-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sshmyKYasjgefCnruW+X8tg+De6EnIHUeGgUlYl2r0lRvJs+xWaw+XYFCfmsXJFn O8HLKzuC84ntCBLk4er7fw== 0000950134-95-000391.txt : 19950615 0000950134-95-000391.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950134-95-000391 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950129 FILED AS OF DATE: 19950317 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELL COMPUTER CORP CENTRAL INDEX KEY: 0000826083 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 742487834 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-17017 FILM NUMBER: 95521577 BUSINESS ADDRESS: STREET 1: 2112 KRAMER LN - BLDG 1 CITY: AUSTIN STATE: TX ZIP: 78758 BUSINESS PHONE: 5123384400 MAIL ADDRESS: STREET 1: 9505 ARBORETUM BLVD CITY: AUSTIN STATE: TX ZIP: 78759-7299 10-K405 1 FORM 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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. 1 3 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), 2 4 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. 3 5 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 4 6 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 5 7 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 6 8 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 7 9 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. 8 10 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 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 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 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.
HIGH LOW ----- ----- 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
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 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."
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) 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
- --------------- (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 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.
PERCENTAGE OF CONSOLIDATED NET SALES ----------------------------------------- FISCAL YEAR ENDED ----------------------------------------- JANUARY 29, JANUARY 30, JANUARY 31, 1995 1994 1993 ----------- ----------- ----------- 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% =========== =========== ===========
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 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 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 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):
1995 1994 1993 -------- ------- ------- (IN THOUSANDS) 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 ======== ======= =======
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 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 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 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.
1993 ------------------------------------------------------------ QUARTER ENDED ---------------------------------------------- YEAR ENDED MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, JANUARY 31, 1992 1992 1992 1993 1993 ------ --------- ----------- ----------- ----------- 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
20 22
1994 ------------------------------------------------------------ QUARTER ENDED ---------------------------------------------- YEAR ENDED MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30, JANUARY 30, 1993 1993 1993 1994 1994 ------ --------- ----------- ----------- ----------- 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)
1995 ----------------------------------------------------------- QUARTER ENDED --------------------------------------------- YEAR ENDED MAY 1, JULY 31, OCTOBER 30, JANUARY 29, JANUARY 29, 1994 1994 1994 1995 1995 ------ -------- ----------- ----------- ----------- 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
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 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 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- 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
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 23 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 26 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
JANUARY 29, JANUARY 30, 1995 1994 ----------- ----------- 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 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 25 27 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ----------------------------------- 1995 1994 1993 --------- --------- --------- 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 $ -- $ -- ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 26 28 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- 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 ========== ========== ==========
See Note 10 for Supplemental Consolidated Statement of Cash Flow Information. The accompanying notes are an integral part of these financial statements. 27 29 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
STOCKHOLDERS' EQUITY -------------------------------------------------------------- PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS OTHER TOTAL --------- ------ -------- -------- -------- -------- 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 === ====== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. 28 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 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 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:
JANUARY 29, 1995 -------------------------------------------------- UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE -------- ---------- ---------- ---------- (IN THOUSANDS) 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 ======== ======== ======== =========
JANUARY 30, 1994 -------------------------------------------------- UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE -------- ---------- ---------- ---------- (IN THOUSANDS) 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 ======== ======== ======== =========
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 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:
LESS THAN 60 DAYS TO ONE TO 60 DAYS ONE YEAR THREE YEARS TOTAL --------- ---------- ----------- -------- (IN THOUSANDS) 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 ========= ========= ======== ========
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 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 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 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:
STOCK OPTION PLANS ----------------------------------- PRICE RANGE NUMBER OF SHARES OF SHARES UNDER OPTION UNDER OPTION -------------- ---------------- 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 =============
35 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:
FISCAL YEAR ------------------------------- 1995 1994 1993 ------- -------- -------- (IN THOUSANDS) 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 ======= ======== ========
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:
JANUARY 29, JANUARY 30, JANUARY 31, 1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) 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 ======== ======== ========
36 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:
FISCAL YEAR ------------------------------- 1995 1994 1993 -------- -------- ------- (IN THOUSANDS) 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% ======== ======== =======
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 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 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:
JANUARY 29, 1995 JANUARY 30, 1994 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- (IN THOUSANDS) 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
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 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 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:
OPERATING LEASES FISCAL YEAR -------------- ----------------------------------------------------- (IN THOUSANDS) 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 ===========
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 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.
