 92,789(d) 0 $ 10,308
Chairman of the Board, 1994 358,994 0 33,844(d) 0 13,614
Chief Executive Officer 1993 337,019 198,668 3,696(d) 0 11,600
Morton L. Topfer 1995 300,000 266,015 82,039(e) 207,500(i) 4,400
Vice Chairman 1994 -- -- -- -- --
1993 -- -- -- -- --
Eric F. Harslem 1995 345,125 306,028 83,802(f) 21,759 4,620
Senior Vice President, 1994 196,250 0 293,472(f) 130,800 0
Product Group 1993 -- -- -- -- --
Thomas J. Meredith 1995 277,894 246,414 71,048(g) 16,076 9,785
Chief Financial Officer 1994 265,000 0 178,457(g) 31,433 9,744
1993 55,208 34,284 115,000(g) 125,000 0
L. Scott Flaig 1995 314,437 209,113 11,556(h) 18,990 5,177
Senior Vice President, 1994 300,000 0 224,522(h) 32,000 1,873
Corporate Operations 1993 51,359 29,325 148,000(h) 100,000 0
</TABLE>
- ---------------
(a) Includes deferred compensation.
(b) Dell did not grant any SARs to executive officers in fiscal 1993-1995.
49
<PAGE> 51
(c) These amounts represent Dell's matching contributions under Dell's 401(k)
plan and deferred compensation plan.
(d) Amount represents reimbursement for personal financial counseling services
paid for by Dell.
(e) Amount is comprised of the following: reimbursement for personal financial
counseling services paid for by Dell, $7,496; and relocation expenses,
$74,543.
(f) Amount is comprised of the following: (i) for fiscal 1995 -- reimbursement
for personal financial counseling services paid for by Dell, $23,457;
relocation expenses, $58,861; and imputed interest on a below market loan,
$1,484; and (ii) for fiscal 1994 -- reimbursement for personal financial
counseling services paid for by Dell, $2,825; relocation expenses,
$151,947; and a signing bonus, $138,700.
(g) Amount is comprised of the following: (i) for fiscal 1995 -- reimbursement
for personal financial counseling services paid for by Dell, $68,779; and
imputed interest on a below market loan, $2,269; (ii) for fiscal
1994 -- reimbursement for personal financial counseling services paid for
by Dell, $17,125; and relocation expenses, $161,332; and (iii) for fiscal
1993 -- relocation expenses, $10,000; and a signing bonus, $105,000.
(h) Amount is comprised of the following: (i) for fiscal 1995 -- reimbursement
for personal financial counseling services paid for by Dell, $10,694; and
imputed interest on a below market loan, $862; (ii) for fiscal
1994 -- reimbursement for personal financial counseling services paid for
by Dell, $12,992; and relocation expenses, $211,530; and (iii) for fiscal
1993 -- relocation expenses, $10,000; and a signing bonus, $138,000.
(i) See notes (d) and (e) to the "Option/SAR Grants in Last Fiscal Year" table
below.
Option/SAR Grants in Last Fiscal Year
Dell has one active long-term incentive plan, the Incentive Plan, under
which up to 4,500,923 shares may be issued. The plan authorizes the grant of:
incentive stock options with exercise prices no lower than the fair market value
of the underlying stock on the date of grant; nonqualified stock options and
stock appreciation rights at exercise prices no lower than 50% of fair market
value; and other stock awards. At January 29, 1995, 2,409,614 shares of common
stock remained available for issuance pursuant to awards to be granted under the
Incentive Plan. The following table sets forth information regarding the stock
option grants Dell made to the named executive officers during fiscal 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS/ EMPLOYEES EXERCISE MARKET GRANT DATE
GRANT SARS IN FISCAL PRICE PRICE ON EXPIRATION PRESENT
NAME DATE GRANTED(A) YEAR ($/SH) GRANT DATE DATE VALUE(B)
- ----------------------- ------- ---------- ---------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael S. Dell 0 n/a n/a n/a n/a n/a
Morton L. Topfer 6/1/94 33,750(c) 1.56% $28.19 $28.19 6/1/04 $ 488,025
6/1/94 70,000(d) 3.24 0.01 28.19 6/1/04 1,972,600
6/1/94 70,000(e) 3.24 0.01 28.19 6/1/04 1,972,600
6/29/94 33,750(f) 1.56 26.00 26.00 6/29/04 429,300
Eric F. Harslem 6/29/94 21,759(f) 1.01 26.00 26.00 6/29/04 276,774
Thomas J. Meredith 6/29/94 16,076(f) 0.74 26.00 26.00 6/29/04 204,487
L. Scott Flaig 6/29/94 18,990(f) 0.88 26.00 26.00 6/29/04 241,553
</TABLE>
- ---------------
(a) Dell did not grant any SARs to executive officers in fiscal 1995.
(b) The estimated grant date present value is determined using the Black-Scholes
Model for all options with exercise prices not equal to $0.01 per share.
The material assumptions and adjustments incorporated in the Black-Scholes
Model in estimating the values of the options reflected in the table
include the following: (i) an exercise price of the option equal to the
fair market value of the underlying stock on the
50
<PAGE> 52
date of grant; (ii) an interest rate that represents the interest rate on a
U.S. Treasury security on the date of grant with a maturity date
corresponding to that of the option term; (iii) volatility calculated using
daily stock prices for the one-year period prior to the grant date; (iv)
dividends at the rate of $0 per share (any dividends paid would reduce the
value of the options); (v) an option term of 10 years; and (vi) an
approximate 35% reduction to reflect the probability of forfeiture due to
termination prior to vesting and the probability of a shortened option term
due to termination of employment prior to the option expiration date. For
the options with an exercise price equal to $0.01 per share, the estimated
grant date present value is determined using the market price on the grant
date less the $0.01 exercise price. The ultimate values of the options will
depend on the future market prices of common stock, which cannot be
forecast with reasonable accuracy. The actual value, if any, that an
optionee will recognize upon exercise of an option will depend on the
excess of the market value of the common stock over the exercise price on
the date the option is exercised.
(c) These options vest 25% each year for four years on the anniversary of the
date of grant.
(d) These options are structured to be the equivalent of restricted stock: the
exercise price is nominal ($.01 per share), a portion of the options must
be exercised each calendar year, 60% of the underlying stock will be held
by Dell for two years, and gains on the options and the stock received on
exercise may be forfeited if Mr. Topfer leaves Dell and competes against
Dell within two years thereafter. The options vest 25% each year for four
years on the anniversary of the date of grant.
(e) These options are structured to be the equivalent of restricted stock: the
exercise price is nominal ($.01 per share), options must be exercised in
the calendar year in which the options vest, 60% of the underlying stock
will be held by Dell for two years, and gains on the options and the stock
received on exercise may be forfeited if Mr. Topfer leaves Dell and
competes against Dell within two years thereafter. The options vest 100%
after nine years on the anniversary of the date of grant. These options are
subject to early vesting, potentially within four years, if certain
performance criteria relating to stockholder return are met.
(f) These options vest 20% each year for five years on the anniversary of the
date of grant.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table provides information about the options exercised by the
named executive officers during fiscal 1995 and about unexercised stock options
held by the named executive officers on January 29, 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE
UNDERLYING OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END(#) FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(A) UNEXERCISABLE(A)
- ------------------------------------- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Michael S. Dell...................... 0 $ 0 0/ $ 0/
0 0
Morton L. Topfer..................... 0 0 0/ 0/
207,500 6,849,024
Eric F. Harslem...................... 25,000 704,438 6,160/ 119,061/
121,399 3,957,008
Thomas J. Meredith................... 20,000 563,550 25,886/ 271,448/
96,623 2,739,875
L. Scott Flaig....................... 8,336 234,888 16,000/ 210,971/
101,654 3,397,589
</TABLE>
- ---------------
(a) Dell did not have any outstanding SARs held by executive officers during
fiscal 1995. The value of the options is calculated based on $41.83, which
was the average sales price per share for common stock on January 27, 1995.
51
<PAGE> 53
EMPLOYMENT, OTHER COMPENSATION, AND CHANGE-IN-CONTROL ARRANGEMENTS
Each of the named executive officers has signed an employment agreement
with Dell. The employment agreements require Dell to give an executive officer
either two weeks notice of termination or severance pay equal to two weeks of
such officer's compensation, unless the termination is for cause.
Dell's 1989 and 1993 stock option plans provide that outstanding options
granted under these respective stock option plans may become vested and
exercised as of the day immediately preceding the date before any person
acquires 50% or more of Dell's outstanding common stock. The Incentive Plan
includes provisions governing the effects on outstanding awards granted under
the plan upon the occurrence of a dissolution, liquidation, merger,
consolidation or other reorganization of Dell, including a provision that
permits Dell to allow for the preservation of the rights of the holders of
awards in the event of such reorganization or providing for the accelerations of
vesting and exercisability of awards.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1995, Messrs. Kozmetsky, Hirschbiel and Jordan served as members
of the Compensation Committee. No member of the Compensation Committee is or was
formerly an officer or an employee of the Company or its subsidiaries.
No interlocking relationship exists between the Company's Board of
Directors or the Compensation Committee and the board of directors or the
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No director or executive officer of Dell owns any shares of Dell Series A
Convertible Preferred Stock.
The following table provides information about the beneficial ownership of
common stock as of March 1, 1995, (i) by each person who is known by Dell to own
beneficially more than five percent of the outstanding shares of common stock;
(ii) by each director including Michael S. Dell, Dell's Chairman of the Board
and Chief Executive Officer; (iii) by the other executive officers named in the
Summary Compensation Table in "Compensation of Executive Officers"; and (iv) by
all directors and executive officers as a group. To Dell's knowledge, each
person has sole investment and voting power over the shares indicated, except as
otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------------------------------------------------- -------------------- ----------
<S> <C> <C>
Michael S. Dell......................................... 9,092,051(a) 22.9%
2112 Kramer Lane, Building 1
Austin, Texas 78758
FMR Corp................................................ 4,505,500(b) 11.3
82 Devonshire Street
Boston, Massachusetts 02109
Twentieth Century Companies, Inc........................ 3,250,000(c) 8.2
4500 Main Street
Kansas City, Missouri 64141-9210
Donald J. Carty......................................... 6,000(d) *
Paul O. Hirschbiel, Jr.................................. 1,864(e) *
Michael H. Jordan....................................... 6,000(d) *
George Kozmetsky........................................ 228,780(f) *
Thomas W. Luce III...................................... 3,360(g) *
Klaus Luft.............................................. 0 *
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------------------------------------------------- -------------------- ----------
<S> <C> <C>
Claudine B. Malone...................................... 3,000(d) *
Michael A. Miles........................................ 0(h) *
Morton L. Topfer........................................ 1,050 *
Eric F. Harslem......................................... 29,160(d) *
Thomas J. Meredith...................................... 77,775(d) *
L. Scott Flaig.......................................... 39,628(d) *
All Directors and Executive Officers as a Group
(19 persons).......................................... 9,677,840(d) 24.4
</TABLE>
- ---------------
* Represents less than 1% of the 39,719,402 shares of common stock issued and
outstanding at March 1, 1995.
(a) Includes 157,316 shares of common stock held in a trust of which Mr. Dell is
the grantor. Does not include 152,528 shares of common stock held in a
trust of which Mr. Dell's wife is the grantor or 718,009 shares of common
stock held by Mr. Dell's wife, and Mr. Dell disclaims any beneficial
ownership in all of such shares.
(b) Includes 3,858,500 shares owned by Fidelity Magellan Fund, which is an
investment company for which the investment advisor is Fidelity Management
& Research Company, a wholly-owned subsidiary of FMR Corp. Also includes
53,100 shares owned by various investment companies and institutional
investors to whom Fidelity International Limited is an investment advisor.
Until June 30, 1980, Fidelity International Limited was a majority-owned
subsidiary of Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp. On that date the shares of Fidelity International
Limited were distributed to the shareholders of FMR Corp. as a dividend,
and the two entities today are independently owned and managed. FMR
disclaims any beneficial ownership of these 53,100 shares. Edward C.
Johnson 3d and Abigail P. Johnson each own 24.9% of the outstanding voting
stock of FMR Corp. and, with other family members and trusts, are part of a
controlling group with respect to FMR Corp. A partnership controlled by
Edward C. Johnson 3d and members of his family owns approximately 47.22% of
the outstanding voting stock of Fidelity International Limited. Edward C.
Johnson 3d is Chairman of FMR Corp. and Fidelity International Limited.
(c) Investors Research Corporation, a wholly-owned subsidiary of Twentieth
Century Companies, Inc. acts as investment advisor to Twentieth Century
Investors, Inc., a registered investment company which owns 3,250,000
shares of common stock of the Company. Mr. James E. Stowers, Jr. controls
Twentieth Century Companies, Inc. by virtue of his ownership of
approximately 60% of the voting stock of Twentieth Century Companies, Inc.
(d) Includes shares subject to options that are currently exercisable or
exercisable within 60 days of March 1, 1995, as follows: Mr. Carty, 6,000
shares; Mr. Jordan, 6,000 shares; Ms. Malone, 3,000 shares; Mr. Harslem,
6,160 shares; Mr. Meredith, 25,886 shares; Mr. Flaig, 16,000 shares; and
All Directors and Executive Officers as a Group, 75,262 shares.
(e) Includes 60 shares held in trusts for two of Mr. Hirschbiel's children. Mr.
Hirschbiel is the trustee under these trusts.
(f) Includes 34,884 shares held by the KOZ Fund, Ltd., an affiliate of Mr.
Kozmetsky.
(g) All shares are owned by the Hughes & Luce Retirement Plan for the benefit of
Mr. Luce.
(h) Does not include 2,500 shares of common stock held by Mr. Miles' wife, and
Mr. Miles disclaims any beneficial ownership of such shares.
53
<PAGE> 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 17, 1993, Dell loaned $224,940 to Thomas J. Meredith, Dell's
Chief Financial Officer, to pay the exercise price of a stock option and the
related federal income tax obligation. The loan is unsecured, is due and payable
on June 1, 1995, and bears interest at the rate of 6% per annum. As of March 1,
1995, the amount outstanding under the loan, including interest, was $241,173.
On June 1, 1994, Dell loaned $66,386 to Mr. Meredith to pay the federal income
tax obligation related to a stock option exercise. The loan is unsecured, is due
and payable on June 1, 1995, and is non-interest bearing. As of March 1, 1995,
the full amount of the loan was outstanding.
On June 1, 1994, Dell loaned $82,983 to Eric F. Harslem, Dell's Senior Vice
President, Product Group, to pay the federal income tax obligation related to a
stock option exercise. The loan was unsecured and non-interest bearing. Such
loan was repaid during fiscal year 1995.
On August 29, 1994, Dell loaned $134,616 to Joel J. Kocher, Dell's former
Senior Vice President, to pay the federal income tax obligation related to a
stock option exercise. The loan was unsecured and non-interest bearing. Such
loan was repaid during fiscal year 1995.
Thomas W. Luce III is a partner of the law firm Hughes & Luce, L.L.P., in
Dallas, Texas. Dell retained that firm during fiscal 1995 to provide various
legal services, and the dollar amount of fees that Dell paid to that firm did
not exceed five percent of that firm's gross revenue for the year.
On September 15, 1994, Dell entered into an agreement with Joel J. Kocher
regarding the termination of Mr. Kocher's employment and providing for severance
arrangements. Under the agreement, Mr. Kocher acknowledged that he resigned from
all positions as a corporate officer or director of Dell on September 14, 1994.
Also under the agreement, Mr. Kocher's employment by Dell was terminated on
October 4, 1994. As consideration for Mr. Kocher's agreement to abide by certain
non-competition covenants, Dell agreed to pay Mr. Kocher $390,000. Subject to
Mr. Kocher's compliance with the same non-competition covenants, and as further
consideration for those covenants, Mr. Kocher and Dell agreed to amend certain
stock option grant agreements previously granted to Mr. Kocher, but unvested on
the effective date of the agreement, so as to accelerate the vesting dates on
which Mr. Kocher could purchase Dell's common stock at the indicated exercise
prices per share: 6,930 shares at $17.33 per share; 13,500 shares at $23.66 per
share; 9,600 shares at $30.69 per share; 22,000 shares at $22.50 per share;
17,408 shares at $26.00 per share; and 68,250 shares at $9.77 per share. The
vesting dates for each of such options were accelerated in the agreement so as
to cause 25% of each such option to vest on each of the following dates: January
1, 1995; April 1, 1995; July 1, 1995; and October 1, 1995. In addition, Mr.
Kocher and Dell agreed to amend the stock option grant agreements related to
such options to extend the deadline dates for exercise of all such options to
October 31, 1995. As further consideration for the non-competition covenants,
Dell agreed to waive the two year restriction as to 9,000 shares of Dell's
common stock which were issued to Mr. Kocher upon his exercise of an option
under the Special and Nonstatutory Stock Option Agreement under Dell's 1989
Stock Option Plan dated June 22, 1992 (the "1992 Option Agreement"), which were
subject to two year restrictions on transfer, and as to 21,000 shares of Dell's
common stock which Mr. Kocher was entitled to acquire under the 1992 Option
Agreement.
54
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following financial statements, financial statement schedule and
exhibits are filed as part of this 10-K.
Financial Statements and Financial Statement Schedule -- See Index to
Consolidated Financial Statements at Item 8 on page 23 of this report.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<S> <C>
3.1 -- Certificate of Incorporation of Dell Computer Corporation (the
"Company"), as amended (incorporated by reference to Exhibit 3.1 of
the Company's Annual Report on Form 10-K for the year ended February
2, 1992, Commission File No. 0-17017)
3.2 -- Certificate of Amendment to the Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1993,
Commission File No. 0-17017)
3.3 -- Certificate of Stock Designation of the Company (incorporated by
reference to Exhibit 3.3 of the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
October 1, 1993, Registration No. 33-69680)
3.4 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the year ended February
2, 1992, Commission File No. 0-17017)
4.1 -- Indenture dated as of August 15, 1993, between the Company and The
First National Bank of Boston regarding 11% Senior Notes Due August
15, 2000 (incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on October 1, 1993, Registration No. 33-69680)
4.2 -- Exchange and Registration Rights dated as of August 15, 1993, between
the Company and the purchasers of 11% Senior Notes Due August 15,
2000 (incorporated by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on October 1, 1993, Registration No. 33-69680)
10.1* -- Dell Computer Corporation 1986 Incentive Stock Option Plan, as
amended (incorporated by reference to Exhibit 4c of the Company's
Registration Statement on Form S-8 as filed with the Securities and
Exchange Commission on September 20, 1988, Registration No. 33-24621)
10.2* -- Dell Computer Corporation 1987 Incentive Stock Option Plan, as
amended (incorporated by reference to Exhibit 4d of the Company's
Registration Statement on Form S-8 as filed with the Securities and
Exchange Commission on September 20, 1988, Registration No. 33-24621)
10.3* -- Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as
amended, including the UK Scheme (incorporated by reference to
Exhibit 4e of the Company's Registration Statement on Form S-8 as
filed with the Securities and Exchange Commission on September 20,
1988, Registration No. 33-24621)
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.4* -- Dell Computer Corporation 1989 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1993,
Commission File No. 0-17017)
10.5* -- Dell Computer Corporation Employee Stock Purchase Plan (incorporated
by reference to Exhibit 4d of the Company's Registration Statement on
Form S-8 as filed with the Securities and Exchange Commission on
October 30, 1989, Registration No. 33-31812)
10.6* -- Dell Computer Corporation 401(k) Plan (incorporated by reference to
Exhibit 10f of the Company's Annual Report on Form 10-K for the year
ended February 2, 1990, Commission File No. 0-17017)
10.7* -- First Amendment to Exhibit 10.6, Dell Computer Corporation 401(k)
Plan (incorporated by reference to Exhibit 10.7 of the Company's
Annual Report on Form 10-K for the year ended February 3, 1991,
Commission File No. 0-17017)
10.8* -- Second Amendment to Exhibit 10.6, Dell Computer Corporation 401(k)
Plan (incorporated by reference to Exhibit 10.8 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1993,
Commission File No. 0-17017)
10.9#* -- Third, Fourth, Fifth and Sixth Amendments to Exhibit 10.6, Dell
Computer Corporation 401(k) Plan.
10.10* -- Dell Computer Corporation Deferred Compensation Plan (incorporated by
reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K
for the year ended February 3, 1991, Commission File No. 0-17017)
10.11 -- Credit Agreement between the Company and Citibank, N.A., for itself
and as agent for the other banks named therein dated June 18, 1993,
together with Amendment No. 1 to Credit Agreement between the Company
and Citibank, N.A., for itself and as agent for the other banks named
therein dated July 30, 1993. A list of schedules and exhibits to the
Credit Agreement is included on page iv of the Credit Agreement. The
Company hereby agrees to furnish supplementally to the Securities and
Exchange Commission on request a copy of any omitted schedule or
exhibit to the Credit Agreement (incorporated by reference to Exhibit
10.19 of the Company's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission on October 1, 1993,
Registration No. 33-69680)
10.12* -- Form of Indemnity Agreement between the Company and certain of its
officers, directors and key employees (incorporated by reference to
Exhibit 10.23 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 12, 1988,
Registration No. 33-21823)
10.13 -- Lease Agreement for Arboretum Point dated July 25, 1987 (incorporated
by reference to Exhibit 10.25 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on
May 12, 1988, Registration No. 33-21823)
10.14 -- First through Fourth Amendments to Exhibit 10.13, Lease Agreement for
Arboretum Point (incorporated by reference to Exhibit 10r of the
Company's Annual Report on Form 10-K for the year ended January 27,
1989, Commission File No. 0-17017)
10.15 -- Fifth Amendment to Exhibit 10.13, Lease Agreement for Arboretum Point
(incorporated by reference to Exhibit 19b of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 28, 1989, Commission
File No. 0-17017)
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.16 -- Sixth Amendment to Exhibit 10.13, Lease Agreement for Arboretum Point
(incorporated by reference to Exhibit 10.25 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File No. 0-17017)
10.17 -- Lease Agreement for Building 12 in Braker Center dated January 6,
1989 (incorporated by reference to Exhibit 10s of the Company's
Annual Report on Form 10-K for the year ended January 27, 1989,
Commission File No. 0-17017)
10.18 -- Two Amendments to Exhibit 10.17 Lease Agreement for Building 12 in
Braker Center (incorporated by reference to Exhibit 10.27 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017)
10.19* -- Agreement between the Company and Michael S. Dell dated May 12, 1988,
with the Employment Agreement between Michael S. Dell and a
predecessor of Dell Computer Corporation dated May 3, 1984
(incorporated by reference to Exhibit 10.25 of Amendment No. 3 to the
Company's Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on March 27, 1991, Registration
No. 33-38991)
10.20* -- Employment Agreement between the Company and Joel Kocher effective as
of December 14, 1987 (incorporated by reference to Exhibit 10.22 of
Amendment No. 3 to the Company's Registration Statement on Form S-1,
as filed with the Securities and Exchange Commission on March 27,
1991, Registration No. 33-38991)
10.21* -- Employment Agreement between the Company and Savino R. Ferrales
effective as of January 9, 1989 (incorporated by reference to Exhibit
10.21 of Amendment No. 3 to the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission on
March 27, 1991, Registration No. 33-38991)
10.22* -- Employment Agreement between the Company and Richard E. Salwen
effective as of June 12, 1989, with a letter agreement dated May 21,
1989 (incorporated by reference to Exhibit 10.23 of Amendment No. 3
to the Company's Registration Statement on Form S-1, as filed with
the Securities and Exchange Commission on March 27, 1991,
Registration No. 33-38991)
10.23* -- Employment Agreement between the Company and Thomas J. Meredith dated
November 16, 1992 (incorporated by reference to Exhibit 10.36 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017)
10.24* -- Employment Agreement between the Company and L. Scott Flaig dated
December 1, 1992 (incorporated by reference to Exhibit 10.37 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017)
10.25* -- Form of Stock Option Agreement under the 1989 Stock Option Plan
(incorporated by reference to Exhibit 10.38 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File No. 0-17017)
10.26* -- Dell Computer Corporation 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.36 of the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
October 1, 1993, Registration No. 33-69680)
</TABLE>
57
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.27* -- Form of Incentive Stock Option Agreement and Nonstatutory Stock
Option Agreement under the 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.37 of the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
October 1, 1993, Registration No. 33-69680)
10.28 -- Receivables Purchase Agreement among Dell Receivables Corporation,
Dell USA L.P., Sheffield Receivables Corporation, and Barclays Bank
PLC, New York Branch, dated as of June 23, 1993. A list of schedules
and exhibits to the Receivables Purchase Agreement is included on
page iv of the Receivables Purchase Agreement. The Company hereby
agrees to furnish supplementally to the Securities and Exchange
Commission on request a copy of any omitted schedule or exhibit to
the Receivables Purchase Agreement (incorporated by reference to
Exhibit 10.38 of the Company's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on October 1, 1993,
Registration No. 33-69680)
10.29* -- Severance Agreement dated September 15, 1994 between the Company and
Joel Kocher (incorporated by reference to Exhibit 10.1 of the
Company's Registration Statement on Form S-3, as filed with the
Securities and Exchange Commission on February 21, 1995, Registration
No. 33-57775)
10.30* -- Dell Computer Corporation Incentive Plan (incorporated by reference
to Exhibit 4.6 of the Company's Registration Statement on Form S-8,
as filed with the Securities and Exchange Commission on July 14,
1994, Registration No. 33-54577)
10.31# -- Credit Agreement between the Company and Citibank, N.A., for itself
and as agent for the other banks named therein dated June 10, 1994. A
list of schedules and exhibits to the Credit Agreement is included on
page iv of the Credit Agreement. The Company hereby agrees to furnish
supplementally to the Securities and Exchange Commission on request a
copy of any omitted schedule or exhibit to the Credit Agreement.
21.0 -- Subsidiaries of the Company (incorporated by reference to Exhibit
21.0 of the Company's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission on October 1, 1993,
Registration No. 33-69680)
23.1# -- Consent of Price Waterhouse LLP
27# -- Financial Data Schedule
</TABLE>
- ---------------
# Filed herewith.
* Indicates management compensatory plan, contract or arrangement.
REPORTS ON FORM 8-K
Dell Computer Corporation did not file any reports on Form 8-K during the
fourth quarter of fiscal 1995.
58
<PAGE> 60
SCHEDULE VIII
DELL COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
FISCAL BEGINNING BAD DEBT CHARGED TO END OF
YEAR DESCRIPTION OF PERIOD EXPENSE ALLOWANCE PERIOD
- -------------------- ------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1995................ Allowance for doubtful accounts $ 26,015 $ 7,819 $8,253 $ 25,581
1994................ Allowance for doubtful accounts $ 14,000 $ 13,455 $1,440 $ 26,015
1993................ Allowance for doubtful accounts $ 7,527 $ 8,141 $1,668 $ 14,000
</TABLE>
59
<PAGE> 61
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.
<TABLE>
<S> <C>
Dell Computer Corporation
DATE: March 17, 1995 By: /s/ MICHAEL S. DELL
-----------------------------
Michael S. Dell
Chairman of the Board and
Chief Executive Officer
</TABLE>
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 and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
DATE: March 17, 1995 /s/ MICHAEL S. DELL
---------------------------------------
Michael S. Dell
Chairman of the Board and
Chief Executive Officer
DATE: March 17, 1995 /s/ THOMAS J. MEREDITH
---------------------------------------
Thomas J. Meredith
Chief Financial Officer
DATE: March 17, 1995 /s/ DONALD J. CARTY
---------------------------------------
Donald J. Carty
Director
DATE: March 17, 1995 /s/ PAUL O. HIRSCHBIEL, JR.
---------------------------------------
Paul O. Hirschbiel, Jr.
Director
DATE: March 17, 1995 /s/ MICHAEL H. JORDAN
---------------------------------------
Michael H. Jordan
Director
DATE: March 17, 1995 /s/ GEORGE KOZMETSKY
---------------------------------------
George Kozmetsky
Director
DATE: March 17, 1995 /s/ THOMAS W. LUCE, III
---------------------------------------
Thomas W. Luce, III
Director
DATE: March 17, 1995 /s/ KLAUS LUFT
---------------------------------------
Klaus Luft
Director
DATE: March 17, 1995 /s/ CLAUDINE B. MALONE
---------------------------------------
Claudine B. Malone
Director
DATE: March 17, 1995 /s/ MICHAEL A. MILES
---------------------------------------
Michael A. Miles
Director
</TABLE>
60
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
10.9#* -- Third, Fourth, Fifth and Sixth Amendments to Exhibit 10.6, Dell
Computer Corporation 401(k) Plan.
10.31# -- Credit Agreement between the Company and Citibank, N.A., for itself
and as agent for the other banks named therein dated June 10, 1994. A
list of schedules and exhibits to the Credit Agreement is included on
page iv of the Credit Agreement. The Company hereby agrees to furnish
supplementally to the Securities and Exchange Commission on request a
copy of any omitted schedule or exhibit to the Credit Agreement.
23.1# -- Consent of Price Waterhouse LLP
27# -- Financial Data Schedule
</TABLE>
- ---------------
# Filed herewith.
* Indicates management compensatory plan, contract or arrangement.
<PAGE> 1
AMENDMENT NO. 3 TO THE
DELL COMPUTER CORPORATION 401(k) PLAN
Pursuant to the authority of the Board of Directors of Dell Computer
Corporation, and the provisions of Article XVI thereof, the Dell Computer
Corporation 401(k) Plan is hereby amended, effective as of the dates specified
herein, in the following respects only:
(1) Article II, Section II.1, subsection (ww), is hereby amended,
effective as of January 1, 1993, to read as follows:
"(ww) "Rollover Contribution" shall mean a transfer or
contribution to the Plan of all or a portion of an eligible rollover
distribution (within the meaning of section 402(c)(4) of the Code)
from an Employee's trust described in section 401(a) of the Code that
is exempt from tax under section 501(a) thereof or an annuity plan
described in section 403(a) of the Code and any earnings thereon
(whether such contribution is paid directly by the Employee, from such
trust or annuity plan, or from an individual retirement account,
individual retirement annuity, or retirement bond) in a manner which
would constitute either an eligible rollover distribution within the
meaning of section 402(c)(4) of the Code, a rollover contribution
within the meaning of section 402(c)(5) or 408(d)(3)(A)(ii) of the
Code, or a rollover amount within the meaning of section 403(a)(4) of
the Code, or would constitute a direct trustee-to-trustee transfer,
including a direct transfer within the meaning of Section 401(a)(31)
of the Code. Notwithstanding the foregoing provisions of this
Section, except as may be expressly authorized by the Administration
Committee, no transfer to this Plan of an amount described in the
immediately preceding sentence shall be permitted in the form of a
direct trustee-to-trustee transfer if such amount is attributable,
directly or indirectly, to a transfer from a defined benefit plan
(within the meaning of section 414(j) of the Code), a defined
contribution plan (within the meaning of section 414(i) of the Code)
subject to the minimum funding standards of section 412 of the Code,
or a defined contribution plan that is otherwise subject to Code
sections 401(a)(11) and 417."
(2) Article XI is hereby amended in its entirety, effective as of
January 1, 1993, to read as follows:
"ARTICLE XI
LOANS
XI.1. Loans to Participants: Basic Terms and Limits.
Within the following limits, and if and when the Administration
Committee decides to permit Plan loans, the Administration Committee
may authorize the Trustee to make a loan from the Plan to any
Participant or Former Participant (for purposes of this Article XI
only, collectively referred to as "Participant") who is either an
Eligible Employee on the date on which the loan is made, or a 'party
in interest', as such term is defined in Section 3(14) of the Act
<PAGE> 2
("Party in Interest"), such loan, when added to the outstanding
balance (as of the day before the date of such loan) of all other such
loans to the Participant, not to exceed the lesser of:
(a) Fifty Thousand Dollars ($50,000), reduced by
the excess, if any, of (i) the highest outstanding balance of loans to
such Participant from the Plan during the twelve (12) consecutive
month period ending on the day before the date such loan is made, over
(ii) the outstanding balance of loans to such Participant from the
Plan on the day before the date such loan is made, or
(b) one-half (1/2) of the value of the
Participant's Vested Accrued Benefit.
The limitation on the loans that may be made from this Plan
shall be calculated to take into account the Participant's
nonforfeitable benefits and loans under all plans of any entity with
which the Employer must be aggregated for purposes of sections 414(b),
(c), (m) or (o) of the Code, with all such plans to be treated as a
single plan. For purposes of this Section 11.1, the value of a
Participant's Vested Accrued Benefit shall be determined as of the
Valuation Date coincident with or immediately preceding the date on
which the loan is made.
Except as provided in the next sentence, each loan to a
Participant shall by its terms require repayment within five (5) years
from the date on which it is made. There need be, however, no five
(5) year limit to any loan that is used to acquire any dwelling unit
which within a reasonable time is to be used as a principal residence
of the Participant. The reasonableness of the time specified in the
preceding sentence shall be determined as of the date the loan is
made, and loans to be used to acquire a dwelling unit as provided
above shall in all events require repayment within a reasonable time.
Notwithstanding the above, all loans, other than a loan outstanding to
a Party in Interest, shall be accelerated and immediately due in full
upon a Participant's termination of Service. All loans shall be made
at interest rates then currently prevalent for loans from a commercial
lending institution for a purpose similar to the purpose for which the
loan is being made and shall be adequately secured. Except as may be
allowed under regulations promulgated by the Secretary of the Treasury
and uniformly applied by the Administration Committee, all loans shall
be made on the basis of substantially level amortization over the term
of the loan, with payments due not less frequently than quarterly.
Loans, if made hereunder, shall be made available on a uniform and
nondiscriminatory basis to all Participants who are either Eligible
Employees on the date on which a loan is made, or Parties in Interest.
XI.2. Instruments and Security for Loans. Each loan
hereunder shall be evidenced by a promissory note and secured by a
security agreement, mortgage, deed of trust, or such other security
instruments as the Administration Committee may require. All such
instruments shall contain, in addition to the provisions specifically
required by
-2-
<PAGE> 3
this Article XI, such repayment, default, and remedial terms as may be
determined by the Administration Committee. Security for loans
hereunder shall be provided by the pledge of all or a portion of a
Participant's Vested Accrued Benefit and the pledge of such additional
collateral, including a Participant's entire Vested Accrued Benefit,
as the Administration Committee may require. Further, if because of a
decrease in the value of a Participant's Vested Accrued Benefit, the
Administration Committee believes a loan to be inadequately secured,
it shall either require the Participant to post security in addition
to the value of his Vested Accrued Benefit or demand accelerated,
including immediate, payment of the loan. An assignment for security
of a Participant's Vested Accrued Benefit shall be limited as provided
in Section 14.6 hereof. The default provisions of the instruments
relating to a loan shall provide that upon default a loan may be set
off against the Participant's Accounts at the earliest time at which a
distribution from the Plan is permitted. Solely for purposes of
setting off account balances upon default of a Plan loan, pursuant to
this Section 11.2, Employee Contributions (but not earnings thereon)
and Rollover Contributions are deemed to be distributable at any time,
and Employer Profit Sharing Contributions, Employer Matching
Contributions, and earnings on Employee Contributions, Employer Profit
Sharing Contributions and Employer Matching Contributions are deemed
to be distributable when such funds have been allocated to the
Participant's Account for at least two (2) years.
The Administration Committee shall provide for the repayment
of the loan through payroll deduction over the term of the loan, and,
if applicable, by payment by a Party in Interest to the Trust
following such Participant's termination of Service.
Each promissory note and security instrument shall be
delivered to the Trustee for the benefit of the Trust Fund. The
amount borrowed by a Participant shall be considered an investment of
the Trust Fund and shall be made by the Trustee from such Investment
Fund or Funds or such combination thereof as is deemed appropriate by
the Administration Committee, in its sole and absolute discretion.
The interest on the loan shall be allocated to the appropriate
Investment Fund or Funds and any losses incurred as a result of the
making of the loan shall also be allocated to such Investment Fund or
Funds. For purposes of allocating Trust earnings and losses pursuant
to Section 6.3 or 6.4, the borrowing Participant's Account or Accounts
shall not be decreased by the amount of the loan made to the
Participant.
XI.3. Payment of Expenses. If a Participant's application
for a loan is approved, the Participant shall be required to pay all
reasonable and necessary expenses incurred in the making and
administration of the loan, including, but not limited to, attorney's
fees. The amount to be paid shall be determined by the Administration
Committee and shall be paid at the time and in the form prescribed
thereby."
(3) Article VIII, Section VIII.5, is hereby amended, effective as
of January 1, 1993, to read as follows:
-3-
<PAGE> 4
"VIII.5. Lump Sum Cashout and Special Limitation on
Involuntary Payment of Benefits. Notwithstanding the foregoing
provisions of this Article VIII, upon termination of a Participant's
Service (regardless of the reason for such termination), the
Administration Committee shall direct the Trustee to distribute the
Participant's Vested Accrued Benefit (provided that such Vested
Accrued Benefits does not exceed $3,500), including a deemed
distribution of $0, to the Participant or the Participant's
Beneficiary in a lump sum as soon as is administratively feasible
after the Valuation Date next following the Participant's termination
of Service, but in no event earlier than the Valuation Date next
following the Administration Committee's receipt of such Participant's
election of a direct rollover, as provided in Section 8.12 hereof or,
if no election is timely made, after lapse of the waiting period set
forth in Section 1.402(c)-2T, Q&A-13 of the Treasury Regulations. If
upon termination of a Participant's Service for any reason other than
death the then value of the Participant's Vested Accrued Benefit
exceeds $3,500, no distribution of the Participant's Vested Accrued
Benefit to the Participant may occur prior to the Participant's
attainment of age sixty-five (65) unless the Participant files with
the Administration Committee, within the time period and in the manner
prescribed by the Administration Committee, a written request for the
payment of his Vested Accrued Benefit, such request expressly to
consent to the payment. If the Participant timely files such a
request, the Committee shall direct the Trustee to pay such amount to
the Participant as soon as administratively feasible after the
Valuation Date next following the Administration Committee's receipt
of such request. Upon the Participant's death after termination of
Service, payment of the Participant's Accrued Benefit shall be made in
accordance with Section 8.1(c)."
(4) Article VIII shall be amended, effective as of January 1,
1993, to add Article VIII.12, to read as follows:
"VIII.12. Direct Rollover of Eligible Rollover
Distributions: An individual who is entitled to a benefit hereunder,
the distribution of which would qualify as an eligible rollover
distribution (as defined in Section 401(a)(31)(C) of the Code) may, in
lieu of receiving any payment or payments from the Plan, direct the
Trustee to transfer all of such payment or payments (or any portion
thereof in excess of $500) directly to the trustee of an eligible
retirement plan (as defined in Section 401(a)(31)(D) of the Code).
Such election must be made on a form provided by the Administration
Committee for that purpose and received by the Administration
Committee no later than ten (10) business days prior to the Valuation
Date immediately preceding the date of distribution. An election
which is made hereunder with respect to one payment in a series of
periodic payments shall apply to all subsequent payments in that
series, unless the distributee revokes such election. Any election
made pursuant to this Section 8.12 may be revoked at any time prior to
the date which is ten (10) business days prior to the Valuation Date
immediately preceding the date of distribution. If an individual who
is so entitled has not elected a direct rollover within the time and
in the manner set forth above, such distributee shall be deemed to
have affirmatively waived a direct rollover. A distributee who wishes
to elect a direct rollover shall provide to the Administration
Committee,
-4-
<PAGE> 5
within the time and in the manner prescribed by the Administration
Committee, such information as the Administration Committee shall
reasonably request regarding the eligible retirement plan to which the
payment or payments are to be transferred. The Administration
Committee shall be entitled to rely on the information so provided,
and shall not be required to independently verify such information.
The Administration Committee shall be entitled to delay the transfer
of any payment or payments pursuant to this Section 8.12 until it has
received all of the information which it has requested in accordance
with this Section 8.12. The provisions of this Section 8.12 shall not
apply to any distribution in an amount which the Administration
Committee reasonably anticipates to total less than $200 during a
calendar year."
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising Amendment No. 3 to the Dell Computer
Corporation 401(k) Plan, the Company has caused its corporate seal to be
affixed hereto and these presents to be duly executed in its name and behalf by
its proper officers thereunto duly authorized this _____ day of _____________,
1993.
DELL COMPUTER CORPORATION
By:_________________________________
ATTEST:
__________________________________
(Title)
-5-
<PAGE> 6
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this _____ day of ________________, 1993, personally appeared
___________________, to me known to be the identical person who subscribed the
name of DELL COMPUTER CORPORATION, as its ___________________, to the foregoing
instrument and acknowledged to me that he executed the same as his free and
voluntary act and deed and as the free and voluntary act and deed of such
organization for the uses and purposes therein set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
_________________________________
Notary Public in and for
the State of Texas
My Commission Expires:
____________________________
-6-
<PAGE> 7
AMENDMENT NO. 4 TO THE
DELL COMPUTER CORPORATION 401(k) PLAN
Pursuant to the authority of the Board of Directors of Dell Computer
Corporation, and the provisions of Article XVI thereof, the Dell Computer
Corporation 401(k) Plan is hereby amended effective as of May 1, except as
otherwise specifically designated below, in the following respects only:
(1) Article II, Section II.1, subsection (h), is hereby amended to
read as follows:
"(h) 'Allocation Period' shall mean each period beginning
with the first day of each calendar quarter and ending with the last
day of such calendar quarter."
(2) Article II, Section II.1, subsection (w), is hereby deleted in
its entirety.
(3) Article II, Section II.1, subsection (pp) is hereby amended to
read as follows:
"(pp) 'Plan Entry Date' shall mean the first day of each
month of each Plan Year."
(4) Article II, Section II.1, subsection (ccc) is hereby amended
to read as follows:
"(ccc) 'Valuation Date' shall mean each day of the Plan Year."
(5) Article III, Section III.1, is hereby amended, effective as of
July 1, 1994, to read as follows:
"III.1. Eligibility. Each Eligible Employee may become a
Participant in the Plan on the Plan Entry Date (if he is employed on
that date) that coincides with or immediately follows the date upon
which he completes ninety (90) days of Eligibility Service."
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(6) Article III, Section III.2, subsection (a), is hereby amended,
effective as of July 1, 1994, to read as follows:
"(a) General. For purposes of determining an Employee's
eligibility to participate in the Plan, except as provided in Section
3.2(b) below, an Employee shall be credited with ninety (90) days of
Eligibility Service as of the last day of the period (not exceeding 12
consecutive months and beginning with the Employee's Employment
Commencement Date (the 'initial computation period')) during which he
completes not less than two hundred fifty (250) Hours of Service in
ninety (90) consecutive days within the initial computation period.
Thereafter, an Employee shall be given credit for ninety (90) days of
Eligibility Service as of the last day of the period (not exceeding 12
consecutive months and beginning on the first day of each Plan Year)
in each Plan Year (beginning with the Plan Year in which the initial
computation period ends) during which he completes not less than two
hundred fifty (250) Hours of Service in ninety (90) consecutive days
within the period."
(7) Article III, Section III.3, subsection (b), is hereby amended,
effective as of July 1, 1994, to read as follows:
"(b) If he was not a Participant prior to his separation
from Service, on the later of (1) the first Plan Entry Date after he
has completed ninety (90) days of Eligibility Service, taking into
account, where relevant, any prior Service, or (2) his reemployment
commencement date."
(8) Article V, Section V.1, subsection (b), is hereby amended to
read as follows:
"(b) Each Eligible Employee who becomes eligible or who at
a given time is about to become eligible to participate in the Plan
shall elect in writing, at such time and in such form as the
Administration Committee shall in its sole and absolute discretion
determine, to defer the receipt of a portion of his Considered
Compensation or to receive his entire Considered Compensation in cash.
The initial election by an Eligible Employee to defer the receipt of a
portion of his Considered Compensation shall become effective as of the
first Plan Entry Date that such Eligible Employee is eligible to
participate in the Plan pursuant to Section 3.1 provided that a timely
election to defer a portion of his Considered Compensation is filed
with the Administration Committee. If such initial election is not
filed in a timely manner, the Eligible Employee may elect to defer a
portion of his Considered Compensation effective as of the first day of
any subsequent Plan Entry Date, provided that a timely election to
defer is filed with the Administration Committee.
A Participant who has previously elected to defer the receipt
of a portion
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of his Considered Compensation pursuant to this Section 5.1 may
elect to change the amount of the deferral of his Considered
Compensation as of any Plan Entry Date following his previous election,
provided a written notice of the change in election is delivered to the
Administration Committee at such time and in the form prescribed by the
Administration Committee. A Participant who has previously elected to
defer the receipt of a portion of his Considered Compensation pursuant
to this Section 5.1 may at any time elect in writing on the form
prescribed by the Administration Committee to begin receiving his
entire Considered Compensation in cash, and such election shall become
effective as of the first day of any payroll period the Administration
Committee determines to be administratively convenient, but in no event
later than forty-five (45) days following the Administration
Committee's receipt of such election."
(9) Article V, Section V.2, subsection (c)(3), is hereby deleted
in its entirety, effective as of January 1, 1992.
(10) Article V, Section V.5, is hereby deleted in its entirety,
effective as of January 1, 1992.
(11) Article V, Section V.7, is hereby amended to read as follows:
"V.7. Investment of Contributions. Each Participant may
make such elections by filing an election form with the
Administration Committee in the form prescribed by it, upon becoming a
Participant. Such elections may be changed, with respect to future
eligible contributions, on any Valuation Date by properly completing
and filing an election with the Administration Committee within the
time period prior to such date established by the Administration
Committee."
(12) Article V, Section V.8, is hereby amended to read as follows:
"V.8. Investment Transfers. Subject to all of the other
provisions herein contained, and any special rules adopted by the
Administration Committee with respect to certain Investment Funds
which, by their nature, require special treatment or are subject to
particular restrictions, each Participant may elect as of each
Valuation Date to have all or a part of his assets in any or all of the
Investment Fund(s) transferred to any one or more other Investment
Fund(s), by properly completing and filing an election form with the
Administration Committee within the time period prior to such date
established by the Administration Committee."
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(13) Article VI, Section VI.1, is hereby amended, effective as of
January 1, 1992, to read as follows:
"VI.1. Participant's Accounts. The Administration Committee
shall establish for each Participant one or more of the Accounts
described in Section 2.1(a), as appropriate, to which shall be allocated
the proper Employer contributions and, if applicable, Rollover
Contributions, together with the income, gain, and losses allocable
thereto and less the distributions therefrom. The establishment of
separate Accounts shall not require a segregation of the Trust assets."
(14) Article VI, Section VI.5, is hereby amended to read as follows:
"VI.5. Allocation of Employer Contributions. Subject to the
limitations of Section 6.10, with respect to Employer Salary Reduction
Contributions, as of each Valuation Date and for the period preceding
such Valuation Date; with respect to Employer Matching Contributions, as
of the last Valuation Date for each calendar quarter and for the
Allocation Period preceding such Valuation Date; and with respect to all
other Employer contributions, as of the last Valuation Date for each
Plan Year and for the Plan Year preceding such Valuation Date, the
Administration Committee shall:
(a) First, determine the aggregate limitation
prescribed by Section 6.10 for all Participants entitled to
share in the allocation of Employer contributions for the
Limitation Year ending within the Plan Year.
(b) Next, as of each Valuation Date allocate for the
period preceding such Valuation Date to each Participant's
Employer Salary Reduction Contribution Account the total
Employer Salary Reduction Contributions for such period that
equals the amount by which the Participant has elected, in
accordance with Section 5.1, to defer a portion of his
Considered Compensation during such period and, if an election
is made by the Administration Committee pursuant to Section
2.1(d), so much of the Employer Matching Contributions for the
period as may be designated by the Administration Committee in
its sole and absolute discretion, to be allocated as provided in
Section 6.5(c) below; provided that the amount of Employer
Salary Reduction Contribution allocated to a Participant's
Employer Salary Reduction Account for a given Limitation Year
shall not exceed fifteen percent (15%) of the Participant's
Considered Compensation for the Limitation Year.
(c) Next, as of the last Valuation Date for each
Allocation Period, for each Participant who (i) was employed
by an Employer or
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Related Employer on such Valuation Date (or failed to be so
employed due to death, disability, or retirement), and (ii)
authorized Employer Salary Reduction Contributions during such
Allocation Period equal to at least one percent (1%) of such
Participant's Considered Compensation during such Allocation
Period, allocate, for the Allocation Period, to each such
Participant's Employer Matching Contribution Account (or,
pursuant to a special election by the Administration Committee
under Section 2.1(d), Employer Salary Reduction Contribution
Account) a portion of the total Employer Matching
Contributions for such Plan Year that equals fifty percent
(50%) of the first six percent (6%) of such Participant's
Considered Compensation which was allocated to the
Participant's Employer Salary Reduction Contribution Account
pursuant to Section 6.5(b) for the Allocation Period; provided
that the amount allocated to the Employer Matching
Contribution Account of a Highly Compensated Employee for a
given Plan Year shall be subject to the limitations of Section
4.5 and to the election of the Administration Committee
pursuant to Section 2.1(d).
(d) Next, as of the last Valuation Date for each
Plan Year, allocate, for the Plan Year preceding such Valuation
Date, Employer Profit Sharing Contributions among the Employer
Profit Sharing Contribution Accounts of Participants who both
(i) during the Plan Year completed one year of Vesting
Service, or who terminated employment with the Employer during
the Plan Year by reason of death, disability, or retirement,
and (ii) were employed by an Employer on the last day of the
Plan Year (or who failed to be so employed by reason of death,
disability, or retirement), such allocation to be pro rata
according to the ratio that each such Participant's Considered
Compensation for the Plan Year bears to the Considered
Compensation of all Participants entitled to such allocation
of the Employer Profit Sharing Contribution for such Plan
Year.
(e) (1) Next, as of the last Valuation Date
for each Plan Year for which an Employer Nonelective
Contribution is made, allocate, for the Plan Year preceding
such Valuation Date, to the Employer Salary Reduction
Contribution Account of each non-Highly Compensated Employee
Participant indicated in Section 6.5(e)(2), a portion of the
total Employer Nonelective Contribution, such allocation to be
pro rata according to the ratio that each such Participant's
Considered Compensation for the Plan Year bears to the
Considered Compensation of all Participants entitled to such
allocation of the Employer Nonelective Contribution for such
Plan Year.
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(2) Participants to Whom Employer
Nonelective Contributions Shall be Allocated. The Employer
Nonelective Contributions for any Plan Year shall be allocated among
and credited to the Employer Salary Reduction Contribution Accounts of
Eligible Employees who were not Highly Compensated Employees and:
(A) who have satisfied the requirements
of Article III prior to or during the Plan Year, complete
1,000 Hours of Service during the Plan Year, and are
Participants on the last day of such Plan Year; provided,
however, that any Employee who was a Participant during the
Plan Year, who terminated employment with the Employer, and
who, immediately thereafter, commenced employment with a
Related Employer shall be eligible for an allocation of
Employer Nonelective Contributions in such year, provided that
such Employee (i) completes at least 1,000 Hours of Service
during the Plan Year (aggregating his Service with the
Employer and the Related Employer) and (ii) is employed by
the Related Employer on the last day of the Plan Year.
(B) who were on Leave of Absence on the
Valuation Date and who received Compensation from the
Employer during the Plan Year; or
(C) who died, retired, or became
permanently disabled during the Plan Year and who received
Compensation from the Employer during that year.
(f) Notwithstanding the foregoing provisions of this
Section 6.5, the allocations for any Participant shall not exceed the
amount determined pursuant to Section 6.10. If after the allocations
provided for above in this Section 6.5 any Employer contributions
remain unallocated, such remainder shall be held in a suspense account
and used to reduce Employer Nonelective Contributions, Employer
Matching Contributions, and/or Employer Profit Sharing Contributions in
the following Plan Year(s)."
(15) Article VI, Section VI.6, is hereby amended to read as follows:
"VI.6. Dates Contributions Considered Made. For purposes of
this Article VI, the Employer Nonelective Contributions and Employer
Profit Sharing Contributions, but not the Employer Salary Reduction
Contributions or Employer Matching Contributions, under the Plan for any
Plan Year shall be considered to have been made on the last day of that
year, regardless of when paid to the Trustee. Employer Salary Reduction
Contributions shall be considered to have
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been made as of the Valuation Date on which such Contributions are
paid to the Trustee. Employer Matching Contributions and Rollover
Contributions under the Plan for any Plan Year shall be considered to
have been made on the Valuation Date falling on the last day of the
Allocation Period in which the Rollover Contribution was made or to
which the Participant elections pursuant to Section 5.1(a) giving rise
to the Employer Matching Contributions relate."