FISCAL YEAR 1995 ------------------------------------------------------------------- OTHER AMERICAS EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED --------- --------- ------------- ------------ ------------ (IN THOUSANDS) 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 ========== ========== ========= ========== ===========
FISCAL YEAR 1994 ------------------------------------------------------------------- OTHER AMERICAS EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED --------- --------- ------------- ------------ ------------ (IN THOUSANDS) 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 ========== ========= ========= ========== ===========
FISCAL YEAR 1993 ------------------------------------------------------------------- OTHER AMERICAS EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED --------- --------- ------------- ------------ ------------ (IN THOUSANDS) 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 ========== ========= ========= ========== ===========
42 44 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
JANUARY 29, JANUARY 30, 1995 1994 ----------- ----------- (IN THOUSANDS) 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 ========== ===========
43 45 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FISCAL YEAR ENDED ----------------------------------------- JANUARY 29, JANUARY 30, JANUARY 31, 1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) 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 -- -- ========== ========= ==========
FISCAL YEAR ENDED ----------------------------------------- JANUARY 29, JANUARY 30, JANUARY 31, 1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) 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
44 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.
FISCAL YEAR 1995 --------------------------------------------- 4TH 3RD 2ND 1ST QUARTER QUARTER QUARTER QUARTER --------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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
FISCAL YEAR 1994 --------------------------------------------- 4TH 3RD 2ND 1ST QUARTER QUARTER QUARTER QUARTER --------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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
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 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:
NAME AGE POSITION - ------------------------- --- ------------------------------------------------- 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
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 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 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. 48 50 The following table sets forth the cash payments and stock option grants that were made to Dell's outside directors during fiscal 1995.
CASH OPTIONS NAME PAYMENTS GRANTED(A) ---------------------------------------------------- -------- ------------- 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)
- --------------- (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 $1,000 for attendance at the meeting. COMPENSATION OF EXECUTIVE OFFICERS Summary Compensation Table The following table summarizes the compensation paid during the last three fiscal years to Dell's Chief Executive Officer and Dell's four most highly compensated executive officers other than the Chief Executive Officer.
LONG-TERM COMPENSATION ------------ AWARDS ------------ ANNUAL COMPENSATION($)(A) SECURITIES ---------------------------------- UNDERLYING NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS(#)(B) COMPENSATION($)(C) - -------------------------- ------ -------- -------- ------------ ------------ ------------------ 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
- --------------- (a) Includes deferred compensation. (b) Dell did not grant any SARs to executive officers in fiscal 1993-1995. 49 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, $138,000. (i) See notes (d) and (e) to the "Option/SAR Grants in Last Fiscal Year" table below. Option/SAR Grants in Last Fiscal Year Dell has one active long-term incentive plan, the Incentive Plan, under which up to 4,500,923 shares may be issued. The plan authorizes the grant of: incentive stock options with exercise prices no lower than the fair market value of the underlying stock on the date of grant; nonqualified stock options and stock appreciation rights at exercise prices no lower than 50% of fair market value; and other stock awards. At January 29, 1995, 2,409,614 shares of common stock remained available for issuance pursuant to awards to be granted under the Incentive Plan. The following table sets forth information regarding the stock option grants Dell made to the named executive officers during fiscal 1995.
INDIVIDUAL GRANTS - ------------------------------------------------------------------------------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO OPTIONS/ EMPLOYEES EXERCISE MARKET GRANT DATE GRANT SARS IN FISCAL PRICE PRICE ON EXPIRATION PRESENT NAME DATE GRANTED(A) YEAR ($/SH) GRANT DATE DATE VALUE(B) - ----------------------- ------- ---------- ---------- -------- ---------- ---------- ------------ 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
- --------------- (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 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 ($.01 per share), options must be exercised in the calendar year in which the options vest, 60% of the underlying stock will be held by Dell for two years, and gains on the options and the stock received on exercise may be forfeited if Mr. Topfer leaves Dell and competes against Dell within two years thereafter. The options vest 100% after nine years on the anniversary of the date of grant. These options are subject to early vesting, potentially within four years, if certain performance criteria relating to stockholder return are met. (f) These options vest 20% each year for five years on the anniversary of the date of grant. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values The following table provides information about the options exercised by the named executive officers during fiscal 1995 and about unexercised stock options held by the named executive officers on January 29, 1995.