(16) Article VI, Section VI.7, is hereby amended to read as follows:
"VI.7. Valuation. Within a reasonable time after the last
day of each calendar quarter, the Trustee shall prepare or cause
to be prepared a statement of the condition of the Trust Fund,
setting forth all investments, receipts, and disbursements, and other
transactions effected by it during the Allocation Period ending on such
day, and showing all the assets of the Trust Fund and the cost and fair
market value thereof. This statement shall be delivered to the
Administration Committee. The Administration Committee shall then
cause to be prepared, and shall deliver, as soon as administratively
practicable, to each Participant a report disclosing the status of his
Accounts in the Trust as of the last Valuation Date that occurs in each
Plan Year. The Trustee's determination of the fair market value of the
assets of the Trust Fund and the Administration Committee's charges or
credits to Accounts shall be final and conclusive on all persons ever
interested hereunder, subject to Section 13.11 hereof."
(17) Article VI, Section VI.8, is hereby amended to read as follows:
"VI.8. Special Valuation. While it is contemplated that the
Trust Fund will be valued by the Trustee and allocations made only
on the applicable Valuation Date, should it be necessary to make
distributions under the provisions hereof, and the Administration
Committee, in good faith, determines that, because of: (a) an
extraordinary change in general economic conditions, (b) the occurrence
of some casualty radically affecting the value of the Trust Fund or a
substantial part thereof, or (c) an abnormal fluctuation in the value
of the Trust Fund has occurred since the last applicable Valuation
Date, the Administration Committee may, in its sole discretion, to
prevent the payee from receiving a substantially greater or lesser
amount than what he would be entitled to, based on current values,
cause a revaluation of the Trust Fund to be made and a reallocation of
the interests therein as of the date the payee's right of distribution
becomes fixed. The Administration Committee's determination to make
such special valuation and the valuation of the Trust Fund as
determined by the Trustee shall be conclusive and binding on all
persons ever interested hereunder, subject to Section 13.11 hereof."
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(18) Article VII, Section VII.1, is hereby amended to read as
follows:
"VII.1. Normal Retirement. A Participant's Normal Retirement
Date is the date he attains age sixty-five (65). A Participant who
remains in the Service of the Employer after attaining his Normal
Retirement Date shall continue to participate in Employer contributions
until the date of his actual retirement. Upon termination of a
Participant's Service for any reason at or after attaining his Normal
Retirement Date, his Accrued Benefit shall be fully vested and
nonforfeitable, and the Administration Committee shall direct the
Trustee to make payment of the full value of the Participant's Accrued
Benefit to him at such times and in such manner as provided in Article
VIII hereof. The value of the Participant's Accrued Benefit shall be
determined as of the Valuation Date each month designated by the
Administration Committee for the purpose of valuing distributions and
which immediately precedes the date of distribution. However, if
Employer contributions are allocated to the Participant's Accounts
after such Valuation Date, then the value of the Participant's Accrued
Benefit shall be adjusted to reflect such additional allocations."
(19) Article VII, Section VII.2, is hereby amended to read as
follows:
"VII.2. Termination of Plan or Sale of Employer. Upon (i)
termination of this Plan without establishment of a successor plan,
(ii) the sale by an Employer or Related Employer of substantially
all of the assets (within the meaning of section 409(d)(2) of the Code)
used by such Employer or Related Employer in a trade or business with
respect to a Participant who continues employment with the corporation
acquiring such assets, or (iii) the sale by an Employer (or a Related
Employer) of the Employer's (or Related Employer's) interest in a
subsidiary (within the meaning of section 409(d)(3) of the Code) with
respect to a Participant who continues employment with such subsidiary,
the affected Participant's Accrued Benefit shall be fully vested and
nonforfeitable, and the Trustees shall make payment of the full value
of each such Participant's Accrued Benefit to him at such time and in
such manner as provided in Article VIII hereof. The value of the
Participant's Accrued Benefit shall be determined as of the Valuation
Date each month designated by the Administration Committee for the
purpose of valuing distributions and which immediately precedes the
date of distribution. However, if Employer contributions are allocated
to the Participant's Accounts after such Valuation Date, the value of
the Participant's Accrued Benefit shall be adjusted to reflect such
additional allocations."
(20) Article VII, Section VII.3, is hereby amended to read as
follows:
"VII.3. Disability. A Participant who becomes permanently
disabled shall be fully vested in his Accrued Benefit and shall have
the full value of such
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Accrued Benefit paid to him at such times and in such manner as
provided in Article VIII hereof. The value of a disabled Participant's
Accrued Benefit shall be determined as of the Valuation Date each month
designated by the Administration Committee for the purpose of valuing
distributions and which immediately precedes the date of distribution.
However, if Employer contributions are allocated to the Participant's
Accounts after such Valuation Date, then the value of the Participant's
Accrued Benefit shall be adjusted to reflect such additional
allocations.
A Participant is permanently disabled when the Administration
Committee determines, in its sole and absolute discretion, that the
Participant has become totally and permanently disabled and unable to
engage in any occupation for wage or profit. The Administration
Committee may require a Participant to submit to a medical examination
in order to confirm disability. The Administration Committee shall
apply the provisions of this Section 7.3 in a non-discriminatory,
consistent and uniform manner."
(21) Article VII, Section VII.4, is hereby amended to read
as follows:
"VII.4. Death. Upon the death of a Participant, his Accounts
shall become fully vested and the Participant's Accrued Benefit,
determined as of the Valuation Date each month designated by the
Administration Committee for the purpose of valuing distributions and
which immediately precedes the date of distribution, shall be paid to
the Participant's Beneficiary at such time and in such manner as
provided in Article VIII. However, if Employer contributions are
allocated to the Participant's Accounts after such Valuation Date, then
the value of the Participant's Accrued Benefit shall be adjusted to
reflect such additional allocations."
(22) Article VII, Section VII.5, is hereby amended to read
as follows:
"VII.5. Termination of Service Prior to Normal Retirement
Date. If a Participant's employment terminates prior to his Normal
Retirement Date for any reason other than death, an event referred to
in Section 7.2, or permanent disability, the portion of such
Participant's Employer Matching Contribution Account and Employer
Profit Sharing Contribution Account that shall be deemed to be part of
the Participant's Vested Accrued Benefit shall be determined according
to the following schedule:
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<TABLE>
<CAPTION>
Percent Deemed
Years of Vesting Service Vested
------------------------ -------------
<S> <C>
Less than 1 year 0%
1 year but less than 2 0%
2 years but less than 3 0%
3 years but less than 4 20%
4 years but less than 5 40%
5 years but less than 6 60%
6 years but less than 7 80%
7 years or more 100%
</TABLE>
A Participant shall be 100% vested at all times in that
portion of his Accrued Benefit attributable to his Employer Salary
Reduction Contribution Account, and, if applicable, Rollover
Contribution Account.
The value of a Participant's Vested Accrued Benefit shall be
determined as of the Valuation Date each month designated by the
Administration Committee for the purpose of valuing distributions and
which immediately precedes the date payment of such Participant's
Vested Accrued Benefit commences. Such payment shall be made at such
times and in such manner as provided in Article VIII. However, if
Employer contributions are allocated to the Participant's Accounts
after such Valuation Date, the value of the Participant's Accrued
Benefit shall be adjusted to reflect such additional allocations."
(23) Article VIII, Section VIII.1, subsection (a), is hereby
amended to read as follows:
"(a) Normal Retirement. In the event of normal
retirement, within the meaning of Section 7.1 hereof, payment of a
Participant's Accrued Benefit shall commence as soon as
administratively feasible after the date that the Participant's benefit
is approved for payment in accordance with Section 14.10 hereof."
(24) Article VIII, Section VIII.1, subsection (b), is hereby
amended to read as follows:
"(b) Termination of Plan or Sale of Employer. In the case
of an event described in Section 7.2, payment to a Participant of his
Accrued Benefit, or a direct trust-to-trust transfer, as appropriate,
shall commence, subject to the restrictions of Section 8.5, as soon as
administratively feasible after the date that coincides with or next
follows the later of (i) the procurement of any Internal Revenue
Service approval or determination that the Trustees deem appropriate,
and (ii) the completion of any process or negotiation determined by the
Trustees to be in the best interests of the Plan Participants and
Beneficiaries."
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(24) Article VIII, Section VIII.1, subsection (c), is hereby
amended to read as follows:
"(c) Death or Disability. In the event of death or
permanent disability, except in the case of a distribution deferred
pursuant to Section 8.5, payment of the Participant's Accrued Benefit
shall commence as soon as administratively feasible after the date that
coincides with or next follows receipt by the Administration Committee
of proof of death, or after the determination by the Administration
Committee that permanent disability exists. Notwithstanding these
provisions, in the event of the death of a Participant in which his
spouse is named as the Beneficiary to the Participant's Accrued
Benefit, payment shall commence at such time as requested by said
spouse or, if sooner, at the time the Participant would have otherwise
reached his Normal Retirement Date."
(25) Article VIII, Section VIII.3, is hereby amended to read as
follows:
"VIII.3. Methods of Payment at the Required Commencement
Date. Notwithstanding anything to the contrary herein, in the event
distribution of a Participant's benefits upon the Required Commencement
Date is required to be made or commence to be made to the Participant
(but not his Beneficiary) pursuant to Section 8.1(e) while the
Participant is still employed by an Employer, the Trustee shall make
payment to the Participant of his Accrued Benefit under one (1) or more
of the following methods, as elected by the Participant:
(a) By payment in a lump sum.
(b) By payment in equal semi-annual or quarterly
installments, over such period of time as the Participant
shall elect, except that the total payment for each year shall
in no event be less than an amount sufficient to cause the
aggregate Accounts involved to be paid in full not later than
the earlier of (i) ten (10) years after the Participant shall
have become entitled to receive benefits therefrom, or (ii)
the life expectancy of the Participant. Contributions and
earnings allocated to the Participant's Accounts after
commencement of the installment payments shall be paid out in
equal semi-annual or quarterly installments, over the
remaining installment period. Upon the death or retirement of
the Participant, unless agreed to otherwise by both the
Participant or Beneficiary and the Administration Committee,
the balance of the Participant's Accrued Benefit shall be paid
out in a single lump sum as soon as administratively feasible.
Notwithstanding the preceding provisions, the payment of
benefits in the form of a life annuity or joint and survivor annuity
shall not be permitted."
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(26) Article VIII, Section VIII.5, is hereby amended to read as
follows:
"VIII.5. Lump Sum Cashout and Special Limitation on
Involuntary Payment of Benefits. Notwithstanding the foregoing
provisions of this Article VIII, if upon termination of a Participant's
Service the value of the Participant's Vested Accrued Benefit does not
exceed $3,500, the Administration Committee shall direct the Trustee to
distribute the value of the Participant's Vested Accrued Benefit
(including a deemed distribution of $0) to the Participant or the
Participant's Beneficiary in a lump sum as soon as is administratively
feasible after the Valuation Date each month designated by the
Administration Committee for the purpose of valuing distributions and
which coincides with or next follows termination of the Participant's
Service, regardless of the reason for such termination (provided that,
at the time of such distribution, the value of such Vested Accrued
Benefit does not exceed $3,500). If upon termination of a
Participant's Service for any reason other than death the then value of
the Participant's Vested Accrued Benefit exceeds $3,500, no
distribution of the Participant's Vested Accrued Benefit to the
Participant may occur prior to the Participant's attainment of age
sixty-five (65) unless the Participant files with the Administration
Committee a written request for the payment of his Vested Accrued
Benefit, such request expressly to consent to the payment. If the
Participant files such a request the Committee shall direct the Trustee
so to pay such amount to the Participant as soon as administratively
feasible after the Valuation Date each month designated by the
Administration Committee for the purpose of valuing distributions and
which coincides with or next follows the request. Upon the
Participant's death after termination of Service, payment of the
Participant's Accrued Benefit shall be made in accordance with Section
8.1(c)."
(27) The second paragraph of Article X, Section X.2, is hereby
amended, effective as of January 1, 1992, to read as follows:
"For the purposes of this Section 10.2, 'hardship' shall exist
if a withdrawal is necessary in light of immediate and heavy financial
needs of the Participant. Subject to the limitations stated herein,
any amount withdrawn shall be deemed withdrawn first from the
Participant's Rollover Contribution Account, next from the
Participant's Employer Profit Sharing Contribution Account, next from
the Participant's Employer Matching Contribution Account, and finally,
from the Participant's Employer Salary Reduction Contribution Account,
and no amount shall be deemed withdrawn from any subsequently listed
Account until the prior listed Accounts have been exhausted in full.
The Participant must request a withdrawal by written request delivered
to the Administration Committee. The Participant must submit such
proof of his hardship as the Administration Committee may in its sole
and absolute discretion require. The Administration Committee, in its
sole discretion, shall make the determination of the existence of
financial hardship and the amount required to be withdrawn to meet the
need
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<PAGE> 19
created by the hardship. Such determination is to be made in a
uniform and nondiscriminatory manner."
(28) Article XI, Section XI.2, is hereby amended to read as follows:
"XI.2. Instruments and Security for Loans. Each loan
hereunder shall be evidenced by a promissory note and secured by a
security agreement, mortgage, deed of trust, or such other security
instruments as the Administration Committee may require. All such
instruments shall contain, in addition to the provisions specifically
required by this Article XI, such repayment, default, and remedial
terms as may be determined by the Administration Committee. Security
for loans hereunder shall be provided by the pledge of all or a portion
of a Participant's Vested Accrued Benefit and the pledge of such
additional collateral, including a Participant's entire Vested Accrued
Benefit, as the Administration Committee may require. Further, if
because of a decrease in the value of a Participant's Vested Accrued
Benefit, the Administration Committee believes a loan to be
inadequately secured, it shall either require the Participant to post
security in addition to the value of his Vested Accrued Benefit or
demand accelerated, including immediate, payment of the loan. An
assignment for security of a Participant's Vested Accrued Benefit shall
be limited as provided in Section 14.6 hereof. The default provisions
of the instruments relating to a loan shall provide that upon default a
loan may be set off against the Participant's Accounts at the earliest
time at which a distribution from the Plan is permitted. Solely for
purposes of setting off account balances upon default of a Plan loan,
pursuant to this Section 11.2, Rollover Contributions and earnings
thereon are deemed to be distributable at any time, and Employer Profit
Sharing Contributions, Employer Matching Contributions, and earnings
thereon are deemed to be distributable when such funds have been
allocated to the Participant's Account for at least two (2) years.
The Administration Committee shall provide for the repayment of
the loan through payroll deduction over the term of the loan, and, if
applicable, by payment by a Party in Interest to the Trust following
such Participant's termination of Service.
Each promissory note and security instrument shall be delivered
to the Trustee for the benefit of the borrowing Participant's Accounts.
The amount borrowed by a Participant shall be considered an investment
of such Participant's Accounts and shall be made by the Trustees pro
rata from the Investment Fund or Funds in which such Participant's
Accounts are invested. The interest on the loan shall be allocated pro
rata to the Investment Fund or Funds in which such Participant's
Accounts are invested and any losses incurred as a result of the making
of the loan shall also be allocated to such Investment Fund or Funds.
For purposes of allocating Trust earnings and losses pursuant to
Section 6.3 or 6.4, the
-13-
<PAGE> 20
borrowing Participant's Account or Accounts shall be decreased
by the amount of the loan made to the Participant."
(29) Article XVI, Section XVI.1, is hereby amended to read as
follows:
"XVI.1. Discontinuance. The Company shall have the right,
at any time, without prior notice and without cause, to suspend or
discontinue its contributions under the Plan by resolution of its board
of directors."
(30) Article XVI, Section XVI.2, is hereby amended to read as
follows:
"XVI.2. Amendment. The Company shall have the right at any
time and from time to time, without prior notice and without cause, to
amend the Plan by resolution of its board of directors in any manner it
deems necessary or advisable in order to qualify (or maintain
qualification of) the Plan and Trust under the provisions of Code
Section 401(a) and to amend the Plan in any other manner, provided no
amendment shall:
(a) Except as provided for in Section 4.6, authorize
or permit any of the Trust Fund (other than the part which is
required to pay taxes and administration expenses) to be used
for or diverted to purposes other than for the exclusive
benefit of the Participants or their Beneficiaries;
(b) Cause or permit any portion of the Trust Fund to
revert to or become the property of the Employer;
(c) Increase duties or responsibilities of the
Trustee or the Committees without the written consent of the
affected Trustee or the affected member or members of the
Administration or Investment Committee."
The Company shall make all amendments in writing. Each
amendment shall state the date to which it is either retroactively or
prospectively effective."
(31) Article XVI, Section XVI.3, is hereby amended to read as
follows:
"XVI.3. Termination. The Company shall have the right,
without prior notice and without cause, to termination the Plan at any
time by resolution of its board of directors. The Plan shall terminate
upon the first to occur of the following:
(a) The date terminated by action of the Company; or
-14-
<PAGE> 21
(b) The dissolution, merger, consolidation, or
reorganization of the Company or the sale by the Company of all
or substantially all of its assets, unless the successor or
purchaser makes provision to continue the Plan, in which event
the successor or purchaser shall be substituted as the Company
under this Plan."
(32) Article II, Section II.1, subsection (a), is hereby amended to
delete paragraph (5) in its entirety.
(33) Article II, Section II.1, subsection (p), the last paragraph,
is hereby amended, effective as of January 1, 1994, to read as follows:
"For Plan Years beginning after December 31, 1993, Compensation
in excess of the amount set forth in Section 401(a)(17)(A) of the Code
(as adjusted by the Secretary of the Treasury for increases in the cost
of living at the time and in the manner set forth in Section
401(a)(17)(B) of the Code) shall be disregarded."
(34) Article II, Section II.1, subsection (q), paragraph (2), is
hereby amended, effective as of January 1, 1994, to read as follows:
"(2) Notwithstanding the above, Considered Compensation shall
only include amounts actually paid an Employee during the period he is
a Participant for services performed as an Eligible Employee. For Plan
Years beginning after December 31, 1993, Considered Compensation in
excess of the amount set forth in Section 401(a)(17)(A) of the Code (as
adjusted by the Secretary of the Treasury for increases in the cost of
living at the time and in the manner set forth in Section 401(a)(17)(B)
of the Code) shall be disregarded."
-15-
<PAGE> 22
IN WITNESS WHEREOF, and as conclusive evidence of the adoption
of the foregoing instrument comprising Amendment No. 4 to the Dell
Computer Corporation 401(k) Plan, the Company has caused its corporate seal to
be affixed hereto and these presents to be duly executed in its name and behalf
by its proper officers thereunto duly authorized this _____ day of
_________________, 1994.
DELL COMPUTER CORPORATION
By:________________________________
ATTEST:
_________________________________
(Title)
-16-
<PAGE> 23
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this ________ day of __________________, 1994, personally appeared
_______________________________________, to me known to be the identical
person who subscribed the name of Dell Computer Corporation, as its
_________________, to the foregoing instrument and acknowledged to me that he
executed the same as his free and voluntary act and deed and as the free and
voluntary act and deed of such organization for the uses and purposes therein
set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
________________________________
Notary Public in and for
the State of Texas
My Commission Expires:
______________________
-17-
<PAGE> 24
AMENDMENT NO. 5 TO THE
DELL COMPUTER CORPORATION 401(k) PLAN
Pursuant to the authority of the Board of Directors of Dell Computer
Corporation, and the provisions of Article XVI thereof, the Dell Computer
Corporation 401(k) Plan is hereby amended effective as of January 1, 1992, in
the following respects only:
Article II, Section II.1, subsection (a)(5), is hereby deleted
in its entirety. No Employer Salary Reduction Contributions have ever
been recharacterized as Employee Contributions.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising Amendment No. 5 to the Dell Computer
Corporation 401(k) Plan, the Company has caused its corporate seal to be
affixed hereto and these presents to be duly executed in its name and behalf by
its proper officers thereunto duly authorized this _____ day of
_________________, 1994.
DELL COMPUTER CORPORATION
By:_______________________________
ATTEST:
_________________________
(Title)
-1-
<PAGE> 25
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this _____ day of _______________, 1994, personally appeared
________________________, to me known to be the identical person who subscribed
the name of Dell Computer Corporation, as its ____________, to the foregoing
instrument and acknowledged to me that he executed the same as his free and
voluntary act and deed and as the free and voluntary act and deed of such
organization for the uses and purposes therein set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
____________________________________
Notary Public in and for
the State of Texas
My Commission Expires:
______________________
-2-
<PAGE> 26
AMENDMENT NO. 6 TO THE
DELL COMPUTER CORPORATION 401(k) PLAN
Pursuant to the authority of the Board of Directors of Dell Computer
Corporation and the provisions of Article XVI thereof, the Dell Computer
Corporation 401(k) Plan is hereby amended, effective as of January 1, 1995, in
the following respects only:
(1) Article IV, Section 4.1(b), is hereby amended to read as
follows:
"An Employer Matching Contribution in an amount determined by
the board of directors of the Employer in its sole and absolute
discretion, subject to the limitations of Section 4.5, which is equal
to a specified uniform percentage of each Participant's Considered
Compensation that such Participant elects to defer pursuant to Section
5.1(a) (and that is not subsequently distributed pursuant to Sections
5.2 or 5.3)."
(2) The first paragraph of Article V, Section 5.6, is hereby
amended to read as follows:
"V.6. Investment Options. After 'Investment Fund(s)' are
established, each Participant shall designate, in such minimum
percentages or amounts as may be prescribed by the Administration
Committee, the Investment Fund(s) in which all Account balances, other
than Employer Matching Contribution Account balances (which shall be
invested solely by the Employer), are to be invested; provided,
however, that only Employer Matching Contribution Account Balances may
be invested in the Employer Stock Fund and a Participant shall not be
permitted to direct the investment of any amount into the Employer
Stock Fund. Notwithstanding the foregoing, a Participant may direct
that any portion of his Account balance in which he has a fully vested
interest and which has been invested in the Employer Stock Fund may be
sold and the proceeds re-invested in any one or more of the other
Investment Fund(s) established by the Investment Committee, as set
forth below. The Investment Committee shall establish Investment
Funds at such time as it may determine in its sole and absolute
discretion. When Investment Funds are initially created, there shall
be at least five (5) Investment Funds:"
-1-
<PAGE> 27
(3) Article VI, Section 6.5(c) is hereby amended to read as
follows:
"(c) Next, as of each Valuation Date for the Allocation
Period preceding such Valuation Date, for each Participant who (i) was
employed by an Employer or Related Employer on the Valuation Date (or
failed to be so employed due to death, disability, or retirement), and
(ii) authorized Employer Salary Reduction Contributions during such
Allocation Period equal to at least one percent (1%) of such
Participant's Considered Compensation during such Allocation Period,
allocate, for the Allocation Period, to each such Participant's
Employer Matching Contribution Account (or, pursuant to a special
election by the Administration Committee under Section 2.1(d),
Employer Salary Reduction Contribution Account) a portion of the total
Employer Matching Contributions for such Plan Year equal to the
Employer Matching Contribution made on behalf of such Participant for
such Allocation Period pursuant to Section 4.1(b) hereof; provided
that the amount allocated to the Employer Matching Contribution
Account of a Highly Compensated Employee for a given Plan Year shall
be subject to the limitations of Section 4.5 and to the election of
the Administration Committee pursuant to Section 2.1(d)."
(4) Article VII, Section 7.5, is hereby amended by replacing the
table of vesting with the following:
<TABLE>
<CAPTION>
"Years of Vesting Service Percent Deemed Vested
------------------------ ---------------------
<S> <C>
Less than 1 year 0%
1 year but less than 2 0%
2 years but less than 3 40%
3 years but less than 4 60%
4 years but less than 5 80%
5 years or more 100% "
</TABLE>
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising Amendment No. 6 to the Dell Computer
Corporation 401(k) Plan, the Company has caused its corporate seal to be
affixed hereto and these presents to be duly
-2-
<PAGE> 28
executed in its name and behalf by its proper officers thereunto duly
authorized this _____ day of _______________, 1995.
DELL COMPUTER CORPORATION
By:_____________________________________
ATTEST:
________________________________
(Title)
-3-
<PAGE> 29
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this _____ day of _______________, 1995, personally appeared
________________________, to me known to be the identical person who subscribed
the name of DELL COMPUTER CORPORATION, as its ___________________, to the
foregoing instrument and acknowledged to me that he executed the same as his
free and voluntary act and deed and as the free and voluntary act and deed of
such organization for the uses and purposes therein set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
_________________________________
Notary Public in and for
the State of Texas
My Commission Expires:
_________________________
-4-
<PAGE> 1
$90,000,000
CREDIT AGREEMENT
among
DELL COMPUTER CORPORATION
AND ITS WHOLLY-OWNED
SUBSIDIARIES, as Borrowers
THE BANKS PARTIES HERETO
and
CITIBANK, N.A.,
as Agent
Dated as of June 10, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . 15
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT
COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.3 Procedure for Borrowing Loans . . . . . . . . . . . . . . . . . 17
SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.1 Issuance of Letters of Credit . . . . . . . . . . . . . . . . . 18
3.2 Participating Interests in Letters of
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.3 Procedure for Opening Letters of
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4 Payments in Respect of Letters of Credit . . . . . . . . . . . 19
3.5 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . 19
3.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 20
3.7 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . 20
3.8 Participations . . . . . . . . . . . . . . . . . . . . . . . . 20
3.9 Letters of Credit Outstanding on the
Termination Date . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.2 Termination or Permanent Reduction
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . 22
4.4 Commitments Exceeded; Mandatory
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.5 Conversion and Continuation Options . . . . . . . . . . . . . . 23
4.6 Minimum Amounts of Eurodollar Loans . . . . . . . . . . . . . . 24
4.7 Interest Rates and Payment Dates . . . . . . . . . . . . . . . 24
4.8 Computation of Interest and Fees . . . . . . . . . . . . . . . 25
4.9 Inability to Determine Interest Rate . . . . . . . . . . . . . 25
4.10 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . 25
4.11 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.12 Requirements of Law; Letter of Credit
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.14 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.15 Currency Indemnity . . . . . . . . . . . . . . . . . . . . . . 32
4.16 Avoidance; Certifications of Amounts
Due; Replacement of Banks . . . . . . . . . . . . . . . . . . 32
4.17 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . 34
5.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . 34
5.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.3 Corporate or Partnership Existence;
Compliance with Law . . . . . . . . . . . . . . . . . . . . . 35
5.4 Corporate or Partnership Power;
Authorization; Enforceable
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . 36
5.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.8 Ownership of Property; Liens . . . . . . . . . . . . . . . . . 36
5.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . 36
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.11 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . 37
5.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.13 Investment Company Act; Other
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.15 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . 38
5.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.1 Conditions to Effectiveness of this
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.2 Conditions to Each Loan and Issuance
of Each Letter of Credit . . . . . . . . . . . . . . . . . . 40
6.3 Additional Borrowers . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . 41
7.2 Certificates; Other Information . . . . . . . . . . . . . . . . 42
7.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . 43
7.4 Conduct of Business and Maintenance of
Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . 43
7.6 Inspection of Property; Books and
Records; Discussions; Independent
Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . 45
7.9 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.1 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . 46
8.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . 46
8.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . 48
8.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . . 50
8.5 Limitations on Fundamental Changes . . . . . . . . . . . . . . 50
8.6 Limitation on Sale of Assets . . . . . . . . . . . . . . . . . 51
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8.7 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . 52
8.8 Limitation on Investments, Loans and
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.9 Limitation on Optional Payments and
Modifications of Debt Instruments . . . . . . . . . . . . . . 54
8.10 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . 54
8.11 Changes in Significant Credit Policy
or Significant Collection Policy . . . . . . . . . . . . . . 54
8.12 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 55
8.13 Transactions with Affiliates . . . . . . . . . . . . . . . . . 55
SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . 59
10.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . 59
10.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . 59
10.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . 60
10.6 Non-Reliance on Agent and Other
Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 61
10.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . 61
10.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 11. THE ISSUING BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.1 The Issuing Banks . . . . . . . . . . . . . . . . . . . . . . . 61
11.2 Issuing Bank in Its Individual
Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . 64
12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
12.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . 65
12.4 Survival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.5 Payment of Expenses and Taxes;
Liability of the Banks . . . . . . . . . . . . . . . . . . . 66
12.6 Successors and Assigns; Participations;
Purchasing Banks; Additional
Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
12.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . 69
12.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 70
12.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 70
12.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . 71
12.11 Applicability of Covenants . . . . . . . . . . . . . . . . . . 71
12.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 71
12.13 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . 71
12.14 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . 72
12.15 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . 72
12.16 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
iii
<PAGE> 5
SCHEDULES
SCHEDULE I Banks, Lending Offices and Commitments
SCHEDULE II Subsidiaries of Dell Computer Corporation
SCHEDULE III Legal Proceedings
SCHEDULE IV Indebtedness
SCHEDULE V Asset Securitization Program
EXHIBITS
EXHIBIT A Form of Credit Agreement Supplement (Borrower)
EXHIBIT B Form of Note
EXHIBIT C-1 Form of Company Guarantee
EXHIBIT C-2 Form of Subsidiaries Guarantee
EXHIBIT D Form of Opinion of Counsel
EXHIBIT E Form of Commitment Transfer Supplement
EXHIBIT F Events Subsequent to January 30, 1994
iv
<PAGE> 6
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of June 10, 1994, among DELL COMPUTER
CORPORATION, a Delaware corporation (the "Company"), each Wholly-Owned
Subsidiary that becomes a party to this Agreement by executing a copy hereof on
the Closing Date or, at any time thereafter, by executing and delivering to the
Agent a supplement hereto in the form of Exhibit A (together with the Company,
the "Borrowers"; each individually, a "Borrower"), the several banks and other
financial institutions from time to time parties to this Agreement (the
"Banks"), and Citibank, N.A., a national banking association, as agent for the
Banks hereunder (in such capacity, the "Agent"). In consideration of the
mutual covenants and agreements contained herein, the Borrowers, the Banks and
the Agent hereby agree as set forth herein:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Accounts": all "accounts" as such term is defined in the
Uniform Commercial Code as in effect from time to time in the State of
New York.
"Affiliate": with respect to any Person (a) any Person (other
than a Subsidiary of the Company or the Company) which, directly or
indirectly, is in control of, is controlled by, or is under common
control with such Person, or (b) any Person who is a director or
executive officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For
purposes of this definition, control of a Person shall mean the power,
direct or indirect, (i) to vote 10% or more of the securities having
ordinary voting power for the election of directors of such Person, or
(ii) to direct or cause the direction of the management and policies
of such Person by contract or otherwise.
"Agreement": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Available Commitment": as to any Bank at any time, an amount
equal to the excess, if any, of (a) the amount of such Bank's
Commitment over (b) such Bank's Commitment Percentage of the aggregate
outstanding amount of all Extensions of Credit.
"Base Rate": at all times, a fluctuating rate per annum equal
to the highest of:
1
<PAGE> 7
(i) the rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as
its base rate; or
(ii) the sum of (A) 1/2 of one percent per annum
plus (B) the rate obtained by dividing (x) the latest
three-week moving average of secondary market morning offering
rates in the United States for three-month certificates of
deposit of major United States money market banks (such
three-week moving average being determined weekly by Citibank,
N.A. on the basis of such rates reported by certificate of
deposit dealers to and published by the Federal Reserve Bank
of New York, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received
by Citibank, N.A., in either case adjusted to the nearest 1/4
of one percent or, if there is no nearest 1/4 of one percent,
to the next higher 1/4 of one percent), by (y) a percentage
equal to 100% minus the average of the daily percentages
specified during such three-week period by the Federal Reserve
Board for determining the maximum reserve requirement
(including, but not limited to, any marginal reserve
requirements for Citibank, N.A. in respect of liabilities
consisting of or including (among other liabilities)
three-month nonpersonal time deposits of at least $100,000,
plus (C) the average during such three-week period of the
daily net annual assessment rates estimated by Citibank, N.A.
for determining the current annual assessment payable by it to
the Federal Deposit Insurance Corporation for insuring
three-month time deposits in the United States; or
(iii) one-half of one percent per annum above the
Federal Funds Rate for such day.
"Base Rate Loans": Loans, the rate of interest applicable to
which is based upon the Base Rate.
"Borrower" or "Borrowers": as defined in the introductory
paragraph to this Agreement.
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City or Dallas, Texas are
authorized or required by law to close.
"Capital Expenditure": any payment made directly or
indirectly for the purpose of acquiring or constructing fixed assets,
real property or equipment which in accordance with GAAP would be
added as a debit to the fixed asset account of such Person making such
expenditure, including, without limitation, amounts paid or payable
for such purpose under any conditional sale or other title retention
agreement or under any Financing Lease.
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<PAGE> 8
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
"Cash Equivalents": (a) securities issued by the United
States Government or by any agency or instrumentality thereof and
directly and fully guaranteed or insured by the United States
Government, having maturities of not more than 12 months from the date
of acquisition, (b) time deposits, banker's acceptances and
certificates of deposit having maturities of not more than 12 months
from the date of acquisition of (i) any Bank or (ii) any domestic or
foreign commercial bank having capital and surplus in excess of
$500,000,000, which has, or the holding company of which has, a
commercial paper rating meeting the requirements specified in clause
(d) below, (c) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clauses (a),
(b) and (d) entered into with any bank meeting the qualifications
specified in clause (b) (i) or (b) (ii) above, (d) any securities,
bonds, notes, commercial paper, debentures, investments or other forms
of Indebtedness of any Person rated at least A-1 or the equivalent
thereof by Standard & Poor's Corporation or P-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in either case maturing
within 270 days after the date of acquisition, and (e) shares of any
mutual fund registered under the Investment Company Act of 1940, as
amended, which invests solely in underlying securities of the types
described in clauses (a) through (d) above.
"Change In Control": the acquisition by any Person, or two or
more Persons acting in concert (other than Michael Dell and other
members of management as of the Closing Date), of beneficial ownership
(within the meaning of Rule 13d-3, promulgated by the Securities and
Exchange Commission and now in effect under the Securities Exchange
Act of 1934, as amended) of 50% or more of the issued and outstanding
shares of voting stock of the Company.
"Closing Date": the date on which this Agreement shall have
been executed by the parties hereto.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment": as to any Bank, the obligation of such Bank to
make Extensions of Credit to the Borrowers hereunder in an aggregate
outstanding amount at any one time not to exceed the amount set forth
opposite such Bank's name under the heading "Commitment" on Schedule
I.
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<PAGE> 9
"Commitment Percentage": as to any Bank at any time, the
percentage of the aggregate Commitments then constituted by such
Bank's Commitment.
"Commitment Period": the period from and including the date
hereof to but not including the Termination Date or such earlier date
on which the Commitments shall terminate as provided herein.
"Commitment Transfer Supplement": a commitment transfer
supplement substantially in the form of Exhibit E hereto.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Company within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Company and which is treated as a single employer under
Section 414 of the Code.
"Company Guarantee": the Company Guarantee of the Obligations
made by the Company in favor of the Banks, substantially in the form
of Exhibit C-1, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"Consolidated Funded Debt": at any time, the sum of (a)
indebtedness for borrowed money (including the current portion
thereof) plus (b) the portion of all Financing Leases included on a
balance sheet as indebtedness plus (c) all Off-Balance Sheet
Financings, plus (d) the undrawn face amount of all letters of credit
outstanding except (i) to the extent such letters of credit support
obligations counted in clauses (a), (b) and (c) above, or (ii) Trade
Letters of Credit issued for the account of the Company or its
Subsidiaries in the ordinary course of business and having an expiry
date occurring not later than 180 days after the date of issuance
minus (e) the amount of any such indebtedness to the extent secured by
cash, Cash Equivalents or [Near Cash Equivalents], all determined for
the Company and its Subsidiaries on a consolidated basis in accordance
with GAAP.
"Consolidated Intangibles": at a particular date, all assets
of the Company and its Subsidiaries, determined on a consolidated
basis at such date, that would be classified as intangible assets in
accordance with GAAP, but in any event including, without limitation,
unamortized debt discount and expense, unamortized organization and
reorganization expense, intellectual property rights, patents, trade
or service marks, franchises, trade names, and goodwill.
"Consolidated Net Income": for any period, the amount which,
in conformity with GAAP, would be set forth opposite the caption "net
income or loss" (or any like caption) on a consolidated income
statement of the Company and its Subsidiaries for such period; provided
that there shall be
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<PAGE> 10
excluded from Consolidated Net Income all items that would be
classified under GAAP as "extraordinary gains".
"Consolidated Net Worth": at a particular date, all amounts
which would be included under shareholders' equity on a consolidated
balance sheet of the Company and its Subsidiaries determined on a
consolidated basis in accordance with GAAP as at such date.
"Consolidated Tangible Net Worth": at a particular date,
Consolidated Net Worth less Consolidated Intangibles as of such date.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Default": any of the events specified in Section 9, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Domestic Accounts": Accounts owing from obligors who are
residents of the United States of America.
"Domestic Lending Office": with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or in an Assignment or such
other office of such Bank as such Bank may from time to time specify
to the Borrower and the Agent.
"Domestic Receivables Securitization": as defined in Section
8.6(e).
"Domestic Subsidiary": any Subsidiary of the Company
incorporated or formed in the United States of America.
"Eligible Assignee": (a) a commercial bank or an affiliate
thereof organized under the laws of the United States, or any State
thereof, and having total assets in excess of $3,000,000,000 and a
combined capital and surplus of at least $150,000,000; (b) a
commercial bank organized under the laws of any other country which is
a member of the Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such country, and
having total assets in excess of $3,000,000,000 and a combined capital
and surplus of at least $150,000,000, provided that such bank is
acting through a branch or agency located in the country in which it
is organized or another country which is
5
<PAGE> 11
also a member of the OECD; and (c) the central bank of any country
which is a member of the OECD.
"Environmental Laws": any and all Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct concerning
environmental protection matters, including without limitation, Hazardous
Materials, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Liabilities": has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office": with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in an Assignment (or, if no such
office is specified, its Domestic Lending Office) or such other office of such
Bank as such Bank may from time to time specify to the Borrower and the Agent.
"Eurodollar Loan": a Loan which bears interest as provided in
Section 4.7(a).
"Eurodollar Margin": .95%, subject to adjustment in accordance
with Section 4.7(d).
"Eurodollar Rate": for the Interest Period for each
Eurodollar Loan comprising part of the same Loan, an interest rate per
annum equal to the rate per annum at which deposits in U.S. dollars are offered
by the principal office of the Agent in London, England to prime banks in the
London interbank market at 11:00 A.M. (London time) two Business Days before
the first day of such Interest Period in an amount substantially equal to the
amount of the Eurodollar Loan of the Agent comprising part of such Loan to be
outstanding during such Interest Period and for a period equal to such Interest
Period. The Eurodollar Rate for the Interest Period for each Eurodollar Loan
shall be determined by the Agent on the basis of applicable rates furnished to
and received by the Agent two Business Days before the first day of such
Interest Period.
"Eurodollar Rate Reserve Percentage": of any Bank for the
Interest Period for any Eurodollar Loan, the reserve percentage
applicable during such Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those days in
such Interest Period during which any such percentage shall be so applicable)
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any
6
<PAGE> 12
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for such Bank with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities having a term equal to such Interest
Period.
"Event of Default": any of the events specified in Section 9,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Exposure": as defined in Section 12.7.
"Extension of Credit": the making of, or participation in,
any Loan by any Bank and the issuance of, or participation in, any
Letter of Credit by an Issuing Bank or any Bank; the "aggregate outstanding
amount of all Extensions of Credit" means, at any time of determination
thereof, the sum of (a) the unpaid principal amount of all Loans at such time,
(b) the aggregate amount available to be drawn under all Letters of Credit
outstanding at such time and (c) the aggregate unreimbursed amount at such time
of all drawings under Letters of Credit.
"Federal Funds Rate": for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for such transactions received by Citibank, N.A. from three
Federal funds brokers of recognized standing selected by it.
"Financial L/C": a letter of credit under which an Issuing
Bank agrees to make payments for the account of a Borrower, which
letter of credit serves as a financial guarantee for such Borrower.
"Financing Lease": any lease of property, real or personal,
the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the lessee.
"Foreign Subsidiary": any Subsidiary of the Company which is
organized under the laws of any jurisdiction outside the United States
of America.
"GAAP": has the meaning specified in Section 1.2.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity
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<PAGE> 13
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or
other obligations (the "primary obligations") of any other third Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof;provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business and continuing obligations of the Company and its Subsidiaries under
government contracts entered into in the ordinary course of business.
"Guarantees": the collective reference to the Company
Guarantee and the Subsidiaries Guarantee.
"Hazardous Materials": any hazardous materials, hazardous
wastes, hazardous constituents, hazardous or toxic substances,
petroleum products (including crude oil or any fraction thereof), defined or
regulated as such in or under any Environmental Law.
"Immaterial Subsidiary": at any date, any Subsidiary of the
Company (i) whose total assets have a current fair market value of less
than $500,000, and (ii) whose net income for the immediately preceding 12
months is less than $500,000.
"Indebtedness": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices) or which is evidenced by a note, bond, debenture or
similar instrument, (b) all obligations of such Person under Financing Leases,
(c) all obligations of such Person in respect of
8
<PAGE> 14
acceptances issued or created for the account of such Person, (d) all
liabilities secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the payment
thereof, and (e) reimbursement obligations owing in respect of letters of
credit and, without duplication, the undrawn face amount of all stand-by
letters of credit. Indebtedness shall not include Guarantee Obligations or
continuing obligations of the Company and its Subsidiaries under government
contracts entered into in the ordinary course of business.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any Base Rate Loan, the
last day of each March, June, September and December to occur while
such Base Rate Loan is outstanding, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
and (c) as to any Eurodollar Loan having an Interest Period longer than three
months (i) each day which is three months, or a whole multiple thereof, after
the first day of such Interest Period and (ii) the last day of such Interest
Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the
borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by a Borrower in its notice of
borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the
last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by a Borrower by notice to the Agent
not less than three Working Days prior to the last day of the
then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(A) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day that is not a
Working Day, such Interest Period shall be extended to the
next succeeding Working 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 immediately preceding Working Day;
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<PAGE> 15
(B) any Interest Period that would otherwise
extend beyond the Termination Date shall end on the
Termination Date; and
(C) any Interest Period pertaining to a
Eurodollar Loan that begins on the last Working Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Working Day of a
calendar month.
"Interest Rate Contracts": interest rate exchange, collar,
cap or similar agreements providing interest rate protection, entered
into by any Borrower.
"International Accounts": Accounts owing from obligors who
are not residents of the United States of America.
"International Receivables Securitization": as defined in
Section 8.6(f).
"International Rights": the rights to use the trade names and
trademarks of the Company and its Subsidiaries and to merchandise their
proprietary goods outside the United States of America and any franchise or
similar rights with respect thereto.
"Investments": as defined in Section 8.8(b).
"Issuing Bank": Citibank, N.A., and one of the other Banks
designated by the Company from time to time, with the consent of such
Bank.
"L/C Application": as defined in Section 3.1.
"L/C Obligations": the obligations of the Borrowers to
reimburse an Issuing Bank for any payments made by such Issuing Bank
under any Letter of Credit.
"L/C Participating Interest": an undivided participating
interest in the face amount of each issued and outstanding Letter of
Credit and the L/C Application relating thereto.
"Letters of Credit": the collective reference to
Non-Financial L/Cs and Financial L/Cs issued pursuant to Section 3.1;
individually, a "Letter of Credit".
"Lien": any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other), or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any Financing Lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial
10
<PAGE> 16
Code or comparable law of any jurisdiction in respect of any of the
foregoing).
"Loan": loans made by the Banks on a pro rata basis according
to their respective Commitment Percentages pursuant to Section 2.1.
"Loan Documents": this Agreement, the Notes, any L/C
Applications and the Guaranties.
"Loan Parties": the collective reference to the Borrowers and
any other party (other than the Agent, the Issuing Bank or any Bank) from
time to time party to this Agreement or the Subsidiaries Guarantee or the
Security Agreement.
"Marketable Securities": (a) securities issued by the United
States Government or by any agency or instrumentality thereof, (b) any
securities, bonds, notes, debentures, investments or other forms of
Indebtedness of any Person rated at least BBB or the equivalent thereof by
Standard & Poor's Corporation or Baa or the equivalent thereof by Moody's
Investors Service, Inc. and in either case maturing within 3 years after the
date of acquisition and (c) any mutual fund registered under the Investment
Company Act of 1940, as amended, which invests solely in underlying securities
of the types described in clauses (a) and (b) above.
"Material Adverse Effect": a material adverse effect on (a)
the business, operations, property or condition (financial or otherwise) of
the Company and its Subsidiaries taken as a whole, (b) the ability of the
Company or any other Borrower to perform its respective obligations under the
Loan Documents, or (c) the validity or enforceability of any of the Loan
Documents or the rights or remedies of the Agent or the Banks thereunder.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a) (3) of ERISA.
"Near Cash Equivalents": (a) time deposits, banker's
acceptances and certificates of deposit having maturities of not more
than 12 months from the date of acquisition of any domestic or foreign
commercial bank having capital and surplus in excess of $500,000,000, which
has, or the holding company of which has, a commercial paper rating meeting the
requirements specified in clause (c) below, (b) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clauses (a) and (c) entered into with any bank meeting the qualifications
specified in clause (a) above, (c) any securities, bonds, notes, commercial
paper, debentures, investments or other forms of Indebtedness of any Person
rated A-2 or the equivalent thereof by Standard & Poor's Corporation and P-2 or
the equivalent thereof by Moody's Investors Service, Inc., or,
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<PAGE> 17
if rated only by one such rating agency, rated A-2 or the equivalent
thereof by Standard and Poor's Corporation or rated P-2 or the equivalent
thereof by Moody's Investors Service, Inc., and in either case maturing within
270 days after the date of acquisition, and (d) any money market fund
registered under the Investment Company Act of 1940, as amended, which invests
solely in underlying securities of the types described in clauses (a) through
(c) above. Near Cash Equivalents shall not include Cash Equivalents.
"Non-Financial L/C": a letter of credit under which the
Issuing Bank agrees to make payments for the account of a Borrower,
which letter of credit is not a Financial L/C.
"Notes": as defined in Section 2.2.
"Obligations": the unpaid principal of and interest on the
Loans, all unpaid drawings under the Letters of Credit and all interest
thereon and all other obligations and liabilities of each of the Loan Parties
to the Agent, the Issuing Bank or the Banks, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
incurred, which may arise under, out of, or in connection with, any Loan
Document, or any other documents given in connection therewith, whether on
account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including without limitation, all reasonable fees and
disbursements of counsel to the Agent, the Issuing Bank or any Bank) or
otherwise.
"Off-Balance Sheet Financing": any lease or transaction,
financial in nature, not required in accordance with GAAP to be
capitalized on a balance sheet of the Person receiving the proceeds thereof.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Participant": as defined in Section 12.6(b).
"Participating Bank": with respect to any Letter of Credit,
any Bank (other than the Issuing Bank of such Letter of Credit) with
respect to its L/C Participating Interest in such Letter of Credit.
"Payment Sharing Notice": a written notice from any Bank
informing the Agent that an Event of Default has occurred and is
continuing and directing the Agent to allocate payments thereafter received
from the Borrowers in accordance with Section 4.10(d).
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
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<PAGE> 18
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Preferred Stock": the shares of the Series A Convertible
Preferred Capital Stock of the Company issued on August 26, 1993.
"Primary Subsidiaries": the collective reference to Dell
International Incorporated, Dell USA Corporation, Dell Direct Sales
Corporation, Dell Marketing Corporation, Dell Products Corporation, Dell
Products L.P., Dell USA L.P., Dell Direct Sales L.P., Dell Marketing L.P., Dell
Gen. P. Corp., and any other Wholly-Owned Subsidiary from time to time whose
assets constitute at least 5% of the total assets of the Company and its
Subsidiaries taken as a whole.
"Prior Credit Agreement: that certain Credit Agreement, dated
as of June 18, 1993, by and among the Borrowers, the several banks and
financial institutions parties thereto, and Citibank, N.A., as agent.
"Purchasing Banks": as defined in Section 12.6(c).
"Receivables Securitization": the collective reference to the
Domestic Receivables Securitization and the International Receivables
Securitization.
"Receivables Securitization Termination Event": with respect
to the Receivables Securitization or any other securitization of the
Accounts of the Company or its Subsidiaries, the occurrence of any event, and
the passage of any period of grace related thereto, which causes the purchaser
of Accounts pursuant thereto, to terminate the Receivables Securitization or
such other securitization.
"Register": as defined in Section 12.6(d).
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. Section 2615.
"Required Banks": at any time when the Commitments are in
effect, Banks whose Commitment Percentages aggregate at
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least 66-2/3%. At any time after the Commitments are terminated, Banks holding
at least 66-2/3% of the then aggregate unpaid principal amount of the Loans.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or the partnership agreement or other organizational
or governing documents of such Person, and any law, treaty, rule or regulation
or determination of an arbitrator or a court or other Governmental Authority,
in each case applicable to or binding upon such Person or any of its property
or to which such Person or any of its property is subject.
"Responsible Officer": with respect to any matter, the Chief
Executive Officer, Chief Financial Officer or Treasurer of the Company or,
with respect to financial matters only, the Chief Financial Officer or
Treasurer of the Company.
"Senior Unsecured Notes": the Company's 11% Senior Notes Due
August 15, 2000, in the aggregate principal amount of $100,000,000.
"Significant Collection Policy": the then current policies,
practices and procedures of the Company and its Subsidiaries as of the
Closing Date governing the billing, subsequent attempt to collect, and
write-off of Accounts that could reasonably be expected to have an effect on
the amount of collections of Accounts or the timing of the receipt of such
collections.
"Significant Credit Policy": the then current policies,
practices and procedures governing the initial and ongoing extension of
credit by the Company and its Subsidiaries as of the Closing Date to their
customers, the determination of maximum credit limits for its customers, the
terms of payment of such credit extensions and all other matters relating to
credit policy which could reasonably be expected to have an effect on the
collectibility or the time of collection of Accounts.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Subordinated Debt": any unsecured indebtedness of the
Company with a maturity beyond the Termination Date subordinated to the
prior payment in full of the principal of and interest (including post-petition
interest) on the Loans, the L/C Obligations and all other obligations and
liabilities of the Company to the Agent, the Issuing Banks and the Banks
hereunder on terms and conditions first approved in writing by the Agent.
"Subsidiaries Guarantee": the Subsidiaries Guarantee in the
form of Exhibit C-2 to be executed on or before the Closing Date by each of
the Primary Subsidiaries that is a
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Domestic Subsidiary and each Subsidiary of the Company which is a
Borrower, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Company.
"Taxes": as defined in Section 4.13(a).
"Termination Date": June 8, 1995.
"Trade Letters of Credit": a letter of credit under which an
issuer agrees to make payments for the account of a Borrower, which
letter of credit does not serve as a financial guarantee for such
Borrower.
"Transferee": as defined in Section 12.6(f).
"Type": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"Uniform Commercial Code": the Uniform Commercial Code as in
effect from time to time in the relevant jurisdiction.
"Wholly-Owned Subsidiary": any Subsidiary of the Company, the
Capital Stock of which is 100% owned beneficially, directly or
indirectly, by the Company.
"Working Day": any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in London,
England.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate
or other document made or delivered pursuant hereto, accounting terms relating
to the Company and its Subsidiaries not defined in Section 1.1 and accounting
terms partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
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(c) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section, Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(e) All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles
consistently applied with those applied in the preparation of the financial
statements delivered pursuant to Section 7.1 ("GAAP"). The Agent and each
Borrower agree that if GAAP changes after the Closing Date in a manner which
materially affects the substantive provisions of the financial covenants set
forth in Section 8.1 but which does not cause or identify a Material Adverse
Effect, the Agent and each Borrower shall negotiate in good faith to amend or
otherwise modify such covenants, with the consent of the Required Banks, so
that the substantive provisions of such covenants under GAAP as then in effect
shall be as nearly equivalent as possible to the substantive provisions of such
covenants under GAAP as of the Closing Date.
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT
COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions
hereof, each Bank severally agrees to make Loans ("Loans") to each of the
Borrowers from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the amount of such
Bank's Commitment. During the Commitment Period each Borrower may use the
Commitments by borrowing, prepaying the Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof; provided
that, after giving effect to any Loans, in no event shall the aggregate
outstanding amount of all Extensions of Credit exceed the aggregate amount of
the Commitments.
(b) The Loans may from time to time be (i) Eurodollar
Loans, (ii) Base Rate Loans, or (iii) a combination thereof, as determined by a
Borrower and notified to the Agent in accordance with Sections 2.3 and 4.5;
provided that, no Loan shall be made as a Eurodollar Loan after the day that is
one month prior to the Termination Date.
(c) The Loans shall mature and shall be due and payable
on the Termination Date.
2.2 Notes. The Loans made by each Bank shall be
evidenced by a single promissory note executed and delivered by each of the
Borrowers, substantially in the form of Exhibit B hereto with appropriate
insertions as to payee, date and principal
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amount (a "Note"), payable to the order of such Bank and in a principal amount
equal to the lesser of (a) the amount of the initial Commitment of such Bank
and (b) the aggregate unpaid principal amount of all Loans made by such Bank.