NUMBER OF SECURITIES VALUE UNDERLYING OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT SHARES FY-END(#) FY-END($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(A) UNEXERCISABLE(A) - ------------------------------------- ----------- ----------- ---------------- ---------------- 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
- --------------- (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 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.
AMOUNT AND NATURE OF PERCENTAGE NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS -------------------------------------------------------- -------------------- ---------- 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 *
52 54
AMOUNT AND NATURE OF PERCENTAGE NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS -------------------------------------------------------- -------------------- ---------- 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
- --------------- * 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 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 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
EXHIBIT NO. DESCRIPTION OF EXHIBIT - -------------------- ------------------------------------------------------------------------ 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)
55 57
EXHIBIT NO. DESCRIPTION OF EXHIBIT - -------------------- ------------------------------------------------------------------------ 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)
56 58
EXHIBIT NO. DESCRIPTION OF EXHIBIT - -------------------- ------------------------------------------------------------------------ 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)
57 59
EXHIBIT NO. DESCRIPTION OF EXHIBIT - -------------------- ------------------------------------------------------------------------ 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
- --------------- # 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 60 SCHEDULE VIII DELL COMPUTER CORPORATION VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT FISCAL BEGINNING BAD DEBT CHARGED TO END OF YEAR DESCRIPTION OF PERIOD EXPENSE ALLOWANCE PERIOD - -------------------- ------------------------------- ---------- ---------- ---------- ---------- 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
59 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. Dell Computer Corporation DATE: March 17, 1995 By: /s/ MICHAEL S. DELL ----------------------------- Michael S. Dell Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 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
60 62 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION OF EXHIBIT PAGE - ---------------------------------------------------------------------------------------------- 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
- --------------- # Filed herewith. * Indicates management compensatory plan, contract or arrangement. EX-10.9 2 3RD,4TH,5TH, & 6TH AMENDMENT TO 401(K) PLAN 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 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- 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- 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- 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- 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- 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." -1- 8 (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 -2- 9 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." -3- 10 (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 -4- 11 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. -5- 12 (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 -6- 13 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." -7- 14 (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 -8- 15 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: -9- 16
Percent Deemed Years of Vesting Service Vested ------------------------ ------------- 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%
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." -10- 17 (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." -11- 18 (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 -12- 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- 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- 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- 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- 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- 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- 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- 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- 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:
"Years of Vesting Service Percent Deemed Vested ------------------------ --------------------- 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% "
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- 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- 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- EX-10.31 3 CREDIT AGREEMENT BETWEEN THE COMPANY & CITIBANK 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 2 TABLE OF CONTENTS
Page ---- 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
i 3 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
ii 4 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
iii 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 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 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. 2 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. 3 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 4 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 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 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 7 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 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; 9 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 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, 11 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. 12 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 13 19 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 14 20 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. 15 21 (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 16 22 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. 17 23 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 18 24 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. 19 25 (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, 20 26 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 21 27 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 22 28 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 23 29 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. 24 30 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 25 31 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 26 32 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 27 33 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 28 34 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, 29 35 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 30 36 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 31 37 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 32 38 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 33 39 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 34 40 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 35 41 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 36 42 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. 37 43 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: 38 44 (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 39 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 40 46 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 41 47 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 42 48 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 43 49 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 44 50 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. 45 51 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; 46 52 (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; 47 53 (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; 48 54 (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; 49 55 (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 50 56 (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; 51 57 (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 52 58 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; 53 59 (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. 54 60 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 55 61 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; 56 62 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 57 63 (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. 58 64 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 59 65 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, 60 66 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. 61 67 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 62 68 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 63 69 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 64 70 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: 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
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 65 71 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 66 72 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 67 73 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 68 74 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 69 75 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. 70 76 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 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 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 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 EX-23.1 4 CONSENT OF PRICE WATERHOUSE 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 EX-27 5 FINANCIAL DATA SCHEDULE
5 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. 1,000 12-MOS JAN-29-1995 JAN-29-1995 42,953 484,294 563,555 (25,581) 292,925 1,470,361 207,853 (90,872) 1,594,000 751,410 0 397 0 13 651,326 1,594,000 3,475,343 3,475,343 2,737,290 2,737,290 0 0 12,203 212,996 63,819 149,177 0 0 0 149,177 3.38 3.15
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