Each Bank is hereby authorized to record the Borrower, date, Type and amount of
each Loan made by such Bank, each continuation thereof, each conversion of all
or a portion thereof to another Type, the date and amount of each payment or
prepayment of principal thereof and, in the case of Eurodollar Loans the length
of each Interest Period with respect thereto, on the schedule annexed to and
constituting a part of its Note, and any such recordation shall constitute
prima facie evidence of the accuracy of the information so recorded absent
manifest error. The Note shall (x) be dated the Closing Date, (y) be stated to
mature on the Termination Date and (z) provide for the payment of interest in
accordance with Section 4.7.
2.3 Procedure for Borrowing Loans. Each Borrower may
borrow under the Commitments during the Commitment Period on any Working Day,
if all or any part of the requested Loans are to be initially Eurodollar Loans,
or on any Business Day, otherwise, provided that such Borrower shall give the
Agent notice (which notice must be received by the Agent prior to 12:00 Noon,
New York City time), (a) three Working Days prior to the requested borrowing
date, if all or any part of the requested Loans are to be initially Eurodollar
Loans, or (b) on a Business Day for Base Rate Loans to be made on that day,
specifying (i) the Borrower, (ii) the amount to be borrowed, (iii) the
requested borrowing date, (iv) whether the borrowing is to be of Eurodollar
Loans, Base Rate Loans, or a combination thereof and (v) if the borrowing is to
be entirely or partly of Eurodollar Loans, the respective amounts of each such
Type of Loan and the respective lengths of the initial Interest Periods
therefor. Each borrowing under the Commitments shall be in an amount equal to
$2,000,000, or any whole multiple of $100,000 in excess thereof (or, if the
then Available Commitments are less than $2,000,000, such lesser amount). Upon
receipt of any such notice from a Borrower, the Agent shall promptly, but in
any event not later than the end of business on the date the Agent receives
such notice from the Borrower, notify each Bank thereof. Each Bank will make
the amount of its pro rata share of each borrowing available to the Agent for
the account of such Borrower at the office of the Agent specified in Section
12.2 prior to 1:00 P.M., New York City time, on the borrowing date requested by
such Borrower in funds immediately available to the Agent; provided that, in
the case of borrowings of Base Rate Loans (including, without limitation, any
borrowing pursuant to Section 3.4(a)), each Bank shall make the amount of its
pro rata share of such borrowing available to the Agent prior to 3:00 P.M., New
York City time in funds immediately available to the Agent. Such borrowing
will then be made available to such Borrower by the Agent crediting the account
of such Borrower on the books of such office with the aggregate of the amounts
made available to the Agent by the Banks and in like funds as received by the
Agent.
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SECTION 3. LETTERS OF CREDIT
3.1 Issuance of Letters of Credit. (a) Each Borrower may
from time to time request an Issuing Bank to issue a Letter of Credit for the
account of such Borrower by delivering to such Issuing Bank, with a copy to the
Agent at its address specified in Section 12.2, a letter of credit application
in such Issuing Bank's then customary form (an "L/C Application") completed to
the satisfaction of such Issuing Bank and the Agent, together with the proposed
form of such Letter of Credit (which shall comply with the applicable
requirements of paragraph (b) below) and such other certificates, documents and
other papers and information as such Issuing Bank may reasonably request;
provided, however, that the L/C Application shall be revised to eliminate all
provisions inconsistent with this Agreement.
(b) Each Letter of Credit issued hereunder shall, among
other things, (i) be in such form requested by a Borrower from an Issuing Bank
as shall be acceptable to such Issuing Bank (and the Agent, if such form has
not been previously reviewed by the Agent) in its reasonable discretion and
(ii) in the case of each Letter of Credit, have an expiry date occurring not
later than the earlier of (y) 364 days after the date of issuance of such
Letter of Credit and (z) 180 days after the Termination Date, provided, that
after giving effect to the issuance of any Letter of Credit, (i) in no event
shall the aggregate undrawn amount of all Letters of Credit exceed the lesser
of (a) $35,000,000, and (b) (1) the aggregate amount of the Commitments , less
(2) the aggregate unpaid amount of all Loans, and (ii) in no event shall the
aggregate amount of all Extensions of Credit exceed the aggregate amount of the
Commitments.
(c) On the date agreed for a Letter of Credit to be
issued or amended, the Issuing Bank thereof shall forward a copy thereof via
telecopy, with the related L/C Application, to the Agent.
3.2 Participating Interests in Letters of Credit.
Effective in the case of each Financial L/C and Non-Financial L/C as of the
date of the opening thereof, each Issuing Bank agrees to allot and does allot,
to itself and each other Bank, and each Bank severally and irrevocably agrees
to take and does take in such Letter of Credit and the related L/C Application,
an L/C Participating Interest in a percentage equal to such Bank's Commitment
Percentage.
3.3 Procedure for Opening Letters of Credit. The Agent
will notify each Bank after the end of each calendar month of any L/C
Applications received by the Issuing Banks (and copied to the Agent) during
such month. Upon receipt of any L/C Application from a Borrower, the relevant
Issuing Bank will process such L/C Application, and the other certificates,
documents and other papers delivered to it in connection therewith, in
accordance with its customary procedures and, subject to the terms and
conditions hereof, shall promptly open such Letter of Credit by issuing the
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original of such Letter of Credit to the beneficiary thereof and by furnishing
a copy thereof to the relevant Borrower, the Agent, and, after the end of the
calendar month in which such Letter of Credit was opened, to the other Banks,
provided that no such Letter of Credit shall be issued if the proviso to
Section 2.1(a) would be violated thereby.
3.4 Payments in Respect of Letters of Credit. (a) Each
Borrower agrees forthwith upon demand by the relevant Issuing Bank and
otherwise in accordance with the terms of the L/C Application executed by such
Borrower relating thereto, to reimburse such Issuing Bank for any payment made
by such Issuing Bank under any Letter of Credit issued for such Borrower's
account. If at any time such Borrower fails immediately to reimburse such
Issuing Bank for such payment made under such Letter of Credit, then the
Company shall be deemed to have requested a Loan which is a Base Rate Loan on
the date of the aforementioned payment and the Banks (in accordance with their
respective Commitment Percentages) shall be required to make such Base Rate
Loan in an aggregate amount equal to such Borrower's reimbursement obligation.
(b) In the event that any Issuing Bank makes a payment
under any Letter of Credit and is not reimbursed in full therefor forthwith
upon demand of such Issuing Bank, and otherwise in accordance with the terms
hereof and of the L/C Application relating to such Letter of Credit, such
Issuing Bank will promptly notify each other Bank. Forthwith upon its receipt
of any such notice, each other Bank will transfer to such Issuing Bank, in
immediately available funds, an amount equal to such other Bank's Commitment
Percentage of the L/C Obligation arising from such unreimbursed payment. If a
Bank does not make available to such Issuing Bank such Bank's pro rata share of
such L/C Obligation as provided in the foregoing sentence, such Bank shall be
required to pay interest to such Issuing Bank on its pro rata share of such L/C
Obligation at the Federal Funds Rate from the date such Bank's payment is due
until the date it is received by such Issuing Bank.
3.5 Letter of Credit Fees. (a) In lieu of any letter of
credit commissions and fees provided for in any L/C Application relating to
Letters of Credit (other than standard amendment and negotiation fees), each
Borrower agrees to pay to the Agent, (i) for the account of the Banks with
respect to each Financial L/C, a fee of 3/4 of 1% per annum based on the
undrawn face amount thereof determined on a daily basis, such fee to be payable
quarterly in arrears, on the last day of March, June, September and December,
(ii) for the account of the Banks with respect to each Non-Financial L/C, a fee
of 5/8 of 1% per annum based on the undrawn face amount thereof determined on a
daily basis, such fee to be payable quarterly in arrears, on the last day of
March, June, September and December, and (iii) for the account of each Issuing
Bank in respect thereof, a fee of 1/8 of 1% per annum based on the undrawn face
amount thereof determined on a daily basis, each such fee to be payable
quarterly in arrears, on the last day of March, June, September and December.
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(b) For purposes of any payment of fees required pursuant
to this Section 3.5, the Agent agrees to provide to the Company a statement of
any such fees to be so paid by each Borrower; provided that the failure by the
Agent to provide the Company with any such invoice shall not relieve any
Borrower of its obligation to pay such fees; provided, further, that payment of
such fees shall not be considered overdue prior to such invoice being provided.
3.6 Further Assurances. Each Borrower hereby agrees,
from time to time, to do and perform any and all acts and to execute any and
all further instruments reasonably requested by any Issuing Bank more fully to
effect the purposes of this Agreement and the issuance of Letters of Credit
hereunder.
3.7 Obligations Absolute. The payment obligations of the
Borrowers under this Agreement with respect to the Letters of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
(a) the existence of any claim, set-off, defense or other
right which any Borrower or any of its Subsidiaries may have at any
time against any beneficiary, or any transferee, of any Letter of
Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank in respect thereof, the
Agent or any Bank, or any other Person, whether in connection with
this Agreement, the Loan Documents, the transactions contemplated
herein, or any unrelated transaction;
(b) any statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent or invalid or
any statement therein being untrue or inaccurate in any respect,
except to the extent the payment by the relevant Issuing Bank under
such Letter of Credit notwithstanding such statement or document
constitutes gross negligence or willful misconduct on the part of such
Issuing Bank;
(c) payment by an Issuing Bank under any Letter of Credit
against presentation of a draft or certificate which does not comply
with the terms of such Letter of Credit or is insufficient in any
respect, except where such payment constitutes gross negligence or
willful misconduct on the part of such Issuing Bank; or
(d) any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing, except for any such
circumstances or happening constituting gross negligence or willful
misconduct on the part of an Issuing Bank.
3.8 Participations. Each Bank's obligation to purchase
participating interests pursuant to Section 3.2 shall be absolute and
unconditional and shall not be affected by any circumstance,
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including, without limitation, (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank may have against any Issuing Bank, any
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default or Event of Default; (iii) any adverse change in the
condition (financial or otherwise) of any Borrower; (iv) any breach of this
Agreement by any Borrower or any other Bank; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
3.9 Letters of Credit Outstanding on the Termination
Date. Each Borrower shall use all reasonable efforts to deliver to the Agent
on or prior to the Termination Date all outstanding Letters of Credit with an
expiry date later than the Termination Date for cancellation by the Agent. If
any Borrower is not able to have all such Letters of Credit delivered to the
Agent on or prior to the Termination Date, such Borrower shall, prior to 11:00
A.M. (New York City time) on the Termination Date, deposit with the Agent (in
addition to all other amounts of principal, interest charges, fees and expenses
then owing to the Agent, the relevant Issuing Bank or any Bank hereunder or
under any other Loan Document), and grant to the relevant Issuing Bank a first
priority perfected Lien in, an amount of cash and/or irrevocable letters of
credit (naming the relevant Issuing Bank as beneficiary, issued by financial
institutions reasonably satisfactory to such Issuing Bank and otherwise in form
and substance reasonably satisfactory to such Issuing Bank) equal to 102% of
the amount necessary to pay in full the maximum amount of such Borrower's
reimbursement obligations in respect of all such outstanding Letters of Credit
(the determination of such maximum amount to assume compliance with all
conditions for drawing), any such cash to be deposited in an interest-bearing
account. The Agent shall be entitled to use any funds so deposited or obtained
pursuant to draws on any letter of credit so delivered to satisfy such
Borrower's reimbursement obligations hereunder in respect of any drawing on
such outstanding Letters of Credit and any other amounts payable by such
Borrower hereunder. After the last such outstanding Letter of Credit shall
have either been drawn on in full (and all reimbursement obligations in respect
thereof been paid in full) or expired by its terms without being drawn on in
full or part, the Agent shall make the funds, and all accrued interest thereon,
and/or letters of credit deposited and remaining with the Agent pursuant to
this Section 3.9 available to such Borrower. Each Borrower hereby acknowledges
that any obligation of the Agent, the Issuing Banks or any Bank hereunder to
terminate any Lien in favor of the Agent, the Issuing Banks and the Banks shall
not become effective unless and until the Borrowers shall have, in addition to
performing all of its other obligations hereunder and under any other Loan
Document, performed its obligations under this Section 3.9 in full.
SECTION 4. GENERAL PROVISIONS
4.1 Fees. (a) The Borrowers jointly and severally agree
to pay to the Agent for the account of each Bank a commitment fee
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for the period from and including the first day of the Commitment Period to the
Termination Date, computed at the rate of .3125% per annum on the average daily
amount of such Bank's Commitment Percentage of the amount by which (i) the
aggregate Commitments during the period for which payment is made exceeds (ii)
the aggregate outstanding principal amount of all Loans plus the aggregate
amount available to be drawn under all Letters of Credit, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Termination Date or such earlier date as the Commitments shall terminate as
provided herein, commencing on the first of such dates to occur after the date
hereof.
(b) The Borrowers jointly and severally agree to pay to
the Agent for the account of each Bank a usage fee for the period from and
including the first day of the Commitment Period to the Termination Date,
computed at the rate of .25% per annum on such Bank's Commitment Percentage of
the daily average of the aggregate outstanding principal amount of all Loans
plus the aggregate amount available to be drawn under all Letters of Credit for
each day that the aggregate outstanding principal amount of all Loans plus the
aggregate amount available to be drawn under all Letters of Credit exceed fifty
percent (50%) of the aggregate Commitments. Such usage fees shall be payable
quarterly in arrears on the last day of each March, June, September and
December and on the Termination Date or such earlier date as the Commitments
shall terminate as provided herein, commencing on the first of such dates to
occur after the date hereof.
(c) On the Closing Date the Company shall pay to the
Agent its fee for originating, structuring, processing, administering,
approving and closing the transactions contemplated hereby.
4.2 Termination or Permanent Reduction of Commitments.
The Company shall have the right, upon not less than five (5) Business Days'
notice to the Agent, to terminate the Commitments or, from time to time, to
reduce permanently the amount of such Commitments, provided that no such
termination or permanent reduction shall be permitted if, after giving effect
thereto and to any payments or prepayments of the Loans made on the effective
date thereof, the aggregate amount of Extensions of Credit outstanding would
exceed the Commitments then in effect. Any such reduction pursuant to this
subsection 4.2 shall be in an amount equal to $5,000,000 or $1,000,000
increments in excess thereof and shall reduce permanently the Commitments then
in effect.
4.3 Optional Prepayments. Each Borrower may at any time
and from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon at least one Business Day's notice, in the case of Base Rate
Loans, and three Business Days' notice, in the case of Eurodollar Loans, to
the Agent, specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans, Base Rate Loans or a combination thereof,
and, if of a combination thereof, the amount allocable to each. Upon
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receipt of any such notice the Agent shall promptly notify each Bank thereof.
If any such notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with accrued interest to
such date on the amount prepaid. Partial prepayments shall be in an aggregate
principal amount of $1,000,000 or $100,000 increments in excess thereof and may
only be made if, after giving effect thereto, Section 4.6 is not contravened.
All prepayments shall be accompanied by the amounts due and owing to each Bank
under Section 4.14 as a result of such prepayment.
4.4 Commitments Exceeded: Mandatory Payments.
(a) If at any time the aggregate outstanding Extensions
of Credit exceed the aggregate Commitments, the Borrowers shall immediately pay
or prepay the Loans, without premium or penalty (except as provided in Section
4.14), in an aggregate amount equal to such excess, together with interest
thereon accrued to the date of such payment or prepayment and any amounts
payable pursuant to paragraph (b) below. Payments made under this Section
4.4(a) shall be applied first to the outstanding Base Rate Loans, second to the
outstanding Eurodollar Loans, and third to cash collateralize the Letters of
Credit (on terms satisfactory to the Required Banks).
(b) All prepayments shall be accompanied by the amounts
due and owing to each Bank under Section 4.14 as a result of such prepayment.
4.5 Conversion and Continuation Options. (a) Each
Borrower may elect from time to time to convert Eurodollar Loans to Base Rate
Loans, and/or to convert Base Rate Loans to Eurodollar Loans by giving the
Agent at least three Business Days' prior notice received prior to 12:00 noon
(New York City time) of such election. Any such notice of conversion to
Eurodollar Loans shall specify the length of the Interest Period or Interest
Periods therefor. Upon receipt of any such notice the Agent shall promptly
notify each Bank thereof. All or any part of outstanding Eurodollar Loans and
Base Rate Loans may be converted as provided herein, provided that (i) no Loan
may be converted into a Eurodollar Loan when any Event of Default has occurred
and is continuing and the Agent or the Required Banks have determined that such
a conversion is not appropriate, (ii) any such conversion may only be made if,
after giving effect thereto, Section 4.6 shall not have been contravened and
(iii) no Base Rate Loan may be converted into a Eurodollar Loan after the date
that is one month or 30 days, respectively, prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon
the expiration of the then current Interest Period with respect thereto by the
relevant Borrower giving notice to the Agent, in accordance with the applicable
provisions of the term "Interest Period" set forth in Section 1.1, of the
length of the next Interest Period to be applicable to such Loans provided that
no Eurodollar Loan may be continued as such (i) when any Event of Default has
occurred and is continuing and the Agent or the
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Required Banks have determined that such a continuation is not appropriate,
(ii) if, after giving effect thereto, Section 4.6 or the proviso to Section
2.1(a) would be contravened or (iii) after the date that is one month or 30
days prior to, the Termination Date; provided, further, that (x) if such
relevant Borrower shall fail to give any required notice as described above in
this paragraph, such Loan shall be automatically continued on the same terms
and (y) if such continuation is not permitted pursuant to the preceding proviso
such Loan shall be automatically converted to a Base Rate Loan on the last day
of such then expiring Interest Period.
4.6 Minimum Amounts of Eurodollar Loans. All conversions
and continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of such Loans
comprising Eurodollar Loans the Interest Periods with respect to which begin on
the same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day) shall be equal to $2,000,000 or a
whole multiple of $100,000 in excess thereof.
4.7 Interest Rates and Payment Dates. (a) Each
Eurodollar Loan shall bear interest for each day during each Interest Period
with respect thereto at a rate per annum equal to the Eurodollar Rate
determined for such Loan for such Interest Period plus the relevant Eurodollar
Margin.
(b) Each Base Rate Loan shall bear interest for each day
outstanding at a rate per annum equal to the Base Rate, subject to adjustment
in accordance with Paragraph (d) of this Section 4.7.
(c) If all or a portion of (i) the principal amount of
any Loan or (ii) any interest payable thereon or other amount payable hereunder
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum which
is (x) in the case of overdue principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section 4.7
plus 2% or (y) in the case of overdue interest or other amounts, the rate
described in paragraph (b) of this Section 4.7 plus 2%, in each case from the
fifth Business Day after the date of such non-payment until such amount is paid
in full (after as well as before judgment).
(d) At any time that the senior unsecured long-term
Indebtedness of the Company is (i) unrated by Standard & Poors Corporation or
by Moody's Investors Service, Inc., or (ii) not rated at least BB- or the
equivalent thereof by Standard & Poor's Corporation or Ba3 or the equivalent
thereof by Moody's Investors Service, Inc., then during such period the
Eurodollar Margin shall be 1.70% and each Base Rate Loan shall bear interest
for each day outstanding at a rate per annum equal to the Base Rate plus .75%
per annum.
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4.8 Computation of Interest and Fees. (a) Interest on
Base Rate Loans shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed. Interest on Eurodollar
Loans and fees shall be calculated on the basis of a 360-day year for the
actual days elapsed. The Agent shall as soon as practicable notify the
Borrowers and the Banks of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the Base Rate shall
become effective as of the opening of business on the day on which such change
in the Base Rate is announced. The Agent shall as soon as practicable notify
the Borrowers and the Banks of the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrowers and the Banks in the absence of manifest error. The Agent shall,
at the request of any Borrower, deliver to such Borrower a statement showing
the quotations used by the Agent in determining any interest rate pursuant to
Section 4.7(a).
4.9 Inability to Determine Interest Rate. In the event
that prior to the first day of any Interest Period:
(a) the Agent shall have determined (which determination
shall be conclusive and binding upon the Borrowers absent manifest
error) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the
Required Banks that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the
cost to such Banks (as conclusively certified by such Banks) of making
or maintaining their affected Loans during such Interest Period,
the Agent shall give telex, telecopy or telephonic notice thereof to the
relevant Borrower(s) and the Banks as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as Base Rate Loans, (y) any Loans that
were to have been converted on the first day of such Interest Period to
Eurodollar Loans shall be converted to or continued as Base Rate Loans and (z)
any outstanding Eurodollar Loans shall be converted, on the first day of such
Interest Period, to Base Rate Loans. Until such notice has been withdrawn by
the Agent, no further Eurodollar Loans shall be made or continued as such, nor
shall the Borrowers have the right to convert Loans to Eurodollar Loans.
4.10 Pro Rata Treatment and Payments. (a) Each borrowing
(including, without limitation, each borrowing pursuant to Section 3.4(a)) from
the Banks hereunder, each payment on account of any of the fees set forth in
Sections 4.1(a) and 4.1(b) and any reduction of the Commitments of the Banks
shall be made pro rata according to
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the applicable respective Commitment Percentages of the Banks. Each payment
(including each prepayment) on account of principal of and interest on the
Loans shall be made pro rata according to the respective outstanding principal
amounts of the Loans then held by the Banks. All payments (including
prepayments) to be made by the Borrowers hereunder and under the Notes, whether
on account of principal, interest, unpaid drawings under Letters of Credit,
fees or otherwise shall be made without set off or counterclaim and shall be
made prior to 1:00 P.M., New York City time, on the due date thereof to the
Agent, for the account of the Bank(s) or Issuing Bank(s) entitled thereto, at
the Agent's office specified in Section 12.2, in Dollars and in immediately
available funds. The Agent shall distribute such payments to the Bank(s) and
Issuing Bank entitled thereto promptly upon receipt in like funds as received.
If any payment hereunder (other than payments on any Eurodollar Loans) becomes
due and payable on a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension. If any payment on a Eurodollar Loan becomes due and payable on
a day other than a Working Day, the maturity thereof shall be extended to the
next succeeding Working Day which is a Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Working Day which
is a Business Day.
(b) Unless the Agent shall have been notified in writing
by any Bank prior to a borrowing date for Loans, that such Bank will not make
the amount that would constitute its applicable Commitment Percentage of such
borrowing (including, without limitation, a borrowing pursuant to Section
3.4(a)) available to the Agent, the Agent may assume that such Bank has made
such amount available to the Agent on such borrowing date, and the Agent may,
in reliance upon such assumption, make available to the relevant Borrower a
corresponding amount. If such amount is made available to the Agent (or to the
relevant Issuing Bank in respect of borrowings of Base Rate Loans pursuant to
Section 3.4(a)) on a date after such borrowing date, such Bank shall pay to the
Agent on demand an amount equal to the product of (i) the daily average Federal
Funds Rate during such period, times (ii) the amount of such Bank's Commitment
Percentage of such borrowing, times (iii) a fraction the numerator of which is
the number of days that elapse from and including such borrowing date to the
date on which such Bank's Commitment Percentage of such borrowing shall have
become immediately available to the Agent (or the relevant Issuing Bank, in
case of borrowings pursuant to Section 3.4(a)) and the denominator of which is
360. A certificate of the Agent (or the relevant Issuing Bank, in case of
borrowings pursuant to Section 3.4(a)) submitted to any Bank with respect to
any amounts owing under this Section 4.10 shall be conclusive in the absence of
manifest error. If such Bank's Commitment Percentage of such borrowing is not
in fact made available to the Agent (or the relevant Issuing Bank, in case of
borrowings pursuant to Section 3.4(a)) by such Bank within three Business Days
of such borrowing
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date, the Agent (or the Issuing Bank, in case of borrowings pursuant to Section
3.4(a)) shall be entitled to recover such amount with interest thereon at the
rate applicable to such Loans on such borrowing date, on demand, from the
relevant Borrower.
(c) Whenever any payment received by the Agent under this
Agreement is insufficient to pay in full all amounts then due and payable to
the Agent, the Issuing Bank and the Banks under this Agreement and the Notes,
and the Agent has not received a Payment Sharing Notice (or if the Agent has
received a Payment Sharing Notice but the Event of Default specified in such
Payment Sharing Notice has been cured or waived), such payment shall be
distributed and applied by the Agent and the Banks in the following order:
first, to the payment of fees and expenses due and payable to the Agent under
and in connection with this Agreement; second, to the payment of all expenses
due and payable under Section 12.5, ratably among the Banks in accordance with
the aggregate amount of such payments owed to each such Bank; third, to the
payment of fees due and payable to the Issuing Banks ratably in accordance with
the aggregate amount of fees owed to each such Issuing Bank; fourth, to the
payment of fees due and payable under Sections 3.5(a), 4.1(a) and (b) ratably
among the Banks in accordance with their applicable Commitment Percentages;
fifth, to the payment of interest then due and payable on account of the Loans
ratably among the Banks in accordance with the aggregate amount of such
interest owed to each such Bank; and sixth, to the payment of the principal
amount of the Loans, ratably among the Banks in accordance with the aggregate
principal amount owed to each such Bank.
(d) After the Agent has received a Payment Sharing Notice
which remains in effect, all payments received by the Agent under this
Agreement or any Note shall be distributed and applied by the Agent and the
Banks in the following order: first, to the payment of all amounts described in
clauses first through fourth of the foregoing paragraph (c), in the order set
forth therein; and second, to the payment of the interest accrued on and the
principal amount of all of the Notes and the interest accrued on and all
reimbursement Obligations in respect of all of the Letters of Credit,
regardless of whether any such amount is then due and payable, ratably among
the Banks in accordance with the aggregate accrued interest plus the aggregate
principal amount owed to such Bank.
4.11 Illegality. Notwithstanding any other provision
herein, if any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Bank hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (b)
such Bank's outstanding Eurodollar Loans, if any, shall be converted
automatically to Base Rate Loans on the respective last days of the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion or prepayment of a
Eurodollar Loan occurs on a day
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which is not the last day of the then current Interest Period with respect
thereto, the applicable Borrower or Borrowers shall pay to such Bank such
amounts, if any, as may be required pursuant to Section 4.14.
4.12 Requirements of Law; Letter of Credit Reserves. (a)
In the event that any change in any Requirement of Law or in the interpretation
or application thereof or compliance by any Bank with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
(i) shall subject any Bank to any tax of any kind
whatsoever with respect to this Agreement, any Note or any Eurodollar
Loan made by it, or change the basis of taxation of payments to such
Bank in respect thereof (except for taxes covered by Section 4.13 and
changes in the rate of tax on the overall net income of such Bank);
(ii) shall impose, modify or hold applicable any reserve
(including without limitation any Eurodollar Rate Reserve Percentage),
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Bank which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank reasonably deems to be material, of making,
converting into, continuing or maintaining Eurodollar Loans or to reduce any
amount receivable hereunder in respect thereof then, in any such case, the
applicable Borrower or Borrowers shall promptly pay such Bank, upon its demand,
any additional amounts necessary to compensate such Bank for such increased
cost or reduced amount receivable. If any Bank becomes entitled to claim any
additional amounts pursuant to this Section 4.12, it shall promptly notify the
Borrowers, through the Agent, of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
Section 4.12 submitted by such Bank, through the Agent, to the Borrowers shall
be conclusive in the absence of manifest error and the amounts set forth
therein shall be payable quarterly on each Interest Payment Date for Base Rate
Loans. This covenant shall survive the termination of this Agreement and the
payment of the Notes and all other amounts payable hereunder.
(b) In the event that any Bank shall have determined that
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Bank or any
corporation controlling such Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority
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made subsequent to the date hereof does or shall have the effect of reducing
the rate of return on such Bank's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Bank
or such corporation could have achieved but for such change or compliance
(taking into consideration such Bank's or such corporation's policies with
respect to capital adequacy) by an amount reasonably deemed by such Bank to be
material, then from time to time, after submission by such Bank to the Company
(with a copy to the Agent) of a written request therefor, the applicable
Borrower or Borrowers shall pay to such Bank such additional amount or amounts
as will compensate such Bank for such reduction.
(c) If any change in any law or regulation or in the
interpretation or application thereof by any court or other Governmental
Authority charged with the administration thereof shall either (i) impose,
modify, deem or make applicable any reserve, special deposit, assessment or
similar requirement against Letters of Credit issued by any Issuing Bank or
(ii) impose on such Issuing Bank any other condition regarding this Agreement
or any such Letter of Credit, and the result of any event referred to in clause
(i) or (ii) above shall be to increase the cost to such Issuing Bank of issuing
or maintaining any such Letter of Credit (which increase in cost shall be the
result of such Issuing Bank's reasonable allocation of the aggregate of such
cost increases resulting from such events), then, upon demand by such Issuing
Bank, the relevant Borrower(s) shall immediately pay to such Issuing Bank, from
time to time as specified by such Issuing Bank, additional amounts which shall
be sufficient to compensate such Issuing Bank for such increased cost, together
with interest on each such amount from the date demanded until payment in full
thereof at a rate per annum equal to the Base Rate. A certificate, setting
forth in reasonable detail the calculation of the amounts involved, submitted
by such Issuing Bank to the relevant Borrower(s) concurrently with any such
demand by such Issuing Bank, shall be conclusive, absent manifest error, as to
the amount thereof.
(d) In the event that any change in any law or regulation
or in the interpretation or application thereof by any court or other
Governmental Authority charged with the administration thereof shall at any
time, in the opinion of an Issuing Bank, require that any obligation under any
Letter of Credit issued by an Issuing Bank be treated as an asset or otherwise
be included for purposes of calculating the appropriate amount of capital to be
maintained by such Issuing Bank or any corporation controlling such Issuing
Bank, and such change in law shall have the effect of reducing the rate of
return on such Issuing Bank's or such corporation's capital, as the case may
be, as a consequence of such Issuing Bank's obligations under such Letter of
Credit to a level below that which such Issuing Bank or such corporation, as
the case may be, could have achieved but for such change (taking into account
such Issuing Bank's or such corporation's policies, as the case may be, with
respect to capital adequacy) by an amount deemed by such Issuing Bank to be
material,
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then from time to time following notice by such Issuing Bank to the relevant
Borrower(s) of such change, within 15 days after demand by such Issuing Bank,
such Borrower(s) shall pay to such Issuing Bank such additional amount or
amounts as will compensate such Issuing Bank or such corporation, as the case
may be, for such reduction. If such Issuing Bank becomes entitled to claim any
additional amounts pursuant to this Section 4.12(d), it shall promptly notify
the relevant Borrower(s) of the event by reason of which it has become so
entitled. A certificate, in reasonable detail setting forth the calculation of
the amounts involved, submitted by such Issuing Bank to the such Borrowers
concurrently with any such demand by such Issuing Bank, shall be conclusive,
absent manifest error, as to the amount thereof.
(e) Each Borrower agrees that the provisions of the
foregoing paragraphs (c) and (d) and the provisions of each L/C Application
providing for reimbursement or payment to an Issuing Bank in the event of the
imposition or implementation of, or increase in, any reserve, special deposit,
capital adequacy or similar requirement in respect of the Letter of Credit
relating thereto shall apply equally to each Bank in respect of its
participating interest in such Letter of Credit, as if the references in such
paragraphs and provisions referred to, were applicable to such Bank or any
corporation controlling such Bank.
4.13 Taxes. (a) All payments made by each Borrower under
this Agreement and the Notes shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding, in the case of the Agent and each
Bank, net income taxes and franchise taxes imposed on the Agent or such Bank,
as the case may be, as a result of a present, former or future connection
between the jurisdiction of the government or taxing authority imposing such
tax and the Agent or such Bank (excluding a connection arising solely from the
Agent or such Bank having executed, delivered or performed its obligations or
received a payment under, or enforced, this Agreement or the Notes) or any
political subdivision or taxing authority thereof or therein (all such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"). If any Taxes are required to
be withheld by such Borrower from any amounts payable to the Agent or any Bank
hereunder or under the Notes, the amounts so payable to the Agent or such Bank
shall be increased to the extent necessary to yield to the Agent or such Bank
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Notes.
(b) In addition, each Borrower agrees to pay any present
or future stamp or documentary taxes or any other similar charges or levies or
excise or property taxes of the United States or any state or political
subdivision thereof or any applicable foreign jurisdiction which arise from any
payment made hereunder or from
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the execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Notes (hereinafter called "Other Taxes").
(c) Whenever any Taxes or Other Taxes are payable by a
Borrower, as promptly as possible thereafter such Borrower shall send to the
Agent for its own account or for the account of such Bank, as the case may be,
a certified copy of an original official receipt received by such Borrower
showing payment thereof. If such Borrower fails to pay any Taxes or Other
Taxes when due to the appropriate taxing authority or fails to remit to the
Agent the required receipts or other required documentary evidence, the
applicable Borrower or Borrowers shall indemnify the Agent and the Banks for
any incremental taxes, interest or penalties that may become payable by the
Agent or any Bank as a result of any such failure. The agreements in this
Section 4.13 shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.
(d) Each Bank that is not incorporated under the laws of
the United States of America or a state thereof agrees that it will deliver to
the Borrowers who are U.S. taxpayers and the Agent (i) two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224 or successor
applicable form, as the case may be, and (ii) an Internal Revenue Service Form
W-8 or W-9 or successor applicable form. Each such Bank also agrees to deliver
to such Borrowers and the Agent upon request of a Borrower two further copies
of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable
forms or other manner of certification, as the case may be, on or before the
date that any such form expires or becomes obsolete or after the occurrence of
any event requiring a change in the most recent form previously delivered by it
to the Borrowers, and such extensions or renewals thereof as may reasonably be
requested by such Borrowers or the Agent, unless in any such case an event
(including, without limitation, any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank so advises the Borrowers and the Agent. Such Bank shall certify (i)
in the case of a Form 1001 or 4224, that it is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax.
Notwithstanding any provision of subsection 4.13 (a) to the contrary, no
Borrower shall have any obligation to pay any Taxes (except to the extent
required by Law) pursuant to subsection 4.13(a) to the extent that such Taxes
would not have been imposed but for the failure of the Bank incurring such
Taxes to comply with this Section 4.13(d).
4.14 Indemnity. Each Borrower agrees to indemnify each
Bank and to hold each Bank harmless from any loss or expense which such Bank
may sustain or incur as a consequence of (a) default by such Borrower in
payment when due of the principal amount of or
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interest on any Eurodollar Loan, (b) default by such Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after such
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by such Borrower in making any
prepayment after such Borrower has given a notice thereof in accordance with
the provisions of this Agreement or (d) the making of a prepayment of
Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto, including, without limitation, in each case, any such loss or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
4.15 Currency Indemnity. (a) The obligation of each
Borrower under this Agreement and the Notes to make payments in Dollars (the
"Obligation Currency") shall not be discharged or satisfied by any tender or
recovery pursuant to any judgment expressed in or converted into any currency
other than the Obligation Currency, except to the extent to which such tender
or recovery shall result in the effective receipt by the Banks of the full
amount of the Obligation Currency expressed to be payable under this Agreement
or the Notes. If for the purpose of obtaining or enforcing judgment against
any Borrower in any court or in any jurisdiction, it becomes necessary to
convert into any currency other than the Obligation Currency (such other
currency being hereinafter referred to as the "Judgment Currency") an amount
due in the Obligation Currency under the Notes or in respect of any L/C
Obligations, the conversion shall be made, at the option of the Agent, at the
rate of exchange prevailing on the Business Day immediately preceding the day
on which the judgment is given (such Business Day as the case may be, being
hereinafter in this Section 4.15 referred to as the "Judgment Currency
Conversion Date").
(b) If there is a change in the rate of exchange
prevailing between the Judgment Currency Conversion Date and the date of actual
payment of the amount due, each Borrower covenants and agrees to pay such
additional amounts as may be necessary to ensure that the amount paid in the
Judgment Currency, when converted at the rate of exchange prevailing on the
date of payment, will produce the amount of the Obligation Currency which could
have been purchased with the amount of Judgment Currency stipulated in the
judgment or judicial award at the rate of exchange prevailing on the Judgment
Currency Conversion Date.
(c) Any amount due from the Company under the foregoing
subparagraph will be due as a separate debt and shall not be affected by
judgment being obtained for any other sums due under or in respect of the
Loans, the L/C Obligations or otherwise hereunder.
4.16 Avoidance: Certifications of Amounts Due: Replacement
of Banks. (a) In the event that any of the circumstances described in Sections
4.11 or 4.12 hereof shall
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arise, the affected Bank or Banks shall designate a different lending office or
make any other mechanical change in funding Loans or issuing Letters of Credit
hereunder if the consequence of such designation or change will avoid the need
for the Borrowers taking the actions specified in such Sections or will make
such actions less burdensome to the Borrowers and will not, in the reasonable
judgment of such Bank, be otherwise materially disadvantageous to such Bank.
In addition, such Bank or Banks will use reasonable efforts to designate a
different lending office or make any other such mechanical change that will
avoid the need for, or reduce the amount of, any Taxes or other amounts payable
pursuant to provisions of said Sections; provided that such designation or
change will not, in the reasonable judgment of such Bank, be otherwise
materially disadvantageous to such Bank.
(b) In the event that any amount is determined by any
Bank to be due from any Borrower in accordance with any of the provisions of
Sections 4.12, 4.13, 4.14 or 4.15 hereof, the Bank claiming such amount shall
provide to the relevant Borrower and the Company a certificate identifying the
cause of such claim, the amount that such Bank has reasonably determined will
compensate it for any such claim, and the way in which such amount has been
calculated. Such certificate shall be delivered to the relevant Borrower and
the Company through the Agent as promptly as practical after the Bank obtains
knowledge of such claim, but in any event within thirty days after such Bank
obtains such knowledge.
(c) In the event that any Borrower becomes obligated to
pay additional amounts to any Bank pursuant to Sections 4.12, 4.13, 4.15 or
this Section 4.16 as a result of any condition described in any such Sections,
then, unless such Bank has theretofore taken steps to remove or cure, and has
removed or cured, the conditions creating the cause for such obligation to pay
such additional amounts, the Company may designate another Bank which is an
Eligible Assignee and is reasonably acceptable to the Agent (such Bank being
herein called a "Replacement Bank") to purchase the Obligation of such Bank and
such Bank's rights hereunder, without recourse to or warranty by, or expense
to, such Bank for a purchase price equal to the outstanding principal amount of
the Loans payable to such Bank plus any accrued but unpaid interest on such
Loans and any other amounts accrued but unpaid in respect of that Bank's
Commitment, and upon such purchase, such Bank shall no longer be a party hereto
or have any rights hereunder, and the Replacement Bank shall succeed to the
rights of such Bank hereunder.
4.17 Assignments. No Participating Bank's participation
in any Letter of Credit or any of its rights or duties hereunder shall be
subdivided, assigned or transferred (other than in connection with a transfer
of part or all of such Bank's Commitment in accordance with Section 12.6)
without the prior written consent of the relevant Issuing Bank and Agent (which
consents shall not be unreasonably withheld). Such consent may be given or
withheld without the consent or agreement of any other Participating Bank or
Bank. Notwithstanding the foregoing, a Participating Bank may
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subparticipate its L/C Participating Interest without obtaining the prior
written consent of the relevant Issuing Bank.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement and to make
Extensions of Credit hereunder, the Company and each other Borrower hereby
represent and warrant to the Agent and each Bank that:
5.1 Financial Condition. The consolidated balance sheets
of the Company and its consolidated Subsidiaries as at January 30, 1994 and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, audited by Price Waterhouse, copies of which have
heretofore been furnished to each Bank that requested the same, are complete
and correct in all material respects and present fairly the consolidated
financial condition of the Company and its consolidated Subsidiaries as at such
date, and the consolidated results of their operations and their consolidated
cash flows for the fiscal year then ended. The preliminary unaudited
consolidated balance sheets of the Company and its consolidated Subsidiaries as
at May 1, 1994 and the related unaudited consolidated statements of income for
the fiscal quarter ended on such date, certified by a Responsible Officer,
copies of which have heretofore been furnished to each Bank that requested the
same, are complete and correct in all material respects and present fairly the
consolidated financial condition of the Company and its consolidated
Subsidiaries as at such dates, and the consolidated results of their operations
for the fiscal quarter then ended (subject to normal year-end adjustments).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except for normal year-end adjustments and
except as approved by such accountants, and as disclosed therein and, with
respect to any unaudited statements, except the notes with respect thereto).
During the period from January 30, 1994 to and including the date hereof there
has been no sale, transfer or other disposition by the Company or any of its
consolidated Subsidiaries of any part of its business or property, and no
purchase or other acquisition of any business or property (including any
capital stock of any other Person), material in relation to the consolidated
financial condition of the Company and its consolidated Subsidiaries at January
30, 1994.
5.2 No Change. Since January 30, 1994, except as
disclosed on Exhibit F attached hereto, there has been no development or event,
that has had or could reasonably be expected to have a Material Adverse Effect,
and except as permitted under Section 8.7 and except for open market purchases
by the Company of its common stock for employee benefit plans in the ordinary
course of business since January 30, 1994, no dividends or other distributions
have been declared, paid or made upon the Capital Stock of the Company nor has
any of the Capital Stock of the
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Company been redeemed, retired, purchased or otherwise acquired for value by
the Company or any of its Subsidiaries.
5.3 Corporate or Partnership Existence: Compliance with
Law. Each of the Company and its Subsidiaries (a) is duly organized or formed,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate or partnership power and authority, as the
case may be, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation or a foreign
business, as the case may be, and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect,
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
5.4 Corporate or Partnership Power: Authorization:
Enforceable Obligations. Each of the Loan Parties has the power and authority
and the legal right, to execute, deliver and perform the Loan Documents to
which it is a party and each Borrower has the power and authority and the legal
right, to issue, deliver and perform the Notes and to borrow hereunder, and all
necessary corporate or partnership action has been taken, as appropriate, by
each Loan Party to authorize the borrowings on the terms and conditions of this
Agreement and the Notes and the execution, delivery and performance of the Loan
Documents to which it is a party. No consent or authorization of, filing with
or other act by or in respect of, any Governmental Authority or any other
Person (other than the Banks) is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of any of the Loan Documents except those required to be
delivered or made and actually delivered or made pursuant to the Loan
Documents. The Loan Documents have been duly executed and delivered on behalf
of each Loan Party thereto. Each of the Loan Documents constitutes a legal,
valid and binding obligation of each Loan Party thereto, enforceable against
each such Loan Party in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles (whether enforcement is
sought by proceedings in equity or at law).
5.5 No Legal Bar. The execution, delivery and
performance of the Loan Documents, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law applicable to, or
Contractual Obligation of, the Company or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien on any of its
or their
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respective properties or revenues pursuant to any such Requirement of Law or
Contractual Obligation.
5.6 No Material Litigation. Except as set forth on
Schedule III, no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or any of its Subsidiaries or
against any of its or their respective properties or revenues (a) with respect
to this Agreement or the Notes or any of the transactions contemplated hereby,
or (b) which has or could reasonably be expected to have a Material Adverse
Effect.
5.7 No Default. Neither the Company nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
5.8 Ownership of Property: Liens. Each of the Company
and its Subsidiaries has good record and defensible title to, or a valid,
leasehold interest in, all its real property, and good title to all its other
property, and none of such property is subject to any Lien except as permitted
by Section 8.3.
5.9 Intellectual Property. Except as set forth on
Schedule III, the Company and each of its Subsidiaries owns, or is licensed to
use, all trademarks, trade names, copyrights, technology, know-how and
processes necessary for the conduct of its business as currently conducted
(including without limitation International Rights) except for those which the
failure to own or license could not reasonably be expected to have a Material
Adverse Effect (the "Intellectual Property"). No claim has been asserted and
is pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does any Borrower know of any valid basis for any such claim,
except for such claims that, in the aggregate, could not reasonably be expected
to have a Material Adverse Effect. The use of such Intellectual Property by
the Company and its Subsidiaries does not infringe on the rights of any Person,
except for such claims and infringements that, in the aggregate, do not have a
Material Adverse Effect.
5.10 Taxes. Each of the Company and its Subsidiaries has
filed or caused to be filed all tax returns which, to the knowledge of the
Company, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount or validity
of which are currently being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided
on the books of the Company or its Subsidiaries, as the case may be); no tax
Lien has been filed, and to the knowledge of the Company, no claim is being
asserted, with
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respect to any such tax, fee or other charge, except for such Liens or claims,
that in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
5.11 Federal Regulations. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying", any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect or for any purpose which violates the provisions of the
Regulations of such Board of Governors. If requested by any Bank or the Agent,
the Borrowers will furnish to the Agent and each Bank a statement to the
foregoing effect in conformity with the requirements of FR Form U-l referred to
in said Regulation U.
5.12 ERISA. No Reportable Event has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Plan, and each Plan has complied in all
material respects with the applicable provisions of ERISA and the Code. The
present value of all accrued benefits under each Single Employer Plan
maintained by the Company or any Commonly Controlled Entity (based on those
assumptions used to fund the Plans) did not, as of the last annual valuation
date prior to the date on which this representation is made or deemed made,
exceed the value of the assets of such Plan allocable to such accrued
benefits. Neither the Company nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Company nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Company or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
The present value (determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the employees participating)
of the liability of the Company and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(l) of ERISA)
does not, in the aggregate, exceed the assets under all such Plans allocable to
such benefits.
5.13 Investment Company Act; Other Regulations. Neither
the Company nor any Borrower is an "investment company", or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended. Neither the Company nor any Borrower is
subject to regulation under any Federal or State statute or regulation which
limits its ability to incur Indebtedness.
5.14 Subsidiaries. Schedule II hereto sets forth an
accurate description of all of the Subsidiaries of the Company, the
jurisdiction of incorporation or formation of each of them and the ownership of
the Capital Stock of each of them as of the Closing Date.
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5.15 Purpose of Loans. The proceeds of the Loans shall be
used by the Borrowers only for (a) refinancing existing Indebtedness of such
Borrowers, (b) general corporate or partnership purposes, including
international expansion and (c) working capital purposes in the ordinary course
of business, and shall not be used to purchase, redeem or otherwise acquire
shares of the Company's common stock pursuant to any one or more of the
Company's corporate stock repurchase programs.
5.16 Environmental Matters. Each of the representations
and warranties set forth in paragraphs (a) through (e) of this Section is true
and correct with respect to each parcel of real property owned or operated by
the Company and its Domestic Subsidiaries (the "Properties"), except to the
extent that the facts and circumstances giving rise to any such failure to be
so true and correct could not reasonably be expected to have a Material Adverse
Effect:
(a) To the best of its knowledge, the Properties do not
contain, and have not previously contained, in, on, or under,
including, without limitation, the soil and groundwater thereunder,
any Hazardous Materials in concentrations which violate Environmental
Laws.
(b) The Properties and all operations and facilities at
the Properties are in compliance with all Environmental Laws, and
there is no Hazardous Materials contamination or violation of any
Environmental Law which could reasonably be expected to interfere with
the continued operation of any of the Properties or impair the fair
saleable value of any thereof.
(c) Neither the Company nor any of its Domestic
Subsidiaries has received any complaint, notice of violation, alleged
violation, investigation or advisory action or of potential liability
or of potential responsibility regarding environmental protection
matters or permit compliance with regard to the Properties, nor is the
Company aware that any Governmental Authority is contemplating
delivering to the Company or any of its Domestic Subsidiaries any such
notice.
(d) There are no governmental, administrative actions or
judicial proceedings pending or contemplated under any Environmental
Laws to which the Company or any of its Domestic Subsidiaries is or
will be named as a party with respect to the Properties, nor are there
any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to
any of the Properties.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the satisfaction of the following
conditions precedent:
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(a) Execution of Agreement. The Agent shall have
received a counterpart of this Agreement, executed and delivered by
the Loan Parties hereto and by the Banks.
(b) Corporate or Partnership Proceedings of the Loan
Parties. The Agent shall have received, with a counterpart for each
Bank, a copy of the resolutions, in form and substance satisfactory to
the Agent, of the Board of Directors of each Loan Party which is a
corporation or an evidence of partnership proceedings, if any, of each
Loan Party which is a partnership, in form and substance satisfactory
to the Agent, authorizing the execution, delivery and performance of
the Loan Documents to which it is a party, certified by the Secretary
or an Assistant Secretary, or the Secretary or an Assistant Secretary
of the general partner, as the case may be, of such Loan Party as of
the Closing Date, which certificate shall state that the resolutions
or proceedings thereby certified have not been amended, modified,
revoked or rescinded and shall be in form and substance satisfactory
to the Agent.
(c) Corporate/Partnership Documents. The Agent shall
have received, with a counterpart for each Bank, true and complete
copies of (i) the certificate of incorporation and by-laws of the
Company and each of other Borrowers which is a corporation, certified
as of the Closing Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of such Borrower and (ii) the
partnership agreement of each Borrower which is a partnership,
certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of the general
partner of such Borrower.
(d) Incumbency Certificates. The Agent shall have
received, with a counterpart for each Bank, a certificate of the
Company, dated the Closing Date, as to the incumbency and signatures
of the officers of the Company executing any Loan Document which
certificate shall be satisfactory in form and substance to the Agent
and shall be executed by the President or Vice President and the
Secretary or any Assistant Secretary of the Company.
(e) No Violation. The consummation of the transactions
contemplated hereby shall not contravene, violate or conflict with,
nor involve the Agent or any Bank or the Issuing Bank in any violation
of, any Requirement of Law.
(f) Fees. The Agent shall have received the fees to be
received on or prior to the Closing Date referred to in Section 4.1.
(g) Legal Opinions. The Agent shall have received, with
a counterpart for each Bank, (i) the executed legal opinion of the
Company's corporate counsel substantially in the form of Exhibit D
hereto and (ii) in the event that any Foreign
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<PAGE> 45
Subsidiary requests to be a Borrower hereunder, the executed legal
opinion of local counsel to such Foreign Subsidiary acceptable to the
Agent, covering such matters concerning the Loan Documents as the
Agent may reasonably require. Each such legal opinion shall cover
such other matters incident to the transactions contemplated by this
Agreement as the Agent may reasonably require.
(h) No Market Changes. There shall have occurred no
introduction of or change in or in the interpretation of any law or
regulation that would make it unlawful or unduly burdensome for an
Issuing Bank to issue a Letter of Credit, no suspension of or material
limitation on trading on the New York Stock Exchange or any other
national securities exchange, no declaration of a general banking
moratorium by United States, New York or United Kingdom banking
authorities, and no establishment of any new restrictions on
transactions in securities or on banks materially affecting the free
market for securities or the extension of credit by banks.
(i) Notes. The Agent shall have received, for the
account of each Bank, a Note, conforming to the requirements hereof
and duly executed by the Company.
(j) Guarantees. The Agent shall have received the
Company Guarantee and the Subsidiaries Guarantee, executed and
delivered by each of the parties thereto.
(k) Releases. The Agent shall have received evidence
satisfactory to it, in its sole discretion, that all Liens against the
Accounts of the Company and its Subsidiaries have been released by the
Persons holding such Liens.
(l) Termination of Prior Credit Agreement. The Prior
Credit Agreement shall have been terminated, and Agent shall have
received such documents and instruments as it deems necessary to
evidence the termination of the Prior Credit Agreement.
6.2 Conditions to Each Loan and Issuance of Each Letter
of Credit. The agreement of each Bank to make any Loan requested to be made by
it or of the Issuing Bank to issue any Letter of Credit on any date (including,
without limitation, the Closing Date) is subject to the satisfaction of the
following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties (including those made in Section 5.2
hereof) made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such
date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving
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effect to the Extensions of Credit requested to be made on such date.
The acceptance by any Borrower of any Loan or Letter of
Credit shall constitute a representation and warranty by such Borrower as of
the date of such Loan or Letter of Credit that the conditions contained in this
Section 6.2 have been satisfied.
6.3 Additional Borrowers. In order to become a Borrower
hereunder, any Subsidiary of the Company that has not previously done so shall
deliver to the Agent the Loan Documents (or appropriate supplements thereto so
as to become a party thereto) and the documents specified in Sections 6.1(b),
6.1(c), 6.1(d) and 6.1(g) hereof, and shall otherwise be in compliance with all
provisions of this Agreement.
SECTION 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments
remain in effect, any Loan remains outstanding and unpaid or any Letter of
Credit remains outstanding or any other amount is owing to any Bank, any
Issuing Bank or the Agent hereunder, the Company shall and (except in the case
of delivery of financial information, reports and notices) shall cause each of
its Subsidiaries to:
7.1 Financial Statements. Furnish to the Agent:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Company, a copy of the
consolidated balance sheet of the Company and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of income and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous year,
reported on without a qualification or exception, or qualification
arising out of the scope of the audit, by Price Waterhouse or other
independent certified public accountants of nationally recognized
standing not unacceptable to the Required Banks;
(b) as soon as available, but in any event not later than
45 days after the end of each of the first three quarterly periods of
each fiscal year of the Company, the unaudited consolidated balance
sheet of the Company and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of
income and of cash flows of the Company and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a
Responsible Officer of the Company as being to the best of his
knowledge fairly stated in all material respects when considered in
relation to the consolidated financial
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statements of the Company and its consolidated Subsidiaries (subject
to normal year-end adjustments); and
(c) as soon as available, but in any event not later than
90 days after the end of each fiscal year of each Foreign Subsidiary
that has requested a Loan hereunder, the unaudited balance sheet of
such Foreign Subsidiary as at the end of such fiscal year and the
related statements of income and of cash flows of such Foreign
Subsidiary for such fiscal year, setting forth in each case in
comparative form the figures for the previous year, certified by a
Responsible Officer of the Company as being to the best of his
knowledge fairly stated in all material respects when considered in
relation to the financial statements of such Foreign Subsidiary
(subject to normal year-end adjustments); all such financial
statements to be complete and correct in all material respects and to
be prepared in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein and with prior
periods (except for normal year-end adjustments and except as approved
by such accountants or officer, as the case may be, and disclosed
therein and, with respect to any unaudited statements, except the
notes with respect thereto).
7.2 Certificates: Other Information. Furnish to each
Bank:
(a) concurrently with the delivery of the financial
statements referred to in Section 7.1(a), a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in Sections 7.1(a), 7.1(b) and 7.1(c), a
certificate of a Responsible Officer of the Company stating that, to
the best of such officer's knowledge, the Company and each of its
Subsidiaries during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition,
contained in the Loan Documents to which it is a party to be observed,
performed or satisfied by it, and that such officer has no knowledge
of any Default or Event of Default except as specified in such
certificate and showing calculations in respect of Section 8.1, and
that each of the representations and warranties made by any Loan Party
in or pursuant to the Loan Documents is true and correct in all
material respects on and as of the last day of such period as if made
on and as of such date (other than changes not prohibited by this
Agreement);
(c) within five Business Days after the same are sent,
copies of all financial statements and reports which the Company sends
to its stockholders, and within five days after the same are filed,
copies of all financial statements and reports which the Company may
make to, or file with, the
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Securities and Exchange Commission or any successor or analogous
Governmental Authority; and
(d) promptly, such additional financial and other
information as any Bank may from time to time reasonably request.
7.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Company or its Subsidiaries, as the case may be, and except
where the failure to so pay is due to a good faith error or omission or
customary business practices.
7.4 Conduct of Business and Maintenance of Existence.
Other than Immaterial Subsidiaries, continue to engage in business of the same
general type as now conducted by it and preserve, renew and keep in full force
and effect its corporate or partnership existence and take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business except as otherwise permitted pursuant to
Section 8.5; comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each of
Dell Products Corporation, Dell USA Corporation, Dell Direct Sales Corporation,
Dell Marketing Corporation and Dell Gen. P. Corp. shall not engage in any
business or activity other than owning the partnership interests of Dell
Products L.P., Dell USA L.P., Dell Direct Sales L.P., Dell Marketing L.P. owned
by it on the date hereof except that (i) Dell Gen. P. Corp. may own technology
and intellectual property rights and interests and receive income from such
rights and interests, (ii) Dell Marketing Corporation may continue to provide
services to General Services Administration under the existing computer
services contracts, (iii) Dell USA Corporation may be or own a captive
insurance company, and (iv) each of such entities may engage in activities
incidental to the foregoing and other activities reasonably acceptable to Agent
that are described in notices sent to the Banks.
7.5 Maintenance of Property; Insurance. Other than
Immaterial Subsidiaries, keep all property useful and necessary in its business
in good working order and condition, normal wear and tear excepted; maintain
with financially sound and reputable insurance companies customary insurance on
its property and insurance against public liability and product liability, and
if reasonably requested by the Required Banks any additional property and/or
liability insurance; and furnish to each Bank, upon written request, full
information as to the insurance carried.
7.6 Inspection of Property; Books and Records;
Discussions; Independent Audits. Other than Immaterial
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Subsidiaries, keep proper books of records and account in which full, true and
correct entries in conformity with GAAP and all Requirements of Law shall be
made of all dealings and transactions in relation to its business and
activities; and permit representatives of any Bank, upon reasonable notice to
the Company, to visit and inspect any of its properties and examine and make
abstracts from any of its books and records at any reasonable time and as often
as may reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Company and its
Subsidiaries with officers and employees of the Company and its Subsidiaries
and with its independent certified public accountants. Each Bank agrees that
such Bank and its designees shall not disclose any confidential information
obtained in connection with this Section 7.6 to any Person (other than Persons
in a confidential relationship with such Bank) unless such Person has agreed in
writing to maintain such information as confidential; provided, however, that
nothing herein shall be deemed to prevent the disclosure of any confidential
information if such disclosure is (i) required to be made in a judicial,
administrative or governmental proceeding, (ii) required by any applicable law
or regulation, (iii) made to any governmental agency or regulatory body having
or claiming authority over any aspect of such Bank's or its Affiliates'
businesses in connection with the exercise of such authority or claimed
authority, (iv) subject to subpoena, or (v) made on a confidential basis to
representatives of and/or counsel to a bank or financial institution in
connection with the transfer of all or any portion of such Bank's interest
under this Agreement pursuant to Section 12.6.
7.7 Notices. Promptly give notice to the Agent and each
Bank of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Company or any of its Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any
time between the Company or any of its Subsidiaries and any
Governmental Authority, which in either case, if not cured or if
adversely determined, as the case may be, would have a Material
Adverse Effect;
(c) except for the litigation set forth on Schedule III,
any litigation or proceeding affecting the Company or any of its
Subsidiaries in which the amount involved is $1,000,000 or more and
not covered by insurance (other than normal deductibles) or in which
injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any
event within 30 days after the Company knows or has reason to know
thereof: (i) the occurrence or expected occurrence of any Reportable
Event with respect to any Plan, or any withdrawal from, or the
termination, Reorganization or Insolvency of any Multiemployer Plan or
(ii) the institution of proceedings or
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the taking of any other action by the PBGC or the Company or any
Commonly Controlled Entity or any Multiemployer Plan with respect to
the withdrawal from, or the terminating, Reorganization or Insolvency
of, any Plan; and
(e) a development or event in the business, operations,
property or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole which could reasonably be expected to
have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Company or any of its Subsidiaries proposes to take
with respect thereto.
7.8 Environmental Laws. (a) Comply with, and use best
efforts to insure compliance by all tenants and subtenants, if any, with, all
Environmental Laws and obtain and comply with and maintain, and use best
efforts to insure that all tenants and subtenants obtain and comply with and
maintain, any and all licenses, approvals, registrations or permits required by
Environmental Laws except to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect;
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required
under Environmental Laws applicable to it and promptly comply with all lawful
orders and directives of all Governmental Authorities respecting Environmental
Laws, except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not
reasonably be expected to have a Material Adverse Effect; and
(c) Defend, indemnify and hold harmless the Agent and the
Banks, and their respective employees, agents, officers and directors, from and
against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to the
violation of or noncompliance with any Environmental Laws applicable to the
real property owned or operated by the Company or any of its Subsidiaries, or
any orders, requirements or demands of Governmental Authorities related
thereto, including, without limitation, attorney's and consultant's fees,
investigation and laboratory fees, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor.
7.9 Guarantees. If at any time after the Closing Date
any Subsidiary shall become a Primary Subsidiary that is a Domestic Subsidiary
by virtue of the definitions thereof and such Subsidiary is not a party to a
Guarantee, the Company agrees to, and agrees to cause each relevant Subsidiary
to, promptly execute and deliver to Agent, for the benefit of the Banks, the
Subsidiaries Guarantee.
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SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments
remain in effect, any Loan remains outstanding and unpaid or any Letter of
Credit remains outstanding or any other amount is owing to any Bank, any
Issuing Bank or the Agent hereunder, the Company shall not, and (except with
respect to Sections 8.1 and 8.7) shall not permit any of its Subsidiaries to,
directly or indirectly:
8.1 Financial Covenants.
(a) Maintenance of Consolidated Net Income. Permit for
any two consecutive fiscal quarters Consolidated Net Income for each such
quarter to be less than $0.00.
(b) Maximum Leverage Ratio. Permit the ratio of (i)
Consolidated Funded Debt, to (ii) Consolidated Tangible Net Worth to be greater
than .40 to 1.00.
(c) Minimum Tangible Net Worth. Permit Consolidated
Tangible Net Worth to be less than $430,000,000.
(d) Maximum Inventory Days. Permit the Inventory Days,
determined as of the last day of each fiscal quarter to exceed 60 days for such
fiscal quarter. For purposes of this paragraph (d), "Inventory Days" shall
mean the product of (a) the quotient of (i) the inventory of the Company and
its consolidated Subsidiaries on the last day of such fiscal quarter, divided
by (ii) the cost of goods sold by the Company and its consolidated Subsidiaries
for such quarter, multiplied by (b) the number of days in such quarter.
8.2 Limitation on Indebtedness. (i) Create, incur,
assume or suffer to exist (after the Closing Date) any Indebtedness, except:
(a) Indebtedness in respect of the Loans, the Notes, the
Letters of Credit, and other obligations under this Agreement;
(b) Indebtedness of the Company to any Subsidiary and of
any Subsidiary to the Company or any other Subsidiary;
(c) Indebtedness outstanding on the Closing Date and
other Indebtedness listed on Schedule IV;
(d) Indebtedness of the Company and its Subsidiaries
incurred after the Closing Date for industrial revenue bonds, for
Financing Lease obligations, purchase money Indebtedness for tangible
assets, and Indebtedness for the deferred purchase price of newly
acquired property of the Company and its Subsidiaries, incurred to
finance the acquisition of fixed or capital assets and the intangibles
associated with such assets;
(e) Subordinated Debt;
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(f) Indebtedness of a corporation which becomes a
Subsidiary after the date hereof, provided that (i) such indebtedness
existed at the time such corporation became a Subsidiary and was not
created in anticipation thereof and (ii) immediately after giving
effect to the acquisition of such corporation by the Company or a
Subsidiary thereof, no Default or Event of Default shall have occurred
and be continuing;
(g) short-term Indebtedness of the Company and any of its
Subsidiaries secured by cash; provided that, the amount of such cash
collateral shall not exceed the total amount of such Indebtedness;
(h) Indebtedness in respect of Interest Rate Contracts
and foreign exchange contracts;
(i) Indebtedness in respect of letters of credit issued
for the account of Foreign Subsidiaries;
(j) other Indebtedness of the Company and its
Subsidiaries (including obligations in respect of sale-leaseback
transactions referred to in Section 8.10) not in excess in the
aggregate of $20,000,000 at any one time outstanding;
(k) Receivables Securitization; and
(l) extensions, renewals and refinancing of any of the
Indebtedness specified in paragraphs (a) - (k) above so long as the
principal amount of such Indebtedness is not thereby increased, other
than by the amount of interest accrued thereon and related costs of
refinancing; or
(ii) Create, incur, assume or suffer to exist (after the
Closing Date) any Indebtedness owing by any Subsidiary or all the Subsidiaries
in excess of $50,000,000, in the aggregate for all Subsidiaries, excluding:
(a) Indebtedness in respect of the Loans, the Notes, the
Letters of Credit, and other obligations under this Agreement;
(b) Indebtedness of any Subsidiary to the Company or any
other Subsidiary;
(c) Indebtedness outstanding on the Closing Date and
other Indebtedness listed on Schedule IV;
(d) Indebtedness of any Subsidiary incurred for
industrial revenue bonds, for Financing Lease obligations, purchase
money Indebtedness for tangible assets, and Indebtedness for the
deferred purchase price of newly acquired property of such Subsidiary,
incurred to finance the acquisition of fixed or capital assets and the
intangibles associated with such assets;
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(e) Indebtedness of a corporation which becomes a
Subsidiary after the date hereof, provided that (i) such Indebtedness
existed at the time such corporation became a Subsidiary and was not
created in anticipation thereof and (ii) immediately after giving
effect to the acquisition of such corporation by a Subsidiary, no
Default or Event of Default shall have occurred and be continuing;
(f) Indebtedness in respect of Interest Rate Contracts
and foreign exchange contracts;
(g) Receivables Securitization; and
(h) extensions, renewals and refinancing of any of the
Indebtedness specified in paragraphs (a) through (g) so long as the
principal amount of such Indebtedness is not thereby increased, other
than by the amount of interest accrued thereon and related costs of
refinancing.
8.3 Limitation on Liens. Create, incur, assume or suffer
to exist any Lien upon any of its property, assets or revenues, whether now
owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of
the Company or its Subsidiaries, as the case may be, in conformity
with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers
under insurance or self-insurance arrangements;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and which do
not in any case materially detract from the value of the property
subject thereto or materially interfere with the ordinary conduct of
the business of the Company or such Subsidiary;
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(f) attachment or judgment Liens not to exceed $1,000,000
at any time;
(g) Liens of landlords in connection with leases and of
lessors in connection with Financing Leases;
(h) Liens in existence on the Closing Date listed on
Schedule IV, securing Indebtedness permitted by Section 8.2(i)(c) and
8.2(ii)(c), provided that no such Lien is spread to cover any
additional property after the Closing Date and that the principal
amount of Indebtedness secured thereby is not increased;
(i) Liens securing Indebtedness of the Company and its
Subsidiaries permitted by Section 8.2(i)(d) incurred to finance the
acquisition, construction or improvement of fixed or capital assets
and the intangibles associated with such assets, provided that (i)
such Liens shall be created substantially simultaneously with the
acquisition or construction of such fixed or capital assets or
intangibles and Accounts associated with such assets, (ii) such Liens
do not at any time encumber any property other than the property
financed by such Indebtedness, (iii) the principal amount of
Indebtedness secured thereby is not increased except in connection
with further improvements and additions to such assets and (iv) the
principal amount of Indebtedness secured by any such Lien shall at no
time exceed the fair market value of such property, intangibles and
Accounts at the time it was acquired or constructed;
(j) Liens in favor of the Agent, for the ratable benefit
of the Banks;
(k) Liens on cash securing Indebtedness permitted by
Section 8.2(i)(g);
(l) Liens on the property or assets of a corporation
which becomes a Subsidiary after the date hereof securing Indebtedness
permitted by Section 8.2(i)(f) provided that (i) such Liens existed at
the time such corporation became a Subsidiary and were not created in
anticipation thereof, (ii) any such Lien is not spread to cover any
property or assets of such corporation after the time such corporation
becomes a Subsidiary (except by Indebtedness otherwise permitted under
Section 8.2), and (iii) the principal amount of Indebtedness secured
thereby is not increased (except by Indebtedness otherwise permitted
under Section 8.2);
(m) other Liens on assets of the Company and its
Subsidiaries incurred in the ordinary course of business securing
obligations other than indebtedness for borrowed money or Financing
Lease obligations which Liens do not attach to any property or assets
of the Company and its Subsidiaries that either singly or in the
aggregate are material to the conduct of the business of the Company
and its Subsidiaries;
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(n) Liens in favor of any Person on all documents of
title arising out of letters of credit issued for the account of the
Company or any of its Subsidiaries, which letters of credit are
permitted under this Agreement;
(o) Liens on cash and Investments in favor of financial
institutions securing Indebtedness permitted by Section 8.2(i)(h)
provided that the amount of cash and Investments subject to such Lien
shall not exceed $10,000,000 in the aggregate;
(p) Liens securing Indebtedness permitted under Section
8.2(i)(j), provided that the fair market value of all the collateral
subject to such Liens at the time of the creation of such Liens does
not exceed $20,000,000; and
(q) Liens on assets of the Company's Subsidiaries
incurred in connection with the Receivables Securitization.
8.4 Limitation on Guarantee Obligations. Create, incur,
assume or suffer to exist any Guarantee Obligation except:
(a) the Guarantees;
(b) guarantees made by, or letters of credit or surety
bonds issued for the account of the Company or any Subsidiary, in each
case in the ordinary course of its business and supporting the
obligations of the Company or any Wholly-Owned Subsidiaries, which
obligations are otherwise not prohibited under this Agreement; and
(c) guarantees by the Company or any Subsidiary of loans
incurred by senior officers of the Company or any Subsidiary, provided
that the obligations of the Company and its Subsidiaries under all
such guarantees shall not exceed $2,000,000 in the aggregate.
8.5 Limitations on Fundamental Changes. Other than
Immaterial Subsidiaries, enter into any merger, consolidation or amalgamation,
or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of,
all or substantially all of its property, business or assets, or the Capital
Stock of any Subsidiary, or make any material change in its present method of
conducting business, except:
(a) any Subsidiary of the Company may be merged or
consolidated with or into the Company (provided that the Company shall
be the continuing or surviving corporation) or with or into any one or
more Wholly-Owned Subsidiaries (providedthat the Wholly-Owned
Subsidiary or Subsidiaries shall be the continuing or surviving
corporation(s)); and
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(b) any Wholly-Owned Subsidiary may sell, lease, transfer
or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or any other Wholly-Owned
Subsidiary of the Company or to any Person who currently therewith
becomes a Wholly-Owned Subsidiary.
8.6 Limitation on Sale of Assets. Convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, Accounts and leasehold interests),
whether now owned or hereafter acquired, except:
(a) property (including inventory) disposed of in the
ordinary course of business;
(b) obsolete, replaced, worn out or discontinued property
(including inventory);
(c) equipment which is replaced with other equipment of
comparable value and quality within 90 days of such sale or
disposition;
(d) the sale or other disposition of any property not in
the ordinary course of business in an aggregate amount in any one
fiscal year not to exceed $5,000,000;
(e) the sale of Domestic Accounts to facilitate or
effectuate the securitization of Borrowers' Domestic Accounts pursuant
to a securitization program more fully and accurately described in
Schedule V hereto (hereinafter called the "Domestic Receivables
Securitization"); provided, however, that in no event after giving
effect to each such sale, shall the original amount paid by a Person
who is not an Affiliate of the Company or its Subsidiaries to the
Company or its Subsidiaries for the portion of such Domestic Accounts
sold at the time of its acquisition, reduced from time to time by
collections thereon, exceed at any time $100,000,000;
(f) the sale of International Accounts to facilitate or
effectuate the securitization of Borrowers' International Accounts
pursuant to a securitization program substantially similar to that
described on Schedule V hereto (hereinafter called the "International
Receivables Securitization"); provided, however, that in no event
after giving effect to each such sale, shall the original amount paid
by a Person who is not an Affiliate of the Company or its Subsidiaries
to the Company or its Subsidiaries for the portion of such
International Accounts sold at the time of its acquisition, reduced
from time to time by collections thereon, exceed at any time
$75,000,000;
(g) the sale or discount without recourse of Accounts in
the ordinary course of business in connection with the compromise or
collection thereof;
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(h) upon thirty days' prior written notice to the Agent,
the sale of accounts receivable to third parties for their fair market
value in connection with accounts receivable financing
transactions,provided, that (i) such receivables are not subject to,
or required to be subject to, a Lien in favor of the Banks and (ii)
unless the Banks agree otherwise, the Commitments are simultaneously
reduced by the amount of proceeds of any such sale of receivables,
and, if the aggregate amount of Extensions of Credit then outstanding
would exceed the Commitments then in effect, the Company shall be
required to immediately pay or prepay the Loans, in an aggregate
amount equal to such excess, together with interest thereon accrued to
the date of such payment or prepayment and any amounts payable
pursuant to Section 4.14;provided, further, that in no event after
giving effect to each such sale, shall the outstanding amount which
remains owing from the respective trade debtors under all such
accounts receivable sold, together with the Accounts sold pursuant to
the Receivables Securitization, exceed at any time $250,000,000;
(i) as permitted by Section 8.5(b); and
(j) as permitted by Section 8.10.
8.7 Limitation on Dividends. Declare or pay any dividend
(other than dividends payable solely in common stock of the Company) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Company or any
warrants or options to purchase any such Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Company or
any Subsidiary (such declarations, payments, setting apart, purchases,
redemptions, defeasance, retirements, acquisitions and distributions being
herein called "Restricted Payments"), except that (i) nothing contained in this
Section 8.7 shall prohibit (A) any Wholly-Owned Subsidiary from making any
Restricted Payment to the Company or any other Wholly-Owned Subsidiary, (B) the
Company from paying cash dividends in lieu of fractional shares in an amount
not to exceed $500,000 for any fiscal year of the Company, or (C) the Company
from redeeming shares owned by former officers, directors and employees in an
amount for each fiscal year of the Company not to exceed the lesser of
$1,000,000 and 10% of Consolidated Net Income for such fiscal year of the
Company, (ii) the Company may declare or pay cash dividends on the Preferred
Stock and, in addition thereto, the Company may declare or pay cash dividends
to its other stockholders solely out of 5.0% of Consolidated Net Income arising
after the Closing Date and computed on a cumulative basis, and (iii) the
Company may purchase, redeem or otherwise acquire shares of its common stock
pursuant to one or more corporate stock repurchase programs authorized by its
Board of Directors provided that the purchase price for all such shares of
common stock so acquired
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shall not exceed $30,000,000; provided that, no Event of Default or Default has
occurred and is continuing or after giving effect to any such proposed action
set forth in clauses (i), (ii) and (iii) above, no Event of Default or Default
would result therefrom.
8.8 Limitation on Investments, Loans and Advances. Make
any advance, loan, extension of credit or capital contribution to, or purchase
any stock, bonds, notes, debentures or other securities of, or any assets
constituting a business unit of, or make any other investment in, any Person or
in any commodities futures or other such speculations, except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents, Near Cash
Equivalents, Marketable Securities and shares of preferred stock
issued by any Person having a preferred stock rating of at least "A"
or the equivalent thereof by Standard & Poor's Corporation or Moody's
Investors Service, Inc. (collectively, Investments"); provided that in
no event shall the aggregate amount of Investments made by the Company
in the securities of any single issuer or obligor exceed the greater
of (i) 15% of all Investments at any one time and (ii) $10,000,000 in
the aggregate andprovided further, for the purposes of this paragraph
(b), the foregoing proviso shall not apply to (i) any Investment
issued by the United States Government or an agency thereof or (ii)
any Investment consisting of shares in a mutual fund so long as
investments made by such mutual fund comply with the requirements set
forth in the foregoing proviso;
(c) loans and advances to employees of the Company or its
Subsidiaries in the ordinary course of business in an aggregate amount
for the Company and its Subsidiaries not to exceed $5,000,000 at any
one time outstanding;
(d) loans, advances and investments by the Company to or
in its Subsidiaries and loans, advances and investments by such
Subsidiaries to or in the Company and in other Subsidiaries;
(e) investments by the Company and its Subsidiaries in
new Subsidiaries, provided that no Default or Event of Default has
occurred and is continuing or would result therefrom;
(f) prepayments of Indebtedness (excluding Subordinated
Debt), provided that no Default or Event of Default has occurred and
is continuing or would result therefrom;
(g) investments by the Company or any of its Subsidiaries
in joint ventures or minority interests in corporations in an
aggregate amount of $10,000,000 in any fiscal year,provided that no
Default or Event of Default has occurred and is continuing or would
result therefrom;
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(h) investments arising out of the compromise or
settlement of claims of the Company or any of its Subsidiaries against
third parties or arising out of judicial proceedings (including
bankruptcy or insolvency proceedings) affecting such claims; and
(i) as permitted by Section 8.5.
8.9 Limitation on Optional Payments and Modifications of
Debt Instruments. (a) Make any optional payment or prepayment on or redemption
of any Subordinated Debt, (b) amend, modify or change, or consent or agree to
any amendment, modification or change to any of the terms relating to the
payment or prepayment of principal of or interest on, any Subordinated Debt
(other than any such amendment, modification or change which would extend the
maturity or reduce the amount of any payment of principal thereof or which
would reduce the rate or extend the date for payment of interest thereon), or
(c) amend, modify or change the final maturity date of the Senior Unsecured
Notes to a date prior to the Termination Date; provided, however, that the
Company may, at its option, redeem up to $33,333,334 of the principal amount of
the Senior Unsecured Notes to the extent permitted by Section 1101 of that
certain Trust Indenture, dated August 15, 1993, executed by the Company with
First National Bank of Boston, Trustee, with respect to the Senior Unsecured
Notes.
8.10 Sale and Leaseback. Enter into any arrangement with
any Person providing for the leasing by the Company or any Subsidiary of real
or personal property which has been or is to be sold or transferred by the
Company or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Company or such Subsidiary, except that the
Company and its Subsidiaries may enter into sale-leaseback transactions of the
type described in this subsection so long as (i) such transactions are in the
ordinary course of business and (ii) at any time the sum of (a) the aggregate
amount of the principal components of all then due and unpaid and future rental
obligations under such leases at such time and (b) the aggregate principal
amount of Indebtedness permitted under Section 8.2(i)(j) shall not exceed
$20,000,000.
8.11 Changes in Significant Credit Policy or Significant
Collection Policy. Implement a change in Significant Credit Policy or
Significant Collection Policy which, in the reasonable business judgment of the
Company (or, if applicable with respect to changes in Significant Collection
Policy, such other Person engaged by the Company, as the case may be, to
perform collection functions with respect to the Accounts of the Company and
its Subsidiaries) which, either by itself or when considered together with
other such changes made subsequent to the Closing Date, would materially
increase the risk of nonpayment of such Accounts.
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8.12 Capital Expenditures. Make or commit to make any
Capital Expenditure except for Capital Expenditures in the ordinary course of
business.
8.13 Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is not otherwise prohibited under this Agreement, is in the
ordinary course of the Company's or such Subsidiary's business and is upon fair
and reasonable terms no less favorable to the Company or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person not an Affiliate.
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any
Loan or the amount of any drawing under a Letter of Credit when due;
or any Borrower shall fail to pay any interest on any Loan or on the
unreimbursed amount of any drawing under any Letter of Credit, or any
Borrower shall fail to pay any other amount payable hereunder, within
five Business Days after any such interest or other amount becomes due
in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by
any Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished at any time under or in connection with this Agreement shall
prove to have been incorrect in any material respect on or as of the
date made or deemed made; or
(c) The Company (or any Subsidiary) shall default in the
observance or performance of any agreement contained in Section 8,
Section 7.7(a), or Section 7.7(e); or
(d) The Company (or any Subsidiary) shall default in the
observance or performance of any other agreement contained in this
Agreement (other than as provided in paragraphs (a) through (c) of
this Section) or in any other Loan Document, and such default shall
continue unremedied for a period of 30 days after the occurrence
thereof, except that with respect to defaults in the observance or
performance of any agreement contained in Sections 7.3, 7.5, 7.6 and
7.8 of this Agreement, such default shall continue unremedied for a
period of 30 days after the Company or such Subsidiary has knowledge
of any such default; or
(e) The Company or any of its Subsidiaries shall (i)
default in any payment of principal of or interest on any
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Indebtedness whether at stated maturity or otherwise (other than the
Loans or in respect of Letters of Credit) in an aggregate outstanding
principal amount of $10,000,000 or more or in the payment of any
Guarantee Obligation in an amount of $10,000,000 or more, beyond the
period of grace (not to exceed 5 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; or (iii)
default in the payment of any monetary obligation in an aggregate
outstanding principal amount of $10,000,000 or more contained in any
Interest Rate Contract or currency hedging agreement beyond the period
of grace (not to exceed 30 days), if any, provided in such Interest
Rate Contract or currency hedging agreement; or
(f) (i) The Company or any of its Subsidiaries shall
commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or
the Company or any of its Subsidiaries shall make a general assignment
for the benefit of its creditors; or (ii) there shall be commenced
against the Company or any of its Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded
for a period of 60 days; or (iii) there shall be commenced against the
Company or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the
Company or any of its Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above;
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or (v) the Company or any of its Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay
its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan, (iii) a Reportable Event
shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or
to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Banks, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Company or any Commonly Controlled Entity shall, or in
the reasonable opinion of the Required Banks is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist, with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could
subject the Company or any of its Subsidiaries to any tax, penalty or
other liabilities in the aggregate material in relation to the
business, operations, property or financial or other condition of the
Company and its Subsidiaries taken as a whole; or
(h) One or more judgments or decrees shall be entered
against the Company or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance) of
$1,000,000 or more and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60
days from the entry thereof; or
(i) Any of the Guarantees shall cease, for any reason
other than by its terms, to be in full force and effect, or any Loan
Party shall so assert; or
(j) If at any time the Company or any of its Subsidiaries
shall become liable for (w) environmental removal or remediation
expenses, (x) costs of response with respect to any Environmental Law,
(y) damages for injury to, destruction of or loss of natural
resources, or (z) assessed environmental fines, penalties or other
such charges which, as to (w), (x), (y) and (z) above in the
aggregate, are in excess of $1,000,000 above such amounts which are
covered by insurance or indemnities and the liability of the Company
or such Subsidiaries continues unremedied for a period of thirty days
after the Company or any such Subsidiary has knowledge of the events
giving rise to such liability; or
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(k) Any Change In Control shall occur;
then, and in any such event:
(A) if such event is an Event of Default specified in
clause (i) or (ii) of paragraph (f) above with respect to the Company
or any Borrower, automatically (i) the Commitments shall immediately
terminate and the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the Notes shall
immediately become due and payable, (ii) all obligations of the
Borrowers in respect of the Letters of Credit, although contingent and
unmatured, shall become immediately due and payable and the
obligations of the Issuing Banks to issue Letters of Credit shall
immediately terminate; and
(B) if such event is any other Event of Default, with the
consent of the Required Banks, the Agent may, or upon the request of
the Required Banks, the Agent shall take all or any of the following
actions:
(i) by notice to the Company and the Borrowers,
declare the Commitments to be terminated forthwith whereupon
the same shall immediately so terminate,
(ii) by notice to the Company and the Borrowers,
declare the obligations of the Issuing Banks to issue Letters
of Credit to be terminated, whereupon the same shall
immediately so terminate; and/or
(iii) by notice to the Company and the Borrowers
(1) declare the Loans (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be
due and payable forthwith, whereupon the same shall
immediately become due and payable, (2) declare all or a
portion of the obligations of the Borrowers in respect of the
Letters of Credit although contingent and unmatured, to be due
and payable forthwith, whereupon the same shall immediately
become due and payable and/or demand that the Borrowers
discharge any or all of the obligations supported by such
Letters of Credit by paying or prepaying any amount due or to
become due in respect of such obligations.
All payments under this Section 9 on account of undrawn Letters of Credit shall
be made by the Borrowers directly to a cash collateral account established by
the Agent for such purpose for application to the Borrowers' reimbursement
obligations with respect to such Letters of Credit as drafts are presented
under such Letters of Credit, with the balance, if any, to be applied to the
Borrowers' obligations under this Agreement and the Notes as the Agent shall
determine with the approval of the Required Banks. Except as expressly
provided above in this Section 9, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
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SECTION 10. THE AGENT
10.1 Appointment. Each Bank hereby irrevocably designates
and appoints Citibank, N.A. as the Agent of such Bank under this Agreement and
the other Loan Documents, and each such Bank irrevocably authorizes Citibank,
N.A., as the Agent for such Bank, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to the Agent by the
terms of this Agreement and the other Loan Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Agreement, the Agent shall not have any duties
or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
10.2 Delegation of Duties. The Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
10.3 Exculpatory Provisions. Neither the Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by any Borrower or the
Company or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the Notes or
any other Loan Document or for any failure of any Borrower or the Company to
perform its obligations hereunder or thereunder. The Agent shall not be under
any obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Borrower or the Company.
10.4 Reliance by Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it
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to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Company or any Borrower), independent
accountants and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required Banks
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Banks against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the Notes and the other Loan Documents in accordance with a
request of the Required Banks (or, if such action requires the consent of any
Bank or all of the Banks under Section 12.1, in accordance with a request made
by such Bank or Banks), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Banks and all future holders of
the Notes.
10.5 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Bank or the Company
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give notice thereof to the Banks. The
Agent shall take such action with respect to such Default or Event of Default
as shall be reasonably directed by the Required Banks; provided that unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks.
10.6 Non-Reliance on Agent and Other Banks. Each Bank
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Company, shall be deemed to
constitute any representation or warranty by the Agent to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Company and made its own decision to make its Loans and
enter into this Agreement. Each Bank also represents that it will,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis,
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appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of the Company or any Borrower.
Except for notices, reports and other documents expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Company or any Borrower which
may come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
10.7 Indemnification. The Banks agree to indemnify the
Agent in its capacity as such (to the extent not reimbursed by the Company and
without limiting the obligation of the Company to do so), each ratably
according to the aggregate unpaid principal amount of the Loans held by each
such Bank, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Notes) be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any of the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Agent under or in connection with
any of the foregoing; provided that no Bank shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, the Loan Documents to the extent that the
Agent is not reimbursed for such expenses by the Borrowers. The agreements in
this Section shall survive the payment of the Notes and all other amounts
payable hereunder.
10.8 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Company and the Borrowers as though the Agent were
not the Agent hereunder and under the other Loan Documents. With respect to
its Loans made or renewed by it and any Note issued to it, the Agent shall have
the same rights and powers under this Agreement and the other Loan Documents as
any Bank and may exercise the same as though it were not the Agent, and the
terms "Bank" and "Banks" shall include the Agent in its individual capacity.
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10.9 Successor Agent. The Agent may resign as Agent upon
10 days' notice to the Banks. The Agent may be removed at any time, with or
without cause, by the Required Banks. If the Agent shall resign or be removed
as Agent under this Agreement and the other Loan Documents, then the Company
shall appoint from among the Banks a successor agent for the Banks, which
successor agent shall be approved by the Required Banks. If no successor Agent
shall have been so appointed by the Company with such approval, and shall have
accepted such appointment, within 10 days after the retiring Agent's giving of
notice of resignation or the Agent's removal, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a Bank which is
a commercial bank organized under the laws of the United States of America or
of any State thereof and having a combined capital and surplus of at least
$150,000,000. Upon the acceptance of any appointment as Agent under this
Agreement by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent and shall function as the Agent under this Agreement, and the
retiring Agent shall be discharged from its duties and obligations as Agent
under this Agreement. After any retiring Agent's resignation as Agent, the
provisions of this Section shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Loan Documents.
SECTION 11. THE ISSUING BANK
11.1 The Issuing Banks. (a) Appointment. Each Bank
hereby irrevocably designates and appoints (i) Citibank, N.A. and each other
Issuing Bank as an Issuing Bank under this Agreement and (ii) each such Bank
hereby irrevocably authorizes Citibank, N.A. and each other Issuing Bank as an
Issuing Bank, to take such action under the provisions of this Agreement and to
exercise such powers and perform such duties as are expressly delegated to an
Issuing Bank by the terms of this Agreement, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, none of the Issuing Banks shall have any
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against such Issuing Bank; provided that nothing
contained in this Section 11 shall be deemed to limit or impair the rights and
obligations of any Issuing Bank under a relevant Letter of Credit.
(b) Exculpatory Provisions. None of the Issuing Banks
and their officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement (except
for such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Company or any officer hereof
contained in
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this Agreement or in any certificate, report, statement or other document
referred to or provided for in, or received by such Issuing Bank under or in
connection with, this Agreement or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any of the Loan
Documents or for any failure of the Company to perform its obligations
hereunder or thereunder. Except as otherwise expressly stated herein, none of
the Issuing Banks shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement, or to inspect the properties, books or
records of the Company.
(c) Reliance by Issuing Banks. Each Issuing Bank shall be
entitled to rely, and shall be fully protected in relying, upon any agreement
(including this Agreement), note (including any Note), writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or telephone
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Company),
independent accountants and other experts selected by such Issuing Bank.
Except for the issuance of any Letter of Credit in accordance with the terms of
this Agreement and the payment of drawings thereunder, an Issuing Bank shall be
fully justified in failing or refusing to take any action under this Agreement
unless it shall first receive such advice or concurrence of the Required Banks
as such Issuing Bank deems appropriate or it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
Each Issuing Bank shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement in accordance with a request of
the Required Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Banks.
(d) Indemnification. The Banks agree to indemnify each Issuing
Bank in its capacity as such (to the extent not reimbursed by the Company and
without limiting the obligation of the Company to do so), each ratably
according to its Commitment Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time be imposed on, incurred by or asserted against such Issuing Bank in any
way relating to or arising out of this Agreement, or any documents contemplated
by or referred to herein or the transactions contemplated hereby or any action
taken or omitted by such Issuing Bank under or in connection with any of the
foregoing; provided that no Bank shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from such
Issuing Bank's gross negligence or willful misconduct and, provided further,
that no Bank shall be liable for the failure of any other Bank to pay to such
Issuing Bank such other Bank's pro
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rata share of the amount of any L/C Obligations in accordance with the terms of
this Agreement.
11.2 Issuing Bank in Its Individual Capacity. Each
Issuing Bank and its affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Company and its Subsidiaries
as though such Issuing Bank were not an Issuing Bank hereunder. With respect
to Loans made or renewed by an Issuing Bank and any Note issued to such Issuing
Bank, such Issuing Bank shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though it were not an
Issuing Bank, and the terms "Bank" and "Banks" shall include such Issuing Bank
in its individual capacity.
SECTION 12. MISCELLANEOUS
12.1 Amendments and Waivers. Neither this Agreement, any
Note, any other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section. With the written consent of the Required Banks, the Agent and the
relevant Loan Parties may, from time to time, enter into written amendments,
supplements or modifications hereto and to the Notes and the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
Notes or the other Loan Documents or changing in any manner the rights of the
Banks or of the Loan Parties hereunder or thereunder or waiving, on such terms
and conditions as the Agent may specify in such instrument, any of the
requirements of this Agreement or the Notes or the other Loan Documents or any
Default or Event of Default and its consequences; provided, however, that no
such waiver and no such amendment, supplement or modification shall (a) reduce
the amount or extend the maturity of any Note or any installment of principal
thereof, or extend the expiration date of any Letter of Credit beyond the
Termination Date (except as expressly permitted hereunder), or reduce the rate
or extend the time of payment of interest thereon, or reduce any fee or extend
the time of payment thereof payable to any Bank hereunder, or change the amount
of any Bank's Commitment or Commitment Percentage, in each case without the
consent of the Bank affected thereby, or (b) extend the Termination Date or
amend, modify or waive any provision of this Section, or reduce the percentage
specified in the definition of Required Banks, or consent to the assignment or
transfer by the Company or any Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, or (c) amend, modify or
waive any provision of Section 10 without the written consent of the then Agent
or (d) amend, modify or waive any provision of Section 11 without the written
consent of each Issuing Bank or (e) amend, modify or waive any provision of
Section 3 without the written consent of the Issuing Banks. Any such waiver
and any such amendment, supplement or modification shall apply equally to each
of the Banks and shall be binding upon the Company, the Borrowers, the Banks,
the Agent and all future holders of the Notes. In the case of any waiver, the
Company, the Borrowers, the Banks and the Agent shall be restored
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to their former position and rights hereunder and under the outstanding Notes
and any other Loan Documents, and any Default or Event of Default waived shall
be deemed to be cured and not continuing; but no such waiver shall extend to
any subsequent or other Default or Event of Default, or impair any right
consequent thereon.
12.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in writing
(including by telecopy, telegraph or telex), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when delivered
by hand, or 5 Business Days after being deposited in the mail, postage prepaid,
or, in the case of telecopy notice, when received, or, in the case of telex
notice, when sent, answerback received, addressed as follows in the case of the
Company, the other Borrowers and the Agent, and as set forth in Schedule I in
the case of the other parties hereto, or to such other address as may be
hereafter notified by the respective parties hereto and any future holders of
the Notes:
<TABLE>
<S> <C>
The Company: Dell Computer Corporation
9505 Arboretum Blvd.
Austin, Texas 78759
Attention: Chief Financial Officer
Telephone: 512-338-4400
Telecopy: 512-728-5986
Borrowers: c/o Dell Computer Corporation (as above)
The Agent: Citibank, N.A.
c/o Citicorp North America, Inc.
1400 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Frank Garrott
Telephone: 214-953-3800
Telecopy: 214-953-3888
with copy to: Citicorp North America, Inc.
27th Floor
One Sansome Street
San Francisco, CA 94104
Attention: Kevin Nater
Telephone: 415-627-6331
Telecopy: 415-433-0307
</TABLE>
provided that any notice, request or demand to or upon the Agent pursuant to
Section 2.3, 3.3, 4.3 or 4.5 shall not be effective until received.
12.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Agent or any Bank, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder
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preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
12.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement and the Notes.
12.5 Payment of Expenses and Taxes; Liability of the
Banks. The Company and each other Borrower jointly and severally agree (a) to
pay or reimburse the Agent for all its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation, execution
and delivery of, and any amendment, supplement or modification to, this
Agreement, the Notes and the other Loan Documents, and any other documents
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Agent (b) to pay or
reimburse each Bank, each Issuing Bank and the Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under or arising out of this Agreement, the Notes, the other Loan
Documents and any such other documents, or incurred with respect to any
challenge to any Letter of Credit, including, without limitation, fees and
disbursements of counsel to the Agent, the Issuing Bank and to the several
Banks, (c) to pay, indemnify, and hold each Bank, each Issuing Bank and the
Agent harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other similar taxes, if any, which may be payable or determined to
be payable in connection with the execution and delivery of, or consummation of
any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the Notes, the Letters of Credit, the other Loan Documents and any
such other documents, and (d) to pay, indemnify, and hold each Issuing Bank,
each Bank and the Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement, the Notes, the Letters of Credit, the other Loan Documents
and any such other documents or instrument relating thereto (all the foregoing,
collectively, the "indemnified liabilities"), provided, that the Borrowers
shall have no obligation hereunder to the Agent or any Bank with respect to
indemnified liabilities arising from (i) the gross negligence or willful
misconduct of the Agent or any such Bank (ii) legal proceedings commenced
against the Agent or any such Bank by any security holder or creditor thereof
arising out of and based upon rights afforded any such security holder or
creditor solely in its capacity as such, or (iii) legal proceedings commenced
against the
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Agent or any such Bank by any other Bank or by any Transferee (as defined in
Section 12.6). The agreements in this Section shall survive repayment of the
Obligations and all other amounts payable hereunder.
12.6 Successors and Assigns; Participations; Purchasing
Banks; Additional Lenders. (a) This Agreement shall be binding upon and inure
to the benefit of the Borrowers, the Issuing Banks, the Banks, the Agent, all
future holders of the Notes and their respective successors and assigns, except
that the Borrowers may not assign or transfer any of their respective rights or
obligations under this Agreement without the prior written consent of each
Bank.
(b) Any Bank may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Bank, any Note held by such Bank, any
Letter of Credit participated in by such Bank, any Commitment of such Bank or
any other interest of such Bank hereunder and under the other Loan Documents.
In the event of any such sale by a Bank of participating interests to a
Participant, such Bank's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the holder of
any such Note for all purposes under this Agreement and the other Loan
Documents, and the Borrowers, the Issuing Banks and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement and the other Loan Documents. Each
Borrower agrees that if amounts outstanding under this Agreement and the Notes
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Bank under
this Agreement or any Note, provided that such Participant shall only be
entitled to such right of setoff if it shall have agreed in the agreement
pursuant to which it shall have acquired its participating interest to share
with the Banks the proceeds thereof as provided in Section 12.7. The Company
also agrees that each Participant shall be entitled to the benefits of Sections
4.11, 4.12, 4.13, 4.14 and 12.5 with respect to its participation in the
Commitments and the Loans outstanding from time to time; provided, that no
Participant shall be entitled to receive any greater amount pursuant to such
Sections than the transferor Bank would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Bank
to such Participant had no such transfer occurred.
(c) Any Bank may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any time
sell to any Bank and, with the consent of the Company, the Agent and each
Issuing Bank, which consent shall not be
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unreasonably withheld, to one or more Eligible Assignees ("Purchasing Banks")
all or any part of its rights and obligations under this Agreement and the
Notes pursuant to a Commitment Transfer Supplement, executed by such Purchasing
Bank, such transferor Bank (and, in the case of a Purchasing Bank that is not
then a Bank or an affiliate thereof, by the Company and the Agent) and
delivered to the Agent for its acceptance and recording in the Register. Upon
such execution, delivery, acceptance and recording, from and after the
Transfer Closing Date determined pursuant to such Commitment Transfer
Supplement, (x) the Purchasing Bank thereunder shall be a party hereto and, to
the extent provided in such Commitment Transfer Supplement, have the rights and
obligations of a Bank hereunder with a Commitment as set forth therein, and (y)
the transferor Bank thereunder shall, to the extent provided in such Commitment
Transfer Supplement, be released from its obligations under this Agreement
(and, in the case of a Commitment Transfer Supplement covering all or the
remaining portion of a transferor Bank's rights and obligations under this
Agreement, such transferor Bank shall cease to be a party hereto). Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Bank and the resulting adjustment of Commitment Percentages arising
from the purchase by such Purchasing Bank of all or a portion of the rights and
obligations of such transferor Bank under this Agreement and the Notes. On or
prior to the Transfer Closing Date determined pursuant to such Commitment
Transfer Supplement, the Company and each Borrower at the transferor's expense,
shall execute and deliver to the Agent in exchange for the surrendered Note a
new Note to the order of such Purchasing Bank in an amount equal to the
Commitment assumed by it pursuant to such Commitment Transfer Supplement and,
if the transferor Bank has retained a Commitment hereunder, a new Note to the
order of the transferor Bank in an amount equal to the Commitment retained by
it hereunder. Such new Notes shall be dated the Closing Date and shall
otherwise be in the form of the Notes replaced thereby. The Notes surrendered
by the transferor Bank shall be returned by the Agent to the relevant Borrower
marked "canceled".
(d) The Agent shall maintain at its address referred to
in Section 12.2 a copy of each Commitment Transfer Supplement delivered to it
and a register (the "Register") for the recordation of the names and addresses
of the Banks and the Commitment of, and principal amount of the Loans owing to,
the amount of and L/C Participating Interests of each Bank from time to time.
The entries in the Register shall be conclusive, in the absence of manifest
error, and each Borrower, the Agent, each Issuing Bank and the Banks may treat
each Person whose name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The Register shall be
available for inspection by the Company, each Borrower, or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement
executed by a transferor Bank and Purchasing Bank (and, in the case
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of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the
Company and the Agent) together with payment by the Purchasing Bank to the
Agent of a registration and processing fee of $2,500, the Agent shall (i)
promptly accept such Commitment Transfer Supplement and (ii) on the Transfer
Closing Date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Banks, the Issuing Banks and the Borrowers.
(f) Each Borrower authorizes each Bank to disclose to any
Participant or Purchasing Bank (each, a "Transferee") and any prospective
Transferee any and all financial information in such Bank's possession
concerning the Company and its affiliates which has been delivered to such Bank
by or on behalf of the Company pursuant to this Agreement or which has been
delivered to such Bank by or on behalf of the Company in connection with such
Bank's credit evaluation of the Company and its affiliates prior to becoming a
party to this Agreement; provided that such Transferee agrees not to disclose
any confidential, nonpublic information delivered to it, except to the extent
required by applicable law.
(g) If, pursuant to this Section, any interest in this
Agreement or any Note is transferred to any Transferee which is organized under
the laws of any jurisdiction other than the United States or any state thereof,
the transferor Bank shall cause such Transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Bank (for
the benefit of the transferor Bank, the Agent and the Borrowers) that under
applicable law and treaties no taxes will be required to be withheld by the
Agent, the Company or the transferor Bank with respect to any payments to be
made to such Transferee in respect of the Loans, (ii) to furnish to the
transferor Bank (and, in the case of any Purchasing Bank registered in the
Register, the Agent, the Borrowers and the Company) either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
such Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Bank, the Agent, the Borrowers and the Company) to
provide the transferor Bank (and, in the case of any Purchasing Bank registered
in the Register, the Agent and the Company) a new Form 4224 or Form 1001 upon
the expiration or obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and regulations and
amendments duly executed and completed by such Transferee, and to comply from
time to time with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging
or assigning any Note to any Federal Reserve Bank in accordance with applicable
law.
12.7 Adjustments; Set-off. (a) If any Bank shall at any
time receive any payment of all or part of its Loans or of all or part of its
L/C Participating Interest in any Letter of Credit (as
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to each Bank, its "Exposure"), or interest thereon, or receive any collateral
in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant
to events or proceedings of the nature referred to in Section 9(f), or
otherwise) (a "Benefitted Bank"), in a greater proportion than any such payment
to or collateral received by any other Bank, if any, in respect of such other
Bank's Exposure or interest thereon, such Benefitted Bank shall purchase for
cash from the other Banks such portion of each such other Bank's Exposure, or
shall provide such other Banks with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such Benefitted Bank to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Banks; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Bank, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. The Company and each
Borrower agree that each Bank so purchasing a portion of another Bank's
Exposure may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such Bank were
the direct holder of such portion.
(b) In addition to any rights and remedies of the Banks
provided by law, each Bank shall have the right, without prior notice to any
Borrower, any such notice being expressly waived by each Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by a
Borrower hereunder or under the Notes (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Bank to or for the
credit or the account of such Borrower. Each Bank agrees promptly to notify
the Company, the relevant Borrower(s) and the Agent after any such set-off and
application made by such Bank, provided, that the failure to give such notice
shall not affect the validity of such set-off and application.
12.8 Counterparts. This Agreement may be executed by one
or more of the parties to this Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Company and the Agent.
12.9 Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
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12.10 Integration. This Agreement represents the agreement
of the Company, the Borrowers, the Agent and the Banks with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Agent or any Bank relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
12.11 Applicability of Covenants. The parties hereto
acknowledge that the provisions of Section 7 and Section 8 hereof shall be of
no force and effect upon the date (i) the Borrowers shall have cash
collateralized all outstanding Letters of Credit (in the case of Letters of
Credit, on terms satisfactory to the Required Banks), (ii) no Loans are
outstanding, (iii) no other amounts are owing to any Bank or Issuing Bank or
the Agent hereunder or under any other Loan Document and (iv) the Commitments
are terminated.
12.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
12.13 Submission To Jurisdiction; Waivers. Each of the
Agent, the Issuing Banks, the Banks, the Company and the Borrowers hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the other Loan
Documents to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to its address set forth in Section 12.2 or at such other
address of which the Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action
71
<PAGE> 77
or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
12.14 Acknowledgements. Each Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the Notes and the other
Loan Documents;
(b) neither the Agent, nor any Issuing Bank nor any Bank
has any fiduciary relationship to such Borrower, and the relationship
between the Agent, the Issuing Banks and the Banks, on one hand, and
the Borrowers, on the other hand, is solely that of debtor and
creditor; and
(c) no joint venture exists among the Agent, the Issuing
Banks and the Banks or any of them or among the Borrowers and the
Banks.
12.15 WAIVERS OF JURY TRIAL. THE BORROWERS, THE AGENT AND
THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER
LOAN DOCUMENT OR TO ANY COUNTERCLAIM THEREIN.
12.16 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE
CREDIT DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
72
<PAGE> 78
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
DELL COMPUTER CORPORATION
By:____________________________________
Title:
DELL PRODUCTS L. P.
By: Dell Gen. P. Corp., its general
partner
By:____________________________________
Title:
DELL USA L.P.
By: Dell Gen. P. Corp., its general
partner
By:____________________________________
Title:
DELL MARKETING L.P.
By: Dell Gen. P. Corp., its general
partner
By:____________________________________
Title:
DELL DIRECT SALES L.P.
By: Dell Gen. P. Corp., its general
partner
By:____________________________________
Title:
73
<PAGE> 79
CITIBANK, N.A.
as Agent, as an Issuing Bank and
as a Bank
By:_________________________________
Title:
BARCLAYS BANK PLC
By:_________________________________
Title:
CHEMICAL BANK
By:_________________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:_________________________________
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:_________________________________
Title:
ROYAL BANK OF CANADA
By:_________________________________
Title:
74
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 of Dell Computer Corporation of our report dated February
21, 1995 appearing on page 24 of this Form 10-K.
PRICE WATERHOUSE LLP
Austin, Texas
March 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELL
COMPUTER CORPORATION FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED
JANUARY 29, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-1995
<PERIOD-END> JAN-29-1995
<CASH> 42,953
<SECURITIES> 484,294
<RECEIVABLES> 563,555
<ALLOWANCES> (25,581)
<INVENTORY> 292,925
<CURRENT-ASSETS> 1,470,361
<PP&E> 207,853
<DEPRECIATION> (90,872)
<TOTAL-ASSETS> 1,594,000
<CURRENT-LIABILITIES> 751,410
<BONDS> 0
<COMMON> 397
0
13
<OTHER-SE> 651,326
<TOTAL-LIABILITY-AND-EQUITY> 1,594,000
<SALES> 3,475,343
<TOTAL-REVENUES> 3,475,343
<CGS> 2,737,290
<TOTAL-COSTS> 2,737,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,203
<INCOME-PRETAX> 212,996
<INCOME-TAX> 63,819
<INCOME-CONTINUING> 149,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,177
<EPS-PRIMARY> 3.38
<EPS-DILUTED> 3.15
</TABLE>
